<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION NO. 333-41183
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CAPITAL AUTOMOTIVE REIT
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENT)
MARYLAND 54-1870224
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1925 NORTH LYNN STREET, SUITE 306
ARLINGTON, VIRGINIA 22209
[ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES]
THOMAS D. ECKERT DAVID S. KAY
PRESIDENT AND CHIEF EXECUTIVE OFFICER VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
TELEPHONE NO. (703) 469-1300
TELEPHONE NO. (703) 469-1300
1925 NORTH LYNN STREET, SUITE 306
ARLINGTON, VIRGINIA 22209
FACSIMILE NO. (703) 469-1106
[NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, AND FACSIMILE NUMBER
INCLUDING AREA CODE OF AGENT FOR SERVICE]
----------------
COPIES TO:
GEORGE P. STAMAS, ESQ. GEORGE C. HOWELL, III, ESQ.
JOHN B. WATKINS, ESQ. JACK A. MOLENKAMP, ESQ.
WILMER, CUTLER & PICKERING HUNTON & WILLIAMS
2445 M STREET, N.W. RIVERFRONT PLAZA, EAST TOWER
WASHINGTON, D.C. 20037-1420 951 EAST BYRD STREET
TELEPHONE NO. (202) 663-6000 RICHMOND, VA 23219-4074
FACSIMILE NO. (202) 663-6363 TELEPHONE NO. (804) 788-8200
FACSIMILE NO. (804) 788-8218
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE(1)
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<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest
(par value $.01 per
share)............... 24,277,794 $16.00 $388,444,704 $133,946
</TABLE>
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(1) The Company has previously paid the Commission the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 16, 1998
PROSPECTUS
20,000,000 COMMON SHARES
CAPITAL AUTOMOTIVE REIT
[LOGO OF CARS APPEARS HERE]
COMMON SHARES OF BENEFICIAL INTEREST
----------
Capital Automotive REIT (the "Company") is a newly organized self-
administered and self-managed Maryland real estate investment trust formed to
invest in the real property and improvements used by operators (the "Dealers")
of multi-site, multi-franchised motor vehicle dealerships ("Dealerships") and
motor vehicle related businesses located in major metropolitan areas throughout
the United States. The Company is the first publicly-offered real estate
investment trust ("REIT") formed primarily to acquire and lease back real
property and improvements for use by Dealers. The Company has entered into
agreements to acquire 36 properties, of which 20 are located in the Washington,
D.C. Metropolitan Area. The Company will lease back its properties to Dealers
or their affiliates under long-term leases that require the lessee to pay all
taxes, utilities, insurance, repairs, maintenance and other expenses (commonly
referred to as "triple net" leases). Sixteen of those properties will be
acquired from affiliates of John J. Pohanka and Robert M. Rosenthal, who have
agreed to join the Board of Trustees of the Company upon closing of this
Offering.
(continued on next page)
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN MATERIAL
RISKS TO BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON SHARES,
INCLUDING, AMONG OTHERS:
. Inability of the Company to close the acquisition of any initial property
or close such acquisition as scheduled, which may adversely affect the
financial results of the Company and distributions to shareholders;
. Dependence on the ability of Lessees to pay rent to the Company, which
ability may be affected by risks inherent in operating Dealerships and
related businesses, and which failure to pay rent would adversely affect
the financial results of the Company;
. Conflicts of interest between the Company and certain Trustees of the
Company, and the potential influence of such Trustees or their affiliates
with respect to the business of, and decisions affecting, the Company,
which may affect the sale or refinancing of certain properties or
enforcement of certain agreements;
. The Company's lack of operating history and management's lack of
experience operating a REIT;
. Approximately 67% of the net proceeds of the Offering (assuming the
Underwriters do not exercise their over-allotment option) have not been
committed to specific investments; the Company may face significant
competition in acquiring additional properties, which may inhibit the
Company's ability to achieve its investment objectives; the shareholders
will not have the opportunity to evaluate such acquisitions by the
Company;
. The Company's limited control over the management of the properties, which
may affect the maintenance and repair of those properties; and
. Adverse tax consequences of failing to qualify as a REIT and the decrease
in funds available to pay distributions to shareholders resulting from
taxation as a regular corporation.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Common Share........................... $ $ $
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Total(3)(4)................................ $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
approximately $1,650,000, including reimbursement of certain out of pocket
expenses of Friedman, Billings, Ramsey & Co., Inc., the Representative of
the Underwriters, including reimbursement of fees and expenses of its
counsel. The Company has granted to the Representative warrants to purchase
1,277,794 Common Shares (equal to 4% of the Common Shares to be outstanding
on the closing of the Offering (excluding exercise of the Underwriters'
over-allotment option) on a fully diluted basis). The Common Shares
issuable upon exercise of the Warrants have been registered by the Company.
See "Underwriting." Approximately $2,325,000 of the net proceeds of this
Offering will be used to repay indebtedness to FBR Group, Inc., an
affiliate of the Representative. See "Use of Proceeds."
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 3,000,000 additional Common Shares on the same terms and
conditions as set forth above. If all such additional shares are purchased
by the Underwriters, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
(4) The Underwriters have agreed to reserve up to 2% of the Common Shares
offered hereby for sale to certain persons associated with the Company,
including executive officers and Trustees of the Company and their
families, at the Price to Public net of underwriting discounts and
commissions. To the extent such reserved shares are sold to such
individuals, the total Underwriting Discounts and Commissions will be
reduced. See "Underwriting."
----------
The Common Shares are offered by the Underwriters subject to receipt and
acceptance by the Underwriters, approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offers and to reject orders in whole
or in part. It is expected that delivery of the Common Shares will be made in
New York, New York on or about , 1998.
----------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is , 1998
<PAGE>
[Map Showing Location by State of Initial Properties]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING PURCHASES OF THE COMMON SHARES TO STABILIZE THE MARKET PRICE,
PURCHASES OF THE COMMON SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON SHARES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON SHARES
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three
quarters.
<PAGE>
(continuation of cover page)
All of the Company's common shares of beneficial interest, par value $.01
per share (the "Common Shares"), offered hereby are being sold by the Company.
To assist the Company in maintaining its qualification as a REIT, ownership of
Common Shares by any person is generally limited to 9.9% of the outstanding
Common Shares. Prior to the Offering, there has been no public market for the
Common Shares. It is currently estimated that the initial public offering
price will be between $14.00 and $16.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied for listing of the Common Shares on
The Nasdaq Stock Market National Market under the symbol "CARS." See
"Glossary" beginning on page G-1 for the definition of certain terms used in
this Prospectus.
Assuming (i) conversion of units of limited partnership interest of Capital
Automotive L.P. ("Units") into Common Shares (which are redeemable beginning
on the first anniversary of the date of issuance by the holder), (ii) exercise
of warrants to acquire Common Shares or Units to be issued to the
Representative or affiliates of the Company, (iii) exercise of options to
acquire Common Shares or Units to be issued to executive officers of the
Company, and (iv) the purchase of $13 million of Common Shares by Mr. Pohanka
and his family in this Offering, Trustees and executive officers of the
Company would collectively own 28.92% and the Representative and its
affiliates would collectively own 9.71% of the outstanding Common Shares
(27.20% and 8.77% if the Underwriters' over-allotment option is exercised in
full), subject to the 9.9% limitation on ownership of Common Shares by a
shareholder. See "Principal Shareholders of the Company."
FBR Asset Investment Corporation, an affiliate of the Representative of the
Underwriters, has agreed to acquire 1,792,115 Common Shares in a private
placement that will close concurrently with this Offering at the initial
public offering price, net of underwriting discounts and commissions.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY......................................................... 1
THE COMPANY................................................................ 1
RISK FACTORS............................................................... 3
THE INITIAL PROPERTIES, LEASES AND DEALERSHIPS............................. 6
STRATEGY................................................................... 10
SUMMARY SELECTED FINANCIAL INFORMATION..................................... 11
BENEFITS TO RELATED PARTIES................................................ 12
STRUCTURE OF THE COMPANY................................................... 14
FORMATION TRANSACTIONS..................................................... 15
DISTRIBUTIONS.............................................................. 16
TAX STATUS OF THE COMPANY.................................................. 16
THE OFFERING............................................................... 17
RISK FACTORS............................................................... 18
Inability of the Company to Close the Acquisition of Property or Close
such Acquisition as Scheduled........................................... 18
The Company is Dependent upon Dealers Generating Sufficient Revenues From
Their Operations to Permit the Lessees to Pay Rent and Fulfill Their
Other Obligations Under the Leases............................................ 18
Dependence on Lessees for Payment of Rent and Performance of Lease
Terms ................................................................ 18
Dependence on Guarantors for Payment of Rent and Performance of Lease
Terms Upon Default of Lessee ......................................... 19
The Company Has No Rights Under,
or Control Over, Franchise Agreements ................................ 19
Rejection of Leases Under Federal Bankruptcy Codes..................... 19
Inability of the Company to Resell or Re-Lease Properties.............. 20
Responsibility for Uninsurable Losses.................................. 20
General Risks Associated With Operating Dealerships and Related
Businesses.............................................................. 21
Dependence on Manufacturers for Supply of Motor Vehicles............... 21
Restrictions in Franchise Agreements that Govern Ability of Dealerships
to Sell Motor Vehicles or its Assets or Properties.................... 21
Mature Industry and Cyclicality With Limited Growth Potential.......... 22
Dealership Competition for Sale of Motor Vehicles...................... 22
Restrictions that Could Limit Supply of Motor Vehicles................. 22
Conflicts of Interest Among the Company and Certain Trustees............. 22
Ability of Certain Trustees to Influence the Company................... 23
Terms of Initial Sale of Initial Properties by Affiliates of Messrs.
Pohanka and Rosenthal................................................. 23
Terms of Initial Leases for Lease of Initial Properties to Affiliates
of Messrs. Pohanka and Rosenthal...................................... 23
Ability of Certain Trustees and Their Affiliates to Influence the Sale
or Refinancing of the Initial Properties.............................. 23
Purchase Prices of Properties Have Not Been Based on Independent
Appraisals and as a Result the Market Capitalization of the Company May
Exceed the Fair Market Value of the Company's Properties if Determined
by Appraisal............................................................ 24
The Company's Lack of Operating History; No Assurance that the Company
Will Be Able to Generate Sufficient Revenue to Make or Sustain
Distributions to Shareholders........................................... 24
There Can Be No Assurance that the Company Will Complete Any Additional
Acquisitions of Properties.............................................. 25
Risk That the Company Could Be Treated as an Investment Company if
Proceeds Have Not Been Invested Within One Year ........................ 25
Risk of Leverage......................................................... 25
The Company will not Exercise Control Over the Management or Maintenance
of the Properties....................................................... 26
Dependence on Key Personnel.............................................. 26
Geographic Concentration of the Initial Properties in Certain Markets
Renders the Company Vulnerable to Local Economic Conditions............. 26
General Real Estate Investment Risks..................................... 26
General Risks of Real Estate Investment................................ 27
Real Estate Tax Increases.............................................. 27
Operating Expenses Increases .......................................... 27
Risks Associated with Illiquidity of Real Estate....................... 27
Governmental Regulations; Environmental Matters.......................... 27
Environmental Laws..................................................... 27
Americans with Disabilities Act of 1990................................ 28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Other Regulations...................................................... 29
Competition with Other Companies with Similar Business Objectives and
Strategies.............................................................. 29
Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities............................................................. 29
Tax Liabilities as a Consequence of Failure to Qualify as a REIT....... 29
Adverse Effects of REIT Minimum Distribution Requirements.............. 30
Consequences of Failure to Qualify as a Partnership.................... 30
Risks Regarding Characterization of Initial Leases..................... 30
Other Tax Liabilities.................................................. 31
The Ownership Limit...................................................... 31
Certain Tax and Anti-takeover Provisions May Inhibit a Change in Control
of the Company.......................................................... 31
Ownership Limit........................................................ 31
Removal of Trustees; Vacancies......................................... 32
Preferred Shares....................................................... 32
Maryland Business Combination Statute.................................. 32
Changes in Policies...................................................... 32
No Prior Market for Common Shares........................................ 32
Effect on Market Interest Rates on Share Prices.......................... 33
Possible Adverse Effects on Share Price Arising from Common Shares
Eligible for Future Sale................................................ 33
USE OF PROCEEDS............................................................ 34
CAPITALIZATION............................................................. 36
DILUTION................................................................... 37
CONFLICTS OF INTEREST POLICIES............................................. 38
SELECTED FINANCIAL INFORMATION............................................. 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................ 41
Overview................................................................. 41
Results of Operations.................................................... 41
Pro Forma Results of Operations.......................................... 41
Environmental Matters.................................................. 42
Liquidity and Capital Resources.......................................... 42
BUSINESS OF THE COMPANY AND PROPERTIES..................................... 44
Overview................................................................. 44
Strategy................................................................. 46
The Initial Leases, Properties and Dealerships........................... 47
Typical Initial Lease Terms............................................... 51
Use of the Properties................................................... 51
Amounts Payable under the Leases; Net Provisions........................ 51
Maintenance, Alterations, Additions or Improvements..................... 51
Insurance............................................................... 52
Damage to, or Condemnation of, a Property............................... 52
Financial Covenants..................................................... 53
Assignment and Subletting............................................... 53
Indemnification......................................................... 53
Environmental Matters................................................... 54
Events of Default....................................................... 54
Right of First Offer and Option to Purchase Property.................... 55
Governing Law........................................................... 55
Washington, D.C. Metropolitan Area ....................................... 56
Governmental Regulations Affecting the Properties......................... 56
Environmental Laws...................................................... 56
Americans with Disabilities Act of 1990................................. 56
Franchise Agreements...................................................... 57
Competition............................................................... 58
Other Investment Policies................................................. 58
Employees................................................................. 58
Legal Proceedings......................................................... 58
MANAGEMENT.................................................................. 59
Trustees, Executive Officers and Key Employees............................ 59
Committees of the Board of Trustees....................................... 61
Audit Committee......................................................... 61
Executive Committee..................................................... 61
Executive Compensation Committee........................................ 61
Compensation of Trustees.................................................. 61
Executive Compensation.................................................... 61
Employment Agreements..................................................... 62
1998 Equity Incentive Plan................................................ 62
Option Grants in Connection with the Formation Transactions............... 63
Indemnification of Trustees and Officers.................................. 64
STRUCTURE AND FORMATION OF THE COMPANY...................................... 65
Structure of the Company.................................................. 65
Formation Transactions.................................................... 65
Benefits to Related Parties............................................... 66
Lock-Out Provisions....................................................... 68
Benefits of the UPREIT Structure.......................................... 68
Acquisition of the Initial Properties from the Initial Sellers............ 68
RELATED TRANSACTIONS........................................................ 69
Transactions with Trustees................................................ 69
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Dealer Warrants......................................................... 69
Acquisitions of Initial Properties...................................... 69
Initial Leases.......................................................... 69
Sale of Common Shares in this Offering.................................. 69
PARTNERSHIP AGREEMENT...................................................... 70
Management............................................................... 70
Indemnification.......................................................... 70
Transferability of Interests............................................. 70
Extraordinary Transactions............................................... 71
Issuance of Additional Units............................................. 71
Capital Contributions and Additional Funds............................... 71
Awards Under Plan........................................................ 71
Distributions............................................................ 71
Operations............................................................... 72
Limited Partner Redemption Rights........................................ 72
Tax Matters.............................................................. 72
Term..................................................................... 72
PRINCIPAL SHAREHOLDERS OF THE COMPANY...................................... 73
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST............................... 74
Authorized Shares........................................................ 74
Common Shares............................................................ 74
Preferred Shares......................................................... 75
Restrictions on Ownership and Transfer................................... 76
Certain Provisions of Maryland Law and of the Declaration of Trust and
Bylaws.................................................................. 78
Business Combinations.................................................. 78
Control Share Acquisitions............................................. 79
Limitation of Liability and Indemnification............................ 79
Maryland Asset Requirements............................................ 80
Meetings of Shareholders............................................... 80
COMMON SHARES ELIGIBLE FOR FUTURE SALE..................................... 81
General................................................................ 81
Underwriting Warrants.................................................. 82
Dealer Warrants........................................................ 82
Conversion of Units.................................................... 82
Registration Rights..................................................... 82
FEDERAL INCOME TAX CONSEQUENCES............................................. 83
Taxation of the Company as a REIT......................................... 83
General................................................................. 83
Requirements for Qualification.......................................... 84
Income Tests............................................................ 84
Asset Tests............................................................. 88
Annual Distribution Requirements........................................ 89
Partnership Anti-Abuse Rule............................................. 89
Failure to Qualify...................................................... 90
Taxation of Holders of Common Shares...................................... 90
U.S. Shareholders....................................................... 90
Backup Withholding...................................................... 92
Taxation of Tax-Exempt Shareholders..................................... 92
Non-U.S. Shareholders................................................... 92
Ordinary Dividends...................................................... 93
Return of Capital....................................................... 93
Capital Gain Dividends.................................................. 94
Sales of Common Shares.................................................. 94
Backup Withholding...................................................... 94
Other Tax Consequences.................................................... 95
Tax Aspects of the Operating Partnership.................................. 95
Classification as a Partnership......................................... 95
Partnership Allocations................................................. 96
Tax Allocations with Respect to the Properties.......................... 97
Basis in Operating Partnership Interest................................. 98
Sale of the Properties.................................................. 98
UNDERWRITING................................................................ 99
LEGAL MATTERS............................................................... 101
EXPERTS..................................................................... 101
ADDITIONAL INFORMATION...................................................... 102
INDEX TO FINANCIAL STATEMENTS............................................... F-1
GLOSSARY.................................................................... G-1
</TABLE>
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial information, including the historical and pro forma
financial statements and notes thereto, appearing elsewhere in this Prospectus.
This Prospectus contains forward looking statements that involve risks and
uncertainties. The Company's actual operations may differ significantly from
the results discussed in the forward-looking statements. Such statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"could," "should," "expect," "anticipate," "estimate," or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
cautionary statements set forth under the caption "Risk Factors" and elsewhere
in the Prospectus identify important factors with respect to such forward-
looking statements, including certain risks and uncertainties, that could cause
actual results to differ materially from those in such forward-looking
statements.
Unless otherwise indicated, the information contained in this Prospectus
assumes: (i) the consummation of the transactions described under "Structure
and Formation of the Company" (collectively, the "Formation Transactions")
contemporaneously with the closing of this Offering, (ii) an initial public
offering price of $15.00 per Common Share (representing the midpoint of the
price range), (iii) the purchase by FBR Asset Investment Corporation of
1,792,115 Common Shares at the assumed initial public offering price (net of
underwriting discounts and commissions), and (iv) that the Underwriters' over-
allotment option will not be exercised.
This Prospectus includes statistical industry data regarding Dealerships and
Related Businesses. Unless otherwise indicated, such data is taken or derived
from information published by (i) the Industry Analysis Division of the
National Automobile Dealers Association ("NADA") in its NADA Data 1996 and NADA
Data 1997, and on the "NADANET" web-site located at
"www.nadanet.com/news/nadadata/econfyi.htm," (ii) Crain Communications Inc. in
its Automotive News 100-Year Almanac, 1996 Market Data Book and 1997 Market
Data Book, (iii) ADT Automotive, Inc. in its 1997 Used Car Market Report, (iv)
the Bureau of the Census in the U.S. Department of Commerce in its Statistical
Abstract of the United States 1996 from the National Data Book, or (v) the
Washington Business Journal, thirteenth annual The Book of Lists, 1997-1998.
Unless the context otherwise requires, all references to (i) the "Company" in
this Prospectus include Capital Automotive REIT and its sole subsidiary,
Capital Automotive L.P., a Delaware limited partnership (the "Operating
Partnership"), or either of them, and (ii) Dealers, Initial Sellers and Sellers
(as defined hereafter) and Initial Lessees and Lessees (as defined hereafter)
also refer to persons or entities who are their affiliates ("Affiliates") as
defined in Rule 405 of the Securities Act of 1933, as amended (the "Securities
Act"). See "Glossary" beginning on page G-1 for the definition of certain other
terms used in this Prospectus.
THE COMPANY
The Company is a newly organized self-administered and self-managed Maryland
REIT formed on October 20, 1997 to invest in the real property and improvements
used by operators ("Dealers") of multi-site, multi-franchised motor vehicle
dealerships ("Dealerships") and motor vehicle related businesses ("Related
Businesses") located in major metropolitan areas throughout the United States.
The Company is the first publicly-offered REIT formed primarily to acquire and
lease back properties for use by Dealers (the initial real estate and
improvements are referred to as the "Initial Properties" or together with any
future real estate and improvements are referred to as the "Properties").
The Company's primary business strategy is to acquire a diversified portfolio
of Properties used by Dealers throughout the United States, including
Properties used by new motor vehicle retail dealerships, used motor vehicle
retail dealerships, motor vehicle auctioneers, and service, repair or parts
businesses. In addition, the Company intends to commit to purchase Properties
under construction, renovation or expansion upon completion
1
<PAGE>
of such construction, renovation or expansion. The Company believes that its
acquisition strategy will provide sellers with an opportunity (i) to acquire
liquidity, while maintaining ownership and control of the Dealerships or
Related Businesses, (ii) to diversify their investments, (iii) to obtain funds
to expand the operations of their Dealerships or Related Businesses, and (iv)
to facilitate their estate planning. The Company has adopted a policy, which
may be changed by the Board of Trustees without shareholder approval, to limit
the debt to total market capitalization ratio to not more than 50%.
The Company has entered into agreements to acquire 36 Initial Properties on
which 54 franchisees of 24 brands of motor vehicles are located. Twenty of the
Initial Properties are located in the Washington, D.C. Metropolitan Area, which
Initial Properties are operated by four of the top 20 Dealers in the
Washington, D.C. Metropolitan Area, as measured by total new vehicles sold in
1996. Other Initial Properties are located in Colorado, the eastern shore of
Maryland, Nevada, Pennsylvania, Texas and southern Virginia. Dealers located on
the Initial Properties sell domestic and imported luxury, family, economy and
sport utility vehicles, and trucks and vans, including Mercedes-Benz, Honda,
Toyota, Lexus, Chevrolet, Saturn, Ford, GMC, Mazda, Infiniti, Jaguar, Acura,
Lincoln-Mercury, Mitsubishi and Nissan. The Initial Properties will be
purchased from their owners, who are Affiliates of the Dealers (the "Initial
Sellers" or together with any future sellers, the "Sellers") and will be leased
back to the Dealers or their Affiliates (the "Initial Lessees" or together with
any future lessees, the "Lessees"). The Initial Leases will be long-term leases
that require the Initial Lessees to pay all operating costs of the Initial
Properties, as well as all taxes, utilities, insurance, repairs, maintenance
and other expenses (commonly referred to as "triple net" leases).
The Initial Lessees are Affiliates of the Pohanka Automotive Group
("Pohanka"), the Rosenthal Automotive Organization ("Rosenthal"), Sheehy Auto
Stores ("Sheehy"), Cherner Automotive Group ("Cherner"), Cross-Continent Auto
Retailers, Inc. ("Cross-Continent"), Good News Auto Mall ("Good News") and
Kline Automotive Group ("Kline"). Each of the Dealership groups has received
numerous industry awards. See "Business of the Company and Properties."
Collectively, Initial Sellers affiliated with Pohanka, Rosenthal, Sheehy and
Cherner will own 1,204,342; 3,438,298; 295,439; and 103,470 Units in the
Operating Partnership, respectively. Mr. Pohanka and his family have advised
the Representative that they intend to purchase $13 million of registered
Common Shares in this Offering at the initial public offering price. Messrs.
Pohanka and Rosenthal also will have the right to acquire an aggregate of
1,414,158 Units (equal to 4% of the Common Shares to be outstanding on the
closing of the Offering (including exercise of the Underwriters' over-allotment
option) on a fully diluted basis). Messrs. Pohanka and Rosenthal have agreed to
join the Company's Board of Trustees prior to the closing of the Offering.
Thomas D. Eckert, President and Chief Executive Officer, Scott M. Stahr,
Executive Vice President and Chief Operating Officer, Donald L. Keithley,
Executive Vice President of Business Development, and David S. Kay, Vice
President and Chief Financial Officer, the Company's executive officers, have
22; 12; 38; and 10 years of experience, respectively, in the real estate,
financial and motor vehicle industries, although they do not have experience
managing or operating a REIT. Following the Offering, the Company's executive
officers will own or have the right to acquire in the aggregate 26,667 Common
Shares and 2,448,107 Units (equal to 7% of the Common Shares to be outstanding
on the closing of the Offering (including exercise of the Underwriters' over-
allotment in full) on a fully diluted basis) pursuant to options granted under
the Company's 1998 Equity Incentive Plan (the "Plan"). See "Management--1998
Equity Incentive Plan."
Certain conflicts of interest could exist between the Company and Mr. Pohanka
or Mr. Rosenthal in his capacity as a Trustee of the Company and as Affiliates
of certain Initial Sellers and Initial Lessees. Messrs. Pohanka and Rosenthal
may exert influence over the Company in connection with (i) the terms of the
contribution agreements and leases for Initial Properties or future Properties
to be acquired from any one of them, (ii) the exercise and terms of the right
of first offer and repurchase right of an affiliated Initial Lessee under an
2
<PAGE>
Initial Lease, (iii) the decision to sell or refinance a Property, (iv) the
terms of any "lock-out" restrictions, that limit the ability of the Company to
sell or refinance particular Properties, and (v) the enforcement of Initial
Leases and agreements with Mr. Pohanka or Mr. Rosenthal or their respective
Affiliates. The Company has adopted certain policies that are designed to
eliminate or minimize certain potential conflicts of interest. See "Conflicts
of Interest Policies."
Assuming (i) conversion of Units to Common Shares upon exercise of redemption
rights (which are redeemable beginning on the first anniversary of the date of
issuance by the holder), (ii) exercise of warrants to acquire Common Shares or
Units to be issued to the Representative or affiliates of the Company, (iii)
exercise of options to acquire Common Shares or Units to be issued to executive
officers of the Company, and (iv) the purchase of $13 million of Common Shares
by Mr. Pohanka and his family in this Offering, Trustees and executive officers
of the Company would collectively own 28.92%, and the Representative and its
Affiliates would collectively own 9.71% of the outstanding Common Shares
(27.20% and 8.77% if the Underwriters' over-allotment option is exercised in
full), subject to the 9.9% limitation on ownership of Common Shares by a
shareholder. See "Principal Shareholders of the Company."
The Company's principal executive offices are located at 1925 North Lynn
Street, Suite 306, Arlington, Virginia 22209. Its telephone number is
(703) 469-1300.
RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
shareholders should carefully consider the matters discussed under "Risk
Factors" prior to making an investment decision regarding the Common Shares
offered hereby. These risks include:
. Inability of the Company to close the acquisition of any Initial Property
or close such acquisition as scheduled, which may adversely affect the
financial results of the Company and distributions to shareholders;
. Dependence on the ability of Lessees to pay rent and perform their
obligations under the Leases, which ability may be affected by risks
inherent in operating Dealerships or Related Businesses, including, but
not limited to, (i) the ability of Dealers to access financing, (ii)
competitive factors, including consolidation of ownership, (iii) the
expansion or contraction of the motor vehicle retail industry,
(iv) performance of Dealers under their Franchise Agreements with
Manufacturers, (v) general factors affecting Manufacturers, including
union and labor issues, product safety issues, health and safety
regulations, environmental regulations, consumer tastes and preferences,
recalls and litigation, (vi) governmental regulation, including health,
safety and environmental regulation, and (vii) general economic factors
that affect new and used motor vehicle sales and leases;
. Conflicts of interest between the Company and Mr. Pohanka or Mr.
Rosenthal, who have agreed to join the Board of Trustees prior to the
closing of this Offering and who are Affiliates of certain Initial
Sellers and Initial Lessees, and the potential influence of those
Trustees and their Affiliates over the business and affairs of the
Company, including, but not limited to, (i) negotiation of the terms of
the contribution agreements and Initial Leases for the Initial Properties
to be acquired from any one of them, (ii) operation of the Company's
ongoing businesses, including conflicts associated with the tax
consequences to certain Initial Sellers, which, together with certain
provisions of the Partnership Agreement, may influence the Company's
decision to sell or finance, or to prepay debt secured by, certain
Properties, (iii) potential election by the Lessee to exercise its right
of first offer or option to purchase the Properties at the end of the
initial Lease term or any renewal term and negotiation of the terms of
such acquisitions, (iv) the terms of any lock-out restrictions, that
limit the ability of the Company to sell or refinance particular
Properties, and (v) the enforcement of the Initial Leases or other
agreements;
. The lack of operating history of the Company and management's lack of
experience operating a REIT;
3
<PAGE>
. Approximately 67% of the net proceeds of the Offering (assuming the
Underwriters do not exercise their over-allotment option) has not been
committed to specific investments; the Company may face significant
competition in acquiring additional Properties, which may inhibit the
Company's ability to achieve its investment objectives and necessitate
the investment of the proceeds of this Offering in short-term or
government securities that could produce a lower yield to the Company
than could be generated from an investment in real estate. The
shareholders will not have the opportunity to evaluate such acquisitions
by the Company;
. The Company's limited control over the management of the Properties,
which could affect the maintenance and repair of the Properties;
. The taxation of the Company as a regular corporation if it fails to
qualify as a REIT and the resulting decrease in funds available to pay
distributions to shareholders;
. The possibility that the consideration paid by the Company for certain
Properties acquired by the Company may exceed fair market values
estimated by other methodologies, such as third party appraisals (such
consideration has been or will be determined through negotiations with
the Seller, wherein the Company considers (i) the Property's market value
based on its analysis of comparable property sales, (ii) the rents and
terms of the Lease at which the Property will be leased back to the
Seller, (iii) the potential for appreciation of the value of the Property
over the Lease term and any renewal term, (iv) the characteristics of the
Property, including the size, configuration, and zoning, (v) the
condition of the real estate and improvements, and assessment of its
useful life, and (vi) alternative uses for the Property);
. Inability to obtain consents required under certain Franchise Agreements
that impose restrictions relating to the sale or transfer of certain
assets or Property of certain Dealerships without the consent or waiver
of Manufacturers, which could result in the Company being unable to
acquire certain Initial Properties or additional Properties;
. The Company's dependence on key officers and Trustees of the Company,
including Thomas D. Eckert, President and Chief Executive Officer, Scott
M. Stahr, Executive Vice President and Chief Operating Officer, Donald L.
Keithley, Executive Vice President of Business Development, and David S.
Kay, Vice President and Chief Financial Officer, the loss of whom could
adversely affect the management of the Company. The executive officers
will receive substantial compensation from the Company. See "Management--
Executive Compensation;"
. The distribution requirements for a REIT under federal income tax laws,
which may limit the Company's ability to finance future acquisitions,
developments and improvements without additional debt or equity
financing;
. The geographic concentration of the Initial Properties primarily in
suburban communities of Washington, D.C., which could render the Company
vulnerable to local economic conditions and other local factors;
. General risks relating to commercial real estate ownership and
investment, including, but not limited to (i) the effect of economic and
other conditions on real estate values, including, those associated with
cyclical weaknesses in the real estate markets, (ii) the general lack of
liquidity of investments in real estate, (iii) competition from other
real estate investors seeking properties of the types which the Company
intends to acquire or finance, (iv) the inability of Lessees to make rent
payments, (v) the possibility that the Company may not be able to replace
existing Lessees, if necessary, or reposition properties for alternative
uses, (vi) governmental regulation, including, changes in use, zoning,
health and safety and environmental requirements, (vii) potential for
unknown or future environmental or other liabilities, and (viii)
uninsurable losses;
. Limitations on the Company's ability to sell or refinance certain
Properties, which could adversely effect the financial performance of the
Company;
. The ability of the Board of Trustees to change the policies of the
Company, including investment, financing, leverage and distribution
policies, without a vote of the shareholders;
4
<PAGE>
. Failure by the Company to invest a significant portion of the proceeds of
this Offering in Properties within one year of closing of the Offering,
which could result in the Company investing any unused proceeds in
certain government securities in order to avoid registering as an
investment company and becoming subject to the requirements of the
Investment Company Act of 1940, as amended (the "Investment Company
Act");
. The potential anti-takeover effects of provisions in the Company's
Declaration of Trust and Bylaws, including, among other things,
provisions generally limiting the actual or constructive ownership of
Common Shares by any one person or entity to 9.9% of the outstanding
Common Shares, unless the Board of Trustees waives that restriction,
which could deter the acquisition of control by a third party, thus
making it more difficult to effect a change in management or limiting the
opportunity for shareholders to receive a premium over the market price
for their Common Shares;
. The Company intends to use leverage, generally with a ratio of debt to
total market capitalization of not more than 50%. This policy may be
changed by the Board of Trustees without the approval of the
shareholders. If the Company modifies this strategy to permit a higher
degree of leverage and incurs additional indebtedness, debt service
requirements would increase accordingly, and such an increase could
adversely affect the Company's financial condition and results of
operations. In addition, increased leverage could increase the risk of
default by the Company on its debt obligations, with the potential for
loss of the Properties secured thereby, cash available for distribution,
and asset values, of the Company;
. The potential fluctuations in market interest rates or equity markets,
which may lead prospective shareholders to demand higher yields, may
adversely affect the market price of the Common Shares or may limit the
Company's ability to raise additional equity to finance future
acquisitions, developments and improvements;
. The possible reduction of the market price of the Common Shares or
dilution on a per share basis, due to the potential future sale of
additional Common Shares or the issuance of Units as consideration for
the acquisition of Properties; and
. The absence of a prior public market for the Common Shares and the
possibility that the trading volume of the Common Shares may be limited.
5
<PAGE>
THE INITIAL PROPERTIES, LEASES AND DEALERSHIPS
The Company has entered into agreements to acquire 20 Initial Properties that
are located primarily in suburban communities of the Washington, D.C.
Metropolitan Area. Other locations include Colorado, the eastern shore of
Maryland, Nevada, Pennsylvania, Texas and southern Virginia. The Company's
interest in each Initial Property includes the land, buildings and
improvements, related easements and rights and fixtures. The Company will not
own or lease any personal property, furniture or equipment at any Initial
Property, all of which will be owned or leased from third parties or by the
respective Initial Lessees. The Initial Properties are generally zoned for a
wide range of commercial uses and typically have frontage on major
transportation arteries with high traffic patterns, high visibility, bright
signage, and ease of entrance and exit. The improvements on the Initial
Properties generally consist of one or more retail showrooms, office space
(which may or may not be contained in separate buildings), adjacent full
service and repair facilities, parts and accessories departments, and in many
cases, acreage set aside for used car sales, body shops and parking for
inventory.
Set forth below is certain information relating to the Initial Properties:
<TABLE>
<CAPTION>
AGGREGATE
GROSS
LAND LEASEABLE
PURCHASE AREA BUILDING
DEALERSHIPS(1) LOCATION PRICE(2)(3) IN ACRES AREA (SQ. FT.)
-------------- -------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Rosenthal Infiniti,
Mazda/Nissan........... Tysons Corner, VA $ 23,873,587 12.0 84,384
Rosenthal Nissan, Acura,
Mazda & Isuzu.......... Gaithersburg, MD 11,855,771 8.4 68,898
Rosenthal Honda &
Jaguar................. Tysons Corner, VA 11,454,528 7.8 46,836
Rosenthal Chevrolet &
Jeep/Eagle............. Arlington, VA 6,779,469 5.2 67,000
Rosenthal Mazda......... Arlington, VA 5,356,973 2.2 16,176
Rosenthal Storage Lot... Arlington, VA 4,890,991 4.7 32,349
Rosenthal Body Shop..... Tysons Corner, VA 1,057,392 0.9 16,000
------------ ----- -------
Subtotal............. $ 65,268,711 41.2 331,643
============ ===== =======
Pohanka Saturn/Isuzu
Oldsmobile, GMC Truck.. Marlow Heights, MD $ 4,326,150 5.9 38,377
Pohanka Acura &
Chevrolet/GEO.......... Chantilly, VA 4,234,418 5.1 48,571
Pohanka Saturn.......... Bowie, MD 4,064,550 5.3 22,679
Pohanka Honda........... Marlow Heights, MD 3,700,387 2.3 40,769
Pohanka Lexus........... Chantilly, VA 3,438,343 2.3 15,111
Pohanka Cadillac,
Hyundai, Nissan & Kia.. Fredricksburg, VA 3,432,650 6.2 42,473
Pohanka Hyundai &
Subaru................. Marlow Heights, MD 1,556,465 2.6 15,372
Pohanka Body Shop....... Marlow Heights, MD 694,575 2.7 2,550
Pohanka Undeveloped
Dealership Lot......... Chantilly, VA 5,876,437 7.1 --
------------ ----- -------
Subtotal............. $ 31,323,975 39.5 225,902
============ ===== =======
Sheehy Ford & Kia....... Springfield, VA $ 6,308,000 6.6 51,512
Chapman Ford Sales...... Philadelphia, PA 3,000,000 7.9 43,800
Sheehy Lincoln-Mercury &
Mitsubishi............. Woodbridge, VA 2,565,925 3.1 24,597
Sheehy Ford............. Marlow Heights, MD 2,132,000 4.6 26,400
------------ ----- -------
Subtotal............. $ 14,005,925 22.2 146,309
============ ===== =======
Cherner Lincoln-
Mercury................ Annandale, VA $ 6,322,909 5.3 43,884
============ ===== =======
T. West Sales & Service
(Toyota)............... Las Vegas, NV $ 13,205,000 8.8 126,685
Douglas Motors
(Toyota)............... Denver, CO 8,905,000 6.5 148,461
Plains Chevrolet........ Amarillo, TX 4,705,000 16.1 121,425
Westgate Chevrolet...... Amarillo, TX 4,405,000 8.0 48,000
Midway Chevrolet........ Amarillo, TX 3,105,000 12.2 43,262
Quality Nissan.......... Amarillo, TX 1,005,000 3.4 16,947
------------ ----- -------
Subtotal............. $ 35,330,000 55.0 504,780
============ ===== =======
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
GROSS
LAND LEASEABLE
PURCHASE AREA BUILDING
DEALERSHIPS(1) LOCATION PRICE(2)(3) IN ACRES AREA (SQ. FT.)
-------------- -------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Price Buick & Pontiac... Salisbury, MD $ 1,344,826 3.3 12,500
Good News Body Shop..... Salisbury, MD 1,268,500 6.2 12,200
Good News Olds-Cadillac-
GMC Truck.............. Salisbury, MD 830,300 3.5 14,700
Good News Honda......... Salisbury, MD 586,560 2.4 11,800
Towne Toyota & Mercedes-
Benz................... Salisbury, MD 568,500 2.3 12,100
Good News Nissan........ Salisbury, MD 449,400 1.2 17,200
Good News Mazda......... Salisbury, MD 413,000 1.4 12,400
------------ ----- ---------
Subtotal............. $ 5,461,086 20.3 92,900
============ ===== =========
Kline Toyota
Greenbrier/Kline
Chevrolet.............. Chesapeake, VA $ 6,984,755 11.2 71,280
Kline (Land)............ Chesapeake, VA 1,525,245 14.0 --
------------ ----- ---------
Subtotal............. $ 8,510,000 25.2 71,280
============ ===== =========
Total $166,222,606 208.7 1,416,698
============ ===== =========
</TABLE>
- --------
(1) The Company currently intends to close the acquisitions of all of the
Initial Properties within 60 days of the date of closing of this Offering.
(2) The purchase prices for the Initial Properties are allocated among the
initial selling groups as follows:
<TABLE>
<CAPTION>
ALLOCATION OF PURCHASE PRICE
---------------------------------------
APPROXIMATE
TOTAL PURCHASE ASSUMED ESTIMATED
SELLING GROUP PRICE CASH MORTGAGE DEBT(A) UNITS
------------- --------------- ------------ ---------------- ---------
<S> <C> <C> <C> <C>
Pohanka Automotive
Group.................. $ 31,323,975 $ -- $13,258,844 1,204,342
Rosenthal Automotive
Organization........... 65,268,711 -- 13,694,242 3,438,298
Sheehy Auto Stores...... 14,005,925 -- 9,574,333 295,439
Cherner Automotive
Group.................. 6,322,909 -- 4,770,863 103,470
Cross-Continent Auto
Retailers, Inc. ....... 35,330,000 35,330,000 -- --
Good News Auto Mall..... 5,461,086 5,461,086 -- --
Kline Automotive Group.. 8,510,000 8,510,000 -- --
--------------- ------------ ----------- ---------
Totals............... $ 166,222,606 $ 49,301,086 $41,298,282 5,041,549
=============== ============ =========== =========
</TABLE>
- --------
(a) Based on mortgage debt outstanding as of December 31, 1997.
(3) Includes an aggregate of approximately $1.4 million attributable to
estimated acquisition fees and expenses (including transfer taxes,
recordation taxes and title insurance but excludes $1.5 million
attributable to estimated consulting and attorneys' fees).
Concurrently with the Company's acquisition of the Initial Properties, the
Company will lease them back to the Initial Lessees pursuant to the Initial
Leases. The Company expects that the Initial Leases will generally have initial
terms ranging from eight to 12 years (the "Fixed Term") and may be extended for
two additional ten year terms (the "Extended Term") at the option of the
respective Initial Lessees. The Initial Leases will require the Initial Lessees
to pay substantially all expenses associated with the operation of the Initial
Properties, such as real estate taxes and other governmental charges,
insurance, utilities, service and maintenance and, therefore, will be on a
"triple-net" basis. The Initial Leases also require the Initial Lessees to
undertake and pay for any additions, repairs, renovations and improvements to
the Initial Properties after receiving the consent of the Company, unless the
Company decides, at its option, to pay for such expenditures, which would be on
terms to be negotiated. Upon expiration or termination of the Initial Leases,
the Initial Leases generally provide that additions, repairs, renovations and
improvements will become the Property of the Company. Each Initial Lease will
require the Initial Lessee to operate the Initial Property only for the same
purpose for which it was used on the Company's purchase date, unless the
Company consents to a different use.
The annual rent for the first year (the "Initial Annual Base Rent") under
each Initial Lease has been negotiated by the Company to produce an appropriate
yield to the Company (based on the Company's determination of the appropriate
return on the Company's investment considering (i) the purchase price for the
Property, (ii) the credit worthiness of the Lessee, (iii) the rental rates for
similarly situated properties in the geographic location in which the Property
is situated, (iv) the characteristics of the Property, (v) the cost to the
Company of the funds used to acquire the Property, and (vi) the return that the
Company could realize from alternative investments) on that Initial Property's
purchase price (including acquisition fees and expenses). The Initial Annual
Base Rent and the adjusted annual base rent for each year thereafter (the
"Annual Base Rent") will be adjusted upward periodically based on a factor of
the CPI. The CPI adjustments range from one-half of CPI adjusted every other
year to full CPI adjusted every year. Certain Initial Leases establish minimum
and maximum periodic adjustments, that range from zero to 3% of base annual
rent. The Company will have general recourse to the Initial Lessees, but the
Initial Lessees' payment obligations under the Initial Leases will be
unsecured.
7
<PAGE>
Set forth below is certain information relating to the Initial Lessees:
<TABLE>
<CAPTION>
INITIAL ANNUAL LEASE FIXED
LESSEE (DEALERSHIPS)(1)(2) LOCATION BASE RENT EXPIRATION TERM EXTENDED TERM(3)
-------------------------- ------------------ -------------- ---------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Geneva Enterprises, Inc.
d/b/a Rosenthal Nissan/Mazda(4)....... Tysons Corner, VA $ 2,506,727 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Mazda....................... Arlington, VA 621,408 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Chevrolet/Jeep/Eagle
(Storage Lot)......................... Arlington, VA 562,464 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda(4).................... Tysons Corner, VA 511,866 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Jaguar(4)................... Tysons Corner, VA 511,854 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a Geneva
Management (Related Business)......... Arlington, VA 453,600 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Isuzu....................... Gaithersburg, MD 451,418 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc.
d/b/a Nissan Gaithersburg............. Gaithersburg, MD 350,214 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Acura....................... Gaithersburg, MD 330,111 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc.
d/b/a Rosenthal Chevrolet/Jeep/Eagle.. Arlington, VA 312,476 Feb. 2008 10 years 2-10 year options
Maryland Imported Cars, Inc.
d/b/a Gaithersburg Mazda(5)........... Gaithersburg, MD 261,308 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda (2-acre lot)(4)....... Tysons Corner, VA 178,997 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda (Body Shop)(4)........ Tysons Corner, VA 126,887 Feb. 2008 10 years 2-10 year options
--------------
Subtotal............................ $ 7,179,330
==============
Pohanka Auto Center, Inc. & Pohanka
Oldsmobile-GMC Truck Inc.
(Saturn, Isuzu)(6) ................... Marlow Heights, MD $ 497,507 Feb. 2008 10 years 2-10 year options
Pohanka Auto West, Inc. & Pohanka
Chevrolet-GEO, Inc. (Chevrolet/GEO and
Acura)(6)............................. Chantilly, VA 453,082 Feb. 2009 11 years 2-10 year options
Pohanka Virginia Properties Partnership
(Saturn)(6)........................... Bowie, MD 447,101 Feb. 2009 11 years 2-10 year options
Pohanka Imports, Inc. (Honda)(6) ...... Marlow Heights, MD 407,043 Feb. 2009 11 years 2-10 year options
Pohanka Auto Center, Inc. (Cadillac,
Hyundai, Nissan, Oldsmobile &
Kia)(6)............................... Fredricksburg, VA 386,173 Feb. 2008 10 years 2-10 year options
Pohanka of Chantilly, Inc. (Lexus)(6).. Chantilly, VA 357,588 Feb. 2010 12 years 2-10 year options
Pohanka Hyundai, Inc. (Hyundai &
Subaru)(6)............................ Marlow Heights, MD 171,211 Feb. 2009 11 years 2-10 year options
Pohanka Oldsmobile-GMC Truck, Inc.
(Body Shop)(6)........................ Marlow Heights, MD 97,241 Feb. 2009 11 years 2-10 year options
Pohanka Virginia Properties Partnership
(Undeveloped Dealership Lot)(6)....... Chantilly, VA 628,779 Feb. 2009 11 years 2-10 year options
--------------
Subtotal............................ $ 3,445,725
==============
Sheehy Ford of Springfield, Inc. (Ford
& Kia)................................ Springfield, VA $ 662,340 Feb. 2008 10 years 2-10 year options
Sheehy Ford, Inc.(7)................... Philadelphia, PA 330,000 Oct. 2007 10 years 2-10 year options
Sheehy Lincoln-Mercury, Inc. (Lincoln-
Mercury & Mitsubishi)................. Woodbridge, VA 282,252 Feb. 2008 10 years 2-10 year options
Sheehy Ford, Inc....................... Marlow Heights, MD 255,840 April 2006 8 years 2-10 year options
--------------
Subtotal............................ $ 1,530,432
==============
Cherner Lincoln Mercury-Annandale,
Inc................................... Annandale, VA $ 695,520 Feb. 2008 10 years 2-10 year options
==============
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
INITIAL
LESSEE ANNUAL BASE LEASE FIXED
(DEALERSHIPS)(1)(2) LOCATION RENT EXPIRATION TERM EXTENDED TERM(3)
------------------- -------------- ----------- ---------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
T. West Sales & Service,
Inc. (Toyota) (8)...... Las Vegas, NV $ 1,452,000 Feb. 2008 10 years 2-10 year options
Douglas Motors, Inc.
(Toyota)(8)............ Denver, CO 979,000 Feb. 2008 10 years 2-10 year options
Plains Chevrolet,
Inc.(8)................ Amarillo, TX 517,000 Feb. 2008 10 years 2-10 year options
Westgate Chevrolet,
Inc.(8)................ Amarillo, TX 484,000 Feb. 2008 10 years 2-10 year options
Midway Chevrolet,
Inc.(8)................ Amarillo, TX 341,000 Feb. 2008 10 years 2-10 year options
Quality Nissan,
Inc.(8)................ Amarillo, TX 110,000 Feb. 2008 10 years 2-10 year options
-----------
Subtotal............. $ 3,883,000
===========
Good News Salisbury,
Inc.(9)................ Salisbury, MD $ 469,920 Feb. 2008 10 years 2-10 year options
Price Buick-Pontiac,
Inc., and The Price
Organization(10)(11)... Salisbury, MD 154,080 Dec. 2006 8 years N/A
-----------
Subtotal............. $ 624,000
===========
Kline Chevrolet Sales
Corp.(12).............. Chesapeake, VA $ 960,000 Feb. 2008 10 years 3-10 year options(13)
===========
Total.............................. $18,318,007
===========
</TABLE>
- --------
(1) See the historical financial statements for Geneva Enterprises, Inc. and an
affiliated company and summary financial information of Cross-Continent.
(2) The Company believes that all the Initial Properties are adequately covered
by insurance.
(3) If any Initial Lease is renewed for a second Extended Term, the Annual Base
Rent will be renegotiated at the time of renewal by the parties to reflect
the fair market rate at the renewal date.
(4) The Initial Lessees may assign these Initial Leases (subject to compliance
with certain conditions to the satisfaction of the Company), to a limited
liability company to be formed by Mr. Rosenthal or his Affiliates as
members.
(5) Guaranteed by Geneva Enterprises, Inc.
(6) Each Initial Lease with an Affiliate of Pohanka Automotive Group will be
guaranteed by each other Initial Lessee affiliated with the Pohanka
Automotive Group.
(7) The occupant is Chapman Ford Sales, which is an unrelated third party.
(8) Guaranteed by Cross-Continent.
(9) Master Lease covering all Initial Properties acquired from Affiliates of
Good News Automotive, Inc. other than Price Buick-Pontiac.
(10) The occupant is Price Buick Pontiac, which is an unrelated third party.
The Company is assuming an existing Lease among Price Buick-Pontiac, Inc.
and The Price Organization (Lessees) and Meyers and Rose (Lessor) dated
December 10, 1991 and terminating December 31, 2006. The Lessees have a
right of first refusal to purchase such Initial Property, which expires
January 20, 1998.
(11) Guaranteed by Warren A. Price and Good News Salisbury, Inc.
(12) Guaranteed by Kline Imports Chesapeake, Inc. The Property is occupied by
both Kline Chevrolet and Kline Toyota (sublease to Kline Chesapeake).
(13) If the Company is required by the Initial Lessee to pay for repairs to
such Initial Property in an amount in excess of $50,000 during the 29th
lease year, the Initial Lessee will be required to extend such Initial
Lease for a third 10-year term at a rental rate equal to fair market
value.
In addition to selling new vehicles, many Dealers lease new vehicles and
sell used vehicles. Lease arrangements typically provide Dealers with a source
of late-model, off-lease vehicles for its used vehicle inventory. Dealers also
provide service and parts primarily for the vehicle makes and models that they
sell or lease, and perform both warranty and non-warranty service work. In
general, parts departments support the sales and service divisions. Dealers may
also sell factory-approved parts at retail to their customers or at wholesale
to independent repair shops. Dealers arrange third party financing for their
customers, sell vehicle service contracts and arrange selected types of credit
insurance for which they receive financing fees, subject to a charge-back
against a portion of the finance fees if contracts are terminated prior to
their scheduled maturity.
9
<PAGE>
STRATEGY
The Company's primary objective is to become an owner and lessor of
Properties used by Dealers throughout the United States for the primary purpose
of generating rental income in order to provide the Company with predictable
streams of cash flow to maximize shareholder value. To achieve these
objectives, the Company plans to:
. Implement an aggressive, yet disciplined, acquisition program by
purchasing Properties used by Dealers of multi-site, multi-franchised
Dealerships or Related Businesses that have demonstrated historic growth,
are well managed, and have been maintained in good condition, and whose
location and characteristics will be suitable for alternative use by:
. Diversifying geographically by acquiring Properties located primarily
in major consolidated metropolitan statistical areas ("CMSAs") in
order to minimize the potential adverse impact of economic downturns
in certain markets;
. Leveraging the contacts and experience of the Company's management to
develop relationships with Dealers;
. Maintaining long-term working relationships with Dealers, by providing
capital for multiple acquisitions of Properties on a market-by-market
basis; and
. Taking advantage of opportunities created by the fragmented ownership
of Dealerships and Related Businesses, and the large number of
suitable locations with adequate roadway frontage, high visibility and
appropriate zoning.
. Use the Company's UPREIT structure to acquire Properties in exchange for
cash or Units, or a combination of cash and Units, thereby deferring some
or all of a Seller's potential taxable gain, and enhancing the ability of
the Company to consummate transactions and to structure more competitive
acquisitions than other real estate companies in the market that may lack
the Company's access to capital and the ability to acquire Properties for
Units.
. Use several valuation mechanisms, including calculations of discounted
cash flow, evaluations of comparable sales and leases of properties,
analysis of the alternative uses of the Properties, and evaluation of the
Dealers' financial strength, to determine the purchase price and lease
terms for the Properties.
. Lease back the Properties to Lessees on a triple-net basis, thereby
eliminating brokerage, re-leasing and similar costs and the risk of high
Lessee turnover due to the generally historic long-term operation of
Dealerships or Related Businesses at Property locations.
. Negotiate Lease covenants designed to minimize the likelihood of loss to
the Company, by permitting the Company to establish the ability of
affiliated Lessees (together with any guarantors) to pay rent by bi-
annually monitoring compliance with a rent coverage ratio ("Rent Coverage
Ratio") of 1.5 to 1 or require the Lessee to provide additional security
in the form of a guarantee of an Affiliate.
. Utilize a variety of other financing sources, that may include the
issuance of Units or other equity securities or debt securities, or a
combination thereof, and enter into a bank credit facility, that will be
used to leverage Properties, acquire additional Properties and for
working capital purposes as a means to gain positive spread on
investment. The Company's policy is to operate with a debt to total
market capitalization ratio of not more than 50%, which policy may be
changed from time to time by the Board of Trustees.
10
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary selected historical and pro forma
financial information for the Company. The unaudited pro forma operating
information is presented as if the Formation Transactions had occurred as of
the beginning of the period indicated and therefore incorporates certain
assumptions that are included in the Company's Unaudited Pro Forma Financial
Statements. The unaudited pro forma balance sheet information is presented as
if the Formation Transactions had occurred on October 20, 1997. The unaudited
pro forma information does not purport to represent what the Company's
financial position or results of operations actually would have been had the
Formation Transactions, in fact, occurred on such date or at the beginning of
the period indicated, or to project the Company's financial position or results
of operations at any future date or for any future period. The historical and
unaudited pro forma financial information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
PRO FORMA FOR THE
PERIOD FROM PRO FORMA
JANUARY 1, 1997 YEAR ENDED
THROUGH DECEMBER 31,
OCTOBER 20, 1997 1996
----------------- ------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Rental income(1)................................ $16,028 $18,318
General and administrative expenses(2).......... 3,063 3,500
Depreciation(3)................................. 2,545 2,909
Minority interest(4)............................ 1,881 2,149
Interest expense................................ 411 470
Net earnings to Common Shareholders............. 8,128 9,290
Net earnings per Common Share................... 1.05 1.21
Weighted average Common Shares outstanding(5)... 7,705 7,705
<CAPTION>
PRO FORMA HISTORICAL
OCTOBER 20, OCTOBER 20,
1997 1997
----------------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Real estate owned, at cost...................... $166,223 $ --
Total assets.................................... 384,501 --
Debt outstanding under line of credit........... 5,000 --
Minority interest............................... 71,014 --
Total shareholders' equity...................... 306,960 --
</TABLE>
- --------
(1) Represents rental income from the Initial Lessees recorded in accordance
with the terms of the Initial Leases as if all Initial Properties had been
subject to the Initial Leases for the entire period.
(2) Represents management's estimates of general and administrative expenses.
(3) Represents depreciation of the building and improvements as allocated from
the purchase prices of the Initial Properties over a 20-year period.
(4) Represents approximately 18.8% of the Operating Partnership's net earnings.
(5) Represents the number of Common Shares whose proceeds will be used to repay
mortgage debt assumed and to acquire the Initial Properties. If the total
number of Common Shares issued in the Offering and the FBR Offering had
been used, weighted average Common Shares outstanding would be 21,792 for
both the year ended December 31, 1996 and for the period ended October 20,
1997, resulting in net earnings per Common Share of $0.43 and $0.37 for the
year ended December 31, 1996 and the period ended October 20, 1997,
respectively.
11
<PAGE>
BENEFITS TO RELATED PARTIES
The following table sets forth the benefits of the Formation Transactions to
the executive officers and trustees of the Company:
<TABLE>
<CAPTION>
PERSON RECEIVING BENEFIT NATURE AND AMOUNT OF BENEFIT
- ------------------------ ----------------------------
<S> <C>
John J. Pohanka and
Robert M. Rosenthal..... 1,204,342 Units and 3,438,298 Units, respectively, in
connection with the sale of the Initial Properties, and
the repayment of approximately $13.3 million and $13.7
million in principal amount of debt, respectively. The
receipt of Units will permit the deferral of taxes on
the sale of such Initial Properties. In addition, the
Company will be prevented from selling, financing or
repaying debt secured by certain Initial Properties. See
"Structure and Formation of the Company--Lock-out
Provisions."
Affiliates of Messrs. Pohanka and Rosenthal will lease
such Initial Properties from the Company and will
continue to control the operations of the Dealership or
Related Business operated on those Initial Properties.
Each of Messrs. Pohanka and Rosenthal will receive
warrants to acquire Units equal to 2% of the outstanding
Common Shares following the Offering (including exercise
of the Underwriters' over-allotment option in full) on a
fully diluted basis at the initial public offering
price.
Beginning one year after the closing of the Offering,
the right to convert the Units held by them for Common
Shares, subject to the Ownership Limitation.
Purchase by Mr. Pohanka and his family of up to $13
million of Common Shares in this Offering at the initial
public offering price, of which a portion may be
purchased net of underwriting discounts and commissions
because executive officers and Trustees may acquire in
the aggregate up to 2% of the offered Common Shares at
the initial public offering price (net of underwriting
discounts and commissions).
Executive Officers...... Salary and bonus as executive officers of the Company as
described under "Management--Executive Compensation."
Options to acquire Common Shares and Units equal to 3%
(Thomas D. Eckert), 1.625% (Scott M. Stahr), .75%
(Donald L. Keithley) and 1.625% (David S. Kay) of the
outstanding Common Shares following the Offering
(including exercise of the Underwriters' over-allotment
option in full) on a fully diluted basis at the initial
public offering price.
The executive officers and Trustees may acquire in the
aggregate up to 2% of the Common Shares in this Offering
at the initial public offering price (net of
underwriting discounts and commissions). The executive
officers have advised the Representative that they
currently intend to purchase an aggregate of
approximately 122,000 Common Shares in this Offering.
</TABLE>
12
<PAGE>
In addition to the foregoing, the Representative of the Underwriters and its
Affiliates will receive certain benefits in connection with the Offering in
addition to its compensation as an underwriter (see "Underwriting") as set
forth below:
<TABLE>
<CAPTION>
PERSON RECEIVING BENEFIT NATURE AND AMOUNT OF BENEFIT
- ------------------------ ----------------------------
<S> <C>
Friedman, Billings,
Ramsey Group, Inc...... Repayment of the loan made to the Company in the amount
of up to approximately $2.3 million, plus interest
thereon at the rate of 10% per annum.
FBR Asset Investment
Corporation............ Purchase of 1,792,115 Common Shares at the initial
public offering price (net of underwriting discounts and
commissions). Such purchaser will have certain "demand"
and "piggy-back" registration rights with respect to
such Common Shares. See "Common Shares Eligible for
Future Sale--Registration Rights."
</TABLE>
13
<PAGE>
STRUCTURE OF THE COMPANY
The Company will be the sole general partner of the Operating Partnership.
The Company will contribute the proceeds of the Offering to the Operating
Partnership in exchange for Units representing approximately 81.2% of the
partnership interests in the Operating Partnership (the terms and conditions of
which will correspond to the Common Shares). The Company will conduct
substantially all of its business, and will hold all of its interests in the
Properties, through the Operating Partnership. As the sole general partner of
the Operating Partnership, the Company will have the exclusive power to manage
and conduct the business of the Operating Partnership, subject to certain
exceptions set forth in the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (the "Partnership Agreement"). See
"Partnership Agreement."
The following diagram depicts the ownership structure of the Company and the
Operating Partnership upon completion of the Offering and the Formation
Transactions:
[FLOW CHART APPEARS HERE]
14
<PAGE>
FORMATION TRANSACTIONS
The following transactions will be completed in connection with the
completion of the Offering:
. Concurrently with the closing of the Offering, FBR Asset Investment
Corporation, an Affiliate of the Representative, will acquire 1,792,115
Common Shares in a private placement at the initial public offering price
(net of underwriting discounts and commissions) (the "FBR Offering").
. Concurrently with the closing of the Offering, the Company will
contribute the net proceeds of the Offering and the FBR Offering to the
Operating Partnership in exchange for 21,792,115 Units.
. At closings scheduled within 60 days of the closing of the Offering, the
Company will acquire certain Initial Properties from Cross-Continent,
Good News and Kline in exchange for cash consideration of $35.3 million,
$5.5 million and $8.5 million, respectively.
. At closings scheduled within 60 days of the closing of the Offering, the
Company will acquire Initial Properties from Pohanka, Rosenthal, Sheehy
and Cherner in exchange for 1,204,342; 3,438,298; 295,439; and 103,470
Units of the Operating Partnership, respectively. The Operating
Partnership will acquire certain Initial Properties subject to existing
mortgage debt of $41.3 million (the "Mortgage Debt"). The Company will
pay Mortgage Debt of approximately $13.3 million, $13.7 million, $9.6
million and $4.8 million assumed from Pohanka, Rosenthal, Sheehy and
Cherner, respectively, in full at the closing of the purchase of such
Initial Properties. See "Use of Proceeds" and "Business of the Company
and Properties--The Initial Leases, Properties and Dealerships" for a
description of the consideration to be paid and Mortgage Debt to be
assumed by the Company with respect to the Initial Sellers.
. The Operating Partnership will use the aggregate net proceeds of the
Offering and the FBR Offering of $302.4 million ($344.2 million if the
Underwriters' over-allotment option is exercised in full) as described in
"Use of Proceeds."
. Dealers or their Affiliates will enter into long-term triple-net Leases
with the Company with respect to the Initial Properties.
. Each of Messrs. Pohanka and Rosenthal, who will be Trustees of the
Company and Affiliates of certain Initial Sellers and Initial Lessees,
will receive warrants representing the right to acquire up to 707,079
Units (equal to 2% of the Common Shares to be outstanding on the closing
of the Offering (including exercise of the Underwriters' over-allotment
option) on a fully diluted basis), at an exercise price equal to the
initial public offering price of the Common Shares, such warrants to be
exercisable beginning on the closing of the Offering and for a period of
five years thereafter (the "Dealer Warrants").
. The Company will obtain a $10 million line of credit from NationsBank,
N.A., and will borrow approximately $5 million at the closing of the
Offering (approximately $2.5 million of which will be guaranteed by
Affiliates of Mr. Rosenthal and approximately $2.5 million of which will
be guaranteed by Affiliates of Mr. Sheehy).
15
<PAGE>
DISTRIBUTIONS
The Company plans to pay regular quarterly distributions to its shareholders
of at least 95% of its taxable income (as defined in Section 857(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")) each year so as to
qualify for the benefits accorded to a REIT under the Code. The Board of
Directors may vary the dividend which will be distributed to holders of the
Common Shares based upon the actual results of operations of the Company,
including (i) the timing of the investment of the proceeds of the Offering and
the FBR Offering, (ii) the rent received from the Lessees, (iii) the ability of
the Lessees of the Properties to meet their obligations under the Leases, and
(iv) the operating expenses of the Company. See "Description of Shares of
Beneficial Interest" and "Partnership Agreement."
TAX STATUS OF THE COMPANY
The Company will elect to be taxed as a REIT under Sections 856-859 of the
Code, commencing with its taxable year ending December 31, 1998. A REIT is
subject to a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95% of its REIT taxable
income each year, determined without regard to the deduction for dividends paid
and by excluding any net capital gains. If the Company qualifies for taxation
as a REIT, the Company generally will not be subject to federal income tax at
the corporate level on income it distributes currently to its shareholders. If
the Company fails to qualify as a REIT for federal income tax purposes in any
taxable year, the Company will be subject to federal income tax (including any
alternative minimum tax) on its taxable income at regular corporate rates and
distributions to the shareholders in any such year will not be deductible by
the Company. See "Risk Factors--Adverse Consequences of Failure to Qualify as a
REIT; Other Tax Liabilities" and "Certain Federal Income Tax Considerations--
Failure to Qualify" for a more detailed discussion of the consequences of the
failure of the Company to qualify as a REIT for federal income tax purposes.
The Company may be subject to certain federal, state and local taxes on its
income and property notwithstanding its qualification for federal income
taxation as a REIT.
16
<PAGE>
THE OFFERING
Common Shares Offered
Hereby...................... 20,000,000
Common Shares to be
Outstanding after the 21,792,115(1)
Offering...................
Use of Proceeds.............
Approximately $49.3 million for the acquisition
of certain Initial Properties, $41.3 million for
repayment of Mortgage Debt, $2.3 million for
repayment of the FBR Loan, and the balance of
$209.4 million for the acquisition of additional
Properties and general working capital purposes.
See "Use of Proceeds."
Proposed Nasdaq Symbol......
CARS
- --------
(1) Includes the Common Shares being offered hereby and the Common Shares to be
acquired by FBR Asset Investment Corporation. Excludes 5,041,549 Common
Shares reserved for issuance upon redemption of the Units issuable in
connection with the acquisition of certain Initial Properties; 2,555,587
Common Shares and Units reserved for issuance pursuant to the Plan, of
which options to purchase 26,667 Common Shares and 2,209,472 Units have
been granted to executive officers of the Company; 1,277,794 Common Shares
issuable upon exercise of the Underwriting Warrants and 1,277,794 Common
Shares issuable upon conversion of 1,277,794 Units issuable upon exercise
of the Dealer Warrants. See "Structure and Formation Transactions,"
"Management--1998 Equity Incentive Plan," "Related Transactions" and
"Partnership Agreement."
17
<PAGE>
RISK FACTORS
In addition to the other information presented in this Prospectus,
prospective shareholders should carefully consider the following material
risks before purchasing Common Shares in the Offering. Each of these factors
could adversely affect the ability of the Company to make expected
distributions to shareholders.
This Prospectus contains "forward-looking statements" which represent the
Company's expectations or beliefs, including, but not limited to, statements
concerning industry performance, the acquisitions, financing or leasing of
Properties, the Company's operations, performance, financial condition, plans,
strategies, growth and prospects. Any statements contained in this Prospectus
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, the use of
forward-looking terminology such as "may," "will," "could," "should,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereon or comparable terminology. The cautionary statements
set forth under the caption "Risk Factors" and elsewhere in the Prospectus
identify important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
differ materially from those in such forward-looking statements. These
statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may
differ materially depending on a variety of important factors, including those
described below in this "Risk Factors" section and elsewhere in this
Prospectus.
INABILITY OF THE COMPANY TO CLOSE THE ACQUISITION OF PROPERTY OR CLOSE SUCH
ACQUISITION AS SCHEDULED
The contribution agreements for the Initial Properties contain, and the
contribution agreements for the acquisition of future Properties will contain,
closing conditions typically required in connection with the acquisition of
commercial real estate. Those closing conditions include the receipt of a
survey, title insurance commitment and phase I environmental audit acceptable
to the Company. Information that may come to the attention of the Company
could disclose easements, title restrictions, restrictive covenants,
encumbrances or environmental conditions that may otherwise cause the Company
to conclude that the acquisition of that Property is not in the best interests
of the Company. In such case, the Company could refuse to purchase such
Property, or enter into negotiations to resolve the relevant conditions, which
could delay, or result in a change of the terms of, the acquisition. In such
event, it could take the Company a longer time to invest the proceeds of this
Offering in Properties or adversely affect the timing of the investment of
proceeds of this Offering, which could have an adverse effect on the financial
results of the Company and distributions to shareholders.
THE COMPANY IS DEPENDENT UPON DEALERS GENERATING SUFFICIENT REVENUES FROM
THEIR OPERATIONS TO PERMIT THE LESSEES TO PAY RENT AND FULFILL THEIR OTHER
OBLIGATIONS UNDER THE LEASES
The Company will be dependent upon the payment of rent and the performance
of other Lease obligations, such as maintenance of the Properties, payment of
taxes, utilities and other charges and maintenance of insurance, by the
Lessees under the Leases. If the Lessees default in the payment of rent or
performance of other obligations, the Company could be required to declare a
default under the Lease and pursue its legal and equitable remedies, including
the eviction of the Lessee. If the Lease has been guaranteed, the Company
could attempt to collect under such guaranty. There is no assurance that any
Lessee will continue to pay rent or perform under a Lease or that the Company
can recover under a guaranty. In addition, if a Lessee or guarantor sought
protection under the bankruptcy laws, the Lease could be rejected and the
Company's ability to collect rent or pursue its legal or equitable remedies
(such as specific performance of a Lease term) could be adversely affected.
Furthermore, even if the Company was successful after undertaking any action,
it could incur substantial legal fees and the costs of leasing the Property to
a replacement Lessee. There is no assurance that the Company will be able to
relet a Property, relet the Property to a Dealer for use as a Dealership or
Related Business, or relet the Property on substantially equivalent or better
terms than the prior Lease, in which event the financial results and
operations of the Company could be materially adversely affected. These risks
are discussed below:
Dependence on Lessees for Payment of Rent and Performance of Lease
Terms. The Lessees of the Properties will either be the Dealers or Affiliates
of those Dealers. None of the Initial Leases with affiliated
18
<PAGE>
Dealers is cross-defaulted with each other. A Lessee may or may not generate
sufficient cash flow to be able to perform its obligations under its Lease.
Any Lessee may change or terminate its business, or engage other management to
operate a Property. See "Business of the Company and Properties--General
Initial Lease Terms--Financial Covenants." Nonperformance by the Lessees or
Affiliates who guaranty (the "Guaranties") the payment of rent and performance
of other obligations of the Lessees (the "Guarantors") could adversely affect
the ability of the Company to pay or maintain distributions or otherwise
operate its business. The failure of a Lessee to perform under a Lease could
require the Company to declare a default, evict the Lessee, repossess the
Property, find another tenant for the Property or resell the Property.
Dependence on Guarantors for Payment of Rent and Performance of Lease Terms
Upon Default of Lessee. The Company will enter into separate Initial Leases
with each Dealer using an Initial Property. Certain Initial Leases will be
guaranteed by Affiliates of the Initial Lessees. The Guaranties will be of
payment and not of collection. There is no assurance that upon a default any
or all of the Guarantors will perform under a Guaranty. In the event of a
default under a Guaranty, the Company's remedy will be limited to seeking
payment from such Guarantor. Failure of a Guarantor to perform under a
Guaranty will not constitute a default under the Initial Lease pursuant to
which a Guarantor is an Initial Lessee. Because Messrs. Pohanka and Rosenthal
are Trustees of the Company, the Company's decision whether or not to pursue
payment from certain Guarantors could be influenced by Mr. Pohanka or Mr.
Rosenthal in his capacity as a Trustee. See "Risk Factors--Conflicts of
Interest."
The Company Has No Rights Under, or Control Over, Franchise Agreements. In
general, a Manufacturer enters into a Franchise Agreement directly with the
Dealer, who may or may not be the Lessee of the Property. Upon expiration or
termination of a Lease, for default or otherwise, the Company will have no
rights under the relevant Franchise Agreements with the Manufacturer. Any
rights under the Franchise Agreements will accrue to the signatories to those
agreements. In addition, upon termination or non-renewal of any Franchise
Agreement, the Company will not have any rights to require the Manufacturer or
the Lessee to continue to operate a Dealership at a Property. Although a
Lessee may be obligated under a Lease to continue to pay rent and perform its
other obligations, there is no assurance that the Lessee will do so. If an
Initial Lessee moves a franchised Dealership or stops operating a franchised
Dealership from a Property, the Initial Leases provide that the Initial Lessee
has 24 months in which to replace or reopen the Dealership before such action
becomes an event of default under the Initial Lease. However, if a Property is
vacant for an extended period of time, that Property could be at a greater
risk of being vandalized, suffer an uninsured loss or of not being properly
maintained despite the lease provisions intended to minimize those risks. In
addition, if the Company ultimately declared a default, pursued its legal and
equitable remedies and regained possession of the Property, the Company could
be required to expend more funds to restore the Property and experience more
of a delay renting the Property than if the Property had not been vacant for
that period. The Company may enter into similar Lease provisions with other
Lessees.
Rejection of Leases Under Federal Bankruptcy Codes. Any or all of the
Lessees (or Guarantors) may seek the protection of the federal Bankruptcy
Code, which could result in delays in rent payments or in the rejection and
termination of a Lease and thereby cause a reduction in the Company's cash
flow and the amounts available for distributions to its shareholders. No
assurance can be given that any Lessee (or Guarantor) will not seek protection
under the Bankruptcy Code in the future or, if any Lessee (or Guarantor) does
seek such protection, that it will assume its Lease (or Guaranty) and continue
to make rent payments in a timely manner. If any Lease (or Guaranty) is not
assumed following bankruptcy the Company's cash flow and the amounts available
for distribution to its shareholders may be adversely affected.
If a Lessee filed bankruptcy, it initially would have at least 60 days to
decide whether to assume the Lease. That period could be extended by order of
the Bankruptcy Court. During the period before the Lease was assumed or
rejected, the Lessee would not be required to pay amounts due under the Lease
for the period before the bankruptcy was filed. If the Lease was assumed, the
Lessee would be required to pay all amounts then due under the Lease, but
would not be required to pay interest on those amounts.
19
<PAGE>
If a Lease was rejected by a bankrupt Lessee, the rejection would be treated
as a breach of the Lease and the Company would have a claim for damages
resulting from the breach. However, the claim would be limited to an amount
equal to the rent reserved under the lease, without acceleration, for the
greater of one year or 15% (but not more than three years) of the remaining
term of the Lease, plus rent already due but unpaid. In addition, the
Company's rejection claim ordinarily would be treated as a general unsecured
claim, and would be paid only to the extent that funds were available to pay
general unsecured claims against the Lessee. There can be no assurance that
any such payment would be sufficient to pay the amounts due under the lease.
Inability of the Company to Resell or Re-Lease Properties. The failure of a
Lessee to perform under a Lease could require the Company to declare a
default, repossess the Property, find another tenant for the Property or
resell the Property. There is no assurance that the Company will be able to
lease such Property to a Dealer, or to successfully reposition the Property
for other uses, or if a replacement tenant or a different use would support
the same or higher level of lease payments. Moreover, there can be no
assurance that any individual Lessee will elect to extend a Lease upon
expiration of its Fixed Term, which would also force the Company to find a
suitable replacement tenant.
The Company may or may not be able to sell a Property if or when the Company
decides to do so. The real estate market is affected by many factors, such as
general economic downturns, availability of financing, interest rates and
other factors, including supply and demand, that are beyond the control of the
Company. The Company cannot predict whether it would be able to sell any
Property for the price or on the terms set by the Company, or whether any
price or other terms offered by a prospective purchaser would be acceptable to
the Company. The Company cannot predict the length of time needed to find a
willing purchaser and to close the sale of a Property. The number of
competitive Properties operated as Dealerships or Related Businesses in a
particular area could have a material adverse effect on the Company's ability
to lease a Property in the event of loss of a Lessee.
The Company may not be able to sell a Property as is. The Company may be
required to expend funds to correct defects, such as defects related to the
environment, health or safety or maintenance or repair. The Company may also
be required to make improvements before a Property can be sold. There is no
assurance that the Company will have funds available to correct defects or
make improvements. Furthermore, the expenditure of funds to correct defects or
make improvements may adversely affect the funds available for investment by
the Company or Actual Cash Available for Distribution to shareholders.
If the Property is not occupied or if rent is not being paid or is being
paid in an amount that is insufficient to cover operating expenses, the
Company could be required to expend funds with respect to that Property,
including expenses relating to taxes, insurance, utilities and maintenance of
the Property. In connection with the acquisition of a Property, the Company
may agree on restrictions that prohibit the sale of that Property for a period
of time or impose other restrictions, such as a limitation on the amount of
debt that can be placed or repaid on that Property. Such provisions would
restrict the ability of the Company to resell or re-lease a Property.
The Company may grant a Lessee a right of first offer or option to purchase
a Property. The Lessee may exercise the option to purchase only at the end of
an Extended Term. The Lessee may exercise the right to first offer only if the
Company decides to sell the Property. The terms for the purchase of the
Property under the right of first offer must be satisfactory to the Company in
its discretion. The purchase price under the option to purchase would be
determined by appraisal based on the highest and best use of the Property.
There is no assurance that the Lessee will exercise that right or that the
price offered by the Lessee in the case of a right of first offer will be
adequate. Furthermore, if a Lessee affiliated with a Trustee exercises its
right of first offer or option to purchase a Property, such Trustee could
influence the Company's decision to sell the Property.
Responsibility for Uninsurable Losses. Each Lease requires the Lessee to
maintain insurance on the Properties and insure against customary risks, such
as fire, vandalism and malicious mischief, extended coverage perils, physical
loss perils, commercial general liability, flood (when the Property is located
in whole or in
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material part in a designated flood plain area) and workers' compensation
insurance. There are, however, certain types of losses (such as from
environmental events, pollution, hurricanes, floods, earthquakes or wars) that
may be either uninsurable or not economically insurable. In addition, there is
no assurance that material losses in excess of insurance proceeds will not
occur. Although the Lease requires the Lessee to restore the Property
substantially to the condition it was in prior to the loss, should the Lessee
fail to restore the Property the Company could lose both its capital invested
in, and anticipated profits, from such Property. See "Business of the Company
and Properties--The Initial Leases, Properties and Dealerships" and "Business
of the Company and Properties--Typical Initial Lease Terms--Insurance."
GENERAL RISKS ASSOCIATED WITH OPERATING DEALERSHIPS AND RELATED BUSINESSES
The Company's strategy is to concentrate on acquisitions of Properties used
in the operation of Dealerships and Related Businesses. As a result, the
Company will be subject to risks inherent in investments in that industry. The
effects on Actual Cash Available for Distribution to shareholders resulting
from a downturn of businesses within the industry will be more pronounced than
if the Company had diversified its investments in Properties used for a
variety of different purposes. The success of the operations of a Dealership
also depends on general economic and other factors. The factors affecting
motor vehicle sales include rates of employment, income growth, interest
rates, other national and local conditions, automotive innovations and general
consumer sentiment. These risks are discussed below:
Dependence on Manufacturers for Supply of Motor Vehicles. Dealers operate
Dealerships pursuant to written Franchise Agreements with Manufacturers. The
ability of each Lessee to pay rent and perform its other obligations under a
Lease will be dependent to a significant extent on its relationship with the
Manufacturer on whom it is dependent for its inventory of new motor vehicles
and parts. A reduction in the availability of motor vehicles or parts, and
certain popular models in particular, could have an adverse effect on sales.
In addition, the financial condition of the Manufacturer, marketing programs
and expenditures, vehicle design, production capabilities and management of
the Manufacturer affect sales. Events such as strikes and other labor actions
by unions, or negative publicity concerning a particular Manufacturer or
vehicle model, product recalls and litigation also affect sales. Many of these
factors are beyond the control of the Company and could, at one time or
another, negatively impact a Lessee and therefore the Company.
The Dealers affiliated with the Initial Lessees generally operate
Dealerships that sell the products of more than one Manufacturer. The sales
mix of makes and models of motor vehicles that account for a material portion
of the sales of such Dealers changes periodically, among other things, as a
result of changes in consumer taste, the aging of certain models, the redesign
of certain models or the introduction of new models. Therefore, sales of the
makes or models of one Manufacturer today may not reflect the level of future
sales of that Manufacturer's products. Although a Lessee's dependence on any
one Manufacturer may be lessened by its relationship with a number of
different domestic and import Manufacturers, adverse conditions affecting some
or all of the Manufacturers that account for a significant portion of sales
could materially adversely affect a Lessee's ability to pay rent (or if a
lease is guaranteed, an affiliated Guarantor's ability to honor its Guaranty)
or such Lessee's ability to otherwise continue as an occupant of an Initial
Property.
Restrictions in Franchise Agreements that Govern Ability of Dealerships to
Sell Motor Vehicles or its Assets or Properties. Manufacturers exercise a
great degree of control over Dealerships, and the Franchise Agreements provide
for termination or non-renewal for a variety of causes. The Company believes
that each Initial Lessee is in compliance in all material respects with all of
their Franchise Agreements. These Franchise Agreements generally expire at
various times between one and five years, although some Franchise Agreements
have no specific expiration date and continue in effect unless terminated
under certain limited circumstances. The Company is not aware of any refusal
by a Manufacturer to renew a Franchise Agreement with Affiliates of an Initial
Lessee, and has no reason to believe that each Initial Lessee will not be able
to renew all of its Franchise Agreements upon expiration thereof. There can be
no assurance, however, that any of the Franchise Agreements will be renewed or
that the terms and conditions of such renewals will be favorable to the
Dealer. If a Manufacturer terminates or declines to renew one or more
Franchise Agreements for Dealerships operated on
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any Property, such action could have a material adverse effect on the ability
of the Lessee to pay rent and perform its other obligations and, therefore, on
the ability of the Company to pay distributions. Actions taken by
Manufacturers to exploit their bargaining position in negotiating the terms of
such renewals or otherwise could also have a material adverse effect on the
Company by adversely affecting the ability of such Lessee to pay rent, any
Guarantor to honor its Guaranty or the Lessee's ability to otherwise continue
as an occupant of such Property.
Certain Franchise Agreements also contain restrictions on the sale or
transfer of assets or real property necessary for operation of the
Dealerships, or may contain rights of first refusal in favor of certain
Manufacturers to purchase those assets or real property. There are no
assurances that certain Manufacturers will consent to the sale of, or waive
prior rights to purchase, certain Properties that the Company may negotiate to
acquire, when such consents or waivers are required. Failure to receive all or
some of the required consent or waiver could have a materially adverse effect
on the ability of the Company to acquire the Initial Properties and additional
Properties. If the Company acquired a Property for which Manufacturers'
consent was required but not obtained, the Manufacturer could seek legal
recourse against the Company and/or the Seller or could impair the Company's
ability to obtain clear title or to finance the Property. Also, such an event
could impair the relationship between the Dealer and Manufacturer. The
contribution agreements for the Initial Properties, and the contribution
agreements for future Properties will, require the Seller to indemnify the
Company if the Company does not acquire clear fee simple title to the
Property. See "Business of the Company and Properties--Franchise Agreements."
Mature Industry and Cyclicality with Limited Growth Potential. The United
States motor vehicle industry generally is considered a mature industry in
which minimal growth is expected in unit sales of new vehicles. The motor
vehicle industry is cyclical and historically has experienced periodic
downturns, characterized by oversupply and weak demand. Many factors affect
the industry, including general economic conditions and consumer confidence,
the level of discretionary personal income, interest rates and credit
availability.
Dealership Competition for Sale of Motor Vehicles. The operation of
Dealerships and Related Businesses is a highly competitive undertaking.
Dealers compete with other Dealerships selling the same or similar makes of
new and used vehicles, Dealers offering other models, buyers and sellers of
used vehicles, service center chains and independent service and repair shops,
some or all of which may offer motor vehicles, services or repairs at a lower
price, provide faster service or offer faster delivery than Dealerships or
Related Businesses operated by Affiliates of the Lessees. These competitors
may be larger and have greater financial and marketing resources than
Affiliates of the Lessees. In addition, certain Manufacturers have publicly
announced that they may directly enter the retail market in the future which
could have a material adverse effect on some or all of the Affiliates of
Lessees. In addition, the industry is undergoing consolidation, as Dealers who
represent single or a limited number of Manufacturers are acquired by Dealers
that represent many Manufacturers.
Restrictions that could Limit Supply of Motor Vehicles. Certain motor
vehicles retailed by Dealers, as well as certain major components of vehicles
retailed by Dealers, are imported. Accordingly, the revenues generated by
those Dealerships could be adversely affected by import restrictions on
certain jurisdictions, export restrictions by certain jurisdictions, and could
be dependent to some extent upon general economic conditions in and political
relations with foreign countries, including Japan. Recently, Congress has been
considering the United States' trade relations with Japan, and actions by
Congress could restrict the importation of motor vehicles from Japan.
Additionally, fluctuations in currency exchange rates may adversely affect
sales of motor vehicles produced by Manufacturers of imports. Imports into the
United States may also be adversely affected by increased transportation
costs.
CONFLICTS OF INTEREST AMONG THE COMPANY AND CERTAIN TRUSTEES
Certain conflicts of interest could exist between the Company and Mr.
Pohanka or Mr. Rosenthal in his capacity as a Trustee of the Company and
Affiliates of certain Initial Sellers and Initial Lessees. Messrs. Pohanka
and Rosenthal could significantly influence the business and operations of the
Company in connection with (i) the terms of the contribution agreements and
Leases for Initial Properties or future Properties to be acquired from
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any one of them, (ii) the exercise and terms of the right of first offer and
repurchase right of an affiliated Initial Lessee under an Initial Lease, (iii)
the decision to sell or refinance a Property, (iv) the terms of any "lock-out"
restrictions, that limit the ability of the Company to sell or refinance
particular Properties, and (v) the enforcement of Initial Leases and
agreements with Messrs. Pohanka or Rosenthal or his affiliate. Mr. Pohanka and
his family have advised the Representative that they intend to purchase up to
$13 million of registered Common Shares in this Offering. The Company has
adopted certain policies that are designed to eliminate or minimize certain
potential conflicts of interest. See "Benefits to Related Parties" and
"Conflicts of Interest Policies."
The following descriptions set forth the principal conflicts of interest,
including the relationships through which they arise, and the policies and
procedures implemented by the Company to address those conflicts.
Ability of Certain Trustees to Influence the Company. Messrs. Pohanka and
Rosenthal, each an Affiliate of certain Initial Lessees and Initial Sellers,
have agreed to join the Board of Trustees prior to the closing of the
Offering. Upon completion of the Offering, assuming (i) conversion of the
Units issued to Affiliates of Messrs. Pohanka and Rosenthal to acquire Initial
Properties into Common Shares, (ii) exercise of the Dealer Warrants and
conversion of the Units to Common Shares, and (iii) the purchase of $13
million of Common Shares in this Offering by Mr. Pohanka and his family, Mr.
Pohanka and his Affiliates will own 9.56% and Mr. Rosenthal and his Affiliates
will own 14.27% of the outstanding Common Shares (including exercise of the
Underwriters' over-allotment option in full) on a fully diluted and converted
basis. The Units may be redeemed for Common Shares at the option of the
Company up to the Company's 9.9% ownership limit for Common Shares. Waiver of
the ownership limit for Trustees or their Affiliates under the Company's
Declaration of Trust requires the approval of a majority of the Independent
Trustees of the Company as defined in "Management." See "Conflicts of Interest
Policies." Messrs. Pohanka and Rosenthal, as Trustees and as major holders of
Common Shares or Units, will be in a position to exercise influence over the
operations and affairs of the Company.
Terms of Initial Sale of Initial Properties by Affiliates of Messrs. Pohanka
and Rosenthal. The terms of the sale of certain Initial Properties and the
Initial Leases with Affiliates of Messrs. Pohanka and Rosenthal may be more
advantageous with respect to their Properties than the terms the Company will
attempt to negotiate with Sellers of future Properties.
Terms of Initial Leases for Lease of Initial Properties to Affiliates of
Messrs. Pohanka and Rosenthal. To the extent that Initial Lessees affiliated
with the Trustees exercise their rights to extend the Initial Lease for a
second Extended Term, the Initial Lessees will be required to negotiate a new
Base Annual Rent based on fair market value at the time of exercise of the
second Extended Term. The Trustees, to the extent they continue to sit on the
Board, may influence those negotiations and the terms of any such agreement.
In addition, the Trustees can influence the decision whether or not to take
action against an Initial Lessee or Guarantor affiliated with a Trustee in the
event of a default. The terms of any related party agreement or the
declaration of any default will require the authorization of a majority of the
Independent Trustees of the Company. See "--The Company is Dependent Upon
Dealers Generating Sufficient Revenues From Their Operations to Permit the
Lessees to Pay Rent and Fulfill Their Other Obligations Under the Leases--
Dependence on Guarantors for Payment of Rent and Performance of Lease Terms
Upon Default of Lessee."
Ability of Certain Trustees and Their Affiliates to Influence the Sale or
Refinancing of the Initial Properties. The Initial Lessees who are Affiliates
of certain Trustees have entered into Initial Leases that grant certain rights
to the Initial Lessees to repurchase the Initial Properties at such time as
the Company shall determine to sell an Initial Property and upon expiration of
an Extended Term of the Initial Lease. Mr. Pohanka or Mr. Rosenthal could
influence the Company's decision to sell, and the terms of sale of, any
Initial Property to an affiliated Initial Lessee. These Initial Lessees could
experience different and more adverse tax consequences compared to those
experienced by shareholders or other holders of Units upon the sale of, or
reduction of mortgage indebtedness on, certain Initial Properties. While the
Company, as the sole general partner of the Operating Partnership, has the
exclusive authority to determine whether and on what terms to sell or finance
certain Properties, such parties may have different objectives regarding the
appropriate pricing and timing of any
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sale of, or reduction of mortgage indebtedness on, such Properties. Affiliated
Trustees of the Company could influence the Company not to sell particular
Properties, or not to incur additional, or conversely, not to pay off
outstanding, indebtedness on particular Initial Properties, even though such
sales or financing might otherwise be financially advantageous to the Company
and its shareholders.
Pursuant to the lock-out provisions, the Company may not sell (except in
certain events, including certain transactions that would not result in the
recognition of any gain for tax purposes), or may be required to maintain
certain debt levels, for periods ranging from zero to seven years on certain
Initial Properties. Thus, the lock-out provisions materially restrict the
Company from selling or otherwise disposing of or refinancing such Initial
Properties. The lock-out provisions apply even if it would otherwise be in the
best interests of the shareholders for the Company to sell one or more of such
Initial Properties, reduce the outstanding indebtedness with, respect to any
of such Initial Properties or not refinance such indebtedness on a nonrecourse
basis at maturity, or increase the amount of indebtedness with respect to such
Initial Properties. Such possible future limitations, together with the lock-
out provisions, may restrict the ability of the Company to sell substantially
all of its assets, even if such a sale would be in the best interests of its
shareholders. See "Structure and Formation of the Company."
The lock-out provisions could impair the ability of the Company to take
actions during the lock-out period that would otherwise be in the best
interests of the shareholders and, therefore, may have an adverse impact on
the value of the Common Shares (relative to the value that would result if the
lock-out provisions did not exist). In particular, the lock-out provisions
could preclude the Company from participating in certain major transactions
that could result in a disposition of the Company's assets or a change in
control of the Company even though that disposition or change in control might
be in the best interests of the shareholders.
PURCHASE PRICES OF PROPERTIES HAVE NOT BEEN BASED ON INDEPENDENT APPRAISALS
AND AS A RESULT THE MARKET CAPITALIZATION OF THE COMPANY MAY EXCEED THE FAIR
MARKET VALUE OF THE COMPANY'S PROPERTIES IF DETERMINED BY APPRAISAL
The valuations of the Company's Properties have not, and in the future may
not, be determined by independent third-party appraisals. Therefore, the
consideration being paid by the Company for certain Properties may exceed the
fair market value of such Properties if determined by third-party appraisals.
The Company considers several methods of valuation including the review and
analyses of comparable properties and leases, discounted cash flow
calculations, valuing alternative uses of the Property, and evaluating the
financial strength of prospective Lessees. To the extent that Properties may
be purchased from Sellers whose affiliates hold positions with the Company,
including certain Trustees, the use of such valuation methodologies, and the
basis of negotiation of the purchase price, for such Properties may be
susceptible to conflict of interests. In connection with the acquisition of
Properties other than the Initial Properties, the Operating Partnership may
assign a value to Units for the purpose of determining the number of Units to
be issued in an acquisition below the market price at which the Common Shares
have been trading, which would result in the issuance of a greater number of
Units to the Seller.
Furthermore, management believes it is appropriate to value the Company as
an operating enterprise rather than at the values that could be obtained from
a liquidation of the Company or of individual Properties. Accordingly, the
valuation of the Company has been determined based on the factors set forth in
the section captioned "Underwriting." See "Underwriting." Because the
liquidation value of the Company may be less than the value of the Company as
a going concern, shareholders may suffer a loss in the value of their Common
Shares if the Company is required to sell the Properties or any other assets.
THE COMPANY'S LACK OF OPERATING HISTORY; NO ASSURANCE THAT THE COMPANY WILL BE
ABLE TO GENERATE SUFFICIENT REVENUE TO MAKE OR SUSTAIN DISTRIBUTIONS TO
SHAREHOLDERS
The Company has been recently organized and has no operating history. There
can be no assurance that the Company will be able to generate sufficient
revenue from operations to pay operating expenses of the Company and make or
sustain distributions to shareholders. See "Distributions." The Company also
will be subject to the
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risks generally associated with the formation of any new business. The
Company's management has extensive experience in the real estate industry but
has no experience operating a real estate investment trust and working
together.
The Company's ability to make and sustain cash distributions is based on
many factors, including the ability of the Company to make additional
acquisitions, investment of the proceeds of this Offering, ability to
negotiate favorable Lease terms, the Lessee's performance under Leases and
anticipated operating expense levels, which may not prove accurate and actual
results may vary substantially from estimates. Some of the factors are beyond
the control of the Company, and a change in any such factor could affect the
Company's ability to pay future distributions. No assurance can be given as to
the Company's ability to pay or maintain distributions. Neither is there an
assurance that the level of distributions will increase over time, that
contractual increases in rent under the leases of the Properties or the
receipt of rental revenue in connection with future acquisitions of Properties
will increase the Company's Actual Cash Available for Distribution to
shareholders. However, in the event of a default or a lease termination, there
could be a decrease or cessation of rental payments and thereby a decrease in
Actual Cash Available for Distribution. See "Distributions."
THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL COMPLETE ANY ADDITIONAL
ACQUISITIONS OF PROPERTIES
Apart from the Initial Properties, which the Company expects to acquire
within 60 days of the closing of the Offering, the Company has not completed
any acquisitions, financings or dispositions of Properties. There can be no
assurances that additional acquisitions of Properties or opportunities to
finance the development of Properties on terms that meet the Company's
investment criteria will be available to the Company or that the Company will
be successful in capitalizing on such opportunities.
Approximately 67% of the net proceeds of the Offering have not been
committed to the acquisition of Properties on the date of this Prospectus. The
Company cannot predict whether it will make future acquisitions for cash or
Units or any combination thereof.
Shareholders will not have an opportunity to approve or evaluate for
themselves the Properties acquired by the Company, the terms of such
acquisitions or the terms of the Leases. Shareholders must depend upon the
ability of management of the Company with respect to the selection of
Properties. Management has limited experience investing in Properties that are
used by Dealerships and Related Businesses.
RISK THAT THE COMPANY COULD BE TREATED AS AN INVESTMENT COMPANY IF PROCEEDS
HAVE NOT BEEN INVESTED WITHIN ONE YEAR
In order to maintain the Company's exemption from regulation under the
Investment Company Act, the Investment Company Act requires, among other
things, that the Company be primarily engaged in the business of purchasing or
otherwise acquiring mortgages and other liens on and interests in real estate,
within one year of the closing of the Offering. If the Company does not invest
a significant portion of the proceeds of this Offering in Properties within
one year of the closing date, the Company may temporarily invest any unused
proceeds in certain government securities that could yield lower returns than
other investments in order to avoid registering as an investment company and
becoming subject to the requirements of the Investment Company Act.
RISK OF LEVERAGE
The Company intends to use leverage, generally with a ratio of debt to total
market capitalization of not more than 50%. This policy may be changed by the
Board of Trustees without the approval of the shareholders. If the Company
modifies this strategy to permit a higher degree of leverage and incurs
additional indebtedness, debt service requirements would increase accordingly,
and such an increase could adversely affect the Company's financial condition
and results of operations. In addition, increased leverage could increase the
risk of default by the Company on its debt obligations, with the potential for
loss of the Properties secured thereby, cash available for distribution, and
asset values, of the Company.
In determining an appropriate level of leverage, the Company will utilize
its market capitalization rather than the aggregate book value of its assets.
The Company has chosen to use market capitalization because it
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believes that the book value of its assets (which is primarily the historic
cost of real property less depreciation) may not always accurately reflect its
ability to borrow and to meet debt service requirements. The market
capitalization of the Company, however, is more variable than book value, and
does not necessarily reflect the fair market value of the underlying assets of
the Company at all times. Although the Company will consider factors other
than market capitalization in making decisions regarding the incurrence of
debt (such as the purchase price of Properties to be acquired with debt
financing, the estimated market value of the Properties to be financed, and
the ability of particular Properties and the Company as a whole to generate
cash flow to cover expected debt service and to make distributions), there can
be no assurance that management decisions based on the ratio of debt to total
market capitalization (or to any other measures of asset value) will not
adversely affect the expected level of distributions to shareholders.
THE COMPANY WILL NOT EXERCISE CONTROL OVER THE MANAGEMENT OR MAINTENANCE OF
THE PROPERTIES
The Lessees will control the management or maintenance of the Properties
under the Leases. The Leases will generally require that the Lessees operate
the Properties in an efficient and professional manner and maintain the
Properties in good order, repair and appearance. During the terms of the
Leases, the Company will not have the authority to require any Lessees to
operate the Properties in a particular manner or to govern any particular
aspect of their operation except as set forth in the Leases. Thus, even if the
Company believes a Lessee is operating a Property in a manner adverse to the
Company's interests, the Company will not be able to require such Lessee to
change its method of operation. The Company is limited to seeking redress only
if a Lessee violates the terms of the Lease, in which case the Company's
primary remedy is to seek to enforce the Lease or terminate the Lease or, in
certain circumstances, proceed under a Guaranty, if any, and seek to recover
damages from such Lessee or to the extent applicable, any Guarantor of such
Lease.
DEPENDENCE ON KEY PERSONNEL
The loss of the services of Thomas D. Eckert, the Company's President and
Chief Executive Officer, Scott M. Stahr, the Company's Executive Vice
President and Chief Operating Officer, Donald L. Keithley, the Company's
Executive Vice-President of Business Development, or David S. Kay, the
Company's Vice President and Chief Financial Officer of the Company, could
have a material adverse effect on the Company, its operations and its business
prospects. The executive officers will receive substantial compensation from
the Company. See "Management--Executive Compensation," "Management--Employment
Agreements." The Company's success also depends upon its ability to attract
and maintain qualified personnel.
GEOGRAPHIC CONCENTRATION OF THE INITIAL PROPERTIES IN CERTAIN MARKETS RENDERS
THE COMPANY VULNERABLE TO LOCAL ECONOMIC CONDITIONS
Twenty Initial Properties representing approximately 70% of the aggregate
purchase prices for Initial Properties will be concentrated in the Washington,
D.C. Metropolitan area. The Company's revenues and the value of the Initial
Properties may be affected by a number of factors, including the local
economic climate (which may be adversely impacted by business layoffs or
downsizing, industry slowdowns, changing demographics and other factors). In
addition, local competitive conditions will affect the performance of the
Dealerships and Related Businesses. There can be no assurance that the Company
will be able to expand geographically, or that any such expansion will
adequately insulate it from the adverse effects of local or regional economic
conditions. See "Business of the Company and Properties--Washington, D.C.
Metropolitan Area."
GENERAL REAL ESTATE INVESTMENT RISKS
The Company's investments will be subject to the risks generally incident to
the ownership of real property, including: (i) reliance on the Lessees to pay
rent and perform their other obligations under the Leases, to generate
revenues to meet fixed obligations, and cover debt service on borrowings; (ii)
adverse changes in national or local economic conditions; (iii) changes in the
investment climate for real estate; (iv) changes in real estate tax rates and
other operating expenses; (v) adverse changes in governmental rules and fiscal
policies; (vi) acts of God which may result in uninsured losses; (vii) the
financial condition of the Sellers and Lessees; and (viii) other factors which
are beyond the control of the Company. These factors are discussed below:
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General Risks of Real Estate Investment. Real property investments are
subject to varying degrees of risk. The yields available from equity
investments in real estate depend in large part on the amount of rental income
earned and capital appreciation generated, as well as property operating and
other expenses incurred. If the Company's Properties do not generate revenues
sufficient to meet operating expenses the Company may have to borrow amounts
to cover fixed costs, and the Company's Actual Cash Available for Distribution
may be adversely affected.
The Leases require the Lessees to maintain the Properties and to return the
Properties to the Company at the end of the Lease term in good condition,
normal wear and tear excepted. The Company intends to collect one month's rent
as a security deposit from each Lessee. If the Lessee does not return the
Property to the Company in good condition, there is no assurance that the
security deposit will be sufficient to restore a Property, in which event the
Company would be required to expend its own funds to do so, which could be
significant.
Real Estate Tax Increases. Certain local real property tax assessors may
seek to reassess certain of the Properties as a result of the Formation
Transactions or future acquisitions of such Properties, which could result in
those Properties being subject to higher real estate tax rates. The Leases
permit the Company to pass through such increases to the Lessees for payment
but there is no assurance that renewal Leases or future Leases will be
negotiated on the same basis and no assurance that the Lessees will be able to
make such payments.
Operating Expense Increases. The Properties will be subject to operating
risks common to commercial real estate in general, any or all of which may
adversely affect the Company. The Properties will be subject to increases in
tax rates, utility costs, operating expenses, insurance costs, repairs and
maintenance and administrative expenses. While the Initial Properties will be
leased on a triple net basis, renewals of Leases or future Leases may not be
negotiated on that basis, in which event the Company will have to pay those
costs. If the Company is unable to lease Properties on a triple-net basis or
if the Lessees fail to pay required tax, utility and other impositions, the
Company could be required to pay those costs which could adversely affect
funds available for future acquisitions or the Company's Actual Cash Available
for Distribution.
Risks Associated With Illiquidity of Real Estate. Equity real estate
investments are relatively illiquid and therefore may tend to limit the
ability of the Company to react promptly to changes in economic or other
conditions. In addition, certain significant expenditures associated with
equity real estate investments (such as interest payments, real estate taxes
and maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investments.
GOVERNMENTAL REGULATIONS; ENVIRONMENTAL MATTERS
The Dealers and their Affiliates and the Company are subject to a wide range
of federal, state and local laws and regulations, such as local licensing
requirements, consumer protection laws and regulations relating to gasoline
storage, waste treatment and other environmental matters, including:
Environmental Laws. All real property and the operations conducted on real
property are subject to federal, state and local laws and regulations relating
to environmental protection and human health and safety, including those
governing wastewater discharges, air emissions, the operation and removal of
underground and above-ground storage tanks, the use, storage, treatment,
transportation and disposal of solid and hazardous materials and the
remediation of contamination associated with such disposal. Certain of these
laws and regulations may impose joint and several liability on certain
statutory classes of persons including lessees, owners or operators, for the
costs of investigation or remediation of contaminated properties, regardless
of fault or the legality of the original disposal.
The past and present business operations of the Dealers that are subject to
such laws and regulations include the use, storage, handling and contracting
for recycling or disposal of hazardous or toxic substances or wastes,
including environmentally sensitive materials such as motor oil, waste motor
oil and filters, transmission fluid, antifreeze, freon, waste paint and
lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline
and
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diesel fuels. The Company, Dealers, Lessees and Sellers may be subject to
other laws and regulations as a result of the past or present existence of
certain underground and/or above-ground storage tanks at the Properties. The
Dealers, Lessees or Sellers, like many of their competitors, have incurred,
and will continue to incur, capital and operating expenditures and other costs
in complying with such laws and regulations.
Certain laws and regulations, including those governing air emissions and
underground and above-ground storage tanks, have been amended so as to require
compliance with new or more stringent standards as of future dates. The
Company cannot predict what other environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations will
be administered or interpreted or what environmental conditions may be found
to exist in the future. Compliance with new or more stringent laws or
regulations, stricter interpretation of existing laws or the future discovery
of environmental contamination may require expenditures by the Company or
additional expenditures by the Dealers, Sellers or Lessees and their
Affiliates, some of which may be material. There can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability, or (ii) the current environmental condition of the
Properties will not be affected by the operations of the Dealerships or
Related Businesses or their Affiliates, by the condition of the land or
operations in vicinity of the Properties (such as the presence of underground
storage tanks) or by the activities of unrelated third parties. Under various
federal, state and local laws, ordinances and regulations, a current or
previous owner, developer or operator of real estate may be liable for the
costs of removal or remediation of certain hazardous or toxic substances at,
on, under or in its property. The costs of such removal or remediation could
be substantial. See "Business of the Company and Properties--Government
Regulations Affecting the Properties--Environmental Laws."
Limited environmental investigations have been conducted at certain of the
Initial Properties, with the results set out in "Phase 1 reports" prepared by
consultants retained by the Dealers and their Affiliates. The Phase 1 reports
describe environmental conditions of concern at certain of the Initial
Properties, including actual and potential releases of petroleum products from
underground storage tanks and the presence of asbestos-containing materials.
Based on the Phase 1 reports, the Company estimates that the aggregate cost
expected to remedy identified environmental conditions of concern will not be
material to the Company.
The Initial Sellers are obligated to indemnify the Company for any third
party claims based on environmental conditions, including claims by subsequent
purchasers of the Property, at a minimum until such time as any relevant
statute of limitations has run. In addition, the Initial Lessees and their
Affiliates are obligated to comply with, indemnify and hold harmless the
Company and its officers, directors, employees, shareholders, agents and
Affiliates from, and to assume the cost of compliance with, all laws and
regulations applicable to its Dealerships and Related Businesses, including
environmental laws and remediation requirements. However, if any Initial
Seller and Initial Lessee fail to comply with such requirements, the Company
could be forced to pay such costs, which at such time could be significant,
and then seek reimbursement of those costs from the Initial Seller and the
Initial Lessee. Moreover, in the event remedial action addressing
environmental conditions of concern identified in the Phase 1 reports is not
conducted by the Initial Sellers or Initial Lessees or their Affiliates
pursuant to environmental laws and regulations, it is possible that the
existence of those conditions could impede the Company's ability to sell or
re-lease the affected Initial Properties in the future or negatively impact
future sales or rental proceeds.
Americans With Disabilities Act of 1990. In addition, the Properties are
required to comply with Title III of the Americans with Disabilities Act of
1990 (the "ADA") to the extent that such properties are "public
accommodations" and/or "commercial facilities" as defined by the ADA. Although
the Company believes that each of the Initial Properties is in substantial
compliance with the ADA, no assurance can be given that any investigation of
the Initial Properties will not reveal non-compliance with the ADA or that the
requirements of the ADA will not be changed. Although the Lessee will have
primary responsibility for complying with the ADA, there is no assurance that
the Lessee will comply, or that the Company would be reimbursed by the Lessee
if the Company had to make expenditures to comply with the ADA. See "Business
of the Company and Properties--Governmental Regulations Affecting the
Properties--Americans With Disabilities Act of 1990."
28
<PAGE>
Other Regulations. The Properties are and will be subject to state and local
fire, life-safety and similar requirements. The Leases will require that each
Lessee comply with all regulatory requirements. Failure to comply with those
requirements could result in the imposition of fines by governmental
authorities, awards of damages to private litigants, or restrictions on the
ability to conduct business on such properties.
COMPETITION FROM OTHER COMPANIES WITH SIMILAR BUSINESS OBJECTIVES AND
STRATEGIES
The Company believes that it is the first publicly-offered REIT to focus
primarily on consolidating the Properties used by Dealers or Related
Businesses under one ownership structure. A subsidiary of Kimco Realty
Corporation, a diversified public real estate investment trust, has announced
that it will pursue the acquisition of properties used by Dealerships. Other
public or private entities may also target these types of properties for
acquisition, and some of those companies may have greater financial resources
or general real estate experience than the Company. Those entities will
compete with the Company in seeking Properties for acquisition and disposition
and re-leasing of Properties to Dealers as they become available. The Company
believes that competition for properties will primarily be on the basis of
acquisition price and rental rates. Competition could have the effect of
increasing acquisition prices and decreasing rents, which would have an
adverse affect on the financial results of the Company and distributions to
shareholders.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
Tax Liabilities as a Consequence of Failure to Qualify as a REIT. The
Company intends to operate its business so as to qualify as a REIT under the
Code commencing with its taxable year ending December 31, 1998. Although
management believes that the Company will be organized and will operate in
such a manner, no assurance can be given that the Company will be able to
operate in a manner so as to qualify as a REIT or remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual and others on a quarterly or more frequent basis)
established under highly technical and complex Code provisions for which there
are only limited judicial and administrative interpretations and involves the
determination of various factual matters and circumstances not entirely within
the Company's control. The complexity of these provisions and of the
applicable Treasury Regulations that have been promulgated under the Code is
greater in the case of a REIT that holds its assets in partnership form. In
addition, no assurance can be given that new legislation, regulations,
administrative interpretations or court decisions will not significantly
change the tax laws with respect to qualification as a REIT or the federal
income tax consequences of such qualification. The Company, however, is not
aware of any pending tax legislation that would adversely affect the Company's
ability to operate as a REIT.
Wilmer, Cutler & Pickering, counsel to the Company, will deliver its opinion
to the Company regarding the Company's ability to qualify as a REIT. See
"Certain Federal Income Tax Considerations--Taxation of the Company as a REIT"
and "Legal Matters." Such legal opinion will be based on various assumptions
and factual representations by the Company regarding the Company's ability to
meet the various requirements for qualification as a REIT, and no assurance
can be given that actual operating results will meet these requirements.
Wilmer, Cutler & Pickering has no obligation to advise the Company or its
shareholders of any subsequent change in the matters stated, represented or
assumed or of any subsequent change in applicable law. Such legal opinion is
not binding on the IRS or any court.
If the Company fails to qualify as a REIT in any taxable year, except as to
certain failures for which there may be statutory relief or imposition of
intermediate sanctions in the form of monetary penalties, the Company would be
subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates and would not be allowed
a deduction in computing its taxable income for amounts distributed to its
shareholders. This treatment would reduce the net earnings of the Company
available for investment or distribution to shareholders because of the
additional tax liability to the Company for the years involved. In addition,
unless entitled to relief under certain statutory provisions, the Company also
would be
29
<PAGE>
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification is lost. See "Certain Federal Income Tax
Consequences--Taxation of the Company as a REIT--Failure to Qualify." Although
the Company currently intends to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Company to fail to qualify as a REIT or may cause
the Board of Trustees to revoke the Company's REIT election.
Adverse Effects of REIT Minimum Distribution Requirements. To obtain the
favorable tax treatment accorded to REITs under the Code, the Company
generally will be required each year to distribute to its shareholders at
least 95% of its REIT taxable income. The Company will be subject to income
tax on any undistributed REIT taxable income and net capital gain, and to a 4%
non-deductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the
sum of (i) 85% of its ordinary income for the calendar year, (ii) 95% of its
capital gain net income for such year, and (iii) 100% of its undistributed
income from prior years.
The Company intends to make distributions to its shareholders to comply with
the distribution provisions of the Code and to avoid federal income taxes and
the non-deductible 4% excise tax. The Company's income will consist primarily
of its share of the income of the Operating Partnership, and the Company's
cash flow will consist primarily of its share of distributions from the
Operating Partnership. Differences in timing between the receipt of income and
the payment of expenses in arriving at taxable income (of the Company or the
Operating Partnership) and the effect of non-deductible capital expenditures,
the creation of reserves or required debt amortization payments could in the
future require the Company to borrow funds through the Operating Partnership
on a short-term or long-term basis to meet the distribution requirements that
are necessary to continue to qualify as a REIT. In such circumstances, the
Company might need to borrow funds to avoid adverse tax consequences even if
management believes that the then prevailing market conditions generally are
not favorable for such borrowings or that such borrowings are not advisable in
the absence of such tax considerations.
Distributions by the Operating Partnership are determined by the Company, as
general partner, and are dependent on a number of factors, including the
amount of Actual Cash Available For Distribution, the Operating Partnership's
financial condition, any decision by the Company's Board of Trustees to
reinvest funds rather than to distribute such funds, the Operating
Partnership's capital expenditure requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board of Trustees deems relevant. There can be no assurance that the
Company will be able to continue to satisfy the annual distribution
requirement so as to avoid corporate income taxation of the earnings that it
distributes.
Consequences of Failure to Qualify as a Partnership. Wilmer, Cutler &
Pickering will deliver an opinion to the Company stating that, assuming that
the Operating Partnership is being operated in accordance with its
organizational documents, the Operating Partnership has been and will continue
to be treated as a partnership, and not as a corporation, for federal income
tax purposes. Such opinion is not binding on the IRS. If the IRS were to
challenge successfully the status of the Operating Partnership as a
partnership for federal income tax purposes, the Operating Partnership would
be taxable as a corporation. In such event, the Company would cease to qualify
as a REIT for federal income tax purposes. The imposition of a corporate tax
on the Operating Partnership with a resulting loss of REIT status of the
Company, would reduce substantially the amount of cash available for
distribution to the Company's shareholders.
Risks Regarding Characterization of Initial Leases. Wilmer, Cutler &
Pickering is of the opinion that each Initial Lease will be treated as a true
lease for federal income tax purposes. Such opinion is not binding on the IRS.
If the IRS were to challenge successfully the characterization of the Initial
Leases as true leases, the Operating Partnership would not be treated as the
owner of the Property in question for federal income tax purposes and the
Operating Partnership would lose tax depreciation and cost recovery deduction
with respect to such Property, which in turn could cause the Company to fail
to qualify as a REIT. Although the Company will use its best efforts to
structure any leasing transaction for Properties acquired in the future such
that the Lease
30
<PAGE>
will be characterized as a "true lease' and the Operating Partnership will be
treated as the owner of the Property in question for federal income tax
purposes, the Company will not seek an advance ruling from the IRS and may not
seek an opinion of counsel (except with respect to the Initial Leases) that it
will be treated as the owner of any leased Properties for federal income tax
purposes, and thus there can be no assurance that future leases will be treated
as true leases for federal income tax purposes.
Other Tax Liabilities. Even if the Company qualifies as and maintains its
status as a REIT, it may be subject to certain federal income taxes if it has a
certain amount of non-qualified income. For example, if the Company has net
income from a "prohibited transaction," such income will be subject to a 100%
tax. See "Certain Federal Income Tax Consequences--Taxation of the Company as a
REIT--Requirements for Qualification." In addition, the Company will be subject
to state and local taxes on its income and property.
THE OWNERSHIP LIMIT
For the Company to maintain its qualification as a REIT under the Code, not
more than 50% in value of the outstanding shares of beneficial interest of the
Company may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) at any time during the last
half of the Company's taxable year (other than the first taxable year for which
the election to be treated as a REIT has been made).
To ensure that the Company will not fail to qualify as a REIT under this and
other tests under the Code, the Company's Declaration of Trust, subject to
certain exceptions, authorizes the Board of Trustees to take such actions as
are necessary and desirable to preserve its qualification as a REIT and to
limit any person to direct or indirect ownership of no more than (i) 9.9% of
the number of the outstanding Common Shares, or (ii) 9.9% of the number of
outstanding Preferred Shares or any series of Preferred Shares (the "Ownership
Limit"). The Company's Board of Trustees, upon receipt of a ruling from the
IRS, an opinion of counsel or other evidence satisfactory to the Board and upon
such other conditions as the Board may establish, may exempt a proposed
transferee from the Ownership Limit; provided that such exemption would not
result in the termination of the Company's status as a REIT. The Company has
waived the Ownership Limit with respect to the Representative and its
Affiliates to permit ownership of the Common Shares. The Company's Declaration
of Trust and the Operating Partnership's Partnership Agreement contain
provisions that require the approval of a majority of the Independent Trustees
of the Company for waiver of the Ownership Limit with respect to any Trustee or
his Affiliates. See "Description of Shares of Beneficial Interest--Restrictions
on Ownership and Transfer." The foregoing restrictions on transferability and
ownership will continue to apply until (i) the Board of Trustees determines
that it is no longer in the best interests of the Company to attempt to
qualify, or to continue to qualify, as a REIT, and (ii) there is an affirmative
vote of two-thirds of the votes entitled to be cast on such matter at a regular
or special meeting of the shareholders of the Company.
The Ownership Limit may have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a
premium price for the Common Shares or otherwise be in the best interest of the
shareholders. See "Description of Shares of Beneficial Interest--Restrictions
on Ownership and Transfer."
CERTAIN TAX AND ANTI-TAKEOVER PROVISIONS MAY INHIBIT A CHANGE IN CONTROL OF THE
COMPANY
Certain provisions contained in the Declaration of Trust and Bylaws and the
Maryland General Corporation Law (the "MGCL"), as applicable to Maryland REITs,
may have the effect of discouraging a third party from making an acquisition
proposal for the Company and may thereby delay, deter or prevent a change in
control of the Company or the removal of existing management and, as a result,
could prevent shareholders from being paid a premium for their Common Shares
over then-prevailing market prices. See "Description of Shares of Beneficial
Interest--Restrictions on Ownership and Transfer" and "--Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws." These
provisions are described below:
Ownership Limit. The Ownership Limit provides that no person or entity may
own, or be deemed to own more than 9.9% of the Common Shares or Preferred
Shares of the Company, unless waived by the Board of
31
<PAGE>
Trustees. See "--The Ownership Limit." The foregoing ownership limitations may
have the effect of precluding acquisition of control of the Company without
the consent of the Board of Trustees and, consequently, shareholders may be
unable to realize a premium for their shares over the then-prevailing market
price (a premium is customarily associated with such acquisitions). See
"Description of Shares of Beneficial Interest--Restrictions on Ownership and
Transfer."
Removal of Trustees; Vacancies. The Company's Declaration provides that a
Trustee may only be removed upon the affirmative vote of holders of two-thirds
of the outstanding Common Shares of the Company. Vacancies may only be filled
by the Board of Trustees. This requirement makes it more difficult to change
the management of the Company by removing and replacing Trustees.
Preferred Shares. The Declaration of Trust permits the Board of Trustees to
issue up to 20 million Preferred Shares, issuable in one or more classes or
series. The Board of Trustees may classify or reclassify any unissued
Preferred Shares and establish the preferences and rights (including the right
to vote, participate in earnings, and to convert into Common Shares) of any
such Preferred Shares. Thus, the Board of Trustees could authorize the
issuance of Preferred Shares with terms and conditions which could have the
effect of discouraging a takeover or other transaction in which holders of
some or a majority of the Common Shares might receive a premium for their
Common Shares over the then-prevailing market price of such Common Shares. See
"Description of Shares of Beneficial Interest--Preferred Shares."
Maryland Business Combination Statute. Under the MGCL, as applicable to
Maryland REITs, certain "Business Combinations" (including certain issuances
of equity securities) between a Maryland REIT such as the Company and any
person who owns 10% or more of the voting power of the Company's beneficial
interests or an Affiliate of the trust which, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more
of the voting shares of beneficial interest of then-outstanding voting shares
of beneficial interest of the Company (an "Interested Shareholder"), are
prohibited for five years after the most recent date on which the Interested
Shareholder became an Interested Shareholder. Thereafter, any such "Business
Combination" must be approved by a super-majority shareholder vote unless,
among other things, the holders of shares of beneficial interest receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. As permitted by the MGCL, the Declaration of Trust
exempts any "Business Combinations" involving the issuance of Common Shares to
any Initial Seller upon the exchange of Units acquired by any of them in
connection with the Formation Transactions or the acquisition by any of them
of any additional shares of beneficial interest in the Company. Accordingly,
the five-year prohibition and the super-majority vote requirement will not
apply to any "Business Combinations" between the Sellers and the Company. As a
result, the Sellers may be able to enter into "Business Combinations" with the
Company, which may or may not be in the best interests of the shareholders,
without the super-majority shareholder approval. See "Description of Shares of
Beneficial Interest--Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws--Business Combinations."
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
investments, financing, growth, debt capitalization, REIT qualification and
distributions, are determined by the Board of Trustees. Although it has no
present intention to do so, the Board of Trustees may amend or revise these
and other policies from time to time without a vote of the shareholders.
Accordingly, shareholders will have limited control over changes in policies
of the Company.
NO PRIOR MARKET FOR COMMON SHARES
Prior to this Offering, there has been no public market for the Common
Shares. Although the Company has applied for listing of the Common Shares on
the Nasdaq National Market, there can be no assurance that an
32
<PAGE>
active trading market will develop. The initial public offering price will be
determined through negotiations between the Company and the Underwriters and
may not be indicative of the market price of the Common Shares after the
Offering. See "Underwriting."
EFFECT OF MARKET INTEREST RATES ON SHARE PRICES
One of the factors that may influence the price of the Common Shares in
public markets will be the annual yield on the price paid for Common Shares
from distributions by the Company. Thus, an increase in market interest rates
may lead purchasers of Common Shares to demand a higher annual yield, which
could adversely affect the market price of the Common Shares.
POSSIBLE ADVERSE EFFECTS ON SHARE PRICE ARISING FROM COMMON SHARES ELIGIBLE
FOR FUTURE SALE
No prediction can be made as to the effect, if any, of future sales of
Common Shares, or the availability of shares for future sales, on the market
price of the Common Shares. Sales of substantial amounts of Common Shares
(including approximately up to 5,041,549 Common Shares issuable upon the
exchange of Units, issued in connection with the acquisition of the Initial
Properties; up to 2,828,314 Common Shares issuable upon exercise of options
under the Plan; up to 1,792,115 Common Shares issued to FBR Asset Investment
Corportion; up to 1,277,794 Common Shares issuable on exercise of the
Underwriting Warrants and up to 1,414,158 Common Shares issuable on conversion
of the Units issued on exercise of the Dealer Warrants, (all assuming exercise
of the Underwriters' over-allotment option in full)), or the perception that
such sales could occur, may adversely affect prevailing market prices for the
Common Shares. Such Common Shares and Units will be deemed to be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may
not be transferred unless such Common Shares or Units have been registered
under the Securities Act or an exemption from registration is available,
including any exemption from registration provided under Rule 144. In general,
upon satisfaction of certain conditions, Rule 144 permits the sale of certain
amounts of restricted securities one year following the date of acquisition of
the restricted securities from the Company and, after two years, permits
unlimited sales by persons unaffiliated with the Company.
Upon the completion of the Offering and the consummation of the Formation
Transactions, the Company will have 21,792,115 Common Shares outstanding
(24,792,115 Common Shares if the Underwriters' over-allotment option is
exercised in full), of which 20,000,000 Common Shares (23,000,000 Common
Shares if the Underwriters' over-allotment option is exercised in full) will
be freely tradeable in the public market by persons other than "Affiliates" of
the Company without restriction or registration under the Securities Act. The
Company's officers and Trustees have agreed not to offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose of
(or announce any offer, sale, offer of sale, contract of sale, grant of any
option to purchase or other sale or disposition of) any Common Shares or other
shares of beneficial interest of the Company, or any securities convertible or
exercisable or exchangeable for any Units or Common Shares or other shares of
beneficial interest of the Company (other than pursuant to the Plan), for a
period of two years from the date of this Prospectus without the prior written
consent of the Representative, subject to certain limited exceptions. The
Representative, at any time and without notice, may release all or any portion
of the Common Shares or Units subject to the foregoing lock-up agreements.
If the Company exercises its option to deliver Common Shares upon the
redemption of Units, the Partnership Agreement provides that the Company will
deliver registered Common Shares to the holder. The Company has also granted
demand and piggyback registration rights to register the Common Shares being
privately placed with FBR Asset Investment Corporation. See "Common Shares
Eligible for Future Shares--Registration Rights."
The Company may issue from time to time additional Common Shares or Units in
connection with the acquisition of Properties. See "Business of the Company
and Properties--Strategy." The Company anticipates that it will file a
registration statement with respect to the Common Shares issuable upon
exercise of options under the Plan following or concurrent with the completion
of this Offering. Such registration statement generally will allow Common
Shares covered thereby to be transferred or resold with fewer restrictions
under the Securities Act. See "Common Shares Eligible for Future Sale."
33
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the sale of the Common Shares offered
hereby, net of the estimated underwriting discounts and expenses of the
Offering, are expected to be approximately $277.4 million ($319.2 million if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price per share of $15.00. In addition, the Company
will receive an aggregate of $25 million from the proceeds of the FBR
Offering. The Company will use the net proceeds of the Offering to acquire
21,792,115 Units (24,792,115 Units if the Underwriters' over-allotment option
is exercised in full) (representing an 81.2% interest in the Operating
Partnership (83.1% if the Underwriters' over-allotment option is exercised in
full)). The Operating Partnership will use the net proceeds of the Offering as
follows:
<TABLE>
<CAPTION>
PROCEEDS OF
PUBLIC
OFFERING AND
FBR OFFERING
------------
(IN
THOUSANDS)
<S> <C>
Gross Offering Proceeds.......................................... $325,000
--------
Less Public Offering Expenses:
Estimated Offering Expenses.................................. $ 1,650
Estimated Underwriting Discounts and Commissions............. 21,000
--------
Subtotal................................................... $ 22,650
========
Repayment of FBR Loan (1)........................................ $ 2,325
--------
Repayment of Mortgage Debt Assumed on Certain Initial Properties
(Loan Balance as of December 31, 1997):
Pohanka Automotive Group (2)................................. $ 13,259
Rosenthal Automotive Organization (3)........................ 13,694
Sheehy Auto Stores (4)....................................... 9,574
Cherner Automotive Group (5)................................. 4,771
--------
Subtotal................................................... $ 41,298
========
Acquisition of Certain Initial Properties:
Cross-Continent Auto Retailers............................... $ 35,330
Good News Auto Mall.......................................... 5,461
Kline Automotive Group....................................... 8,510
--------
Subtotal................................................... $ 49,301
========
Amount Available for Future Investment in Properties and for
General Working Capital Purposes................................ $209,426
========
</TABLE>
- --------
(1) The proceeds of the FBR Loan were used to pay the operating expenses of
the Company pending the closing of this Offering. The FBR Loan is payable
on the earlier of (a) demand or (b) the closing of this Offering and
accrues interest at the rate of 10%.
(2) The two assumed mortgage loans mature on April 7, 2003 and November 1,
2000, respectively, and accrue interest at a weighted average interest
rate of 8.5% as of December 31, 1997.
(3) Three of the four assumed mortgage loans mature on June 1, 2006 and the
fourth assumed mortgage loan matures of October 1, 2007. The four assumed
mortgage loans accrue interest at a weighted average interest rate of
7.95% as of December 31, 1997.
(4) Three of the six assumed mortgage loans mature on May 29, 2002 and the
other three mortgage loans are payable on demand. The six assumed mortgage
loans accrue interest at a weighted average interest rate of 8.24% as of
December 31, 1997.
(5) The two assumed mortgage loans mature on July 21, 2005 and July 21, 2000,
respectively, and accrue interest at a weighted average rate of 8.22% as
of December 31, 1997.
34
<PAGE>
The Company expects to enter into a bank line of credit with NationsBank,
N.A. for $10 million and to borrow approximately $5 million at closing
(approximately $2.5 million of which will be guaranteed by Affiliates of Mr.
Rosenthal and approximately $2.5 million of which will be guaranteed by
Affiliates of Mr. Sheehy). The NationsBank line of credit will be secured by a
cash collateral account. While the Company may engage from time to time in
discussions regarding potential acquisitions, it has not entered into any
agreement as of the date of this Prospectus to make any such acquisition.
Pending the described uses, any remaining net proceeds will be invested in
short-term readily marketable interest-bearing securities, interest-bearing
bank accounts, certificates of deposit, money market securities, U.S.
government securities or mortgage-backed securities.
35
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 20, 1997, and pro forma as adjusted to give effect to the completion
of the Offering (assuming no exercise of the Underwriters' over-allotment
option) and the completion of the concurrent FBR Offering. The table should be
read in conjunction with the historical and unaudited pro forma financial
information of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
HISTORICAL OCTOBER 20,
OCTOBER 20, 1997
1997 (UNAUDITED)
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt outstanding under Line of Credit.................. $-- $ 5,000
Minority Interest...................................... -- 71,014
Shareholders' Equity:
Preferred Shares of Beneficial Interest:
Preferred Shares, par value $.01 per share; 20 mil-
lion authorized; no shares outstanding historical;
no shares outstanding pro forma................... -- --
Common Shares of Beneficial Interest:
Common Shares, par value $.01 per share; 100
million authorized; 10 shares outstanding
historical; 21,792,115 shares outstanding pro
forma as adjusted(1).............................. -- 218
Additional Paid-in Capital........................... -- 306,742
---- --------
Total Shareholders' Equity......................... -- 306,960
---- --------
Total Capitalization............................... $-- $382,974
==== ========
</TABLE>
- --------
(1) Excludes 3,000,000 Common Shares reserved for the Underwriters' over-
allotment option, 5,041,549 Common Shares reserved for issuance upon
redemption of the Units issuable in connection with the acquisition of
certain Initial Properties, 2,828,314 Common Shares and Units reserved for
issuance pursuant to the Company's Plan, of which options to acquire
26,667 Common Shares and 2,448,107 Units have been granted, 1,277,794
Common Shares issuable upon exercise of the Underwriting Warrants and an
aggregate of 1,414,158 Common Shares issuable upon conversion of Units
issuable upon exercise of the Dealer Warrants (in each case assuming
exercise of the Underwriters' over-allotment option in full). See
"Structure and Formation of the Company," "Management--1998 Equity
Incentive Plan" and "Related Transactions."
36
<PAGE>
DILUTION
The Company expects there will be no substantial difference between the
initial public offering price per Common Share and effective cash cost per
Common Share paid in the Offering and the FBR Offering. Accordingly, the
Company expects there will be no material dilution to new investors purchasing
Common Shares in this Offering, except for the payment of Underwriters'
discounts and commissions and other expenses of this Offering. The Company
expects that the dilution per Common Share will be approximately $.91,
determined by subtracting pro forma net tangible book value, after giving
effect to the Offering and the Formation Transactions, from the initial public
offering price paid by a new investor for a Common Share.
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CONFLICTS OF INTEREST POLICIES
The Company could be subject to various conflicts of interest arising from
its relationship with Mr. Pohanka or Mr. Rosenthal, who have agreed to join
the Board of Trustees of the Company prior to the closing of this Offering,
and certain Initial Sellers and Initial Lessees who are Affiliates of Mr.
Pohanka or Mr. Rosenthal. In order to mitigate any potential conflicts of
interest, the Company's Declaration of Trust contains a requirement that any
transaction involving the Company and a Trustee or an Affiliate of any Trustee
or any agreement to which they are a party or an increase in the Ownership
Limit for any Trustee or his Affiliate will require the approval of a majority
of the Independent Trustees of the Company. However, there can be no assurance
that these policies will be successful in all cases in eliminating the
influence of the Trustees, and if they are not successful, decisions could be
made that might fail to reflect fully the interest of the shareholders. See
"Risk Factors--Conflicts of Interest." The potential conflicts include:
Ability of Messrs. Pohanka and Rosenthal to Influence the Company. Assuming
(i) conversion of the Units issued to Affiliates of Messrs. Pohanka and
Rosenthal to acquire certain Initial Properties into Common Shares, (ii)
exercise of the Dealer Warrants and conversion of the Units to Common Shares,
and (iii) the purchase of $13 million of Common Shares in this Offering by
Mr. Pohanka and his family, Mr. Pohanka and his Affiliates will own 9.56% and
Mr. Rosenthal and his Affiliates will own 14.27% of the outstanding Common
Shares (including exercise of the Underwriters' over-allotment option in full)
on a fully diluted and converted basis. The Units may be redeemed for Common
Shares at the option of the Company, up to the Company's 9.9% ownership limit
for Common Shares. The approval of the majority of the Independent Trustees of
the Company will be required to waive the Ownership Limit for Trustees or
their Affiliates under the Company's Declaration or Trust. As Trustees and
major holders of Common Shares or Units, Messrs. Pohanka and Rosenthal will be
in a position to exercise influence over the operations and affairs of the
Company.
Terms of Sale and Lease of Properties. The Company has separately negotiated
the terms of the acquisition of the Initial Properties to be acquired by the
Company and the terms of the Initial Leases for those Initial Properties with
each of the Initial Sellers, including with each of Mr. Pohanka and Mr.
Rosenthal. Because Messrs. Pohanka and Rosenthal will join the Board as
Trustees, they may have had greater leverage to negotiate the terms of the
contribution agreements and Initial Leases covering the Initial Properties to
be sold by their respective Affiliates.
Exercise of Rights and Obligations under Agreements with Company. Each of
the contribution agreements for the acquisition of Properties and the Leases
for such Properties contain certain continuing covenants, including, but not
limited to, obligations relating to (i) indemnification, (ii) payment of rent,
(iii) delivery of information, (iv) maintenance and repair of Properties, (v)
use of the Properties, and (vi) assignment and subletting. Failure to meet any
or all of the above obligations could constitute an event of default under the
relevant agreement or otherwise provide the Company with legal recourse to
seek enforcement of the obligation or monetary damages. Because Messrs.
Pohanka and Rosenthal will be Trustees of the Company, each of them could
influence the Company's decision to take legal action or otherwise declare a
default with respect to the failure of any related Seller or Lessee to perform
its obligations under any Agreement with the Company.
Ability of Messrs. Pohanka and Rosenthal and Their Affiliates to Influence
the Sale or Refinancing of the Initial Properties. The Initial Lessees, who
are Affiliates of Messrs. Pohanka and Rosenthal, have entered into Initial
Leases that grant certain rights to the Initial Lessees to repurchase the
Initial Properties at such time as the Company shall determine to sell an
Initial Property or upon expiration of an Extended Term of the Initial Lease.
Messrs. Pohanka or Rosenthal could influence the timing of the Company's
decision to sell, the selection of a particular Initial Property to be sold,
and the decision of the Company to accept or reject any offer by any Initial
Lessee or third party. These Initial Lessees could experience different and
more adverse tax consequences compared to those experienced by shareholders or
other holders of Units upon the sale of, or reduction of mortgage indebtedness
on, or financing of, certain Properties. While the Company, as the sole
general partner of the Operating Partnership, has the exclusive authority to
determine whether and on what terms to sell or finance certain Properties,
such parties may have different objectives regarding the appropriate pricing
and timing of any sale of, or reduction of mortgage indebtedness on, such
Properties. Messrs. Pohanka or Rosenthal could influence the Company not to
sell particular Properties, or not to incur additional, or conversely, not to
pay off outstanding,
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indebtedness on particular Initial Properties, even though such sales or
financing might otherwise be financially advantageous to the Company and its
shareholders.
Pursuant to the lock-out provisions, the Company may not sell (except in
certain events, including certain transactions that would not result in the
recognition of any gain for tax purposes) or may be required to maintain
certain debt levels, for periods ranging from zero to seven years on certain
Initial Properties. Thus, the lock-out provisions materially restrict the
Company from selling or otherwise disposing of or refinancing such Initial
Properties without obtaining the consent of such Initial Sellers. The lock-out
provisions apply even if it would otherwise be in the best interests of the
shareholders for the Company to sell one or more of such Initial Properties,
reduce the outstanding indebtedness with respect to any of such Initial
Properties or not refinance such indebtedness on a nonrecourse basis at
maturity, or increase the amount of indebtedness with respect to such Initial
Properties. In addition, the lock-out provisions could preclude the Company
from participating in certain major transactions that could result in a
disposition of the Company or a change in control of the Company even though
that disposition or change in control might be in the best interests of the
shareholders.
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SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary selected historical and pro forma
financial information for the Company. The unaudited pro forma operating
information is presented as if the Formation Transactions had occurred as of
the beginning of the period indicated and therefore incorporates certain
assumptions that are included in the Company's Unaudited Pro Forma Financial
Statements. The unaudited pro forma balance sheet information is presented as
if the Formation Transactions had occurred on October 20, 1997. The unaudited
pro forma information does not purport to represent what the Company's
financial position or results of operations actually would have been had the
Formation Transactions, in fact, occurred on such date or at the beginning of
the period indicated, or to project the Company's financial position or
results of operations at any future date or for any future period. The
historical and unaudited pro forma financial information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PRO FORMA FOR THE
PERIOD FROM PRO FORMA
JANUARY 1, 1997 YEAR ENDED
THROUGH DECEMBER 31,
OCTOBER 20, 1997 1996
----------------- ------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Rental income(1)........................... $16,028 $18,318
General and administrative expenses(2)..... 3,063 3,500
Depreciation(3)............................ 2,545 2,909
Minority interest(4)....................... 1,881 2,149
Interest expense........................... 411 470
Net earnings to Common Shareholders........ 8,128 9,290
Net earnings per Common Share.............. 1.05 1.21
Weighted average Common Shares
outstanding(5)............................ 7,705 7,705
<CAPTION>
PRO FORMA HISTORICAL
OCTOBER 20, OCTOBER 20,
1997 1997
----------------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Real estate owned, at cost................. $166,223 $ --
Total assets............................... 384,501 --
Debt outstanding under line of credit...... 5,000 --
Minority interest.......................... 71,014 --
Total shareholders' equity................. 306,960 --
</TABLE>
- --------
(1) Represents rental income from the Initial Lessees recorded in accordance
with the terms of the Initial Leases as if all Initial Properties had been
subject to the Initial Leases for the entire period.
(2) Represents management's estimates of general and administrative expenses.
(3) Represents depreciation of the building and improvements as allocated from
the purchase prices of the Initial Properties over a 20-year period.
(4) Represents approximately 18.8% of the Operating Partnership's net
earnings.
(5) Represents the number of Common Shares whose proceeds will be used to
repay mortgage debt assumed and to acquire the Initial Properties. If the
total number of Common Shares issued in the Offering and the FBR Offering
had been used, weighted average Common Shares outstanding would be 21,792
for both the year ended December 31, 1996 and for the period ended October
20, 1997, resulting in net earnings per Common Share of $0.43 and $0.37
for the year ended December 31, 1996 and the period ended October 20,
1997, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was organized as a Maryland REIT on October 20, 1997, and
intends to make an election to qualify under the Code as a REIT commencing
with its taxable year ending December 31, 1998. Substantially all of the
Company's initial revenues are expected to be derived from: (i) rents received
under long-term triple-net Leases of Properties operated as Dealerships and
Related Businesses, including 36 Initial Properties the Company anticipates
acquiring upon the completion of this Offering and which the Company
thereafter will lease back to the Initial Lessees pursuant to the Initial
Leases (which are in some cases guaranteed by affiliated Guarantors) and (ii)
interest earned from the temporary investment of funds in short-term
investments. The Initial Base Annual Rent for each Initial Property under the
Initial Leases is initially set at a fixed amount and the Base Annual Rent
will be adjusted upward periodically based on a factor of the CPI. The CPI
adjustments range from one-half of CPI adjusted every other year to full CPI
adjusted every year. Certain Initial Leases establish minimum or maximum
adjustment rates that range from zero to 3% of base annual rents.
The Company will incur operating and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, professional fees and various expenses incurred in the process of
acquiring additional Properties. The Company will be self-administered and
managed by its executive officers and staff, and will not engage a separate
advisor or pay an advisory fee for services, although the Company will engage
legal, accounting, tax and financial advisors from time to time.
The primary non-cash expense of the Company will be the depreciation of its
Properties. The Company expects to depreciate buildings and improvements on
the Initial Properties over a 39.5-year and 20-year period for tax and
financial reporting purposes, respectively. The Company will not own or lease
any personal property, furniture or equipment at any Initial Property.
The Company also expects to employ leverage, using a combination of debt or
other equity securities and a bank credit facility, to fund additional
investments, and will incur long and short-term indebtedness, and related
interest expense, from time to time. See "Risk Factors--There Can be No
Assurance That the Company Will Complete Any Additional Acquisitions of
Properties or that the Company Will Not be Treated as an Investment Company."
The Company intends to make distributions to its shareholders in amounts not
less than the amounts required to maintain REIT status under the Code. The
Company's ability to make distributions will depend on actual results of
operations, including (i) the timing of the investment of the proceeds of the
Offering and the FBR Offering, (ii) the rent received from the Lessees, (iii)
the ability of the Lessees of the Properties to meet their obligations under
the Leases, and (iv) the operating expenses of the Company.
RESULTS OF OPERATIONS
The Company has had no operations prior to October 20, 1997 (the date of
organization). The Company's future results of operations will depend upon the
Company's receipt of payments under the Initial Leases, the acquisition of the
additional Properties, and the terms of any other investments the Company may
make.
PRO FORMA RESULTS OF OPERATIONS
The aggregate acquisition price for the Initial Properties will be $166.2
million, including the assumption of aggregate indebtedness of $41.3 million.
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Properties, rental income would have been $18.3
million for the year ended December 31, 1996 and $16 million for the period
ended October 20, 1997. Estimated expenses, including depreciation and
amortization, general and administrative expense, and interest expense, would
have been $6.9 million and $6 million for the year ended December 31, 1996 and
the period ended October 20, 1997,
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<PAGE>
respectively. Net earnings would have been $9.3 million or $1.21 per Common
Share for the year ended December 31, 1996, and $8.1 million or $1.05 per
Common Share for the period ended October 20, 1997 (net earnings per Common
Share would have been $0.43 and $0.37 for the year ended December 31, 1996 and
the period ended October 20, 1997, respectively, if the Common Shares
outstanding had included the Offering and the FBR Offering). Pro forma rental
income is recorded in accordance with the terms of the Initial Leases as if
all of the Initial Leases had been in effect for the entire period. Additional
information relating to the adjustments and assumptions made for pro forma
results of operations is reflected in the Company's Unaudited Pro Forma
Financial Statements, located elsewhere in this Prospectus. See "Selected
Financial Information."
Environmental Matters. Each Initial Lease and Contribution Agreement
provides for various representations and warranties by the Initial Lessee and
Initial Seller, respectively, relating to environmental matters with respect
to each Initial Property. The Phase 1 reports indicate that petroleum products
have been released from leaking underground storage tanks removed from three
of the Initial Properties and asbestos is present at two of the Initial
Properties. Each Initial Lease and Contribution Agreement requires the Initial
Lessee to indemnify and hold harmless the Company from and against third party
liabilities, costs and expenses imposed upon or asserted against the Company
or the Initial Property on account of, among other things, any federal, state
or local law, ordinance, regulation, order or decree relating to the
protection of human health or the environment in respect of the Initial
Property. Each Initial Lessee is obligated to comply with all environmental
laws. Notwithstanding the environmental laws impose liabilities on the owner
of property. The Company, therefore, could incur liabilities regardless of the
Initial Lease provisions, especially if the Initial Lessee defaults on its
obligations to the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that the proceeds of the Offering and the FBR
Offering, together with its cash from operations, and any bank credit facility
anticipated to be available to the Company, will provide adequate liquidity to
acquire additional Properties, conduct its operations, fund administrative and
operating costs, interest payments and acquisitions, and allow distributions
to shareholders in accordance with the Code's requirements for qualification
as a REIT and to avoid any corporate level federal income or excise tax.
In order to qualify as a REIT for federal income tax purposes, the Company
will be required to make substantial distributions to its shareholders. The
following factors, among others, will affect Funds from Operations and will
influence the decisions of the Board of Trustees regarding distributions: (i)
increases in Annual Base Rent under the Leases; and (ii) returns from short-
term investments pending application of the net proceeds of the Offering.
Although the Company will receive most of its rental payments on a monthly
basis, it intends to make distributions quarterly. Amounts accumulated for
distribution will be invested by the Company in short-term investments.
Under the terms of the Initial Leases, each Initial Lessee is responsible
for substantially all expenses associated with the operation of the related
Initial Property, such as taxes and other governmental charges, insurance,
utilities, service, maintenance and any ground lease payments. See "Business
of the Company and Properties--The Initial Properties, Leases and
Dealerships." As a result of these arrangements, the Company does not believe
it will be responsible for any major expenses in connection with the Initial
Properties during the terms of the respective Initial Leases. The Company
anticipates entering into similar Leases with respect to additional
Properties. After the terms of any respective Lease expires, or in the event a
Lessee is unable to meet its obligations, the Company anticipates that any
expenditures it might become responsible for in maintaining the related
Property will be funded by cash from operations and, in the case of major
expenditures, possibly by borrowings. To the extent that unanticipated
expenditures or significant borrowings are required, the Company's Funds from
Operations and liquidity may be adversely affected.
Other than the purchase of the Initial Properties (including the repayment
of Mortgage Debt) and the repayment of the FBR Loan, the Company has no
commitments to make other capital expenditures at the date of this Prospectus.
The Company may raise additional long-term capital by issuing, in public or
private transactions,
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<PAGE>
debt or other equity securities, but the availability and terms of any such
issuance will depend upon the market and other conditions. The Company
anticipates that as a result of its initially low ratio of debt to total market
capitalization and its intention to maintain such ratio at no more than 50%, it
will be able to obtain financing for its long-term capital needs. However,
there can be no assurance that additional financing or capital will be
available on terms acceptable to the Company. The Company intends to enter into
a bank credit facility with NationsBank, N.A. for $10 million, approximately $5
million of which will be drawn down at the closing of the Offering. The
NationsBank line of credit will be secured by a cash collateral account of the
Company. The Company also intends to obtain an additional line of credit for
acquisition of Properties after the closing of this Offering and may borrow
additional amounts in connection with the acquisition of additional Properties,
the renovation or expansion of Properties, or, as necessary, to meet certain
distribution requirements imposed on a REIT under the Code.
Acquisitions will be made subject to the investment objectives and policies
to maximize both current income and long-term growth in income described
elsewhere in this Prospectus. The Company's liquidity requirements with respect
to future acquisitions may be reduced to the extent the Company uses Common
Shares or Units as consideration for such purchases.
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<PAGE>
BUSINESS OF THE COMPANY AND PROPERTIES
OVERVIEW
The Company is a newly organized self-administered and self-managed Maryland
REIT formed on October 20, 1997 to invest in the real property and
improvements used by Dealers of multi-site, multi-franchised Dealerships and
Related Businesses located in major metropolitan areas throughout the United
States. The Company is the first publicly-offered REIT formed primarily to
acquire and lease back Properties for use by Dealers.
The Company has entered into agreements to acquire 36 Initial Properties on
which 54 franchisees of 24 brands are located. Twenty of the Initial
Properties are located in the Washington, D.C. Metropolitan Area, which
Initial Properties are operated by four of the top 20 Dealers in the
Washington, D.C. Metropolitan Area, as measured by total new vehicles sold in
1996. Other Initial Properties are located in Colorado, the eastern shore of
Maryland, Nevada, Pennsylvania, Texas and southern Virginia. Dealers located
on the Initial Properties sell domestic and imported luxury, family, economy,
and sport utility vehicles, trucks and vans, including Mercedes-Benz, Honda,
Toyota, Lexus, Chevrolet, Saturn, Ford, GMC, Mazda, Infiniti, Jaguar, Acura,
Lincoln-Mercury, Mitsubishi and Nissan. The Initial Properties have been
purchased from the Initial Sellers, each of whom is an Affiliate of a Dealer
and will be leased back to the Initial Lessees. The Initial Leases will be
long-term leases that require the Initial Lessees to pay all operating costs
of the Initial Properties, as well as all real estate taxes, utilities,
insurance, repairs, maintenance and other expenses (commonly referred to as
"triple net" leases).
The Initial Lessees are Affiliates of Pohanka, Rosenthal, Sheehy, Cherner,
Cross-Continent, Good News and Kline. Intial Sellers affiliated with Pohanka,
Rosenthal, Sheehy and Cherner will own 1,204,342; 3,438,298; 295,439; and
103,470 Units, respectively, in the Operating Partnership. Each of Messrs.
Pohanka and Rosenthal will also have the right to acquire 707,079 Units (equal
to 2% of the Common Shares to be outstanding on the closing of the Offering
(including exercise of the Underwriters' over-allotment option in full) on a
fully diluted basis). Messrs. Pohanka and Rosenthal have agreed to join the
Company's Board of Trustees prior to the closing of the Offering. Mr. Pohanka
and his family have also advised the Representative that they intend to
purchase up to $13 million of registered Common Shares in this Offering.
The Company has employees located in Chicago, Los Angeles and Naples,
Florida who will be responsible for identifying and negotiating acquisitions
of Properties. The Company expects to identify Dealers through existing
contacts, existing Sellers, participation in professional organizations or
through other methods or by Dealers contacting the Company.
Thomas D. Eckert, President and Chief Executive Officer, Scott M. Stahr,
Executive Vice President and Chief Operating Officer, Donald L. Keithley,
Executive Vice President of Business Development, and David S. Kay, Vice
President and Chief Financial Officer, the Company's executive officers, have
22; 12; 38; and 10 years of experience, respectively, in the real estate,
financial and motor vehicle industries, although they do not have experience
managing or operating a REIT. Following the Offering, the Company's executive
officers will own or have the right to acquire in the aggregate of 26,667
Common Shares and 2,448,107 Units (equal to 7% of the Common Shares to be
outstanding on the closing of the Offering (including exercise of the
Underwriters' over-allotment option in full) on a fully diluted basis)
pursuant to options granted under the Company's Plan. See "Management--1998
Equity Incentive Plan."
The Pohanka Automotive Group, led by its Chairman, John J. Pohanka, has been
in business for almost 80 years. The Pohanka family began operating
dealerships in 1919, and the business' current leader, Mr. Pohanka has been
involved in the automotive industry for almost 50 years. Today the second and
third generation of the Pohanka family lead the business' operations. In 1996,
the Pohanka Automotive Group Dealerships sold 11,900 new and used motor
vehicles. The Pohanka Automotive Group is currently comprised of nine
Dealerships, each of which is located in the Washington, D.C. Metropolitan
Area. Under Mr. Pohanka's leadership, the Pohanka Automotive Group's
Dealerships have received numerous awards, including the Time Magazine Quality
Dealer Award. The Company has entered into agreements to purchase all of the
Properties used by the Pohanka Automotive Group.
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The Rosenthal Automotive Organization, led by its Chairman, Robert M.
Rosenthal, has been in business for over 40 years. With 19 franchises, the
Rosenthal Automotive Organization is the 14th largest automotive group in the
United States in terms of total new vehicles sold in 1996. In 1996, the
Rosenthal Automotive Organization Dealerships sold more than 31,500 new and
used motor vehicles. Under Mr. Rosenthal's leadership, the Rosenthal
Automotive Organization's Dealerships have received numerous national and
local awards, including the Time Magazine Quality Dealer Award, the
International American Automobile Dealers/Sports Illustrated Dealer of
Distinction, the Acura Precision Team Award, the Jaguar Pride of Jaguar Award,
and the Mazda President's Award. The Company has entered into agreements to
purchase seven of the 13 Properties used by the Rosenthal Automotive
Organization or its Affiliates (which are substantially all of the Properties
owned by the Rosenthal Automotive Organization).
The Sheehy Auto Stores, led by its Chairman, Vincent A. Sheehy, were
established in 1965. Mr. Sheehy entered the automotive business in 1945. Mr.
Sheehy is a past chairman of the Ford Dealer Advertising Fund and a past
director of the National Automobile Dealers Association. Mr. Sheehy's
Dealerships have won numerous awards including the North American Customer
Excellence Awards in 1995, 1996 and 1997 and the President's Circle Award in
1996. The Sheehy Auto Stores sold approximately 14,500 motor vehicles in 1996.
The Company has entered into agreements to purchase four Initial Properties
used by the Sheehy Auto Stores.
The Cherner Automotive Group first began operating in the mid-1920's in
Washington, D.C. Jonathan and Andrew Cherner took over management of the
Dealerships in 1993. Jonathan Cherner is a board member of the Washington
Lincoln Mercury Dealers Association, the Washington Area Isuzu Dealer
Advertising Association and the Isuzu National Dealer Council. Andrew Cherner
is an active member of Kia's National Dealer Council and the Lincoln Mercury
Regional Marketing Committee. The Cherner Automotive Group sold approximately
4,200 motor vehicles in 1996. The Company has entered into agreements to
purchase one Initial Property used by Cherner Automotive Group.
Cross-Continent, led by its Chief Executive Officer, Bill Gilliland, was
created in 1996 by reorganizing the ownership of six Dealerships controlled by
Mr. Gilliland. Cross-Continent became a publicly-traded company on September
23, 1996, and is listed on the New York Stock Exchange under the symbol "XC".
Prior to this, Mr. Gilliland had been involved in the automotive industry for
over 30 years. Cross-Continent owns and operates 11 Dealerships and Related
Businesses located in Amarillo, Texas, Oklahoma City, Oklahoma, Denver,
Colorado and Las Vegas, Nevada, certain of which have been in continuous
operation under various owners since the 1920s. Since its 1996 initial public
offering Cross-Continent has acquired seven Dealerships located in Oklahoma
City, Oklahoma, Denver, Colorado, and Las Vegas, Nevada. The Company has
entered into agreements to purchase six Properties used by Cross-Continent.
Good News, led by its Chairman, Roy L. Meyers, Jr., has been in business for
20 years. With Dealerships located on the eastern shore of Maryland that
represent nine franchises, the Good News sold 4,200 new and used motor
vehicles in 1996. Under Mr. Meyers' leadership, the Good News Dealerships have
won several awards, including top dealership awards from Honda, Toyota,
Nissan, Mazda and GMC Truck. The Company has entered into agreement to
purchase seven of the Properties used or owned by the Good News.
The Kline Automotive Group, led by its Chairman and President, James M.
Kline, has been in business for over 70 years. The Kline family began
operating dealerships in 1926, and the business' current leader, Mr. Kline has
been involved in the automotive industry for over 40 years. In 1996, the Kline
Automotive Group's Dealerships sold over 16,400 new and used motor vehicles.
The Kline Automotive Group is currently comprised of six Dealerships located
in southern Virginia and the Washington, D.C. metropolitan area. Under Mr.
Kline's leadership, the Kline Automotive Group's Dealerships have received
numerous awards, including the Toyota President's Award, Board of Governor's
Award and Leadership Board Award and the Chevrolet Sales Volume Campaign
Award. The Company has entered into agreements to purchase two of the
Properties used by the Kline Automotive Group.
New and used franchised motor vehicle retailing, including the sale of
trucks, minivans, and sport utility vehicles, parts and services, and other
ancillary businesses, is the largest consumer retail sector in the United
States, with approximately $500 billion in 1996 sales. Sales by franchised
motor vehicle retail dealerships are estimated to account for one-fifth of the
nation's total retail sales of all products and merchandise. In 1996, the
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100 largest Dealership groups generated less than 10% of total sales revenue
and controlled approximately 5% of the over 22,000 existing franchised
Dealerships, demonstrating the fragmentation of the industry. The Company
believes that the size and the fragmentation of the industry and the
increasing capital needs of Dealers provide an attractive environment in which
the Company can seek to implement its primary business strategy. The current
trend is for Dealers to consolidate their operations to increase efficiency
and their competitive position. That trend should facilitate the Company's
strategy of acquiring Properties from Dealers with multi-site, multi-
franchised and diversified locations.
The Company believes that because the real property and improvements are
single use properties used by a single industry, that type of property is a
major and discrete sector of the national retail real estate industry.
Industry sources estimate that Dealerships have over $40 billion currently
invested in Dealership-related real estate. The Company believes that those
properties present attractive acquisition and financing opportunities because
they have locations with frontage on, and visibility from, major thoroughfares
and zoning for a wide range of alternative uses. In the event that such
properties can no longer be leased to Dealers, the Company believes that they
can be redeveloped for other commercial or residential uses.
STRATEGY
The Company's primary business strategy is to acquire a diversified
portfolio of Properties used by Dealers throughout the United States,
including Properties used by new motor vehicle retail dealerships, used motor
vehicle retail dealerships, motor vehicle auctioneers, and service, repair or
parts businesses. In addition, the Company intends to commit to purchase
Properties under construction, renovation or expansion upon completion of such
construction, renovation or expansion. The Company believes that its
acquisition strategy will provide sellers with an opportunity (i) to acquire
liquidity, while maintaining ownership and control of the Dealerships or
Related Businesses, (ii) to diversify their investments, (iii) to obtain funds
to expand the operations of their Dealerships or Related Businesses, and (iv)
to facilitate their estate planning.
The Company's primary objective is to become an owner and lessor of
Properties used throughout the United States for the primary purpose of
generating rental income in order to provide the Company with predictable
streams of cash flow to maximize shareholder value. To achieve these
objectives, the Company plans to:
. Implement an aggressive, yet disciplined, acquisition program by purchasing
Properties used by Dealers of multi-site, multi-franchised Dealerships or
Related Businesses that have demonstrated historic growth, are well
managed, and have been maintained in good condition, and whose location and
characteristics will be suitable for alternative use by:
. Diversifying geographically by acquiring Properties located
primarily in major CMSAs in order to minimize the potential adverse
impact of economic downturns in certain markets;
. Leveraging the contacts and experience of the Company's management
to build and maintain long-term relationships with Dealers;
. Maintaining long-term working relationships with Dealers, by
providing capital for multiple acquisitions of Properties on a
market-by-market basis, thereby enhancing efficiency and value; and
. Taking advantage of opportunities created by the fragmented
ownership of Dealerships and Related Businesses, and the large
number of suitable locations with adequate roadway frontage, high
visibility and appropriate zoning.
. Use the Company's UPREIT structure to acquire Properties in exchange for
cash or Units, or a combination of cash and Units, thereby deferring some
or all of a Seller's potential taxable gain, and enhancing the ability of
the Company to consummate transactions and to structure more competitive
acquisitions than other real estate companies in the market that lack the
Company's access to capital and the ability to acquire Properties with
Units.
. Use several valuation mechanisms, including calculations of discounted cash
flow, evaluations of comparable sales and leases of properties, analysis of
the alternative uses of the Properties and evaluation of the Dealers'
financial strength, to determine the purchase price and lease terms for the
Properties.
46
<PAGE>
. Lease back the Properties to Lessees on a triple-net basis, thereby
eliminating brokerage, re-leasing and similar costs and the risk of high
Lessee turnover due to the general historic long-term operation of
Dealerships or Related Businesses at Property locations.
. Negotiate Lease covenants designed to minimize the likelihood of loss to
the Company, by permitting the Company to establish the ability of the
Lessees (together with any Guarantors) to pay rent by bi-annually
monitoring compliance with a Rent Coverage Ratio of 1.5 to 1 or require the
Lessee to provide additional security in the form of a Guarantee of an
Affiliate.
. Utilize a variety of other financing sources, that may include the issuance
of Units, or other equity securities or debt securities, or a combination
thereof; and enter into a bank credit facility that will be used to
leverage Properties, acquire additional Properties and for working capital
purposes as a means to gain positive spread on investment. The Company's
policy is to operate with a debt to total market capitalization ratio of
not more than 50%, which policy may be changed from time to time by the
Board of Trustees.
THE INITIAL LEASES, PROPERTIES AND DEALERSHIPS
The Company has entered into agreements to acquire 20 Initial Properties
that are located primarily in suburban communities of the Washington, D.C.
Metropolitan Area. Other locations include Colorado, the eastern shore of
Maryland, Nevada, Pennsylvania, Texas and southern Virginia. The Company's
interest in each Initial Property includes the land, buildings and
improvements, related easements and rights and fixtures. The Company will not
own or lease any personal property, furniture or equipment at any Initial
Property, all of which will be owned, or leased from third parties or by the
respective Initial Lessee. The Initial Properties are generally zoned for a
wide range of commercial uses and typically have frontage on major
transportation arteries with high traffic patterns, high visibility, bright
signage, and ease of entrance and exit. The improvements on the Initial
Properties generally consist of one or more retail showrooms, office space
(which may or may not be contained in separate buildings), adjacent full
service and repair facilities, parts and accessories departments, and in many
cases, acreage set aside for used car sales, body shops and parking for
inventory.
The Company will own fee simple title to the Initial Properties, with the
exception of Rosenthal Chevrolet, a portion of which is subject to a ground
lease. The sites of the Initial Properties are generally subject to standard
and customary utility and other easements, certain covenants and restrictions
and certain reciprocal easements regarding access. Fourteen of the Initial
Properties are secured by Mortgage Debt that will be paid in full from the
proceeds of this Offering. See "Use of Proceeds."
Set forth below is certain information relating to the Initial Properties:
<TABLE>
<CAPTION>
AGGREGATE
GROSS
LAND LEASEABLE
PURCHASE AREA BUILDING
DEALERSHIPS(1) LOCATION PRICE(2)(3) IN ACRES AREA (SQ. FT.)
-------------- -------- ------------- -------- --------------
<S> <C> <C> <C> <C>
Rosenthal Infiniti,
Mazda/Nissan........... Tysons Corner, VA $ 23,873,587 12.0 84,384
Rosenthal Nissan, Acura,
Mazda & Isuzu.......... Gaithersburg, MD 11,855,771 8.4 68,898
Rosenthal Honda &
Jaguar................. Tysons Corner, VA 11,454,528 7.8 46,836
Rosenthal Chevrolet &
Jeep/Eagle............. Arlington, VA 6,779,469 5.2 67,000
Rosenthal Mazda......... Arlington, VA 5,356,973 2.2 16,176
Rosenthal Storage Lot... Arlington, VA 4,890,991 4.7 32,349
Rosenthal Body Shop..... Tysons Corner, VA 1,057,392 0.9 16,000
------------- ----- -------
Subtotal............. $ 65,268,711 41.2 331,643
============= ===== =======
Pohanka Saturn/Isuzu
Oldsmobile & GMC
Truck.................. Marlow Heights, MD $ 4,326,150 5.9 38,377
Pohanka Acura &
Chevrolet/GEO.......... Chantilly, VA 4,234,418 5.1 48,571
Pohanka Saturn.......... Bowie, MD 4,064,550 5.3 22,679
Pohanka Honda........... Marlow Heights, MD 3,700,387 2.3 40,769
Pohanka Lexus........... Chantilly, VA 3,438,343 2.3 15,111
Pohanka Cadillac,
Hyundai, Nissan & Kia.. Fredricksburg, VA 3,432,650 6.2 42,473
Pohanka Hyundai &
Subaru................. Marlow Heights, MD 1,556,465 2.6 15,372
Pohanka Body Shop....... Marlow Heights, MD 694,575 2.7 2,550
Pohanka Undeveloped
Dealership Lot......... Chantilly, VA 5,876,437 7.1 --
------------- ----- -------
Subtotal............. $ 31,323,975 39.5 225,902
============= ===== =======
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
GROSS
LAND LEASEABLE
PURCHASE AREA BUILDING
DEALERSHIPS(1) LOCATION PRICE(2)(3) IN ACRES AREA (SQ. FT.)
-------------- -------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Sheehy Ford & Kia....... Springfield, VA $ 6,308,000 6.6 51,512
Chapman Ford Sales...... Philadelphia, PA 3,000,000 7.9 43,800
Sheehy Lincoln-Mercury &
Mitsubishi............. Woodbridge, VA 2,565,925 3.1 24,597
Sheehy Ford............. Marlow Heights, MD 2,132,000 4.6 26,400
------------ ----- ---------
Subtotal............. $ 14,005,925 22.2 146,309
============ ===== =========
Cherner Lincoln-
Mercury................ Annandale, VA $ 6,322,909 5.3 43,884
============ ===== =========
T. West Sales & Service
(Toyota)............... Las Vegas, NV $ 13,205,000 8.8 126,685
Douglas Motors
(Toyota)............... Denver, CO 8,905,000 6.5 148,461
Plains Chevrolet........ Amarillo, TX 4,705,000 16.1 121,425
Westgate Chevrolet...... Amarillo, TX 4,405,000 8.0 48,000
Midway Chevrolet........ Amarillo, TX 3,105,000 12.2 43,262
Quality Nissan.......... Amarillo, TX 1,005,000 3.4 16,947
------------ ----- ---------
Subtotal............. $ 35,330,000 55.0 504,780
============ ===== =========
Price Buick & Pontiac... Salisbury, MD $ 1,344,826 3.3 12,500
Good News Body Shop..... Salisbury, MD 1,268,500 6.2 12,200
Good News Olds-Cadillac-
GMC.................... Salisbury, MD 830,300 3.5 14,700
Good News Honda......... Salisbury, MD 586,560 2.4 11,800
Towne Toyota & Mercedes-
Benz................... Salisbury, MD 568,500 2.3 12,100
Good News Nissan........ Salisbury, MD 449,400 1.2 17,200
Good News Mazda......... Salisbury, MD 413,000 1.4 12,400
------------ ----- ---------
Subtotal............. $ 5,461,086 20.3 92,900
============ ===== =========
Kline Toyota
Greenbrier/Kline
Chevrolet.............. Chesapeake, VA $ 6,984,755 11.2 71,280
Kline (Land)............ Chesapeake, VA 1,525,245 14.0 --
------------ ----- ---------
Subtotal............. $ 8,510,000 25.2 71,280
============ ===== =========
Total $166,222,606 208.7 1,416,698
============ ===== =========
</TABLE>
- --------
(1) The Company currently intends to close the acquisitions of all of the
Initial Properties within 60 days of the date of closing of this Offering.
(2) The purchase prices for the Initial Properties are allocated among the
initial selling groups as follows:
<TABLE>
<CAPTION>
ASSUMED ALLOCATION OF PURCHASE PRICE
--------------------------------------
ASSUMED
TOTAL PURCHASE APPROXIMATE ESTIMATED
SELLING GROUP PRICE CASH MORTGAGE DEBT(A) UNITS
------------- --------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C>
Pohanka Automotive
Group.................. $ 31,323,975 $ -- $13,258,844 1,204,342
Rosenthal Automotive Or-
ganization............. 65,268,711 -- 13,694,242 3,438,298
Sheehy Auto Stores...... 14,005,925 -- 9,574,333 295,439
Cherner Automotive
Group.................. 6,322,909 -- 4,770,863 103,470
Cross-Continent Auto Re-
tailers, Inc. ......... 35,330,000 35,330,000 -- --
Good News Auto Mall..... 5,461,086 5,461,086 -- --
Kline Automotive Group.. 8,510,000 8,510,000 -- --
--------------- ----------- ----------- ---------
Totals............... $ 166,222,606 $49,301,086 $41,298,282 5,041,549
=============== =========== =========== =========
</TABLE>
- --------
(a) Based on mortgage debt outstanding as of December 31, 1997.
(3) Includes an aggregate of approximately $1.4 million attributable to
estimated acquisition fees and expenses (including transfer taxes,
recordation taxes and title insurance and costs of other services but
excludes $1.5 million attributable to estimated consulting and attorneys'
fees).
Concurrently with the Company's acquisition of the Initial Properties, the
Company will lease them back to the Initial Lessees pursuant to the Initial
Leases. The Company expects that the Initial Leases will be for the Fixed
Terms ranging from eight to 12 years and may be extended for one or two
Extended Terms of ten years at the option of the respective Initial Lessee.
The Initial Leases will require the Initial Lessees to pay substantially all
expenses associated with the operation of the Initial Properties, such as real
estate taxes and other governmental charges, insurance, utilities, service,
maintenance and, therefore, will be on a "triple-net" basis. The Initial
Leases also require the Initial Lessees to undertake and pay for any
substantial additions, repairs, renovations and improvements to the Initial
Properties after receiving the consent of the Company, unless the Company
decides, at its option, to pay for such expenditures, which would be on terms
to be negotiated. Upon expiration or termination of the Initial Leases, the
Initial Leases generally provide that additions, repairs, renovations and
improvements will become the Property of the Company. Each Initial Lease will
require the Initial Lessee to operate the Initial Property only for the same
purpose for which it was used on the Company's purchase date, unless the
Company consents to a different use.
48
<PAGE>
The Initial Annual Base Rent under each Initial Lease has been negotiated by
the Company to produce an appropriate yield to the Company (based on the
return on the Company's investment) considering (i) the purchase price of the
Property, (ii) the credit worthiness of the Lessee, (iii) the rental rates for
similarly situated properties in the geographic location in which the Property
is situated, (iv) the characteristics of the Property, (v) the cost to the
Company of the funds used to acquire the Property, and (vi) the return that
the Company could realize from alternative investments on that Initial
Property's purchase price (including acquisition fees and expenses). The
Initial Annual Base Rent and the Annual Base Rent will be adjusted upward
periodically based on a factor of the CPI. The CPI adjustments range from one
half of CPI adjusted every other year to full CPI adjusted every year. Certain
Initial Leases establish minimum and maximum periodic adjustments that range
from zero to 3% of base annual rent. The Company will have general recourse to
the Initial Lessees, but the Initial Lessees' payment obligations under the
Initial Leases will be unsecured.
Set forth below is certain information relating to the Initial Lessees:
<TABLE>
<CAPTION>
INITIAL
ANNUAL BASE LEASE FIXED
LESSEE (DEALERSHIPS)(1)(2) LOCATION RENT EXPIRATION TERM EXTENDED TERM(3)
-------------------------- ------------------ ----------- ---------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Geneva Enterprises, Inc.
d/b/a Rosenthal Nissan/Mazda(4)....... Tysons Corner, VA $ 2,506,727 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Mazda....................... Arlington, VA 621,408 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Chevrolet/Jeep/Eagle
(Storage Lot)......................... Arlington, VA 562,464 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda(4).................... Tysons Corner, VA 511,866 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Jaguar(4)................... Tysons Corner, VA 511,854 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a Geneva
Management (Related Business)......... Arlington, VA 453,600 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Isuzu....................... Gaithersburg, MD 451,418 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc.
d/b/a Nissan Gaithersburg............. Gaithersburg, MD 350,214 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Acura....................... Gaithersburg, MD 330,111 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc.
d/b/a Rosenthal Chevrolet/Jeep/Eagle.. Arlington, VA 312,476 Feb. 2008 10 years 2-10 year options
Maryland Imported Cars, Inc.
d/b/a Gaithersburg Mazda(5)........... Gaithersburg, MD 261,308 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda (2-acre lot)(4)....... Tysons Corner, VA 178,997 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda (Body Shop)(4)........ Tysons Corner, VA 126,887 Feb. 2008 10 years 2-10 year options
-----------
Subtotal............................ $ 7,179,330
===========
Pohanka Auto Center, Inc. & Pohanka
Oldsmobile-GMC Truck Inc.
(Saturn, Isuzu)(6) ................... Marlow Heights, MD $ 497,507 Feb. 2008 10 years 2-10 year options
Pohanka Auto West, Inc. & Pohanka
Chevrolet-GEO, Inc. (Chevrolet/GEO and
Acura)(6)............................. Chantilly, VA 453,082 Feb. 2009 11 years 2-10 year options
Pohanka Virginia Properties Partnership
(Saturn)(6)........................... Bowie, MD 447,101 Feb. 2009 11 years 2-10 year options
Pohanka Imports, Inc. (Honda)(6) ...... Marlow Heights, MD 407,043 Feb. 2009 11 years 2-10 year options
Pohanka Auto Center, Inc. (Cadillac,
Hyundai, Nissan, Oldsmobile &
Kia)(6)............................... Fredricksburg, VA 386,173 Feb. 2008 10 years 2-10 year options
Pohanka of Chantilly, Inc. (Lexus)(6).. Chantilly, VA 357,588 Feb. 2010 12 years 2-10 year options
Pohanka Hyundai, Inc. (Hyundai &
Subaru)(6)............................ Marlow Heights, MD 171,211 Feb. 2009 11 years 2-10 year options
Pohanka Oldsmobile-GMC Truck, Inc.
(Body Shop)(6)........................ Marlow Heights, MD 97,241 Feb. 2009 11 years 2-10 year options
Pohanka Virginia Properties Partnership
(Undeveloped Dealership Lot)(6)....... Chantilly, VA 628,779 Feb. 2009 11 years 2-10 year options
-----------
Subtotal............................ $ 3,445,725
===========
Sheehy Ford of
Springfield, Inc. (Ford
& Kia)................. Springfield, VA 662,340 Feb. 2008 10 years 2-10 year options
Sheehy Ford, Inc.(7).... Philadelphia, PA 330,000 Oct. 2007 10 years 2-10 year options
Sheehy Lincoln-Mercury,
Inc. (Lincoln-Mercury &
Mitsubishi)............ Woodbridge, VA 282,252 Feb. 2008 10 years 2-10 year options
Sheehy Ford, Inc........ Marlow Heights, MD 255,840 April 2006 8 years 2-10 year options
--------------
Subtotal............. $ 1,530,432
==============
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
INITIAL
LESSEE ANNUAL BASE LEASE FIXED
(DEALERSHIPS)(1)(2) LOCATION RENT EXPIRATION TERM EXTENDED TERM(3)
------------------- -------------- ----------- ---------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Cherner Lincoln Mercury-
Annadale, Inc. ........ Annandale, VA $ 695,520 Feb. 2008 10 years 2-10 year options
===========
T. West Sales & Service,
Inc. (Toyota) (8)...... Las Vegas, NV $ 1,452,000 Feb. 2008 10 years 2-10 year options
Douglas Motors, Inc.
(Toyota)(8)............ Denver, CO 979,000 Feb. 2008 10 years 2-10 year options
Plains Chevrolet,
Inc.(8)................ Amarillo, TX 517,000 Feb. 2008 10 years 2-10 year options
Westgate Chevrolet,
Inc.(8)................ Amarillo, TX 484,000 Feb. 2008 10 years 2-10 year options
Midway Chevrolet,
Inc.(8)................ Amarillo, TX 341,000 Feb. 2008 10 years 2-10 year options
Quality Nissan,
Inc.(8)................ Amarillo, TX 110,000 Feb. 2008 10 years 2-10 year options
-----------
Subtotal............. $ 3,883,000
===========
Good News Salisbury,
Inc.(9)................ Salisbury, MD $ 469,920 Feb. 2008 10 years 2-10 year options
Price Buick-Pontiac,
Inc. and The Price
Organization(10)(11)... Salisbury, MD 154,080 Dec. 2006 8 years N/A
-----------
Subtotal............. $ 624,000
===========
Kline Chevrolet Sales
Corp.(12).............. Chesapeake, VA $ 960,000 Feb. 2008 10 years 3-10 year options(13)
===========
Total.............................. $18,318,007
===========
</TABLE>
- --------
(1) See the historical financial statements for Geneva Enterprises, Inc. and
an affiliated company and summary financial information of Cross-
Continent.
(2) The Company believes that all the Initial Properties are adequately
covered by insurance.
(3) If any Initial Lease is renewed for a second Extended Term, the Annual
Base Rent will be renegotiated at the time of renewal by the parties to
reflect the fair market rate at the renewal date.
(4) The Initial Lessees may assign these Initial Leases (subject to compliance
with certain conditions to the satisfaction of the Company), to a limited
liability company to be formed by Mr. Rosenthal or his Affiliates as
members.
(5) Guaranteed by Geneva Enterprises, Inc.
(6) Each Initial Lease with an Affiliate of Pohanka Automotive Group will be
guaranteed by each other Initial Lessee affiliated with the Pohanka
Automotive Group.
(7) The occupant is Chapman Ford Sales, which is an unrelated third party.
(8) Guaranteed by Cross-Continent.
(9) Master Lease covering all Initial Properties acquired from Affiliates of
Good News Automotive, Inc. other than Price Buick-Pontiac.
(10) The occupant is Price Buick Pontiac, which is an unrelated third party.
The Company is assuming an existing Lease among Price Buick-Pontiac, Inc.
and The Price Organization (Lessees) and Meyers and Rose (Lessor) dated
December 10, 1991 and terminating December 31, 2006. The Lessees have a
right of first refusal to purchase such Initial Property, which expires
January 20, 1998.
(11) Guaranteed by Warren A. Price and Good News Salisbury, Inc.
(12) Guaranteed by Kline Imports Chesapeake, Inc. The Property is occupied by
both Kline Chevrolet and Kline Toyota (sublease to Kline Chesapeake).
(13) If the Company is required by the Initial Lessee to pay for repairs to
such Initial Property in an amount in excess of $50,000 during the 29th
lease year, the Initial Lessee will be required to extend such Initial
Lease for a third 10-year term at a rental rate equal to fair market
value.
The Dealerships are operated pursuant to written Franchise Agreements with
Manufacturers that, among other things, (i) generally designate the location
or geographic area in which the Dealerships have the right to sell and service
motor vehicles, (ii) impose requirements on the size, design, layout and
maintenance of showrooms and other structures, and (iii) provide guidelines
relating to matters such as advertising, inventory maintenance, personnel
training, and the use and display of the Manufacturers' trademarks, service
marks and designs. In addition, Dealers have entered into related agreements
with certain Manufacturers that establish financial covenants, and that, in
certain cases, restrict changes in control of the Dealerships without the
consent of such Manufacturers. Certain of the Franchise Agreements contain
certain restrictions relating to the sale or transfer of assets or Properties
necessary for the operation of the Dealership, or grant the Manufacturer a
right of first refusal to purchase such assets or Properties. The Franchise
Agreements generally have terms of one to five years, and have historically
been renewed by the Manufacturers in the ordinary course of business. Such
Dealers have never had their Franchise Agreements involuntarily terminated by
a Manufacturer nor has a Manufacturer failed to renew a Franchise Agreement
upon request for renewal by such Dealer. See "Business of the Company and
Properties--Franchise Agreements."
50
<PAGE>
Dealers affiliated with the Initial Lessees sell domestic and imported
luxury, family, economy and sport utility vehicles, trucks and vans including,
Mercedes-Benz, Honda, Toyota, Lexus, Chevrolet, Saturn, Ford, GMC, Mazda,
Infiniti, Jaguar, Acura, Lincoln-Mercury, Mitsubishi and Nissan. The
diversification of Manufacturers decreases the risks associated with changes
in consumer preferences and dependence on any single brand, Manufacturer or
market.
In addition to selling new vehicles, many of those Dealers lease new
vehicles and sell used vehicles. Lease arrangements could provide Dealers with
a steady source of late-model, off-lease vehicles for its used vehicle
inventory. Dealers also provide service and parts primarily for the vehicle
makes and models that they sell or lease, and perform both warranty and non-
warranty service work. In general, parts departments support the sales and
service divisions. Dealers may also sell factory-approved parts at retail to
their customers or at wholesale to independent repair shops. Dealers arrange
third party financing for their customers, sell vehicle service contracts and
arrange selected types of credit insurance for which they receive financing
fees, subject to a charge-back against a portion of the finance fees if
contracts are terminated prior to their scheduled maturity.
TYPICAL INITIAL LEASE TERMS
In general, the Company's Initial Leases will include the following general
lease terms. The Company expects to negotiate substantially the same terms
with Lessees of additional Properties.
Use of the Properties. Generally the Initial Leases will require the Initial
Property to be continuously operated for the same purposes as they were used
on the Company's purchase date unless the Company consents otherwise. The
Initial Leases will generally require that the Initial Lessee or any permitted
assignee operate the Initial Properties in an efficient and professional
manner.
Amounts Payable Under the Leases; Net Provisions. During the Fixed Term and
any Extended Terms, each Initial Lessee or its assigns will pay the Initial
Annual Base Rent and Annual Base Rent, which will be payable in monthly
installments. The Initial Annual Base Rent and Annual Base Rent will be
adjusted upward periodically based on a factor of the CPI, ranging from one-
half of CPI adjusted every other year to full CPI adjusted every year. Certain
Initial Leases establish minimum or maximum adjustments that range from zero
to 3% of base annual rent.
Each Initial Lease is what is commonly referred to as a "triple net" lease,
under which each Initial Lessee is required to pay thereunder rent and
substantially all expenses associated with operation of a particular Initial
Property. Such expenses include all taxes, assessments and levies, excises,
fees, and all other governmental charges with respect to such Initial
Property, and all charges for insurance, utilities, service, repair and
maintenance, including, without limitation, electricity, telephone, trash
disposal, gas, oil, water, sewer, communication and all other utilities used
in each Initial Property, and any ground lease payments. Each Initial Lessee
will generally be obligated to comply with all laws, contracts, covenants and
restrictions affecting an Initial Property and to perform all obligations
under any ground lease affecting an Initial Property.
Maintenance, Alterations, Capital Additions or Improvements. The Initial
Lessee or its assigns generally is obligated, at its sole cost and expense, to
maintain its Initial Property in good order, repair and appearance and to make
structural and non-structural, interior and exterior, foreseen and unforeseen,
and ordinary and extraordinary repairs and replacements, which may be
necessary and appropriate to keep such Initial Property in good order, repair
and appearance (excluding ordinary wear and tear) or which may be required by
any governmental authority, including those required to continue to satisfy
any licensure requirements related to the operation of the Dealership or
Related Business. The Company will not be required to build or rebuild any
improvements to any Initial Property, or to make any repairs, replacements,
alterations, restorations or renewals to any Initial Property.
The Initial Lessee or its assigns, at its sole cost and expense, generally
may make alterations, additions, changes and/or improvements to each Initial
Property with the prior written consent of the Company, provided that the
value and primary intended use of such Initial Property (determined in the
Company's reasonable judgment) is not impaired. The Company may, but is under
no obligation to, provide or arrange construction, permanent or other
financing for any addition, alteration or improvement, the terms of which will
be separately
51
<PAGE>
negotiated. Typically, all improvements, additions, alterations and
replacements constructed upon each Initial Property by the Initial Lessee
during the Fixed Term or an Extended Term of an Initial Lease will be the sole
property of the Initial Lessee until the expiration or early termination of
such Initial Lease, at which time all improvements, additions, alterations and
replacements will become the Property of the Company. All machinery,
equipment, furniture, furnishings and other personal property installed at the
expense of an Initial Lessee on any Initial Property will remain the property
of such Initial Lessee and may be removed by such Initial Lessee at the
expiration or earlier termination of the Initial Lease.
Insurance. Each Initial Lease provides that the Initial Lessee will maintain
insurance on the related Initial Property under the Initial Lessee's insurance
policies providing for the following coverages in such amounts as are or shall
customarily be insured against with respect to properties similar to the
Initial Properties, including: (i) fire, vandalism and malicious mischief,
extended coverage perils and all physical loss perils, (ii) commercial general
public liability (including personal injury and property damage), (iii) flood
(when the Initial Property is located in whole or in material part in a
designated flood plain area), earthquake and other similar hazards as may be
customary for comparable properties in the area, (iv) worker's compensation
and (v) such other insurance as the Manufacturer under the relevant Franchise
Agreement or any holder of a mortgage, deed of trust or other security
agreement on such Initial Property (a "Company Mortgagee") may reasonably
require, which at the time is usual and commonly obtained on commercially
reasonable terms in connection with properties similar in type of building
size and use to the Initial Property and located in the geographic area where
the Initial Property is located. The foregoing insurance policies would name
the Company and any company mortgagee as additional insureds or loss payees,
as applicable. Each Initial Lease specifies the deductibles for insurance
covering each class of risk. Notwithstanding, there will be risks for which
insurance will not be obtainable or will be prohibitively expensive. In such
event, an Initial Lessee's ability to restore the Initial Property may be
dependent on its internally generated funds or borrowing capacity.
Damage to, or Condemnation of, a Property. In the event of any insurable
damage or destruction to any Initial Property, the Initial Lessee is required
to submit complete and detailed plans and specifications to the Company, and
upon authorization of the Company (which will not be unreasonably withheld or
delayed), will have the obligation to promptly repair or restore the same, at
the Initial Lessee's expense so as to make such Leased Property at least equal
in value to such Initial Property immediately prior to such occurrence and as
nearly similar to it in character as is practicable and reasonable. Typically,
the Annual Base Rent, real estate taxes and other impositions on the
particular Initial Property will be proportionately abated during the time of
restoration, but only to the extent of any rental interruption insurance
proceeds actually received by the Company. If any Initial Property is damaged
by an insurable event to such an extent that the Initial Property is
"completely destroyed" (which will be sufficient damage to such Leased
Property such that the Company and the Initial Lessee agree to that
classification) or "partially destroyed" (which will be damage to such Initial
Property such that the Initial Property will not be suitable for use by a
Dealership or Related Business (as determined by a reasonable Dealer in light
of standard trade practices) within a specified period after the date of the
occurrence of such damages), the Initial Lessee may elect to terminate the
relevant Initial Lease upon notice to the Company. In the event of the
termination of the Initial Lease upon an Initial Property being "completely
destroyed" or "partially destroyed," typically, the Initial Lessee will have
no obligation to repair, rebuild or replace such Initial Property, and the
entire insurance proceeds will belong to the Company.
Generally, under the Initial Lease terms, if at any time during the Term or
any Extended Term, any Initial Property is totally and permanently taken by
right of eminent domain or by conveyance made in response to the threat of the
exercise of such right ("Condemnation"), the Initial Lease will terminate as
to Initial Property so taken as of the date the condemning authority has the
right to possession of the Initial Property being condemned. Generally, the
Initial Lessee will be required to pay all outstanding applicable rent and
other charges through the date of termination. The Initial Lease generally
will not terminate if the condemnation occurred due to the failure of the
Initial Lessee to maintain such Initial Property, whether or not such failure
constituted an event of default at the time of the Condemnation.
52
<PAGE>
If a portion of an Initial Property is taken by condemnation, the Initial
Lease generally will remain in effect as to such Initial Property if such
Initial Property is not thereby rendered unsuitable for use as a Dealership or
Related Business. In such event, the Company will retain the amount of any
award received by the Company, is obligated to apply such award to restore the
Initial Property, and any excess after such application will be retained by
the Company. Any award made by the condemning authority to the Initial Lessee
will belong to the Initial Lessee.
Financial Covenants. Substantially all affiliated Initial Lessees and
Guarantors, if any, as a group will be required to maintain a Rent Coverage
Ratio of at least 1.5 to 1 as of the date of the Initial Lease and at 24 month
intervals thereafter, computed as the aggregate of net income before taxes
plus mortgage interest, rent expense, depreciation, compensation of principals
of the Initial Lessees, management fees plus the annual LIFO adjustment and
other non-cash expenses, less recurring capital expenditures and gain (loss)
on sale of real estate, dividends and/or profits taken out of the Initial
Lessees and Guarantors if any, divided by the aggregate of the Initial
Lessees' and Guarantors', if any, obligations under the Initial Leases. In
addition, the Initial Lessee will be required to comply with all financial
covenants imposed by Manufacturers with whom the Initial Lessee has a
Franchise Agreement. These covenants have been designed to minimize the
likelihood of loss to the Company, by permitting the Company to establish the
ability of affiliated Initial Lessee's (and any Guarantors) to pay rent. The
Company will monitor bi-annually the Initial Lessee's compliance with the Rent
Coverage Ratio or require an Initial Lessee to provide additional security in
the form of a Guaranty of an Affiliate.
Assignment and Subletting. The Initial Leases generally provide that each
Initial Lessee may not, without the prior written consent of the Company
(which will not be unreasonably withheld) or upon compliance with conditions
established by the Company, assign, mortgage, pledge, hypothecate, encumber or
otherwise transfer any Initial Lease or sublease any Initial Property, in
whole or in part, except to an Affiliate. Generally, an assignment of the
Initial Lease includes any change of control of the Initial Lessee. In the
event that (i) the Company withholds any consent to any assignment or transfer
of such Initial Lease or any interest herein, and (ii) such assignee or
transferee is approved by the relevant Manufacturer for continuation as a
franchisee, there will be a presumption that such assignment or transfer was
reasonable and the Company will have the burden of rebutting such presumption
and of proving that such consent was in fact reasonably withheld (or that such
conditions were reasonable). The Company will also receive an assignment of
all management, operating or service agreements relating to the maintenance,
management, possession or use of an Initial Property. Certain Initial Lessees
affiliated with Mr. Rosenthal may assign their Leases (subject to compliance
with certain conditions, including the requirements of the applicable
franchise agreement, to the satisfaction of the Company) to a limited
liability company to be formed by Mr. Rosenthal or his affiliates as members.
Generally, if the Company withholds its consent to any assignment or if the
Company establishes conditions to approval of any assignment but such
conditions have not been complied with to the satisfaction of the Company, the
Initial Lessee will continue to be primarily liability under the Initial
Lease. Any assignment or other transfer of all or any portion of the Initial
Lessee's interest in an Initial Lease in violation of the restrictions on
assignment or subletting will be voidable at the Company's option.
Generally, if the Initial Lessee requests the assignment of an Initial Lease
with respect to less than the entire Initial Property, and such Initial
Property is not a separate subdivided lot, the Company may condition its
approval of an assignment upon a showing that the Initial Lessee has taken the
actions necessary to sever and spin-off one or more of such parcels of such
Initial Property from such Initial Lease.
The Initial Lessee will need the Company's prior approval before entering
into any sublease, license agreement or other arrangement which would have the
effect of causing all or a portion of the amount received or accrued by the
Company under the Initial Leases to be treated as other than "rents from real
property" within the meaning of Section 856(d) of the Code.
Indemnification. Generally, an Initial Lessee will be required to indemnify,
and will be obligated to save harmless, the Company generally from and against
liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) and actual or consequential damages imposed upon or asserted against
the Company, its officers, directors, employees, shareholders, agents or
Affiliates on account of, among other things, (a) the use, condition,
operation or occupancy of the Initial Properties; (b) any activity, work, or
thing done, or permitted or
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suffered by the Initial Lessee in, on or about the Initial Properties; (c) any
acts, omissions, or negligence of the Initial Lessee or any person claiming
under the Initial Lessee, or the contractors, agents, employees, invitees, or
visitors of the Initial Lessee or any such person; (d) any breach, violation,
or nonperformance by the Initial Lessee or any person claiming under the
Initial Lessee or the employees, agents, contractors, invitees, or visitors of
the Initial Lessee or of any such person, of any term, representation,
warranty, covenant, or provision of this Initial Lease or any law, ordinance,
or governmental requirement of any kind; (e) any injury or damage to the
person, property or business of Lessee, its employees, agents, contractors,
invitees, visitors, or any other person entering upon any Initial Property
under the express or implied invitation of the Initial Lessee; (f) any
accident, injury to or death of persons or loss or damage to any item of
property occurring at any Initial Property; (g) any environmental law or any
pollution or other threat to human health or the environment at, arising out
of or relating to any Initial Property, and (h) any brokers' or agents' fees
and commissions. If any action or proceeding is brought against the Company or
any of its employees, or agents by reason of any such demand, claim, or cause
of action, the Initial Lessee, upon notice from the Company, will defend the
same at the Initial Lessee's expense with counsel reasonably satisfactory to
the Company. In the event the Company reasonably determines that its interests
and the interests of the Initial Lessee in any such action or proceeding are
not substantially the same and that Initial Lessee's counsel cannot adequately
represent the interests of the Company, the Company shall have the right to
hire separate counsel in any such action or proceeding and the reasonable
costs thereof shall be paid for by the Initial Lessee. The Initial Lessees'
obligations to indemnify the Company will continue after the expiration or
earlier termination of the Initial Lease until the later of (i) two years
following the date of the Initial Lease, (ii) the expiration of the period 90
days after the date the Company has actual knowledge of the existence of a
claim covered by indemnification, or (iii) 90 days after the expiration of the
applicable statute of limitations for claims arising from, or relating to, any
environmental law or any pollution or other threat to human health or the
environment.
Environmental Matters. Generally, the Initial Leases provide for various
representations and warranties by the Lessee relating to environmental matters
with respect to each Initial Property. Each Initial Lease also requires the
Initial Lessee to indemnify and hold harmless the Company from and against all
liabilities, costs and expenses imposed upon or asserted against the Company,
the Initial Lessee or the Initial Property on account of, among other things,
any federal, state or local law, ordinance, regulation, order or decree
relating to the protection of human health or the environment in respect of
the Initial Property (irrespective of whether there has occured any violation
of any environmental law). Such Initial Lessee is required to comply with all
environmental laws. See "--Governmental Regulations Affecting the Properties--
Environmental Laws."
Events of Default. Generally, the following events, among others, will
constitute "Events of Default" under the Initial Leases: (a) the Initial
Lessee fails to pay in full any installment of rent, or any other monetary
obligation payable by the Initial Lessee to the Company hereunder, within ten
days after notice is given by the Company to the Initial Lessee (except that
after two defaults within any 12 month period, any further default during such
12 month period will constitute an immediate event of default); (b) the
Initial Lessee fails to observe and perform any covenant (other than the
covenant in respect of insurance, and certain conditions or agreements
required to be performed by the Initial Lessee and such failure continues for
a period of 20 days after written notice thereof is given to Lessee by the
Company; or if, by reason of the nature of such default, the same cannot with
due diligence be remedied within said 20 days, such failure will not be deemed
to continue if the Initial Lessee proceeds promptly and with due diligence to
remedy the failure and diligently completes the remedy thereof; provided,
however, said cure period will not extend beyond 40 days if the facts or
circumstances giving rise to the default are creating a further harm to the
Company or the subject Initial Property and the Company makes a good faith
determination that the Initial Lessee is not undertaking remedial steps that
the Company would cause to be taken if the Initial Lease were then to
terminate; (c) if the Initial Lessee (i) admits in writing its inability to
pay its debts generally as they become due, (ii) files a petition in
bankruptcy or a petition to take advantage of any insolvency act, (iii) makes
an assignment for the benefit of its creditors, (iv) is unable to pay its
debts as they mature, (v) consents to the appointment of a receiver of itself
or of the whole or any substantial part of its property, or (vi) files a
petition or answer seeking reorganization or arrangement under the federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any state thereof; (d) if the Initial Lessee, on insolvency
proceedings or on a petition in bankruptcy filed against it, is adjudicated as
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bankrupt or a court of competent jurisdiction enters an order or decree
appointing, without the consent of the Initial Lessee, a receiver of Lessee of
the whole or substantially all of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Initial Lessee under
the federal bankruptcy laws or any other applicable law or statute of the
United States or any state thereof, and such judgment, order or decree is not
vacated, dismissed or set aside within 60 days from the date of the entry
thereof; (e) if the estate or interest of the Initial Lessee in an Initial
Property or any part thereof is levied upon or attached in any proceeding and
the same is not vacated or discharged within 15 days after commencement
thereof (unless the Initial Lessee is contesting such lien or attachment in
accordance with the Initial Lease); (f) any representation, warranty or
covenant made by the Initial Lessee on behalf of itself or an Affiliate in the
Initial Lease or in any certificate, demand or request made pursuant hereto
proves to be incorrect, in any material respect, as of the date of issuance or
making thereof; (g) conviction of Lessee of a crime or offense constituting a
felony in the jurisdiction in which committed or under federal law; (h)
termination or relinquishment of the franchise or license pursuant to which an
Initial Lessee conducts business on or from the Initial Property, provided
that such event shall not constitute an Event of Default if (i) no other Event
of Default shall have occurred and be continuing, and (ii) at a date no later
than 24 months following such date of termination or relinquishment, the
Initial Lessee has entered into written new or amended franchises or licenses
for operation of the Dealership or Related Business at the Initial Property
satisfactory to the Company in its discretion applying commercially reasonable
standards; (i) default under any franchise or license pursuant to which Lessee
conducts business at a Property, if in the Company's judgment such default in
light of commercially reasonable standards and industry practice would have a
material adverse effect on the Initial Lessee or the Initial Property; (j) a
final, non-appealable judgment or judgments for the payment of money not fully
covered (excluding deductibles) by insurance is rendered against the Initial
Lessee and the same remains undischarged, unvacated, unbonded, unappealed or
unstayed for a period of 15 consecutive days; (k) the Initial Lessee shall
fail to observe the covenant in respect to insurance; or (l) except after the
effective date of a permitted assignment, if the Initial Lessee is liquidated
or dissolved or proceedings for that purpose or for the purpose of selling or
divesting the Initial Lessee of all or substantially all of its assets have
been brought.
Subject to the Initial Lease, the Company may exercise any one or more of
the following remedies upon the occurrence of an event of default: (i) the
Company may terminate the Initial Lease, (ii) exclude the Initial Lessee from
possession of the Initial Property, and (iii) use reasonable efforts to lease
such Initial Property to others. If an Initial Lease is terminated with
respect to all or a portion of the Initial Property, the Initial Lessee will
remain liable to the Company for damages in an amount equal to the rent and
other sums which would have been owing by the Initial Lessee as to the Initial
Property for the balance of the Fixed Term or Extended Term as if the Lease
had not been so terminated, less the net proceeds, if any, of any re-letting
of the Initial Property by the Company subsequent to such termination, after
deducting all the Company's expenses in connection with such re-letting. In
the event of any event of default, the Company may cause the Initial Lessee to
vacate the Initial Property. In addition, the Company may exercise any other
rights that it may have under law or under the leases. However, except in
certain circumstances or for certain Initial Lessees, there will be no cross
defaults between or among any Initial Property to any other Initial Property
leased to affiliated Initial Lessees.
Right of First Offer and Option to Purchase Property. The Initial Lessees
under the Initial Leases may have a right of first offer to purchase the
Initial Property if the Company decides to sell the Initial Property. The
Company will notify the Initial Lessee of its intention to sell the Initial
Property and the Initial Lessee will have 30 days to extend an offer,
including specifying the purchase price for the Initial Property. The Company
may reject the offer, at its discretion based on its reasonable judgment. If
the Company rejects the Initial Lessee's offer, it may sell the Initial
Property to a third party on other terms if the purchase price is higher or
the Company reasonably believes such terms are more advantageous than the
terms proposed by the Initial Lessee. In addition, upon expiration of any
Extended Term, provided that there is no event of default, the Initial Lessee
has an option to purchase the Initial Property at a purchase price equal to
the mean of the closest two appraised values of the Initial Property to be
determined by three independent appraisers.
Governing Law. Each Initial Lease will be governed by and construed in
accordance with the law of the state of Virginia (but not including such
state's conflict of laws rules) except when the law of the state in which the
Property is located is required to control.
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WASHINGTON, D.C. METROPOLITAN AREA
The Company will own 20 Initial Properties in the Washington, D.C.
Metropolitan Area representing approximately 70% of the aggregate purchase
prices for the Initial Properties. According to Population Estimates Program,
Population Division, U.S. Bureau of the Census, December 1997 Internet
Reference, the 1996 mid-year population of the Washington, D.C. metropolitan
area was 4,563,123, an increase of 8.1% from the 1990 census (compared to a
6.7% increase for the United States as a whole). According to the U.S.
Department of Commerce, Economics and Statistics Administration, Bureau of
Economic Analysis, per capita income for the Washington, D.C. metropolitan
area for 1995 was $30,824, compared to $24,594 for U.S. metropolitan areas
generally. According to the U.S. Department of Labor, Bureau of Labor
Statistics, Philadelphia Regional Office, the average annual unemployment rate
for calendar year 1996 in Virginia was 4.4%, and the corresponding figure for
the first nine months of 1997 was 4.2%. According to that same source, the
average annual unemployment rate for calendar year 1996 in Maryland was 4.9%,
and the corresponding figure for the first nine months of 1997 was 4.7%
GOVERNMENTAL REGULATIONS AFFECTING THE PROPERTIES
Environmental Laws. Under various federal, state and local laws, ordinances
and regulations, a current or previous owner, developer or operator of real
estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. The costs of
such removal or remediation could be substantial. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic
substances. The presence of such substances may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate
as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person.
The Company is not aware of any environmental liability that the Company
believes would have a material adverse effect on the Company's business,
financial condition or results of operations. Based on certain environmental
"Phase 1 reports" (described under "Risk-Factors--Governmental Regulations;
Environmental Matters" above), the Company estimates that the aggregate cost
of addressing environmental conditions at certain of the Initial Properties
identified in the Phase 1 reports will not be material. In addition, the
Initial Sellers of such Initial Properties have agreed to indemnify the
Company for third party claims based on those conditions at a minimum until
such time as the relevant statutes of limitations have expired, and the
Initial Lessees and their Affiliates are obligated to comply with
environmental laws and remediation requirements and hold harmless the Company
and its officers, directors, employees, shareholders, agents and Affiliates
from any failure to comply with those requirements. No assurance can be given,
however, that all potential environmental liabilities have been identified,
that no prior owner or operator or other person created any material
environmental condition not known to the Company or that future uses,
conditions or legal requirements (including, without limitation, those that
may result from future acts or omissions or changes in applicable
environmental laws and regulations) will not result in the imposition of
environmental liabilities. The Initial Lessees and the Initial Sellers have
made certain representations in the Initial Leases and Contribution
Agreements, respectively, regarding the environmental matters and will
indemnify the Company for third party claims arising from breach of such
representations. There can be no assurance that such indemnification will be
available or uncontested, however, or that any environmental conditions of
concern at such time which are not remediated by the Initial Sellers or
Initial Lessees and their Affiliates will not impede the ability of the
Company to sell or re-lease the Initial Properties in the future or negatively
impact future sales or rental proceeds.
Americans With Disabilities Act of 1990. The Initial Properties and any
subsequently acquired Properties must comply with Title III of the ADA to the
extent that such properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requires that
public accommodations "reasonably accommodate" individuals with disabilities
and that new construction or alterations made to "commercial facilities"
conform to accessibility guidelines unless "structurally impracticable" for
new
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construction, or technically infeasible for alterations. The Company believes
that the Properties substantially comply with all present requirements under
the ADA and applicable state laws. Under the Leases, the Lessee is responsible
for all costs associated with compliance with the ADA. However, noncompliance
with the ADA could result in the imposition of injunctive relief, fines, an
award of damages to private litigants or additional capital expenditures to
remedy such noncompliance.
FRANCHISE AGREEMENTS
Each Dealer operates its Dealership pursuant to a written Franchise
Agreement with the applicable Manufacturer. The typical automotive Franchise
Agreement specifies the locations at which the Dealer has the right and the
obligation to sell motor vehicles and related parts and products and to
perform certain approved services in order to serve a specified market area.
The designation of such areas and the allocation of new vehicles among
Dealerships are subject to the discretion of the Manufacturer, which generally
does not guarantee exclusivity within a specified territory. A Franchise
Agreement may impose requirements on the Dealer concerning such matters as the
showrooms, the facilities and equipment for servicing vehicles, the
maintenance of inventories of vehicles and parts, the maintenance of minimum
net working capital and the training of personnel. Compliance with these
requirements is closely monitored by the Manufacturer. In addition,
Manufacturers require the Dealers to submit a financial statement of
operations on a monthly basis. The Franchise Agreement also grants the Dealers
the non-exclusive right to use and display the Manufacturer's trademarks,
service marks and designs in the form and manner approved by the Manufacturer.
Each Franchise Agreement sets forth the name of the person approved by the
Manufacturer to exercise full managerial authority over the operations of a
Dealership and the names and ownership percentages of the approved owners of
the Dealership and contains provisions requiring the Manufacturer's prior
approval of changes in management or transfers of ownership of the Dealership.
Each Initial Lessee's Dealerships are owned, directly or indirectly, by such
Initial Lessee. Several Manufacturers include provisions in their Franchise
Agreements that prohibit transfers of assets or real property considered
necessary for the conduct of the Dealership or similar restrictions that could
prohibit or require the prior consent of a Manufacturer before a Seller can
sell and the Company can purchase a Property.
Most Franchise Agreements expire after a specified period of time, ranging
from one to five years, and the Company believes that each Initial Lessee
expects to renew any expiring agreements in the ordinary course of business.
The typical Franchise Agreement provides for early termination or non-renewal
by the Manufacturer under certain circumstances such as change of management
or ownership without Manufacturer approval, insolvency or bankruptcy of the
Dealership, death or incapacity of the dealer manager, conviction of a dealer
manager or owner of certain crimes, misrepresentation of certain information
by the Dealer or owner to the Manufacturer, failure to adequately operate the
Dealership, failure to maintain any license, permit or authorization required
for the conduct of business, or material breach of other provisions of the
Franchise Agreement. The Dealership is typically entitled to terminate the
Franchise Agreement at any time without cause.
The motor vehicle franchise relationship is also governed by various federal
and state laws established to protect Dealers from the general unequal
bargaining power between the parties. The following discussion of state court
and administrative holdings and various state laws is based on management's
beliefs and may not be an accurate description of the state court and
administrative holdings and various state laws. Under the laws of most states,
despite the terms of contracts between the Manufacturers and the Dealers,
Manufacturers may not unreasonably withhold approval of a transfer of a
Dealership, or reject a prospective transferee of a Dealership who is of good
moral character and who otherwise meets the Manufacturer's written, reasonable
and uniformly applied standards or qualifications relating to the prospective
transferee's business experience and financial qualifications. In addition,
under the laws of certain states, franchised Dealerships may challenge
Manufacturers' attempts to establish new franchises in the franchised dealers'
markets, and state regulators may deny applications to establish new
Dealerships for a number of reasons, including a determination that the
Manufacturer is adequately represented in the market. The laws of certain
states also limit the ability of Manufacturers to terminate or fail to renew
franchises.
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COMPETITION
The Company believes that it is the first publicly-offered REIT to primarily
focus on consolidating the Properties utilized by Dealerships or Related
Businesses under one ownership structure. A subsidiary of Kimco Realty
Corporation, a public diversified real estate investment trust, has publically
announced that it will pursue the acquisition of properties used by motor
vehicle dealerships. Other public or private entities may also decide to
pursue the same or similar strategy, some of which may have greater financial
resources or general real estate experience than the Company. Those entities
will compete with the Company in seeking Properties for acquisition and
disposition or, land for development. The Company believes that competition
for properties will primarily be on the basis of acquisition price and
negotiation of rents. Lessees or their Affiliates may own other Properties
that will not be acquired by the Company and which may instead be sold to
competitors. See "Risk Factors--Competition with Other Companies with Similar
Business Objectives and Strategies."
OTHER INVESTMENT POLICIES
The Company will engage in the investment in Properties used by Dealerships
and Related Properties. The Company has established no limit on the amount
that can be invested in any one Property. The Company does not intend to
acquire Properties used by businesses other than Dealerships and Related
Businesses. Pending investment in real estate, the proceeds of this Offering
and the FBR Offering will be invested in various short term investments. See
"Use of Proceeds." The Company currently does not intend to invest in
mortgages (including participating and convertible mortgages), the securities
of other issuers, except in connection with acquisitions of indirect interests
in Properties (normally through partnership interests in special purpose
partnerships owning title to Properties) or generally to make loans to third
parties. The Company does not intend to underwrite the securities of other
issuers. The Company currently has no plans to repurchase or otherwise
reacquire its shares or the shares of others (except pursuant to the
redemption rights of holders of Units). The Company may change its policies
with respect to the above activities without the approval of its shareholders.
In any event, any activities of the Company with respect to investments in
securities of other issuers will be subject to the asset and gross income
tests necessary for REIT qualification for federal income tax purposes.
EMPLOYEES
As of January 11, 1998, the Company had 11 employees. None of the employees
is represented by a collective bargaining unit. The Company believes that its
relationship with its employees is good.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings. Pursuant to the Leases,
the Lessees will indemnify the Company from and against all liabilities, costs
and expenses imposed upon or asserted against the Company as owner of the
Properties on account of certain matters relating to the operation of the
Properties by Lessee and, where appropriate, the ownership of the Properties
prior to their acquisition by the Company. See "--Typical Initial Lease
Terms--Indemnification."
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MANAGEMENT
TRUSTEES, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning each of the
Company's trustees, executive officers and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John J. Pohanka(1)...... 69 Chairman of the Board of Trustees
Thomas D. Eckert........ 50 President and Chief Executive Officer, Trustee
Scott M. Stahr.......... 41 Executive Vice-President and Chief Operating Officer
Donald L. Keithley...... 58 Executive Vice-President of Business Development
David S. Kay............ 31 Vice President and Chief Financial Officer
Robert M. Rosenthal(1).. 69 Trustee
John D. Reilly(1)....... 71 Trustee
William E. Hoglund(1)... 63 Trustee
</TABLE>
- --------
(1) The Company anticipates that Messrs. Pohanka, Rosenthal, Reilly and
Hoglund will become members of the Board of Trustees prior to the
effective date of this Offering.
The Company's Declaration of Trust requires that within 90 days of the
closing of this Offering, the Board of Trustees will increase the size of the
Board of Trustees to nine members, a majority of whom will be unaffiliated
with the Company, the Sellers, the Lessees or the Representative (the
"Independent Trustees").
John J. Pohanka will be the Chairman of the Board of Trustees. Mr. Pohanka
is the Chairman of the Pohanka Automotive Group. Mr. Pohanka has been involved
in the automotive industry for almost 50 years, and is a member of the second-
generation of the Pohanka family to be involved in the automotive industry,
with the first Pohanka dealership having been founded in 1919. The Pohanka
Automotive Group is currently comprised of eight Dealerships, each of which is
located in the Washington, D.C. Metropolitan Area. In 1996, the Pohanka
Automotive Group's Dealerships sold more than 11,900 new and used motor
vehicles. The Pohanka Automotive Group's Dealerships have received numerous
awards, including the Time Magazine Quality Dealer Award. Mr. Pohanka has been
active in a number of national and local industry and business groups during
his career, having served as past President of the National Automobile Dealers
Association, a past President of the National Capitol Area Automotive Trade
Association, and a past Chairman of the National Institute for Automotive
Service Excellence, a group which he co-founded. Mr. Pohanka also is a co-
founder of the National Automobile Technicians Educational Foundation. Mr.
Pohanka is a graduate of Princeton University.
Thomas D. Eckert is the Company's President and Chief Executive Officer and
is a member of the Board of Trustees. From 1983 to 1997, Mr. Eckert was
employed by Pulte Home Corporation ("Pulte"), the largest homebuilding firm in
the U.S. Most recently, Mr. Eckert served as President of Pulte's Mid-Atlantic
Region, which included oversight of the company's land acquisition,
development and homebuilding operations from Virginia to New Jersey. Mr.
Eckert is a former director of PHM Mortgage Company and is currently a
director of the Munder Funds, a $6.2 billion mutual fund group, and the
Celotex Corporation, a building products manufacturing entity with $700
million in annual revenues. Prior to working at Pulte, Mr. Eckert was employed
with the public accounting firm of Arthur Andersen LLP for over seven years.
Mr. Eckert is a graduate of the University of Michigan. From November 1996 to
November 1997, Mr. Eckert was a director of the FBR Funds, a diversified
family of mutual funds affiliated with the Representative.
Scott M. Stahr is the Company's Executive Vice-President and Chief Operating
Officer. From 1985 to 1997, Mr. Stahr was a Principal at LaSalle Partners, a
Chicago-based real estate investment firm. In that role, Mr. Stahr was
responsible for sourcing, underwriting and negotiating acquisitions of office,
retail, parking and industrial properties. Mr. Stahr has also advised and
provided consulting services to corporate and institutional clients on the
acquisition, disposition and value enhancement of their real estate-related
holdings. Prior to joining LaSalle Partners, Mr. Stahr was a practicing
attorney with a broad commercial litigation and real estate practice. Mr.
Stahr is a graduate of the University of Virginia and holds a J.D. from the
University of Texas.
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Donald L. Keithley is the Company's Executive Vice-President of Business
Development. Mr. Keithley was the J.D. Power and Associates Partner in charge
of Dealer Relations from 1984 to 1997. In 1996, Mr. Keithley authored "The
Revolution in Automotive Retailing: A Perspective of the New Millennia," a
book which addresses the rapidly evolving changes in the dealership franchise
system. He has given numerous presentations on this subject to executives
within the industry. Before his tenure at J.D. Power and Associates, Mr.
Keithley was employed by the Toyota Motor Company and the Ford Motor Company
for numerous years. Mr. Keithley received a Masters in Business Administration
from the University of California at Los Angeles, and currently serves on the
Business Advisory Council for Loyola Marymount University.
David S. Kay is the Company's Vice-President and Chief Financial Officer.
Prior to joining the Company, Mr. Kay was employed by the public accounting
firm of Arthur Andersen LLP in Washington, D.C. for approximately ten years.
His areas of expertise included emerging companies in the automotive, retail,
and distribution industries. While at Arthur Andersen LLP, Mr. Kay provided
clients with consultation regarding mergers and acquisitions, business
planning and strategy and equity financing. He also has several years of
experience in capital formation projects, roll-up transactions, and initial
public offerings for motor vehicle dealerships across the nation. Mr. Kay has
participated on an NADA task force and has given presentations at NADA
conventions and at other industry seminars. Mr. Kay is a graduate of James
Madison University.
Robert M. Rosenthal will be a member of the Board of Trustees. Mr. Rosenthal
is the Chairman of the Rosenthal Automotive Organization. Mr. Rosenthal has
been involved in the automotive industry for 50 years and during that time has
founded more than 35 Dealerships. Mr. Rosenthal is a second-generation member
of the Rosenthal family involved in the automotive industry. His father's
association with Chevrolet began in 1919. With 19 current Dealerships, the
Rosenthal Automotive Organization was the nation's 14th largest automotive
group in terms of total new and used vehicle retail sales. In 1996, the
Rosenthal Automotive Group Dealerships sold more than 31,500 new and used
motor vehicles. Under Mr. Rosenthal's leadership, the Rosenthal Automotive
Organization's Dealerships have received numerous national and local awards,
including the Time Magazine Quality Dealer Award, the International American
Automobile Dealers/Sports Illustrated Dealer of Distinction, the Acura
Precision Team Award, the Jaguar Pride of Jaguar Award, and the Mazda
President's Award. Mr. Rosenthal has been active in a number of national and
local industry and business groups during his career, including, the
Washington New Automobile Dealers Association, of which he has served as a
past Director and President, the National Capitol Automobile Dealers
Association, the Chief Executives Organization and the World Business Council.
He also serves on the Board of Directors of First Virginia Bank and is an
officer and trustee of the Phillips Collection. Mr. Rosenthal is a graduate of
Temple University.
John E. Reilly will be a member of the Board of Trustees. Currently, Mr.
Reilly is serving as a consultant to American Isuzu Motors, Inc. From 1980
until his retirement in 1997, Mr. Reilly was employed by American Isuzu
Motors, Inc. At the time of his retirement, Mr. Reilly was serving as a Senior
Executive Advisor. His previous assignments at American Isuzu Motors, Inc.
included serving as Chairman and Senior Vice President. During his tenure, Mr.
Reilly oversaw the initial establishment of the Isuzu franchise in the U.S.
marketplace. Prior to his employment with American Isuzu Motors, Inc., Mr.
Reilly held a number of positions within the automotive industry, including
positions with General Motors Corporation, Toyota and Volkswagen of America.
Mr. Reilly has also served three terms as the Chairman of the Association of
International Automobile Manufacturers. Mr. Reilly attended Boston College and
Boston College Law School and is a graduate of Siena University.
William E. Hoglund will be a member of the Board of Trustees. From 1956
until his retirement in 1994, Mr. Hoglund was employed by General Motors
Corporation. At the time of his retirement in 1994, Mr. Hoglund was serving as
an Executive Vice President and member of the General Motors Corporation Board
of Directors. His previous assignments at General Motors Corporation included
serving as Corporate Comptroller, Chief Financial Officer, President of
Saturn, General Manager of the Pontiac Division, and Group Executive for the
Buick-Oldsmobile-Cadillac Group. Currently, Mr. Hoglund is a director of the
Mead Corporation, Detroit Diesel Corporation and the Sloan Foundation. Mr.
Hoglund is a graduate of Princeton University and received a Masters in
Business Administration from the University of Michigan.
60
<PAGE>
COMMITTEES OF THE BOARD OF TRUSTEES
Audit Committee. Promptly following the closing of the Offering, the Board
of Trustees of the Company will establish an Audit Committee. The Audit
Committee will be established to make recommendations concerning the
engagement of independent public accountants, to review with the independent
accountants the plans and results of the audit engagement, to approve
professional services provided by the independent public accountants, to
review the independence of the independent public accountants, to consider the
range of audit and non-audit fees and to review the adequacy of the Company's
internal accounting controls.
Executive Committee. Promptly following the closing of the Offering, the
Board of Trustees of the Company will establish an Executive Committee.
Subject to the Company's conflicts of interest policies, the Executive
Committee may be granted certain authority to acquire and dispose of real
property and the power to authorize, on behalf of the full Board of Trustees,
the execution of certain contracts and agreements, including those related to
the borrowing of money by the Company, and, consistent with the Partnership
Agreement, to cause the Operating Partnership to take such actions.
Executive Compensation Committee. Promptly following the closing of the
Offering, the Board of Trustees of the Company will establish an Executive
Compensation Committee to determine compensation for the Company's executive
officers and to implement and administer the Company's Plan.
COMPENSATION OF TRUSTEES
The Company intends to pay its Trustees who are not employees of the Company
or affiliated with a Seller $15,000 a year for their services as Trustees.
Each non-employee Trustee (other than Messrs. Pohanka and Rosenthal) also will
receive a grant of options to purchase 15,000 Units under the Company's Plan
upon election or appointment to the Company's Board of Trustees. See "--1998
Equity Incentive Plan."
EXECUTIVE COMPENSATION
The Company was organized in October 1997, did not conduct any prior
operations and, accordingly, did not pay any compensation to its executive
officers for the year ended December 31, 1996. The following table below sets
forth the annual base salary rates and other compensation expected to be paid
in 1998 to the Company's Chief Executive Officer and each of the Company's
other executive officers. The Company will assign the employment agreements
with the executive officers to the Operating Partnership, which will also
employ the executive officers and will pay their compensation.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($)(2) OPTIONS
--------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Thomas D. Eckert......................... 350,000 958,345
President and Chief Executive Officer
Scott M. Stahr........................... 225,000 519,104
Executive Vice President and
Chief Operating Officer(3)
Donald L. Keithley....................... 200,000 239,586
Executive Vice President of
Business Development
David S. Kay............................. 150,000 519,104
Vice President and Chief Financial
Officer
</TABLE>
- --------
(1) This reflects the initial annual base salaries payable for the 12-month
period beginning on the date of commencement of each officer's employment
agreement. See "--Employment Agreements."
(2) Each executive officer named above will be eligible for a bonus of up to
100% of their initial base salary. In addition, Mr. Keithley is also
eligible for an additional incentive bonus of $200,000.
(3) Mr. Stahr received a signing bonus of $250,000 to compensate him for
terminating his employment with his prior employer.
61
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the
executive officers named in the table above. The Company will assign the
employment agreements to the Operating Partnership effective as of January 1,
1998. These agreements are for a four year term and provide that the executive
officers agree to devote their full business time to the operation of the
Company (except as the Company otherwise agrees, including on behalf of the
Operating Partnership). The term is shortened to June 30, 1998 if the Company
has not completed its initial public offering by such date. The employment
agreements permit the Company to terminate the executives' employment with
appropriate notice for or without cause. In general, cause is defined to
include (i) engaging in dishonesty relating materially to performance of
services or obligations contained in the employment agreements, (ii)
conviction of any misdemeanor (other than minor infractions) involving fraud,
breach of trust, misappropriation, or other similar activity or any felony,
(iii) performance of duties in a grossly negligent manner; or (iv) wilful
breach of the employment agreement in a manner materially injurious to the
Company. In addition, executives may resign for good reason (generally defined
in the agreements to include the Company's failure to comply with the
agreements' material terms, the reduction of responsibilities and duties or,
for Mr. Eckert, his involuntary departure from the Board of Trustees),
relocation, or a change of control. In general terms, a change of control
occurs (i) if a person, entity, or group (with certain exceptions) acquires
more than 40% of the Company's then-outstanding voting securities, (ii) if the
Company merges into another entity unless prior Company shareholders have at
least 60% of the combined voting power of the securities in the merged entity,
or (iii) the liquidation, dissolution, or sale or disposition of substantially
all of the Company's assets.
If the executives' employment ends for any reason, the Company will pay
accrued salary, bonuses already determined, and other existing obligations. In
addition, if the Company terminates the executives' employment without cause
or any of them resigns for good reason, the Company will be obligated to pay
(i) a lump sum payment of severance equal to 24 months' salary, (ii) payment
of premiums for the period of group health coverage, if any, to which he is
entitled by law, and (iii) a pro rata annual bonus for the year of
termination. Notwithstanding the foregoing, the Company has not agreed to pay
severance and provide the foregoing benefits if the executives' employment
ends because of expiration or non-extension of their agreements. Friedman,
Billings, Ramsey Group, Inc., an affiliate of the Representative, has agreed
to employ Messrs. Eckert and Kay for a period of up to one year if the
Offering is not completed for any reason at substantially the same salaries
and equivalent benefits as set forth in their respective employment
agreements. See "Underwriting."
While employed and for a one-year period after employment, the executives
have agreed not to compete with the Company by working with or investing in
any enterprise engaged in forming or operating Dealerships or that invest
primarily in Dealerships or Related Businesses or properties used by
Dealerships or Related Businesses or that provide real estate financing to
Dealerships or Related Businesses.
1998 EQUITY INCENTIVE PLAN
The Company (including the Operating Partnership) has established the Plan
for the purpose of attracting and retaining trustees, executive officers and
other key employees. Each option granted pursuant to the Plan shall be
designated at the time of grant as either an "incentive option" or as a "non-
qualified option." If the grant is for an "incentive option," the Company will
issue options for Common Shares. If the grant is for "non-qualified options"
the Company intends to issue options for Units.
The Plan provides for the grants of options ("Options") to purchase a
specified number of Common Shares or Units. Under the Plan, Common Shares and
Units in an aggregate number equal to 8% of the Common Shares to be
outstanding on the closing of the Offering (including exercise of the
Underwriters' over-allotment in full) on a fully diluted basis will be
available for grants. Contemporaneously with the completion of the Offering,
the Company will grant Options for an aggregate number of Common Shares and
Units equal to 7% of the Common Shares to be outstanding on the closing of the
Offering (including exercise of the Underwriters' over-allotment option in
full) on a fully diluted basis (the "Initial Grants") to the following key
officers and employees of the Company: Thomas D. Eckert, Scott M. Stahr,
Donald L. Keithley and David S. Kay. Participants in the Plan, who may be
trustees, officers or employees of the Company, or its subsidiaries or
Company-owned partnerships, will be selected by the Executive Compensation
Committee. See also "--Compensation of Trustees."
62
<PAGE>
The Plan authorizes the Executive Compensation Committee to grant incentive
Options for Common Shares at an exercise price to be determined by it,
provided that such price cannot be less than 100% of the fair market value of
Common Shares on the date on which the Option is granted. The exercise price
of non-qualified Options will be at 100% of the fair market value of Units on
the date the Option is granted as determined by the Executive Compensation
Committee.
The Initial Grants will become exercisable, subject to certain conditions
being met, at a rate of 25% per year over four years commencing on the first
anniversary of their date of grant and will have a term of ten years. The
exercise price of the Options issued under the Initial Grants will be the
initial public offering price of the Common Shares. The exercise price for any
Option is generally payable in cash or, in certain circumstances, by the
surrender, at the fair market value on the date on which the Option is
exercised, of Common Shares. The Plan provides that exercise may be delayed or
prohibited if it would adversely affect the Company's REIT status.
All unexercisable Options held by an optionee will automatically be
forfeited if the optionee leaves employment for any reason other than death or
permanent disability. Upon a "change in control" (as defined in the Plan), all
unexercisable Options will become exercisable. The rights of any optionees to
exercise a Option may not be transferred in any way other than by will or
applicable laws of descent and distribution.
The Company also anticipates that it will grant Options to its non-employee
Trustees (other than Messrs. Pohanka and Rosenthal). The exercise price for
any of these Options will generally be payable in cash or, in certain
circumstances, by the surrender, at the fair market value on the date on which
the Option is exercised, of Common Shares.
The Executive Compensation Committee may grant options under the Plan in
substitution for outstanding options with higher exercise prices. In addition,
in the event of certain extraordinary events, the Executive Compensation
Committee may make adjustments in the aggregate number and kind of shares of
beneficial interest reserved for issuance, the number and kind of shares of
beneficial interest covered by outstanding awards and the exercise prices
specified therein as may be determined to be appropriate.
The following table contains information concerning the grant of Share
Options under the Company's Plan expected to be made for the year ending
December 31, 1998. The table also lists potential realizable values of such
options on the basis of assumed annual compounded share appreciation rates of
5% and 10% over the life of the Options.
OPTION GRANTS IN CONNECTION WITH THE FORMATION TRANSACTIONS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS OPTION TERM
NAME AND UNDERLYING GRANTED TO EXERCISE OR (IN THOUSANDS)
PRINCIPAL OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
POSITION GRANTED(1) FISCAL YEAR PER SHARE DATE(2) 5%(3) 10%(3)
--------- ---------- ------------ ----------- ---------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas D. Eckert........ 958,345 37.5% $15 $9,040 $22,910
President and Chief
Executive Officer
Scott M. Stahr.......... 519,104 20.3 15 4,897 12,410
Executive Vice
President and
Chief Operating Officer
Donald L. Keithley...... 239,586 9.4 15 2,260 5,728
Executive Vice
President of Business
Development
David S. Kay............ 519,104 20.3 15 4,896 12,410
Vice President and
Chief Financial Officer
</TABLE>
- --------
(1) The Options granted will become exercisable at a rate of 25% per year over
four years commencing on the first anniversary of their date of grant.
(2) The expiration date of the Options will be ten years after the date of the
grant.
(3) The potential realizable value is reported net of the option price, but
before the income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% from the
date of grant to the expiration date of the Options.
63
<PAGE>
INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Declaration of Trust contains a provision permitted under Maryland law
eliminating (with limited exceptions) each Trustee's personal liability for
monetary damages for breach of any duty as a Trustee. In addition, the
Declaration of Trust and Bylaws authorize the Company to indemnify its present
and former Trustees and officers and to pay or reimburse expenses for such
individuals in advance of the final disposition of a proceeding to the maximum
extent permitted from time to time under Maryland law. Maryland law provides
that indemnification of a person who is a party, or threatened to be made a
party, to legal proceedings by reason of the fact that such a person is a
trustee, officer, employee or agent of a corporation or was a trustee or
officer of the corporation or is or was serving as a trustee or officer of a
corporation or other firm at the request of a corporation, against expenses,
judgments, fines and amounts paid in settlement, is mandatory in certain
circumstances and permissive in others, subject to authorization by the Board
of Trustees.
The Company intends to enter into indemnification agreements with each of
the Company's Trustees and certain of its executive officers, either as
separate agreements or as part of their employment agreements. The
indemnification agreements will require, among other things, that the Company
indemnify its Trustees and officers to the fullest extent permitted by law,
and advance to the Trustees and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. The Company also must indemnify and advance all expenses incurred
by Trustees and officers seeking to enforce their rights under the
indemnification agreements and cover trustees and officers under the Company's
Trustees' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Declaration of Trust and Bylaws, it provides
greater assurance to Trustees and officers that indemnification will be
available, because as a contract, it cannot be unilaterally modified by the
Board of Trustees or by the shareholders to eliminate the rights it provides.
64
<PAGE>
STRUCTURE AND FORMATION OF THE COMPANY
The Company was formed on October 20, 1997. The Operating Partnership was
formed on November 13, 1997.
STRUCTURE OF THE COMPANY
The Company will be the sole general partner of the Operating Partnership.
The Company will contribute the proceeds of the Offering to the Operating
Partnership in exchange for Units representing approximately 81.2% of the
partnership interests in the Operating Partnership (the terms and conditions
of which will correspond to the Common Shares). The Company will conduct
substantially all of its business, and will hold all of its interests in the
Properties, through the Operating Partnership. As the sole general partner of
the Operating Partnership, the Company will have the exclusive power to manage
and conduct the business of the Operating Partnership, subject to certain
exceptions set forth in the Partnership Agreement. See "Partnership
Agreement."
The following diagram depicts the ownership structure of the Company and the
Operating Partnership upon completion of the Offering and the Formation
Transactions (as defined below):
[LOGO OF CHART APPEARS HERE]
FORMATION TRANSACTIONS
The following transactions will be completed in connection with the
completion of the Offering:
. Concurrently with the closing of this Offering, pursuant to the FBR
Offering, FBR Asset Investment Corporation, an Affiliate of the
Representative, has agreed to acquire 1,792,115 Common Shares in a
private placement at the initial public offering price (net of
underwriting discounts and commissions).
65
<PAGE>
. Concurrently with the closing of the Offering, the Company will
contribute the net proceeds of the Offering and the FBR Offering to
the Operating Partnership in exchange for 21,792,115 Units.
. At closings scheduled within 60 days of the closing of the Offering,
the Company will acquire certain Initial Properties from Cross-
Continent, Good News and Kline in exchange for cash consideration of
$35.3 million, $5.5 million and $8.5 million, respectively.
. At closings scheduled within 60 days of the Offering, the Company
will acquire Initial Properties from Pohanka, Rosenthal, Sheehy and
Cherner in exchange for 1,204,342; 3,438,298; 295,439; and 103,470
Units of the Operating Partnership, respectively. The Operating
Partnership will acquire certain Initial Properties subject to
existing mortgage debt of $41.3 million (the "Mortgage Debt"). The
Company will pay Mortgage Debt of approximately $13.3 million, $13.7
million, $9.6 million and $4.8 million assumed from Pohanka,
Rosenthal, Sheehy and Cherner, respectively, in full at the closing
of the purchase of such Initial Properties. See "Use of Proceeds"
and "Business of the Company and Properties--The Initial Leases,
Properties and Dealerships" for a description of the consideration
to be paid and Mortgage Debt to be assumed by the Company with
respect to the Initial Sellers.
. The Operating Partnership will use the aggregate net proceeds of the
Offering and the FBR Offering of $302.4 million ($344.2 million of
the Underwriters' over-allotment option is exercised in full) as
described in "Use of Proceeds."
. Dealers or their Affiliates will enter into long-term triple-net
Leases with the Company and may enter into other agreements with the
Company with respect to the Initial Properties.
. Each of Messrs. Pohanka and Rosenthal, who will be Trustees of the
Company and Affiliates of certain Initial Sellers and Initial
Lessees, will receive warrants representing the right to acquire up
to 707,079 Units (equal to 2% of the Common Shares to be outstanding
on the closing of the Offering (including exercise of the
Underwriters' over-allotment option in full) on a fully diluted
basis), at an exercise price equal to the initial public offering
price of the Common Shares, such warrants to be exercisable
beginning on the closing of the Offering and for a period of five
years thereafter (the "Dealer Warrants").
. The Company will obtain a $10 million line of credit from
NationsBank, N.A. and will borrow approximately $5 million at the
closing of the Offering (approximately $2.5 million of which will be
guaranteed by Affiliates of Mr. Rosenthal and approximately $2.5
million of which will be guaranteed by Affiliates of Mr. Sheehy).
BENEFITS TO RELATED PARTIES
The following table sets forth the benefits of the Formation Transactions to
the executive officers and trustees of the Company:
<TABLE>
<CAPTION>
PERSON RECEIVING BENEFIT NATURE AND AMOUNT OF BENEFIT
- ------------------------ ----------------------------
<S> <C>
John J. Pohanka and
Robert M. Rosenthal..... 1,204,342 Units and 3,438,298 Units, respectively, in
connection with the sale of the Initial Properties, and
the repayment of approximately $13.3 million and $13.7
million in principal amount of debt, respectively. The
receipt of Units will permit the deferral of taxes on
the sale of such Initial Properties. In addition, the
Company will be
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
PERSON RECEIVING BENEFIT NATURE AND AMOUNT OF BENEFIT
- ------------------------ ----------------------------
<S> <C>
prevented from selling, financing or repaying debt
secured by certain Initial Properties. See "Structure
and Formation of the Company--Lock-out Provisions."
Affiliates of Messrs. Pohanka and Rosenthal will lease
such Initial Properties from the Company and will
continue to control the operations of the Dealership or
Related Business operated on those Initial Properties.
Each of Messrs. Pohanka and Rosenthal will receive
Dealer Warrants to acquire Units equal to 2% of the
outstanding Common Shares following the Offering
(including exercise of the Underwriters over-allotment
option in full) on a fully diluted basis at the intial
public offering price.
Beginning one year after the closing of the Offering,
the right to convert the Units held by them for Common
Shares, subject to the Ownership Limitation.
Purchase by Mr. Pohanka and his family of up to $13
million of Common Shares in this Offering at the initial
public offering price, of which a portion may be
purchased net of underwriting discounts and commissions
because executive officers and Trustees may acquire in
the aggregate up to 2% of the offered Common Shares at
the initial public offering price (net of underwriting
discounts and commissions).
Executive Officers...... Salary and bonus as an executive officer of the Company
as described under "Management--Executive Compensation."
Options to acquire Common Shares and Units equal to 3%
(Thomas D. Eckert), 1.625% (Scott M. Stahr), .75%
(Donald L. Keithley) and 1.625% (David S. Kay) of the
outstanding Common Shares following the Offering
(including exercise of the Underwriters' the over-
allotment option on a fully diluted basis) at an assumed
initial public offering price.
The executive officers and Trustees may acquire in the
aggregate up to 2% of the Common Shares in this Offering
at the initial public offering price (net of
underwriting discounts and commissions). The executive
officers have advised the Representative that they
currently intend to purchase an aggregate of
approximately 122,000 Common Shares in this Offering.
In addition to the foregoing, the Representative of the Underwriters and its
Affiliates will receive certain benefits in connection with the Offering in
addition to its compensation as an underwriter (see "Underwriting") as set
forth below:
Friedman, Billings, Ram-
sey Group, Inc......... Repayment of the loan made to the Company in the amount
of up to approximately $2.3 million, plus interest
thereon at the rate of 10% per annum.
FBR Asset Investment
Corporation............ Purchase of 1,792,115 Common Shares at the initial
public offering price (net of underwriting discounts and
commissions). Such purchaser will have certain "demand"
and "piggy-back" registration rights with respect to
such Common Shares. See "Common Shares Eligible for
Future Sale--Registration Rights."
</TABLE>
67
<PAGE>
LOCK-OUT PROVISIONS
The Contribution Agreements contain "Lock-out Provisions" that restrict the
Company's ability to sell, or require the Company to maintain indebtedness on,
certain Initial Properties for periods ranging from zero to seven years
following the completion of the Offering, which will enable certain
participants in the Formation Transactions to defer certain tax consequences
associated with the Formation Transactions. See "Risk Factors--Conflicts of
Interests Among the Company and Certain Trustees--Ability of Certain Trustees
and Their Affiliates to Influence the Sale or Refinancing of the Initial
Properties--," "Business of the Company and Properties," "Management" and
"Related Transactions."
BENEFITS OF THE UPREIT STRUCTURE
The benefits of the Company's UPREIT status and structure include the
following:
. Access to Capital. The Company's structure will, in the Company's judgment,
provide it with greater access to capital for refinancing and growth.
Sources of capital include the Common Shares sold in the Offering and
possible future issuances of debt or equity through public offerings or
private placements. The financial strength of the Company should enable it
to obtain financing at advantageous rates and on acceptable terms.
. Growth of the Company. The Company's structure will allow shareholders,
through the ownership of Common Shares, and Sellers, through their
ownership of Units, to participate in the growth of the real estate market
through an ongoing business enterprise. In addition to the existing
portfolio of Initial Properties, the Company gives shareholders and Sellers
an interest in all future investment in those Properties.
. Liquidity. The Company's structure allows shareholders and Sellers the
opportunity to liquidate their capital investment through the disposition
of Common Shares or the conversion of Units into Common Shares. Pursuant to
the Partnership Agreement and subject to certain conditions, each Unit held
by the Company or any Seller may be redeemed for cash or, at the option of
the Company, exchanged for one Common Share (subject to adjustment).
. Tax Deferral. The Formation Transactions provide to the Sellers the
opportunity to defer the tax consequences that would arise from a sale or
contribution of their interests in the Properties and other assets to the
Company or to a third party.
ACQUISITION OF THE INITIAL PROPERTIES FROM THE INITIAL SELLERS
The Operating Partnership will acquire the Initial Sellers' interests in the
Initial Properties pursuant to Contribution Agreements with each Initial
Seller negotiated on an arm's length basis. The obligations of the Initial
Sellers to transfer such Initial Properties pursuant to the Contribution
Agreements is or will be conditioned upon the completion of the Offering, the
closing of the transactions contemplated by the Initial Leases and the
Contribution Agreements, and normal and customary conditions to the closing of
real estate transactions, including the consents of lenders, if required. In
addition, in certain circumstances, the Initial Sellers' will be required to
deliver the consent of certain Manufacturers under the applicable Franchise
Agreements to the sale of certain Initial Properties. The Initial Sellers are
in the process of obtaining such lender or Manufacturer consents, if
applicable, and expect to obtain all necessary consents prior to the
completion of the Offering. The Contribution Agreements also contain
representations and warranties to the Operating Partnership concerning the
ownership and operation of the Initial Properties and environmental matters
and certain other covenants, representations and warranties customarily found
in real estate purchase agreements. Claims for indemnification for any breach
under the Contribution Agreements could be made by the Operating Partnership
for approximately two years from the completion of the Offering, subject to
longer periods for breaches relating to environmental matters. Although each
Initial Seller is obligated during the Indemnification period to maintain a
net worth equal to the purchase price for the relevant Initial Property, there
is no assurance that an Initial Seller will be able to satisfy its
indemnification obligation.
68
<PAGE>
RELATED TRANSACTIONS
TRANSACTIONS WITH TRUSTEES
Dealer Warrants. Messrs. Pohanka and Rosenthal are Trustees of the Company
and principals of certain Initial Sellers. They will each be granted the
Dealer Warrants.
Acquisition of Initial Properties. Mr. John J. Pohanka is Chairman of
Pohanka Automotive Group. Upon consummation of this Offering, the Company will
purchase nine of the Initial Properties from Affiliates of Pohanka Automotive
Group for aggregate consideration of approximately $31.3 million through the
issuance of 1,204,342 Units and the assumption of $13.3 million of mortgage
debt. The Company has agreed not to sell, and to maintain specified levels of
debt on, the Initial Properties acquired from Mr. Pohanka for periods ranging
from four years to seven years, with most being subject to a four year lock-
out period.
Mr. Robert M. Rosenthal is Chairman of Rosenthal Automotive Organization.
Upon consummation of this Offering, the Company will purchase seven of the
Initial Properties from Affiliates of Rosenthal Automotive Organization for
aggregate consideration of approximately $65.3 million to be paid through the
issuance of 3,438,298 Units and the assumption of $13.7 million of mortgage
debt. The Company has agreed not to sell, and to maintain specified levels of
debt on, the Initial Properties acquired from Mr. Rosenthal for periods
ranging from five to seven years, with most being subject to a seven year
lock-out period.
Initial Leases. The Company will enter into Leases with Affiliates of
Pohanka Automotive Group for nine Initial Properties for aggregate initial
annual base rent of approximately $3.4 million. See "Business of the Company
and Properties--The Initial Properties, Leases and Dealerships."
The Company will enter into Initial Leases with Affiliates of Rosenthal
Automotive Organization for seven Initial Properties for aggregate initial
annual base rent of approximately $7.2 million. See "Business of the Company
and Properties--The Initial Properties, Leases and Dealerships."
Sale of Common Shares in This Offering. Mr. Pohanka has advised the
Representative that he and his family intend to purchase $13 million of
registered Common Shares in this Offering at a purchase price per share equal
to the initial public offering price, of which a portion may be purchased net
of underwriting discounts and commissions because executive officers and
Trustees may acquire in the aggregate up to 2% of the offered Common Shares
following the Offering (including exercise of the Underwriters' the over-
allotment option on a fully diluted basis) at an assumed initial public
offering price.
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PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement, and the descriptions of
certain provisions set forth elsewhere in this Prospectus, are qualified in
their entirety by reference to the Partnership Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
MANAGEMENT
The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. The Company will initially
hold approximately 81.2% of the Units of the Operating Partnership, including
its interest held as a limited partner of the Operating Partnership (a
"Limited Partner"). The Company will conduct substantially all of its business
through the Operating Partnership. Pursuant to the Partnership Agreement, the
Company, as the sole general partner of the Operating Partnership, will
generally have full, exclusive and complete responsibility and discretion in
the management and control of the Operating Partnership, including the ability
to cause the Operating Partnership to enter into certain major transactions,
including acquisitions, dispositions and refinancings and to cause changes in
the Operating Partnership's line of business and distribution policies.
Limited Partners of the Operating Partnership will have no authority to
transact business for, or participate in the management or decisions of, the
Operating Partnership, except as provided in the Partnership Agreement and as
required by applicable law. The Company, as general partner and without the
consent of the Limited Partners, may amend the Operating Partnership
Agreement; provided however, that any amendment (i) affecting the conversion
factor or redemption right in a manner adverse to the Limited Partners, (ii)
adversely affecting the rights of the Limited Partners to receive
distributions or allocations of profit or loss (other than in connection with
the issuance of additional Units), (iii) imposing on the Limited Partners any
obligation to make additional capital contributions, or (iv) affecting the
Limited Partners' registration rights, requires the consent of two-thirds of
the Limited Partners (excluding any Units held by the Company in its capacity
as a Limited Partner). Further, the Company, without the consent of the
Limited Partners (including the Company in its capacity as a Limited Partner)
holding at least two-thirds of the Units, may not sell, transfer or convey all
or substantially all of the assets of the Operating Partnership, including
without limitation a sale, assignment, transfer to another public or private
company or approve a merger or consolidation of the Operating Partnership. The
Limited Partners have no right to remove the Company as general partner of the
Operating Partnership.
INDEMNIFICATION
To the extent permitted by law, the Partnership Agreement provides for
indemnification of the Company, as general partner, its officers and trustees
and such other persons as the Company may designate to the same extent
indemnification is provided to officers and trustees of the Company in the
Declaration of Trust, and limits the liability of the Company and its officers
and trustees to the Operating Partnership to the same extent liability of
officers and trustees of the Company is limited under the Declaration of
Trust.
TRANSFERABILITY OF INTERESTS
Except for a transaction described in the following paragraph, the
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, or transfer or assign its interest in the
Operating Partnership. A Limited Partner may transfer its interests in the
Operating Partnership to a transferee subject to certain conditions,
including, the written consent of the Company and compliance with federal
securities laws and applicable state securities and blue sky laws, provided
further that such transfer does not cause the Operating Partnership to be
treated as an association taxable as a corporation for federal or state income
tax purposes and does not cause the Company to cease to comply with
requirements under the Code for qualification as a REIT. Such transferee will
be admitted as a substitute Limited Partner only upon assumption of all
obligations of the transferor Limited Partner, and the consent of the Company,
as general partner.
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EXTRAORDINARY TRANSACTIONS
The Partnership Agreement provides generally that the Company may not engage
in any merger, consolidation or other combination with or into another person
or sale of all or substantially all of its assets, or any reclassification,
recapitalization or change of outstanding Common Shares (a "Business
Combination"), unless the holders of Units will receive, or have the
opportunity to receive, the same consideration per Unit as shareholders
receive per Common Share in the transaction and no more than 75% of the equity
securities of the acquiring entity shall be owned by the Company or its
Affiliates. If, in connection with a Business Combination, a purchase, tender
or exchange offer (the "Offer") shall have been made to and accepted by the
holders of more than 50% of the outstanding Common Shares, each holder of
Units shall be given the option to exchange its Units for the greatest amount
of cash, securities or other property which a Limited Partner would have
received had it (i) exercised its right to cause its Units to be redeemed by
the Operating Partnership (the "Redemption Right") and pursuant to the
Company's option to issue Common Shares in exchange for Units, received Common
Shares immediately prior to the expiration of the Offer, and (ii) sold,
tendered or exchanged pursuant to the Offer the Common Shares received upon
the exercise of the Redemption Right. In addition, the Company may merge into
or consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or
surviving entity (the "Surviving Entity"), other than Units held by the
Operating Partnership's general partner, are contributed to the Operating
Partnership as a Capital Contribution in exchange for Units with a fair market
value equal to the value of the assets so contributed as determined by the
Surviving Entity in good faith, and (ii) the Surviving Entity expressly agrees
to assume, or acknowledge and ratify, all obligations of the General Partner
under the Partnership Agreement.
ISSUANCE OF ADDITIONAL UNITS
As sole general partner of the Operating Partnership, the Company has the
ability to cause the Operating Partnership to issue additional Units
representing general or limited partnership interests, including Preferred
Units in the Operating Partnership.
CAPITAL CONTRIBUTIONS AND ADDITIONAL FUNDS
The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or prior capital
contributions, the Company may borrow such funds from a financial institution
or other lender or through public or private debt offerings and lend such
funds to the Operating Partnership on the same terms and conditions as are
applicable to the Company's borrowing of such funds. The Partnership Agreement
and the Plan also provide that in the event the Company issues additional
shares of beneficial interest (including any issuance of Common Shares
pursuant thereto), the Company is required to contribute to the Operating
Partnership as an additional capital contribution any net proceeds from such
issuance in exchange for additional partnership interests with preferences and
rights corresponding to the beneficial interests so issued. As an alternative
to borrowing funds required by the Operating Partnership, the Company may
contribute the amount of such required funds as an additional capital
contribution to the Operating Partnership. If the Company so contributes
additional capital to the Operating Partnership, the Company's partnership
interest in the Operating Partnership will be increased on a proportionate
basis. Conversely, the partnership interests of the Limited Partners will be
decreased on a proportionate basis in the event of additional capital
contributions by the Company.
AWARDS UNDER THE PLAN
If Options granted in connection with the Plan are exercised at any time or
from time to time, the Partnership Agreement requires the Company to
contribute to the Operating Partnership as an additional contribution the
exercise price received by the Company in connection with the issuance of
Common Shares to such exercising participant. Upon such contribution the
Company will be issued a number of Units in the Operating Partnership equal to
the number of Common Shares so issued.
DISTRIBUTIONS
The Partnership Agreement provides that the Operating Partnership shall
distribute cash on a quarterly basis (or more frequently at the election of
the Company, as general partner), pro rata in accordance with the partners'
respective percentage interests.
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OPERATIONS
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT, unless the Company otherwise ceases to qualify
as a REIT and to ensure that the Partnership will not be classified as a
publicly traded partnership under the Code. Pursuant to the Partnership
Agreement, the Operating Partnership will assume and pay when due, or
reimburse the Company for payment of, all expenses it incurs relating to the
ownership and operation of, or for the benefit of, the Operating Partnership
and all costs and expenses relating to the operations of the Company.
LIMITED PARTNER REDEMPTION RIGHTS
Beginning one year after the issuance of the Units, the Limited Partners
will have the right to redeem their Units for cash based on the average market
price of the Company's Common Shares for the twenty days immediately preceding
the five trading days prior to the exercise of the right to have Units
redeemed by the Operating Partnership. Under the Partnership Agreement, the
Operating Partnership may redeem Units for cash (calculated as provided in the
preceding sentence) prior to the expiration of the one-year holding period for
Units to the extent that a Limited Partner has pledged his Units to secure a
loan and has thereafter defaulted on such loan. The Company, in its sole
discretion, may assume the obligations of the Operating Partnership to redeem
Units, in which case the Company will have the option, in its sole discretion,
to exchange the Units for cash or the issuance of a like number of Common
Shares. The Company may not exchange any Common Shares for Units if actual or
constructive ownership of such Common Shares would (i) violate the Ownership
Limit, (ii) result in the Company's shares being owned by fewer than 100
persons, (iii) result in the Company being "closely held" within the meaning
of Section 856(h) of the Code, (iv) cause the Company to own, directly or
constructively, 10% or more of the ownership interests in a tenant of the
Company's or the Operating Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of Common
Shares by such Limited Partner to be "integrated" with any other distribution
of Common Shares for purposes of complying with the registration provisions of
the Securities Act. See "Description of Shares of Beneficial Interest--
Restrictions on Ownership and Transfer." Following the expiration of the
foregoing restrictions, any Common Shares issued to the Company or any of the
Limited Partners upon redemption of their Units may be sold in the public
market pursuant to the registration statements which the Company will be
obligated to file under the Partnership Agreement. See "Common Shares Eligible
for Future Sale."
TAX MATTERS
Pursuant to the Partnership Agreement, the Company will be the "tax matters
partner" of the Operating Partnership and, as such, will have authority to
make certain tax decisions under the Code on behalf of the Operating
Partnership.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2073 or until sooner dissolved and terminated (i) upon the
dissolution, bankruptcy, insolvency or termination of the Company (unless the
Limited Partners elect to continue the Operating Partnership), (ii) upon the
passage of 90 days after the sale or other disposition of all, or
substantially all the assets of the Operating Partnership, or (iii) upon the
election by the Company, as general partner, that the Operating Partnership
should be dissolved, or (iv) by operation of law.
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PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth certain information regarding the expected
beneficial ownership of the Common Shares immediately following the
consummation of the Offering and the Formation Transactions, by (a) each
person known by the Company to be the beneficial owner of more than 5% of the
Common Shares, (b) each Trustee of the Company, (c) each executive officer of
the Company and (d) all Trustees and executive officers of the Company as a
group (excluding exercise of the Underwriters' over-allotment option in full).
Unless otherwise indicated in the footnotes, all of such interests are owned
directly, and the indicated person or entity has sole voting and investment
power. The number of shares represents the number of Common Shares the person
holds or the number of Common Shares into which Units held by the person are
exchangeable (if the Company elects to issue shares or Units rather than pay
cash upon such exchange). The executive officers and Trustees of the Company
have agreed not to sell Common Shares (including Common Shares issued on
exercise of Units), without the consent of the Representative, for a period of
two years following completion of the Offering. See "Partnership Agreement--
Limited Partner Redemption Rights."
<TABLE>
<CAPTION>
NUMBER OF
COMMON NUMBER OF
SHARES PERCENTAGE OF COMMON SHARES PERCENTAGE OF
BENEFICIALLY COMMON SHARES BENEFICIALLY COMMON SHARES
OWNED PRIOR OWNED PRIOR TO OWNED AFTER OWNED FOLLOWING
NAME TO THE OFFERING THE OFFERING(1)(2) THE OFFERING(2) THE OFFERING(3)
---- --------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Thomas D. Eckert(3)(4).. 10 100% -- (8) -- (8)
Scott M. Stahr(3)(4).... -- -- -- (8) -- (8)
Donald L.
Keithley(3)(4)......... -- -- -- (8) -- (8)
David S. Kay(3)(4)...... -- -- -- (8) -- (8)
John J.
Pohanka(1)(4)(5)(6).... -- -- 866,667 3.8%
Robert M.
Rosenthal(1)(4)(5)..... -- -- -- --
FBR Asset Investment
Corporation(7)......... -- -- 3,069,909 13.3%
Trustees and Executive
Officers as a group
(eight persons)........ 10 100% 988,531 4.5%
</TABLE>
- --------
(1) Affiliates of Mr. Pohanka and Mr. Rosenthal will own an aggregate of
1,204,342 Units and 3,438,298 Units respectively, that are not redeemable
for a period of one year from the date of issuance. If the holder chooses
to redeem the Units, the Operating Partnership may redeem them for cash,
or at the option of the Company, they may be redeemed for Common Shares.
However, the aggregate number of Units redeemable for Common Shares is
subject to the Ownership Limit and certain other limitations.
(2) The total number of Common Shares outstanding used in calculating the
percentage assumes that none of the Units is redeemed for Common Shares.
(3) Mr. Eckert owns 10 Common Shares prior to the Offering, which the Company
intends to repurchase immediately prior to the effective date of the
Offering. Excludes Options held by Messrs. Eckert, Stahr, Keithley and Kay
to acquire 6,667; 6,667; 6,667; and 6,667 Common Shares and 951,678;
512,437; 232,919; and 512,437 Units, respectively, which are not
exercisable within 60 days from the date of the Prospectus.
(4) The address for the executive officers and Trustees of the Company is c/o
1925 North Lynn Street, Suite 306, Arlington, Virginia 22209. Messers.
Pohanka and Rosenthal will join the Board of Trustees of the Company
immediately prior to the effective date of the Offering.
(5) Does not assume redemption of Units for Common Shares issued on exercise
of the Dealer Warrants that will be subject to a one year holding period
from the closing date of the Offering. Assuming (i) conversion of the
Units issued upon acquisition of Initial Properties acquired from
Affiliates of Mr. Pohanka and Affiliates of Mr. Rosenthal, (ii) exercise
of the Dealer Warrants and conversion of the Common Shares to be issued on
exercise of Units, and (iii) the purchase of $13 million of registered
Common Shares by Mr. Pohanka and his family, Mr. Pohanka and his
Affiliates and Mr. Rosenthal and his Affiliates will own 2,709,906 and
4,077,195 of the outstanding Common Shares at the closing of the Offering,
respectively, representing 9.56% and 14.27% of "Common Shares Owned
Following the Offering," respectively, on a fully diluted and converted
basis. The total number of Common Shares outstanding used in calculating
these percentages assumes that all of the Units are redeemed for Common
Shares.
(6) Assumes Mr. Pohanka and his family purchases $13 million of Common Shares
in the Offering.
(7) Includes Common Shares to be issued on exercise of the Underwriting
Warrants issued to the Representative, an Affiliate of FBR Asset
Investment Corporation.
(8) Represents less than 1%.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The Company was formed as a REIT under the laws of the State of Maryland.
Rights of shareholders are governed by Title 8 of the Corporations and
Associations Articles, Annotated Code of Maryland (the "Maryland REIT Law")
and by the Declaration of Trust and Bylaws. The following summary of the terms
of shares of beneficial interest of the Company does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Declaration of Trust and Bylaws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
AUTHORIZED SHARES
The Declaration of Trust provides that the Company may issue up to 100
million Common Shares, par value $.01 per share, and 20 million Preferred
Shares, par value $.01 per share. Upon completion of the Offering and the
consummation of the Formation Transactions, there will be 21,792,115 Common
Shares issued and outstanding.
As permitted by the Maryland REIT Law, the Declaration of Trust contains a
provision permitting the Board of Trustees, without any action by the
shareholders of the Trust, to classify or reclassify any unissued Common
Shares or Preferred Shares into one or more classes or series of shares of
beneficial interest by setting or changing the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
distributions, qualifications or terms or conditions of redemption of such new
class or series of shares of beneficial interest, or amend the Declaration of
Trust to increase or decrease the aggregate number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that the Trust has authority to issue. The Company believes that the power of
the Board of Trustees to issue additional shares of beneficial interest will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs that might arise. The
additional shares of beneficial interest, including possibly Common Shares,
will be available for issuance without further action by the Company's
shareholders, unless action by the shareholders is required by applicable law
or the rules of any stock exchange or automated quotation system on which the
Company's securities may be listed or traded. Although the Board of Trustees
currently has no intention of doing so, it could authorize the Company to
issue a class or series that could, depending on the terms of such class or
series, delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for the Common Shares and might
otherwise be in the best interests of the shareholders.
The Maryland REIT Law provides that no shareholder of the Company will be
personally liable for any obligation of the Company solely as a result of his
or her status as a shareholder of the Company. The Declaration of Trust
provides that no shareholder shall be liable for any debt or obligation of the
Company by reason of being a shareholder nor shall any shareholder be subject
to any personal liability in tort, contract or otherwise to any person in
connection with the property or affairs of the Company by reason of being a
shareholder. The Company's Bylaws further provide that the Company shall
indemnify each present or former shareholder against any claim or liability to
which the shareholder may become subject by reason of being or having been a
shareholder and that the Company shall reimburse each shareholder for all
reasonable expenses incurred by him in connection with any such claim or
liability. Inasmuch as the Company carries public liability insurance which it
considers adequate, any risk of personal liability to shareholders is limited
to situations in which the Company's assets plus its insurance coverage would
be sufficient to satisfy the claims against the Company and its shareholders.
COMMON SHARES
All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of shares of beneficial interest and to the provisions of the Declaration of
Trust regarding the restriction of the transfer of shares of beneficial
interest, holders of Common Shares will be entitled to receive distributions
on shares if, as and when authorized and declared by the Board of
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Trustees out of assets legally available therefor and to share ratably in the
assets of the Company legally available for distribution to the shareholders
in the event of the liquidation, dissolution or winding-up of the Company
after payment of, or adequate provision for, all known debts and liabilities
of the Company.
Subject to the provisions of the Declaration of Trust regarding the
restriction of the transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder to one vote on all matters submitted to a
vote of shareholders, including the election of trustees and, except as
provided with respect to any other class or series of shares of beneficial
interest, the holders of Common Shares will possess the exclusive voting
power. There is no cumulative voting in the election of Trustees, which means
that the holders of a majority of the outstanding Common Shares can elect all
of the Trustees then standing for election, and the holders of the remaining
shares will not be able to elect any trustees.
Holders of Common Shares have no conversion, sinking fund, redemption,
exchange or appraisal rights, and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of shares of beneficial interest,
Common Shares have equal dividend, distribution, liquidation and other rights.
Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the real estate investment trust's
declaration of trust. The Company's Declaration of Trust provides for approval
by a majority of all the votes entitled to be cast on the matter in all
situations permitting or requiring action by the shareholders except with
respect to (a) the intentional disqualification of the Company as a real
estate investment trust or revocation of its election to be taxed as a real
estate investment trust (which requires the affirmative vote of the holders of
two-thirds of the number of Common Shares entitled to vote on such matter at a
meeting of the shareholders of the Company), (b) the election of Trustees
(which requires a plurality of all the votes cast at a meeting of shareholders
of the Company at which a quorum is present), (c) the removal of Trustees
(which requires the affirmative vote of the holders of a two-thirds the
outstanding voting shares of the Company), (d) the amendment of the
Declaration of Trust by shareholders (which requires the affirmative vote of a
majority of votes entitled to be cast on the matter, except under certain
circumstances specified in the Declaration of Trust which require the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter), and (e) the dissolution of the Company (which requires the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter). Under the Maryland REIT Law, a declaration of trust may permit the
trustees by a two-thirds vote to amend the declaration of trust from time to
time to qualify as a real estate investment trust under the Code or the
Maryland REIT Law without the approval of the shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees. As
permitted by the Maryland REIT Law, the Declaration of Trust contains a
provision permitting the Board of Trustees, without any action by the
shareholders of the Trust, to amend the Declaration of Trust to increase or
decrease the aggregate number of shares of beneficial interest or the number
of shares of any class of shares of beneficial interest that the Trust has
authority to issue.
The registrar and transfer agent and registrar for the Common Shares is
American Stock Transfer & Trust Company.
The Company has applied for trading of the Common Shares on the Nasdaq
National Market System under the trading symbol "CARS."
PREFERRED SHARES
Preferred Shares may be issued from time to time, in one or more series, as
authorized by the Board of Trustees. Prior to the issuance of shares of each
series, the Board of Trustees is required by the Maryland REIT Law and the
Declaration of Trust to fix for each series, subject to the provisions of the
Declaration of Trust, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions,
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qualifications and terms or conditions of redemption, as permitted by Maryland
law. Because the Board of Trustees has the power to establish the preferences,
powers and rights of each series of Preferred Shares, it may afford the
holders of any series of Preferred Shares preferences, powers and rights,
voting or otherwise, senior to the rights of holders of Common Shares. The
issuance of Preferred Shares could have the effect of delaying or preventing a
change of control of the Company that might involve a premium price for
holders of Common Shares or otherwise be in their best interest. The Board of
Trustees has no present plans to issue any Preferred Shares.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, among other things, no
more than 50% in value of its outstanding shares of beneficial interest may be
owned, actually or constructively under the applicable attribution rules of
the Code, by five or fewer individuals (as defined in the Code to include
certain tax-exempt entities other than, in general, qualified domestic pension
funds) during the last half of a taxable year (other than the first year for
which the election to be taxed as a REIT has been made) or during a
proportionate part of a shorter taxable year (the "Five or Fewer
Requirement"). In addition, if the Company, or an owner of 10% or more of the
Company, actually or constructively owns 10% or more of a Lessee of the
Company, the rent received by the Company (either directly or through any such
partnership) from such Lessee will not be qualifying income for purposes of
the REIT gross income tests of the Code. A REIT's stock or beneficial
interests must also be owned by 100 or more persons during at least 335 days
of a taxable year of 12 months or during a proportionate part of a shorter
taxable year (other than the first year for which an election to be treated as
a REIT has been made).
Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions described below, provides that no person may own, or be deemed to
own by virtue of the attribution provisions of the Code, shares in excess of
the Ownership Limitation. Any transfer of Common Shares or Preferred Shares
that would (i) result in any person owning, directly or indirectly, Common
Shares or Preferred Shares in excess of the Ownership Limitation, (ii) result
in the Common Shares and Preferred Shares being owned by fewer than 100
persons (determined without reference to any rules of attribution), (iii)
result in the Company being "closely held" within the meaning of Section
856(h) of the Code, or (iv) cause the Company to own, directly or
constructively, 10% or more of the ownership interests in a tenant of the
Company's or the Operating Partnership's real property, within the meaning of
Section 856 (d) (2) (B) of the Code, shall be null and void, and the intended
transferee will acquire no rights in such Common Shares or Preferred Shares.
The Company has waived the Ownership Limit with respect to the Representative
and its Affiliates to permit them to own the Common Shares.
Subject to certain exceptions described below, if any purported transfer of
Common Shares or Preferred Shares would (i) result in any person owning,
directly or indirectly, Common Shares or Preferred Shares in excess of the
Ownership Limitation, (ii) result in the Common Shares and Preferred Shares
being owned by fewer than 100 persons (determined without reference to any
rules of attribution), (iii) result in the Company being "closely held" within
the meaning of Section 856(h) of the Code, or (iv) cause the Company to own,
directly or constructively, 10% or more of the ownership interests in a tenant
of the Company's or the Operating Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Code, the Common or Preferred Shares
will be designated as "Shares-in-Trust" and transferred automatically to a
trust (the "Share Trust") effective as of the close of business on the
business day before the purported transfer of such Common Shares or Preferred
Shares. The record holder of the Common Shares or Preferred Shares that are
designated as Shares-in-Trust (the "Prohibited Owner") will be required to
submit such number of Common or Preferred Shares to the Company for
registration in the name of the Share Trust. The Share Trustee will be
designated by the Company, but will not be affiliated with the Company. The
beneficiary of the Share Trust (the "Beneficiary") will be one or more
charitable organizations that are named by the Company.
Shares-in-Trust will remain issued and outstanding Common Shares or
Preferred Shares and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Share Trust will receive all
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dividends and distributions on the Shares-in-Trust and will hold such
dividends and distributions in trust for the benefit of the Beneficiary. The
Share Trustee will vote all Shares-in-Trust. The Share Trustee will designate
a permitted transferee of the Shares-in-Trust, provided that the permitted
transferee (i) purchases such Shares-in-Trust for valuable consideration and
(ii) acquires such Shares-in-Trust without such acquisition resulting in a
transfer to another Share Trust and resulting in the redesignation of such
Common Shares or Preferred Shares as Shares-in-Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Share Trust the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) the record date for which was on or after the date that such shares
became Shares-in-Trust. Upon sale or other disposition of the Shares-in-Trust
to a permitted transferee, the Prohibited Owner generally will receive from
the Share Trustee, the lesser of (i) in the case of (a) a purported transfer
in which the Prohibited Owner gave value for Shares and which transfer
resulted in the transfer of the Shares to the Share Trust, the price per
share, if any, such Prohibited Owner paid for the Shares or (b) a case in
which the Prohibited Owner did not give value for such Shares (e.g., if the
Shares were received through a gift or devise), the price per share equal to
the Market Price (as defined below) on the date thereof, (ii) the price per
share received by the Share Trustee from the sale of such Shares-in-Trust. Any
amounts received by the Share Trustee in excess of the amounts to be paid to
the Prohibited Owner will be distributed to the Beneficiary. Unless sooner
sold to a permitted transferee, upon the liquidation, dissolution or winding
up of the Company, the Prohibited Owner generally will receive from the Share
Trustee its share of the liquidation proceeds, provided, however, the
Prohibited Owner may not receive amounts in excess of (i) the price per share
such Prohibited Owner paid for the Common Shares or Preferred Shares that were
designated as Shares-in-Trust or (ii) in the case of a gift or devise, the
Market Price per share on the date of such transfer.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in
the case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust or (ii) the date the
Company determines in good faith that a transfer resulting in such Shares-in-
Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
("NYSE") or, if the Common Shares or Preferred Shares are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Common Shares or Preferred
Shares are listed or admitted to trading or, if the Common Shares or Preferred
Shares are not listed or admitted to trading on any national securities
exchange, on the National Market System of the Nasdaq Stock Market or, if the
shares are not listed for trading on the National Market System, the last
quoted price, or if not so quoted, the average of the closing bid and asked
prices in the over-the-counter market, as reported by Nasdaq or, if such
system is no longer in use, the principal automated quotation system that may
then be in use or, if the Common Shares or Preferred Shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Shares
or Preferred Shares selected by the Board of Trustees. "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Common Shares or Preferred Shares are listed or admitted to trading is open
for the transaction of business or, if the Common Shares or Preferred Shares
are not listed or admitted to trading on any national securities exchange or
stock market, shall mean any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
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Any person who acquires or attempts to acquire Common or Preferred Shares in
violation of the foregoing restrictions, or any person who owned Common Shares
or Preferred Shares that were transferred to a Share Trust, will be required
(i) to give immediate written notice to the Company of such event and (ii) to
provide to the Company such other information as the Company may request in
order to determine the effect, if any, of such transfer on the Company's
status as a REIT.
The Declaration of Trust requires all persons who own, directly or
indirectly, more than 5% (or such lower percentages as required pursuant to
regulations under the Code) of the outstanding Common Shares and Preferred
Shares, within 30 days after January 1 of each year, to provide to the Company
a written statement or affidavit stating the name and address of such direct
or indirect owner, the number of Common Shares and Preferred Shares owned
directly or indirectly, and a description of how such shares are held. In
addition, each direct or indirect shareholder shall provide to the Company
such additional information as the Company may request in order to determine
the effect, if any, of such ownership on the Company's status as a REIT and to
ensure compliance with the Ownership Limitation.
The Ownership Limitation generally will not apply to the acquisition of
Common Shares or Preferred Shares by an underwriter that participates in a
public offering of such shares. In addition, the Board of Trustees, upon
receipt of a ruling from the Service or an opinion of counsel and upon such
other conditions as the Board of Trustees may direct, may exempt a person from
the Ownership Limitation under certain circumstances. However, the Board may
not grant an exemption from the Ownership Limit to any proposed transferee
whose ownership, direct or indirect, of shares of beneficial interest of the
Company in excess of the Ownership Limit would result in the termination of
the Company's status as a REIT. The foregoing restrictions will continue to
apply until (i) the Board of Trustees determines that it is no longer in the
best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT, and (ii) there is an affirmative vote of two-thirds of the
votes entitled to be cast on such matter at a regular or special meeting of
the shareholders of the Company. The Company has waived the Ownership Limit
with respect to the Representative and its Affiliates to permit them to own
the Common Shares.
The Ownership Limitation could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders of the Company.
All certificates representing Common Shares or Preferred Shares will bear a
legend referring to the restrictions described above.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE DECLARATION OF TRUST AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and of
the Declaration of Trust and the Bylaws of the Company. This summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to the MGCL, the Maryland REIT Law, the Declaration of Trust and the
Bylaws of the Company. The business combination provisions and, if the
applicable provision in the Bylaws is rescinded, the control share acquisition
provisions of the MGCL, the provisions of the Declaration of Trust on the
removal of Trustees and the advance notice provisions of the Bylaws could have
the affect of delaying, deferring or preventing a transaction or a change in
control of the Company that might involve a premium price for holders of
Common Shares or otherwise be in their best interest.
Business Combinations. Under the MGCL, as applicable to Maryland REITs,
certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland REIT and any person
who beneficially owns ten percent or more of the voting power of the REIT's
shares or an affiliate of the REIT who, at any time within the two-year period
prior to the date in question, was an Interested Shareholder (as defined
below) or an affiliate of such an Interest Shareholder are prohibited for five
years after the most recent date on which the Interested Shareholder becomes
an Interested Shareholder. Thereafter, any such business combination must be
recommended by the board of trustees of such REIT and approved by the
affirmative vote of at least (a) 80% of
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the votes entitled to be cast by holders of the REIT' outstanding voting
shares of beneficial interest, and (b) two-thirds of the votes entitled to be
cast by holders of the REIT's outstanding voting shares of beneficial interest
other than shares held by the Interested Shareholder with whom or with whose
Affiliate the business combination is to be effected, unless, among other
conditions, the trust's common shareholders receive a minimum price (as
defined in the MGCL) for their shares of beneficial interest and the
consideration is received in cash or in the same form as previously paid by
the Interested Shareholder for its shares. These provisions of the MGCL do not
apply, however, to business combinations that are approved or exempted by the
board of trustees of the REIT prior to the time that the Interested
Shareholder becomes an Interested Shareholder. As permitted by the MGCL, the
Declaration of Trust exempts any "Business Combinations" involving the
issuance of Common Shares to any Initial Seller upon the exchange of Units
acquired by any of them in connection with the Formation Transactions or the
acquisition by any of them of any additional shares of beneficial interest in
the Company. Accordingly, the five-year prohibition and the super-majority
vote requirement will not apply to any "Business Combinations" between the
Initial Sellers and the Company. As a result, the Initial Sellers may be able
to enter into "Business Combinations" with the Company, which may or may not
be in the best interests of the shareholders, without the super-majority
shareholder approval.
"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland real estate investment trust's shares of
beneficial interest or an affiliate of the REIT which, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the then outstanding voting shares of
beneficial interest of the REIT.
Control Share Acquisitions. The Declaration of Trust will contain a
provision exempting from the control share acquisition statute any and all
acquisitions by any person of the Company's shares of beneficial interest.
There can be no assurance that such provision will not be amended or
eliminated at any point in the future. The MGCL, as applicable to Maryland
REITs, provides that "control shares" of a Maryland real estate investment
REIT acquired in a "control share acquisition" have no voting rights except to
the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter, excluding shares of beneficial interest owned by the acquiror
or by officers or trustees who are employees of the trust. "Control shares"
are voting shares of beneficial interest which, if aggregated with all other
such shares previously acquired by the acquiror or in respect of which the
acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing trustees within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained shareholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions. A person who has made or proposes to make a control
share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the Board of Trustees to call a
special meeting of shareholders to be held within 50 days of demand to
consider the voting rights of the shares. If no request for a meeting is made,
the Company may itself present the question at any shareholders' meeting.
Limitation of Liability and Indemnification. The Maryland REIT Law permits a
Maryland real estate investment trust to indemnify and advance expenses to its
Trustees, officers, employees and agents to the same extent as permitted by
the MGCL for trustees and officers of Maryland corporations. The MGCL permits
a corporation to indemnify its present and former trustees and officers, among
others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the
trustees or officer was material to the matter giving rise to the proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the trustee or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the trustee or officer had reasonable cause to
believe that the act or omission was unlawful. However, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation. In accordance with the MGCL, the Bylaws of the Company require
it, as a condition to advancing expenses, to
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obtain (a) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Company as authorized by the Bylaws and (b) a written statement by or on
his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The
Declaration of Trust authorizes the Company to indemnify its officers and
Trustees to the maximum extent permitted by Maryland law. The Declaration of
Trust and Bylaws also permit the Company to indemnify any employee or agent of
the Company or a predecessor of the Company. The Bylaws require the Company to
indemnify each Trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.
The Company intends to enter into separate indemnification agreements with
each of the Company's Trustees and certain of its executive officers. The
indemnification agreements will require, among other things, that the Company
indemnify its Trustees and officers to the fullest extent permitted by law, and
advance to the Trustees and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. The Company also must indemnify and advance all expenses incurred by
Trustees and officers seeking to enforce their rights under the indemnification
agreements and cover trustees and officers under the Company's Trustees' and
officers' liability insurance. Although the form of indemnification agreement
offers substantially the same scope of coverage afforded by provisions in the
Declaration of Trust and Bylaws, it provides greater assurance to Trustees and
officers that indemnification will be available, because as a contract, it
cannot be unilaterally modified by the Board of Trustees or by the shareholders
to eliminate the rights it provides.
Maryland Asset Requirements. To maintain its qualification as a Maryland real
estate investment trust, the Maryland REIT Law requires that the Company hold,
either directly or indirectly, at least 75% of the value of its assets in real
estate assets, mortgages or mortgage related securities, government securities,
cash and cash equivalent items, including high-grade short-term securities and
receivables. The Maryland REIT Law also prohibits using or applying land for
farming, agricultural, horticultural or similar purposes.
Meetings of Shareholders. The Bylaws provide for annual meetings of
shareholders to elect the Board of Trustees and transact such other business as
may properly be brought before the meeting. Special meetings of shareholders
may be called by the President, the Board of Trustees or the Chairman of the
Board and shall be called at the request in writing of the holders of 50% or
more of the outstanding shares of beneficial interest of the Company entitled
to vote.
The Bylaws provide that any action required or permitted to be taken at a
meeting of shareholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
shareholder entitled to vote on the matter and a written waiver of any right to
dissent is signed by each shareholder entitled to notice of the meeting but not
entitled to vote at such meeting.
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COMMON SHARES ELIGIBLE FOR FUTURE SALE
General. Prior to the date of this Prospectus, there has been no public
market for the Common Shares. The Company has applied for trading of the
Common Shares on the Nasdaq National Market System, subject to official notice
of issuance. No prediction can be made as to the effect, if any, that future
sales of Common Shares (including sales pursuant to Rule 144) or the
availability of Common Shares for future sale will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Shares
(including Common Shares issued upon the exercise of options or the exchange
of Units), or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Shares and impair the Company's
ability to obtain additional capital through the sale of equity securities.
See "Risk Factors--Possible Adverse Effects on Share Price Arising from Common
Shares Eligible for Future Sale." For a description of certain restrictions on
transfers of Common Shares held by certain shareholders of the Company, see
"Underwriting" and "Description of Shares of Beneficial Interest."
The executive officers and Trustees of the Company have agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, grant
any option to purchase or otherwise sell or dispose (or announce any offer,
sale, offer of sale, contract of sale, grant of any option to purchase or
other sale or disposition) of any Units or Common Shares or other shares of
beneficial interest of the Company, or any securities convertible or
exercisable or exchangeable for any Units or Common Shares or other shares of
beneficial interest of the Company (other than pursuant to the Plan) for a
period of two years from the date of this Prospectus without the prior written
consent of the Representative. The Representative, at any time and without
notice, may release all or any portion of the Common Shares subject to the
foregoing lock-up agreements.
The Common Shares owned by "Affiliates" of the Company and the Common Shares
issuable upon exchange of Units, including Units issued upon conversion of the
Dealer Warrants, will be "restricted securities" under Rule 144 promulgated
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including exemptions contained in Rule 144. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated with
them in accordance with Rule 144) who has beneficially owned "restricted
securities" (defined generally as securities acquired from the issuer or an
Affiliate of the issuer in a transaction not involving a public offering) for
at least one year, and including the holding period of any seller of
securities unless such seller is an Affiliate, would be entitled to sell
within any three-month period a number of Common Shares that does not exceed
the greater of 1% of the then-outstanding number of Common Shares or 1% of the
average weekly trading volume of the Common Shares on the Nasdaq National
Market during the four calendar weeks preceding each such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated with them in
accordance with Rule 144) who is not deemed to have been an Affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, notice requirements or public information requirements. An
"Affiliate" of the Company is a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or under common
control with, the Company.
The Company has established the Plan for the purpose of attracting and
retaining executive officers, Trustees and other key employees. See
"Management Incentive Plan." Contemporaneously with the completion of the
Offering, the Company will issue in the aggregate options to purchase an
aggregate of 26,667 Common Shares and 2,448,107 Units (equal to 7% of the
Common Shares to be outstanding on the closing of the Offering (including
exercise of the Underwriters' over-allotment option in full) on a fully
diluted basis) to executive officers and will reserve an additional number of
Common Shares and Units equal to 1% of the Common Shares to be outstanding on
the closing of the Offering (including exercise of the Underwriters' over-
allotment option in full) on a fully diluted basis for future issuance under
the Plan. The Company intends to file a registration statement under the
Securities Act registering the Common Shares reserved for issuance upon the
exercise of
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options granted under the Plan and redemption of Units issued under the Plan.
See "Management--Incentive Plan." This registration statement is expected to
be filed as of the date of the Prospectus and to become effective
automatically upon the effective date of registration of the Common Shares.
Underwriting Warrants. The Representative of the Underwriters will receive
Underwriting Warrants representing the right to acquire a number of Common
Shares equal to 4% of the Common Shares to be outstanding on the closing of
the Offering (excluding exercise of the Underwriters' over-allotment option in
full) on a fully-diluted basis, at the initial public offering price of the
Common Shares, exercisable beginning on the closing date of the Offering and
for a period of five years thereafter, as compensation for its assistance in
the formation and structuring of the Company, identifying key managers of the
Company and raising the initial capital necessary to form the Company.
However, the Underwriting Warrants and any Common Shares received upon
exercise of the Underwriting Warrants may not be sold or otherwise transferred
(except to executive officers of the Representative or members of the selling
group) for a period of one year following the closing of the Offering.
Dealer Warrants. Each of Messrs. Pohanka and Rosenthal, Trustees of the
Company, will be granted the Dealer Warrants representing the right of each of
them to acquire 1,414,158 Units (equal to 2% of the Common Shares to be
outstanding on the closing of the Offering (including exercise of the
Underwriters' over-allotment option in full) on a fully-diluted basis), at the
initial public offering price, exercisable beginning on the closing of the
Offering and for a period of five years thereafter.
Conversion of Units. If the Company exercises its option to deliver Common
Shares upon the redemption of Units, the Partnership Agreement provides that
the Company will deliver registered Common Shares to the holder. The Company
will bear the expenses of registering those Common Shares.
Registration Rights. The Company has granted certain "demand" and
"piggyback" registration rights to FBR Asset Investment Corporation with
respect to the Common Shares acquired by it in the FBR Offering. Subject to
certain conditions, the demand registration rights permit holders of such
shares to request one demand registration. Subject to certain conditions, the
piggyback registration rights permit the holders of such shares to include
their Common Shares in the registration by the Company of its equity
securities other than in connection with the registration by the Company under
the Securities Act of any of its securities, (i) in connection with any
corporate reorganization, or (ii) in connection with an employee benefit plan.
FBR Asset Investment Corporation may not offer, pledge, sell, dispose of or
otherwise transfer the Common Shares acquired in the FBR Offering for a period
of 90 days following the Closing of the Offering.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary of the taxation of the Company and the material
federal income tax consequences to holders of the Common Shares is for general
information only, and is not tax advice. The tax treatment of a holder of
Common Shares will vary depending upon the holder's particular situation, and
this discussion addresses only holders that hold Common Shares as capital
assets and does not purport to deal with all aspects of taxation that may be
relevant to particular holders in light of their personal investment or tax
circumstances, or to certain types of holders (including dealers in securities
or currencies, banks, tax-exempt organizations, except as described herein,
life insurance companies, persons that hold Common Shares that are a hedge or
that are hedged against currency risks or that are part of a straddle or
conversion transaction) subject to special treatment under the federal income
tax laws. This summary is based on the Code, its legislative history, existing
and proposed regulations thereunder, published rulings and court decisions,
all as currently in effect and all subject to change at any time, perhaps with
retroactive effect.
SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND SALE OF COMMON
SHARES, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
SUCH ACQUISITION, OWNERSHIP AND SALE IN THEIR PARTICULAR CIRCUMSTANCES AND
POTENTIAL CHANGES IN APPLICABLE LAWS.
TAXATION OF THE COMPANY AS A REIT
General. The Company plans to make an election to be taxed as a REIT under
Sections 856 through 859 of the Code, commencing with its taxable year ending
December 31, 1998. The Company believes that, commencing with such taxable
year, it will be organized and will operate in such a manner as to qualify for
taxation as a REIT under the Code.
In the opinion of Wilmer, Cutler & Pickering, commencing with its taxable
year ending December 31, 1998, the Company will be organized in conformity
with, and its proposed method of operation will enable it to meet, the
requirements for qualification and taxation as a REIT under the Code.
Shareholders should be aware, however, that opinions of counsel are not
binding upon the Internal Revenue Service or any court. In providing its
opinion, Wilmer, Cutler & Pickering is relying upon representations received
from the Company that its proposed method of operation will satisfy the
requirements to be treated as a REIT under the Code. The qualification and
taxation of the Company as a REIT depends upon its ability to meet, through
actual annual operating results, distribution levels, share ownership
requirements and the various qualification tests imposed under the Code.
Accordingly, while the Company intends to qualify to be treated as a REIT, no
assurance can be given that the actual results of the Company's operations for
any particular year will satisfy such requirements. Wilmer, Cutler & Pickering
will not monitor the compliance of the Company with the requirements for REIT
qualification on an ongoing basis. Accordingly, no assurance can be given that
the actual results of the Company's operations for any particular year will
satisfy such requirements.
The sections of the Code applicable to REITs are highly technical and
complex. Certain aspects thereof are summarized below.
As a REIT, the Company generally will not be subject to federal corporate
income tax on its net income that is currently distributed to its
shareholders. This treatment substantially eliminates the "double taxation"
(at the corporate and shareholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows. First, the Company will be taxed at regular
corporate rates on any undistributed real estate investment trust taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its undistributed items of tax preference. Third, if the Company has (i) net
income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or
(ii) other non-qualifying income from foreclosure property, it will be subject
to tax at the highest
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corporate rate on such income. Fourth, if the Company has net income from
"prohibited transactions" (which are, in general, certain sales or other
dispositions of property, other than foreclosure property, held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount
equal to (a) the gross income attributable to the greater of the amount by
which the Company fails the 75% or 95% test, multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of
its real estate investment trust ordinary income for such year, (ii) 95% of
its real estate investment trust capital gain net income for such year, and
(iii) any undistributed taxable income from prior periods, the Company would
be subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if the Company acquires any asset
from a C corporation (i.e., generally a corporation subject to full corporate-
level tax) in certain transactions in which the basis of the asset in the
hands of the Company is determined by reference to the basis of the asset (or
any other property) in the hands of the C corporation, and the Company
recognizes gain on the disposition of such asset during the ten-year period
beginning on the date on which such asset was acquired by the Company (the
"Recognition Period"), then, pursuant to Treasury regulations that have not
yet been issued and to the extent of the excess of the fair market value of
the asset as of the date of the Company's acquisition over the Company's
adjusted basis in such asset on such date, such gain will be subject to tax at
the highest regular corporate rate. The results described above with respect
to assets acquired from a C corporation assume that the Company will make an
election pursuant to Internal Revenue Service Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or
directors, (2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest, (3) which
would otherwise be taxable as a domestic corporation, but for Sections 856
through 859 of the Code, (4) which is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (5) the
beneficial ownership of which is held by 100 or more persons, (6) during the
last half of each taxable year, not more than 50% in value of the outstanding
shares of which is owned, directly or constructively, by five or fewer
individuals (as defined in the Code to include certain entities) and (7) which
meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (1) to (4) must be met during
the entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions (5) and (6) will not apply
until after the first taxable year for which an election is made to be taxed
as a REIT.
The Company's Declaration of Trust provides for restrictions regarding the
ownership and transfer of the Company's shares of beneficial interest, which
restrictions are intended to assist the Company in satisfying the share
ownership requirements described in (5) and (6) above. The ownership and
transfer restrictions pertaining to the Common Shares are described under the
heading "Description of Shares of Beneficial Interest--Restrictions on
Ownership and Transfer."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the gross income of the partnership attributable to such share. In addition,
the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of section 856 of the Code, including
satisfying the gross income and asset tests described below. The Company's
proportionate share of the assets and gross income of the Operating
Partnership will be treated as assets and gross income of the Company for
purposes of applying the requirements described herein.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property") or from certain types of
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temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from such real property investments, dividends, interest and
gain from the sale or disposition of stock or securities (or from any
combination of the foregoing).
Pursuant to the Leases, the Lessees will lease from the Company the land,
buildings and improvements comprising the Properties for initial terms ranging
from eight to 12 years. The Leases will be "triple-net" leases which will
require the Lessees to pay substantially all expenses associated with the
operation of the Properties, such as real estate taxes, insurance, utilities,
services, maintenance and other operating expenses and any ground lease
payments. During the Fixed Term and the Extended Terms of the Leases, the
Lessees will pay the Initial Annual Base Rent and, thereafter, the Annual Base
Rent which will be payable in monthly installments. Initial Base Annual Rent
and Annual Base Rent will be adjusted upward periodically based on a factor of
the CPI, ranging from one-half of CPI adjusted every other year to full CPI
adjusted every year, which may be subject to periodic minimum or maximum
adjustment rates-ranging from zero to 3%, respectively.
Rents under the Leases (the "Rent") will constitute "rents from real
property" only if the Leases are treated as true leases for federal income tax
purposes and are not treated as service contracts, joint ventures, financing
arrangements or some other type of arrangement. The determination of whether
the Leases are true leases depends on an analysis of all surrounding facts and
circumstances. In making such a determination, courts have considered a
variety of factors, including the following: (i) the intent of the parties;
(ii) the form of the agreement; (iii) the degree of control over the property
that is retained by the property owner (e.g., whether the lessee has
substantial control over the operation of the property or whether the lessee
was required simply to use its best efforts to perform its obligations under
the agreement); (iv) the extent to which the property owner retains the risk
of loss with respect to the operation of the property (e.g., whether the
lessee bears the risk of increases in operating expenses or the risk of damage
to the property); and (v) the extent to which the property owner retains the
burdens and benefits of ownership of the property.
Wilmer, Cutler & Pickering is of the opinion that each Initial Lease will be
treated as a true lease for federal income tax purposes. Such opinion is not
binding on the IRS. Such opinion is based, in part, on the following facts:
(i) the Company and the Lessees intend for their relationship to be that of a
lessor and lessee and such relationship will be documented by lease
agreements; (ii) the Lessees will have the right to exclusive possession and
use and quiet enjoyment of the Properties during the term of the Leases; (iii)
the Lessees will bear the cost of, and be responsible for, day-to-day
maintenance and repair of the Properties, and will dictate how the Properties
are operated, maintained, and improved; (iv) the Lessees will bear all of the
costs and expenses of operating the Properties during the terms of the Leases;
(v) the Lessees will benefit from any savings in the costs of operating the
Properties during the terms of the Leases; (vi) the Lessees will generally
indemnify the Company against all liabilities imposed on the Company during
the term of the Leases by reason of (a) injury to persons or damage to
property occurring at the Properties, or (b) the Lessees' use, management,
maintenance or repair of the Properties; (vii) the Lessees are obligated to
pay substantial fixed rent for the period of use of the Properties; (viii) the
Lessees stand to incur substantial losses (or reap substantial gains)
depending on how successfully it operates the Properties; (ix) the useful
lives of the Properties are significantly longer than the terms of the Leases;
and (x) the Company will receive the benefit of any increase in value, and
will bear the risk of any decrease in value, of the Properties during the
terms of the Leases. If the IRS were to challenge successfully the
characterization of the Initial Leases as true leases, the Operating
Partnership would not be treated as the owner of the Property in question for
federal income tax purposes and the Operating Partnership would lose tax
depreciation and cost recovery deductions with respect to such Property, which
in turn could cause the Company to fail to qualify as a REIT. See "--Annual
Distribution Requirements."
Shareholders should be aware that there are no controlling Treasury
regulations, published rulings, or judicial decisions involving leases with
terms substantially similar to those contained in the Leases that address
whether such leases constitute true leases for federal income tax purposes. If
the Leases are recharacterized as
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financing arrangements or partnership agreements, rather than true leases,
part or all of the payments that the Company receives from the Lessees may not
be considered rent or may not otherwise satisfy the various requirements for
qualification as "rents from real property." In that case, the Company likely
would not be able to satisfy either the 75% or 95% gross income tests and, as
a result, would lose its REIT status. Although the Company will use its best
efforts to structure any leasing transaction for Properties acquired in the
future such that the Lease will be characterized as a "true lease' and the
Operating Partnership will be treated as the owner of the Property in question
for federal income tax purposes, the Company will not seek an advance ruling
from the IRS and may not seek an opinion of counsel (except with respect to
the Initial Leases) that it will be treated as the owner of any leased
Properties for federal income tax purposes, and thus there can be no assurance
that future leases will be treated as true leases for federal income tax
purposes.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the terms "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. The Company has represented that Rent paid
by the Lessees for the Properties will be a fixed amount, and will not be
based in whole or in part on the net income of any person with respect to the
Properties. Thus, the Rent should also satisfy this requirement.
A second requirement for qualification of the Rent as "rents from real
property" is that the Company must not own, directly or constructively, 10% or
more of any Initial Lessee or any other Lessee of the Properties (a "Related
Party Tenant"). The constructive ownership rules generally provide that if 10%
or more in value of the shares of the Company are owned, directly or
indirectly, by or for any person, the Company is considered as owning the
shares owned, directly or indirectly, by or for such person. The applicable
attribution rules, however, are highly complex and difficult to apply, and the
Company may inadvertently enter into leases with Lessees who, through
application of such rules, will constitute Related Party Tenants. In such
event, rent paid by the Related Party Tenant will not qualify as "rents from
real property," which may jeopardize the Company's status as a REIT. The
Company will use its best efforts not to rent any property to a Related Party
Tenant (taking into account the applicable constructive ownership rules),
unless the Company determines in its discretion that the rent received from
such Related Party Tenant is not material and will not jeopardize the
Company's status as a REIT.
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property". The Rent attributable to the
personal property associated with a property is the amount that bears the same
ratio to total rent for the taxable year as the average of the adjusted bases
of the personal property in the property at the beginning and at the end of
the taxable year bears to the average of the aggregate adjusted bases of both
the real and personal property comprising the property at the beginning and at
the end of such taxable year (the "Adjusted Basis Ratio"). The Company will
not lease any personal property to the Lessees pursuant to the Leases.
Accordingly, Rent received by the Company should satisfy this requirement.
A fourth requirement for qualification of the Rent as "rents from real
property" is that the Company cannot furnish or render noncustomary services
to the Lessees of its properties, or manage or operate such properties, other
than through an independent contractor who is adequately compensated and from
whom the Company itself does not derive or receive any income provided,
however, that the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only or are not considered "rendered to the occupant" of the
property. Provided that the Leases are respected as true leases, the Company
should satisfy this requirement with respect to the Rent because it will not
perform any service for the Lessees. If the Company were to provide services
to a Lessee that are other than those usually or customarily provided in
connection with the rental of space for occupancy only, amounts received by
the Company for such services would not be treated as "rents from real
property" for purposes of the REIT gross income tests but would not cause
other amounts received with respect to the property to fail to be treated as
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"rents from real property" unless the amounts received in respect of such
services, together with amounts received for certain management services,
exceed 1% of all amounts received or accrued by the Company during the taxable
year with respect to such property. However, if the 1% threshold is exceeded,
then all amounts received or accrued by the Company with respect to the
property will not qualify as "rents from real property." The Leases do not
provide for the Company to render any noncustomary services to the Lessees.
Further, the Company will not offer any services to the Lessees.
Based on the foregoing, the Rent should qualify as "rents from real
property" for purposes of the 75% and 95% gross income tests. As described
above, however, there can be no complete assurance that the Service will not
assert successfully a contrary position and, therefore, prevent the Company
from qualifying as a REIT.
On an ongoing basis, the Company will use its best efforts not: (i) to
charge rent for any property that is based in whole or in part on the income
or profits of any person (except by reason of being based on a percentage of
receipts or sales, as described above); (ii) to rent any property to a Related
Party Lessee (taking into account the applicable constructive ownership
rules), unless the Company determines in its discretion that the rent received
from such Related Party Lessee is not material and will not jeopardize the
Company's status as a REIT; (iii) to derive rental income attributable to
personal property (other than personal property leased in connection with the
lease of real property, the amount of which is less than 15% of the total rent
received under the lease); and (iv) to perform services considered to be
rendered to the occupant of the property, unless such services generate rents
not in excess of 1% of all amounts received or accrued during the taxable year
with respect to such property, other than through an independent contractor
from whom the Company derives no revenue or if the provisions of such services
will not jeopardize the Company's status as a REIT. Because the Code
provisions applicable to REITs are complex, however, the Company may fail to
meet one or more of the foregoing.
As part of its acquisition strategy, the Company may provide financing to
Operators for the development of Dealerships or Related Businesses and earn
interest with respect to such financings. The term "interest," as defined for
purposes of the 75% and 95% gross income tests, generally does not include any
amount received or accrued (directly or indirectly) if the determination of
such amount depends in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "interest" solely by reason of being based on a fixed percentage
or percentages of receipts or sales. In addition, an amount received or
accrued generally will not be excluded from the term "interest" solely by
reason of being based on the income or profits of a debtor if the debtor
derives substantially all of its gross income from the related property
through the leasing of substantially all of its interests in the property, to
the extent the amounts received by the debtor would be characterized as "rents
from real property" if received by a REIT. Furthermore, to the extent that
interest from a loan that is based on the cash proceeds from the sale of the
property securing the loan constitutes a "shared appreciation provision" (as
defined in the Code), income attributable to such participation feature will
be treated as gain from the sale of the secured property, which generally is
qualifying income for purposes of the 75% and 95% gross income tests.
Interest on obligations secured by mortgages on real property or on
interests in real property generally is qualifying income for purposes of the
75% gross income test. However, if the Company receives interest income with
respect to a loan that is secured by both real property and other property and
the highest principal amount of the loan outstanding during a taxable year
exceeds fair market value of the real property on the date the Company
acquired the loan, the interest income from the loan will be apportioned
between the real property and the other property, which apportionment may
cause the Company to recognize income that is not qualifying income for
purposes of the 75% gross income test. The Company intends to structure any
such financing arrangements such that it will continue to qualify as a REIT.
The Company will be subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test), less expenses directly
connected to the production of such income. "Foreclosure property" is defined
as any real property (including interests in real property) and any personal
property incident to such real property (i) that is acquired by a REIT as the
result of such REIT having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by agreement or
process of law, after there was a default (or default
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was imminent) on a lease of such property or on an indebtedness owed to the
REIT that such property secured, (ii) for which the related loan was acquired
by the REIT at a time when default was not imminent or anticipated and (iii)
for which such REIT makes a proper election to treat such property as
foreclosure property. However, a REIT will not be considered to have
foreclosed on a property where such REIT takes control of the property as a
mortgagee-in-possession and cannot receive any profit or sustain any loss
except as a creditor of the mortgagor. Under the Code for taxable years of
REITs beginning after August 5, 1997, property generally ceases to be
foreclosure property with respect to a REIT on the last day of the third
taxable year following the taxable year in which the REIT acquired such
property (or longer if an extension is granted by the Secretary of the
Treasury). The foregoing grace period is terminated and foreclosure property
ceases to be foreclosure property on the first day (i) on which a lease is
entered into with respect to such property that, by its terms, will give rise
to income that does not qualify under the 75% gross income test or any amount
is received or accrued, directly or indirectly, pursuant to a lease entered
into on or after such day that will give rise to income that does not qualify
under the 75% gross income test, (ii) on which any construction takes place on
such property (other than completion of a building, or any other improvement,
where more than 10% of the construction of such building or other improvement
was completed before default became imminent) or (iii) that is more than 90
days after the day on which such property was acquired by the REIT and the
property is used in a trade or business that is conducted by the REIT (other
than through an independent contractor from whom the REIT itself does not
derive or receive any income).
The net income derived from a prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held
primarily for sale to customers in the ordinary course of a trade or business.
The Company believes that no asset owned by the Company or the Operating
Partnership will be held for sale to customers and that a sale of any such
asset will not be in the ordinary course of the Company's or the Operating
Partnership's business. Whether an asset is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those
related to a particular asset. Nevertheless, the Company will attempt to
comply with the terms of safe-harbor provisions in the Code prescribing when
asset sales will not be characterized as prohibited transactions. Complete
assurance cannot be given, however, that the Company can comply with the safe-
harbor provisions of the Code or avoid owning property that may be
characterized as property held "primarily for sale to customers in the
ordinary course of a trade or business."
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if the Company's failure to meet
such tests was due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its federal income
tax return, and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. As discussed above under "--General," even if these relief
provisions apply, a tax would be imposed with respect to the excess income.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets (including (i) real estate assets held by the Company's
qualified REIT subsidiaries and the Company's allocable share of real estate
assets held by partnerships in which the Company owns an interest, (ii) for a
period of one year from the date of the Company's receipt of proceeds of an
offering of its shares of beneficial interest or long-term (at least five
years) debt, stock or debt instruments purchased with such proceeds and (iii)
stock issued by another REIT), cash, cash items and government securities.
Second, not more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities
(other than securities issued by another REIT) owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not
own more than 10% of any one issuer's outstanding voting
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securities (other than securities issued by another REIT). All of the Initial
Properties will qualify as real estate assets. The Company intends to select
future investments so as to remain in compliance with REIT asset qualification
tests.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its shareholders in an amount at least equal to (A) the sum of (i) 95% of
the Company's "real estate investment trust taxable income" (computed without
regard to the dividends paid deduction and the Company's net capital gain) and
(ii) 95% of the net income (after tax), if any, from foreclosure property
minus (B) the sum of certain items of non-cash income. In addition, if the
Company disposes of any asset acquired from a C corporation in a carryover
basis transaction during its Recognition Period, the Company will be required,
pursuant to Treasury regulations which have not yet been promulgated, to
distribute at least 95% of the built-in gain (after tax), if any, recognized
on the disposition of such asset. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital gain
or distributes at least 95%, but less than 100%, of its "real estate
investment trust taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. Furthermore,
if the Company should fail to distribute during each calendar year at least
the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, the Company would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually
distributed. The Company intends to satisfy the annual distribution
requirements.
The Company may elect to retain and pay income tax on the net long-term
capital gain it receives in a taxable year. In that case, the Company's
shareholders would include in income their proportionate share of the
Company's undistributed long-term capital gain. In addition, the shareholders
would be deemed to have paid their proportionate share of the tax paid by the
Company, which would be credited or refunded to the shareholders. Each
shareholder's basis in his shares would be increased by the amount of the
undistributed long-term capital gain included in the shareholder's income,
less the shareholder's share of the tax paid by the Company. Such amount would
be treated as having been distributed for purposes of the 4% excise tax
described above.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable
share dividends.
The Company intends to calculate its "REIT taxable income" based upon the
conclusion that the Operating Partnership is the owner for federal income tax
purposes of all of the Properties. As a result, the Company expects that
depreciation deductions with respect to all such Properties will reduce its
"REIT taxable income". If the Service were to successfully challenge this
position, the Company might be deemed retroactively to have failed to meet the
distribution requirement and would have to rely on the payment of a
"deficiency dividend" in order to retain its REIT status.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
Partnership Anti-Abuse Rule. The United States Treasury Department has
issued a regulation (the "Anti-Abuse Rule") under the partnership provisions
of the Code (the "Partnership Provisions") that authorizes the Service, in
certain "abusive" transactions involving partnerships, to disregard the form
of the transaction and
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recast it for federal tax purposes as the Service deems appropriate. The Anti-
Abuse Rule applies where a partnership is formed or utilized in connection
with a transaction (or series of related transactions) with a principal
purpose of substantially reducing the present value of the partners' aggregate
federal tax liability in a manner inconsistent with the intent of the
Partnership Provisions. The Anti-Abuse Rule states that the Partnership
Provisions are intended to permit taxpayers to conduct joint business
(including investment) activities through a flexible economic arrangement that
accurately reflects the partners' economic agreement and clearly reflects the
partners' income without incurring any entity-level tax. The purposes for
structuring a transaction involving a partnership are determined based on all
of the facts and circumstances, including a comparison of the purported
business purpose for a transaction and the claimed tax benefits resulting from
the transaction. A reduction in the present value of the partners' aggregate
federal tax liability through the use of a partnership does not, by itself,
establish inconsistency with the intent of the Partnership Provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partner interest.
The limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate
bases in such property. In addition, the limited partners have the right,
beginning one year after the formation of the partnership, to require the
redemption of their limited partnership interests in exchange for cash or REIT
stock (at the corporation's option) equal to the fair market value of their
respective interests in the partnership at the time of the redemption. The
example concludes that the use of the partnership is not inconsistent with the
intent of the Partnership Provisions and, thus, cannot be recast by the
Service. Based on the foregoing, Wilmer, Cutler & Pickering is of the opinion
that the Anti-Abuse Rule will not have any adverse impact on the Company's
ability to qualify as a REIT. However, the Anti-Abuse Rule is extraordinarily
broad in scope and is applied based on an analysis of all of the facts and
circumstances. As a result, there can be no assurance that the Service will
not attempt to apply the Anti-Abuse Rule to the Company. If the conditions of
the Anti-Abuse Rule are met, the Service is authorized to take appropriate
enforcement action, including disregarding the Operating Partnership for
federal tax purposes or treating one or more of its partners as nonpartners.
Any such action potentially could jeopardize the Company's status as a REIT.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in
any year in which the Company fails to qualify will not be deductible by the
Company nor will they be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company will also be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief.
TAXATION OF HOLDERS OF COMMON SHARES
U.S. Shareholders. As used herein, the term "U.S. Shareholder" means a
holder of Common Shares who (for United States federal income tax purposes) is
(i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate the
income of which is subject to United States federal income taxation, or (iv) a
trust with respect to the administration of which a court within the United
States is able to exercise primary supervision and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Shareholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Shareholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to U.S.
Shareholders as
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gain from the sale and exchange of a capital asset (to the extent that they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which a U.S. Shareholder has held his Common Shares.
U.S. Shareholders that are corporations may, however, be required to treat up
to 20% of certain capital gain dividends as ordinary income.
Recently enacted legislation (The Taxpayer Relief Act of 1997 (the "1997
Act")) reduces the maximum rate on long-term capital gains of non-corporate
taxpayers from 28% to 20% (10% for taxpayers in the 15% tax bracket). The
lower rates generally apply to sales or exchanges of capital assets occurring
after May 6, 1997. However, the reduced long-term capital gains rates are
currently only available for sales or exchanges of capital assets held for
more than 18 months. Any long-term capital gains from the sale or exchange of
depreciable real property that would be subject to ordinary income taxation
(i.e., "depreciation recapture') if it were treated as personal property will
be subject to a maximum tax rate of 25% instead of the 20% maximum rate for
gains taken into account after July 28, 1997. In Notice 97-64, released
November 10, 1997, the IRS described temporary regulations to be published in
the near future pursuant to which a REIT may designate a capital gain dividend
as a 20% rate gain dividend, an unrecaptured section 1250 gain distribution in
the 25% rate group or as a 28% rate gain distribution.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder, reducing the adjusted basis which such U.S.
Shareholder has in his Common Shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Shareholder's adjusted basis in his shares taxable as capital gains (provided
that the Common Shares have been held as a capital asset). Dividends
authorized by the Company in October, November or December of any year and
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company on or before January 31 of the following calendar year. Shareholders
may not include in their own income tax returns any net operating losses or
capital losses of the Company.
Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Shareholder of Common Shares will not be treated as passive activity
income, and, as a result, U.S. Shareholders generally will not be able to
apply any "passive losses" against such income or gain.
Upon any sale or other disposition of Common Shares, a U.S. Shareholder will
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the Common Shares for tax purposes. Such gain or loss will
be capital gain or loss if the Common Shares have been held by the U.S.
Shareholder as a capital asset. Long-term capital gain of an individual U.S.
Shareholder is generally subject to a maximum tax rate of 28% in respect of
property held for more than one year and the maximum rate is reduced to 20% in
the case of property held in excess of 18 months. In general, any loss
recognized by a U.S. Shareholder upon the sale or other disposition of Common
Shares of the Company that have been held for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions received by such U.S. Shareholder from
the Company which were required to be treated as long-term capital gains.
U.S. Shareholders holding Common Shares at the close of the Company's
taxable year will be required to include, in computing their long-term capital
gains for the taxable year in which the last day of the Company's taxable year
falls, such amount of undistributed long-term capital gains as the Company may
designate in a written notice mailed to its shareholders. The Company may not
designate amounts in excess of the Company's undistributed net capital gain
for the taxable year. Each U.S. Shareholder required to include such a
designated amount in determining such shareholder's long-term capital gains
will be deemed to have paid, in the taxable year of the inclusion, its
proportionate share of the tax paid by the Company in respect of such
undistributed net capital gains. U.S. Shareholders subject to these rules will
be allowed a credit or a refund, as the case may be, for the tax deemed to
have been paid by such shareholders. U.S. Shareholders will increase their
basis in their Common Shares by the difference between the amount of such
includible gains and the tax deemed paid by the shareholder in respect of such
gains.
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Backup Withholding. The Company will report to its U.S. Shareholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. Shareholder that does not provide the Company
with his correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their non-foreign status to the Company.
Taxation of Tax-Exempt Shareholders. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based
on that ruling, provided that a tax-exempt shareholder (except certain tax-
exempt shareholders described below) has not held its Common Shares as "debt
financed property" within the meaning of the Code and such Common Shares are
not otherwise used in a trade or business, the dividend income from Common
Shares will not be UBTI to a tax-exempt shareholder. Similarly, income from
the sale of Common Shares will not constitute UBTI unless such tax-exempt
shareholder has held such Common Shares as "debt financed property" within the
meaning of the Code or has used the Common Shares in a trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17), and (c)(20) of the Code, respectively, income from
an investment in the Company's Common Shares will constitute UBTI unless the
organization is able to properly deduct amounts set aside or placed in reserve
for certain purposes so as to offset the income generated by its Common
Shares. Such prospective shareholders should consult their own tax advisors
concerning these "set aside" and reserve requirements.
Notwithstanding the foregoing, however, a portion of the dividends paid by a
"pension-held REIT" will be treated as UBTI to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section
501(a) of the Code, and (iii) holds more than 10% (by value) of the equity
interests in the REIT. Tax-exempt pension, profit-sharing and stock bonus
funds that are described in Section 401(a) of the Code are referred to below
as "qualified trusts."
A REIT is a "pension-held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Code provides that stock owned
by qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust (rather than by the
trust itself) and (ii) either (A) at least one qualified trust holds more than
25% (by value) of the interests in the REIT or (B) one or more qualified
trusts, each of which owns more than 10% (by value) of the interests in the
REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (i) the gross income (less direct expenses related thereto) of the
REIT from unrelated trades or businesses (determined as though the REIT were a
qualified trust) to (ii) the total gross income (less direct expenses related
thereto) of the REIT. A de minimis exception applies where this percentage is
less than 5% for any year. The Company does not expect to be classified as a
"pension-held REIT."
Tax-exempt entities will be subject to the rules described above, under the
heading "--U.S. Shareholders" concerning the inclusion of the Company's
designated undistributed net capital gains in the income of its shareholders.
Thus, such entities will, after satisfying filing requirements, be allowed a
credit or refund of the tax deemed paid by such entities in respect of such
includible gains.
Non-U.S. Shareholders. The rules governing U.S. federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex
and no attempt will be made herein to provide more than a limited summary of
such rules. Prospective Non-U.S. Shareholders should consult with their own
tax advisors to determine the impact of U.S. federal, state and local income
tax laws with regard to an investment in Common Shares, including any
reporting requirements.
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Ordinary Dividends. Distributions, other than distributions that are treated
as attributable to gain from sales or exchanges by the Company of U.S. real
property interests (discussed below) and other than distributions designated
by the Company as capital gain dividends, will be treated as ordinary income
to the extent that they are made out of current or accumulated earnings and
profits of the Company. Such distributions to Non-U.S. Shareholders will
ordinarily be subject to a withholding tax equal to 30% of the gross amount of
the distribution, unless an applicable tax treaty reduces that tax. However,
if income from the investment in the Common Shares is treated as effectively
connected with the Non-U.S. Shareholder's conduct of a U.S. trade or business,
the Non-U.S. Shareholder generally will be subject to tax at graduated rates
in the same manner as U.S. Shareholders are taxed with respect to such
dividends (and may also be subject to the 30% branch profits tax if the
shareholder is a foreign corporation).
The Company expects to withhold U.S. tax at the rate of 30% on the gross
amount of any dividends, other than dividends treated as attributable to gain
from sales or exchanges of U.S. real property interests and capital gain
dividends, paid to a Non-U.S. Shareholder, unless (i) a lower treaty rate
applies and the required form evidencing eligibility for that reduced rate is
filed with the Company or the appropriate withholding agent or (ii) the Non-
U.S. Shareholder files an IRS Form 4224 (or a successor form) with the Company
or the appropriate withholding agent claiming that the distributions are
"effectively connected" income.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate.
Under the recent Final Regulations that are proposed to be effective for
distributions made after December 31, 1998 (the "New Withholding
Regulations"), however, a Non-U.S. Shareholder who wishes to claim the benefit
of an applicable treaty rate would be required to satisfy applicable
certification requirements. In addition, under the Final Regulations, in the
case of Common Shares held by a foreign partnership, (x) the certification
requirement would generally be applied to the partners in the partnership and
(y) the partnership would be required to provide certain information,
including a United States taxpayer identification number. The New Withholding
Regulations provide look-through rules in the case of tiered partnerships.
Shareholders that are partnerships or entities that are similarly fiscally
transparent for federal income tax purposes, and persons holding Common Shares
through such entities, may be subject to restrictions on their ability to
claim benefits under U.S. tax treaties and should consult a tax advisor.
The New Withholding Regulations also require a corporation that is a REIT to
treat as a dividend the portion of a distribution that is not designated as a
capital gain dividend or return of basis and apply the 30% withholding tax
(subject to any applicable deduction or exemption) to such portion, and to
apply the FIRPTA withholding rules (discussed below) with respect to the
portion of the distribution designated by the REIT as capital gain dividend.
The New Withholding Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. THE DISCUSSION
SET FORTH IN "TAXATION OF NON-U.S. SHAREHOLDERS" DOES NOT TAKE THE NEW
WITHHOLDING REGULATIONS INTO ACCOUNT. PROSPECTIVE NON-U.S. SHAREHOLDERS ARE
STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE NEW
WITHHOLDING REGULATIONS.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gain dividends which are not
attributable to or treated as attributable to the disposition by the Company
of a U.S. real property interest generally will not be subject to U.S. federal
income taxation, except as described below.
Return of Capital. Distributions in excess of current and accumulated
earnings and profits of the Company, which are not treated as attributable to
the gain from disposition by the Company of a U.S. real property interest,
will not be taxable to a Non-U.S. Shareholder to the extent that they do not
exceed the adjusted basis of the Non-U.S. Shareholder's Common Shares, but
rather will reduce the adjusted basis of such Common Shares. To the extent
that such distributions exceed the adjusted basis of a Non-U.S. Shareholder's
Common
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<PAGE>
Shares, they will give rise to tax liability if the Non-U.S. Shareholder
otherwise would be subject to tax on any gain from the sale or disposition of
its Common Shares, as described below. If it cannot be determined at the time
a distribution is made whether such distribution will be in excess of current
and accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S.
Shareholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
Capital Gain Dividends. For any year in which the Company qualifies as a
REIT, distributions that are attributable to gain from sales or exchanges by
the Company of U.S. real property interests will be taxed to a Non-U.S.
Shareholder under the provisions of the Foreign Investment in Real Property
Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are
taxed to a Non-U.S. Shareholder as if such gain were effectively connected
with a U.S. business. Thus, Non-U.S. Shareholders will be taxed on such
distributions at the normal capital gain rates applicable to U.S. Shareholders
(subject to any applicable alternative minimum tax and special alternative
minimum tax in the case of nonresident alien individuals). The Company is
required by applicable Treasury regulations under FIRPTA to withhold 35% of
any distribution that could be designated by the Company as a capital gain
dividend. However, if the Company designates as a capital gain dividend a
distribution made prior to the day the Company actually effects such
designation, then (although such distribution may be taxable to a Non-U.S.
Shareholder) such distribution is not subject to withholding under FIRPTA;
rather, the Company must effect the 35% FIRPTA withholding from distributions
made on and after the date of such designation, until the distributions so
withheld equal the amount of the prior distribution designated as a capital
gain dividend. The amount withheld is creditable against the Non-U.S.
Shareholder's U.S. tax liability.
Sales of Common Shares. Gain recognized by a Non-U.S. Shareholder upon a
sale or exchange of Common Shares generally will not be taxed under FIRPTA if
the Company is a "domestically controlled REIT," defined generally as a REIT
in respect of which at all times during a specified testing period less than
50% in value of the stock is and was held directly or indirectly by foreign
persons. It is currently anticipated that the Company will continue to be a
"domestically controlled REIT," and, therefore, that the sale of Common Shares
will not be subject to taxation under FIRPTA. However, gain not subject to
FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in the
Common Shares is treated as "effectively connected" with the Non- U.S.
Shareholder's U.S. trade or business, in which case the Non-U.S. Shareholder
will be subject to the same treatment as U.S. Shareholders with respect to
such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year and has a "tax home" in the United States, or maintains an office or a
fixed place of business in the United States to which the gain is
attributable, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's capital gains. A similar rule will apply to
capital gain dividends not subject to FIRPTA.
If the Company were not a domestically-controlled REIT, a Non-U.S.
Shareholder's sale of Common Shares would be subject to tax under FIRPTA only
if the selling Non-U.S. Shareholder owned more than 5% of the class of Common
Shares sold at any time during a specified period (generally the shorter of
the period that the Non- U.S. Shareholder owned the Common Shares sold or the
five-year period ending on the date of disposition). If the gain on the sale
of Common Shares were to be subject to tax under FIRPTA, the Non-U.S.
Shareholder would be subject to the same treatment as U.S. Shareholders with
respect to such gain (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of such Common Shares would be required to withhold 10% of
the gross purchase price.
Backup Withholding. Backup withholding tax (which generally is withholding
tax imposed at the rate of 31% on certain payments to persons that fail to
furnish certain information under the United States information reporting
requirements) and information reporting will generally not apply to
distributions to Non-U.S. Shareholders outside the United States that are
treated as (i) dividends subject to the 30% (or lower treaty rate) withholding
tax discussed above, (ii) capital gains dividends, or (iii) distributions
attributable to gain from the sale or exchange by the Company of United States
real property interests. As a general matter, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
Common Shares by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply,
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however, to a payment of the proceeds of a sale of Common Shares by a foreign
office of a broker that (a) is a United States person, (b) derives 50% or more
of its gross income for certain periods from the conduct of a trade or
business in the United States, or (c) is a "controlled foreign corporation"
(generally, a foreign corporation controlled by United States shareholders)
for United States tax purposes, unless the broker has documentary evidence in
its records that the holder is a Non-U.S. Shareholder and certain other
conditions are met, or the shareholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of the proceeds of a
sale of Common Shares is subject to both backup withholding and information
reporting unless the shareholder certifies under penalty of perjury that the
shareholder is a Non-U.S. Shareholder, or otherwise establishes an exemption.
Backup withholding is not an additional tax. A Non-U.S. Shareholder may obtain
a refund of any amounts withheld under the backup withholding rules by filing
the appropriate claim for refund with the IRS.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders are urged to consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
Classification as a Partnership. The Company will be entitled to include in
its income its distributive share of the Operating Partnership's income and to
deduct its distributive share of the Operating Partnership's losses only if
the Operating Partnership is classified for federal income tax purposes as a
partnership rather than as a corporation or an association taxable as a
corporation. An organization formed as a partnership will be treated as a
partnership, rather than as a corporation, for federal income tax purposes if
(i) it is not expressly classified as a corporation under Section 301.7701-
2(b)(l) through (8) of the Treasury Regulations; (ii) it does not elect to be
classified as an association taxable as a corporation; and (iii) it is not
treated as a corporation by virtue of being classified as a "publicly traded
partnership."
The Operating Partnership will not request a ruling from the Service that it
will be classified as a partnership for federal income tax purposes. Instead,
at the Closing, Wilmer, Cutler & Pickering will deliver its opinion that,
based on the provisions of the Partnership Agreement, certain factual
assumptions and certain representations described in the opinion, the
Operating Partnership will be treated for federal income tax purposes as a
partnership and not as an association taxable as a corporation. Unlike a tax
ruling, an opinion of counsel is not binding upon the Service, and no
assurance can be given that the Service will not challenge the status of the
Operating Partnership as a partnership for federal income tax purposes. If
such challenge were sustained by a court, the Operating Partnership would be
treated as a corporation for federal income tax purposes, as described below.
In addition, the opinion of Wilmer, Cutler & Pickering is based on existing
law, which is to a great extent the result of administrative and judicial
interpretation. No assurance can be given that administrative or judicial
changes would not modify the conclusions expressed in the opinion.
Under Section 7704 of the Code, a partnership is treated as a corporation
for federal income tax purposes if it is a "publicly traded partnership"
(except in situations in which 90% or more of the partnership's gross income
is of a specified type). A partnership is deemed to be publicly traded if its
interests are either (i) traded on an established securities market, or (ii)
readily tradable on a secondary market (or the substantial equivalent
thereof). While the Units will not be traded on an established securities
market, they could possibly be deemed to be traded on a secondary market or
its equivalent due to the Redemption Rights enabling the partners to dispose
of their Units.
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Under Treasury regulations governing the classification of partnerships
under Section 7704 (the "PTP Regulations"), the classification of partnerships
is generally based on a facts and circumstances analysis. However, the
regulations also provide limited "safe harbors" which preclude publicly traded
partnership status. Pursuant to one of those safe harbors, interests in a
partnership will not be treated as readily tradable on a secondary market or
the substantial equivalent thereof if (i) all interests in the partnership
were issued in a transaction (or transactions) that was not required to be
registered under the Securities Act, and (ii) the partnership does not have
more than 100 partners at any time during the partnership's taxable year. In
determining the number of partners in a partnership for this purpose, a person
owning an interest in a flow-through entity (i.e., a partnership, grantor
trust, or S corporation) that owns an interest in the partnership is treated
as a partner in such partnership only if (x) substantially all of the value of
the person's interest in the flow-through entity is attributable to the flow-
through entity's interest (direct or indirect) in the partnership and (y) a
principal purpose of the use of the tiered arrangement is to permit the
partnership to satisfy the 100-partner limitation.
The Operating Partnership is expected to have less than 100 partners. The
Operating Partnership has not issued any Units required to be registered under
the Securities Act. Thus, the Operating Partnership presently qualifies for
the safe harbors provided in the PTP Regulations. If the Operating Partnership
were to have more than 100 partners (including, in certain circumstances,
persons owning interests through flow-through entities), it nevertheless would
be treated as a partnership for federal income tax purposes (rather than an
association taxable as a corporation) if at least 90% of its gross income in
each taxable year (commencing with the year in which it is treated as a
publicly traded partnership) consists of "qualifying income" within the
meaning of Section 7704(c)(2) of the Code (including interest, dividends,
"real property rents" and gains from the disposition of real property (the
"90% Passive-Type Income Exception"). For purposes of this test, Rents
received from greater than 10% owners of lessees, which owners also own 5% or
more of the interests in the Operating Partnership would not qualify as rents
from real property. Because of the substantial ownership of the Operating
Partnership by certain of the Initial Lessees (or their Affiliates), the
Operating Partnership currently would not be eligible for the 90% Passive-Type
Income Exception. Thus, if the Operating Partnership were to have more than
100 partners (including, in certain circumstances, persons owning interests
through flow-through entities), the Company would be required to place
appropriate restrictions on the ability of the Limited Partners to exercise
their redemption rights as and if deemed necessary to ensure that the
Operating Partnership does not constitute a publicly traded partnership.
However, there is no assurance that the Operating Partnership will at all
times in the future be able to avoid treatment as a publicly traded
partnership. The Company intends to conduct its operations in such a way as to
continue to fall within a safe harbor from publicly traded partnership status.
If for any reason the Operating Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company
would not be able to satisfy the income and asset requirements for REIT
status. See "--Taxation of the Company as a REIT--Income Tests" and "--
Taxation of the Company as a REIT --Asset Tests." In addition, any change in
the Operating Partnership's status for tax purposes might be treated as a
taxable event, in which case the Company might incur a tax liability without
any related cash distribution. See "--Taxation of the Company as a REIT--
Annual Distribution Requirements." Further, items of income and deduction of
the Operating Partnership would not pass through to its partners, and its
partners would be treated as stockholders for tax purposes. Consequently, the
Operating Partnership would be required to pay income tax at corporate tax
rates on its net income, and distributions to its partners would constitute
dividends that would not be deductible in computing the Operating
Partnership's taxable income.
The following discussion assumes that the Operating Partnership will be
treated as a partnership for federal income tax purposes.
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply
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with the provisions of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder. Generally, Section 704(b) and the Treasury Regulations
promulgated thereunder require that partnership allocations respect the
economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of
Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder.
Tax Allocations With Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Properties contributed by Initial Sellers
who are Affiliates of Pohanka, Rosenthal, Sheehy or Cherner) that is
contributed to a partnership in exchange for an interest in the partnership
must be allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for
federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. The Operating
Partnership was formed by way of contributions of appreciated property
(including the Properties). Consequently, the Partnership Agreement will
require such allocations to be made in a manner consistent with Section 704(c)
of the Code.
In general, the Initial Sellers who are Affiliates of Pohanka, Rosenthal,
Sheehy or Cherner will be allocated depreciation deductions for tax purposes
which are lower than such deductions would be if determined on a pro rata
basis. In addition, in the event of the disposition of any of the contributed
assets (including the Properties) which have a Book-Tax Difference, all income
attributable to such Book-Tax Difference will generally be allocated to the
Initial Sellers and the Company will generally be allocated only its share of
capital gains attributable to appreciation, if any, occurring after the
closing of the Offering. This will tend to eliminate the Book-Tax Difference
over such life of the Operating Partnership. However, the special allocation
rules of Section 704(c) do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed
assets in the hands the Operating Partnership will cause the Company to be
allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds,
which might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "--Taxation of the Company as a REIT--Annual
Distribution Requirements." The foregoing principles also apply in determining
the earnings and profits of the Company for purposes of determining the
portion of distributions taxable as dividend income. The application of these
rules over time may result in a higher portion of distributions being taxed as
dividends than would have occurred had the Company purchased the contributed
assets entirely for cash.
The Treasury Regulations under Section 704(c) of the Code allow partnerships
to use any reasonable method of accounting for Book-Tax Differences so that
the contributing partner receives the tax benefits and burdens of any built-in
gain or loss associated with the contributed property. Under the Partnership
Agreement, the General Partner has the discretion to determine which of the
methods of accounting for Book-Tax Differences (specifically approved in the
Treasury Regulations) will be elected with respect to any properties
contributed to the Partnership. With respect to certain of the Initial
Properties, the Partnership has agreed to utilize the "traditional method with
ceiling rule" of eliminating the Book-Tax Difference with respect to such
Properties, except that the Operating Partnership will be permitted to utilize
a so-called "curative allocation" in connection with a sale of certain Initial
Properties in accordance with a special rule in the Treasury Regulations. The
use of this method may result in the Company being allocated less
depreciation, and therefore more taxable income in a given year than would be
the case if a different method for eliminating the Book-Tax Difference were
chosen. In such event, distributions to shareholders will be comprised of a
greater portion of taxable income as opposed to a return of capital than would
have been the case if another method were utilized. The Company has not
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determined which of the alternative methods of accounting for Book-Tax
Differences will be elected with respect to its properties to be contributed
to the Operating Partnership in the future.
Basis in Operating Partnership Interest. The Company's adjusted tax basis in
its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's income and (b) its allocable
share of indebtedness of the Operating Partnership and (iii) will be reduced,
but not below zero, by the Company's allocable share of (a) losses suffered by
the Operating Partnership, (b) the amount of cash distributed to the Company
and (c) by constructive distributions resulting from a reduction in the
Company's share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss
will be deferred until such time and to the extent that the Company has
adjusted tax basis in its interest in the Operating Partnership. To the extent
that the Operating Partnership's distributions, or any decrease in the
Company's share of the indebtedness of the Operating Partnership (such
decreases being considered a cash distribution to the partners), exceeds the
Company's adjusted tax basis, such excess distributions (including such
constructive distributions) constitute taxable income to the Company. Such
taxable income will normally be characterized as a capital gain, and if the
Company's interest in the Operating Partnership has been held for longer than
the long-term capital gain holding period (currently one year), the
distributions and constructive distributions will constitute long-term capital
gain. Under current law, capital gains and ordinary income of corporations are
generally taxed at the same marginal rates.
Sale of the Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to
customers in the ordinary course of the Operating Partnership's trade or
business will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "--Taxation of the Company as a REIT--
Income Tests." Such prohibited transaction income may also have an adverse
effect upon the Company's ability to satisfy the income tests for
qualification as a REIT. See "--Taxation of the Company as a REIT--Income
Tests." Under existing law, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a partnership's trade or
business is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. The Operating Partnership intends
to hold the Properties for investment with a view to long-term appreciation,
to engage in the business of acquiring, providing financing for the
development of, owning, and operating the Properties (and other similar
properties) and to make such occasional sales of the Properties, including
peripheral land, as are consistent with the Operating Partnership's investment
objectives.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below and the
Underwriters, for whom Friedman, Billings, Ramsey & Co., Inc. is acting as
Representative, has severally agreed to purchase, the number of Common Shares
offered hereby set forth below opposite its name.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. ..........................
----
Total........................................................
====
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to purchase all the Common Shares offered hereby if
any are purchased. The Company has agreed to indemnify the Underwriters
against certain civil liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
The Underwriters propose initially to offer the Common Shares directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such offering price less a concession not
to exceed $ per Common Share. The Underwriters may allow and such dealers
may reallow a concession not to exceed $ per Common Share to certain other
dealers. After the Common Shares are released for sale to the public, the
offering price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option exercisable during a
30-day period after the date hereof to purchase, at the initial offering price
less underwriting discounts and commissions, up to an additional 3,000,000
Common Shares for the sole purpose of covering over-allotments, if any. To the
extent that the Underwriters exercise such option, each Underwriter will be
committed, subject to certain conditions, to purchase that number of
additional Common Shares which is proportionate to such Underwriter's initial
commitment.
The Underwriters have agreed to reserve up to 2% of the Common Shares
offered hereby for sale to certain persons associated with the Company,
including executive officers and Trustees of the Company and their families,
at the initial public offering price net of underwriting discounts and
commissions. To the extent such reserved shares are sold to such individuals,
the total underwriting discounts and commissions will be reduced.
The Company has agreed to grant to the Representative the Underwriting
Warrants representing the right to acquire 1,277,794 Common Shares, an amount
equal to 6.385% of the Common Shares offered hereby (excluding exercise of the
Underwriters' over-allotment option) and equal to 4% of the Common Shares to
be outstanding on the closing of the Offering (excluding exercise of the
Underwriters' over-allotment option) on a fully diluted basis. The
Underwriting Warrants will be exercisable on the closing date of the Offering
and for a period of five years thereafter at the initial public offering price
of the Common Shares. The Underwriting Warrants and the underlying Common
Shares issued upon exercise of the Underwriting Warrants may not be sold,
transferred, assigned or hypothecated for one year following the date of this
Prospectus, except to officers or partners of the Representative or members of
the selling group. The Company has also registered the Common Shares
underlying the Underwriting Warrants. The Underwriting Warrants enable the
Representative to profit from a rise in the market price of the Common Shares.
Dilution to the Common Shares will occur if the Underwriting Warrants are
exercised at a time when the exercise price is less than the market price of
the Common Shares. In addition, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected because the
holders of the Underwriting Warrants can be expected to exercise them at a
time when the Company likely would be able to obtain any needed capital on
terms more favorable to the Company than those provided in the Underwriting
Warrants.
Prior to the Offering, Friedman, Billings, Ramsey Group, Inc. an affiliate
of the Representative, established in the Company's favor a short-term
revolving loan facility on a secured basis in the principal amount of up to
approximately $2.3 million. Any outstanding loan amount and any accrued
interest are due and payable in full from the net proceeds of this Offering on
the closing date of this Offering.
99
<PAGE>
FBR Asset Investment Corporation, an Affiliate of the Representative of the
Underwriters, has subscribed to purchase 1,792,115 Common Shares in a private
placement at a purchase price equal to the initial price to the public (net of
underwriting discounts and commissions). FBR Asset Investment Corporation may
not offer, pledge, sell, dispose of or otherwise transfer the Common Shares
acquired in the FBR Offering for a period of 90 days following the closing of
the Offering.
The Company has agreed to reimburse the Underwriters for their out-of-pocket
expenses, including fees and expenses of counsel to the Underwriters.
The Company has granted to the Representative of the Underwriters
preferential rights for three years from the date of the Registration
Statement, assuming completion of the Offering, to act as the exclusive
underwriter for, or advisor to, the Company in specified transactions or
offerings for customary fees to be mutually agreed to by the parties.
Thomas D. Eckert, the Company's President and Chief Executive Officer, and
David S. Kay, the Company's Chief Financial Officer, have agreements with
Friedman, Billings, Ramsey Group, Inc. providing that if the Offering is not
completed for whatever reason, Friedman, Billings, Ramsey Group, Inc. will
employ them at a rate equal to their respective annual salaries and benefits
provided under their respective employment agreements with the Company for up
to one year following the abandonment of the Offering.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Shares. Specifically, the Underwriters may over-allot this Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase Common Shares in the open market to cover syndicate short
positions or to stabilize the price of the Common Shares. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members
if the syndicate repurchases previously distributed Common Shares in syndicate
covering transactions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Common
Shares above independent market levels. The Underwriters are not required to
engage in these activities and may end any of these activities at any time.
Prior to this Offering, there has been no public market for the Common
Shares. The initial public offering price has been determined by negotiation
between the Company and the Representative. Among the factors considered in
making such determination were the history of, and the prospects for, the
industry in which the Company will compete, an assessment of the Initial
Properties and the Company's prospects for future earnings, the general
conditions of the economy and the securities markets, and the prices, dividend
yields and other financial characteristics of comparable publicly traded
REITs. There can, however, be no assurance that the price at which the Common
Shares will sell in the public market after this Offering will not be lower
than the price at which they are sold by the Underwriters.
The Company has been advised by the Representative that it and certain other
Underwriters intend to make a market in the Common Shares. However, the
Underwriters are not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion
of the Underwriters. Application has been made by the Company to list the
Common Shares in The Nasdaq National Market under the symbol "CARS," but one
of the requirements for listing and continued listing is the presence of two
market makers for the Common Shares. The presence of a second market maker
cannot be assured. Accordingly, no assurance can be given as to the
development or liquidity of any market for the Common Shares.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales of the Common Shares offered hereby to any accounts
over which they exercise discretionary authority.
The officers and Trustees of the Company have agreed not to, directly or
indirectly, offer, sell, offer to sell, contract to sell, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, grant of any option to purchase or other sale or
disposition) of any Units or Common Shares or other shares of beneficial
interest of the Company, or any securities convertible or exercisable or
exchangeable for any Units or Common Shares or other shares of beneficial
interest of the Company (except for Options granted under the Plan) for a
period of two years from the date of this Prospectus. The Representative, at
any time and without notice, may release all or any portion of the Common
Shares subject to the foregoing lock-up agreements.
100
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Wilmer, Cutler & Pickering, Washington, D.C. and for the
Underwriters by Hunton & Williams, Richmond, Virginia. In addition, the
description of federal income tax consequences contained in this Prospectus
under "Federal Income Tax Consequences" is, to the extent that it constitutes
matters of law, summaries of legal matters or legal conclusions, the opinion
of Wilmer, Cutler & Pickering.
EXPERTS
The financial statements of the Company as of October 20, 1997 included in
this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Geneva Enterprises, Inc. and Affiliated Company
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Walpert, Smullian & Blumenthal, P.A. independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
101
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-11 under the Securities Act,
with respect to the Common Shares offered hereby (the "Registration
Statement"). This Prospectus, which is part of the Registration Statement,
does not contain all the information set forth in the Registration Statement
and the exhibits thereto. For further information with respect to the Company
and the Common Shares, reference is made to the Registration Statement and
such exhibits filed therewith. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
For further information with respect to the Company and the Common Shares,
reference is made to the Registration Statement and such exhibits, copies of
which may be examined without charge at, or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, Suite 1300, New York, New York 10048. The Commission also
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file documents with the
Commission, including the Company, and the address is http://www.sec.gov.
Following the closing of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and will, therefore, be required to file reports, proxy
and information statements and other information with the Commission pursuant
to the reporting requirements of Section 13(a) thereof, in addition to any
other legal or Nasdaq requirements. Such reports, statements and information
can also be inspected and copied at the Commission's offices and web site
listed above.
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three
quarters of each fiscal year.
102
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTRODUCTION TO FINANCIAL STATEMENTS...................................... F-2
CAPITAL AUTOMOTIVE REIT:
Report of Independent Public Accountants--Arthur Andersen LLP........... F-3
Balance Sheet as of October 20, 1997.................................... F-4
Notes to Balance Sheet.................................................. F-5
Introduction to Pro Forma Financial Statements (Unaudited).............. F-9
Pro Forma Balance Sheet as of October 20, 1997 (Unaudited).............. F-10
Pro Forma Statement of Operations for the Year Ended December 31, 1996
(Unaudited)............................................................ F-11
Pro Forma Statement of Operations for the Period Ended October 20, 1997
(Unaudited)............................................................ F-12
Notes to Pro Forma Financial Statements (Unaudited)..................... F-13
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY:
Independent Auditors' Report--Walpert, Smullian & Blumenthal, P.A. ..... F-15
Combined Balance Sheets as of December 31, 1996 and September 30, 1997
(Unaudited)............................................................ F-16
Combined Statements of Income for the Year Ended December 31, 1996 and
the Nine Months Ended September 30, 1996 (Unaudited) and 1997
(Unaudited)............................................................ F-17
Combined Statements of Changes in Stockholders' Equity for the Year
Ended December 31, 1996 and the Nine Months Ended September 30, 1997
(Unaudited)............................................................ F-18
Combined Statements of Cash Flows for the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1996 (Unaudited) and 1997
(Unaudited)............................................................ F-19
Notes to Combined Financial Statements.................................. F-20
CROSS-CONTINENT AUTO RETAILERS, INC.:
Summary Historical Financial Information................................ F-28
</TABLE>
F-1
<PAGE>
INTRODUCTION TO FINANCIAL STATEMENTS
The following pages present the audited financial statements of the Company
and Geneva Enterprises, Inc. and Affiliated Company ("Geneva") as well as
summary historical financial information for Cross-Continent Auto Retailers,
Inc. ("Cross-Continent"). The audited financial statements of Geneva and the
summary financial information for Cross-Continent have been included in this
Prospectus to present the financial condition and historical operations of the
significant Initial Lessees, in order to show their ability to make base
rental payments under the Initial Leases. Only Geneva, who is the Lessee (or
has guaranteed the rent of the Lessee) of all the Rosenthal properties
acquired, and Cross-Continent have been presented, as they represent Initial
Lessees for which the purchase price of the related Initial Property under
lease represents greater than 20 percent of the aggregate purchase price of
all of the Initial Properties, and therefore are considered significant. As
Cross-Continent is a publicly traded entity, registered with the Securities
and Exchange Commission, only summary historical financial information has
been provided; however, audited historical financial statements and other
information as filed with the Securities and Exchange Commission is publicly
available.
Financial Statements of the Operating Partnership have not been presented,
as it has not had any significant activity since its inception in November
1997. The Operating Partnership will commence activity concurrent with the
closing of the Offering.
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of Capital Automotive REIT (a
Maryland real estate investment trust, the "Company") as of October 20, 1997.
This financial statement is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Capital Automotive REIT as of
October 20, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, D.C.,
January 13, 1998
F-3
<PAGE>
CAPITAL AUTOMOTIVE REIT
BALANCE SHEET
AS OF OCTOBER 20, 1997
<TABLE>
<S> <C>
ASSETS
Cash..................................................................... $ --
-----
Total assets........................................................... $ --
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities........................................................ $ --
-----
Common stock, par value $.01, 10 shares issued and outstanding........... --
Additional paid-in capital............................................... 100
Stock subscriptions receivable........................................... (100)
-----
Total stockholders' equity............................................... --
-----
Total liabilities and stockholders' equity............................. $ --
=====
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-4
<PAGE>
CAPITAL AUTOMOTIVE REIT
NOTES TO BALANCE SHEET
AS OF OCTOBER 20, 1997
NOTE 1--THE COMPANY
Capital Automotive REIT (the "Company") was formed as a Maryland real estate
investment trust on October 20, 1997 and was initially capitalized on such
date through the sale of 10 shares of common stock for a $100 stock
subscription receivable. The Company's mission is to invest in the real
property and improvements used by operators of motor vehicle dealerships and
related businesses, through its ownership interest in Capital Automotive L.P.
(the "Operating Partnership"). After its formation, the Company will
consolidate the Operating Partnership due to its control as sole general
partner. The accompanying balance sheet includes all accounts of the Company.
The Company's sole activity through October 20, 1997, consisted of the
organization and start-up of the Company. Accordingly, no statement of
operations is presented.
The Company is in the process of filing a Registration Statement for
approximately 20.0 million shares of common stock (the "IPO"). Contingent upon
the consummation of the IPO, the Company will be liable for organization and
offering expenses in connection with the sale of the shares of the common
stock offered. The Company will contribute the proceeds from the IPO to the
Operating Partnership in exchange for 20.0 million units in the Operating
Partnership.
Contingent on the closing of the IPO, FBR Asset Investment Corporation, an
affiliate of Friedman, Billings, Ramsey & Co., Inc. ("FBR"), the
representatives of the underwriters in the IPO, will separately purchase
1,792,115 common shares of the Company at the initial public offering price
(net of underwriting discounts and commissions) (the "FBR Offering"). The
Company will contribute the proceeds from the FBR Offering to the Operating
Partnership in exchange for an equal number of units in the Operating
Partnership.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES
The Company intends to qualify as a real estate investment trust under the
provisions of the Internal Revenue Code of 1986, as amended. As a real estate
investment trust, the Company is required to distribute at least 95% of its
taxable income to shareholders and meet certain other requirements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF RISK
The Company is in the development stage, and therefore is subject to several
risk factors, including the following:
. The lack of operating history of the Company;
. Dependence on the ability of lessees to pay rent or perform obligations
under leases;
. Taxation of the Company as a regular corporation if it fails to qualify
as a real estate investment trust;
. The Company's dependence on key officers and trustees of the Company;
and
. The general risks relating to commercial real estate ownership and
investment.
F-5
<PAGE>
CAPITAL AUTOMOTIVE REIT
NOTES TO BALANCE SHEET--(CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS
In October 1997, Friedman, Billings, Ramsey Group, Inc., an affiliate of
FBR, issued to the Company a short-term revolving line of credit in the amount
of approximately $2.3 million. Draws on the line of credit are to be used by
the Company for organizational costs and offering costs, are due on demand and
are to be repaid with the proceeds from the IPO. Draws on the line of credit
bear interest at a rate of 10 percent per annum.
NOTE 4--SUBSEQUENT EVENTS
ACQUISITIONS
Since October 20, 1997, the Company, through the Operating Partnership, has
committed to acquire real property and improvements from the affiliates of
seven motor vehicle dealers (the "Dealers") for a total purchase price of
approximately $166.2 million, for which approximately $75.6 million will be
paid with units in the Operating Partnership (valued at the same price as the
Company's shares sold in the IPO), $41.3 million will consist of mortgage debt
assumed by the Company, and the remaining $49.3 million will be paid with the
proceeds of the IPO. The mortgage debt assumed will also be repaid with the
proceeds of the IPO. These acquisitions are contingent on the completion of
the IPO as discussed above. Summarized financial information for the Dealers
(on a combined basis) as of September 30, 1997 and for the year ended December
31, 1996 and the nine months ended September 30, 1997, is as follows
(unaudited, in thousands):
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
Inventory (dealer)............................................. $197,419
Real estate, net............................................... 39,471
Other assets................................................... 225,440
--------
Total assets................................................... $462,330
========
Mortgage and other debt........................................ $269,934
Other liabilities.............................................. 76,721
Shareholders' equity........................................... 115,675
--------
Total liabilities and shareholders' equity..................... $462,330
========
</TABLE>
F-6
<PAGE>
CAPITAL AUTOMOTIVE REIT
NOTES TO BALANCE SHEET--(CONTINUED)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Sales revenue................................ $ 1,784,366 $ 1,271,428
Cost of sales................................ (1,567,565) (1,119,370)
Net operating income......................... 216,801 152,058
Other income (expense)....................... 14,825 (8,910)
Selling, general and administrative.......... (211,226) (126,078)
----------- -----------
Net income................................... $ 20,400 $ 17,070
=========== ===========
</TABLE>
RENTAL INCOME
As part of the acquisitions described above, the Company will enter into
lease agreements (the "Leases") with the operators of the Dealers (the
"Lessees"). The Leases generally have initial terms of eight to twelve years,
and generally may be extended upon the same terms and conditions for one or
two additional ten year terms, at the option of the Lessees. The Leases are
triple-net leases and require the Lessees to pay substantially all expenses
associated with operations, including taxes, insurance, utilities, service,
maintenance and ground lease payments. In addition, the majority of the Leases
are guaranteed by parent entities to the Lessees, but the Leases are not
cross-defaulted. Base rent will be increased annually over the term of the
Leases by a factor of the consumer price index. Future minimum rental payments
will be received as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
- ------------------
<S> <C>
1998............................................................... $ 18,318
1999............................................................... 18,318
2000............................................................... 18,318
2001............................................................... 18,318
2002............................................................... 18,318
Thereafter......................................................... 93,998
--------
$185,588
========
</TABLE>
STOCK OPTION PLANS
The Company has established a plan (the "Plan") for the purpose of
attracting and retaining trustees, executive officers and other key employees.
Each option granted pursuant to the Plan shall be designated at the time of
grant as either an "incentive share option" or as a "non-qualified share
option." Under the Plan shares will be available for grant. The options
will become exercisable, subject to certain conditions, at a rate of 25
percent per year over a four year period, commencing on the first anniversary
of the date of grant and with a term of ten years.
Concurrent with the closing of the IPO, the Company will grant options in
the amount of 7 percent of the aggregate number of the Operating Partnership's
units outstanding as a result of the IPO (including exercise of the
overallotment option), fully diluted for the FBR Offering, warrants issued
(see below) and the acquisitions described above. Such options will be granted
under the Plan to several key officers and employees of the Company,
exercisable at the IPO price.
F-7
<PAGE>
CAPITAL AUTOMOTIVE REIT
NOTES TO BALANCE SHEET--(CONTINUED)
STOCK WARRANTS
As part of the IPO, the Company will issue warrants to two affiliates of the
Dealers, representing the right to acquire units in the Operating Partnership
in the aggregate amount of 4 percent of the Operating Partnership's
outstanding units as a result of the IPO, fully diluted for the FBR Offering,
management stock options FBR warrants (see below) and the acquisitions
described above. In addition, the Company will issue warrants to FBR,
representing the right to acquire 1,277,794 shares of common stock of the
Company. These warrants are exercisable on the effective date of the IPO and
for a period of five years thereafter, with an exercise price equal to the IPO
price.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of its four
executive officers. The Company will assign the employment agreements to the
Operating Partnership effective January 1, 1998. The agreements are for a four
year term and provide that the executive officers agree to devote their full
time to the operation of the Company (except as the Company otherwise agrees,
including on behalf of the Operating Partnership). The term is shortened to
June 30, 1998 if the Company has not completed its initial public offering by
such date.
Two of the Company's executive officers have agreements with FBR providing
that if the IPO cannot be completed, FBR will employ each of them for a term
of one year (or until the individual finds new employment) at a compensation
equal to that under their current employment agreement.
F-8
<PAGE>
CAPITAL AUTOMOTIVE REIT
PRO FORMA BALANCE SHEET AS OF OCTOBER 20, 1997 AND
PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996 AND THE PERIOD ENDED OCTOBER 20, 1997
(UNAUDITED)
The following unaudited pro forma balance sheet gives effect to: (i) the
completion of the Offering and the concurrent FBR Offering, (ii) the
acquisition of certain of the Initial Properties, (iii) the commencement of
the Initial Leases, and (iv) certain other transactions described in the notes
hereto as though such transactions occurred on October 20, 1997.
The following unaudited pro forma statements of operations give effect to
(i) the completion of the Offering and the concurrent FBR Offering, (ii) the
acquisition of certain of the Initial Properties, (iii) the commencement of
the Initial Leases, and (iv) certain other transactions described in the notes
hereto as though such transactions occurred at the beginning of the presented
period.
The following unaudited pro forma data is not necessarily indicative of what
the actual financial position or results of operations of the Company would
have been as of the date or for the period indicated, nor does it purport to
represent the financial position or results of operations for the Company for
future periods.
F-9
<PAGE>
CAPITAL AUTOMOTIVE REIT
PRO FORMA BALANCE SHEET
AS OF OCTOBER 20, 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
HISTORICAL ADJUSTMENTS FORMA(H)
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Cash...................................... $-- $277,350 (A) $217,928
5,000 (B)
(41,298)(C)
(49,301)(D)
25,000 (F)
1,527 (G)
(350)(B)
Land...................................... -- 108,046 (D) 108,046
Building and improvements................. -- 58,177 (D) 58,177
---- --------
Total real estate......................... -- 166,223
Other assets.............................. -- 350 (B) 350
---- --------
Total assets.......................... $-- $384,501
==== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage payable.......................... $-- $ 41,298 (D) $ --
(41,298)(C)
Line of credit............................ -- 5,000 (B) 5,000
Security deposits payable................. -- 1,527 (G) 1,527
---- --------
Total liabilities..................... -- 6,527
---- --------
Minority interest......................... -- 71,014 (D)(E) 71,014
Shareholders' equity:
Common stock............................ -- 200 (A) 218
18 (F)
Additional paid-in capital.............. -- 277,150 (A) 306,742
4,610 (D)
24,982 (F)
---- --------
Total shareholders' equity............ -- 306,960
---- --------
Total liabilities and shareholders'
equity............................... $-- $384,501
==== ========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma balance
sheet.
F-10
<PAGE>
CAPITAL AUTOMOTIVE REIT
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA(H)
---------- ----------- ------------
<S> <C> <C> <C>
Total revenue.......................... $-- $18,318 (I) $18,318
Depreciation and amortization.......... -- 2,909 (D) 2,909
General and administrative expense..... -- 3,500 (J) 3,500
Interest expense....................... -- 470 (B) 470
---- -------
Total expenses....................... -- 6,879
---- -------
Net income before minority interest.... -- 11,439
Minority interest...................... -- (2,149)(E) (2,149)
---- -------
Net income applicable to common
shareholders.......................... $-- $ 9,290
==== =======
Shares of common stock outstanding used
to compute earnings per share......... 7,705 (K)
=======
Earnings per share of common stock
outstanding........................... $ 1.21
=======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
F-11
<PAGE>
CAPITAL AUTOMOTIVE REIT
PRO FORMA STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 20, 1997
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA (H)
---------- ----------- -------------
<S> <C> <C> <C>
Total revenue.......................... -- $16,028 (I) $16,028
Depreciation and amortization.......... -- 2,545 (D) 2,545
General and administrative expense..... -- 3,063 (J) 3,063
Interest expense....................... -- 411 (B) 411
--- -------
Total expenses....................... -- 6,019
--- -------
Net income before minority interest.... -- 10,009
Minority interest...................... -- (1,881)(E) (1,881)
--- ------- -------
Net income applicable to common
shareholders.......................... -- $ 8,128
=== =======
Shares of common stock outstanding used
to compare earnings per share......... 7,705(K)
=======
Earnings per share of common stock
outstanding........................... $ 1.05
=======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
F-12
<PAGE>
CAPITAL AUTOMOTIVE REIT
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(A) Represents 20.0 million shares of common stock issued in the initial
public offering, at $15.00 per share with a par value of $.01 per share.
Adjustments consist of the following (in thousands):
<TABLE>
<S> <C>
Proceeds of offering............................................... $300,000
Underwriters discount.............................................. (21,000)
Offering expenses.................................................. (1,650)
--------
Net proceeds....................................................... $277,350
========
Common stock....................................................... $ 200
Additional paid-in capital......................................... 277,150
--------
Net proceeds....................................................... $277,350
========
</TABLE>
(B) Represents a draw of $5.0 million on a $10.0 million line-of-credit
intended to be obtained by management upon closing of the Offering. The $5.0
million draw will be guaranteed by certain of the Initial Sellers for tax
purposes. Draws on the line of credit are assumed to bear interest at a rate
of 8 percent. Costs in the amount of $350,000 are assumed to be incurred in
connection with obtaining this line-of-credit. These costs will capitalized
and amortized into interest expense over the term of the line (assumed to be
five years).
(C) Represents the immediate repayment of the mortgage debt assumed from the
Initial Properties with proceeds from the Offering. See "Use of Proceeds"
elsewhere in this Prospectus.
(D) Represents contribution of the Initial Properties for units of the
Operating Partnership (assuming the IPO price of the Company's Common Shares),
assumption of mortgage debt, and cash. In the opinion of management, the
purchase price of the real property acquired estimated fair value as of the
date of commitment to acquire. In addition, the purchase price of real
property includes approximately $1.4 million in acquisition costs to be paid
by the Company. The purchase price of real property has been allocated 65%/35%
between land and buildings, respectively, for purposes of the unaudited pro
forma financial statements. Final allocations will be calculated and recorded
by the Operating Partnership upon closing. Adjustments are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
TOTAL LAND BUILDING
-------- -------- --------
<S> <C> <C> <C>
Rosenthal......................................... $ 65,269 $ 42,425 $22,844
Pohanka........................................... 31,324 20,361 10,963
Sheehy............................................ 14,006 9,104 4,902
Cherner........................................... 6,323 4,110 2,213
Cross-Continent................................... 35,330 22,965 12,365
Good News......................................... 5,461 3,550 1,911
Kline............................................. 8,510 5,531 2,979
-------- -------- -------
$166,223 $108,046 $58,177
======== ======== =======
Units issued-Minority interest.................... $ 71,014
Units issued-Additional paid-in capital........... 4,610
Cash paid......................................... 49,301
Mortgage debt assumed............................. 41,298
--------
$166,223
========
</TABLE>
F-13
<PAGE>
CAPITAL AUTOMOTIVE REIT
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
Depreciation is computed using the straight-line method assuming estimated
useful lives of 20 years for the buildings and improvements.
(E) Minority interest is calculated at approximately 18.8 percent of the
Operating Partnership's partners' capital and net income. The ownership of the
Operating Partnership is as follows (in thousands):
<TABLE>
<CAPTION>
$ UNITS %
-------- ------ ----
<S> <C> <C> <C>
Partners' capital:
Certain Initial Sellers.............................. $ 75,623 5,042 18.8%
The Company.......................................... 302,350 21,792 81.2%
-------- ------ ----
Total.............................................. $377,973 26,834 100%
======== ====== ====
</TABLE>
(F) Represents 1,792,115 shares of common stock issued to FBR at the initial
public offering price (net of underwriting discounts and commissions of $1.05
per share of Common Stock or $1,881,721).
(G) Represents security deposits to be received from the Initial Lessees in
the amount of one month's base rent.
(H) The Company, as sole general partner of the Operating Partnership, will
have, subject to certain protective rights of the Limited Partners, full,
exclusive and complete responsibility and discretion in the management and
unilateral control of the Operating Partnership. Such responsibilities permit
the Company to enter into certain major transactions including acquisitions,
dispositions and refinancings, and to cause changes in the Operating
Partnership's line of business and distribution policies. Further, the Company
may not be replaced as general partner by the Limited Partners, except in
certain limited circumstances. Accordingly, for accounting purposes, the
Company is considered to control the Operating Partnership and the
accompanying unaudited pro forma financial statements consolidate the accounts
of the Company and the Operating Partnership. Financial statements of the
Operating Partnership have not been presented as it has not had any activity
since its inception.
(I) Represents payments of base rent from the Initial Lessees to the Company
calculated on a pro forma basis as if the beginning of the period presented
was the beginning of a lease year. Base rent adjustments have been calculated
from signed lease agreements (subject to consummation) which have initial
terms ranging generally from 8 to 12 years, with the first year annual rent
negotiated to produce a yield on the initial purchase price (approximately 11
percent).
(J) Adjustment represents management's estimate for legal, audit, office
costs, salaries and other general and administrative expenses to be paid by
the Company, based on its current activity, as follows (in thousands). This
amount may increase based on additional acquisition activity:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 20,
1996 1997
------------ ------------
<S> <C> <C>
Salaries and benefits--executive officers........ $1,800 $1,575
Other salaries and benefits...................... 400 350
Directors and officers insurance................. 300 263
Legal and accounting............................. 250 219
Directors fees and travel........................ 150 131
Travel and entertainment......................... 250 219
Office rent, telephone, supplies and other
administrative.................................. 250 219
Other............................................ 100 87
------ ------
Total.......................................... $3,500 $3,063
====== ======
</TABLE>
F-14
<PAGE>
CAPITAL AUTOMOTIVE REIT
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
Salaries and benefits are based upon employee contracts with the respective
employees and executive management. Other amounts are based upon management's
estimates of expenses to be incurred given the Company's level of operations
and related administrative requirements.
(K) Shares of common stock outstanding represent the number of shares whose
proceeds will be used to repay mortgage debt assumed and to acquire the
Initial Properties. If the total number of shares issued in the Offering and
the FBR Offering had been used, shares of common stock outstanding would be
approximately 21.8 million for both the year ended December 31, 1996 and for
the period ended October 20, 1997, resulting in earnings per share of common
stock outstanding of $0.43 and $0.37 for the year ended December 31, 1996 and
the period ended October 20, 1997, respectively.
F-15
<PAGE>
To The Board of Directors
Geneva Enterprises, Inc. and Affiliated Company
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying combined balance sheet of Geneva
Enterprises, Inc. and Affiliated Company as of December 31, 1996, and the
related combined statements of income, changes in stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Geneva
Enterprises, Inc. and Affiliated Company as of December 31, 1996 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Walpert, Smullian & Blumenthal,
P.A.
Baltimore, Maryland
November 6, 1997
F-16
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents........................ $ 1,556 $ 3,805
Accounts receivable
Customers...................................... 9,211 10,900
Contracts-in-transit........................... 9,864 8,791
Finance reserves............................... 635 906
Factory........................................ 2,670 2,095
Related parties................................ 2,318 1,902
Other.......................................... 963 195
Current portion of notes receivable--related
parties......................................... 3,089 3,968
Inventories...................................... 62,373 44,873
Prepaid expenses................................. 354 411
-------- --------
Total Current Assets......................... 93,033 77,846
-------- --------
Notes Receivable--related parties--Less Current
Portion........................................... 394 --
-------- --------
Property, Plant and Equipment--
At Cost
Land........................................... 881 881
Buildings and improvements..................... 639 639
Leasehold improvements......................... 3,237 3,251
Parts and services equipment................... 3,545 3,600
Furniture and fixtures......................... 4,788 4,888
Service vehicles............................... 832 804
-------- --------
13,922 14,063
Less: Accumulated depreciation and
amortization.................................. (10,189) (10,521)
-------- --------
3,733 3,542
-------- --------
Other Assets....................................... 61 93
-------- --------
Total Assets................................. $97,221 $81,481
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities................................
Bank overdraft................................... $ 5,626 $ 1,164
Notes payable--vehicles floor plan............... 64,228 47,913
Notes payable to related parties................. 1,624 1,124
Accounts payable.................................
Trade.......................................... 5,106 6,832
Related parties................................ 2,439 440
Customer deposits................................ 717 650
Accrued salaries and commissions................. 1,505 1,622
Other accrued liabilities........................ 6,406 8,308
-------- --------
Total Current Liabilities.................... 87,651 68,053
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common Stock..................................... 23 23
Additional paid-in capital....................... 3,969 4,532
Stockholders' notes receivable................... (820) (820)
Retained earnings................................ 6,398 9,693
-------- --------
Total Stockholders' Equity................... 9,570 13,428
-------- --------
Total Liabilities and Stockholders' Equity... $ 97,221 $ 81,481
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, ------------------
1996 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Sales.......................................... $489,065 $374,352 $397,371
Cost of Sales.................................. 434,502 334,181 355,823
-------- -------- --------
Gross Profit............................... 54,563 40,171 41,548
-------- -------- --------
Other Operating Income
Finance...................................... 5,927 4,971 4,590
Insurance.................................... 629 556 396
Warranty..................................... 2,960 2,388 1,758
Miscellaneous................................ 7,683 6,514 8,512
-------- -------- --------
17,199 14,429 15,256
-------- -------- --------
Selling, General, Administrative
and Interest Expenses......................... (68,768) (51,867) (53,509)
-------- -------- --------
Net Income................................. $ 2,994 $ 2,733 $ 3,295
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
STOCK- TOTAL
COMMON STOCK ADDITIONAL HOLDERS' STOCK-
------------- PAID-IN NOTES RETAINED HOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS EQUITY
------ ------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance--January 1,
1996................... 550 $25 $4,261 $(1,428) $3,367 $ 6,225
Net income.............. 2,994 2,994
Collections on
stockholders' notes
receivable............. -- -- -- 608 -- 608
Proceeds from stock
issuance............... 19 -- 650 -- -- 650
Stock retirements....... (20) (2) (942) -- 37 (907)
---- --- ------ ------- ------ -------
Balance--December 31,
1996................... 549 23 3,969 (820) 6,398 9,570
Net income (unaudited).. -- -- -- -- 3,295 3,295
Proceeds from stock
issuance (unaudited)... -- -- 563 -- -- 563
---- --- ------ ------- ------ -------
Balance, September 30,
1997 (unaudited)....... 549 $23 $4,532 $ (820) $9,693 $13,428
==== === ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEAR SEPTEMBER 30,
ENDED ----------------
DECEMBER 31, 1996 1996 1997
----------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Cash Flow From Operating Activities
Net income............................... $ 2,994 $ 2,733 $ 3,295
------- ------- -------
Adjustments to reconcile net income to
net cash (used in)/provided by operating
activities:
Depreciation and amortization.......... 585 421 360
Gain on disposition of property and
equipment............................. (8) -- --
Forgiveness of debt from affiliate..... -- -- (500)
Changes in Assets and Liabilities
(Increase)/Decrease in Assets:
Accounts receivable.................... (959) (1,741) 872
Inventories............................ (8,490) 13,001 17,500
Prepaid expenses....................... (74) (293) (57)
Other assets........................... 271 261 (32)
Increase/(Decrease) in Liabilities:
Accounts payable....................... (986) (448) (273)
Customer deposits...................... 69 98 (67)
Accrued salaries and commissions....... 505 238 117
Other accrued liabilities.............. (1,259) 1,550 1,902
------- ------- -------
Total Adjustments.................... (10,346) 13,087 19,822
------- ------- -------
Net Cash (Used In)/Provided By
Operating Activities................ (7,352) 15,820 23,117
------- ------- -------
Cash Flow From Investing Activities
Advances to related parties.............. (433) (91) (550)
Loans to stockholders.................... (1,402) (1,072) --
Repayment from related parties........... 52 52 65
Proceeds from sale of property and
equipment............................... 57 -- --
Purchases of property and equipment...... (467) (190) (169)
------- ------- -------
Net Cash Used In Investing
Activities.......................... (2,193) (1,301) (654)
------- ------- -------
Cash Flow From Financing Activities
Stock retirements........................ (907) (907) --
Capital contributions.................... 650 650 563
Net borrowings under floor plan.......... 7,897 (11,776) (16,315)
Repayments of notes payable to related
parties................................. (761) (647) --
Collections on stockholders' notes
receivable.............................. 607 548 --
Increase/(Decrease) in bank overdraft.... 1,883 (2,187) (4,462)
------- ------- -------
Net Cash Provided By/(Used In)
Financing Activities............... 9,369 (14,319) (20,214)
------- ------- -------
Net (Decrease)/Increase in Cash and Cash
Equivalents............................... (176) 200 2,249
Cash and Cash Equivalents--Beginning of
Year...................................... 1,732 1,732 1,556
------- ------- -------
Cash and Cash Equivalents--End of Year..... $ 1,556 $ 1,932 $ 3,805
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NATURE OF BUSINESS
Geneva Enterprises, Inc. and Affiliated Company (the Company) has as its
principal business activity the sale and service of new and used vehicles in
the Washington, D.C. metropolitan area.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the
following entities which are affiliated through common ownership:
. Geneva Enterprises, Inc., which includes the accounts of the following
divisions (collectively called the Divisions):
Rosenthal Nissan/Mazda Rosenthal Chevrolet
Rosenthal Infiniti Landmark Honda
Rosenthal Gaithersburg Nissan Rosenthal Acura
Rosenthal Jaguar Rosenthal
Rosenthal Honda Cadillac/Buick/Isuzu
Rosenthal Mazda Geneva Management
All the Divisions except Geneva Management sell new and used vehicles
and related parts and service. Geneva Management provides management
services to all the Divisions, other related companies and outside
companies.
. Maryland Imported Cars, Inc.
All significant intercompany and interdivisional accounts and transactions
have been eliminated upon combination.
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Cash and Cash Equivalents: Cash and cash equivalents are comprised of
highly liquid instruments purchased with original maturities of three months
or less.
B. Concentration of Credit Risk: The Company maintains part of its cash in
bank deposit accounts at financial institutions, where the balances, at times,
may exceed federally insured limits. At December 31, 1996, the Company's cash
balance exceeded the insured limit by approximately $2,271,000.
Included in receivables at December 31, 1996 are significant concentrations
of amounts due from customers located in the Baltimore and Washington, D.C.
metropolitan areas. The Company generally requires no collateral in extending
credit to its customers other than the vehicles which are sold.
C. Accounts Receivable: The Company has established a mandatory write-off
policy for all receivables older than 90 days. At December 31, 1996, no
allowance for uncollectible accounts was deemed necessary.
D. Inventories: Inventories are stated at cost. Cost is determined by the
last-in, first-out (LIFO) method for new vehicles and parts and accessories,
and the specific cost method for used vehicles.
E. Property and Equipment and Related Depreciation and
Amortization: Equipment is recorded at cost and is depreciated using
accelerated methods over its estimated useful lives which range from 5 to 7
years. Buildings and leasehold improvements are amortized using the straight-
line method over its estimated useful lives which range from 31 1/2 to 39
years.
F. Recognition of Finance Fees and Insurance Commissions: The Company
arranges financing for its customers' vehicle purchases and arranges insurance
in connection therewith. The Company receives a fee from the financial
institution for arranging the financing and receives a commission for the sale
of an insurance policy.
F-21
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company is charged back for a portion of this fee should the customer
terminate the finance or insurance contract before its scheduled term or
before specified dates under arrangements with such institutions. The
estimated allowance for these chargebacks (approximately $3,426,000 at
December 31, 1996) is reflected in Other Accrued Liabilities and is based upon
the Company's historical experience for prepayments or defaults on these
contracts. Finance reserves are fees due to the Company from financial
institutions for fees on contracts arranged to finance vehicle purchases.
G. Income Taxes: The Company has elected by consent of its stockholders, to
be taxed under the provisions of Subchapter "S" of the Internal Revenue Code,
whereby the Company's income is treated for federal and state income taxes
substantially as though the Company were a partnership. No provision for
income taxes has been reflected in the financial statements, since taxable
attributes flow through to the individual stockholders.
H. Major Suppliers: The Company purchases substantially all of its new
vehicles and parts and accessories from a limited number of suppliers.
I. Advertising Expense: The Company expenses costs associated with
advertising as incurred. Total advertising expense for the year ended December
31, 1996, the majority of which was purchased through an affiliated company
(Note 8), was approximately $6,642,000.
J. Use of Estimates: The preparation of financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
K. Interest: The Company earned approximately $260,000 in interest
reimbursements during the year ended December 31, 1996, which has been netted
against interest expense. These interest reimbursements compensated the
Company for incurring interest on floor plan notes for vehicle purchases which
were not received on the Company's lot until after the obligations were
incurred. The Company incurred floor plan and other interest expense of
$3,485,000 during the year ended December 31, 1996.
L. Interim Financial Statements: The accompanying unaudited financial
statements as of September 30, 1997 and for the nine month periods ended
September 30, 1997 and 1996 have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been omitted, the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading. Operating results for the nine month period ended September 30,
1997, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. These unaudited financial statements should
be read in conjunction with the accompanying audited financial statements and
related footnotes as of and for the year ended December 31, 1996. In the
opinion of the Company, the unaudited financial statements contain all
adjustments (consisting only of normal recurring items) necessary for a fair
presentation of the results for the nine month periods ended September 30,
1997 and 1996.
F-22
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
M. Basis of Accounting: The accompanying combined financial statements are
prepared in accordance with generally accepted accounting principles. In
addition to these financial statements, Geneva Enterprises, Inc. and Maryland
Imported Cars, Inc. issue separate financial statements on the basis of
accounting each company uses for income tax purposes, which is a comprehensive
basis of accounting other than generally accepted accounting principles. The
differences between generally accepted accounting principles and the income
tax basis of accounting relating to retained earnings and net income are as
follows:
<TABLE>
<CAPTION>
INCOME
GAAP TAX BASIS DIFFERENCES
------- --------- -----------
<S> <C> <C> <C>
Retained Earnings/(Deficit), January 1,
1996......................................
Geneva Enterprises, Inc. ................ $ 4,395 $ 9,040 $(4,645)
Maryland Imported Cars, Inc. ............ (1,029) (916) (113)
------- ------- -------
$ 3,366 $ 8,124 $(4,758)
======= ======= =======
Net Income/(Loss)--1996
Geneva Enterprises, Inc. ................ $ 3,771 $ 3,342 $ 429
Maryland Imported Cars, Inc. ............ (777) (751) (26)
------- ------- -------
$ 2,994 $ 2,591 $ 403
======= ======= =======
Retained Earnings/(Deficit), December 31,
1996
Geneva Enterprises, Inc. ................ $ 8,166 $11,841 $(3,675)
Maryland Imported Cars, Inc. ............ (1,768) (1,629) (139)
------- ------- -------
$ 6,398 $10,212 $(3,814)
======= ======= =======
</TABLE>
N. Fair value of Financial Instruments: The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques, as appropriate. Unless otherwise disclosed, the fair
value of financial instruments approximates their recorded values due
primarily to the short-term nature of their related interest rate or their
maturities. In the opinion of management, the fair value of the notes payable
described in Note 4 and the notes receivable described in Note 7 is considered
unestimable due to the related party nature of such financial instruments.
NOTE 2--INVENTORIES
The classification of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
New vehicles.................................................... $59,110
Parts and accessories........................................... 5,684
-------
64,794
Less: Allowance to reduce carrying value to LIFO basis.......... (12,122)
-------
52,672
Used vehicles................................................... 9,701
-------
$62,373
=======
</TABLE>
If the first-in, first-out (FIFO) method had been used for new vehicles and
parts and accessories inventories, net income would have been approximately
$2,474,000 for the year ended December 31, 1996 and $2,097,000 and $2,371,000
for the nine month periods ended September 30, 1997 and 1996, respectively.
F-23
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--WHOLESALE FINANCE LIABILITY
The Company finances its acquisition of new and certain used vehicle
inventories through floor plan facilities with financial institutions. These
floor plan facilities are in the form of revolving credit arrangements
evidenced by floor plan notes, and are collateralized by new vehicle
inventories. The balance under the floor plan facility with respect to any
particular vehicle is due when the vehicle is sold. Floor plan notes payable
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
First Virginia Bank, bearing interest at LIBOR plus 1.75%. The
borrowing rate was approximately 7.34% at December 31, 1996... $43,881
NationsBank, bearing interest at the prime interest rate. The
prime interest rate at December 31, 1996 was 8.25%............ 13,642
Jaguar Credit Corporation, bearing interest at variable
interest rates. The weighted average interest rate at December
31, 1996 was 6.25%............................................ 4,672
Citizens Bank & Trust Co. of Maryland, bearing interest at the
prime interest rate........................................... 2,033
-------
$64,228
=======
</TABLE>
Management believes that the fair value of the Company's floor plan debt
approximates its recorded value based on the floating nature of the related
interest rates.
Vehicles securing floor plan notes of approximately $6,639,000 were sold
prior to December 31, 1996. The notes were paid in January 1997.
NOTE 4--NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Notes payable to uncombined affiliated company, due on
demand, interest payable at a variable rate based on the
prime rate as determined by First Virginia Bank
(approximately 8.75% at December 31, 1996).................. $ 500
Notes payable to stockholders, due on demand, interest
payable annually at a variable rate based on the prime rate
as determined by First Virginia Bank (approximately 8.75% at
December 31, 1996). ........................................ 437
9% notes payable to stockholders, due on demand, interest
payable annually............................................ 64
Note payable to stockholder, due on demand, with interest
payable annually at a variable rate based on the prime rate
as determined by First Virginia Bank (approximately 8.75% at
December 31, 1996). ........................................ 287
8.50% subordinated notes payable to stockholders, due on
demand, interest payable annually. ......................... 336
------
$1,624
======
</TABLE>
Interest expense on the notes payable to related parties was approximately
$161,000 for the year ended December 31, 1996. Although certain of the above
notes are due on demand, they may not be paid in the next year.
Other Operating Income includes $500,000 resulting from forgiveness of
indebtedness by an uncombined affiliated company.
F-24
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LEASES
The Company leases most of the premises it occupies under operating leases
with related parties. The majority of the leases have initial 10-year terms
with options to renew the leases for additional 5 year periods. The basic
annual rental is subject to adjustment every two years based on the Consumer
Price Index for the Metropolitan Washington area.
Future minimum rental commitments under noncancellable leases are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997............................................................... $ 7,109
1998............................................................... 6,660
1999............................................................... 5,894
2000............................................................... 5,777
2001............................................................... 5,700
Thereafter......................................................... 25,879
-------
$57,019
=======
</TABLE>
Rent expense charged to operations amounted to approximately $7,396,000 for
the year ended December 31, 1996.
NOTE 6--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $3,482,000 during the year ended
December 31, 1996.
NOTE 7--RELATED PARTY TRANSACTIONS
Accounts Receivable and Accounts Payable--Related Parties: Included in
related parties' receivable and payable balances are amounts due from and
payable to uncombined companies under common ownership control.
Notes Receivable: The Company has entered into various note receivable
agreements to fund amounts to uncombined affiliated companies, stockholders
and employees. The following notes are due from stockholders or uncombined
affiliated companies under common control (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Stockholders, due on demand, non-interest-bearing............. $1,402
Stockholder, due on demand, non-interest-bearing.............. 400
Stockholder, due on demand, non-interest-bearing.............. 75
Stockholder, due on demand, interest payable annually at 5%... 133
Stockholder, due on demand, interest payable annually at 5%... 719
Stockholder, due on demand, interest payable at 10%........... 20
Stockholder, due on demand, interest payable at 10%........... 15
Stockholder, due October 21, 1998, non-interest bearing....... 394
Related Party, due on demand, non-interest-bearing............ 157
Related Party, due on demand, interest payable annually at 9%. 168
-------
3,483
Less: Current portion......................................... (3,089)
-------
Long-Term Portion........................................... $ 394
=======
</TABLE>
F-25
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Interest income on the above notes was approximately $61,000 for the year
ended December 31, 1996.
During 1993, the Company issued 30,794 shares of common stock to existing
stockholders in exchange for notes totaling $1,598,000. The notes are due on
demand, but no later than December 31, 1997. Interest is due only if the
respective stockholder's employment ends. Upon separation of service, interest
would be computed on a cumulative basis at the short-term blended federal rate
for demand instruments as announced year to year by the Internal Revenue
Service (4.58% at December 31, 1996) for each year the notes were outstanding
and would be recorded in the year that employment ends. During the year ended
December 31, 1996, one of the stockholders terminated his employment. As a
result, approximately $43,000 was recognized as interest income during the
year ended December 31, 1996. As of December 31, 1996, the total outstanding
balance on these notes was approximately $820,000.
Advertising Expenditures: The Company incurred approximately $6,503,000 for
the year ended December 31, 1996 in advertising expenses purchased through an
affiliated company.
Inventory Purchases and Sales: The Company purchased and sold certain new
and used vehicles, at cost, to uncombined affiliated dealerships during the
year ended December 31, 1996.
Management Fees: Management fees earned from uncombined affiliated companies
amounted to approximately $450,000 for the year ended December 31, 1996.
NOTE 8--CONTINGENCIES
The Company is a party to various legal actions and claims arising during
the ordinary course of business. Although the total amount of liability with
respect to these legal actions and claims cannot be ascertained, management of
the Company believes that any resulting liability should not have a material
effect on the results of operations or the financial position of the Company.
In January, 1996, the Company and certain affiliates entered into a long-
term employment agreement (the "Agreement") with its President and Chief
Operating Officer (the "COO") which is effective January 1, 1996 through
December 31, 2000. The terms of the Agreement call for the Company and certain
affiliates to grant the COO an additional 2% ownership interest in the Company
and certain affiliates for each year of the Agreement. Per the Agreement,
compensation expense is to be computed at 2% of each respective Company's
adjusted net book value (FIFO basis) at each year-end discounted by 50%. For
the year ended December 31, 1996, the Company recognized approximately
$261,000 as compensation expense in connection with the Agreement. In
addition, the Agreement gives the COO a stated minimum compensation each year
through December 31, 2000. Should the COO be terminated for any reason, the
unearned compensation for the remainder of the Agreement will become due and
is to be paid over 48 months at the prime interest rate. Furthermore, should
the Company and certain affiliates be sold prior to December 31, 2000, or if
the COO is terminated for any reason, the COO is to receive a minimum of
$5,000,000 for his stock holdings acquired under this agreement.
NOTE 9--RETIREMENT PLAN
In 1995, the Company adopted a discretionary 401(k) retirement and profit-
sharing plan. All full-time employees having one year of continuous service
and who are at least 21 years of age at the specified entry dates are eligible
to participate. The Company makes a matching contribution of 20% of the first
5% for compensation each plan participant defers. The Company's contribution
for the year ended December 31, 1996 was approximately $149,000.
F-26
<PAGE>
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--STOCKHOLDERS' EQUITY
Stockholders' equity is comprised of the following as of December 31, 1996
(in thousands):
<TABLE>
<CAPTION>
STOCK-
ADDITIONAL HOLDERS'
COMMON PAID-IN NOTES RETAINED
STOCK CAPITAL RECEIVABLES EARNINGS TOTAL
------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Geneva Enterprises, Inc. .... $ 5 $3,650 $(820) $8,166 $11,001
Maryland Imported Cars,
Inc. ....................... 18 319 -- (1,768) (1,431)
--- ------ ----- ------- -------
$23 $3,969 $(820) $6,398 $ 9,570
=== ====== ===== ======= =======
</TABLE>
Common stock of the Companies with the following shares authorized, issued
and outstanding as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
SHARES
ISSUED
PAR SHARES AND
VALUE AUTHORIZED OUTSTANDING
----- ---------- -----------
<S> <C> <C> <C>
Geneva Enterprises, Inc. ....................... $ .01 1,000,000 531,286
Maryland Imported Cars, Inc. ................... $1.00 25,000 18,000
--------- -------
1,025,000 549,286
========= =======
</TABLE>
NOTE 11--SUBSEQUENT EVENT
As part of General Motors' Project 2000 marketing strategy, Geneva
Enterprises, Inc. transferred and sold the Cadillac and Buick franchises from
its Rosenthal Cadillac/Buick/Isuzu division to General Motors in October 1997.
F-27
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
SUMMARY HISTORICAL FINANCIAL INFORMATION
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
------------------------------------------
DECEMBER 30, 1996(A) SEPTEMBER 30, 1997(B)
-------------------- ---------------------
<S> <C> <C>
Inventory (dealer)...... $ 48,168 $ 56,718
Real estate, net........ 13,391 27,390
Other assets............ 80,887 96,080
-------- --------
Total assets............ $142,446 $180,188
======== ========
Mortgage and other long-
term debt.............. $58,195 $ 92,804
Other liabilities....... 25,733 24,268
Shareholders' equity.... 58,518 63,116
-------- --------
Total liabilities and
shareholders' equity... $142,446 $180,188
======== ========
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1996(A) SEPTEMBER 30, 1997(B) SEPTEMBER 30, 1996(B)
-------------------- --------------------- ---------------------
<S> <C> <C> <C>
Sales revenue........... $ 321,583 $ 359,193 $217,824
Cost of sales........... (271,650) (296,756) (184,449)
--------- --------- --------
Net operating income.... 49,933 62,437 33,375
Selling, general and
administrative......... (38,796) (47,590) (25,930)
--------- ---------
Income before interest
and taxes.............. 11,137 14,847 7,445
Interest expense........ (3,193) (4,066) (2,594)
--------- --------- --------
Income before taxes..... 7,944 10,781 4,851
Income tax provision.... (3,362) (4,157) (2,186)
--------- --------- --------
Net income.............. $ 4,582 $ 6,624 $ 2,665
========= ========= ========
</TABLE>
(A) Financial information as of and for the year ended December 31, 1996 has
been summarized from the audited financial statements of Cross-Continent
as filed with the Securities and Exchange Commission on Form 10-K.
(B) Financial information as of September 30, 1997 and for the nine months
ended September 30, 1997 and 1996 has been summarized from the unaudited
financial statements of Cross-Continent filed with the Securities and
Exchange Commission on Form 10-Q.
F- 28
<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:
"Actual Cash Available for Distribution" means net earnings plus
depreciation and amortization and minus capital expenditures and principal
payments on indebtedness.
"ADA" means the Americans with Disabilities Act of 1990, as amended, and the
regulations promulgated under the authority conferred thereby.
"Affiliates" means an affiliate as defined in Rule 405 of the Securities
Act.
"Annual Base Rent" means the annual base rent each Lessee or its assigns
will pay to Lessor each Lease year following the first Lease year annual base
rent which will be payable in monthly installments.
"Audit Committee" means the audit committee of the Board of Trustees of the
Company.
"Beneficiary" means the qualified charitable organization selected by the
Company which would receive the automatic transfer of any Shares-in-Trust.
"Board of Trustees" means the board of trustees of the Company.
"Book-Tax Difference" means, with respect to appreciated or depreciated
property that is contributed to a partnership, the amount of unrealized gain
or unrealized loss associated with the property at the time of contribution,
which is generally equal to the difference between the fair market value of
the contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution.
"Business Combination" means a merger, consolidation or other combination
with or into another person or sale of all or substantially all of its assets,
or any reclassification, recapitalization or change of outstanding Common
Shares.
"Bylaws" means the bylaws of the Company, as amended.
"CMSA" means consolidated metropolitan statistical area.
"CARS" is the proposed trading symbol of the Company on The Nasdaq Stock
Market National Market.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Shares" means the common shares of beneficial interest, par value
$.01 per share, of the Company.
"Company" means Capital Automotive REIT, a Maryland REIT, and its
subsidiaries, including the Operating Partnership.
"Contribution Agreements" means the respective contribution or purchase
agreements between the Company and the Sellers relating to the acquisition of
the Properties or interests therein owned by the Sellers.
G-1
<PAGE>
"Control Shares" means voting shares of beneficial interest of a Maryland
REIT which, if aggregated with all other such shares of beneficial interest
previously acquired by the acquiror, or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
revocable proxy) would entitle the acquiror to exercise voting power in
electing trustees within one of the following ranges of voting power: (i) one-
fifth or more but less than one-third; (ii) one-third or more but less than a
majority, or (iii) a majority of all voting power. Control Shares do not
include shares the acquiror is then entitled to vote as a result of having
previously obtained shareholder approval.
"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
"CPI" means the Consumer Price Index, the economic index issued by the U.S.
Department of Labor indicating price increases or decreases for the U.S.
economy.
"Dealer" means the signatory to the Franchise Agreement, or the operator of
a Dealership or Related Business.
"Dealer Warrants" means warrants that each of Messrs. Pohanka and Rosenthal
will receive to each purchase a number of Units equal to 2% of the Common
Shares to be outstanding on closing of the Offering (including exercise of the
Underwriters over-allotment option in full) on a fully diluted basis, at the
initial public offering price of the Common Shares, exercisable beginning on
the closing date of the Offering and for a period of five years thereafter.
"Dealerships" means franchised motor vehicle dealerships.
"Declaration of Trust" means the Amended and Restated Declaration of Trust
of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Events of Default" means events of default under any Leases as generally
outlined in the Prospectus.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Committee" means the executive committee of the Board of Trustees
of the Company.
"Executive Compensation Committee" means the executive compensation
committee of the Board of Trustees of the Company.
"Extended Term" means the one or two additional ten year terms for which the
respective Initial Leases may be extended at the option of the respective
Initial Lessees.
"FBR Loan" means the short term secured revolving loan in the principal
amount of $2,325,000 extended by Friedman, Billings, Ramsey Group, Inc. to the
Company.
"Five or fewer requirement" means the requirement under the Code that not
more than 50% in value of the Company's outstanding shares of beneficial
interest may be owned directly or indirectly by five or fewer individuals (as
defined in the Code) during the last half of the taxable year (other than the
first year).
"Fixed Term" means the initial term of ten to 12 years that the Initial
Leases will generally have.
"Formation Transactions" means those transactions relating to the
organization of the Company and the Operating Partnership, including the (i)
transfer of certain Initial Properties to the Company in exchange for Units,
(ii) transfer of certain Initial Properties to the Company for cash, (iii) the
Offering and the FBR Offering, (iv) the contribution of the net proceeds of
the Offering and the FBR Offering by the Company to the Operating Partnership
in exchange for Units, and (v) the offering and qualification of the Company
as a REIT for federal income tax purposes for the taxable year beginning
December 31, 1998, all as described under "Structure and Formation of the
Company--Formation Transactions."
G-2
<PAGE>
"Franchise Agreements" means certain Dealer Sales and Service Agreements and
related agreements, and the standard terms and conditions incorporated by
reference in such agreements, entered into between Manufacturers and
Dealerships.
"GAAP" means generally accepted accounting principles in the United States.
"Independent Trustee" means trustees who are not affiliated with the
Company, the Sellers, the Lessees or the Representative.
"Initial Annual Base Rent" means the first year's rent under any Lease.
"Initial Grants" means the Options that the Company will grant to certain
key officers and employees of the Company upon completion of the Offering.
"Initial Leases" means the leases pursuant to which the Company will lease
back the Initial Properties to the Initial Lessees on a triple net basis.
"Initial Lessees" means the Lessees of the Initial Properties.
"Initial Sellers" means the respective Sellers of the Initial Properties
from whom the Company will acquire the Initial Properties.
"Initial Properties" means the 36 Properties that the Company currently has
entered into contracts to acquire.
"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland real estate investment trust's shares of
beneficial interest or an Affiliate of the REIT which, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the then outstanding voting shares of
beneficial interest of the trust.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"IRA" means an individual retirement account as defined by the Code and the
applicable Treasury Regulations.
"IRS" means the United States Internal Revenue Service.
"Lease" means any Lease pursuant to which the Company will lease Properties
back to Lessees on a triple net basis.
"Lessee" means any owner or operator of a Dealership to whom the Company
will lease back a Property.
"Limited Partner" initially means, any of the Company and the limited
partners, each of which holds Units and is a limited partner of the Operating
Partnership.
"Manufacturers" means motor vehicle or parts manufacturers (or authorized
distributors thereof).
"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
("NYSE") or, if the Common Shares or Preferred Shares are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Common Shares or Preferred
Shares are listed or admitted to trading or, if the
G-3
<PAGE>
Common Shares or Preferred Shares are not listed or admitted to trading on any
national securities exchange on the National Market System of the Nasdaq Stock
Market or, if the shares are not listed for trading on the National Market
System, the last quoted price, or if not so quoted, the average of the closing
bid and asked prices in the over-the-counter market, as reported by Nasdaq or,
if such system is no longer in use, the principal automated quotations system
that may then be in use or, if the Common Shares or Preferred Shares are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Shares or Preferred Shares selected by the Board of Trustees. "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Common Shares or Preferred Shares are listed or admitted to trading
is open for the transaction of business or, if the Common Shares or Preferred
Shares are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.
"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended.
"MGCL" means the Maryland General Corporation Law, as amended.
"Mortgage Debt" means the $41.3 million of indebtedness secured by certain
Initial Properties that will be assumed by the Company pursuant to the
relevant Contribution Agreements.
"NADA" means the National Automobile Dealers Association.
"1997 Tax Act" means the Taxpayer Relief Act of 1997, as amended.
"Non-U.S. Shareholder" means a holder of Common Shares who is a nonresident
alien individual, foreign corporation, foreign partnership, foreign trust or
estate or other foreign shareholder.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Offering" means the offering of Common Shares of the Company pursuant to
and as described in this Prospectus.
"Operating Partnership" means Capital Automotive L. P., a Delaware limited
partnership having its principal offices at 1925 North Lynn Street, Suite 306,
Arlington, Virginia 22209.
"Options" means incentive options to acquire Common Shares or non-qualified
options to acquire Units, which the Company (including the Operating
Partnership) is authorized to grant pursuant to the 1998 Equity Incentive
Plan.
"Ownership Limit" means the prohibition in the Declaration of Trust limiting
any person to direct or indirect ownership of no more than (i) 9.9% of the
number of outstanding Common Shares, or (ii) 9.9% of the number of ownership
Preferred Shares or any series of Preferred Shares.
"Partnership Agreement" means the Amended and Restated Limited Partnership
Agreement of the Operating Partnership.
"Plan" means the 1998 equity incentive plan established by the Company and
the Operating Partnership, as further described in this Prospectus under the
caption entitled "Management--1998 Equity Incentive Plan."
"Prohibited Transferee" means any purported transferee of Common Shares who
would otherwise violate the Ownership Limit or such other limit as provided in
the Declaration of Trust.
"Prohibited Owner" means any purported owner of Common Shares who would
otherwise violate the Ownership Limit or such other limit as provided in the
Declaration of Trust.
G-4
<PAGE>
"Properties" means any real property and improvements acquired, or to be
acquired, from time to time, by the Company.
"Prospectus" means the prospectus used in connection with the Offering.
"Recognition Period" means the ten-year period beginning on the date a
"built-in gain asset" is acquired by the Company.
"Registration Rights" means those certain registration rights granted to FBR
Asset Investment Corporation in connection with the Formation Transactions.
"Registration Statement" means the registration statement on Form S-11 filed
with the Commission in connection with the Offering.
"REIT" means a self-managed real estate investment trust as defined by the
Code and the applicable Treasury Regulations.
"REIT Requirements" means the requirements for qualifying as a REIT.
"Related Businesses" means any motor vehicle related businesses.
"Rent Measurement Date" means the date of execution of a Initial Lease and a
date ending at each 24- month interval thereafter.
"Rent Measurement Period" means the 24-month prior period ending on each
Rent Measurement Date.
"Rent Coverage Ratio" means a ratio of at least 1.5-to-1 as of the date of
the Lease and at each Rent as of the date of the Initial Lease and at 24-month
intervals thereafter, computed on an aggregate basis for all affiliated
Initial Lessees and Guarantors, if any, as the aggregate of net income before
taxes plus mortgage interest, rent expense, depreciation, compensation of
principals of the Initial Lessee, management fees plus the annual LIFO
adjustment and other non-cash expenses, less recurring capital expenditures
and gain (loss) on sale of real estate, dividends and/or profits taken out of
the Initial Lessees and Guarantors, if any, divided by the aggregate of the
Initial Lessee's (and Guarantor's, if any), obligations under the Initial
Leases.
"Representative" means Friedman, Billings, Ramsey & Co., Inc.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means any owner from whom the Company acquires a Property.
"Share Trust" means a trust which holds Common or Preferred Shares of
beneficial interest of the Company which have been designated as Shares-in-
Trust.
"Shares-in-Trust" means Common or Preferred Shares of beneficial interest of
the Company which are automatically converted on a one for one basis and
transferred to the Share Trust upon a purported transfer of such Common Shares
or Preferred Shares which is violation of the applicable restrictions on
transfer.
"Tax Counsel" means the law firm of Wilmer, Cutler & Pickering, which has
acted as a special tax counsel to the Company in connection with the offering
and the preparation of the Prospectus.
G-5
<PAGE>
"Total market capitalization" means the sum of the aggregate market value of
the outstanding Common Shares, assuming the full exchange of all Units for
Common Shares, plus the Company's total outstanding debt.
"Treasury Regulations" means the rules and regulations promulgated by the
United States Department of the Treasury under the Code, as such rules and
regulations are amended from time to time.
"Triple-Net Basis" means the leasing of a Property to a Lessee pursuant to a
Lease under which a Lessee is responsible for the base rent in addition to the
costs and expenses in connection with and related to property taxes, insurance
and repairs and maintenance applicable to the leased space.
"U.S. Shareholder" means a holder of Common Shares who (for United States
federal income tax purposes) (i) is a citizen or resident of the United
States, (ii) is a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) is an estate or trust which is subject to
taxation in the United States regardless of the source of its income or which
is under the primary supervision or authority of a United States court or a
United States fiduciary.
"United States" or "U.S." means the United States of America (including the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction.
"Units" means units of partnership interests representing the equity in the
Operating Partnership.
"Underwriters" means Friedman, Billings, Ramsey & Co., Inc. and members of
the underwriting syndicate as set forth in the section captioned
"Underwriting" in this Prospectus.
"Underwriting Warrants" means warrants that Friedman, Billings, Ramsey &
Co., Inc., the Representative of the Underwriter of, will receive exercisable
for a number of Common Shares equal to 4% of the number of Common Shares to be
outstanding on closing of the Offering (excluding exercise of, the
Underwriters over-allotment option) on a fully diluted basis, at an exercise
price equal to the initial public offering price of the Common Shares,
exercisable beginning on the closing date of the Offering and for a period of
five years thereafter.
G-6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SE-
CURITY OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COMMON
SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
The Company.............................................................. 1
Risk Factors............................................................. 3
The Initial Properties, Leases and Dealerships........................... 6
Strategy................................................................. 10
Summary Selected Financial Information................................... 11
Benefits to Related Parties.............................................. 12
Structure of the Company................................................. 14
Formation Transactions................................................... 15
Distributions............................................................ 16
Tax Status of the Company................................................ 16
The Offering............................................................. 17
Risk Factors............................................................. 18
Use of Proceeds.......................................................... 34
Capitalization........................................................... 36
Dilution................................................................. 37
Conflicts of Interest Policies........................................... 38
Selected Financial Information........................................... 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 41
Business of the Company and Properties................................... 44
Management............................................................... 59
Structure and Formation of the Company................................... 65
Related Transactions..................................................... 69
Partnership Agreement.................................................... 70
Principal Shareholders of the Company.................................... 73
Description of Shares of Beneficial Interest............................. 74
Common Shares Eligible for Future Sale................................... 81
Federal Income Tax Consequences.......................................... 83
Underwriting............................................................. 99
Legal Matters............................................................ 101
Experts.................................................................. 101
Additional Information................................................... 102
Index to Financial Statements............................................ F-1
Glossary................................................................. G-1
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20,000,000 COMMON SHARES
[LOGO OF CARS APPEARS HERE]
CAPITAL AUTOMOTIVE REIT
COMMON SHARES OF BENEFICIAL INTEREST
---------------
PROSPECTUS
---------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee............................................. $ 134,040
NASD fee......................................................... 30,500
The Nasdaq Stock Market fee...................................... 50,000
Blue Sky fees and expenses....................................... 5,000
Printing and engraving expenses.................................. 300,000
Legal fees and expenses.......................................... 600,000
Accounting fees and expenses..................................... 200,000
Representative's Reimbursement of Expenses....................... 320,000
Miscellaneous.................................................... 10,460
----------
Total.......................................................... $1,650,000
==========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES
See response to Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth certain information as to all securities sold by
the Company within the last three years that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). As to all such
transactions, an exemption is claimed under Section 4(2) of the Securities
Act.
(1) Simultaneously with the completion of the Offering, the Company will cause
the Operating Partnership to issue to the Initial Sellers who are Affiliates
of Pohanka, Rosenthal, Sheehy and Cherner, Units at the initial public
offering price in exchange for their respective interests in the Initial
Properties.
(2) Simultaneously with the completion of the Offering, the Company will grant
options to purchase an aggregate number of Common Shares and Units equal to
3%, 1.625%, .75% and 1.625% of the Common Shares to be outstanding on closing
of the Offering (including exercise of the Underwriters' over-allotment
option) on a fully diluted basis to Messrs. Eckert, Stahr, Keithley and Kay,
respectively, exercisable at the initial public offering price under the
Company's Incentive Plan.
(3)Simultaneously with the completion of the Offering, FBR Investment Asset
Corporation will purchase 1,792,115 Common Shares at the initial public
offering price (net of underwriting discounts and commissions).
(4) Simultaneously with the completion of the Offering, the Company will issue
to each of Messrs. Pohanka and Rosenthal the Dealer Warrants which will be
exercisable for an aggregate number of Units equal to 2% of the Common Shares
to be outstanding on closing of the Offering (including exercise of the
Underwriters' over-allotment option) on a fully diluted basis, exercisable at
the initial public offering price.
(5) Simultaneously with the completion of the Offering, the Company will issue
to Friedman, Billings, Ramsey & Co., Inc. the Underwriting Warrants, which
will be exercisable for a number of Common Shares equal to 4% of the Common
Shares to be outstanding on closing of the Offering (excluding exercise of the
Underwriters' over-allotment option) on a fully diluted basis, exercisable at
the initial public offering price.
ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Declaration of Trust and By-laws authorize the Company to indemnify its
present and former trustees and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a
II-1
<PAGE>
proceeding to the maximum extent permitted from time to time under Maryland
law. The MGCL, as applicable to Maryland REITs, currently provides that
indemnification of a person who is a party, or threatened to be made a party,
to legal proceedings by reason of the fact that such a person is or was a
trustee, officer, employee or agent of a corporation, or is or was serving as
a trustee, officer, employee or agent of a corporation or other firm at the
request of a corporation, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, is mandatory in certain circumstances and
permissive in others, subject to authorization by the board of trustees, a
committee of the board of trustees consisting of two or more trustees not
parties to the proceeding (if there does not exist a majority vote quorum of
the board of trustees consisting of trustees not parties to the proceeding),
special legal counsel appointed by the board of trustees or such committee of
the board of trustees, or by the shareholders, so long as it is not
established that the act or omission of such person was material to the matter
giving rise to the proceedings and was committed in bad faith, was the result
of active and deliberate dishonesty, involved such person receiving an
improper personal benefit in money, property or services, or, in the case of
criminal proceedings, such person had reason to believe that his or her act or
omission was unlawful.
The Company's officers and trustees are also indemnified pursuant to the
Partnership Agreement and their respective employment agreements, which
agreements are filed as exhibits hereto.
The Company intends to purchase an insurance policy which purports to insure
the officers and trustees of the Company against certain liabilities incurred
by them in the discharge of their functions as such officers and trustees,
except for liabilities resulting from their own malfeasance.
ITEM 34. TREATMENT OF PROCEEDS FROM COMMON SHARES BEING REGISTERED
Not Applicable.
ITEM 35. FINANCIAL STATEMENT AND EXHIBITS.
(a) FINANCIAL STATEMENTS
All other schedules are omitted because the required information is not
applicable or the information required has been disclosed in the financial
statements and related notes included in the Prospectus.
(b) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1* Underwriting Agreement
3.1* Amended and Restated Declaration of Trust of Capital Automotive
REIT
3.2* Amended and Restated Bylaws of Capital Automotive REIT
4.1* Specimen Common Share certificate
5.1* Opinion of Wilmer, Cutler & Pickering regarding the validity of
the Common Shares being registered
8.1* Opinion of Wilmer, Cutler & Pickering regarding tax matters
10.1* Agreement of Limited Partnership of Capital Automotive L.P.
10.2** Form of Indemnification Agreement
10.3* Form of 1998 Equity Incentive Plan
10.4** Employment Agreement by and between the Company and Thomas D.
Eckert
10.5** Employment Agreement by and between the Company and Scott M. Stahr
10.6** Employment Agreement by and between the Company and Donald L.
Keithley
10.7** Employment Agreement by and between the Company and David S. Kay
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8* Form of Option Agreement
10.9* NationsBank, N.A. Line of Credit Agreement
10.10** FBR Asset Investment Purchase Agreement
10.11** FBR Registration Rights Agreement
10.12*** Pohanka Contribution Agreement dated as of November 21, 1997, as
amended
10.13*** Rosenthal Contribution Agreement dated as of November 21, 1997,
as amended
10.14** Sheehy Contribution Agreement dated as of November 24, 1997, as
amended
10.15** Cherner Contribution Agreement dated as of November 24, 1997, as
amended
10.16* Cross-Continent Auto Retailers, Inc. Purchase Agreement dated as
of December 31, 1997, as amended
10.17*** Form of Pohanka Lease Agreement
10.18*** Form of Rosenthal Lease Agreement
10.19** Form of Sheehy Lease Agreement
10.20** Form of Cherner Lease Agreement
10.21* Form of Cross-Continent Lease Agreement
10.22* Form of Underwriters' Warrant
10.23* Form of Dealers' Warrant
10.24*** Form of Pohanka Guaranty Agreement
10.25*** Form of Rosenthal Guaranty Agreement
10.26** Friedman, Billings, Ramsey Group, Inc. Loan Agreement
10.27** Friedman, Billings, Ramsey Group, Inc. Security Agreement
10.28* Form of Cross-Continent Guaranty Agreement
10.29* Good News Purchase Agreement dated as of January 10, 1998
10.30* Form of Good News Lease Agreement
10.31* Form of Good News Guaranty Agreement
10.32* Kline Purchase Agreement dated as of January 12, 1998
10.33* Form of Kline Lease Agreement
10.34* Form of Kline Guaranty Agreement
21.1*** Subsidiaries of the Company
23.1* Consent of Wilmer, Cutler & Pickering (included in Exhibits 5.1
and 8.1)
23.3** Consent of Arthur Andersen LLP dated November 24, 1997
23.4** Consent of Walpert, Smullian & Blumenthal, P.A. dated November
24, 1997
23.5* Consent to be named Trustee of John J. Pohanka
23.6* Consent to be named Trustee of Robert M. Rosenthal
23.7* Consent to be named Trustee of John D. Reilly
23.8* Consent to be named Trustee of William E. Hoglund
23.9** Consent of Arthur Andersen LLP dated January 13, 1998
23.10** Consent of Walpert, Smullian & Blumenthal, P.A. dated January 13,
1998
23.11*** Consent of Arthur Andersen LLP dated January 16, 1998
23.12*** Consent of Walpert, Smullian & Blumenthal, P.A. dated January 16,
1998
24.1 Power of Attorney (included on signature page in Part II of the
initial filing)
27.1* Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Previously filed
***Filed herewith
II-3
<PAGE>
ITEM 36. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the provisions described under Item 34 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ARLINGTON, STATE OF
VIRGINIA, ON JANUARY 16, 1998.
Capital Automotive REIT
By: /s/ Thomas D. Eckert
-----------------------------------
THOMAS D. ECKERT PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON JANUARY
16, 1998 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
Each person whose signature appears below hereby constitutes and appoints
each of Thomas D. Eckert and David S. Kay as his attorney-in-fact and agent,
with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments or post-effective amendments to this
Registration Statement, or any Registration Statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with exhibits thereto and other
documents in connection therewith or in connection with the registration of
the Common Shares under the Securities Act of 1934, as amended, with the
Securities and Exchange Commission, granting unto such attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying
and confirming all that such attorney-in-fact and agent or his substitutes may
do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
/s/ Thomas D. Eckert President and Chief
- ----------------------------------
THOMAS D. ECKERT Executive Officer January 16,
and Trustee 1998
(principal
executive officer)
/s/ David S. Kay Vice President and
- ----------------------------------
DAVID S. KAY Chief Financial January 16,
Officer (principal 1998
financial and
accounting officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Underwriting Agreement
3.1* Amended and Restated Declaration of Trust of Capital Automotive
REIT
3.2* Amended and Restated Bylaws of Capital Automotive REIT
4.1* Specimen Common Share certificate
5.1* Opinion of Wilmer, Cutler & Pickering regarding the validity of
the Common Shares being registered
8.1* Opinion of Wilmer, Cutler & Pickering regarding tax matters
10.1* Agreement of Limited Partnership of Capital Automotive L.P.
10.2** Form of Indemnification Agreement
10.3* Form of 1998 Equity Incentive Plan
10.4** Employment Agreement by and between the Company and Thomas D.
Eckert
10.5** Employment Agreement by and between the Company and Scott M.
Stahr
10.6** Employment Agreement by and between the Company and Donald L.
Keithley
10.7** Employment Agreement by and between the Company and David S. Kay
10.8* Form of Option Agreement
10.9* NationsBank, N.A. Line of Credit Agreement
10.10** FBR Asset Investment Purchase Agreement
10.11** FBR Registration Rights Agreement
10.12*** Pohanka Contribution Agreement dated as of November 21, 1997, as
amended
10.13*** Rosenthal Contribution Agreement dated as of November 21, 1997,
as amended
10.14** Sheehy Contribution Agreement dated as of November 24, 1997, as
amended
10.15** Cherner Contribution Agreement dated as of November 24, 1997, as
amended
10.16* Cross-Continent Auto Retailers, Inc. Purchase Agreement dated as
of December 31, 1997, as amended
10.17*** Form of Pohanka Lease Agreement
10.18*** Form of Rosenthal Lease Agreement
10.19** Form of Sheehy Lease Agreement
10.20** Form of Cherner Lease Agreement
10.21* Form of Cross-Continent Lease Agreement
10.22* Form of Underwriters Warrant
10.23* Form of Dealers Warrant
10.24*** Form of Pohanka Guaranty Agreement
10.25*** Form of Rosenthal Guaranty Agreement
10.26** Friedman, Billings, Ramsey Group, Inc. Loan Agreement
10.27** Friedman, Billings, Ramsey Group, Inc. Security Agreement
10.28* Form of Cross-Continent Guaranty Agreement
10.29* Good News Purchase Agreement dated as of January 10, 1998
10.30* Form of Good News Lease Agreement
10.31* Form of Good News Guaranty Agreement
10.32* Kline Purchase Agreement dated as of January 12, 1998
10.33* Form of Kline Lease Agreement
10.34* Form of Kline Guaranty Agreement
21.1*** Subsidiaries of the Company
23.1* Consent of Wilmer, Cutler & Pickering (included in Exhibits 5.1
and 8.1)
23.3** Consent of Arthur Andersen LLP dated November 24, 1997
23.4** Consent of Walpert, Smullian & Blumenthal, P.A. dated November
24, 1997
23.5* Consent to be named Trustee of John J. Pohanka
23.6* Consent to be named Trustee of Robert M. Rosenthal
23.7* Consent to be named Trustee of John D. Reilly
23.8* Consent to be named Trustee of William E. Hoglund
23.9** Consent of Arthur Andersen LLP dated January 13, 1998
23.10** Consent of Walpert, Smullian & Blumenthal, P.A. dated January 13,
1998
23.11*** Consent of Arthur Andersen LLP dated January 16, 1998
23.12*** Consent of Walpert, Smullian & Blumenthal, P.A. dated January 16,
1998
24.1 Power of Attorney (included on signature page in Part II of the
initial filing)
27.1* Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Previously filed
***Filed herewith
<PAGE>
EXHIBIT 10.12
FORM OF POHANKA CONTRIBUTION AGREEMENT
CAPITAL AUTOMOTIVE L.P.
-----------------------
AGREEMENT FOR CONTRIBUTION OF INTERESTS
---------------------------------------
November 24, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
I. CONTRIBUTION OF INTERESTS............................................ - 1 -
1.1 Certain Definitions.................................... - 1 -
1.2 Contribution........................................... - 3 -
1.3 Consideration for Contribution......................... - 3 -
1.4 [Intentionally omitted]................................ - 3 -
1.5 Subject to Partnership Agreement....................... - 3 -
1.6 Capitalized Terms...................................... - 3 -
II. ADJUSTMENTS.......................................................... - 3 -
2.1 Unit Adjustment........................................ - 3 -
2.2 Adjustments with Respect to Units...................... - 4 -
III. REDEMPTION OF UNITS.................................................. - 4 -
3.1 Redemption Right; Limit on Redemptions................. - 4 -
3.2 Registered Shares...................................... - 4 -
IV. OPERATION OF PROPERTY THROUGH CLOSING................................ - 4 -
4.1 Business Practice...................................... - 4 -
4.2 No Sale or Encumbrance................................. - 5 -
4.3 Leases, Service Contracts and Management Contracts..... - 5 -
4.4 Termination of Leases; New Company Leases.............. - 5 -
4.5 Compliance............................................. - 5 -
4.6 Notice of Inaccuracy or Incompleteness................. - 5 -
4.7 Access................................................. - 6 -
4.8 Insurance.............................................. - 6 -
4.9 Fulfillment of Obligation.............................. - 6 -
4.10 Financial Statements and Reports....................... - 6 -
V. STATUS OF TITLE TO PROPERTY.......................................... - 6 -
5.1 State of Title......................................... - 6 -
5.2 Preliminary Evidence of Title.......................... - 6 -
5.3 Title Defects.......................................... - 8 -
VI. CLOSING PRORATIONS AND ADJUSTMENTS................................... - 9 -
6.1 Prorations and Adjustments............................. - 9 -
VII. CLOSING............................................................. - 10 -
7.1 Closing Date.......................................... - 10 -
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C>
7.2 Closing Documents....................................................... - 10 -
7.3 Conditions to the Partnership's Obligation to Close..................... - 14 -
7.4 Conditions to the Contributor's Obligation to Close..................... - 16 -
7.5 Transaction Costs....................................................... - 16 -
VIII. CASUALTY LOSS AND CONDEMNATION........................................................ - 17 -
8.1 Casualty................................................................ - 17 -
8.2 Condemnation or Taking.................................................. - 17 -
IX. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTORS.................................... - 18 -
9.1 Organization............................................................ - 18 -
9.2 Authority............................................................... - 18 -
9.3 Interest in Contributed Properties...................................... - 18 -
9.4 Investment.............................................................. - 19 -
9.5 Title to the Properties................................................. - 20 -
9.6 No Defaults............................................................. - 21 -
9.7 No Litigation; No Condemnation.......................................... - 21 -
9.8 No Violation............................................................ - 21 -
9.9 Required Obligations.................................................... - 22 -
9.10 Condition of Properties................................................. - 22 -
9.11 Warranties.............................................................. - 22 -
9.12 Utilities............................................................... - 22 -
9.13 Zoning.................................................................. - 22 -
9.14 Improvements............................................................ - 22 -
9.15 Environmental Matters................................................... - 23 -
9.16 Insurance............................................................... - 25 -
9.17 Management.............................................................. - 25 -
9.18 Compliance.............................................................. - 25 -
9.19 Leases; Rent Rolls...................................................... - 25 -
9.20 Service Contracts; Management Contracts................................. - 27 -
9.21 Permits................................................................. - 27 -
9.22 Financial Statements.................................................... - 28 -
9.23 Undisclosed Liabilities................................................. - 28 -
9.24 Contracts............................................................... - 28 -
9.25 Tax Matters............................................................. - 28 -
9.26 Employee Benefit Liabilities. .......................................... - 28 -
9.27 [Intentionally Omitted]................................................. - 28 -
9.28 Taxes................................................................... - 29 -
9.29 Special Filings......................................................... - 29 -
9.30 [Intentionally Omitted]................................................. - 29 -
9.31 Books and Records....................................................... - 29 -
9.32 No Brokers.............................................................. - 29 -
9.33 All Material Information................................................ - 29 -
</TABLE>
- iii -
<PAGE>
<TABLE>
<S> <C>
9.34 Survival of Warranties......................................... - 30 -
X. [INTENTIONALLY OMITTED]...................................................... -30-
XI. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PARTNERSHIP......................................................................... -30 -
11.1 Organization, Good Standing and Qualification.................. - 30 -
11.2 Authorization.................................................. - 30 -
11.3 No Violation................................................... - 31 -
11.4 Public Offering................................................ - 31 -
11.5 Tax Status..................................................... - 31 -
11.6 No Litigation.................................................. - 31 -
11.7 No Brokers..................................................... - 31 -
11.8 Survival....................................................... - 31 -
XII. COVENANTS.................................................................... - 32 -
12.1 Covenants of the Company and the Partnership................... - 32 -
12.2 Covenants of the Contributors and the Contributing Entities.... - 34 -
12.3 No Claim Against Contributed Property.......................... - 35 -
12.4 DRO Election; Bottom Guaranty Election......................... - 35 -
XIII. DUE DILIGENCE PERIOD......................................................... - 37 -
13.1 Due Diligence Period........................................... - 37 -
13.2 Access to Properties and Materials............................. - 37 -
13.3 Adjustment Following Due Diligence............................. - 37 -
XIV. DEFAULTS AND REMEDIES........................................................ - 38 -
14.1 Indemnification by Contributors................................ - 38 -
14.2 Remedies....................................................... - 39 -
14.3 Indemnification by the Company and the Partnership............. - 40 -
14.4 Indemnification Procedures..................................... - 40 -
XV. MISCELLANEOUS................................................................ - 43 -
15.1 Assignment..................................................... - 43 -
15.2 Entire Agreement............................................... - 43 -
15.3 Notices........................................................ - 43 -
15.4 Governing Law.................................................. - 45 -
15.5 Litigation Costs............................................... - 45 -
15.6 Counterparts................................................... - 45 -
15.7 Offer and Acceptance........................................... - 45 -
15.8 Arbitration.................................................... - 46 -
</TABLE>
- iv -
<PAGE>
EXHIBITS
A. Partnership Agreement
4.4 (a) Form of Company Lease
4.4 (c) Guaranty and Subordination Agreement
7.2.1(i) Investor Questionnaires
7.2.1(p) Lender's Estoppel Certificate
7.2.1(q) Opinion of Contributor's Counsel
7.2.2(f) Opinion of Company Counsel
SCHEDULES
DISCLOSURE SCHEDULE
I. Contributors (Names and Addresses)
1.2 Schedule of Properties; Ownership Interests in Properties and
Contribution Amounts
1.3(a) Schedule of Units Issued in Consideration for Each Property
1.3(b) Mortgage Debt
4.1 Prior Occupants
4.4(b) Guaranties
5.1 Permitted Exceptions
9.6 Material Defaults
9.13 Zoning
9.15.5(a) The Treatment, Storage and Disposal Locations for Substances of
Concern
9.15.5(b) Storage Tanks
9.15.5(c) Existence of Asbestos
9.15.9(f) Environmental Permits and Authorizations
9.16 Insurance
9.19 Lease Disclosures
9.19.2 Leases and Rent Rolls
9.19.13 Other Landlords
9.20(a) Service Contracts
9.20(b) Management Contracts
9.23 Assumed Liabilities of Contributors
9.24 Contracts
9.26 Employee Benefit Plans/Employment Contracts/Employee Benefit
Liabilities
12.1.5 Restrictions on Sale and/or Financing of Specified Properties
12.4.5 Limitations on Indebtedness
14.2.1 Indemnitors
- v -
<PAGE>
CAPITAL AUTOMOTIVE L.P.
AGREEMENT FOR CONTRIBUTION OF INTERESTS
---------------------------------------
THIS AGREEMENT FOR CONTRIBUTION OF INTERESTS (the "Agreement") is made
and entered into as of this 24th day of November 1997, by and among the persons
and entities named on Schedule I hereto consisting of all of the owners of an
----------
interest in any of the Properties listed on Schedule 1.2 (each individually, a
------------
"Contributor" and, if more than one Contributor, collectively, the
"Contributors"), and CAPITAL AUTOMOTIVE REIT, a Maryland real estate investment
trust (the "Company"), having offices at 1925 North Lynn Street, Suite 306,
Arlington, Virginia 22209 on its own behalf, and CAPITAL AUTOMOTIVE L.P., a
Delaware limited partnership (the "Partnership"), having offices at 1925 North
Lynn Street, Suite 306, Arlington, Virginia 22209.
RECITALS
--------
A. The Partnership was formed on November 13, 1997. At the Closing,
the Limited Partnership Agreement, as amended and restated, will be
substantially in the form appended hereto as Exhibit A (the "Partnership
---------
Agreement"). The Partnership is intended to result in an umbrella partnership
real estate investment trust in which the Company shall be the sole general
partner (the "General Partner") and shall hold the number of Units (as
hereinafter defined) of partnership interest set forth in Schedule A to the
----------
Partnership Agreement.
B. Each Contributor has such interest in the real property and
improvements as is set forth opposite its name on Schedule 1.2 hereto. Each
------------
Contributor is the legal and beneficial owner of fee simple title to all of the
real property and improvements set forth on such Schedule 1.2 hereto (including
------------
the residual interests in any tenant improvements thereon), which are
individually referred to as a "Property" and collectively, the "Properties."
C. Each Contributor desires to transfer all of its interest in each
of the Properties set forth on Schedule 1.2 to the Partnership in exchange for
------------
Units (as hereafter defined) in the Partnership in the amounts set forth in
Schedule 1.3(a) upon and subject to the terms and conditions of this Agreement.
- ---------------
NOW THEREFORE, in consideration of and in reliance upon the above
Recitals, the terms, covenants and conditions contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
I. CONTRIBUTION OF INTERESTS
-------------------------
1.1 Certain Definitions. For purposes of this Agreement:
-------------------
<PAGE>
1.1.1 "Units" means units of limited partnership interest in
the Partnership, including the limited partnership
interests held by the Company and those to be issued to
the Contributors pursuant to this Agreement. The Units
to be issued to the Contributors pursuant to this
Agreement are sometimes referred to herein as the
"Initial Units."
1.1.2 "Shares" means the common shares of beneficial
interest, par value $.01 per share, of the Company.
1.1.3 "Initial Shares" means the Shares of the Company
registered under the Securities Act of 1933, as amended
(the "Act"), pursuant to a registration statement on
Form S-11 (the "Registration Statement") to be filed
with the Securities and Exchange Commission (the
"Commission") on or about November 1997.
1.1.4 "Affiliate" means with respect to any Person, (i) any
Person that holds direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of voting
securities or other voting interests representing at
least five percent (5%) of the outstanding voting power
of a Person or equity securities or other equity
interests representing at least five percent (5%) of
the outstanding equity securities or interests in a
Person, or (ii) any Person that directly, or indirectly
through one or more intermediaries, controls, or is
controlled by, or is under common control with such
Person.
1.1.5 A "Person" shall mean and include natural persons,
corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes
or other organizations, whether or not legal entities,
and governments and agencies and political subdivisions
thereof.
1.1.6 For purposes of this Agreement, the "knowledge" of a
party shall mean the actual knowledge of such party's
officers, senior executives, managing partners, general
partners, majority shareholders, key employees or their
equivalents.
-2-
<PAGE>
1.2 Contribution. Subject to the terms and conditions of this
------------
Agreement, at the Closing (as hereinafter defined), each Contributor shall
convey and transfer its entire right, title and interest in the Properties
identified on Schedule 1.2 to the Partnership, excluding items of movable
------------
personal property attached to the Property that relate to the business conducted
on the Property and may readily be removed from the Property without material
damage whether or not such items are "fixtures," ("Excluded Personal Property").
The interests and Properties to be transferred as herein provided are
hereinafter collectively referred to as the "Contribution."
1.3 Consideration for Contribution. In consideration for the
------------------------------
Contribution, the Partnership shall issue to each Contributor, or to such
partners and beneficial owners of the Contributor as the Contributor shall
designate in writing (the "Designees"), the number of Units in consideration for
each Property as set forth on Schedule 1.3(a) hereto. The number of Units to be
---------------
issued in consideration for each Property (the "Contribution Value") shall be
the quotient of the Contribution Amount for such Property (as defined hereafter)
minus the Mortgage Debt (as defined hereafter) encumbering such Property divided
by the Market Price (as defined hereafter). The parties agree that, as of the
date hereof and as of the Closing Date, each Initial Unit has a fair market
value equal to the initial price to the public of the Initial Shares at the time
and date the Registration Statement is declared effective by the Commission (the
"Market Price"). The Contributors represent and warrant that each Property is
subject to mortgage indebtedness set forth opposite the description of such
Property on Schedule 1.3(b) of this Agreement, which mortgage indebtedness shall
---------------
be the principal balance of, plus the accrued interest on, the mortgages
encumbering such Property at the Closing Date (the "Mortgage Debt"). For
purposes of this Agreement, "Contribution Amount" means the acquisition cost of
any Property, as stated on Schedule 1.3(a) plus the amount of the Closing Costs
---------------
(as defined in Section 7.5.1), which total shall be used to calculate the number
-------------
of Units to be issued to the Contributors at the Closing in exchange for their
contribution of such Property to the Partnership.
1.4 [Intentionally omitted]
1.5 Subject to Partnership Agreement. The Units issued pursuant
--------------------------------
to this Agreement shall be subject in all respects to the terms and provisions
of the Partnership Agreement.
1.6 Capitalized Terms. Capitalized terms used in this Agreement
-----------------
that are not otherwise defined herein shall have, unless otherwise indicated,
the meanings assigned to them in the Partnership Agreement.
II. ADJUSTMENTS
-----------
2.1 Unit Adjustment. The number of Units issuable as
---------------
consideration for the Properties will be adjusted as follows: (a) to the extent
the total Mortgage Debt on a Property is different from the amount on Schedule
--------
1.3(b) ("Different Mortgage Debt"), an adjustment shall be made to the number of
- ------
Units to be issued to the Contributors hereunder, by dividing the total dollar
amount of the Different Mortgage Debt by the Market Price and the quotient
thereof shall be
-3-
<PAGE>
the number by which the number of Units issuable pursuant to this Agreement
shall be reduced if the Mortgage Debt exceeds the scheduled amount, or increased
if the Mortgage Debt is less than the scheduled amount; and (b) pursuant to
Sections 7.2.1(o), 7.5.1, 8.1, 8.2, 13.3 and 15.7 of this Agreement, as
applicable.
2.2 Adjustments with Respect to Units In the event of any stock
---------------------------------
split, stock dividend, reclassification, recapitalization or other adjustment in
respect of the outstanding Shares prior to the Closing Date, the number of Units
to be issued to the Contributors will be proportionately adjusted so that the
Units will equate to the Shares on a one-to-one basis.
III. REDEMPTION OF UNITS
-------------------
Anything in the Partnership Agreement to the contrary
notwithstanding, the following provisions shall apply:
3.1 Redemption Right; Limit on Redemptions. The Contributors
--------------------------------------
shall have the right to require the Partnership to redeem all or a portion of
the Units held by such Contributor (the "Redemption Event") on or after the date
which is two (2) years after the date that the Registration Statement is
declared effective by the Commission (the "Effective Date") in accordance with
and subject to the limitations set forth in Section 8.05 of the Partnership
Agreement.
3.2 Registered Shares. If the Company exercises its option to
------------------
deliver Shares pursuant to Section 8.05 of the Partnership Agreement upon a
Redemption Event, the Company shall deliver to the Contributor Shares that have
been registered for resale under the Act pursuant to a registration statement on
Form S-3 (or equivalent form of registration statement then in effect) declared
effective by the Commission.
IV. OPERATION OF PROPERTY THROUGH CLOSING
-------------------------------------
Through the Closing Date:
4.1 Business Practice. Except as otherwise provided in this
-----------------
Article 4, the Contributors shall continue, or shall cause any Affiliate,
tenant, or third party managing, maintaining or occupying, as the case may be,
any of the Properties as shall be designated by the Partnership or the Company
(referred to herein individually as a "Prior Occupant" and collectively as the
"Prior Occupants") to continue, to manage, maintain and operate the Properties
in accordance with sound and prudent business practices and keep the Properties
and the tangible personal property thereon in good condition and repair,
ordinary wear and tear excepted. The Contributors shall instruct such Prior
Occupant not to make any change in its management, maintenance or operation of
the Properties or in its normal and customary other practices. The Prior
Occupants are identified on Schedule 4.1 to this Agreement.
------------
-4-
<PAGE>
4.2 No Sale or Encumbrance. None of the Contributors shall sell,
----------------------
mortgage, pledge, hypothecate or otherwise transfer or dispose of all, or any
part of any Property or any interest therein, nor shall any Contributor
initiate, consent to, approve or otherwise take any action with respect to
zoning or any other governmental rules or regulations presently applicable to
all or any part of any Property, nor shall any Contributor permit any new
limited or general partners, shareholders or members to be admitted to any
Contributor.
4.3 Leases, Service Contracts and Management Contracts. Except
--------------------------------------------------
as provided in Section 4.4, the Contributors shall not, nor shall they cause or
permit any Prior Occupant to, terminate, modify, extend, amend or renew any
Lease (as defined in Section 6.1.3 hereof), Service Contract (as defined in
Section 9.20 hereof), Management Contract (as defined in Section 9.20 hereof) or
enter into any new Lease (other than the Company Lease pursuant to Section 4.4
of this Agreement) or Service Contract without the prior written consent of the
Company or the Partnership; provided, however, that the failure of the Company
or the Partnership to object to any such action within thirty (30) days after
written notice to it by Contributor shall be deemed to reflect the Company's or
the Partnership's consent thereto. Notwithstanding the foregoing, all Service
Contracts and Management Contracts relating to the respective Properties shall
remain in effect after the Closing Date, except for those Service Contracts and
Management Contracts that the Partnership requires to be terminated as of the
Closing Date.
4.4 Termination of Leases; New Company Leases. Prior to the
-----------------------------------------
Closing Date the Contributors shall cause the termination of all Leases.
Simultaneously with the execution of this Agreement, the Contributors shall
cause the Prior Occupant of each Property, or an Affiliate thereof, to execute
and deliver to the Partnership an occupancy lease with the Partnership for each
of the Properties substantially in the form attached hereto as Exhibit 4.4 (a)
---------------
(referred to hereafter individually as a "Company Lease" and collectively as the
"Company Leases"), on terms and conditions (including Rent (as defined in such
Company Lease)) acceptable to the Partnership. The Base Annual Rent (as defined
in the Company Lease) called for under the Company Lease as set forth on the
Exhibits and Schedules attached to the Company Lease shall be increased by the
proportion that the Closing Costs (as defined in Section 7.5.1) bears to the
acquisition cost of such Property as stated on Schedule 1.3(a).The effective
---------------
date of such Company Leases shall be the Closing Date. The Company Leases shall
be guaranteed as set forth on Schedule 4.4(b) using a Guaranty and Subordination
---------------
Agreement substantially in the form attached hereto as Exhibit 4.4(c).
--------------
4.5 Compliance. None of the Contributors shall knowingly take or
----------
fail to take any action that will cause the Properties to fail to comply with
any federal, state, municipal and other governmental laws, ordinances,
requirements, rules, regulations, notices, codes and orders, or any agreements,
covenants, conditions, easements and restrictions currently in effect relating
to the Properties.
4.6 Notice of Inaccuracy or Incompleteness. The Contributors
--------------------------------------
shall promptly give written notice to the Company of the occurrence of any event
of which Contributors
-5-
<PAGE>
have knowledge and which may adversely affect the completeness or accuracy of
any representation or warranty made or to be made by Contributors under or
pursuant to this Agreement.
4.7 Access. The Contributors shall cause the Company and its
------
representatives to have reasonable access to the Properties, subject to the
prior rights, if any, of any Prior Occupant; provided, however, that without the
consent of the Contributor, the representatives of the Partnership shall not
disclose to any Prior Occupant the existence of this Agreement or the
transactions contemplated hereby.
4.8 Insurance. The Contributors shall cause the existing
---------
insurance coverages on the Properties and the business of the Contributors to be
maintained in full force and effect at the Closing Date.
4.9 Fulfillment of Obligation. To the extent any Contributor is
-------------------------
obligated, pursuant to any contract, agreement, covenant, lease, including any
Lease, or other understanding entered into prior to the date hereof with any
Prior Occupant, governmental subdivision or any other third party, to effect any
construction, make any improvements or take any action, the Contributors shall
cause any such construction, improvements and/or action to be taken, completed
and fully paid for by such Contributor, at its expense, prior to the Closing
Date. No such obligation shall be unfulfilled, and no liability for or payment
in respect of any such obligation shall be unsatisfied as of the Closing Date.
4.10 Financial Statements and Reports. The Contributors shall
--------------------------------
provide to the Company financial statements, agings of accounts receivable, and
other financial, operating or statistical information for each Property upon any
reasonable request of the Company, and the general partner or chief financial
officer, as the case may be, of each Contributor shall certify that, to the best
of his or its knowledge, such financial statements and other reports are true,
accurate and complete in all material respects.
V. STATUS OF TITLE TO PROPERTY
---------------------------
5.1 State of Title. At Closing, the Contributors shall own,
--------------
beneficially and of record, good and marketable fee simple title to the
Properties, subject only to the mortgages listed on Schedule 9.23 hereto (the
-------------
"Mortgages") and those covenants, conditions and restrictions set forth on
Schedule 5.1 hereto (the "Scheduled Exceptions"). The Mortgages and acceptable
- ------------
Scheduled Exceptions are referred to collectively herein as the "Permitted
Exceptions."
5.2 Preliminary Evidence of Title. Within no more than 30 days
-----------------------------
after the date hereof, the Contributors and the Partnership shall obtain, in a
form acceptable to the Partnership, the following documents to evidence the
condition of the title to each of the Properties:
5.2.1 Commitments (the "Title Commitments") to the
Partnership for ALTA Form B (1987) Owner's Title
Insurance Policies
-6-
<PAGE>
committing to insure, at standard rates, title to each
Property as being good and marketable, subject only to
the Permitted Exceptions, in the amount of the fair
market value of each such Property, issued by a title
company acceptable to the Company and the Partnership
(the "Title Insurer"). The Title Commitments shall be
effective as of the Closing Date, and shall reflect
that fee simple title is held by the respective
Contributor. Each Owner's Title Insurance Policy to be
issued to the Partnership at Closing pursuant to
Section 7.2.2 below ("Title Insurance Policies") shall
contain an extended coverage endorsement over the
general or standard exceptions which are a part of the
printed form of the policy and subject only to the
Permitted Exceptions. Each Title Insurance Policy
shall, in addition, (a) include provisions for co-
insurance, in such amounts of liability acceptable to
the Partnership and the Company; (b) not contain any
Survey exception, (c) not contain any exceptions for
(i) liens for labor or material, whether or not of
record, (ii) parties in possession (other than Prior
Occupants under the Leases, solely as such Prior
Occupants), (iii) unrecorded easements, and (iv) taxes
and special assessments not shown on the public
records, (d) provide for the following endorsements:
(i) an access endorsement insuring that there is direct
and unencumbered access to the Land from all adjacent
public streets and roads, (ii) a survey endorsement
insuring that all foundations in place as of the date
of such policy are within the lot lines and applicable
setback lines, that the improvements do not encroach on
adjoining land or any easements, and that there are no
encroachments of improvements from adjoining land on
any or the Properties or any part thereof, (iii) an
ALTA Form 3.1 zoning endorsement insuring that the
Properties are zoned for the buildings and the
operation thereof as contemplated by the terms and
provisions of this Agreement, (iv) a non-imputation
endorsement, by which the Title Insurer waives any
defense based upon knowledge of any person or entity
(other than the knowledge of the Partnership or its
designees), (v) each Property constitutes a separate
lot of record and is separately assessed for real
estate tax purposes, (vi) an endorsement commonly
referred to as a "Fairway endorsement," providing among
other things, that the Title Insurer waives any defense
based on a dissolution or termination of the insured
partnership or the formation of a new partnership
solely by reason of one or more transfers of
-7-
<PAGE>
all or any part of the partnership interests of any one
or more of the general partners of the insured to the
Company or the Partnership and/or any one or more of
the limited partners of the insured, and/or the
transfer of any one or more of the limited partner's
interests to the current general partner, the Company
or the Partnership, and (vii) such other endorsements
as the Partnership and the Company may reasonably
require.
5.2.2 Written results of searches reflecting any liens,
judgements, tax liens, bankruptcies, and open dockets
(the "UCC Searches"), conducted by a company reasonably
acceptable to the Partnership. The UCC Searches shall
name each Contributor, Prior Occupant, and Property,
and shall search the appropriate land records and
central filing office for Uniform Commercial Code
financing statements.
5.2.3 Legible copies of all documents of record referred to
in any Title Commitment or disclosed by the UCC
Searches, and all other documents evidencing or, to the
extent in the possession or control of the
Contributors, relating to, matters reflected in any
Title Commitment or the UCC Searches.
5.2.4 Current ALTA/ACSM land title surveys of each of the
Properties (the "Surveys") dated on or after the date
of this Agreement, certified to the Partnership and the
Title Insurer (and such other persons or entities as
the Partnership may designate) by a surveyor registered
in the State where the Property is located. Each Survey
shall be in form and substance acceptable to the
Partnership and the Title Insurer.
5.3 Title Defects. The Partnership shall have the right to
-------------
review the Title Commitments, UCC Searches or Surveys (or any revision or update
of any of them) and to require the Contributor to remove, correct, and cure any
defects in the title or other such matters relating to the title that the
Partnership determines, in its sole discretion, are acceptable and those that
are unacceptable. The Partnership shall notify the Contributors of those matters
listed on Schedule 5.1 that are acceptable, which shall be referred to as the
------------
"Scheduled Exceptions." The Partnership shall notify the Contributors within ten
(10) business days after the Partnership receives the Title Commitments, UCC
Searches or Surveys, as the case may be, of any such defects or matters that the
Partnership finds to be unacceptable, and, prior to the Closing Date, such
Contributors shall, (i) as to any such exception or other matter of a
nonmonetary nature, use reasonable efforts to remove, correct and cure such
defects or such other matters, and (ii) as to any such defect or other matter of
a monetary nature, cause such lien or encumbrance or other matter to be
discharged and released,
-8-
<PAGE>
in each case to the reasonable satisfaction of the Partnership; except that such
Contributor shall not be required to expend more than $50,000 with respect
thereto. If such Contributor fails to remove, correct and cure such defects or
such other matters, the Partnership may, at its option and as its exclusive
remedy, (x) terminate this Agreement, in which event this Agreement, without
further action of the parties, shall become null and void and neither party
shall have any further rights or obligations under this Agreement, (y) terminate
this Agreement with respect to such Property and reduce the number of Units to
be issued by the Contributors to the Contribution Value of such Property, or (z)
elect to accept title to such Property and discharge or release any liens,
encumbrances or other matters of a monetary nature or which may otherwise be
discharged, released or removed by the payment of a monetary sum and deduct from
the number of Initial Units issuable to the Contributors the number of Units
that is equal to the lesser of (a) the quotient of such aggregate monetary sums
paid by the Partnership for the correction, removal and cure of such defects and
other matters (plus expenses in connection therewith) divided by the Market
Price, or (b) $50,000. If the Partnership fails to make any such election, the
Partnership shall be deemed to have elected the option contained in clause (y).
VI. CLOSING PRORATIONS AND ADJUSTMENTS
----------------------------------
6.1 Prorations and Adjustments. All prorations and adjustments
--------------------------
(the "Prorations") with respect to the Property or Properties, for the period up
to and through the Closing Date, shall be the responsibility of or belong to the
Contributors and all such Prorations for the period after the Closing Date shall
be the responsibility of or belong to the tenant under the applicable Company
Lease. The Company and the Partnership shall have no responsibility for, and
will receive no benefit from, the Prorations, and the Contributor shall have
liability for such Prorations. Such Prorations shall include, but not be limited
to, the following:
6.1.1 real estate and personal property taxes and
assessments;
6.1.2 common area maintenance fees and reimbursements for
prior years property taxes payable by Prior Occupants;
6.1.3 the rent payable by Prior Occupants under leases in
effect immediately prior to the Closing Date (the
"Leases") as set forth on Schedule 9.19.2 hereto;
---------------
6.1.4 the full amount of security deposits paid under the
Leases, together with interest thereon if required by
law or otherwise;
6.1.5 water, electric, telephone and all other utility and
fuel charges and those that are meter read will be read
by the appropriate utility and service transferred as
of the Closing Date;
6.1.6 amounts due and prepayments under the Service
Contracts;
-9-
<PAGE>
6.1.7 assignable license and permit fees;
6.1.8 other expenses of operation and similar items; and
6.1.9 all or any other disbursements, payments, and
obligations relating to the Property, except for
payments under any Mortgages transferred to the
Partnership at the Closing, the payments for which
shall be obligations of the Partnership as of, but not
before, the Closing Date.
6.1.10 Notwithstanding the foregoing, any refunds of real or
personal property taxes for tax years beginning prior
to the Closing Date shall belong to Contributors, and
if paid to the Partnership shall be promptly refunded
by the Partnership to Contributors in cash.
VII. CLOSING
-------
7.1 Closing Date. The closing of the transactions contemplated
------------
by this Agreement (the "Closing") shall occur at the offices of Wilmer, Cutler &
Pickering, 2445 M Street, N.W. Washington, D.C. 20037-1420, at 10:00 a.m. on
January 31, 1998, or such other time or place as shall follow the closing of the
initial public offering of Initial Shares of the Company pursuant to the
Registration Statement, provided that all conditions to Closing have been
satisfied or waived, or at such other time and place as the Contributors and the
Company shall agree in writing, provided, however, that under no circumstances
shall the Closing occur later than March 31, 1998. The "Closing Date" shall be
the date of the Closing.
7.2 Closing Documents
-----------------
7.2.1 Contributors. Not later than five (5) business days
------------
prior to the Closing Date, the Contributors shall
deliver to the Company and the Partnership the
following:
a. deeds and assignments for the Properties;
b. if not previously delivered pursuant to a waiver
by the Company, executed copies of all Company
Leases, effective at Closing;
c. any affidavits, certificates and other documents
(including without limitation non-imputation
affidavits and/or certificates) that are
reasonably
-10-
<PAGE>
necessary for the Title Insurer to issue the
Owner's Title Insurance Policies in the form and
condition required by this Agreement;
d. evidence satisfactory to the Partnership that all
mortgages and other indebtedness secured by the
Properties that are not being specifically assumed
by the Partnership have been paid in full;
e. for each Contributor that is a corporation, a
corporate resolution authorizing the transactions
contemplated by this Agreement, a certificate of
good standing, a certified copy of the articles of
incorporation and bylaws, and a certificate of
incumbency certifying the titles and signatures of
the corporate officers authorized to consummate
the transactions contemplated hereunder on behalf
of Contributor and such other evidence of
Contributor's power and authority as the Company
reasonably requests;
f. for each Contributor that is a partnership or a
limited liability company, a resolution
authorizing the Contribution in exchange for the
Units the execution of closing documents and the
transactions contemplated by this Agreement, a
certificate of good standing, a certified copy of
the partnership or operating agreement governing
such Contributor, and a certificate of incumbency
certifying the titles and signatures of the
general partners or members authorized to
consummate the transactions contemplated hereunder
on behalf of Contributor and such other evidence
of power and authority of the Contributor as the
Partnership reasonably requests;
g. for each Contributor, an affidavit stating, under
penalty of perjury, its U.S. taxpayer
identification number and that it is not a foreign
person within the meaning of Section 1445 of the
Internal Revenue Code of 1986, as amended (the
"Code");
-11-
<PAGE>
h. a counterpart of the Partnership Agreement
executed by each Contributor;
i. investor questionnaires ("Investor
Questionnaires") in the form attached to this
Agreement as Exhibit 7.2.1(i) executed by each
----------------
Contributor;
j. letters advising Prior Occupants of the change in
ownership of the Properties and directing Prior
Occupants to pay Rent to the Partnership or as the
Partnership may direct;
k. an updated Rent Roll (as defined in Section
9.19.2) as of the Closing Date (including a
listing of all delinquent and prepaid rents);
l. agreements from each Prior Occupant who leases any
Property terminating its Leases with Contributors;
m. all of the original Leases, written Service
Contracts and Management Contracts and any and all
building plans, surveys, site plans, engineering
plans and studies, utility plans, landscaping
plans, development plans, specifications drawings,
marketing artwork, construction drawings, soil
tests, complete warranty book including all
contractors and subcontractors and other
documentation concerning all or any part of each
Property to the extent that any of the foregoing
documents are in the possession or control of
Contributors;
n. any bonds, warranties or guaranties which are in
any way applicable to any Property or any part
thereof to the extent any of the foregoing are in
the possession or control of Contributors;
o. If the Company shall so request, the Contributor
shall deliver to the Company a letter (an
"Estoppel Letter") in a form acceptable to the
Company, dated not more than thirty (30) days
prior to the Closing Date, from each tenant under
each Lease. The Estoppel Letter shall be fully
completed in a manner
-12-
<PAGE>
reasonably satisfactory to the Company, and with
no modifications other than those reasonably
acceptable to the Company. In the event Estoppel
Letters in form and content reasonably
satisfactory to the Company are not received by
the Company and the Partnership within the time
prescribed herein, then the Partnership and the
Company, at their option and as a non-exclusive
remedy, upon notice to the Contributors, may
immediately terminate this Agreement, or may
terminate this Agreement with respect to the
relevant Property, in which case the number of
Initial Units issuable hereunder as set forth on
Schedule 1.3(a) shall be reduced by the
---------------
Contribution Value of such Property.
p. a certificate in the form attached hereto as
Exhibit 7.2.1(p) (a "Lender's Estoppel
----------------
Certificate") from each mortgagee of each
Contributor and each Property and from any other
person or entity that has, or may have as a result
of the transactions contemplated hereby, a
security interest in any of the Properties. In the
event that the Lender's Estoppel Certificates in
form and content reasonably satisfactory to the
Company are not received by the Company and the
Partnership within the time period prescribed
herein, then the Partnership and the Company, at
their option and as a non-exclusive remedy, may
terminate this Agreement upon notice to the
Contributor, or may terminate this Agreement with
respect to the relevant Property, in which case
the number of Initial Units issuable hereunder as
set forth on Schedule 1.3(a) shall be reduced by
---------------
the Contribution Value of such Property.
q. an opinion of Contributor's counsel substantially
in the form attached hereto as Exhibit 7.2.1(q);
----------------
and
r. all other documents reasonably required by the
Company in connection with the transactions
contemplated by this Agreement.
7.2.2 Partnership. At the Closing, the Partnership shall
-----------
deliver the following:
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<PAGE>
a. Initial Units, as required by Sections 1 and 2 of
this Agreement;
b. an executed counterpart of the Partnership
Agreement executed by the Company, as the General
Partner of the Partnership;
c. for the Company, a resolution of its Board of
Trustees authorizing the transactions contemplated
hereby and a certificate of good standing from the
State Department of Assessments and Taxation of
the State of Maryland;
d. for the Partnership, evidence of the Partnership's
authorization of the transactions contemplated
hereby and a certified copy of the Partnership
Agreement and a Certificate of Limited Partnership
certified by the Secretary of State of Delaware;
and
e. an opinion of Wilmer, Cutler & Pickering,
substantially in the form attached hereto as
Exhibit 7.2.2(f).
----------------
7.3 Conditions to the Partnership's Obligation to Close. At the
---------------------------------------------------
option of the Partnership, the obligations of the Company and the Partnership
under this Agreement are subject to the satisfaction of the following conditions
(unless explicitly waived in writing):
7.3.1 Each Contributor shall have terminated such existing
Management Contracts with any Prior Occupant as have
been specified in writing by the Company or the
Partnership prior to the Closing Date.
7.3.2 Each Contributor shall have terminated all Leases prior
to the Closing Date.
7.3.3 Each Contributor shall have terminated such existing
Service Contracts as have been specified in writing by
the Company or the Partnership prior to the Closing
Date.
7.3.4 Each and every representation and warranty of the
Contributors contained in this Agreement is true,
correct and
-14-
<PAGE>
complete in all material respects as of the date hereof
and at all times through the Closing Date.
7.3.5 All Prior Occupants shall be paying rental on all
Properties as set forth in the Estoppel Letter approved
by the Company and sent to each such Prior Occupant.
7.3.6 The Contributors shall have fully performed and
satisfied each and every material obligation, term and
condition to be performed and satisfied by them under
this Agreement.
7.3.7 All consents, authorizations, certificates, Estoppel
Letters, Lender's Estoppel Certificates and approvals
required to be obtained by the Contributors in
connection with the Agreement shall have been obtained,
including but not limited to all consents, approvals
and authorizations (without any conditions or
requirements) required to be obtained under any
Mortgage, deed of trust or other instrument relating to
any of the Properties or pursuant to which any of the
Contributors are bound in order to complete the
transactions contemplated under this Agreement.
7.3.8 The Company shall simultaneously with the Closing close
the initial public offering of the Initial Shares.
7.3.9 The Contributors shall have paid in full such Mortgages
and other indebtedness secured by the Properties as
required by the Company and Partnership and shall have
provided the Company and Partnership with satisfactory
evidence thereof, and to the extent that such Mortgages
are to be paid off following Closing, the mortgagee
shall deliver pay-off letters to the Company and the
Partnership.
7.3.10 The condition of the Property shall not have materially
changed.
7.3.11 The Partnership shall have received an Owner's Title
Insurance Policy (or marked-up commitment therefor) for
each Property insuring fee simple title to such
Property in the amount of the fair market value of such
Property subject only to Permitted Exceptions, and
otherwise in the form and condition required by this
Agreement;
-15-
<PAGE>
7.3.12 If the Contributors do not deliver completed Disclosure
----------
Schedules to the Company and Partnership at the time of
---------
the execution of this Agreement, the Contributors shall
deliver to the Company and Partnership all
substantially completed Disclosure Schedules required
--------------------
by this Agreement within fifteen (15) business days
after the date of the execution of this Agreement.
7.3.13 The Contributor and each Designee shall complete and
deliver to the Company and the Partnership Investor
Questionnaires evidencing such Contributor's or
Designee's qualification as an "accredited investor"
under the Securities Act of 1933, as amended.
7.4 Conditions to the Contributor's Obligation to Close. The
---------------------------------------------------
obligations of the Contributor under this Agreement are subject to the
satisfaction of the following conditions (unless explicitly waived in writing):
7.4.1 Each of the representations and warranties of the
Partnership contained in this Agreement is true,
correct and complete as of the date hereof and at all
times through the Closing Date.
7.4.2 The Partnership and the Company shall have fully
performed and satisfied each and every obligation, term
and condition to be performed and satisfied by them
under this Agreement.
7.4.3 The Company shall have completed its initial public
offering pursuant to the Registration Statement.
7.4.4 All consents, authorizations and approvals required to
have been obtained by the Company and the Partnership
in connection with this Agreement shall have been
obtained.
7.5 Transaction Costs.
-----------------
7.5.1 The Contributors will pay or bear all costs (including
any recordation and transfer taxes, title insurance,
fees and expenses of going to record) in connection
with the transfer by the Contributors of the Properties
(collectively referred to as the "Closing Costs"). The
Company and the Partnership shall bear the cost of
their due diligence activities. Notwithstanding
anything herein to the contrary, at the option of the
Contributor in lieu of paying the Closing Costs or
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<PAGE>
Consent Fees (as defined hereafter), the Contributor
may elect to deduct from the Contribution Value of the
Property, all or part of such Closing Costs or Consent
Fees, by advising the Company to reduce the number of
Units deliverable pursuant to Schedule 1.3(a) by a
---------------
number equal to the quotient determined by dividing (i)
the amount of the Closing Costs or Consent Fees to the
extent not paid by Contributor, by (ii) the Market
Price.
7.5.2 The Contributors will pay or bear all assumption fees,
prepayment penalties, premiums, lender's consent fees
or other such charges ("Consent Fees") imposed in
connection with the transactions contemplated hereby,
and all Consent Fees imposed by all other lenders in
connection with the transactions contemplated hereby.
7.5.3 Except as specified above and elsewhere in this
Agreement, each party shall bear and pay its expenses
in connection with this Agreement and the transactions
contemplated herein, including the fees of their
respective professional advisors.
VIII. CASUALTY LOSS AND CONDEMNATION
------------------------------
8.1 Casualty. Prior to Closing, all risk of loss shall be on
--------
each Contributor. If, prior to Closing, the Properties or any part thereof shall
be destroyed or materially damaged by fire or other casualty, the Partnership
may, at its option, either (i) require the appropriate Contributors to repair
such damage prior to Closing to the reasonable satisfaction of the Partnership,
at no cost or expense to the Company or the Partnership, in which event the
proceeds of any insurance applicable thereto shall be paid to the Contributor,
or (ii) itself settle the loss under all policies of insurance applicable to the
destruction or damage and receive the proceeds of insurance applicable thereto,
and the Contributor shall, at Closing and thereafter, execute and deliver to the
Partnership all required proofs of loss, assignments of claims and other similar
items. Notwithstanding anything herein to the contrary, in the event such loss
or casualty shall constitute a total or substantial loss or casualty or, in the
opinion of the Company, in its sole discretion, shall render the Property
unsuitable for its intended purpose for a period of ninety (90) days or longer,
then the Company and the Partnership, at their option, may terminate this
Agreement with respect to such Property upon notice to the Contributor, and the
number of Units issuable as set forth in Schedule 1.3(a) with respect to such
---------------
Property shall be reduced by the Contribution Value of such Property.
8.2 Condemnation or Taking. If, prior to Closing, any Property
----------------------
or any part thereof shall be condemned or taken and such condemnation or taking
materially interferes with the existing business use of the Property, the
Company and the Partnership may (i) terminate this
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<PAGE>
Agreement either as to all the Properties or solely as to such Property, in the
discretion of the Partnership and the Company, or (ii) complete the transactions
contemplated by this Agreement notwithstanding such condemnation. If the
Company and the Partnership elect to complete the transactions contemplated
hereby, the Partnership shall be entitled to receive the condemnation proceeds
and the appropriate Contributor shall, at Closing and thereafter, execute and
deliver to the Partnership and the Company all required assignments of claims
and other similar items. If the Partnership and the Company elect to terminate
this Agreement, then upon written notice to the Contributors and without further
action of the parties, this Agreement shall become null and void and no party
shall have any rights or obligations under this Agreement. If the Partnership
and the Company elect to terminate this Agreement solely with respect to the
affected Property, the number of Initial Units issuable as set forth in
Schedule 1.3(a) with respect to such Property shall be reduced by the
- -------------
Contribution Value of such Property.
IX. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTORS
--------------------------------------------------
The Contributors, jointly and severally, represent and warrant to
the Company and the Partnership that, except as described on the Disclosure
----------
Schedules attached hereto and incorporated by reference herein, the following
- ---------
are true, complete and correct as of the date of this Agreement and as of the
Closing Date.
9.1 Organization. Each Contributor is duly organized and validly
------------
existing and in good standing under the laws of the state of its organization,
and has all requisite power and authority to own or lease and operate its
properties (including the Properties) and assets and conduct its business in the
manner in which they are being owned or leased and operated and conducted, as
the case may be. Each Contributor is duly qualified and authorized and is in
good standing in all jurisdictions where its ownership, lease or operation of
assets and properties (including the Properties) or the conduct of its business
requires such qualification or authorization.
9.2 Authority. The execution and delivery of this Agreement and
---------
all agreements, documents and instruments contemplated hereby and the
performance of all transactions contemplated herein or therein, have been duly
and validly authorized by all requisite partnership, corporate or trust action,
as the case may be, and by the general partners, board of directors,
stockholders, or trustees of each Contributor, as the case may be. This
Agreement and the agreements, documents and instruments executed and delivered
in connection herewith constitute the legal, valid and binding obligations of
the Contributors, enforceable in accordance with their respective terms. To the
knowledge of the Contributors, no consent, authorization, approval or waiver by
any governmental agency or authority or by any third party is required in
connection with the execution and delivery of, and the performance of the
obligations to be performed under, this Agreement and the documents and
instruments executed and delivered in connection herewith, or if any of the
foregoing is required, it has been obtained.
9.3 Interest in Contributed Properties. Each Contributor is the
----------------------------------
record and beneficial owner of, and has good and marketable title to, the
interests in the Properties set forth
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<PAGE>
opposite such Contributor's name on Schedule 1.2, free and clear of all liens,
------------
options, adverse claims or encumbrances, and such interest is not the subject of
any agreement (other than this Agreement) providing for the sale, assignment or
transfer thereof. Such Contributor has the full power, capacity and authority
to sell, transfer and assign the legal and equitable ownership of his/her or its
interest to the Partnership as provided in this Agreement, Schedule 1.2 is true,
------------
complete and accurate in all respects as to each such Contributor, and the
Contributors have not entered into any agreement and have no knowledge of any
agreement or understanding to issue any additional interests in any Contributor
to any other person or entity.
9.4 Investment. Each Contributor hereby represents and warrants
----------
that:
9.4.1 Such Contributor or its Designee is acquiring the Units
issued to him hereunder for investment for his own
account and not as an agent or nominee for any other
person or entity.
9.4.2 Such Contributor or its Designee will not, directly or
indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of such Units (each
such action, a "Transfer") unless (a) such Transfer
complies with the provisions of the Partnership
Agreement, if applicable, and this Agreement, (b)
either (i) the Transfer is pursuant to an effective
registration statement under the Act, or (ii) such
Contributor or its Designee shall have furnished the
Company or the Partnership, as the case may be, with an
opinion of counsel which opinion of counsel shall be
reasonably satisfactory to the Partnership or the
Company, as the case may be, to the effect that no such
registration is required because of the availability of
an exemption from registration under the Act, and (iii)
such Transfer shall be in compliance with any
applicable state or foreign securities and "blue sky"
laws.
9.4.3 Such Contributor or its Designee has been advised by
the Partnership that: (i) neither the offer nor sale of
the Units have been registered under the Act or any
state or foreign securities and "blue sky" laws; (ii)
the Units are characterized as a "restricted security"
under the Act inasmuch as they are being acquired from
the Partnership or the Company, as the case may be, in
a transaction not involving a public offering; (iii)
the Units must be held indefinitely and such
Contributor or its Designee must continue to bear the
economic risk of the investment in the Units, unless
the offer and sale of such Units are subsequently
registered under the Act or an
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<PAGE>
exemption from such registration is available and all
applicable state or foreign securities and "blue sky"
laws are complied with; (iv) it is not anticipated that
there will be any public market for the Units in the
foreseeable future; (v) Rule 144 promulgated under the
Act is not presently available with respect to offers
or sales of the securities of the Company or the
Partnership and neither the Company nor the Partnership
has covenanted to make such Rule available nor has it
made any covenants with respect to other rules by which
offers or sales may be made; (vi) when and if the Units
may be disposed of without registration under the Act
in reliance on Rule 144, such disposition can be made
only in limited amounts in accordance with the terms
and conditions of such Rule; and (vii) if the Rule 144
exemption is not available, public offer or sale of the
Units without registration will require the
availability of another exemption under the Act.
9.4.4 Such Contributor or its Designee is (a) an "accredited
investor" as defined in the Act and (b) has such
knowledge, skill and experience in business, financial
and investment matters so that it is capable of
evaluating the merits, risks and consequences of an
investment in the Units and is able to bear the
economic risk of loss of this investment.
9.4.5 Such Contributor or its Designee has been afforded (a)
the opportunity to ask such questions as he/she or it
has deemed necessary of, and to receive answers from,
representatives of the Partnership or the Company, as
the case may be, concerning an investment in the Units
and the merit and risks of investing in the Units and
(b) access to information about the Partnership's and
the Company's financial condition, business, results of
operations and prospects sufficient to enable him to
evaluate his investment in the Units.
9.4.6 Such Contributor or its Designee has relied solely on
its own legal counsel with respect to the federal and
state tax consequences of an investment in the Units
and all related transactions.
9.5 Title to the Properties. The Contributor is the sole owner
-----------------------
beneficially and of record of good, marketable and insurable fee simple title to
the Properties as set forth on Schedule 1.2 free and clear of all liens, claims
------------
or encumbrances except the Permitted Exceptions, and Schedule 1.2 is true,
------------
accurate and complete in all material respects. Between the date hereof and
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<PAGE>
the Closing Date, no liens, claims or encumbrances will be created or permitted
to be created on any Property other than the Permitted Exceptions. Prior to or
at the Closing all monetary encumbrances on any Property, other than the
Permitted Exceptions, shall be duly canceled, removed and discharged of record,
and proof thereof satisfactory to the Title Insurer, the Company and the
Partnership shall be delivered to the Company and the Partnership. Except for
Prior Occupants, there are no parties in possession of any part of the
Properties as of the Closing Date, and there are no other rights of possession,
or agreements providing for the sale, assignment or transfer of title to any
Property or portion thereof (other than this Agreement), which have been
granted to any third parties.
9.6 No Defaults. (a) The Contributor is not in default of any
-----------
of its material obligations under any agreement, franchise, license, contract,
deed, Mortgage, lease, instrument, certificate, affidavit or covenant affecting
title to the Properties; (b) there are no contracts or agreements, such as
maintenance, service, or utility contracts affecting the Properties other than
the Service Contracts, and no party to such contracts is in material default or
breach under the terms and conditions thereof; and (c) except for the Permitted
Exceptions and the Service Contracts, there are no contracts, agreements,
liabilities, claims or obligations of any kind or nature relating to the
Properties and to which the Contributors will be bound or the Properties will be
subject after the Closing except as expressly described in Schedule 9.6 attached
------------
hereto.
9.7 No Litigation; No Condemnation. There are no actions,
------------------------------
suits, proceedings or claims pending, or to the knowledge of the Contributor,
threatened or contemplated, with respect to or in any manner affecting the
Properties, or the Contributor's interest therein; or the ability of the
Contributors to complete the transactions contemplated by this Agreement or
which could prevent the Contributor from satisfying its obligations under this
Agreement. None of the Contributors have received notice of any pending or
threatened condemnation or similar proceedings or special assessments affecting
the Properties, or any part thereof.
9.8 No Violation. The execution and delivery of this Agreement
------------
and the agreements, documents and instruments executed and delivered in
connection herewith, the consummation of the transactions contemplated hereby or
thereby, and the operation of any Property shall not: (a) conflict with, or
result in a breach of, the terms, conditions or provisions of, or constitute a
default under, any agreement, contract, Mortgage, deed, lease, license,
franchise or instrument to which each Contributor is a party or is subject or to
which any Property is subject; (b) to Contributor's knowledge, violate any
agreement, contract, Mortgage, deed, lease, license, franchise, restriction,
easement, restrictive covenant, or instrument to which any Contributor or any
Property is subject; (c) to Contributor's knowledge, constitute a violation of
any applicable code, resolution, law, statute, regulation, ordinance, rule,
judgment, decree or order; (d) with respect to each Contributor, violate any
provision of its charter, bylaws or other organizational document; (e) except as
to any indebtedness in respect of which the consent of the lender shall have
been obtained prior to the Closing Date, result in the acceleration of any
indebtedness or any encumbrance pertaining to any Contributor or any Property,
or the cancellation of any contract, agreement, franchise, license, instrument
or lease pertaining to any Property (other than as specifically requested
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<PAGE>
by the Company or the Partnership pursuant to this Agreement); or (f) except as
to any Permitted Encumbrances, result in the creation of any lien, encumbrance
or security interest upon any Property. None of the Contributors have received
any written notice of any violation (both as to condition of the Property and
use) of any applicable laws, statutes, ordinances, codes (including, but not
limited to, zoning, building, subdivision, pollution, environmental protection,
water disposal, health, fire and safety engineering codes, and laws and
regulations with respect to the submetering of any utilities serving any
Property), and the rules and regulations of, by governmental authority having
jurisdiction over the Properties.
9.9 Required Obligations. The Contributor has paid and
--------------------
performed all material obligations relating to the Properties required to have
been paid or performed prior to the date hereof and prior to the Closing Date,
including but not limited to all principal installments, interest payments,
taxes, penalties and other charges in connection with all indebtedness relating
to or secured by any of the Properties or an interest in any of the Properties.
9.10 Condition of Properties. Except as disclosed on the
-----------------------
Schedule 9.10, the Contributor has not been notified that the structural,
- -------------
mechanical, electrical, plumbing, roofing and other major systems on any
Property and items of equipment and components located thereon, require to be
replaced or are in need of material repair.
9.11 Warranties. The Contributor has not released or modified
----------
any warranties of builders, contractors, manufacturers or other tradespersons
that have been given to the Contributor without the consent of the Company or
the Partnership.
9.12 Utilities. Usable sanitary and storm sewers and public
---------
water, and electrical utilities (collectively, the "Utilities") of adequate
capacity required for the operation of the Properties, are installed in, and are
duly connected to, the Properties and can be used without any charge except the
normal user charges for sanitary sewers and the normal and usual charges imposed
for public water, gas and electric utilities.
9.13 Zoning. Each Property is currently located in the areas
------
zoned for its current use, as indicated on the Schedule 9.13 hereto, which
-------------
classification permits the development, use and operation of the improvements on
such Property as such improvements currently are being used without special
exception or permit. The Contributor has no knowledge of any threat of, and has
not received written notice of, any proceeding to change adversely or down-zone
the existing zoning classification as to any portion of any Property.
9.14 Improvements. To Contributor's knowledge, all improvements
------------
on the Properties have been constructed in accordance with, and substantially
comply with, all requirements of all applicable laws, ordinances, regulations
and orders, including without limitation applicable zoning, building and fire
safety codes and all restrictive covenants, if any, and other easements,
encumbrances or agreements affecting title to any Properties or improvements.
For purposes of this Section 9.14, "substantially" means that Contributor shall
not be permitted to engage in even de
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<PAGE>
minimis non-compliance with applicable laws, ordinance, regulations and orders
if such de minimis non-compliance could result in any governmental,
administrative or other authority executing any penalty, fine, remedy or other
disciplinary action against the Contributor or Contributor's Business.
9.15 Environmental Matters.
---------------------
9.15.1 For purposes of this Agreement:
a. "Environmental Claim" means any claim, action,
cause of action, investigation, or notice (written
or oral) by any person or entity alleging
potential liability (including, without
limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs,
natural resource damages, property damages,
personal injuries, or civil or criminal penalties)
arising out of or resulting from (i) the actual or
alleged presence or release into the environment
of any Substance of Concern at any location,
whether or not owned or operated by the
Contributor, or (ii) circumstances forming the
basis of any actual or alleged violation of any
Environmental Law.
b. "Environmental Laws" means all federal, state,
local, and foreign laws and regulations relating
to pollution or protection of human health or the
environment (including, without limitation,
ambient air, surface water, ground water,
wetlands, land surface, subsurface strata, and
indoor and outdoor workplace), including, without
limitation, (i) laws and regulations relating to
emissions, discharges, releases, or threatened
releases of Substances of Concern, and (ii) common
law principles of tort liability.
c. "Substances of Concern" means chemicals,
pollutants, contaminants, wastes, toxic
substances, hazardous substances, radioactive
materials or genetically modified organisms, which
are, have been or become regulated by any federal,
state or local government authority including,
without limitation, (i) petroleum or any fraction
thereof, (ii) asbestos, (iii) any substance or
material defined as
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<PAGE>
a "hazardous substance" pursuant to (S) 101 of the
Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. (S)
9601), or (iv) any substance or material defined
as a "hazardous chemical" pursuant to the federal
Hazard Communication Standard (29 C.F.R. (S)
1910.1200).
9.15.2 To the Contributor's knowledge, the Contributor and
Property are in full compliance with all applicable
Environmental Laws, which compliance includes, but is
not limited to, possession by the Contributor of all
permits and other governmental authorizations required
under applicable Environmental Laws, and compliance
with the terms and conditions thereof. The Contributor
has not received any communication (written or oral),
whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the
Contributor or Property is not in full compliance with
the Environmental Laws, and, to the Contributor's best
knowledge after due inquiry, there are no circumstances
that may prevent or interfere with such full compliance
in the future.
9.15.3 There is no Environmental Claim pending or threatened
against the Contributor or, to the Contributor's best
knowledge after due inquiry, against any person or
entity whose liability for any Environmental Claim the
Contributor has retained or assumed either
contractually or by operation of law.
9.15.4 To the Contributor's knowledge, there are no past or
present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the
release, emission, discharge, presence, or disposal of
any Substance of Concern, at or relating to any of the
Properties that could form the basis of any
Environmental Claim against the Contributor or, to the
Contributors' best knowledge after due inquiry, against
any person or entity whose liability for any
Environmental Claim the Contributor has retained or
assumed either contractually or by operation of law.
9.15.5 Without in any way limiting the generality of the
foregoing, to the best of Contributor's knowledge, (a)
all on-site and off-
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<PAGE>
site locations where the Contributor has treated,
disposed, or arranged for the disposal of Substances of
Concern or stored hazardous wastes (as defined under
the Resource Conservation and Recovery Act or analogous
state laws) are identified in Schedule 9.15.5(a); (b)
------------------
all underground and aboveground storage tanks, whether
or not currently in use, and the capacity and contents
of such tanks, located on any of the Properties are
identified in Schedule 9.15.5(b), and except as set
------------------
forth in Schedule 9.15.5(b) no underground or above
------------------
ground storage tank that has been removed from any
Property, or that is currently located at any Property,
has leaked or is leaking; (c) except as set forth on
Schedule 9.15.5(c), there is no asbestos contained in
------------------
or forming part of any building, building component,
structure or office space on any Property; (d) no
polychlorinated biphenyls (PCBs) are used or stored on
any Property; (e) the Contributor has previously
provided to the Company copies of all environmental
audit reports, Phase I and Phase II investigation
reports, technical reports regarding environmental
sampling results, and similar environmental reports in
the possession of the Contributor or its contractors or
agents relating to any Property; and (f) all permits
and other governmental authorizations currently held by
the Contributor for any Property pursuant to the
Environmental Laws are identified in Schedule
--------
9.15.5(f).
---------
9.16 Insurance. Schedule 9.16 contains a complete and correct
--------- -------------
description of all policies of insurance presently maintained by the Contributor
with respect to all Properties and the operations thereof. To the knowledge of
the Contributor, the Contributor and the Properties are in compliance with the
requirements of each such policy, there is no violation of any of the provisions
of the insurance policies, and all of such insurance policies are in full force
and effect. The Contributor has not received from any insurance company which
carries underwriters insurance on any Property, or any Board of Fire
Underwriters, any notice of any defect or inadequacy in connection with any
Property or its operation which, since the date of such notice, has not been
corrected.
9.17 Management. Except as disclosed on the Disclosure
---------- ----------
Schedules, on the Closing Date, there are and will be no contract or agreement
- ---------
in effect between the Contributor and any third party for the management or
leasing of any Property, except for those Management Contracts that the
Partnership does not require to be terminated, and there shall be no leasing
commissions due and owing, or to become due and owing, in connection with any of
the Leases.
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<PAGE>
9.18 Compliance. To the Contributor's knowledge, the
----------
Contributor has complied in all material respects with all laws, ordinances,
rules, regulations and orders of all governmental authorities applicable to the
ownership, management, operation, construction, maintenance and repair of any
Property.
9.19 Leases; Rent Rolls. Except as set forth on Schedule 9.19:
------------------ -------------
9.19.1 Copies of all Leases for each of the Properties and all
parts thereof, as amended through the date hereof have
been made available to the Company and the Partnership;
such copies are and shall be, in all material respects,
true, accurate and complete records of all agreements
and understandings with respect to the use or lease of
all or any portion of any of the Properties or
otherwise constituting Leases that are currently
outstanding (as referenced on the Rent Roll) including
all amendments and modifications thereto.
9.19.2 Schedule 9.19.2 (the "Leases and Rent Roll") is a true,
---------------
complete and correct list of all current Leases for the
Properties or any part thereof.
9.19.3 Each of the Leases is in full force and effect,
constitutes the legal, valid and binding obligation of
the Prior Occupant thereunder, enforceable in
accordance with its terms, except as such
enforceability may be limited by bankruptcy and similar
laws affecting the enforcement of creditors' rights
generally or equitable considerations which may affect
a court's exercise of its equitable powers, and has not
been modified, amended or extended.
9.19.4 To the knowledge of the Contributor, none of the Prior
Occupants is in default in the performance or
observance of any of the terms, covenants or conditions
to be kept, observed or performed by it under its Lease
and no event has occurred which, with the lapse of time
or the giving of notice or both, would constitute a
default thereunder.
9.19.5 No Prior Occupant has an option or right of refusal to
purchase any Property or any part thereof.
9.19.6 Except as specified in the Estoppel Letter approved by
the Company and sent to a Prior Occupant, no Prior
Occupant is entitled to any rebate, concession,
deduction or offset.
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<PAGE>
9.19.7 Except as specified in the Estoppel Letter approved by
the Company and sent to a Prior Occupant, no Prior
Occupant has paid any rent, additional rent or other
charge of any nature for a period of more than thirty
(30) days in advance.
9.19.8 Except as specified in the Estoppel Letter approved by
the Company and sent to a Prior Occupant, all Prior
Occupants are paying full rental under all Leases.
9.19.9 No Prior Occupant has any claim or basis for any claim
for reduction, deduction or set-off against the
landlord or the rent under such Lease.
9.19.10 No Prior Occupant has given the Contributors, or the
landlords (if different than the Contributors) named in
the Leases, oral or written notice of any intent to
terminate its Lease, no Prior Occupant has refused to
execute and deliver the Occupancy Lease at Closing, or
no Prior Occupant has refused to vacate its premises or
such Property, or otherwise to cease occupancy of its
premises or such Property.
9.19.11 The Contributor is the landlord under the Leases.
9.19.12 The Contributor has performed all obligations, including
repairs, if any, required to be performed by them, and
are not in default under any of the Leases.
9.20 Service Contracts; Management Contracts. Schedule 9.20(a)
--------------------------------------- ----------------
is a list of all employment, union, purchase, service and maintenance
agreements, leasing agreements, listing agreements, equipment leases and any
other agreements, contracts, licenses and permits affecting or pertaining to the
Properties or any part thereof (the "Service Contracts"), and Schedule 9.20(b)
----------------
is a list of all management contracts relating to the Properties (the
"Management Contracts"). The Contributor is not party to any licenses or leases
of personal property or any other contracts or agreements, written or oral, of
any kind or character, relating to the management, operation, maintenance or
repair of any Property, or otherwise, except for the Leases and the Service
Contracts. The Contributor has performed all obligations required to be
performed by them and are not in default under any of the Service Contracts.
Each of the Service Contracts is in full force and effect and constitutes the
legal, valid and binding obligation of the respective parties thereto,
enforceable in accordance with its terms, and has not been modified, amended or
extended.
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<PAGE>
9.21 Permits. All permits, licenses, inspections and other
-------
approvals from all applicable governmental authorities having jurisdiction over
the Contributor and the Properties that are necessary in connection with the
operation of the use, ownership and operation of the Properties as they are
currently used, have been obtained and are in full force and effect.
9.22 Financial Statements. The Contributor has delivered to the
--------------------
Partnership and the Company the Financial Statements (as defined in Section
12.2.1) and the related statements of income, changes in equity, and cash flow
and all schedules and the notes thereto. The Financial Statements: (a) present
fairly the financial condition and the results of operations, changes in equity,
and cash flow of each Property, as at the respective dates of and for the
periods referred to in such Financial Statements, all in accordance with
generally accepted accounting principles and standards; (b) reflect the
consistent application of such accounting principles throughout the periods
involved and for each and all Properties; and (c) are true, complete and
correct. Since the latest date of the Financial Statements, there have been no
changes in any of the accounting policies, practices or procedures of the
Contributor.
9.23 Undisclosed Liabilities. Schedule 9.23 hereto is a true,
----------------------- -------------
complete and accurate description of all debts, liabilities and obligations of
the Contributor relating to each of the Properties. There are no debts,
liabilities or obligations (whether known or unknown, disputed or undisputed,
fixed, contingent or otherwise) associated with or relating to any of the
Properties, or secured by any of the Properties, other than those specified and
described on Schedule 9.23 hereto.
-------------
9.24 Contracts. Attached hereto as Schedule 9.24 is a complete
--------- -------------
and accurate list of all contracts, agreements or understandings (whether or not
in writing), other than the Leases, Service Contracts and Management Contracts,
relating to any of the Properties, to which the Contributor is a party or by
which it or any of the Properties is bound.
9.25 Tax Matters. The Contributors or their Designees have
-----------
relied solely on their own counsel for advice on any and all tax matters
relating to this Agreement and have not relied on any advice or representations
of the Company, the Partnership, or their counsel with respect to any tax
matters relating to this Agreement.
9.26 Employee Benefit Liabilities. Except as listed on Schedule
---------------------------- --------
9.26, neither the Contributor nor any entity or Affiliate currently or
- ----
previously within a controlled group or under common control with the
Contributor within the meaning of Section 414(b) or (c) of the Code or Section
4001 of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended ("Controlled Group Member"), currently sponsors or has previously
sponsored, contributed to, or been obligated to contribute to, any defined
benefit pension plan subject to Title IV of ERISA or any plan subject to the
funding rules of Section 412 of the Code or Section 302 of ERISA ("Pension
Plans"). All Pension Plans are fully funded on a termination basis (using
Pension Benefit Guaranty Corporation assumptions), and each Contributor and
Controlled Group Member has timely made all funding contributions required by
Section 302 or Title IV of ERISA or Section 412 of the Code. No Contributor or
Controlled Group Member has any actual or contingent liability with
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<PAGE>
respect to any terminated Pension Plan. Neither the Property nor any other
assets of the Contributor are subject to liens under the Code or ERISA with
respect to any employee benefit plan.
9.27 [Intentionally Omitted]
9.28 Taxes. The Contributor has filed all federal, state and
-----
local tax returns required to be filed by the Contributor. With respect to any
periods prior to the Closing Date, the Contributor (i) has no knowledge of any
unpaid taxes that would create a lien on any Property, and (ii) has paid in full
all taxes and assessments payable or is diligently pursing with the appropriate
authority any dispute the Contributor has regarding any unpaid taxes or
assessments as of the Closing Date.
9.29 Special Filings. The Contributor is not required to submit
---------------
any notice, report or other filing to any governmental or regulatory authority
in connection with the execution, delivery or performance of this Agreement or
any document or instrument executed and delivered in connection herewith or the
consummation of the transactions contemplated hereby other than the filing of
the tax returns required by the terms of this Agreement; and no consent,
approval or authorization of any governmental or regulatory authority is
required to be obtained by the Contributor in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
9.30 [Intentionally Omitted]
9.31 Books and Records. The books and records of the Contributor
-----------------
with respect to each Property, all of which have been or will be made available
to the Company and the Partnership, are, and will be at all times until Closing,
complete and correct in all material respects. All of such books and records
shall be delivered to the Company prior to the Closing.
9.32 No Brokers. Except as set forth on the Disclosure Schedule,
----------
the Contributor has not dealt with any agent, broker or other person acting
pursuant to express or implied authority of the Contributor, and no person or
entity is entitled to a commission or finder's fee in connection with the
contribution described by this Agreement or will be entitled to make any claim
against the Company, or the Partnership for a commission or finder's fee by
reason of the Contributor having engaged him/her/it.
9.33 All Material Information. With respect to all information,
------------------------
statements, representations and warranties made herein, any agreements or
documents contemplated hereby, any schedules or exhibits hereto, and any
certificates or instruments delivered in connection herewith, the Contributor
hereby represent and warrant that no information, statement, representation or
warranty herein or therein contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which made, not
misleading; or necessary in order to provide the Partnership or the Company with
true, accurate and complete information. The Contributor has no knowledge or
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<PAGE>
information of any facts, circumstances or conditions which do or could (whether
by the passage of time or the giving of notice or both) materially and adversely
affect any Property or the operation or intended use of the same.
9.34 Survival of Warranties, Representations and Covenants. The
---------------------- ------------------------------
foregoing representations and warranties shall not be affected by any
investigation or verification made by or on behalf of the Company or the
Partnership. The representations, warranties and covenants of Contributors made
in this Agreement shall survive the Closing and consummation of the transactions
contemplated hereby, and shall remain in full force and effect so long as the
Company or the Partnership provides the Contributor with written notice of any
breach, violation or right to indemnification thereunder within a period ending
24 months from the date of this Agreement, except that in the case of any claim
arising out of the representations or warranties herein relating to Section 9.15
(Environmental Matters) and Section 9.24 (Taxes), and Section 9.26 (Employee
Benefit Liabilities), such representations and warranties shall survive in each
case until the applicable statute of limitations has run. After Closing,
neither the Company nor the Partnership shall prosecute any claim against the
Contributor for a breach of the foregoing representations and warranties if the
Company or the Partnership have obtained actual knowledge of such breach prior
to Closing.
X. [INTENTIONALLY OMITTED]
XI. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARTNERSHIP
-----------------------------------------------------------------
The Partnership and the Company, jointly and severally, represent and
warrant to the Contributor that the following are true, complete and correct as
of the date of this Agreement and as of the Closing:
11.1 Organization, Good Standing and Qualification. Each of the
---------------------------------------------
Company and the Partnership (i) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
(ii) has all requisite power and authority to carry on its business and own or
lease and operate its assets and properties in the manner in which it is being
conducted and owned or leased and operated, as the case may be, and (ii) is duly
qualified to transact business and is in good standing in all jurisdictions
where its ownership, lease or operation of its properties or assets or the
conduct of its business requires such qualification.
11.2 Authorization. The execution and delivery of this Agreement
-------------
and all agreements, documents and instruments contemplated hereby and the
performance of all transactions contemplated herein or therein, have been duly
and validly authorized by all requisite action by the Company and its board of
trustees; and by all requisite action of the Partnership. This Agreement and the
agreements, documents and instruments executed and delivered in connection
herewith constitute the legal, valid and binding obligation of each of the
Company and the Partnership, enforceable in accordance with their respective
terms, subject to applicable bankruptcy,
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<PAGE>
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity) and except to the
extent that rights to indemnification and contribution under or contemplated by
this Agreement or such other agreements may be limited by federal or state
securities laws or public policy relating thereto.
11.3 No Violation. The execution and delivery of this Agreement
-------------
and the agreements, documents and instruments executed and delivered in
connection herewith, the consummation of the transactions hereby or thereby, and
the operation of any Property shall not: (i) conflict with, violate, or result
in a breach of, the terms, conditions or provisions of, or constitute a default
under, any agreement, contract, Mortgage, deed, lease, license, franchise or
instrument to which the Company or the Partnership is a party or is subject;
(ii) constitute a violation of any applicable code, resolution, law, statute,
regulation, ordinance, rule, judgment, decree or order to the Company or the
Partnership; or (iii) violate any provision of the organizational documents of
the Company or the Partnership.
11.4 Public Offering. At the time of Closing, (i) the Company's
----------------
Form S-11 Registration Statement will comply with applicable federal securities
laws and regulations and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein in order
to make the statements therein not misleading, and (ii) the Company's Shares
shall be listed and traded on The Nasdaq Stock Market National Market and there
will have been no suspension of trading in such Shares.
11.5 Tax Status. As of the Closing, the Partnership will be
----------
qualified as a partnership for Federal income tax purposes, and the Company will
be qualified as a real estate investment trust organized under the laws of the
State of Maryland.
11.6 No Litigation. Neither the Partnership nor the Company is
-------------
involved in any pending or, to its knowledge, threatened litigation that would
materially or adversely effect its operations or financial condition or the
ability to perform under this Agreement or the Partnership Agreement.
11.7 No Brokers. Except as set forth in the Disclosure Schedule,
----------
neither the Partnership nor the Company has dealt with any agent, broker or
other person acting pursuant to express or implied authority of either such
party, and no person or entity is entitled to a commission or finder's fee in
connection with the transactions contemplated by this Agreement or will be
entitled to make any claim against any Contributor for a commission or finder's
fee by reason of the Company or the Partnership having engaged him/her/it.
11.8 Survival. The representations and warranties of the Company
--------
and the Partnership made in this Section 11 shall survive the Closing and
consummation of the transactions contemplated hereby, and shall remain in full
force and effect so long as the Contributor provides
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<PAGE>
the Company or the Partnership with written notice of any breach, violation or
right to indemnification thereunder within a period ending twenty-four (24)
months from the date of this Agreement. After Closing, the Contributor shall
not prosecute any claim against the Company or the Partnership for a breach of
the foregoing representations and warranties if the Contributor obtained
knowledge of such breach prior to Closing.
XII. COVENANTS
---------
12.1 Covenants of the Company and the Partnership. Each of the
--------------------------------------------
Company and the Partnership hereby covenants as follows:
12.1.1 [Intentionally Omitted]
12.1.2 If this Agreement is terminated for any reason, (a) the
Partnership and the Company shall promptly return to
Contributors all materials furnished by Contributors to
the Partnership and the Company pursuant to this
Agreement, and (b) the Partnership and the Company
shall promptly restore the Properties to substantially
the same condition in which they existed immediately
before any physical tests conducted by or on behalf of
the Partnership and the Company pursuant to the
purposes of this Agreement.
12.1.3 Prior to the Closing Date, except as may be required to
be disclosed by law (including federal and state
securities laws, and the rules and regulations
thereunder), regulation or legal process, or unless
otherwise consented to in writing by the Contributors,
which consent shall not be unreasonably withheld, the
Partnership and the Company shall keep all information
learned by the Partnership and the Company in
connection with the Properties or any operation thereof
confidential.
12.1.4 In connection with inspection of the Properties, the
Partnership and the Company shall not unreasonably
interfere with any Prior Occupants or any Contributor's
business operations.
12.1.5 The Partnership shall not sell, repay Mortgage Debt,
finance, refinance or otherwise take any actions that
are prohibited with respect to any specified Properties
to the extent described on Schedule 12.1.5.
---------------
Notwithstanding the provisions of this Section, the
Partnership may (A) at any
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<PAGE>
time, sell or exchange one or more of the Properties in
a "like kind exchange" under Section 1031 the Code (or
any successor or similar section) in which no gain is
recognized by the Partnership and reasonable provisions
are made (such as by substituted debt) to avoid
triggering gain to the Contributor, or (B) sell
properties upon the repurchase of the Units for cash,
conversion of the Units to Shares or the transfer of
the Units. Notwithstanding the provisions of this
Section, the Company may sell the Properties which
relate to the: (1) closure of the Dealership on such
Property due to termination of the Franchise Agreement,
(2) sale of the Dealership on such Property, or (3)
closure of the Dealership on such Property for any
reason if a new Dealership does not open on such
Property with 24 months, unless expressly waived by the
Company.
12.1.6 The Partnership shall be entitled from time to time as
necessary to seek and rely on a certificate, signed
either by the Transfer Agent or by the holders of a
majority of the then outstanding Initial Units issued
hereunder to the Contributors, of the basis and at risk
amounts relevant to the provisions of this Section.
12.1.7 For purposes of Section 704(c) of the Code, the
Partnership will use the traditional with ceiling
method of making allocations respecting all properties
contributed to the Partnership at or before the
Closing. For purposes of this Section 12.1.7, upon
disposition of a Property, the Partnership may make a
curative allocation of the type described in Treasury
Regulation Section 1.704-3(c)(3)(iii)(B).
12.1.8 So long as the Contributors and their Permitted
Transferees hold 10% or more of the Initial Units, the
Company agrees that from and after the Closing Date
substantially all of the Company's business for profit
shall be conducted by or through the Partnership;
provided, however, that business may be conducted
through the Company or a Company subsidiary provided
that all labor, services and goods furnished by the
Company or its subsidiary shall be at the cost of such
entity, substantially all of the pecuniary benefit
derived from such activity shall inure to the benefit
of the Partnership, and the Company shall not make any
distributions to its shareholders from any funds, other
than
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<PAGE>
distributions that the Company receives from the
Partnership in respect of its Units.
12.1.9 The parties acknowledge and agree that the Contributors
and their affiliates are required under this Agreement
and the Company Leases to provide to the Company
certain confidential financial information (the
"Confidential Information") with respect to the
business conducted on the Leased Properties. The
Company agrees to use the Confidential Information
solely for the purposes of monitoring compliance with
the terms of this Agreement and the Company Leases, and
the Confidential Information shall be disclosed only to
those of the Company's employees, advisors and
consultants to whom it is necessary for such purposes.
Moreover, the Company will use its best efforts to
implement policies and procedures at the Board of
Trustees level so as to minimize the disclosure of
Confidential Information to Trustees having interest in
businesses that compete with the Contributors and their
affiliates.
12.2 Covenants of the Contributors and the Contributing Entities.
-----------------------------------------------------------
The Contributor hereby covenants and agrees as follows:
12.2.1 [Intentionally Omitted]
12.2.2 If this Agreement is terminated as to all Properties
for any reason, the Contributor shall promptly return
to the Company or the Partnership, as the case may be,
all materials furnished by the Company or the
Partnership, to such Party pursuant to this Agreement.
12.2.3 The Contributor shall keep all information learned by
such party in connection with the Partnership or the
Company or any operation thereof confidential.
12.2.4 On the Closing Date, each Contributor shall enter or
shall cause such other party as is reasonably requested
by the Company or the Partnership to enter into the
Company Leases and such service or other agreements as
the Company and the Partnership shall request.
12.2.5 In the event that facts or circumstances are discovered
or develop that could form the basis of an
Environmental Claim
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<PAGE>
with respect to a specific Property or Properties, the
Contributor(s) of such Property or Properties shall
take all actions necessary to fully address such
circumstances, including, without limitation, providing
notice to appropriate governmental authorities;
conducting environmental studies, sampling and testing
procedures; taking remedial action; and modifying
operations or physical facilities to otherwise
eliminate potential liability and ensure full
compliance with the Environmental Laws. Without
limiting the foregoing, each Contributor shall ensure
that it has identified any underground storage tanks
("USTs") used in conjunction with its operations and
that all registration, investigation, remedial action
and technical upgrade requirements have been complied
with fully in respect of each such UST.
12.3 No Claim Against Contributed Property. Each Contributor
-------------------------------------
hereby represents, warrants, covenants and agrees that, as of the Closing Date,
he/she/it: (i) will have no claim of any kind or nature against any Property by
reason of the execution of this Agreement; (ii) hereby waives, releases and
discharges any claim he/she/it has or may have; and (iii) shall not make any
claim or bring any action against any Property or the Company or the Partnership
for or in respect thereof. Notwithstanding Section 9.34, this representation,
warranty, covenant and agreement shall survive the closing of the transactions
contemplated hereby and shall continue in effect.
12.4 DRO Election; Bottom Guaranty Election.
--------------------------------------
12.4.1 The Partnership hereby agrees to send to each
Contributor (the "Annual Notice") who holds Initial
Units the following information on an annual basis at
least 30 days prior to the filing of the tax return of
the Partnership:
a. the amount of the debt secured by the
Partnership's properties and the amount of the
Partnership's total recourse, non-recourse and
partner non-recourse debt as of the end of the
most recent fiscal year;
b. the amount of recourse, nonrecourse, and partner
non-recourse debt allocated to each such
Contributor;
c. the adjusted basis of the Partnership's properties
as of the end of the most recent fiscal year; and
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<PAGE>
d. the projected taxable income or loss of the
Partnership for such fiscal year.
12.4.2 Each Contributor who holds Initial Units, at its
written election but with no obligation to do so, may
affirmatively make on an annual basis (a) a DRO
Election or (b) a Bottom Guaranty Election. Any such
election shall be made by notice delivered to the
Partnership no later than the 30th day after the Annual
Notice was given.
12.4.3 A DRO Election shall state that if the Contributor has
a deficit balance in its capital account following the
liquidation of the Contributor's interest in the
Partnership or the liquidation of the Partnership, as
the case may be, such Contributor shall contribute to
the capital of the Partnership, no later than the end
of the fiscal year during which the Contributor's
interest in the Partnership is liquidated or during
which the Partnership is liquidated, as the case may be
(or, if later, 90 days after the date on which the
Contributor's interest in the Partnership is
liquidated, as the case may be) (the "Liquidation
Date") an amount of money equal to a designated portion
of the deficit in the Contributor's capital account.
The term "liquidation" shall have the meaning given to
it in Treas. Regs. Section 1.704-1.
12.4.4 A Bottom Guaranty Election shall state that if the
Partnership shall be in default with respect to the
Mortgage securing any of the properties of the
Partnership, then the Contributor agrees to contribute
to the capital of the Partnership a designated portion
of the principal balance of such Mortgage (the
"Contribution Limit"); however, such contribution shall
only occur if the mortgage lender shall have exhausted
all of its remedies against such property in order to
collect the amount owing the mortgage lender, and such
Contribution Limit shall be reduced on a dollar-for-
dollar basis for every dollar received by the mortgage
lender from exercising such remedies. Any such
contribution shall be made by the Liquidation Date. For
example, if the amount of the Mortgage were $10,000,000
and the amount of the Contribution Limit were
$1,000,000, the capital contribution would only be
required if the Property were sold in foreclosure and
the proceeds of sale were less than $1,000,000. In the
event that more than one Partner submits
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<PAGE>
a Bottom Guaranty Election with respect to the same
debt, the Partnership shall notify each such Partner
and allow such Partners to appropriately modify their
respective Bottom Guaranty Elections.
12.4.5 Limitations on Indebtedness. The Company will use its
---------------------------
best efforts to maintain Mortgage Debt with respect to
the Properties and in the amounts as described on
Schedule 12.4.5, until such time as the number of
---------------
outstanding Units issued to the Contributor hereunder
is not more than the number of Units specified on such
Schedule.
XIII. DUE DILIGENCE PERIOD
--------------------
13.1 Due Diligence Period. The period from the date hereof
--------------------
until the Closing Date is referred to herein as the "Due Diligence Period."
13.2 Access to Properties and Materials. During the Due
----------------------------------
Diligence Period and upon twenty-four (24) hours prior notice, the Company and
the Partnership and their agents, engineers, surveyors, appraisers, auditors,
counsel and other representatives shall have the right to enter upon the
Properties to inspect, examine, survey, obtain engineering inspections and
environmental studies, appraise, and otherwise do that which, in the opinion of
the Partnership and the Company, is necessary to determine the boundaries,
acreage and condition of the Properties and to determine the suitability of the
Properties for the uses intended by the Partnership (including, without
limitation, inspect, review and copy any and all documents in the possession or
control of Contributors, or their respective agents, contractors or employees,
and which pertain to the construction, ownership, title, use, occupancy or
operation of the Properties or any part thereof). During the Due Diligence
Period, the Contributors, at their expense and at such times as will not
unreasonably interfere with the business being conducted on the Property or
hinder the Partnership's due diligence review, shall make available to the
Company and the Partnership copies or originals of all of their respective
books, files and records relating in any way to the Properties, complete copies
(or originals when requested) of all title information and title insurance
policies, easements, leases, brokerage agreements, licenses, permits, surveys,
zoning information, environmental reports, structural reports, violation or
default notices, contracts, tax bills and assessments, information regarding
pending or threatened claims, suits or proceedings, and all consents and other
documents required to be obtained for the completion of the transactions
contemplated hereunder.
13.3 Adjustment Following Due Diligence. If the Company
----------------------------------
determines that one or more representations or warranties or any information
included on any Disclosure Schedule relating to any Property is incomplete or
-------------------
inaccurate in any material respect (the "Non-Conforming Property"), the Company
shall have the option to: (a) proceed with the transactions contemplated hereby,
(b) declare this Agreement null and void in which case no party shall have any
rights or obligations under this Agreement, or (c) terminate this Agreement with
respect to such Non-
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<PAGE>
conforming Property and proceed with the transactions hereby with respect to the
other Properties, in which case the number of Units issuable hereunder shall be
reduced by the Contribution Value of such Non-Conforming Property.
Notwithstanding anything herein to the contrary, if the Partnership exercises
its rights under Section 13.3(c) above with respect to any Non-Conforming
Property other than due to a title defect (pursuant to Section 5.3) or a
misrepresentation or breach of any environmental representation, warranty or
covenant (as set forth in Section 9.15), then the Contributors shall have the
option of declaring this Agreement null and void with respect to all Properties.
XIV. DEFAULTS AND REMEDIES
---------------------
14.1 Indemnification by Contributors. The Contributors, jointly
-------------------------------
and severally (each, for purposes of Sections 14.1 and 14.2, a "Contributor
Indemnifying Party"), shall indemnify, defend and hold harmless the Partnership,
the Company and their respective shareholders, partners, trustees, officers,
agents, representatives, employees, Affiliates, successors and assigns
(collectively, for purposes of this paragraph, the "Company Indemnified
Parties") from and against any and all losses, damages, claims, liabilities,
actions, suits, proceedings and costs and expenses of investigation or defense
thereof, including attorneys' fees payable as incurred, arising out of or
relating to any (a) misrepresentation or breach of warranty by such Contributor
Indemnifying Party or nonfulfillment of any covenant or agreement to be
performed or complied with by such Contributor Indemnifying Party under this
Agreement and any agreement, document, instrument, certificate, schedule or
exhibit contemplated hereby; (b) untrue or incomplete statement of a material
fact contained in any statement or information provided by such Contributor
Indemnifying Party or based on any omission to state therein a material fact
required to be stated therein or other information necessary to make the
statements therein not misleading; (c) any debts, liabilities or obligations
(whether known or unknown, disputed or undisputed, fixed, contingent or
otherwise) associated with or relating to any of the Contributor Indemnifying
Parties, their officers, directors, partners, trustees or Affiliates or the
Properties, or secured by any of the Contributor Indemnifying Parties, or by any
of the Properties, except those specified on Schedule 9.23 hereto, including any
-------------
obligations under any of the Leases and Service Contracts, to the extent any
such obligation was to be performed prior to the Closing Date, or was to be
performed after the Closing Date as a result of a breach or default under any of
the Leases or Service Contracts by the Contributor Indemnifying Parties or their
Affiliates prior to the Closing Date; (d) any action taken, or any failure to
act, by such Contributor Indemnifying Party in connection with this transaction
and the transactions contemplated herein constituting a breach of this Agreement
or any agreement, document or instrument contemplated hereby or a breach of a
duty owed to any person, including, without limitation, any action taken to
redeem or otherwise liquidate the interest of certain holders in anticipation of
the transactions contemplated herein, to the extent such action or failure to
act results in a violation (or alleged violation) of applicable laws or of the
fiduciary duties owed to such holders; (e) pollution or threat to human health
or the environment, or any Environmental Claim against any person or entity
whose liability for such Environmental Claim the Contributors have assumed or
retained either contractually or by operation of law, that is related in any way
to any of the Properties, including, without limitation, all on-site and off-
site activities relating to any of the
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<PAGE>
Properties involving Substances of Concern, and that occurred, existed, arises
out of conditions or circumstances that occurred or existed, or was caused, in
whole or in part, on or before the Closing Date, whether or not the pollution or
threat to human health or the environment, or the existence of any Environmental
Claim, is known to the Contributor Indemnifying Parties; (f) regardless of
whether it arises as a breach of any representation or warranty, any debts,
liabilities or obligations of the Contributor Indemnifying Parties (whether
known or unknown, disputed or undisputed, fixed, contingent or otherwise) of,
associated with or relating to any asset or property other than the Properties,
except those specified on Schedule 9.23 hereto; and (g) any and all damages and
-------------
expenses incident to any of the foregoing or to the enforcement of this Section
14.2.
14.2 Remedies.
--------
14.2.1 Subject to subsection 14.2.2 and 14.2.3 hereof, after
the Closing hereunder, the Company or the Partnership,
in the event of a breach of any representation or
warranty under Section 9 hereof, also may proceed
against the person or entity identified on Schedule
--------
14.2.1 personally (the "Personal Indemnitor").
------
14.2.2 Each Contributor Indemnifying Party shall be fully
responsible and severally liable for any of the
following and any and all losses, damages, claims,
liabilities, actions, suits, proceedings and costs and
expenses of defense thereof, including attorneys' fees
payable as incurred, arising out of or relating to: (a)
each representation and warranty made by he/she/it
hereunder relating to or associated with title to
his/her/its interest in any Property, his/her/its
ability to convey his interest as contemplated by this
Agreement, and his/her/its representations under
Section 9.4 hereof; (b) regardless of whether it arises
as a breach of any representation or warranty, any
debts, liabilities or obligations (whether known or
unknown, disputed or undisputed, fixed, contingent or
otherwise) of, associated with or relating to any of
the Contributor Indemnifying Parties or the Properties,
or secured by any of the Contributor Indemnifying
Parties or by any of the Properties, except those
specified on Schedule 9.23 hereto, and (c) regardless
-------------
of whether it arises as a breach of any representation
or warranty, any debts, liabilities or obligations of
the Contributor Indemnifying Parties (whether known or
unknown, disputed or undisputed, fixed, contingent or
otherwise) of, associated with or relating to any other
asset or property other than the Properties, except
those specified on Schedule 9.23 hereto.
-------------
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<PAGE>
14.2.3 Each Contributor hereby represents, warrants, covenants
and agrees that he/she/it presently has, a tangible net
worth (such term meaning net worth exclusive of the
value (if any) of goodwill, going concern value and
similar assets, but inclusive of the value of shares of
stock, interests in partnerships and other business
enterprises and similar assets) of not less than the
aggregate Contribution Amounts, minus all Mortgage Debt
for all Properties being acquired by the Partnership
pursuant to this Agreement.
14.3 Indemnification by the Company and the Partnership. The
--------------------------------------------------
Company and the Partnership (each, for purposes of this Section 14.3, a "Company
Indemnifying Party") shall indemnify, defend and hold harmless each Contributor
and their respective shareholders, partners, directors, officers, partners,
agents, employees, Affiliates, successors and assigns (collectively, for
purposes of this paragraph, "Contributor Indemnified Parties") from and against
any and all losses, damages, claims, liabilities, actions, suits, proceeds and
costs and expenses of defense therefore, including attorneys' fees payable as
incurred, arising out of or relating to any (a) misrepresentation or breach of
warranty by such Company Indemnifying Party or nonfulfillment of any covenant or
agreement to be performed or complied with by such Company Indemnifying Party
under this Agreement; (b) untrue or incomplete statement (or allegation by a
third party of an untrue or incomplete statement) of a material fact contained
in any statement or information provided by such Company Indemnifying Party or
based on any omission (or allegation by a third party of an untrue or incomplete
statement) to state therein a material fact required to be stated therein or
other information necessary to make the statements therein not misleading, to
the extent such alleged untrue or incomplete statement or omission was made with
the Company's or the Partnership's knowledge that the statement was untrue or
incomplete or omitted to state a material fact; (c) any debts, liabilities or
obligations (whether known or unknown, disputed or undisputed, fixed, contingent
or otherwise) specified on Schedule 9.23 hereto or arising and incurred after
-------------
the Closing Date (other than as a result of a breach by any Contributor of any
representation, warranty, covenant or agreement hereunder), including the
obligations under any Service Contracts that survive the Closing Date, to the
extent any such obligation is to be performed after the Closing Date, except to
the extent any such obligation is to be performed after the Closing Date as a
result of a breach or default under any of the Leases or Service Contracts by
the Contributor prior to the Closing Date; and (d) any and all damages and
expenses incident to any of the foregoing or to the enforcement of this Section
14.3.
14.4 Indemnification Procedures. All claims for indemnification
--------------------------
under this Article 14 shall be asserted and resolved as follows:
14.4.1 In the event that any Contributor Indemnified Party or
Company Indemnified Party (the "Indemnified Party") has
a Claim against any Contributor Indemnifying Party or
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<PAGE>
Company Indemnifying Party obligated to provide
indemnification pursuant to Sections 14.1 or 14.2
hereof, on the one hand, or Section 14.3 hereof, on the
other hand (the "Indemnifying Party"), which does not
involve a claim being asserted against or sought to be
collected by a third party, the Indemnified Party shall
with reasonable promptness send a written notice (the
"Claim Notice") with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not
notify the Indemnified Party within the fifteen days
thereafter (the "Notice Period") that the Indemnifying
Party disputes such claim, the amount of such claim
shall be conclusively deemed a liability of the
Indemnifying Party hereunder. In case an objection is
made in writing in accordance with this Section 14.4.1,
the Indemnified Party shall have thirty (30) days to
respond in a written statement to the objection. If
after such thirty (30) day period there remains a
dispute as to any claims, the parties shall attempt in
good faith for sixty (60) days to agree upon the rights
of the respective parties with respect to each of such
claims. If the parties should so agree, a memorandum
setting forth such agreement shall be prepared and
signed by both parties.
14.4.2 In the event that any claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder
is asserted, or any action or proceeding commenced,
against an Indemnified Party by a third party, the
Indemnified Party shall with reasonable promptness
notify the Indemnifying Party of such claim, specifying
the nature of such claim and the amount or the
estimated amount thereof to the extent then feasible
(which estimate shall not be conclusive of the final
amount of such Claim) (the "Third Party Claim Notice").
The Indemnifying Party shall have 30 days from the
receipt of the Claim Notice (the "Third Party Notice
Period") to notify the Indemnified Party (a) whether or
not such party disputes the liability to the
Indemnified Party hereunder with respect to such claim
and (b) if such party does not dispute such liability,
whether or not the Indemnifying Party desires, at the
sole cost and expense of the Indemnifying Party, to
defend against such claim, provided that such party is
hereby authorized (but not obligated) prior to and
during the Third Party Notice Period to file any
motion, answer or other pleading and to take any other
action which the Indemnifying Party shall deem
necessary or appropriate to protect the
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<PAGE>
Indemnifying Party's interests. In the event that the
Indemnifying Party notifies the Indemnified Party
within the Third Party Notice Period that the
Indemnifying Party does not dispute the Indemnifying
Party's obligation to indemnify hereunder and desires
to defend the Indemnified Party against such claim,
except as hereinafter provided, such party shall have
the right to defend by appropriate proceedings. No non-
monetary settlement of any such matter shall be entered
into without the written consent of the Indemnified
Party, which consent shall not be unreasonably
withheld; provided that, unless the Indemnified Party
otherwise agrees in writing, such party may not settle
any matter (in whole or in part) unless such settlement
includes a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to
participate in, but not control, any such defense or
settlement the Indemnified Party may do so at its sole
cost and expense. If the Indemnifying Party elects not
to defend the Indemnified Party against such claim,
whether by failure of such party to give the
Indemnified Party timely notice as provided above or
otherwise, then the Indemnified Party, without waiving
any rights against such party, may settle or defend
against any such claim in the Indemnified Party's sole
discretion and the Indemnified Party shall be entitled
to recover from the Indemnifying Party the amount of
any settlement or judgment to the extent the
Indemnified Party is entitled to indemnification and,
on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto,
including interest from the date such costs and
expenses were incurred.
14.4.3 If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in
writing to the Indemnifying Party, any such claim seeks
material prospective or other relief which could have a
materially adverse effect on the assets, liabilities,
financial condition, results of operations or business
prospects of any Indemnified Party or in the reasonable
opinion of counsel for the Indemnified Party a conflict
exists, the Indemnified Party shall have the right to
control or assume (as the case may be) the defense of
any such claim and the amount of any judgment or
settlement and the reasonable costs and expenses of
defense shall be included as part of the
indemnification obligations of the Indemnifying Party
hereunder. If the
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<PAGE>
Indemnified Party should elect to exercise such right,
the Indemnifying Party shall have the right to
participate in, but not control, the defense of such
claim or demand at the sole cost and expense of the
Indemnifying Party.
14.4.4 Nothing herein shall be deemed to prevent the
Indemnified Party from making a claim, and an
Indemnified Party may make a claim hereunder, for
potential or contingent claims or demands provided the
Claim Notice or Third Party Claim Notice, as the case
may be, sets forth the specific basis for any such
potential or contingent claim or demand to the extent
then feasible and the Indemnified Party has reasonable
grounds to believe that such a claim or demand may be
made.
14.4.5 The Indemnified Party's failure to give reasonably
prompt notice as required by this Section 14.4 of any
actual, threatened or possible claim, demand, action or
proceeding which may give rise to a right of
indemnification hereunder shall not relieve the
Indemnifying Party of any liability which the
Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and
adversely prejudiced the Indemnifying Party or
increases the amount of indemnification which the
Indemnifying Party is obligated to pay hereunder. In
any such event, the amount of indemnification which the
Indemnified Party will be entitled to receive hereunder
shall be reduced to an amount which the Indemnified
Party would have been entitled to receive had such
notice been timely.
XV. MISCELLANEOUS
-------------
15.1 Assignment. Neither this Agreement nor any interest
----------
hereunder may be assigned or transferred by any Contributor, the Company or the
Partnership without the prior written consent of the parties hereto.
15.2 Entire Agreement. Any prior agreement or understanding
----------------
among the parties concerning the subject matter hereof is hereby superseded.
This Agreement constitutes the entire agreement among the parties with respect
to the subject matter hereof and the transactions contemplated herein and shall
not be modified or amended except in a written document signed by all of the
parties hereto.
15.3 Notices. All notices or other communications required or
-------
permitted under this Agreement shall be in writing and delivered personally or
by registered or certified mail,
-43-
<PAGE>
return receipt requested, postage prepaid, or by a nationally recognized
overnight courier (such as Federal Express) with receipted delivery. Notices to
the parties shall be addressed as follows:
If to the Contributors to the addresses contained in Schedule I; with a
----------
copy to:
G. Donald Markle, Esq.
Surovell, Jackson, Colten & Dugan, P.C.
4010 University Drive
Fairfax, Virginia 22030
Fax: (703) 591-2149
If to the Partnership or to the Company:
Capital Automotive REIT
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
Attention: Thomas D. Eckert, President and Chief Executive Officer
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
-44-
<PAGE>
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037
Attention: George P. Stamas, Esq.
All notices given in accordance with the terms hereof shall be deemed
effective (a) if delivered in person or by overnight courier, on the business
day it is delivered, and (b if sent by registered or certified mail, three (3)
business days after deposit with the U.S. mail. Any party hereto may change its
address by written notice to all parties hereto sent in accordance with the
terms of this Section and any such Notice of change of address shall be
effective five (5) days after delivery.
15.4 Governing Law. This Agreement shall be governed and
-------------
interpreted in accordance with the laws of the Commonwealth of Virginia without
regard to its principles of conflicts of laws, and any action brought under or
arising out of this Agreement or the matters relating hereto shall be submitted
to the jurisdiction of the United States District Court for the Eastern District
of Virginia. Each party acknowledges and agrees to such jurisdiction.
15.5 Litigation Costs. If there is any legal action or
----------------
proceeding between the parties hereto arising from or based upon this Agreement,
the unsuccessful party to such action or proceeding shall pay to the prevailing
party all litigation costs and expenses, including reasonable attorneys' fees,
incurred by such prevailing party in such action or proceeding and in any appeal
in connection therewith, and if such prevailing party recovers a judgment in any
such action, proceeding or appeal, such costs, expenses and attorneys' fees
shall be included in as part of such judgment.
15.6 Counterparts. This Agreement may be executed in any number
------------
of identical counterparts, any or all of which may contain the signatures of
fewer than all of the parties but all of which shall be taken together as a
single instrument.
15.7 Offer and Acceptance. This Agreement constitutes an offer
--------------------
by the Company and the Partnership which must be accepted, by delivery to the
Company of a duly signed and completed signature page hereof, by all of the
Contributors within five (5) days after the date this Agreement is signed by the
Company and the Partnership.
15.7.1 If, within such time period, less than all of the
persons owning any interest in a Contributor shall have
signed this Agreement, then the Contributor and the
Property owned by such Contributor shall, at the sole
option of the Company, be excluded from the
Contribution hereunder, this Agreement shall remain in
full force and effect as to the other Contributors and
Properties, and an appropriate adjustment
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<PAGE>
shall be made with respect to the relevant Property, in
which case the number of Units issuable hereunder as
set forth on Schedule 1.3(a) shall be reduced by the
---------------
Contribution Value of such Property as provided in this
Agreement; if after the expiration of such time period
all of the Contributors execute this Agreement, the
Company, at its sole option, may elect to re-include,
or may continue to exclude, any such Contributor and
Property.
15.7.2 If any Contributor hereunder is not an "accredited
investor" as defined in the Act, then the Company, at
its sole option, may exclude any such Contributors and
any such Property from the Contribution hereunder, this
Agreement shall remain in full force and effect as to
the other Contributors and Properties, and an
appropriate adjustment shall be made with respect to
the relevant Property, in which case the number of
Units issuable hereunder as set forth on Schedule
--------
1.3(a) shall be reduced by the Contribution Value of
------
such Property as provided in this Agreement; if
thereafter all Contributors become accredited
investors, then the Company, at its sole option, may
elect to re-include, or may continue to exclude, any
such Contributors and Property.
15.8 Arbitration. In the event a dispute arises between the
-----------
parties as to any of the requirements of this Agreement or the performance under
this Agreement, which the parties are unable to resolve, the parties agree to
waive the remedy of litigation (except for extraordinary relief in an emergency
situation) and agree that such dispute or disputes shall be determined by
arbitration. Notwithstanding the foregoing, the parties acknowledge and agree
that this Section 15.8 is not intended to create new rights.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal, with the intention that it be a sea ed instrument, as of the date
set forth above.
<TABLE>
<CAPTION>
<S> <C>
WITNESS CAPITAL AUTOMOTIVE REIT
By: /s/ Matt Jones By: /s/ Thomas Eckert (SEAL)
Name: Matt Jones Name: Thomas Eckert
Title: Title: President and Chief Executive Officer
CAPITAL AUTOMOTIVE L.P.
WITNESS By: Capital Automotive REIT, as General Partner
By: /s/ Matt Jones By: /s/ Thomas Eckert (SEAL)
Name: Matt Jones Name: Thomas Eckert
Title: Title: President and Chief Executive Officer
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal, with the intention that it be a sea ed instrument, as of the date
set forth above.
<TABLE>
<CAPTION>
<S> <C>
WITNESS CAPITAL AUTOMOTIVE REIT
By: /s/ John B. Watkins By: /s/ Thomas D. Eckert (SEAL)
Name: J.B. Watkins Name: Thomas D. Ekert
Title:______________________ Title: President and Chief Executive Officer
CAPITAL AUTOMOTIVE L.P.
WITNESS By: Capital Automotive REIT, as General Partner
By: /s/ John B. Watkins By: /s/ Thomas D. Eckert (SEAL)
Name: J.B. Watkins Name: Thomas D. Ekert
Title:______________________ Title: President and Chief Executive Officer
WITNESS CONTRIBUTOR:
By: /s/ Richard L. Harris By: /s/ John J. Pohanka (SEAL)
Name: Richard L. Harris Name: John J. Pohanka
</TABLE>
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<PAGE>
Title: Asst. Secretary Title: Chairman
Address: 4601 St. Barnabas Road
Marlow Heights, MD 20748
Telephone #: (301) 423-1100
Facsimile #: (301) 702-8926
Social Security # or TIN: 53-0184646
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-48-
<PAGE>
WITNESS CONTRIBUTOR:
By: /s/ Richard L. Harris By: /s/ John J. Pohanka (SEAL)
Name: Richard L. Harris Name: John J. Pohanka
Title: Asst. Secretary Title: Chairman
Address: 4601 St. Barnabas Road
Marlow Heights, MD 20748
Telephone #: (301) 423-1100
Facsimile #: (301) 702-8926
Social Security # or TIN: 53-01846
-49-
<PAGE>
POHANKA CONTRIBUTION AGREEMENT
EXHIBITS
A. Partnership Agreement
4.4(a) Form of Company Lease
4.4(c) Guaranty and Subordination Agreement
7.2.1(i) Investor Questionnaires
7.2.1(q) Opinion of Contributor's Counsel
7.2.1(p) Lender's Estoppel Certificate
7.2.2(f) Opinion of Company Counsel
SCHEDULES
I. Contributors (Names and Addresses)
1.2 Schedule of Properties; Ownership
Interests in
Properties and Contribution Amounts
1.3(a) Schedule of Units Issued in Consideration
for Each Property
1.3(b) Mortgage Debt
4.1 Prior Occupants
4.4(b) Guaranties
5.1 Scheduled Exceptions
9.6 Material Defaults
9.13 Zoning
9.15.5(a) The Treatment, Storage and Disposal Locations for
Substances of Concern
9.15.5(b) Storage Tanks
9.15.5(c) Existence of Asbestos
9.15.5(f) Environmental Permits and Authorizations
9.16 Insurance
9.19 Lease Disclosures
9.19.2 Leases and Rent Rolls
9.19.13 Other Landlords
9.20(a) Service Contracts
9.20(b) Management Contracts
9.23 Liabilities of Contributors
9.24 Contracts
9.26 Employee Benefit Plans/Employment
Contracts/Employee Benefit Liabilities
12.1.5 Restrictions on Sale and/or Financing of
Specified Properties
12.4.5 Limitations on Indebtedness
<PAGE>
14.2.1 Indemnitors
<PAGE>
EXHIBIT A
- ---------------------------------------
________________________PARTNERSHIP AGREEMENT
____________To be delivered at Closing.
<PAGE>
_______________________________EXHIBIT 4.4(a)
<PAGE>
LEASE AGREEMENT
BETWEEN
CAPITAL AUTOMOTIVE L.P., LANDLORD
AND
[ ], TENANT
DATED: ____________, 1997
<PAGE>
<TABLE>
<S> <C>
ARTICLE I
LEASE AGREEMENT, LEASED PROPERTY AND TERM.............................................1
1.01 Lease Agreement..............................................1
1.02 Contingent Upon Acquisition of the Leased Property...........2
1.03 Term.........................................................2
1.04 Holding Over.................................................3
1.05 Surrender....................................................3
ARTICLE II
RENT..................................................................................4
2.01 Base Rent....................................................4
2.02 Payment......................................................4
2.03 Security Deposit.............................................4
2.04 Base Annual Rent Adjustment..................................5
2.05 Additional Rent..............................................5
2.06 Place(s) of Payment of Rent; Direct Payment of
Additional Rent..............................................5
2.07 Net Lease....................................................5
2.08 No Termination, Abatement, Etc...............................5
ARTICLE III
IMPOSITIONS AND UTILITIES.............................................................6
3.01 Payment of Impositions.......................................6
3.02 Definition of Impositions....................................7
3.03 Utilities....................................................8
3.04 Escrow of Impositions........................................8
3.05 Discontinuance of Utilities..................................9
3.06 Liens........................................................9
ARTICLE IV
INSURANCE.............................................................................9
4.01 Insurance....................................................9
4.02 Insurance Limits............................................11
4.03 Insurance Requirements......................................11
4.04 Replacement Cost............................................12
4.05 Blanket Policy..............................................12
4.06 No Separate Insurance. .....................................12
4.07 Waiver of Subrogation.......................................13
4.08 Mortgages...................................................13
4.09 Other Insurance Requirements................................13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
INDEMNITY; SUBSTANCES OF CONCERN......................................................13
5.01 Tenant's Indemnification....................................13
5.02 Substances of Concern.......................................14
5.03 Audits......................................................17
5.04 Landlord's Option Re: Compliance............................17
5.05 Environmental Indemnification...............................17
5.06 Tenant's Cleanup Obligation.................................18
5.07 Existing Environmental Conditions...........................18
5.08 Survival of Tenant's Obligations............................18
ARTICLE VI
USE AND ACCEPTANCE OF PREMISES........................................................19
6.01 Use of Leased Properties....................................19
6.02 Acceptance of Leased Properties.............................19
6.03 Conditions of Use and Occupancy.............................19
6.04 Financial Statements and Other Information..................20
ARTICLE VII
REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS...................................20
7.01 Maintenance.................................................20
7.02 Compliance with Laws........................................20
7.03 Required Alterations........................................21
7.04 Mechanics' Liens............................................21
7.05 Replacements of Fixtures....................................21
7.06 Encroachments; Restrictions.................................22
ARTICLE VIII
ALTERATIONS AND SIGNS; TENANT'S PROPERTY;
CAPITAL ADDITIONS TO THE LEASED PROPERTIES............................................22
8.01 Tenant's Right to Construct.................................22
8.02 Scope of Right..............................................23
8.03 Cooperation of Landlord.....................................24
8.04 Commencement of Construction................................24
8.05 Rights in Tenant Improvements...............................25
8.06 Personal Property...........................................25
8.07 Requirements for the Tenant's Personal Property.............25
8.08 Financings of Capital Additions to a Leased Property........27
ARTICLE IX
DEFAULTS AND REMEDIES.................................................................27
9.01 Events of Default...........................................27
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
9.02 Remedies....................................................29
9.03 Right of Set-Off............................................32
9.04 Performance of Tenant's Covenants...........................32
9.05 vLate Charge................................................33
9.06 Litigation; Attorneys' Fees.................................33
9.07 Remedies Cumulative.........................................33
9.08 Escrows and Application of Payments.........................33
9.09 Power of Attorney...........................................34
ARTICLE X
DAMAGE AND DESTRUCTION................................................................34
10.01 General.....................................................34
10.02 Landlord's Inspection.......................................35
10.03 Landlord's Costs............................................35
10.04 Rent Abatement..............................................35
10.05 Substantial Damage During Lease Term........................36
10.06 Damage Near End of Term.....................................36
10.07 Risk of Loss................................................37
ARTICLE XI
CONDEMNATION..........................................................................37
11.01 Total Taking................................................37
11.02 Partial Taking..............................................37
11.03 Restoration.................................................37
11.04 Landlord's Inspection.......................................38
11.05 Award Distribution..........................................38
11.06 Temporary Taking............................................39
ARTICLE XII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND FINANCIAL COVENANTS........................39
12.01 Organization and Qualification..............................39
12.02 Material Agreements.........................................40
12.03 Changes in Condition........................................41
12.04 Franchises, Licenses, etc...................................41
12.05 Litigation..................................................41
12.06 Authorization and Enforceability............................41
12.07 No Legal Obstacle to Lease..................................42
12.08 Certain Business Representations............................42
12.09 Certain Financial Covenants.................................44
12.10 Cash Flow Coverage Ratio Covenant...........................44
12.11 Disclosure..................................................44
12.12 Covenant Not to Acquire.....................................44
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE XIII
ASSIGNMENT AND SUBLETTING; ATTORNMENT ................................................46
13.01 Prohibition Against Subletting and Assignment...............46
13.02 Changes of Control..........................................46
13.03 Operating/Service Agreements................................47
13.04 Assignment..................................................48
13.05 REIT Limitations............................................48
13.06 Attornment..................................................49
13.07 Severance and Spin-Off......................................49
ARTICLE XIV
ARBITRATION...........................................................................50
14.01 Controversies...............................................50
14.02 Appointment of Arbitrators..................................50
14.03 Arbitration Procedure.......................................50
14.04 Expenses....................................................50
14.05 Enforcement of the Arbitration Award........................51
ARTICLE XV
QUIET ENJOYMENT, SUBORDINATION,
ATTORNMENT, ESTOPPEL CERTIFICATES.....................................................51
15.01 Quiet Enjoyment.............................................51
15.02 Landlord Mortgages; Subordination...........................51
15.03 Attornment..................................................51
15.04 Estoppel Certificates.......................................52
15.05 Waiver of Landlord's Lien...................................52
ARTICLE XVI
RIGHT OF FIRST OFFER..................................................................53
16.01 Right of First Offer During Lease Term or Extension
Term........................................................53
16.02 Right to Purchase at End of an Extension Term...............54
ARTICLE XVII
MISCELLANEOUS.........................................................................55
17.01 Notices.....................................................55
17.02 Advertisement of a Leased Property..........................56
17.03 Landlord's Access...........................................56
17.04 Entire Agreement............................................56
17.05 Severability................................................57
17.06 Captions and Headings.......................................57
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
17.07 Governing Law...............................................57
17.08 Memorandum of Lease or Certain Rights Under the
Lease.......................................................57
17.09 Waiver......................................................57
17.10 Assignment; Binding Effect..................................57
17.11 Consents and Approvals......................................57
17.12 Single Property.............................................58
17.13 Modification................................................58
17.14 Incorporation by Reference..................................58
17.15 No Merger...................................................58
17.16 Force Majeure...............................................58
17.17 Laches......................................................58
17.18 Waiver of Jury Trial........................................58
17.19 Permitted Contests..........................................59
17.20 Construction of Lease.......................................59
17.21 Counterparts................................................60
17.22 Relationship of Landlord and Tenant.........................60
EXHIBITS
A Leased Properties
B Permitted Liens
C Base Annual Rent Schedule
SCHEDULES
2.02 Payment Account Information
2.04 Base Annual Rent Adjustment
5.07 Environmental Reports
12.02 Material Agreements
12.03 Changes in Condition
15.02 Form of Subordination and Non-Disturbance
Agreement
</TABLE>
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<PAGE>
LEASE AGREEMENT
This Lease Agreement ("Lease") dated as of the ______ day of November, 1997
by and between CAPITAL AUTOMOTIVE L.P., a Delaware limited partnership
("Landlord"), having its principal office at [__________________] and [ ], a
___________ [corporation], having its principal office at [________________]
("Tenant").
RECITALS
WHEREAS, Tenant or an Affiliate (as hereafter defined) has conveyed or will
convey to Landlord certain parcels of real estate and improvements thereon upon
which Tenant engages in motor vehicle retail and/or motor vehicle related
businesses (the "Business"), which parcels of real estate and improvements
thereon are described on Schedule A attached hereto and incorporated herein by
reference (each hereinafter a "Leased Property" or collectively, the "Leased
Properties"), and Landlord and Tenant desire to provide for the lease by
Landlord to Tenant of the Leased Properties; and
WHEREAS, Landlord and Tenant desire that each of the Leased Properties
shall be the subject of this Lease and be used by Tenant in its operation of the
Business; and
WHEREAS, this Lease provides that additional real estate and improvements
thereon may be made subject to the operation and effect of this Lease, upon
execution by Landlord and Tenant of a Lease Supplement designating each such
additional property as a Leased Property hereunder.
NOW, THEREFORE, in consideration of the foregoing premises and of their
respective agreements and undertakings herein, and of other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
ARTICLE I
LEASE AGREEMENT, LEASED PROPERTY AND TERM
1.01 Lease Agreement. Landlord does hereby let and lease
---------------
unto Tenant, and Tenant does hereby take and hire from Landlord, the Leased
Properties, which shall respectively consist of:
(a) The parcels of land described and located at the
addresses listed in Schedule A hereto, as more
particularly described therein, together with any
additional parcels of real estate and improvements
thereon subsequently designated as a Leased Property by
the parties pursuant to a Lease Supplement as provided
for herein, together with all rights, titles,
appurtenant interests, covenants, licenses, privileges
and benefits thereto belonging, and any easements,
rights-of-way, rights of ingress or egress or other
<PAGE>
interests in, on, or to any land, highway, street, road
or avenue, open or proposed, in, on, across, in front
of, abutting or adjoining such real property including,
without limitation, any strips and gores adjacent to or
lying between such real estate and any adjacent real
estate (the "Land");
(b) All buildings, improvements, structures and Fixtures
(as hereinafter defined) now located or to be located
or to be constructed on the Land, including, without
limitation, sidewalks, landscaping, parking lots and
structures, roads, drainage and all above ground and
underground utility structures and conduits (on-site or
off-site), equipment systems and other so-called
"infrastructure" improvements (the "Improvements");
(c) All equipment, machinery, fixtures, and other items of
real and/or personal property, including all components
thereof, located in, on or used in connection with, and
permanently affixed to or incorporated into, the
Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air-
conditioning systems and apparatus, sprinkler systems
and fire and theft protection equipment, and similar
systems, all of which, to the greatest extent permitted
by law, are hereby deemed to constitute real estate,
together with all replacements, modifications,
alterations and additions thereto (collectively the
"Fixtures"); and
(d) All easements, rights and appurtenances relating to the
Land and the Improvements.
SUBJECT, HOWEVER, to the liens, encumbrances, restrictions, agreements,
and other title matters listed or specifically referred to in Schedule B
("Permitted Exceptions").
The Leased Properties shall however exclude all furniture, equipment,
inventory and items of moveable personal property attached to the Land or
Improvements that relate to the business being conducted on the Leased Property
which items may readily be removed without material damage to the Land and
Improvements whether or not such items might legally be considered to be
"fixtures"
2
<PAGE>
(all of which are owned by Tenant and shall hereinafter be defined as the
"Excluded Personal Property").
1.02 Contingent Upon Acquisition of the Leased Property. In the event
--------------------------------------------------
this Lease is executed prior to the conveyance by Tenant or an Affiliate of the
Leased Property to Landlord, the parties acknowledge that the effectiveness of
this Lease in respect of such Leased Property is contingent upon the closing of
such conveyance (the "Commencement Date").
1.03 Term. The initial term of this Lease (the "Term") shall be for a
----
fixed term of One Hundred and Twenty (120) months commencing on the Commencement
Date. The initial term for any Leased Property designated in a Lease Supplement
shall begin on the date of such Lease Supplement and expire at the end of the
Term or then current Extension Term (as hereafter defined), as the case may be.
Tenant shall have the right to extend this Lease for the Leased Properties as a
group, at Tenant's option, for one One Hundred and Twenty (120) month renewal
term from the expiration of the Term (the "First Extension Term"), provided that
no Event of Default (as defined in Section 9.01 hereof) shall exist and be
continuing. In addition, Tenant shall have the right to extend this Lease for
the Leased Properties as a group at Tenant's option, for a second One Hundred
and Twenty (120) month renewal term from the expiration of the First Extension
Term (the "Second Extension Term", each an "Extension Term", and collectively
with the First Extension Term, the "Extension Terms") provided that no Event of
Default (as defined in Section 9.01 hereof) shall exist and be continuing.
Tenant shall exercise the First Extension Term by written notice to Landlord no
later than twelve months prior to the end of the Term. Tenant shall exercise the
Second Extension Term by written notice to Landlord no later than twelve (12)
months prior to the end of the First Extension Term. Notwithstanding anything
else to the contrary in this Agreement, the Rent during the Second Extension
Term shall be the Fair Market Rent (as hereafter defined) for the Leased
Property. Fair Market Rent shall be determined as soon as possible after receipt
by Landlord of Tenant's notice of option exercise, on the basis of appraisals of
independent appraisers selected in accordance with the provisions of Section
16.02(b). Tenant shall have the right, in its sole discretion, to rescind the
exercise of Tenant's option to extend the Lease for the Second Extension Term
during a period of five (5) business days after the determination of the Fair
Market Rent. If Tenant shall fail to exercise the right to rescind within such
five (5) day period, the election to extend shall be irrevocable and the Fair
Market Rent so determined shall be the Base Annual Rent during the Second
Extension Term notwithstanding any changes in the market rental rates, whether
upward or downward, which may occur after such determination. However,
notwithstanding anything else in this Agreement, Fair Market Rent shall become
the Base Annual Rent (as defined hereafter) and shall be subject to Base Annual
Rent Adjustments as set forth in Section 2.04.
1.04 Holding Over. Should Tenant, without the express consent of
-----------
Landlord, continue to hold and occupy any Leased Property after the expiration
or earlier termination of the Term or any Extension Term, as the case may be,
such holding over beyond the Term and the acceptance or collection of Rent (as
defined hereinafter) by Landlord shall operate and be construed as creating a
tenancy from month-to-month and not for any other term whatsoever.
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During any such holdover period Tenant shall pay to Landlord for each month (or
portion thereof) Tenant remains in such Leased Property, in lieu of the Base
Annual Rent (as defined hereafter) for such Leased Property, an amount equal to
the sum of one-twelfth (1/12) of (i) one hundred seven percent (107%) of such
Base Annual Rent (the "Holdover Rate"), and (ii) as applicable, one hundred
percent (100%) of the Additional Rent (as defined hereinafter) for such Leased
Property and Other Additional Rent (as defined hereinafter) for such Leased
Property, each as in effect on the expiration date. Said month-to-month tenancy
may be terminated by Landlord by giving Tenant thirty (30) days written notice,
and at any time thereafter Landlord may re-enter and take possession of such
Leased Property.
1.05 Surrender. Except as a result of (a) Tenant Improvements and Capital
---------
Additions (as defined hereinafter); (b) normal and reasonable wear and tear
(subject to the obligation of Tenant to maintain each Leased Property in good
order and repair during the Term); and (c) casualty, taking or other damage and
destruction not required to be repaired by Tenant, Tenant shall surrender and
deliver up each Leased Property at the expiration or termination of the Term or
the Extension Term therefor, as the case may be, broom clean, in good order and
repair, free of the Excluded Personal Property and any additional items of
Tenant's personal property (together with the Excluded Personal Property, the
"Tenant's Personal Property"), all of which Tenant shall remove prior to such
surrender and delivery, and in as good order and condition as of the
Commencement Date.
ARTICLE II
RENT
2.01 Base Rent. Tenant shall pay Landlord annual base rent (the "Base
---------
Annual Rent") as to the Leased Property for each year during the Term or the
Extension Term (each such year a "Lease Year"), which Base Annual Rent shall be
subject to upward adjustment pursuant to Section 2.04. In the first Lease Year,
Base Annual Rent shall be in the amount set forth on Schedule A (the "Initial
Base Annual Rent"), paid to Landlord in twelve equal monthly installments.
2.02 Payment. Tenant shall pay Landlord the Base Annual Rent as to the
-------
Leased Property for each Lease Year, without notice, demand, set-off or
counterclaim in advance, in lawful money of the United States of America and
payable in consecutive monthly installments commencing on the Commencement Date
and thereafter on the first day of each month during the Term. Tenant will, to
the extent that such method of payment is compatible with its business
practices, make such payments by direct deposit of immediately available funds
to the account set forth in Exhibit 2.02 (which Exhibit 2.02 may be modified by
Landlord from time to time upon Notice (as hereafter defined) to Tenant).
2.03 Security Deposit. Prior to the Commencement Date, Tenant shall
----------------
deliver to Landlord an amount equal to one-twelfth (1/12th) of the Base Annual
Rent,
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which amount shall be held by Landlord as security (the "Security Deposit") for
the performance of Tenant's payment and other obligations under this Lease. Upon
an Event of Default and the continuance thereof, Landlord shall have the right,
but not the obligation, to apply the Security Deposit as set forth in Section
9.08. Landlord shall return the Security Deposit, without interest, after
expiration of this Lease, if Tenant has fully and faithfully carried out all of
the terms, covenants and conditions hereof. In the event that Landlord
eliminates its standard business policy of requiring security deposits from
tenants, then Landlord shall refund the Security Deposit to Tenant within thirty
(30) days of such policy change.
2.04 Base Annual Rent Adjustment.
---------------------------
(a) The Base Annual Rent shall be adjusted during the Lease Term
or the Extension Terms under the procedures set forth in
Exhibit 2.04 (the "Base Annual Rent Adjustment").
(b) As used in Exhibit 2.04, the "Index" shall mean the CPI-U
published by the United States Department of Labor, Bureau
of Labor Statistics Consumer Price Index for All Urban
Consumers, U.S. City Average. If at any time during the Term
or the Extension Term, as the case may be, the Index shall
be discontinued, Landlord shall select a substitute index,
being an existing official index published by the Bureau of
Labor Statistics or its successor or another, similar
governmental agency, which index is most nearly equivalent
to the Index.
2.05 Additional Rent. As to each Leased Property, in addition to the Base
---------------
Annual Rent, Tenant shall pay all other amounts, liabilities, obligations and
Impositions (as hereinafter defined) which Tenant assumes or agrees to pay under
this Lease and any fine, penalty, interest, charge and cost which may be added
for nonpayment or late payment of such items (collectively, the "Additional
Rent").
2.06 Place(s) of Payment of Rent; Direct Payment of Additional Rent.
--------------------------------------------------------------
The Base Annual Rent and Additional Rent are hereinafter referred to as "Rent."
Landlord shall have all legal, equitable and contractual rights, powers and
remedies provided in this Lease or by statute or otherwise in the case of
nonpayment of the Rent for each Leased Property. Tenant shall make all payments
of Rent at Landlord's address set forth in Section 17.01 or as Landlord may
otherwise from time to time direct in writing, or, if Landlord shall direct
Tenant, directly to a bank account specified by Landlord to Tenant in writing.
At the direction of the Landlord, Tenant shall make payments of Additional Rent
directly to the person or persons to whom such amount is owing at the time and
times when such payments are due, and Tenant shall give to Landlord such
evidence of such direct payments as Landlord shall reasonably request.
2.07 Net Lease. This Lease shall be deemed and construed to be an
---------
"absolute net lease" or "triple net lease," (i.e. that Tenant shall pay all
costs and expenses related to the ownership
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and operations of each Leased Property, thereby leaving all Rent as an
absolutely net return to Landlord) and as to each Leased Property, Tenant shall
pay all Rent, Impositions, and other charges and expenses in connection with
such Leased Property throughout the Term and any Extension Term, without
abatement, deduction or set-off.
2.08 No Termination, Abatement, Etc. Except as otherwise
------------------------------
specifically provided herein, Tenant shall remain bound by this Lease in
accordance with its terms. Except as otherwise specifically provided herein,
Tenant shall not, without the prior written consent of Landlord, modify,
surrender or terminate this Lease as to any Leased Property, nor seek nor be
entitled to any abatement, deduction, deferment or reduction of Rent, or set-off
against the Rent as to any Leased Property for any reason whatsoever. Except as
specifically provided herein, the obligations of Landlord and Tenant shall not
be affected by reason of: (a) the lawful or unlawful prohibition of, or
restriction upon, Tenant's use of any Leased Property, or any part thereof, the
interference with such use by any person, corporation, partnership or other
entity, or by reason of eviction by paramount title; (b) any claim which Tenant
has or might have against Landlord or by reason of any default or breach of any
warranty by Landlord under this Lease or any other agreement between Landlord
and Tenant, or to which Landlord and Tenant are parties; (c) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceeding affecting Landlord or any assignee or transferee
of Landlord; (d) any damage to, or destruction of, any Leased Property or any
portion thereof for whatever cause, or any taking of the Leased Property or any
portion thereof; or (e) any other cause, whether similar or dissimilar to any of
the foregoing, other than a discharge of Tenant from any such obligations as a
matter of law. Except as otherwise specifically provided herein, and to the
maximum extent permitted by law, Tenant hereby specifically waives all rights,
including but not limited to any rights under any statute relating to rights of
tenants in the jurisdictions where the Leased Properties are located, which may
now be conferred upon it by law, relating to: (a) the modification, surrender or
termination of this Lease, or the quitting or surrender of any Leased Property
or any portion thereof; (b) any abatement, reduction, suspension or deferment of
the Rent or other sums payable by Tenant hereunder; or (c) any rights of
redemption. As to each Leased Property, the obligations of Landlord and Tenant
hereunder shall be separate and the Rent and all other sums shall continue to be
payable in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.
ARTICLE III
IMPOSITIONS AND UTILITIES
3.01 Payment of Impositions. Subject to the adjustments set forth
----------------------
herein, Tenant shall pay, in the manner set forth in Section 3.04, as Additional
Rent, to the Landlord an amount equal to the amount necessary to pay all
Impositions (as hereinafter defined) that may be levied or become a lien on any
Leased Property or any part thereof at any time (whether prior to or during the
Term), without regard to prior ownership of said Leased Property, before the
same becomes delinquent. Tenant's obligation to pay such Impositions shall be
deemed absolutely fixed upon the
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date such Impositions become a lien upon any Leased Property or any part
thereof. Tenant, at its expense, shall prepare and file all tax returns and
reports in respect of any Imposition as may be required by governmental
authorities, provided, however, that Tenant shall provide to Landlord copies of
all filings of such tax returns or reports in respect of any real or personal
property owned by Landlord. Tenant shall be entitled to any refund due in
respect of such Impositions from any taxing authority if no Event of Default
shall have occurred hereunder and be continuing. Any refunds in respect of such
Impositions retained by Landlord due to an Event of Default shall be applied as
provided in Section 9.08. Landlord and Tenant shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made with
respect to a Leased Property as may be necessary to prepare any required tax
returns and reports. In the event governmental authorities classify any property
covered by this Lease as personal property, Landlord and Tenant shall file all
personal property tax returns in such jurisdictions where it may legally so file
with respect to their respective owned personal property. Landlord, to the
extent it possesses the same, and Tenant, to the extent it possesses the same,
will provide the other party, upon request, with cost and depreciation records
necessary for filing such returns or reports for any property so classified as
personal property. To the extent that Landlord is legally required to file
personal property tax returns, Tenant will be provided with copies of assessment
notices indicating a value in excess of the reported value in sufficient time
for Tenant to file a protest. Tenant may, upon notice to Landlord, at Tenant's
option and at Tenant's sole cost and expense, protest, appeal, or institute such
other proceedings as Tenant may deem appropriate to effect a reduction of real
estate or personal property assessments and Landlord, at Tenant's expense as
aforesaid, shall fully cooperate with Tenant in such protest, appeal, or other
action. Tenant shall provide Landlord copies of all materials filed or presented
in connection with any such proceeding. Tenant shall promptly reimburse Landlord
for all taxes paid by Landlord, which were not paid with deposits received from
Tenant, upon receipt of billings accompanied by copies of a bill therefor and
payments thereof which identify the property with respect to which such payments
are made. Impositions imposed with respect to the tax-fiscal period during which
the Term commences and terminates as to each Leased Property shall be adjusted
and prorated between Landlord and Tenant on a per diem basis, with Tenant being
obligated to pay its pro rata share from and including the Commencement Date to
and including the expiration or termination date of the Term or Extension Term,
as the case may be, whether or not such Imposition is imposed before or after
such commencement or termination, and Tenant's obligation to pay its prorated
share thereof shall survive such termination. Tenant shall also pay to Landlord
a sum equal to the amount which Landlord may be caused to pay of any privilege
tax, sales tax, gross receipts tax, rent tax, occupancy tax or like tax
(excluding any tax based on net income), hereinafter levied, assessed, or
imposed by any federal, state, city, county or municipal or other local
governmental authority, or any subdivision thereof, upon or measured by rent or
other consideration required to be paid by Tenant under this Lease.
3.02 Definition of Impositions. "Impositions" means, collectively:
-------------------------
(a) taxes (including without limitation, all real estate and personal property
ad valorem (whether assessed as part of the real estate or separately assessed
as unsecured personal property), sales and use, business or occupation, single
business, gross receipts, transaction, privilege, rent or similar taxes, but not
including income or franchise or excise taxes payable with respect to Landlord's
receipt of Rent);
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(b) assessments, whether in the nature of a special assessment or otherwise
(including, without limitation, all assessments for public improvements or
benefits, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term or any Extension Term, as the
case may be); (c) ground rents, water, sewer or other rents and charges,
excises, tax levies, and fees (including, without limitation, license, permit,
inspection, authorization and similar fees); (d) to the extent they may become a
lien on a Leased Property, all taxes imposed on Tenant's operations of such
Leased Property including without limitation, employee withholding taxes, income
taxes and intangible taxes; and (e) all other governmental charges, in each case
whether general or special, ordinary or extraordinary, or foreseen or unforseen,
of every character in respect of each Leased Property or any part thereof, the
Business conducted by Tenant thereon, and/or the Rent (including all interest
and penalties thereon due to any failure in payment by Tenant), which at any
time prior to, during or in respect of the Term or any Extension Term, as the
case may be, hereof may be assessed or imposed on or in respect of or be a lien
upon (i) Landlord or Landlord's interest in any Leased Property or any part
thereof; (ii) any Leased Property or any part thereof or any rent therefrom or
any estate, right, title or interest therein; or (iii) any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with any Leased Property or the leasing or use of any Leased Property or any
part thereof. Tenant shall not, however, be required to pay: (x) any tax based
on net income (whether denominated as a franchise or capital stock or other tax)
imposed on Landlord or (y) except as provided in Section 13.01, any tax imposed
with respect to the sale, exchange or other disposition by Landlord of a Leased
Property or the proceeds thereof; provided, however, that if any tax,
assessment, tax levy or charge which Tenant is obligated to pay pursuant to the
first sentence of this definition and which is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy or
charge set forth in clause (x) or (y) immediately above is levied, assessed or
imposed expressly in lieu thereof Tenant shall then pay such tax, levy, or
charge set forth in said clause (x) or (y).
3.03 Utilities. Tenant shall contract for, in its own name, and will
---------
pay, as Additional Rent all taxes, assessments, charges/deposits, and bills for
utilities, including without limitation charges for water, gas, oil, sanitary
and storm sewer, electricity, telephone service, trash collection, and all other
utilities which may be charged against the occupant of the Improvements during
the Term. Tenant shall at all times maintain that amount of heat necessary to
ensure against the freezing of water lines. Tenant hereby agrees to indemnify
and hold Landlord harmless from and against any liability or damages to the
utility systems of each Leased Property that may result from Tenant's failure to
maintain sufficient heat in the Improvements therefor.
3.04 Escrow of Impositions. Unless waived by written notice from
---------------------
Landlord to Tenant, Tenant shall thereafter deposit with Landlord on the first
day of each month during the Term hereof and any Extension Term, as the case may
be, a sum equal to one-twelfth (1/12th) of the Impositions assessed against such
Leased Property which sums shall be used by Landlord toward payment of such
Impositions. If, at the end of any applicable tax year, any such funds held by
Landlord are insufficient to make full payment of taxes or other Impositions for
which such funds are held, Tenant, on demand, shall pay to Landlord any
additional funds necessary to pay and discharge in full the obligations of
Tenant pursuant to the provisions of this Section. If, however,
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at the end of any applicable tax year, such funds held by Landlord are in excess
of the total payment required to satisfy taxes or other Impositions for which
such funds are held, Landlord shall apply such excess amounts to a tax and
Imposition escrow fund for the next tax year. With respect to each Leased
Property, if any such excess exists following the expiration or earlier
termination of this Lease, and subject to Section 8.08 below, Landlord shall
promptly refund such excess amounts to Tenant. The receipt by Landlord of the
payment of such Impositions by and from Tenant shall only be as an accommodation
to Tenant and the taxing authorities, and shall not be construed as rent or
income to Landlord, Landlord serving, if at all, only as a conduit for delivery
purposes.
3.05 Discontinuance of Utilities. Landlord will not be liable for
---------------------------
damages to person or property or for injury to, or interruption of, business for
any discontinuance of utilities at any Leased Property nor will such
discontinuance in any way be construed as an eviction of Tenant from such Leased
Property or cause an abatement of Rent as to such Leased Property or operate to
release Tenant from any of Tenant's obligations as to such Leased Property under
this Lease. Notwithstanding the forgoing, however, Landlord shall be liable for
damages to person or property or for injury to, or interruption of business, for
any discontinuance of utilities at any Leased Property, in the event and to the
extent, such damages or injury are caused by the wilful misconduct of the
Landlord.
3.06 Liens. Subject to Section 17.19 relating to contests, Tenant
-----
shall not directly or indirectly create or allow to remain, and will promptly
discharge at its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon any Leased Property or any attachment, levy, claim or
encumbrance in respect of any Rent provided under this Lease, not including,
however: (a) this Lease; (b) utility easements and road rights-of-way in the
customary form (i) provided the same do not adversely affect the intended use of
the Leased Properties (including the Improvements) and do not create a Material
Adverse Effect on the value of the Leased Properties or (ii) which result solely
from the action or inaction of Landlord; (c) zoning and building laws or
ordinances, provided they do not prohibit the use of the Leased Properties for
the Business and so long as the Leased Properties are in compliance with same;
(d) such encumbrances as are subsequently consented to in writing by Landlord,
but excluding liens in respect of Impositions required to be paid under Section
3.01; (e) liens for Impositions so long as (i) the same are not yet payable or
are payable without the addition of any fine or penalty or (ii) such liens are
being contested as permitted under Section 16.18; and (f) other encumbrances,
easements, rights of way or liens (i) provided the same do not adversely affect
the intended use of the Leased Properties (including the Improvements) and do
not create a Material Adverse Effect on the value of the Leased properties, or
(ii) which result solely from the action or inaction of Landlord.
ARTICLE IV
INSURANCE
4.01 Insurance. Tenant shall, at Tenant's expense, keep the
---------
Improvements, Fixtures, and other components of each Leased Property insured
against the following risks:
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(a) Loss or damage by fire with extended coverage
(including windstorm and subsidence), vandalism and
malicious mischief, sprinkler leakage and all other
physical loss perils commonly covered by "All Risk"
insurance in an amount not less than one hundred
percent (100%) of the then full replacement cost
thereof (as hereinafter defined). Such policy shall
include an agreed amount endorsement if available at a
reasonable cost. Such policy shall also include
endorsements for contingent liability for operation of
building laws, demolition costs, and increased cost of
construction.
(b) Loss or damage by explosion of steam boilers, pressure
vessels, or similar apparatus, now or hereafter
installed on any Leased Property, in commercially
reasonable amounts acceptable to Landlord.
(c) Loss of rent under a rental value or Business
interruption insurance policy covering risk of loss
during the first twelve (12) months of reconstruction
necessitated by the occurrence of any hazards described
in Sections 4.01(a) or 4.01(b), above, and which causes
an abatement of Rent as provided in Article X hereof,
in an amount sufficient to prevent Landlord or Tenant
from becoming a co-insurer, containing endorsements for
extended period of indemnity and premium adjustment,
and written with an agreed amount clause, if the
insurance provided for in this clause (c) is available.
(d) If the Land or any portion thereof related to a Leased
Property is located in whole or in part within a
designated flood plain area, loss or damage caused by
flood in commercially reasonable amounts acceptable to
Landlord.
(e) Loss or damage commonly covered by blanket crime
insurance including employee dishonesty, loss of money
orders or paper currency, depositor's forgery, and loss
of property accepted by Tenant for safekeeping, in
commercially reasonable amounts acceptable to Landlord.
(f) Workers' compensation insurance as required by statute
in respect of any work or other operations on or about
each Leased Property.
(g) Comprehensive liability insurance as to each Leased
Property in amounts equal to the greater of (i) One
Million Dollars ($1,000,000) for each occurrence and
Two Million Dollars ($2,000,000) in the aggregate, or
(ii) the limits of liability generally required under
the
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franchise agreements or other agreements pursuant to
which Tenant operates the Businesses conducted on or
about each Leased Property.
(h) Commercial comprehensive catastrophic liability
insurance with limits of liability of not less than the
greater of (i) Five Million ($5,000,000) and (ii) the
limits of liability generally required under the
franchise agreements or other agreements pursuant to
which Tenant operates the Businesses conducted on or
about each Leased Property.
(i) upon Landlord's request, earthquake insurance in an
amount not less than the full insurable
value of each Leased Property.
(j) During the period when any addition, alteration,
construction, installation or demolition is being made
or performed to any part of the Leased Property,
contingent liability, public liability, completed
value, builder's risk (non-reporting form) workers'
compensation and other insurance as is deemed prudent
by Landlord.
4.02 Insurance Limits. Deductible provisions for the insurance
----------------
required under Section 4.01(a) shall not exceed Twenty-Five Thousand Dollars
($25,000) per location per occurrence and One Hundred Thousand Dollars
($100,000) aggregate per occurrence; under clause(d), Twenty-Five Thousand
Dollars ($25,000) per occurrence, except that if federal flood insurance is
available then such deductible shall not be greater than the lowest deductible
available with respect to such federal flood insurance; under clause (g),
Twenty-Five Thousand Dollars ($25,000) per occurrence; under clause (h), Twenty-
Five Thousand Dollars ($25,000) per occurrence; and under clause (j), Twenty-
Five Thousand Dollars ($25,000) per occurrence.
4.03 Insurance Requirements. The following provisions shall apply
----------------------
to all insurance coverages required hereunder:
(a) The carriers of all policies shall have a Best's Rating
of "A-" or better and a Best's Financial Category of
XII or larger and shall be authorized to do insurance
business in the jurisdiction in which the Leased
Property is located.
(b) Tenant shall be the "named insured" and Landlord and
any mortgagee of Landlord shall be an "additional named
insured" on each policy.
(c) Tenant shall deliver to Landlord certificates or
policies showing the required coverages and
endorsements. Each policy or certificate of insurance
shall provide that such policy or certificate (i) may
not be canceled, (ii) may not lapse for failure to
renew, and (iii) no material
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change or reduction in coverage may be made, without at
least thirty (30) days' prior written notice to
Landlord.
(d) The policies shall contain a severability of interest
and/or cross-liability endorsement, provide that the
acts or omissions of Tenant will not invalidate
Landlord's coverage, and provide that Landlord shall
not be responsible for payment of premiums.
(e) All loss adjustment shall require the written consent
of Landlord and Tenant, as their interests may appear.
(f) At least (30) thirty days prior to the expiration of
each policy, Tenant shall deliver to Landlord a
certificate showing renewal of such policy and payment
of the annual premium therefor.
Landlord shall have the right to review the insurance coverages
required hereunder with Tenant from time to time, to obtain the input of third
party professional insurance advisors (at Landlord's expense) with respect to
such insurance coverages, and to consult with Tenant in Tenant's annual review
and renewal of such insurance coverages. All insurance coverages hereunder shall
be in such form, substance and amounts as are customary or standard in Tenant's
industry, but at a minimum shall comply with the requirements set forth herein.
4.04 Replacement Cost. The term "full replacement cost" means the
----------------
actual replacement cost of the Improvements from time to time including
increased cost of construction, with no reductions or deductions. Tenant shall,
not later than thirty (30) days after the anniversary of each policy of
insurance, increase the amount of the replacement cost endorsement for the
Improvements to the extent necessary to reflect increased costs of construction.
If Tenant makes any Permitted Alterations (as hereinafter defined) to any Leased
Property, Landlord may have such full replacement cost redetermined at any time
after such Permitted Alterations are made, regardless of when the full
replacement cost was last determined.
4.05 Blanket Policy. Tenant may carry the insurance required by
--------------
this Article under a blanket policy of insurance, provided that the coverage
afforded Tenant will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all of the requirements
of this Lease and the Landlord approves the form of the policy.
4.06 No Separate Insurance. Tenant shall not take out separate
---------------------
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or increase the amounts of any then existing insurance
by securing an additional policy or additional policies, unless all parties
having an insurable interest in the subject matter of the insurance, including
Landlord and any mortgagees, are included therein as additional named insureds
or loss payees, the loss is payable under said insurance in the same manner as
losses are payable under this Lease, and such additional insurance is not
prohibited by the existing policies of insurance required pursuant
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to this Article. Tenant shall immediately notify Landlord of the taking out of
such separate insurance or the increasing of any of the amounts of the existing
insurance by securing an additional policy or additional policies. The term
"mortgages" as used in this Lease includes, but is not limited to, Deeds of
Trust and the term "mortgagees" includes, but is not limited to, trustees and
beneficiaries under a Deed of Trust.
4.07 Waiver of Subrogation. Each party hereto hereby waives any and
---------------------
every claim which arises or may arise in its favor and against the other party
hereto during the Term or any Extension Term or renewal thereof, for any and all
loss of, or damage to, any of its property located within or upon, or
constituting a part of, any Leased Property, which loss or damage is covered by
valid and collectible insurance policies, to the extent that such loss or damage
is recoverable in full under such policies. Said mutual waiver shall be in
addition to, and not in limitation or derogation of, any other waiver or release
contained in this Lease with respect to any loss or damage to property of the
parties hereto. Inasmuch as the said waivers will preclude the assignment of any
aforesaid claim by way of subrogation (or otherwise) to an insurance company (or
any other person), each party hereto agrees immediately to give each insurance
company which has issued to it policies of insurance, written notice of the
terms of said mutual waivers, and to have such insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverage
by reason of said waivers, so long as such endorsement is available at a
reasonable cost.
4.08 Mortgages. The following provisions shall apply if Landlord now
---------
or hereafter places a mortgage on any Leased Property or any part thereof: (a)
Tenant shall obtain a standard form of mortgage clause insuring the interest of
the mortgagee; (b) Tenant shall deliver evidence of insurance to such mortgagee;
(c) loss adjustment shall require the consent of the mortgagee but such consent
shall not be unreasonably withheld and may not include any requirement that the
funds be paid to mortgagee in lieu of reconstruction; and (d) Tenant shall
obtain such other coverages and provide such other information and documents as
may be reasonably required by the mortgagee.
4.09 Other Insurance Requirements. Notwithstanding anything in this
----------------------------
Lease to the contrary and not by way of limitation, in addition to the types and
amounts of insurance required to be carried by Tenant herein, Tenant covenants
to insure and continue in effect such types and amounts of insurance as the
Tenant shall be required to carry pursuant to any contract, agreement,
instrument, statute, law, rule or regulation relating to the use of the Leased
Property and the operations of any Business or other activities thereon,
including noncancellable written notice to mortgagee.
ARTICLE V
INDEMNITY; SUBSTANCES OF CONCERN
5.01 Tenant's Indemnification. Subject to Section 4.07, Tenant hereby
------------------------
agrees to indemnify and hold harmless Landlord, its agents, and employees from
and against any and all demands, claims, causes of action, fines, penalties,
damages (including punitive and consequential
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damages), losses, liabilities (including strict liability), judgments, costs and
expenses (including, without limitation, attorneys' fees, court costs, and the
costs set forth in Section 9.06) (the "Claims") incurred in connection with or
arising from: (a) the use, condition, operation or occupancy of the Leased
Properties; (b) any activity, work, or thing done, or permitted or suffered by
Tenant in, on or about the Leased Properties; (c) any acts, omissions, or
negligence of Tenant or any person claiming under Tenant, or the contractors,
agents, employees, invitees, or visitors of Tenant or any such person; (d) any
breach, violation, or nonperformance by Tenant or any person claiming under
Tenant or the employees, agents, contractors, invitees, or visitors of Tenant or
of any such person, of any term, representation, warranty, covenant, or
provision of this Lease or any law, ordinance, or governmental requirement of
any kind; (e) any injury or damage to the person, property or Business of
Tenant, its employees, agents, contractors, invitees, visitors, or any other
person entering upon any Leased Property; (f) any accident, injury to or death
of persons or loss or damage to any item of property occurring on or about any
Leased Property; (g) any Environmental Law or any pollution or other threat to
human health or the environment at, arising out of or relating to any Leased
Property as set forth in Section 5.05, and (h) any brokers' or agents' fees and
commissions. If any action or proceeding is brought against Landlord, its
employees, or agents by reason of any such demand, claim, or cause of action,
Tenant, upon notice from Landlord, will defend the same at Tenant's expense with
counsel reasonably satisfactory to Landlord. In the event Landlord reasonably
determines that its interests and the interests of Tenant in any such action or
proceeding are not substantially the same and that Tenant's counsel cannot
adequately represent the interests of Landlord therein, Landlord shall have the
right to hire separate counsel in any such action or proceeding and the
reasonable costs thereof shall be paid for by Tenant. Tenant's indemnification
obligations with respect to a Claim shall survive the expiration or earlier
termination of this Lease until the later of (i) two (2) years from the date
hereof, or (ii) the expiration of the period ninety (90) days after the date on
which Landlord has actual knowledge of the existence of such Claim, provided,
however, that Tenant's indemnification obligations shall survive the expiration
or earlier termination of this Lease until ninety (90) days after the expiration
of the applicable statute of limitations for Claims incurred in connection with,
arising out of, or related to (i) Section 5.01(g) or (ii) the failure to pay, as
provided for in this Agreement, any Imposition.
5.02 Substances of Concern.
---------------------
(a) For purposes of this Section 5:
(i) "Substances of Concern" means, without limitation,
chemicals, pollutants, contaminants, wastes, toxic
substances, radioactive materials or genetically
modified organisms, which are, have been or become
regulated by any federal, state or local government
authority including, without limitation, (1) petroleum
or any fraction thereof, (2) asbestos, (3) any
substance or material defined as a "hazardous
substance" pursuant to (S) 101 of the Comprehensive
Environmental Response Compensation and Liability Act
(42
14
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U.S.C. (S) 9601), or (4) any substance or material
defined as a "hazardous chemical" pursuant to the
federal Hazard Communication Standard (29 C.F.R. (S)
1910.1200).
(ii) "Environmental Laws" means all federal, state, local,
and foreign laws and regulations relating to pollution
or protection of human health or the environment
(including, without limitation, ambient air, surface
water, ground water, wetlands, land surface,
subsurface strata, and indoor and outdoor workplace),
including, without limitation, (1) laws and
regulations relating to emissions, discharges,
releases, or threatened releases of Substances of
Concern, and (2) common law principles of tort
liability.
(b) Tenant shall not, either with or without negligence,
injure, overload, deface, damage or otherwise harm any
Leased Property or any part or component thereof; commit
any nuisance; permit the emission of any Substances of
Concern; allow the release or other escape of any
biologically or chemically active substances or materials
or other Substances of Concern so as to impregnate, impair
or in any manner affect, even temporarily, any element or
part of any Leased Property or neighboring property, or
allow the storage or use of such substances or materials in
any manner not sanctioned by law and by reasonable
standards prevailing in the automobile retail and related
industries for the storage and use of such substances or
materials; nor shall Tenant permit the occurrence of
objectionable noise or odors; or make, allow or suffer any
waste whatsoever to any Leased Property. Landlord may
inspect each Leased Property from time to time, and Tenant
will cooperate with such inspections.
(c) Notwithstanding the foregoing, Tenant anticipates using,
storing and disposing of certain Substances of Concern in
connection with operation of its Business. Such Substances
of Concern include, but are not limited to, the following:
motor oil, waste motor oil and filters, transmission fluid,
antifreeze, refrigerants, waste paint and lacquer thinner,
batteries, solvents, lubricants, degreasing agents,
gasoline and diesel fuels. Tenant shall ascertain and
comply fully with all applicable Environmental Laws and
environmental standards and requirements set by federal,
state or local laws, rules, regulations or governmental
directives related to the Leased Properties or Tenant's use
or occupancy of the Leased Property ("Environmental
Standards"), including but not limited to any laws or
standards (a) regulating the use, storage, generation or
disposal of Substances of
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Concern, (b) regulating the monitoring or use of any
underground or aboveground storage tanks at the Leased
Properties, or (c) establishing any permitting,
notification or reporting requirements. As promptly as
practicable after the Commencement Date (but in no event
later than 120 days thereafter), Tenant shall establish and
implement a program of compliance with all applicable
Environmental Laws and Environmental Standards
("Environmental Compliance Program"). Tenant shall update
such Environmental Compliance Program every three (3) years
during the Term. Tenant shall submit its Environmental
Compliance Program and each update thereto to Landlord;
provided, however, such submittal shall not relieve Tenant
of its obligations pursuant to this Section 5. Tenant's
Environmental Compliance Program shall include a program
for monitoring Tenant's compliance with Environmental Laws
and Environmental Standards and a plan for correcting
immediately any incident of noncompliance. Tenant shall
comply with its Environmental Compliance Program.
(d) In the event of any noncompliance with any Environmental
Laws or Environmental Standards or any spill, release or
discharge of Substances of Concern in a reportable quantity
under federal, state or local law, Tenant shall:
(i) give Landlord immediate notice of the incident by
telephone or facsimile, providing as much detail as
possible. Such notice shall be provided to Landlord's
National Dealership Real Estate Manager or to such
other person as Landlord shall designate in
accordance with Section 16.01 below;
(ii) as soon as possible, but no later than seventy-two
(72) hours, after discovery of an incident of
noncompliance, submit a written report to Landlord,
identifying the source or case of the noncompliance
or spill, release or discharge (including the names
and quantities of any Substances of Concern involved)
and the method or action required to correct the
problem; and
(iii) cooperate with Landlord or its designated agents or
contractors with respect to the investigation and
correction of such problem.
Tenant shall also be solely responsible for providing any notice
to any federal, state or local governmental authority required by applicable
laws and regulations as a result of such incident.
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5.03 Audits. Landlord shall have the right to conduct, at its
------
expense, periodic audits of Tenant's compliance with the Environmental
Compliance Program and management of Substances of Concern at the Leased
Properties and/or periodic tests of air, soil, surface water or groundwater at
or near the Leased Properties. Landlord shall not be obligated to provide Tenant
with the results of any audit or tests unless such results are the basis for a
claim by Landlord that Tenant has breached its obligations under this Lease or a
demand by Landlord that Tenant modify its Environmental Compliance Program or
operations or remediate or remove a spill, release or discharge of Substances of
Concern in accordance with Section 5.06 below. Tenant agrees promptly to modify
its Environmental Compliance Program or the conduct of its operations in
accordance with Landlord's reasonable recommendations directed at improvement of
Tenant's handling, use and disposal of Substances of Concern in, on or from any
Leased Property. If, as a result of an environmental audit performed by Landlord
with respect to any Leased Property, Landlord reasonably determines in its
judgment that alterations or improvements of equipment or buildings located on
the Leased Property are necessary, Tenant shall perform such alterations or
improvements as are reasonable under the circumstances and pay all costs and
expenses relating thereto. If Tenant shall fail to pay any such costs or
expenses, Tenant shall deposit with Landlord the full amount necessary to pay
such costs in full within ten (10) days of Landlord's demand. Nothing contained
herein shall be construed to obligate or require Landlord to perform any audits,
tests, inquiry or investigation. Should Landlord elect or be required to
disclose to Tenant the results of any audit or tests, Landlord shall not be
liable in any way for the truth or accuracy of such information.
5.04 Landlord's Option Re: Compliance. If Tenant, after notice from
--------------------------------
Landlord, fails to comply with or perform any of its obligations pursuant to
this Section 5, including, but not limited to, obligations to clean up spills,
releases or discharges, Landlord may, but shall not be obligated to, perform
such obligations and Tenant shall pay Landlord within ten (10) days of demand
Landlord's costs therefor, including any overhead and administrative costs.
5.05 Environmental Indemnification. Tenant shall indemnify and hold
-----------------------------
harmless Landlord from and against all demands, claims, causes of action, fines,
penalties, damages (including punitive and consequential damages), losses,
liabilities (including strict liability), judgments, and expenses (including,
without limitation, attorneys' fees, court costs, and the costs set forth in
Section 9.06) imposed upon or asserted against Tenant, Landlord or any Leased
Property on account of any Environmental Law (irrespective of whether there has
occurred any violation of any Environmental Law) relating to any Leased
Property, including (a) response costs and costs of removal and remedial action
incurred by the United States Government or any state or local governmental unit
to any other person or entity, or damages from injury to or destruction or loss
of natural resources, including the reasonable costs of assessing such injury,
destruction or loss, incurred pursuant to any Environmental Law, (b) costs and
expenses of abatement, investigation, removal, remediation, correction or
cleanup, fines, damages, response costs or penalties which arise from the
provisions of any Environmental Law, (c) liability for personal injury or
property damage arising under any statutory or common-law tort theory, including
damages assessed for the maintenance of a public or private nuisance or for
carrying on of a dangerous activity, (d) liability by reason of a breach of an
environmental representation or warranty by Tenant, and (e) failure of Tenant to
complete in a
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timely manner alterations or improvements of equipment or buildings located on
the Leased Property deemed necessary or advisable by Landlord pursuant to
Section 5.03 in a manner acceptable to Landlord.
5.06 Tenant's Cleanup Obligation. If any spill, release or discharge
---------------------------
of Substances of Concern occurs on, at or from the Leased Properties during the
Term, Tenant shall promptly take all actions, at its sole expense, as are
necessary to remove or remediate such spill, release or discharge and to return
the Leased Property to the condition existing prior to the introduction of any
such Substances of Concern to the Leased Property, provided that Landlord's
approval of such action shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse effect on the Leased Property.
5.07 Existing Environmental Conditions. Tenant acknowledges that it
---------------------------------
has had the opportunity to review the Environmental Reports attached hereto as
Exhibit 5.07. Tenant hereby represents that it has reviewed and is aware of the
matters disclosed in the Environmental Reports.
As a material consideration for Landlord's willingness to enter
into this Lease, Tenant, for itself and its Affiliates, and each of their
shareholders, directors, officers, employees, agents, contractors,
representatives, insurers, successors and assigns hereby waives and releases
Landlord and its Affiliates and each of their shareholders, directors, officers,
employees, representatives, agents, contractors, representatives, insurers,
successors and assigns from any and all claims, demands, liabilities, costs,
expenses, causes of action and rights of action whatsoever, past, present or
future, known or unknown, suspected or unsuspected, which arise out of or relate
in any way to the violation of Environmental Laws or the use, storage,
treatment, disposal, presence, spill, release, or discharge of Substances of
Concern at, on or from the Leased Properties before the Commencement Date
(collectively, the "Released Claims").
In the event that Landlord is ordered by a governmental agency,
or determines that it is in its best interest, to remedy any violation of
Environmental Laws or to remove or remediate any Substances of Concern present
on, under or about the Leased Properties on the Commencement Date, or spilled,
released or discharged on, at or from the Leased Properties before the
Commencement Date, Tenant shall immediately upon notice from Landlord take all
actions, at Tenant's sole expense, to promptly complete such removal or
remediation.
5.08 Survival of Tenant's Obligations. Tenant's obligations under
--------------------------------
this Section 5 shall survive the expiration or earlier termination of this
Lease. During any period of time employed by Tenant after the termination of
this Lease to complete the removal from the Leased Property of any Substances of
Concern, if the premises are not rentable for uses contemplated under this
Lease, Tenant shall continue to pay the full amount of Rent due under this
Lease, which Rent shall be prorated daily for the final month of such period of
time.
ARTICLE VI
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USE AND ACCEPTANCE OF PREMISES
6.01 Use of Leased Properties. For so long as this Lease is in effect
------------------------
(including following any sublease or assignment thereof), Tenant shall use and
occupy each Leased Property exclusively for the purpose of conducting the
Business or for any other legal purpose for which such Leased Property is being
used as of the Commencement Date, and for no other purpose without the prior
written consent of Landlord. Tenant shall obtain and maintain all approvals,
licenses, and consents needed to use and operate the Leased Properties for such
purposes. Tenant shall promptly deliver to Landlord complete copies of surveys,
examinations, certification and licensure inspections, compliance certificates,
and other similar reports issued to Tenant by any governmental agency.
6.02 Acceptance of Leased Properties. Except as otherwise
-------------------------------
specifically provided in this Lease, Tenant acknowledges (i) Tenant and its
agents have had an opportunity to inspect each Leased Property; (ii) Tenant has
found each Leased Property fit for Tenant's use; (iii) delivery of each Leased
Property to Tenant is in an "as-is" condition; (iv) Landlord is not obligated to
make any improvements or repairs to any Leased Property; and (v) the roof,
walls, foundation, heating, ventilating, air conditioning, telephone, sewer,
electrical, mechanical, utility, plumbing, and other portions of each Leased
Property are in good working order. Tenant waives any claim or action against
Landlord with respect to the condition of any Leased Property. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTIES OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION OR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO QUALITY OR THE
MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH
RISKS ARE TO BE BORNE BY TENANT.
6.03 Conditions of Use and Occupancy. Tenant agrees that during the
-------------------------------
Term it shall use and keep each Leased Property in a careful, safe and proper
manner; not commit or suffer waste thereon; not use or occupy any Leased
Property for any unlawful purposes; not use or occupy any Leased Property or
permit the same to be used or occupied, for any purpose or business deemed extra
hazardous on account of fire or otherwise; keep each Leased Property in such
repair and condition as may be required by the local board of health, or other
city, state or federal authorities, free of all cost to Landlord; not permit any
acts to be done which will cause the cancellation, invalidation, or suspension
of any insurance policy; and permit Landlord and its agents to enter upon each
Leased Property at all reasonable times after notice to Tenant to examine the
condition thereof. In addition, at any time and from time to time upon not less
than fifteen (15) days prior written notice, Tenant shall permit Landlord and
any mortgagee or lender and their authorized representatives, to inspect the
Leased Properties during normal Business hours, provided that such inspections
shall not unreasonably interfere with Business of Tenant.
6.04 Financial Statements and Other Information. Tenant shall provide
------------------------------------------
Landlord and any mortgagee or lender regularly (or more often as may be
reasonably requested by Landlord in writing), the following financial
information: (a) as to each Leased Property within thirty (30) days after each
fiscal quarter during the Term or any Extension Term, as the case may be,
(except
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the fourth quarter), Tenant-prepared financial statements prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied; and
(b) as to each Leased Property and itself, Tenant shall use its best efforts to
provide Landlord within ninety (90) days after the end of each fiscal year of
Tenant during the Term or any Extension Term, as the case may be, and in no
event later than one hundred and twenty (120) days after the end of each fiscal
year of Tenant during the Term or any Extension Term, as the case may be,
financial statements, audited, reviewed or compiled by a certified public
accountant (the "Annual Financial Statements"). Tenant shall also deliver to
Landlord such additional financial information as Landlord may reasonably
request, provided the same is of a type normally maintained by Tenant or can be
obtained without undue cost or burden on Tenant's personnel and does not
constitute information which Tenant reasonably determines to be proprietary or
confidential. Additionally, upon Landlord's request, Tenant shall provide
Landlord with copies of Tenant's annual capital expenditure budgets for each
Leased Property and any reports generated by Tenant regarding maintenance and
repairs of each Leased Property.
ARTICLE VII
REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS
7.01 Maintenance. Tenant shall maintain each Leased Property in good
-----------
order, repair and appearance, and repair each Leased Property, including without
limitation, all interior and exterior, structural and nonstructural repairs and
replacements to the roof, foundations, exterior walls, building systems, HVAC
systems, parking areas, sidewalks, water, sewer and gas connections, pipes, and
mains. Tenant shall pay as Additional Rent the full cost of such maintenance,
repairs, and replacements. Tenant shall maintain all drives, sidewalks, parking
areas, and lawns on or about each Leased Property in a clean and orderly
condition, free of accumulations of dirt, rubbish, snow and ice. Tenant shall
permit Landlord to inspect each Leased Property at all reasonable times, and
shall implement all reasonable suggestions of Landlord as to the maintenance and
repair of each Leased Property.
7.02 Compliance with Laws. Tenant shall comply with all laws,
--------------------
ordinances, orders, rules, regulations, and other governmental requirements
relating to the use, condition, or occupancy of each Leased Property, whether
now or hereafter enacted and in force including without limitation: (a)
licensure requirements for operation of the Business; (b) requirements of any
board of casualty insurance underwriters or insurance service office for any
other similar body having jurisdiction over any Leased Property; (c) all zoning
and building codes; and (d) Environmental Laws. At Landlord's request, from time
to time, Tenant shall deliver to Landlord copies of certificates or permits
evidencing compliance with such laws, including without limitation, copies of
any applicable licenses, certificates of occupancy and building permits. Tenant
shall provide Landlord with copies of any notice from any governmental authority
alleging any non-compliance by Tenant or any Leased Property with any of the
foregoing requirements and such evidence as Landlord may reasonably require of
Tenant's remediation thereof. Tenant hereby agrees to defend,
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indemnify and hold Landlord, its agents, and employees from and against any and
all demands, claims, causes of action, fines, penalties, damages (including
punitive and consequential damages), losses, liabilities (including strict
liability), judgments, costs and expenses (including, without limitation,
attorneys' fees, court costs, and the costs set forth in Section 9.06) resulting
from any failure by Tenant to comply with any laws, ordinances, rules,
regulations, and other governmental requirements.
7.03 Required Alterations. Tenant shall, at Tenant's sole cost and
--------------------
expense, make any additions, changes, improvements or alterations to each Leased
Property, including structural alterations, which may be required by any
governmental authorities, including those required to continue to satisfy any
licensure requirements related to the operation of the Business, whether such
changes are required by Tenant's use, changes in the law, ordinances, or
governmental regulations, defects existing as of the date of this Lease, or any
other cause whatsoever. Tenant shall provide thirty (30) days prior written
notice to Landlord of any changes to a Leased Property pursuant to this Section
7.03 which involve changes to the structural integrity thereof or materially
affect the operational capabilities thereof. All such additions, changes,
improvements or alterations shall be deemed to be a Tenant Improvement and shall
comply with all laws relating to such alterations and with the provisions of
Section 8.01.
7.04 Mechanics' Liens. Tenant shall have no authority to permit or
----------------
create a lien against Landlord's interest in any Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord's interest in each Leased Property against liens. Tenant hereby agrees
to defend, indemnify, and hold Landlord harmless from and against any mechanics'
liens against any Leased Property by reason of work, labor services or materials
supplied or claimed to have been supplied on or to such Leased Property. Tenant
shall immediately remove, bond-off, or otherwise obtain the release of any
mechanics' lien filed against any Leased Property. Tenant shall pay all expenses
in connection therewith, including without limitation, damages, interest, court
costs and reasonable attorneys' fees.
7.05 Replacements of Fixtures. Tenant shall not remove Fixtures from
------------------------
any Leased Property except to replace such Fixtures with other items used for
similar or analogous purposes, which replacement items are of equal or greater
quality and value. Items being replaced by Tenant may be removed and shall
become the property of Tenant and items replacing the same shall be and remain
the property of Landlord. Tenant shall execute, upon written request from
Landlord, any and all documents necessary to evidence Landlord's ownership of
the Fixtures and replacements therefor. Tenant may not finance replacements by
security agreement or equipment lease unless: (a) Landlord has consented to the
terms and conditions of the equipment lease or security agreement; (b) the
equipment lessor or lender has entered into a non-disturbance agreement with
Landlord upon terms and conditions acceptable to Landlord, including without
limitation (i) Landlord shall have the right (but not the obligation) to assume
such security agreement or equipment lease upon the occurrence of an Event of
Default by Tenant hereunder; (ii) the equipment lessor or lender shall promptly
notify Landlord of any default by Tenant under the equipment lease or security
agreement and give Landlord a reasonable opportunity to cure such default; and
(iii) Landlord shall have the right to
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assign its rights under the equipment lease, security agreement, or non-
disturbance agreement; (c) the equipment lessor or lender shall subordinate its
security interest to the security interest of any of Landlord's lessors,
mortgagors or lenders, whether now created or hereafter existing, and (d) Tenant
shall, within ten (10) days after receipt of an invoice from Landlord, reimburse
Landlord for all costs and expenses incurred in reviewing and approving the
equipment lease, security agreement, and non-disturbance agreement, including
without limitation, reasonable attorneys' fees and costs.
7.06 Encroachments; Restrictions. If any of the Improvements shall,
---------------------------
at any time, encroach upon any property, street or right-of-way adjacent to a
Leased Property, or shall violate the agreements or conditions contained in any
restrictive covenant or other agreement affecting a Leased Property, other than
one which is created or consented to by Landlord without Tenant's consent, or
shall impair the rights of others under an easement or right-of-way to which a
Leased Property is subject, other than one which is created or consented to by
Landlord without Tenant's consent, then promptly upon the request of Landlord or
at the request of any person affected by any such encroachment, violation or
impairment, Tenant shall, at its expense, subject to its right to contest the
existence of any encroachment, violation or impairment and in such case, in the
event of an adverse final determination, either (a) obtain valid and effective
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation or impairment, whether the same shall affect
Landlord or Tenant or (b) make such changes in the Improvements and take such
other actions as shall be necessary to remove such encroachment and to end such
violation or impairment, including, if necessary, the alteration of
improvements. Any such alteration shall be made in conformity with the
requirements of Article VIII.
ARTICLE VIII
ALTERATIONS AND SIGNS; TENANT'S PROPERTY;
CAPITAL ADDITIONS TO THE LEASED PROPERTIES
8.01 Tenant's Right to Construct. As to each Leased Property, during
---------------------------
the Term of this Lease or any Extension Term, as the case may be, so long as no
Event of Default shall have occurred and be continuing as to such Leased
Property, Tenant may make Capital Additions (as defined herein), or other
alterations, additions, changes and/or improvements to such Leased Property as
deemed necessary or useful to operate such Leased Property for Tenant's Business
(individually, a "Tenant Improvement," or collectively, the "Tenant
Improvements"). "Capital Additions" shall mean the construction of one or more
new buildings or one or more additional structures annexed to any portion of any
of the Improvements on a Leased Property, which are constructed on any parcel
or portion of the Land comprising a Leased Property, including the construction
of a new floor, or the repair, replacement, restoration, remodeling or
rebuilding of the Improvements or any portion thereof on a Leased Property which
are not normal, ordinary or recurring to maintain such Leased Property. Except
as otherwise agreed to by Landlord herein or otherwise in writing, any such
Tenant Improvement or Capital Addition shall be made at Tenant's sole expense
and shall become the property of Landlord upon termination of this Lease.
Unless made on an emergency basis to prevent injury to person or property, as to
each Leased Property,
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Tenant must obtain Landlord's prior written approval, such approval not to be
unreasonably withheld or delayed, for any Capital Addition or for any Tenant
Improvement which is not a Capital Addition and which has a cost of more than
One Hundred Thousand Dollars ($100,000) or a cost which, when aggregated with
the costs of all such Tenant Improvements on such Leased Property in a given
Lease Year, would cause the total costs of all such Tenant Improvements on such
Leased Property to exceed Two Hundred Fifty Thousand Dollars ($250,000).
Additionally, in connection with any Tenant Improvement, including any Capital
Addition, Tenant shall provide Landlord with copies of any plans and
specification therefor, Tenant's budget relating thereto, any required
governmental permits or approvals, any construction contracts or agreements
relating thereto, and any other information relating to such Tenant Improvement
as Landlord shall reasonably request.
8.02 Scope of Right. Subject to Section 8.01 herein and Section 7.03
--------------
concerning required alterations, at Tenant's cost and expense, Tenant shall have
the right to:
(a) seek any governmental approvals, including building
permits, licenses, conditional use permits and any
certificates of need that Tenant requires to construct any
Tenant Improvement;
(b) erect upon each Leased Property such Tenant Improvements as
Tenant deems desirable;
(c) make additions, alterations, changes and improvements in
any Tenant Improvement so erected; and
(d) engage in any other lawful activities that Tenant
determines are necessary or desirable for the development
of each Leased Property in accordance with the Tenant's
Business;
provided, however, Tenant shall not make any Tenant Improvement which would, in
Landlord's reasonable judgment, impair the value of the Leased Property or the
Tenant's Business without Landlord's prior written consent and provided, further
that Tenant shall not be permitted to create a mortgage, lien or any other
encumbrance on any Leased Property without Landlord's prior written consent.
8.03 Cooperation of Landlord. Landlord shall cooperate with Tenant
-----------------------
and take such actions, including the execution and delivery to Tenant of any
applications or other documents, reasonably requested by Tenant in order to
obtain any governmental permits, licenses or approvals sought by Tenant to
construct any Tenant Improvement within fifteen (15) business days following the
later of: (a) the date Landlord receives Tenant's request or (b) the date of
delivery of any such application or document to Landlord; provided, the taking
of such action by Landlord, including the execution of said applications or
documents, shall be without cost to Landlord (or if there is a cost to Landlord,
such cost shall be reimbursed by Tenant), shall not cause Landlord to be in
violation
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of any law, ordinance or regulation, and shall not be deemed a waiver by
Landlord of any of its rights or of any of Tenant's obligations, including but
not limited to indemnification.
8.04 Commencement of Construction. Tenant agrees that:
----------------------------
(a) Tenant shall diligently seek all governmental approvals
relating to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant
Improvement, Tenant shall diligently oversee any such
construction to completion in accordance with applicable
insurance requirements and the laws, rules and regulations
of all governmental bodies or agencies having jurisdiction
over the subject Leased Property;
(c) Landlord shall have the right at any time and from time to
time to post and maintain upon each Leased Property such
notices as may be necessary to protect Landlord's interest
from mechanics' liens, materialmen's liens or liens of a
similar nature;
(d) Tenant shall not suffer or permit any mechanics' liens or
any other claims or demands arising from the work of
construction of any Tenant Improvement to be enforced
against any Leased Property or any part thereof, and Tenant
agrees to hold Landlord, its agents and employees and said
Leased Property free and harmless from all demands, claims,
causes of action, fines, penalties, damages (including
punitive and consequential damages), losses, liabilities
(including strict liability), judgments, costs and expenses
(including, without limitation, attorneys' fees, court
costs, and the costs set forth in Section 9.06) incurred in
connection with or arising therefrom;
(e) All work shall be performed in a satisfactory and
workmanlike manner consistent with standards in the
industry; and
(f) Subject to Section 8.08 in the case of Capital Additions,
Tenant shall not secure any construction or other financing
for the Tenant Improvements which is secured by a portion
of any Leased Property without Landlord's prior written
consent, and any such financing (i) shall not exceed the
cost of the Tenant Improvements, (ii) shall be subordinate
to any mortgage or encumbrance now existing or hereinafter
created with respect to such Leased Property, and (iii)
shall be limited solely to Tenant's interest in the subject
Leased Property.
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8.05 Rights in Tenant Improvements. Notwithstanding anything to the
------------------------------
contrary in this Lease, all Tenant Improvements existing on the Leased Property
or constructed upon each Leased Property pursuant to Section 8.01, any and all
subsequent additions thereto and alterations and replacements thereof shall be
the sole and absolute property of Tenant during the Term and any Extension Term,
as the case may be, of this Lease (in respect of such Leased Property). Upon
the expiration or early termination of this Lease in respect of a Leased
Property, all such Tenant Improvements located thereon shall become the property
of Landlord. Without limiting the generality of the foregoing, prior to the
expiration or early termination of this Lease in respect of a Leased Property,
Tenant shall be entitled to all federal and state income tax benefits associated
with all Tenant Improvements located on such Leased Property.
8.06 Personal Property. Tenant shall install, place, and use on each
-----------------
Leased Property such fixtures, furniture, equipment, inventory and other
personal property in addition to the Fixtures as may be required or as Tenant
may, from time to time, deem necessary or useful to operate such Leased Property
in the operation of the Business.
8.07 Requirements for the Tenant's Personal Property. Tenant shall
-----------------------------------------------
comply with all of the following requirements in connection with the Tenant's
Personal Property:
(a) RESERVED.
(b) The Tenant's Personal Property shall be installed in a good
and workmanlike manner, in compliance with all governmental
laws, ordinances, rules, and regulations and all insurance
requirements, and be installed free and clear of any
mechanics' liens.
(c) Tenant shall, at Tenant's sole cost and expense, maintain,
repair, and replace the Tenant's Personal Property.
(d) Tenant shall, at Tenant's sole cost and expense, keep the
Tenant's Personal Property insured against loss or damage
by fire, vandalism and malicious mischief, sprinkler
leakage, and other physical loss perils commonly covered by
fire and extended coverage, boiler and machinery, and
difference in conditions insurance (which insurance shall
meet the requirements of Section 4.03 hereof) in an amount
not less than the full replacement cost thereof or such
other amount as appears on a schedule submitted by Tenant
to Landlord, which schedule shall be subject to Landlord's
approval, and Tenant shall use the proceeds from any such
policy for the repair and replacement of such items of
Tenant's Personal Property; provided, however, that if
Landlord fails to object to the schedule so submitted by
Tenant within five (5) business days of Landlord's receipt
of such schedule, Landlord's approval of such schedule
shall be deemed given.
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(e) Tenant shall pay all Impositions and other taxes applicable
to Tenant's Personal Property.
(f) If Tenant's Personal Property is damaged or destroyed by
fire or otherwise, Tenant shall promptly repair or replace
Tenant's Personal Property unless Tenant is entitled to and
elects to terminate the Lease pursuant to Section 10.05.
(g) As to each Leased Property, unless an Event of Default (or
any event which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default) has
occurred and remains uncured beyond any applicable grace
period, Tenant may remove Tenant's Personal Property from
such Leased Property from time to time provided that: (i)
the items removed are not required or necessary to operate
the Business on such Leased Property (unless such items are
being replaced by Tenant) and (ii) Tenant promptly repairs
any damage to such Leased Property resulting from the
removal of Tenant's Personal Property.
(h) As to each Leased Property, Tenant shall remove all of
Tenant's Personal Property upon the termination or
expiration of the Lease and shall promptly repair any
damage to such Leased Property resulting from the removal
thereof to the reasonable satisfaction of Landlord;
provided, however, if Tenant fails to remove Tenant's
Personal Property from such Leased Property within thirty
(30) days after the termination or expiration of this Lease
with respect thereto, then Tenant shall be deemed to have
abandoned such items of Tenant's Personal Property, all of
which shall become the property of Landlord, and Landlord
may remove, store and dispose of such property and Tenant
shall have no claim or right against Landlord for such
property or the value thereof regardless of the disposition
thereof by Landlord. Tenant shall pay Landlord, upon
demand, all expenses incurred by Landlord in removing,
storing, and disposing of such items of Tenant's Personal
Property and repairing any damage caused by such removal.
Tenant's obligations hereunder shall survive the
termination or expiration of this Lease as to such Leased
Property.
(i) Tenant shall perform its obligations under any equipment
lease or security agreement for Tenant's Personal Property.
8.08 Financings of Capital Additions to a Leased Property. Landlord
-----------------------------------------------------
may, but shall be under no obligation to, provide or arrange construction,
permanent or other financing for any Capital Addition proposed to be made to a
Leased Property by Tenant. Any financing so
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provided by Landlord shall be made in accordance with, and subject to, a written
Addendum to this Lease.
ARTICLE IX
DEFAULTS AND REMEDIES
9.01 Events of Default. The occurrence of any one or more of the
-----------------
following shall be an event of default ("Event of Default") hereunder:
(a) Tenant fails to pay in full any installment of Rent, or any
other monetary obligation payable by Tenant to Landlord
hereunder, within ten (10) days after the due date thereof
and after written notice thereof and an opportunity to cure
within a ten (10) day period after such notice is given to
Tenant by Landlord. In the event of Tenant's failure to
make timely payment of such obligations two (2) times
during any twelve (12) month period, each subsequent such
failure within the twelve (12) months immediately following
such second failure shall immediately constitute an Event
of Default, and Landlord shall not be required to provide
notice thereof, nor shall Tenant have any further
opportunity to cure such failure;
(b) Tenant fails to observe and perform any covenant (other
than the covenant in respect of insurance set forth in
Article IV), condition or agreement hereunder to be
performed by Tenant (except those described in Section
9.01(a) of this Lease) and such failure continues for a
period of twenty (20) days after written notice thereof is
given to Tenant by Landlord; or if, by reason of the nature
of such default, the same cannot with due diligence be
remedied within said twenty (20) days, such failure will
not be deemed to continue if Tenant proceeds promptly and
with due diligence to remedy the failure and diligently
completes the remedy thereof; provided, however, said cure
period will not extend beyond forty (40) days if the facts
or circumstances giving rise to the default are creating a
further harm to Landlord or the subject Leased Property and
Landlord makes a good faith determination that Tenant is
not undertaking remedial steps that Landlord would cause to
be taken if this Lease were then to terminate;
(c) If Tenant: (i) admits in writing its inability to pay its
debts generally as they become due; (ii) files a petition
in bankruptcy or a petition to take advantage of any
insolvency act; (iii) makes an assignment for the benefit
of its creditors; (iv) is unable to pay its debts as they
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mature; (v) consents to the appointment of a receiver of
itself or of the whole or any substantial part of its
property; or (vi) files a petition or answer seeking
reorganization or arrangement under the federal bankruptcy
laws or any other applicable law or statute of the United
States of America or any state thereof;
(d) If Tenant, on insolvency proceedings or on a petition in
bankruptcy filed against it, is adjudicated as bankrupt or
a court of competent jurisdiction enters an order or decree
appointing, without the consent of Tenant, a receiver of
Tenant of the whole or substantially all of its property,
or approving a petition filed against it seeking
reorganization or arrangement of Tenant under the federal
bankruptcy laws or any other applicable law or statute of
the United States of America or any state thereof, and such
judgment, order or decree is not vacated, dismissed or set
aside within sixty (60) days from the date of the entry
thereof;
(e) If the estate or interest of Tenant in a Leased Property or
any part thereof is levied upon or attached in any
proceeding and the same is not vacated or discharged within
fifteen (15) days after commencement thereof (unless Tenant
is contesting such lien or attachment in accordance with
this Lease) or if such estate or interest of Tenant is
assigned, conveyed or involuntarily transferred in
violation of this Lease;
(f) Any representation, warranty or covenant made by Tenant on
behalf of itself or an Affiliate in this Lease or in any
certificate, demand or request made pursuant hereto proves
to be incorrect, in any material respect, as of the date of
issuance or making thereof;
(g) Conviction of Tenant or an Affiliate of a crime or offense
constituting a felony in the jurisdiction in which
committed or under federal law which conviction results in
the termination of the franchise.
(h) Termination or relinquishment of the franchise or license
pursuant to which Tenant or an Affiliate conducts business
on or from any Leased Property, provided that such event
shall not constitute an Event of Default if (i) no other
Event of Default enumerated in this Section 9.01 shall
occur and be continuing, and (ii) at a date no later than
twenty-four (24) months following such date of termination
or relinquishment, Tenant or an Affiliate has entered into
written new or amended franchises or licenses for operation
of motor vehicle retail or motor vehicle related businesses
at such Leased Property
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satisfactory to Landlord in its discretion applying
commercially reasonable standards;
(i) Default under any franchise or license pursuant to which
Tenant or an Affiliate conducts business at a Leased
Property, if in the Landlord's judgment such default in
light of commercially reasonable standards and industry
practice would have a Material Adverse Effect (as hereafter
defined) on the Leased Property;
(j) A final, non-appealable judgment or judgments for the
payment of money not fully covered (excluding deductibles)
by insurance is rendered against Tenant and the same
remains undischarged, unvacated, unbonded, unappealed or
unstayed for a period of thirty (30) consecutive days;
(k) Tenant shall fail to observe the covenant in respect to
insurance under Article IV provided Landlord shall have
provided notice of such failure to Tenant and Tenant shall
have failed to cure such failure within three (3) business
days of such notice; or
(l) Except after the effective date of a permitted assignment
meeting the requirements of Article XIII, if Tenant is
liquidated or dissolved, or begins proceedings toward
liquidation or dissolution, or in any manner permits the
sale or divestiture of substantially all of its assets.
9.02 Remedies. To the extent an Event of Default is applicable only
--------
to a specific Leased Property or specific Leased Properties (in accordance with
Section 9.01 above), the remedies set forth herein shall be exercisable solely
with respect to such Leased Property or Leased Properties, and shall not be
exercisable with respect to any other Leased Property. To the extent an Event
of Default constitutes an Event of Default as to all of the Leased Properties
(in accordance with Section 9.01 above), the remedies set forth herein shall be
exercisable with respect to all of the Leased Properties. Subject to the
foregoing provisions, Landlord may exercise any one or more of the following
remedies upon the occurrence of an Event of Default:
(a) Landlord may terminate this Lease, exclude Tenant from
possession of the subject Leased Property and use
reasonable efforts to lease the subject Leased Property to
others. If this Lease is terminated pursuant to the
provisions of this subparagraph (a) with respect to one or
more, but less than all, of the Leased Properties
identified on Schedule A hereto, Tenant will remain liable
to Landlord for the Rent for all of the Leased Properties
identified on Schedule A and other sums then due and for
the balance of the Term as if the Lease had not been
terminated with respect to the subject Leased Property,
less the
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net proceeds, if any, of any re-letting of the subject
Leased Property by Landlord subsequent to such termination,
after deducting all Landlord's expenses in connection with
such re-letting, including without limitation, the expenses
set forth in Section 9.02(b)(ii) below. Notwithstanding the
termination of this Lease with respect to a subject Leased
Property, Tenant shall pay to Landlord all amounts due as
Rent, and such other amounts then due, under this Lease on
the days that such Rent and such other amounts become due
and payable as required by this Lease.
(b) Without demand or notice, Landlord may re-enter and take
possession of the subject Leased Property or any part
thereof; and repossess such Leased Property as of
Landlord's former estate; and expel Tenant and those
claiming through or under Tenant from such Leased Property;
and, remove the effects of both or either, without being
deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent or preceding
breach of covenants or conditions. If Landlord elects to
re-enter, as provided in this paragraph (b) or if Landlord
takes possession of such Leased Property pursuant to legal
proceedings or pursuant to any notice provided by law,
Landlord may, from time to time, without terminating any
portion of this Lease, re-let such Leased Property or any
part of such Leased Property, either alone or in
conjunction with other portions of the Improvements of
which such Leased Property are a part, in Landlord's name
but for the account of Tenant, for such term or terms
(which may be greater or less than the period which would
otherwise have constituted the balance of the Term of this
Lease) and on such terms and conditions (which may include
concessions of free rent, and the alteration and repair of
such Leased Property) as Landlord, in its uncontrolled
discretion, may determine. Landlord may collect and receive
the Rents for such Leased Property. Landlord will not be
responsible or liable for any failure to re-let such Leased
Property, or any part of such Leased Property, or for any
failure to collect any Rent due upon such re-letting. No
such re-entry or taking possession of such Leased Property
by Landlord will be construed as an election on Landlord's
part to terminate this Lease unless a written notice of
such intention is given to Tenant. No notice from Landlord
under this Lease or under a forcible entry and detainer
statute or similar law will constitute an election by
Landlord to terminate this Lease unless such notice
specifically says so. Landlord reserves the right following
any such re-entry or re-letting, or both, to exercise its
right to terminate this Lease by giving Tenant such written
notice, and, in that event such Lease will terminate as
specified in such notice.
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(c) If Landlord elects to take possession of a Leased Property
according to subparagraph (b) of this Section 9.02 without
terminating this Lease, Tenant will pay Landlord (A) the
Rent and other sums which would be payable under this Lease
with respect to such Leased Property if such repossession
had not occurred, less (B) the net proceeds, if any, of any
re-letting of such Leased Property after deducting all of
Landlord's expenses incurred in connection with such re-
letting, including without limitation, all repossession
costs, brokerage commissions, legal expense, attorneys'
fees, expense of employees, alteration, remodeling, repair
costs, and expense of preparation for such re-letting. If,
in connection with any re-letting, any resulting lease term
for the subject Leased Property extends beyond the existing
Term or Extension Term, as the case may be, or such Leased
Property covered by such re-letting includes areas which
are not part of such Leased Property, a fair apportionment
of the Rent received from such re-letting and the expenses
incurred in connection with such re-letting will be made in
determining the net proceeds received from such re-letting.
In addition, in determining the net proceeds from such re-
letting, any rent concessions will be apportioned over the
term of the new lease. Tenant will pay such amounts to
Landlord monthly on the days on which the Rent and all
other amounts owing under this Lease would have been
payable if possession had not been retaken, and Landlord
will be entitled to receive the rent and other amounts from
Tenant on each such day. Notwithstanding anything herein to
the contrary, Landlord, at its option, may collect and
apply any Rent received from such re-letting in accordance
herewith and in such case shall remit any balance thereof
to Tenant. Landlord shall incur no liability or obligation
to Tenant arising out of the collection or application of
Rent by Landlord hereunder.
(d) Landlord may re-enter the applicable Leased Property and
have, repossess and enjoy such Leased Property as if this
Lease had not been made, and in such event, Tenant and its
successors and assigns shall remain liable for any
contingent or unliquidated obligations or sums owing at the
time of such repossession.
(e) Landlord may take whatever action at law or in equity as
may appear necessary or desirable to collect the Rent and
other amounts payable hereunder with respect to the subject
Leased Property then due and thereafter to become due, or
to enforce performance and observance of any obligations,
agreements or covenants of Tenant under this Lease.
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9.03 Right of Set-Off. Landlord may, and is hereby authorized by
-----------------
Tenant, at any time and from time to time, after advance notice to Tenant, to
set-off and apply any and all sums held by Landlord in respect of a Leased
Property, including all sums held in any escrow for Impositions, any
indebtedness of Landlord to Tenant, and any claims by Tenant against Landlord,
against any obligations of Tenant under this Lease in respect of such Leased
Property and against any claims by Landlord against Tenant, whether or not
Landlord has exercised any other remedies hereunder. Landlord shall set-off and
apply such sums first, to delinquent real estate taxes, unless such taxes are
being protested in good faith and no lien has attached to any Leased Property
with respect thereto, second, to currently due and owing real estate taxes, and
next, to other Tenant's obligations in the order which Landlord may determine.
The rights of Landlord under this Section are in addition to any other rights
and remedies Landlord may have against Tenant.
9.04 Performance of Tenant's Covenants. Landlord may, without waiving
---------------------------------
or releasing any obligation of Tenant, and without waiving or releasing any
obligation or default, perform any obligation of Tenant which Tenant has failed
to perform within five (5) business days after Landlord has sent a written
notice to Tenant informing it of its specific failure (provided no such notice
shall be required if Landlord has previously notified Tenant of such failure
under the provisions of Section 9.01). In the event Landlord deems, in its
discretion, that Tenant's failure to perform such obligation has given rise to
an emergency situation, Landlord may perform such obligation without waiving or
releasing any obligation of Tenant, and without waiving or releasing any
obligation or default; provided, however, that Landlord shall notify Tenant of
such performance as soon as it is reasonably practicable to do so. Tenant shall
reimburse Landlord on demand, as Additional Rent, for any expenditures thus
incurred by Landlord and shall pay interest thereon at the New York Prime Rate.
9.05 Late Charge. Any payment not made by Tenant for more than five
-----------
(5) business days after the due date shall be subject to a late charge payable
by Tenant as Rent of four percent (4%) of the amount of such overdue payment.
Notwithstanding the foregoing, in the event that Tenant's payment is not made
more than five (5) business days after the due date more than two (2) times
during any twelve (12) month period, any such subsequent overdue payments within
the twelve (12) months immediately following such second failure shall be
subject to a late charge payable by Tenant as Rent of seven percent (7%) of the
amount of such overdue payment.
9.06 Litigation; Attorneys' Fees. Within ten (10) days after Tenant
----------------------------
has knowledge of any litigation or other proceeding related to or arising out of
this Agreement or the Leased Property in which claims are asserted in an amount
in excess of $50,000, that (1) may be instituted against Tenant, (2) may be
instituted against any Leased Property to secure or recover possession thereof,
or (3) may affect the title to or the interest of Landlord in any Leased
Property, Tenant shall give written notice thereof to Landlord. In the event
that Landlord determines that Tenant has failed to give adequate cooperation or
information with respect to any such litigation, investigation, receivership,
administrative, bankruptcy, insolvency or other similar proceeding, Landlord
may, after notice to Tenant, undertake such investigation or proceeding and
Tenant shall pay all reasonable costs and expenses (the "Costs") related thereto
that are incurred by Landlord, whether or not
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Landlord has received notice from Tenant of such investigation or proceeding,
and whether or not an Event of Default has actually occurred or has been
declared and thereafter cured, which Costs shall include, without limitation:
(a) the fees, expenses, and costs of any litigation, investigation,
receivership, administrative, bankruptcy, insolvency or other similar
proceeding; (b) reasonable attorney, paralegal, consulting and witness fees and
disbursements; and (c) the expenses, including, without limitation, lodging,
meals, and transportation, of Landlord and its employees, agents, attorneys, and
witnesses in investigating or preparing for litigation, administrative,
bankruptcy, insolvency or other similar proceedings and attendance at hearings,
depositions, and trials in connection therewith. Within ten (10) days of
Landlord's presentation of an invoice of Costs incurred by Landlord pursuant to
the preceeding sentence or otherwise incurred by Landlord in enforcing or
preserving Landlord's rights under this Lease, whether or not an Event of
Default has actually occurred or has been declared and thereafter cured, Tenant
shall pay all such Costs. All such Costs as incurred shall be deemed to be
Additional Rent under this Lease.
9.07 Remedies Cumulative. The remedies of Landlord herein are
-------------------
cumulative to and not in lieu of any other remedies available to Landlord at law
or in equity. The use of, or failure to use, any one remedy shall not be taken
to exclude or waive the right to use any other remedy.
9.08 Escrows and Application of Payments. As security for the
-----------------------------------
performance of its obligations hereunder, Tenant hereby assigns to Landlord all
its right, title and interest in and to all monies escrowed with Landlord under
this Lease and all deposits with utility companies, taxing authorities, and
insurance companies; provided, however, that Landlord shall not exercise its
rights hereunder with respect to any Leased Property until an Event of Default
has occurred in respect of such Leased Property. Any payments received by
Landlord under any provisions of this Lease during the existence, or continuance
of an Event of Default shall be applied to Tenant's obligations, first, to
delinquent real estate taxes, unless such taxes are being protested in good
faith and no lien has attached to any Leased Property with respect thereto,
second, to currently due and owing real estate taxes, and next, to other
Tenant's obligations in the order which Landlord may determine.
9.09 Power of Attorney. Tenant hereby irrevocably and unconditionally
-----------------
appoints Landlord, or Landlord's authorized officer, agent, employee or
designee, as Tenant's true and lawful attorney-in-fact, to act, after an Event
of Default, for Tenant in Tenant's name, place, and stead, and for Tenant's and
Landlord's use and benefit, to execute, deliver and file all applications and
any and all other necessary documents or things, to effect a transfer,
reinstatement, renewal and/or extension of any and all licenses and other
governmental authorizations issued to Tenant in connection with Tenant's
operation of the Leased Properties, and to do any and all other acts incidental
to any of the foregoing. Tenant irrevocably and unconditionally grants to
Landlord as its attorney-in-fact full power and authority to do and perform,
after an Event of Default, every act necessary and proper to be done in the
exercise of any of the foregoing powers as fully as Tenant might or could do if
personally present or acting, with full power of substitution, hereby ratifying
and confirming all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and is
irrevocable prior to the full performance of Tenant's obligations hereunder.
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ARTICLE X
DAMAGE AND DESTRUCTION
10.01 General. Tenant shall notify Landlord if any Leased Property is
-------
damaged or destroyed by reason of fire or any other cause. Tenant shall promptly
repair, rebuild, or restore such Leased Property, at Tenant's expense, so as to
make such Leased Property at least equal in value to such Leased Property
existing immediately prior to such occurrence and as nearly similar to it in
character as is practicable and reasonable. Before beginning such repairs or
rebuilding, or executing any contracts in connection with such repairs or
rebuilding, Tenant will submit for Landlord's approval, which approval Landlord
will not unreasonably withhold or delay, complete and detailed plans and
specifications for such repairs or rebuilding. Promptly after receiving
Landlord's approval of the plans and specifications, Tenant will begin such
repairs or rebuilding and will oversee the repairs and rebuilding to completion
with diligence, subject, however, to strikes, lockouts, acts of God, embargoes,
governmental restrictions, and other causes beyond Tenant's reasonable control.
Landlord will make available to Tenant the net proceeds of any fire or other
casualty insurance paid to Landlord for such repair or rebuilding as the same
progresses, after deduction of any costs of collection, including attorneys'
fees. Payment will be made against properly certified vouchers of a competent
architect in charge of the work and approved by Landlord. Prior to commencing
the repairing or rebuilding, Tenant shall deliver to Landlord for Landlord's
approval a schedule setting forth the estimated monthly draws for such work.
Landlord will contribute to such payments out of the insurance proceeds an
amount equal to the proportion that the total net amount received by Landlord
from insurers bears to the total estimated cost of the rebuilding or repairing,
multiplied by the payment by Tenant on account of such work. Landlord may,
however, withhold ten percent (10%) from each such payment and shall disburse
such amount after: (a) the work of repairing or rebuilding is completed and
proof has been furnished to Landlord that no lien or liability has attached or
will attach to such Leased Property or to Landlord in connection with such
repairing or rebuilding and (b) Tenant has obtained a certificate of use and
occupancy (or its functional equivalent) for the portion of such Leased Property
being repaired or rebuilt. Upon the completion of rebuilding or repairing and
the furnishing of such proof, the balance of the net proceeds of such insurance
payable to Tenant on account of such repairs or rebuilding will be paid to
Tenant. Tenant will obtain and deliver to Landlord a temporary or final
certificate of occupancy before such Leased Property is reoccupied for any
purpose. Tenant shall complete such repairs or rebuilding free and clear of
mechanic's or other liens, and in accordance with the building codes and all
applicable laws, ordinances, regulations, or orders of any state, municipal, or
other public authority affecting the repairs or rebuilding, and also in
accordance with all requirements of the insurance rating organization, or
similar body. Any remaining proceeds of insurance after such restoration will be
Tenant's property.
10.02 Landlord's Inspection. During the progress of such repairs or
---------------------
rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the subject Leased Property and will be furnished, if required by them,
with copies of all plans, shop drawings, and specifications relating to such
repairs or rebuilding. Tenant will keep all plans, shop drawings, and
specifications
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available, and Landlord and its architects and engineers may examine them at all
reasonable times. If, during such repairs or rebuilding, Landlord and its
architects and engineers determine that the repairs or rebuilding are not being
done in accordance with the approved plans and specifications, Landlord will
give prompt notice in writing to Tenant, specifying in detail the particular
deficiency, omission, or other respect in which Landlord claims such repairs or
rebuilding do not accord with the approved plans and specifications. Upon the
receipt of any such notice, Tenant will cause corrections to be made to any
deficiencies, omissions, or such other respect. Tenant's obligations to supply
insurance, according to Article IV, will be applicable to any repairs or
rebuilding under this Section 10.02.
10.03 Landlord's Costs. Tenant shall, within fifteen (15) days after
----------------
receipt of an invoice from Landlord, pay the reasonable costs, expenses, and
fees of any architect or engineer employed by Landlord to review any plans and
specifications and to supervise and approve any construction, or for any
services rendered by such architect or engineer to Landlord as contemplated by
any of the provisions of this Lease, or for any services performed by Landlord's
attorneys in connection therewith; provided, however, that Landlord will consult
with Tenant and notify Tenant of the estimated amount of such expenses.
10.04 Rent Abatement. In the event that the provisions of Section
--------------
10.01 above shall become applicable as to any Leased Property, and subject to
the last sentence of this Section 10.04, the applicable Base Annual Rent shall
be abated or reduced proportionately during any period in which, by reason of
such damage or destruction, there is substantial interference with the operation
of the Business of Tenant in such Leased Property, having regard to the extent
to which Tenant may be required to discontinue any Business on such Leased
Property, and such abatement or reduction shall continue for the period
commencing with such destruction or damage and ending with the substantial
completion by Tenant of such work or repair and/or reconstruction. In the event
that only a portion of any Leased Property is rendered untenantable or incapable
of such use, the Base Annual Rent payable hereunder in respect thereof shall be
reduced proportionately considering the extent to which the Tenant is unable to
practicably use the Leased Property for Business. Tenant shall use reasonably
diligent efforts to make the Leased Property tenantable and capable of such use.
Notwithstanding any other provision hereof, such rental abatement shall be
limited to the amount of any rental or Business interruption insurance proceeds
actually received by Landlord under Article IV.
10.05 Substantial Damage During Lease Term. Provided Tenant has fully
------------------------------------
complied with Section 4.01 hereof (including actually maintaining in effect
rental value insurance or Business interruption insurance provided for in clause
(c) thereof) and has satisfied the conditions of the last sentence of this
Section 10.05, if, at any time during the Term or any Extension Term, as the
case may be, of this Lease, any Leased Property is so damaged by fire or
otherwise that it is Completely Destroyed or Partially Destroyed (as such terms
are hereafter defined), Tenant may, within one hundred and eighty (180) days
after such damage, give notice of its election to terminate this Lease with
respect to such Leased Property and, subject to the further provisions of this
Section, this Lease will cease with respect to such Leased Property on the
thirtieth (30th) day after the delivery of such
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notice. If the Lease is so terminated, Tenant will have no obligation to repair,
rebuild or replace such Leased Property, and the entire insurance proceeds will
belong to Landlord. If the Lease is not so terminated, Tenant shall rebuild such
Leased Property in accordance with Section 10.01. If Tenant elects to terminate
this Lease pursuant to this Section 10.05, Tenant will pay (or cause to be paid)
to Landlord, an amount equal to the excess amount, if any, of the book value of
the damaged property as shown in Landlord's financial statements as of the date
of such termination, over the amount of all insurance proceeds received by
Landlord. A Leased Property shall be deemed to be "Completely Destroyed" if
there is sufficient damage to such Leased Property that Landlord and Tenant
agree to its classification as such. A Leased Property shall be deemed to be
"Partially Destroyed" if, as a result of damages to it, a substantial part of
the Business (as determined by a reasonable dealer in the trade, in light of
standard trade practices) cannot be conducted on it within one hundred and
eighty (180) days of the occurrence of such damages. In the event that Landlord
and Tenant are unable to agree to a determination of whether any Leased Property
is Completely Destroyed, Partially Destroyed or otherwise, such determination
shall be made pursuant to the Arbitration provisions set forth in Article XIV.
10.06 Damage Near End of Term. Notwithstanding any provisions of
-----------------------
Sections 10.01 or 10.05 to the contrary, if damage to or destruction of any
Leased Property occurs during the last twenty-four (24) months of the Term, and
if such damage or destruction renders the Leased Property Completely Destroyed
or Partially Destroyed, either party shall have the right to terminate this
Lease as to such Leased Property by giving notice to the other within ten (10)
days after the date of damage or destruction, in which event Landlord shall be
entitled to retain the insurance proceeds and Tenant shall pay to Landlord on
demand the amount of any deductible or uninsured loss arising in connection
therewith; provided, however, that any such notice given by Landlord shall be
void and of no force and effect if Tenant exercises an available option for an
Extension Term with respect to such Leased Property pursuant to provisions of
this Lease within ten (10) business days following receipt of such termination
notice.
10.07 Risk of Loss. Notwithstanding anything herein to the contrary,
------------
during the Term or any Extension Term, as the case may be, the risk of loss of
or decrease in the enjoyment and beneficial use of the Leased Properties in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise is assumed by Tenant, and Landlord
shall in no event be answerable or accountable therefor except in the case of
gross negligence, willful misconduct or breach of this Lease by Landlord
resulting in such damage or destruction. In addition, all risk of loss or
decrease in enjoyment and beneficial use in consequence of foreclosures,
attachments, levies or executions is assumed by Tenant except for foreclosure
due to Landlord's indebtedness.
ARTICLE XI
CONDEMNATION
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11.01 Total Taking. If at any time during the Term or any Extension
------------
Term, as the case may be, any Leased Property is totally and permanently taken
by right of eminent domain or by conveyance made in response to the threat of
the exercise of such right ("Condemnation"), this Lease shall terminate as to
such Leased Property on the Date of Taking (which shall mean the date the
condemning authority has the right to possession of the property being
condemned), and Tenant shall promptly pay all outstanding applicable Rent and
other charges through the date of termination, provided, however, this Lease
shall not so terminate if the Condemnation occurred due to the failure of Tenant
to maintain such Leased Property as required by Article VII hereof or other
applicable provisions hereof, whether or not such failure on the part of Tenant
constituted an Event of Default hereunder at the time of the Condemnation.
11.02 Partial Taking. If a portion of a Leased Property is taken by
--------------
Condemnation, this Lease shall remain in effect as to such Leased Property if
such Leased Property is not thereby rendered Unsuitable for the continuation of
Tenant's Business on that Leased Property (which shall mean that such Leased
Property is in such a state or condition such that in the good faith judgment of
Tenant, reasonably exercised, it cannot be used on a commercially practicable
basis in the operation of the Business), but if such Leased Property is thereby
rendered Unsuitable for the continuation of Tenant's Business on that Leased
Property, this Lease shall terminate as to such Leased Property on the Date of
Taking, provided such Condemnation was not as a result of Tenant's failure to
maintain such Leased Property as provided for in Section 11.01.
11.03 Restoration. If there is a partial taking of any Leased
-----------
Property and this Lease remains in full force and effect pursuant to Section
11.02, Landlord shall retain the amount of any Landlord Award (as hereafter
defined) received by Landlord, Landlord shall apply such Landlord Award to
accomplish all necessary restoration to the Leased Property, and any excess
after such application shall be retained by Landlord. If there is a partial
taking of any Leased Property and this Lease remains in full force and effect
pursuant to Section 11.02, Tenant shall retain the amount of any Tenant Award
(as hereafter defined) received by Tenant, Tenant shall apply such Tenant Award
to accomplish all necessary restoration of Tenant's property, and any excess
after such application shall be retained by Tenant. Notwithstanding anything in
this Section to the contrary, in the event that there is a partial taking of any
Leased Property and this Lease remains in full force and effect pursuant to
Section 11.02, and there is a single Award with respect to such partial taking,
then the Landlord and Tenant shall use their good faith efforts to determine the
proper apportionment of such Award (as hereafter defined) to restoration of
Landlord's and Tenant's respective properties. In the event that the parties are
unable to agree on such apportionment within thirty (30) days, the parties shall
submit to arbitration of an apportionment subject to the arbitration provisions
set forth in Article XIV.
11.04 Landlord's Inspection. During the progress of such restoration,
---------------------
Landlord and its architects and engineers may, from time to time, inspect the
subject Leased Property and will be furnished, if required by them, with copies
of all plans, shop drawings, and specifications relating to such restoration.
Tenant will keep all plans, shop drawings, and specifications available, and
Landlord and its architects and engineers may examine them at all reasonable
times. If, during such
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restoration, Landlord and its architects and engineers determine that the
restoration is not being done in accordance with the approved plans and
specifications, Landlord will give prompt notice in writing to Tenant,
specifying in detail the particular deficiency, omission, or other respect in
which Landlord claims such restoration does not accord with the approved plans
and specifications. Upon the receipt of any such notice, Tenant will cause
corrections to be made to any deficiencies, omissions, or such other respect.
Tenant's obligations to supply insurance, according to Article IV, will be
applicable to any restoration under this Section.
11.05 Award Distribution. The entire compensation, sums or anything
------------------
of value awarded, paid or received on a total or partial Condemnation of a
Leased Property that is awarded to Landlord shall belong to Landlord (the
"Landlord Award"). The entire compensation, sums or anything of value awarded,
paid or received on a total or partial Condemnation of a Leased Property that is
awarded to Tenant shall belong to Tenant (the "Tenant Award", collectively with
the Landlord Award, the "Awards", and each, individually, an "Award").
Notwithstanding anything in this Section to the contrary, in the event that
there is a total or partial Condemnation of a Leased Property and there is a
single Award with respect to such Condemnation, then the Landlord and Tenant
shall use their good faith efforts to determine the proper apportionment of such
Award to Landlord's and Tenant's respective properties. In the event that the
parties are unable to agree on such apportionment within thirty (30) days, the
parties shall submit to arbitration of an apportionment subject to the
arbitration provisions set forth in Article XIV.
11.06 Temporary Taking. The taking of any Leased Property, or any
----------------
part thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than twenty four (24) months. During any such twenty-four
(24) month period, which shall be a temporary taking, all the provisions of this
Lease shall remain in full force and effect as to such Leased Property with no
abatement of rent payable by Tenant hereunder. In the event of any such
temporary taking, the entire amount of any such Award made for such temporary
taking allocable to the Term hereof, whether paid by way of damages, Rent or
otherwise, shall be paid to Tenant.
ARTICLE XII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND FINANCIAL COVENANTS
Tenant hereby represents, warrants and covenants to Landlord as
follows:
12.01 Organization and Qualification.
------------------------------
(a) Tenant is a [__________] corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation or organization, with all power and authority,
corporate or otherwise, necessary to: (i) enter into and
perform this Lease and (ii) own and lease its assets and
properties, and conduct its Business, as it is now being
conducted or proposed to be
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conducted. Tenant is duly qualified as a foreign corporation or
other entity, as the case may be, to conduct its Business and
own and lease its assets and properties, and is in good
standing, in each jurisdiction where the character of its
assets and properties owned or held under lease or the nature
of its Business makes such qualification necessary or
advisable, and is duly qualified and licensed under all laws,
regulations, ordinances or orders of public or governmental
authorities, or otherwise to carry on its Business and own or
lease its assets and properties in the places and in the manner
in which they are owned, leased or conducted or proposed to be
owned, leased or conducted, except where the failure to be so
organized, qualified and in good standing or to have such
authority, qualification or licensing could not result in a
Material Adverse Change. Complete and correct copies of
Tenant's Charter, as in effect on the date hereof, and Tenant's
by-laws, also as in effect on the date hereof, have been
delivered to Landlord.
(b) Each Affiliate that conducts operations or business on or from
any Leased Property, whether now or at any time in the future,
is duly organized, validly existing and in good standing under
the laws of its organization, with all power and authority,
corporate or otherwise, necessary to own and lease its assets
and properties, and conduct its business, as it is now being
conducted or proposed to be conducted. Each Affiliate is duly
qualified as a foreign corporation or other entity, as the case
may be, to do business and own and lease its assets and
properties, and is in good standing, in each jurisdiction where
the character of its assets and properties owned or held under
lease or the nature of its activities or business makes such
qualification necessary or advisable, and is duly qualified and
licensed under all laws, regulations, ordinances or orders or
public or governmental authorities or otherwise to carry on its
business and own or lease its assets and properties in the
places and in the manner in which they are owned, leased or is
conducted or proposed to be owned, leased or conducted, except
where the failure to be so organized, qualified and in good
standing or to have such authority, qualification or licensing
could not result in a Material Adverse Change.
"Material Adverse Change" since a particular specified date, or a date
which may be specified from the circumstances existing immediately prior to the
happening of a specified event or occurrence, or, if no date or event is
specified, with reference to the most recent Annual Financial Statements
delivered pursuant to this Lease, means a material adverse change in the
Business, assets, properties, franchises, financial condition or income of
Tenant or the operations, business, assets, properties, franchises, financial
condition, income or prospects of any Affiliate, whether or not such event or
occurrence is an Event of Default. Nothing that would otherwise be a breach of
any representation, warranty, covenant or obligation herein by any Affiliate
shall be a breach of this Agreement, unless such breach constitutes or causes a
material adverse effect on the Business.
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"Affiliate" means with respect to any Person, (i) any Person that
holds direct or indirect beneficial ownership (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least five percent (5%) of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least five percent (5%) of the outstanding equity securities or
interests in a Person, or (ii) any Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with such Person.
A "Person" shall mean and include natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts, Indian tribes or other organizations, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
12.02 Material Agreements. Tenant has previously furnished to
-------------------
Landlord correct and complete copies of (including all exhibits, schedules and
amendments thereto) each agreement listed in Exhibit 12.02, each as in effect on
the date hereof (the "Material Agreements").
12.03 Changes in Condition. Since the date of the latest Annual
---------------------
Financial Statements, no Material Adverse Change has occurred between such date
and the date hereof, and neither Tenant nor any Affiliate has entered into any
material transaction outside the ordinary course of its or their operations or
business, including the Business, except as set forth in Exhibit 12.03 and the
matters contemplated by this Lease.
12.04 Franchises, Licenses, etc. Tenant and its subsidiaries own, or
--------------------------
have sufficient interests in, all franchises, trademarks, trademark rights,
trade names, trade name rights, copyrights, licenses, permits, authorizations
and other rights as are necessary for the conduct of Tenant's Business and its
subsidiaries' businesses as now conducted or proposed to be conducted by Tenant
or any Affiliate, as well as rights under any agreement under which Tenant or
its subsidiaries has access to confidential information used by Tenant or its
subsidiaries in Tenants' Business or the businesses of its subsidiaries, as the
case may be (collectively, the "Intellectual Property"). All Intellectual
Property is in full force and effect in all material respects, and Tenant and
its subsidiaries are in substantial compliance with the foregoing without any
conflict with the valid rights of others, which has resulted, or could be
reasonably likely to result in any Material Adverse Change. Neither Tenant nor
any Affiliate has violated, or received any communication that by conducting its
Business or any Affiliate's businesses, it or any Affiliate would violate any
franchises, licenses, patents, trademarks, service marks, trade names,
copyrights, trade secrets, proprietary rights or processes of any other Person
(as hereafter defined) nor is Tenant or any Affiliate aware of any such
violations. No event has occurred which permits, or after notice or lapse of
time or both would permit, the revocation or termination of any such license,
franchise or other right or affect the rights of Tenant or any Affiliate so as
to result in or reasonably be likely to result in any Material Adverse Change.
There is no litigation or other proceeding or dispute or, to the knowledge of
Tenant or any Affiliate, threat thereof with respect to the validity or, where
applicable, the extension or renewal, of any of the foregoing which has
resulted, or could result, in any Material Adverse Change.
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12.05 Litigation. No litigation, at law or in equity, or any
-----------
proceeding before any court, board or other governmental or administrative
agency or any arbitrator or other forum of alternative dispute resolution is
pending or, to the knowledge of Tenant or any Affiliate, threatened which
involves any risk of any final judgment, order or liability which, after giving
effect to any applicable insurance, has resulted, or could result, in any
Material Adverse Change or which seeks to enjoin the execution and consummation
of this Lease and the performance of Tenant's obligations hereunder. No
judgment, decree or order of any court, board or other governmental or
administrative agency or any arbitrator has been issued against or binds Tenant
or any Affiliate, which has resulted, or could result, in any Material Adverse
Change.
12.06 Authorization and Enforceability. Tenant has taken all
---------------------------------
corporate or other action required to execute, deliver and perform this Lease.
This Lease constitutes the legal, valid and binding obligation of Tenant and is
enforceable against Tenant in accordance with its terms.
12.07 No Legal Obstacle to Lease. Neither the execution and delivery
---------------------------
of this Lease nor the performance of any obligation hereunder has constituted or
resulted in or will constitute or result in:
(a) any breach, violation of, conflict with, default under or
termination of any agreement, contract, mortgage,
instrument, deed or lease to which Tenant or any Affiliate
is a party or by which it or they are bound;
(b) the violation of or conflict with any law, statute,
ordinance, judgment, decree, order, rule or regulation
applicable to Tenant, any Affiliate, any Improvements or
any Leased Property; or
(c) any violation of or conflict with Tenant's or any
Affiliate's Charter or By-Laws or other organizational
documents, as the case may be.
No approval, authorization or other action by, or declaration to or
filing with, any governmental or administrative authority or any other Person is
required to be obtained or made by Tenant in connection with the execution,
delivery and performance of this Lease.
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12.08 Certain Business Representations:
--------------------------------
(a) Labor Relations. No dispute or controversy between Tenant
---------------
or any Affiliate and its or their employees has resulted
in, or is reasonably likely to result in, any Material
Adverse Change, and neither Tenant nor any Affiliate
anticipates that its relationships with its unions or
employees will result, or are reasonably likely to result,
in any Material Adverse Change. Tenant and each Affiliate
is in compliance in all material respects with all federal
and state laws relating to employees and labor relations,
including, but not limited to, laws relating to health and
safety in the workplace, non-discrimination in employment
and the payment of wages.
(b) Antitrust. Tenant and each Affiliate is in compliance in
---------
all material respects with all federal and state antitrust
laws relating to Tenant's Business and the subsidiaries'
businesses and the geographic concentration thereof.
(c) Consumer Protection. Neither Tenant nor any Affiliate is
-------------------
in violation of any rule, regulation, order, or
interpretation of any rule, regulation or order of the
Federal Trade Commission (including truth-in-lending) or
other federal, state or local public or governmental
authority or agency, with which the failure to comply, in
the aggregate, has resulted in, could result in, a
Material Adverse Change.
(d) Future Expenditures. Neither Tenant nor any Affiliate,
-------------------
anticipates that further expenditures, if any, by Tenant
or any Affiliate needed to meet the provisions of any
federal, state or foreign governmental statutes, orders,
rules or regulation could result in any Material Adverse
Change.
(e) Benefit Liabilities. Neither Tenant nor any ERISA
-------------------
Affiliate (as hereafter defined) maintains, contributes
to, or is obligated to contribute to, nor has Tenant or
any ERISA Affiliate maintained, contributed to, been
obligated to contribute to, or had any direct, indirect,
or contingent liability with respect to, any Title IV Plan
(as hereafter defined). Tenant and each ERISA Affiliate
have timely made all contributions required to be made
with respect to each of their Tenant Benefit Plans (as
hereafter defined). Each Tenant Benefit Plan has been
maintained in compliance with its terms and with
applicable laws (including specifically the Code and the
Employee Retirement Income Security Act of 1974 ("ERISA").
Neither Tenant nor any ERISA Affiliate has incurred any
obligation
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in connection with the termination or withdrawal from any
Tenant Benefit Plan. Contributions made by Tenant or its
ERISA Affiliates, as the case may be, to any Tenant
Benefit Plan have been accounted for, and the liabilities
associated therewith are disclosed, in Tenant's or its
ERISA Affiliates', as the case may be, financial
statements for the fiscal year ending before the date as
of which this representation is given. The present value
of the accrued benefit liabilities (whether or not vested)
under each Tenant Benefit Plan, determined as of the end
of Tenant's or its ERISA Affiliates', as the case may be,
most recently ended fiscal year on the basis of actuarial
assumptions, each of which is reasonable, did not exceed
the current value of the assets of such Tenant Benefit
Plan allocable to such benefit liabilities. "Tenant
Benefit Plan" means any plan, fund, or other similar
program described in Section 3(2) of ERISA and established
or maintained or with respect to which Tenant and/or any
ERISA Affiliate has an obligation to contribute for the
benefit of its employees (or for which Tenant could be
directly or contingently liable). "Title IV Plan" means an
"employee benefit plan" (as defined in Section 3(3) of
ERISA) that is subject to Title IV of ERISA and is or has
been established or maintained, by Tenant or any ERISA
Affiliate, or to which contributions are, have been, or
should have been made. "ERISA Affiliate" means any trade
or business, whether or not incorporated, that, together
with Tenant, is or has been under common control, within
the meaning of Section 414(b), (c), (m), or (o) of the
Code or Section 4001 of ERISA.
12.09 Certain Financial Covenants. Tenant or an Affiliate, as
---------------------------
applicable, is in compliance in all material respects with all financial
covenants required to be maintained pursuant to any franchise or other agreement
pursuant to which Tenant or such Affiliate operates its business, except in such
respects as shall not result in any franchisor under any franchise or operating
agreement to which Tenant is a party taking any action that could result in a
Material Adverse Change.
12.10 Cash Flow Coverage Ratio Covenant. On the date of this Lease
---------------------------------
and measured at a date that is twenty-four (24) months following such date (each
a "Cash Flow Measurement Date"), and on each anniversary date that is twenty-
four (24) months following a prior Cash Flow Measurement Date, Tenant shall have
maintained a Cash Flow Coverage Ratio of not less than 1.5 to 1.0 based on the
Annual Financial Statements to be delivered to Landlord in accordance with
Section 6.04 hereof. "Cash Flow Coverage Ratio" means the aggregate of net
income before taxes plus mortgage interest, rent expense, depreciation,
compensation of principals of the Business, management fees plus the annual LIFO
adjustment and other non-cash expenses, less recurring capital expenditures and
gain (loss) on sale of real estate, dividends and/or profits taken out of Tenant
divided by the aggregate of the Tenant's obligations under this Lease.
Notwithstanding
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anything herein to the contrary, in the event that Tenant shall not be in
compliance with this covenant at a Cash Flow Measurement Date or Tenant shall
have knowledge of such non-compliance prior to any Cash Flow Measurement Date,
the Tenant shall have the right to cure such breach through any reasonable
commercial means, including, but not limited to, providing guarantees acceptable
to Landlord, increasing capital, or cross collateralizing with any other
property of Tenant or an Affiliate, provided that such breach is cured within
one hundred and eighty (180) days after Notice by Landlord to Tenant of the
existence of such breach.
12.11 Disclosure. This Lease does not contain any untrue statement of
----------
a material fact or omit to state a material fact necessary in order to make any
statement contained herein not misleading in light of the circumstances under
which it was made. To Tenant's knowledge, there is no event, fact or occurrence
that has resulted, or in the future (so far as Tenant can reasonably foresee)
could result, in any Material Adverse Change, except to the extent that present
or future general and sector-specific economic conditions may result in a
Material Adverse Change.
12.12 Covenant Not to Acquire. Tenant covenants and agrees that
-----------------------
during the Term and any Extension Term, as the case may be, Tenant and its
controlling shareholders or its or their Affiliates will not acquire, directly
or indirectly, more that 9.90% of the outstanding common shares of beneficial
interest of Capital Automotive REIT. Tenant covenants and agrees that it will
divest itself of such shares of Capital Automotive REIT as may be necessary to
satisfy the limitations of this Section 12.12.
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ARTICLE XIII
ASSIGNMENT AND SUBLETTING; ATTORNMENT
13.01 Prohibition Against Subletting and Assignment. Subject to
---------------------------------------------
Section 13.03, Tenant shall not, without the prior written consent of Landlord,
or upon compliance with any conditions established by Landlord, in its sole
discretion, assign, mortgage, pledge, hypothecate, encumber or otherwise
transfer (except to an Affiliate) this Lease or any interest herein, or all or
any part of any Leased Property, or suffer or permit this Lease or the leasehold
estate created hereby or any other rights arising hereunder to be assigned,
transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in
part, whether voluntarily, involuntarily or by operation of law. For purposes of
this Section 13.01, an assignment of this Lease shall be deemed to include any
Change of Control of Tenant, as if such Change of Control were an assignment of
the Lease. In the event that (i) Landlord shall withhold any consent to any
assignment or transfer of this Lease or any interest herein, and (ii) such
assignee or transferee is approved by the relevant manufacturer for continuation
as a franchisee, there shall be a presumption that such assignment or transfer
was reasonable and Landlord shall have the burden of rebutting such presumption
and of proving that such consent was in fact reasonably withheld (or that such
conditions were reasonable).
13.02 Changes of Control. A Change of Control requiring the
------------------
consent of Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any
shareholder or equity holder of Tenant of a Controlling
(which shall mean, as applied to any Person, the
possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of
such Person, whether through the ownership of voting
securities, by contract or otherwise) interest in Tenant
to a Person other than an Affiliate of Tenant, other than
in either case a distribution to the public pursuant to an
effective registration statement under the Securities Act
of 1933, as amended (a "Registered Offering");
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by
operation of law or otherwise) provided, however, that no
Change of Control shall be deemed to have occurred in the
event of the transfer of assets as a result of the death
of a person involved in the Business, so long as the
transferee is approved by the manufacturer for the
continuation of the Business; or
(c) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an entity
owned and Controlled by an Affiliate), and Tenant is not
the surviving entity.
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13.03 Operating/Service Agreements.
-----------------------------
(a) Permitted Agreements. Tenant shall, without Landlord's
--------------------
prior approval, be permitted to enter into such
operating/service agreements for portions of each Leased
Property to various licensees in connection with Tenant's
Business as are customarily associated with or incidental
to the operation of such Leased Property, which agreements
may be in the nature of a sublease agreement.
(b) Terms of Agreements. Each operating/service agreement
-------------------
concerning a Leased Property shall be subject and
subordinate to the provisions hereof. No agreement made as
permitted by Section 13.03(a) shall affect or reduce any
of the obligations of Tenant hereunder, and all such
obligations shall continue in full force and effect as if
no agreement had been made. No agreement shall impose any
additional obligations on Landlord hereunder.
(c) Copies. Tenant shall, within ten (10) days after the
------
execution and delivery of any operating/service agreement
permitted by Section 13.03(a), deliver a duplicate
original thereof to Landlord.
(d) Assignment of Rights in Agreements. As security for
----------------------------------
performance of its obligations hereunder, Tenant hereby
grants, conveys and assigns to Landlord all right, title
and interest of Tenant in and to all operating/service
agreements now in existence or hereinafter entered into
for each Leased Property, and all extensions,
modifications and renewals thereof and all rents, issues
and profits therefrom, to the extent the same are
assignable by Tenant. Landlord hereby grants to Tenant a
license to collect and enjoy all rents and other sums of
money payable under any such agreement; provided, however,
that Landlord shall have the absolute right at any time
after the occurrence and continuance of an Event of
Default upon notice to Tenant and any vendors or licensees
to revoke said license and to collect such rents and sums
of money and to retain the same. Tenant shall not (i)
after the occurrence and continuance of an Event of
Default, consent to, cause, or allow, any material
modification or alteration of any of the terms, conditions
or covenants of any of the agreements or the termination
thereof, without the prior written approval of Landlord
nor (ii) accept any rents (other than customary security
deposits) more than thirty (30) days in advance of the
accrual thereof nor permit anything to be done, the doing
of which, nor omit or refrain from doing anything, the
omission of which, will or could be a breach of or default
in the terms of any of the agreements.
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(e) Licenses, Etc. For purposes of Section 13.03, the
-------------
operating/service agreements shall mean any licenses,
concession arrangements, or other arrangements relating to
the possession or use of all or any part of any Leased
Property.
13.04 Assignment. If Landlord shall withhold its consent to
----------
any assignment or if Landlord shall have established conditions to approval of
any assignment but such conditions shall not have been complied with, to the
satisfaction of Landlord, such assignment shall not in any way impair the
continuing primary liability of Tenant hereunder. No consent to any assignment
in a particular instance shall be deemed to be a general waiver of the
prohibition set forth in Article XIII. Any assignment shall be solely of
Tenant's entire interest in this Lease with respect to the subject Leased
Property or Leased Properties. Any assignment or other transfer of all or any
portion of Tenant's interest in this Lease in contravention of Article XIII
shall be voidable at Landlord's option.
13.05 REIT Limitations.
----------------
(a) Anything contained herein to the contrary notwithstanding,
Tenant shall not: (a) sublet or assign a Leased Property
or this Lease on any basis such that the rental or other
amounts to be paid by the sublessee or assignee thereunder
would be based, in whole or in part, on the income or
profits derived by the business activities of the
sublessee or assignee; (b) sublet or assign a Leased
Property or this Lease to any Person that, under Section
856(d)(2)(B) of the Internal Revenue Code of 1986, as
amended (the "Code"), Landlord or its general partner
owns, directly or indirectly (by applying constructive
ownership rules set forth in Section 856(d) (5) of the
Code, a ten percent (10%) or greater interest; or (c)
sublet or assign a Leased Property or this Lease in any
other manner or otherwise derive any income which could
cause any portion of the amounts received by Landlord
pursuant hereto or any sublease to fail to qualify as
"rents from real property" within the meaning of Section
856(d) of the Code, or which could cause any other income
received by Landlord to fail to qualify as income
described in Section 856(c) (2) of the Code. The
requirements of this Section 13.05 shall likewise apply to
any further subleasing by any subtenant.
(b) Tenant acknowledges that Capital Automotive REIT, a
Maryland real estate investment trust and the general
partner of Landlord (the "Company"), intends to elect to
be taxed as a real estate investment trust (a "REIT")
under the Code. Tenant shall not do anything which would
adversely affect the Company's status as a REIT. Tenant
hereby agrees to modifications of this Lease which do not
materially
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adversely affect Tenant's rights and liabilities if such
modifications are required to retain or clarify the
Company's status as a REIT.
13.06 Attornment. Tenant shall insert in each sublease permitted
----------
under Section 13.03(a) provisions to the effect that: (a) such sublease is
subject and subordinate to all of the terms and provisions of this Lease and to
the rights of Landlord hereunder; (b) in the event this Lease shall terminate
before the expiration of such sublease, the sublessee thereunder will, at
Landlords' option, attorn to Landlord and waive any right the sublessee may have
to terminate the sublease or to surrender possession thereunder, as a result of
the termination hereof; and (c) in the event the sublessee receives a written
notice from Landlord or Landlord's assignees, if any, stating that Tenant is in
default under this Lease, the sublessee shall thereafter be obligated to pay all
rentals accruing under said sublease directly to the party giving such notice,
or as such party may direct. All rentals received from the sublessee by Landlord
or Landlord's assignees in respect of a Leased Property, if any, as the case may
be, shall be credit against the amounts owing by Tenant hereunder with respect
to such Leased Property.
13.07 Severance and Spin-Off. If at any time while this Lease is in
----------------------
effect any Leased Property shall be utilized by Tenant in the operation of more
than one automobile franchise, then provided that there is no existing Event of
Default and there exists no condition which, with the passage of time, could
become an Event of Default, Tenant shall have the right (the "Spin-Off Right")
to sever and spin-off one or more parcels (each referred to as a "Spin-Off
Parcel") of the Leased Property from this Lease, subject to compliance with the
requirements of Section 13.08.
13.08 Assignment. If the Leased Property is not a separate subdivided
----------
lot, Landlord may condition its approval of an assignment upon Tenant showing
that there are appropriate provisions (such as a condominium regime,
subdivision, and/or reciprocal easements, lender and/or franchisor consents if
necessary, and separate tax lots) which allow the Leased Property to be
separately owned and operated without interference from or dependence upon,
another person as to items such as access, real estate taxes, or utilities.
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ARTICLE XIV
ARBITRATION
14.01 Controversies. Except with respect to the payment of Rent
-------------
hereunder, which shall be subject to the provisions of Section 9.02, in the
event a controversy arises between the parties as to any of the requirements of
this Lease or the performance hereunder, which the parties are unable to
resolve, the parties agree to waive the remedy of litigation (except for
extraordinary relief in an emergency situation) and agree that such controversy
or controversies shall be determined by arbitration as hereafter provided in
this Article.
14.02 Appointment of Arbitrators. The party or parties requesting
--------------------------
arbitration shall serve upon the other a demand therefor, in writing, specifying
in detail the controversy and matter(s) to be submitted to arbitration before
the American Arbitration Association. The selection of arbitrators shall be
conducted pursuant to the rules for resolution of commercial disputes
promulgated by the American Arbitration Association. The party or parties giving
notice shall request a listing of available arbitrators from the American
Arbitration Association, and each party shall respond in the selection process
within fifteen (15) days after each receipt of such listings until a panel of
three (3) arbitrators has been designated. If either party fails to respond
within fifteen (15) days, it is agreed that the American Arbitration Association
may make such selections as are necessary to complete the panel of three (3)
arbitrators.
14.03 Arbitration Procedure. Within five (5) business days after the
---------------------
selection of the arbitration panel, the arbitrators shall give written notice to
each party as to the time and the place of each meeting, which shall be held in
Washington, D.C., at which the parties may appear and be heard, which shall be
no later than fifteen (15) days after certification of the arbitration panel.
The parties specifically waive discovery, and further waive the applicability of
rules of evidence or rules of procedure in the proceedings. The applicable rules
shall be those in effect at the time for the resolution of commercial disputes
promulgated by the American Arbitration Association. Notwithstanding the
foregoing, the substantive law governing the arbitration shall be the laws of
the State of Delaware (without application of choice of law provisions). The
arbitrators shall take such testimony and make such examination and
investigations as the arbitrators reasonably deem necessary. The decision of the
arbitrators shall be in writing signed by a majority of the panel which decision
shall be final and binding upon the parties to the controversy. Provided,
however, in rendering their decisions and making awards, the arbitrators shall
not add to, subtract from or otherwise modify the provisions of this Lease.
14.04 Expenses. The expenses of the arbitration shall be assessed by
--------
the arbitrators and specified in the written decision. In the absence of a
determination or assessment of expenses of the arbitration procedure in the
award, all of the expenses of such arbitration shall be divided equally between
Landlord and Tenant. Each party in interest shall be responsible for and pay the
fees, costs and expenses of its own counsel, unless the arbitration award
provides for an assessment of reasonable attorneys' fees and costs.
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14.05 Enforcement of the Arbitration Award. There shall be no appeal
------------------------------------
from the decision of the arbitrators, and upon the rendering of an award, any
party thereto may file the arbitrators' decision in the United States District
Court for the Eastern District of Virginia for enforcement as provided by
applicable law.
ARTICLE XV
QUIET ENJOYMENT, SUBORDINATION,
ATTORNMENT, ESTOPPEL CERTIFICATES
15.01 Quiet Enjoyment. So long as Tenant performs all of its
---------------
obligations under this Lease, Tenant's possession of the Leased Properties will
not be disturbed by or through Landlord.
15.02 Landlord Mortgages; Subordination. Subject to Section 15.03,
------------------
without the consent of Tenant, Landlord may, from time to time, directly or
indirectly, create or otherwise cause to exist any liens, encumbrances, security
interests or title retention agreements on any Leased Property, or any portion
thereof or any interest therein, whether to secure any borrowing or other means
of financing or refinancing. Tenant shall execute, acknowledge and deliver to
Landlord, at any time and from time to time upon demand by Landlord or any
mortgagee or any holder of any mortgage or other instrument described in this
Section, without cost to Landlord, a Subordination and Non-Disturbance Agreement
in the form attached hereto as Exhibit 15.02, which provides that (i) Tenant's
rights hereunder are subordinate to any ground lease or underlying lease, first
mortgage, first deed of trust, or other first lien against any Leased Property,
together with any renewal, consolidation, extension, modification, or
replacement thereof, which now or at any subsequent time affects any Leased
Property or any interest of Landlord in any Leased Property, except to the
extent that any such instrument expressly provides that this Lease is superior;
and (ii) in the event such party succeeds to Landlord's interest under the Lease
and provided that no Event of Default by Tenant exists, such party will not
disturb Tenant's possession, use or occupancy of the subject Leased Property. If
Tenant fails or refuses to execute, acknowledge, and deliver such Subordination
and Non-Disclosure Agreement within ten (10) business days after written demand,
then Landlord shall send to Tenant a second written demand. If Tenant fails or
refuses to execute, acknowledge and deliver such Subordination and Non-
Disclosure Agreement within ten (10) days after such second written demand, then
Landlord or such successor in interest may execute, acknowledge and deliver such
Subordination and Non-Disclosure Agreement on behalf of Tenant as Tenant's
attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord,
its successors and assigns, as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant the Subordination and Non-
Disclosure Agreement. This power of attorney is coupled with an interest and is
irrevocable.
15.03 Attornment. If any holder of any mortgage, indenture, deed of
----------
trust, or other similar instrument described in Section 15.02 succeeds to
Landlord's interest in any Leased Property, Tenant will pay to such holder all
Rent subsequently payable hereunder as to such Leased Property. Tenant shall,
upon request of anyone succeeding to the interest of Landlord, automatically
become
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the tenant of, and attorn to, such successor in interest without changing this
Lease. The successor in interest will not be bound by: (a) any payment of Rent
for more than one (1) month in advance; (b) any amendment or modification hereof
made without its written consent; (c) any claim against Landlord arising prior
to the date on which the successor succeeded to Landlord's interest; or (d) any
claim or offset of Rent against Landlord.
15.04 Estoppel Certificates. At the request of Landlord or any
---------------------
mortgagee or purchaser of a Leased Property, Tenant shall execute, acknowledge,
and deliver an estoppel certificate, in recordable form, in favor of Landlord or
any mortgagee or purchaser of any Leased Property certifying the following as to
such Leased Property: (a) that this Lease is unmodified and in full force and
effect, or if there have been modifications that the same is in full force and
effect as modified and stating the modifications; (b) the date to which Rent and
other charges have been paid; (c) that neither Tenant nor Landlord is in default
nor is there any fact or condition which, with notice or lapse of time, or both,
would constitute a default, if that be the case, or specifying any existing
default; (d) that Tenant has accepted and occupies such Leased Property; (e)
that Tenant has no defenses, set-offs, deductions, credits, or counterclaims
against Landlord, if that be the case, or specifying such that exist; (f) that
Landlord has no outstanding construction or repair obligations; and (g) such
other information as may reasonably be requested by Landlord or any mortgagee or
purchaser. Any purchaser or mortgagee may rely on this estoppel certificate. If
Tenant fails to deliver the estoppel certificates to Landlord within ten (10)
business days after the request of Landlord, then Landlord shall request such
delivery a second time. If Tenant fails to deliver the estoppel certificates to
Landlord within ten (10) days after such second request by Landlord, then Tenant
shall be deemed to have certified that: (a) this Lease is in full force and
effect and has not been modified, or that this Lease has been modified as set
forth in the certificate delivered to Tenant; (b) Tenant has not prepaid any
Rent or other charges except for the current month; (c) Tenant has accepted and
occupies such Leased Property; (d) neither Tenant nor Landlord is in default nor
is there any fact or condition which, with notice or lapse of time, or both,
would constitute a default; (e) Landlord has no outstanding construction or
repair obligation; and (f) Tenant has no defenses, set-offs, deductions,
credits, or counterclaims against Landlord. Tenant hereby irrevocably appoints
Landlord as Tenant's attorney-in-fact to execute, acknowledge and deliver on
Tenant's behalf any estoppel certificate which Tenant does not object to within
twenty (20) days after Landlord sends the certificate to Tenant. This power of
attorney is coupled with an interest and is irrevocable.
15.05 Waiver of Landlord's Lien. Landlord agrees to and does hereby
-------------------------
Waiver its Landlord's lien and any other rights that it may have with respect to
property or assets representing the security or collateral under Tenant's "
floor-plan" or similar financing arrangements, during the Term or any Extension
Term. Landlord shall, upon request by any such lender, execute an acknowledgment
of such waiver.
ARTICLE XVI
51
<PAGE>
RIGHT OF FIRST OFFER
16.01 Right of First Offer During Lease Term or Extension Term.
--------------------------------------------------------
(a) If and when during the Term or Extension Term, as the case
may be, Landlord shall decide to sell the Leased
Properties to a Person who is not an Affiliate of Landlord
(the "Decision to Sell"), provided that no Event of
Default has occurred and is continuing under the Lease,
Landlord shall notify Tenant in writing within ten (10)
business days after Landlord makes a Decision to Sell.
Tenant shall have ten (10) business days thereafter in
which to notify Landlord in writing of its desire to
purchase the Leased Properties. If Tenant shall give such
notice, Tenant shall have a period of thirty (30) days
within which to make a written offer to purchase the
property (the "First Offer"). The First Offer must set
forth the purchase price, deposit amounts and closing date
and any and all other terms and conditions being proposed
by Tenant.
(b) Within thirty (30) days of receipt of the First Offer,
Landlord shall give Tenant written notice of its
acceptance or rejection thereof. If accepted, Tenant
shall, within five (5) days after receipt of the
acceptance notice, make the deposit called for in the
First Offer and the parties shall proceed to contract and
closing upon the terms thereof. If the First Offer is
rejected, then, subject to the provisions of subsections
(c) and (d) of this Section 16.01, Tenant shall have no
further rights with respect to the purchase of the Leased
Properties during the Term or Extension Term, as the case
may be.
(c) If Landlord shall reject the First Offer, for a one year
period thereafter it may proceed to sell the Leased
Properties, subject to the Lease and the remaining Term or
Extension Term thereof, as the case may be, to any third
party, provided (i) the purchase price of such sale shall
exceed that specified in the First Offer, or (ii) if the
purchase price of such sale does not exceed that specified
in the First Offer, the terms of such sale, taken
together, are more favorable to Landlord, in Landlord's
reasonable judgement, than those of the First Offer. There
shall be a presumption that Landlord's judgment was
reasonable and Tenant shall have the burden of rebutting
such presumption and of proving that such judgment was in
fact unreasonable.
(d) If no sale is effected by Landlord within the period
specified in subsection (c) above, then if Landlord
thereafter desires to sell the Leased Properties, the
procedure set forth in subsections (a), (b) and (c) shall
be followed.
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<PAGE>
(e) This option shall terminate in any event twenty (20) years
after the death of the last descendant of the father of
John J. Pohanka living at the time of execution of this
Lease.
16.02 Right to Purchase at End of an Extension Term.
----------------------------------------------
(a) Landlord hereby grants the Tenant the right and option to
purchase the Leased Properties (the "Option to Purchase")
at an amount equal to the Property Consideration (as
hereafter defined) upon termination of an Extension Term
of this Lease. The Option to Purchase shall not be granted
if Tenant does not extend the Term of this Lease pursuant
to Section 1.03 or if on the Option Exercise Date (as
hereafter defined) an Event of Default with respect to any
Leased Property exists and has not been cured. The Tenant
shall notify Landlord in writing of its intent to exercise
this Option to Purchase, thirty (30) days prior to the end
of an Extension Term of this Lease (the "Option Exercise
Date").
(b) The consideration to be paid for the Leased Properties
upon exercise of the Option to Purchase (the "Property
Consideration") shall be the Appraised Value (as hereafter
defined) determined by (1) an independent appraiser, who
is a member of the Appraisal Institute, and will be
selected by Landlord, (the "Landlord MAI Appraiser"), (2)
a second appraiser, who is a member of the Appraisal
Institute, and will be selected by the Tenant (the "Tenant
MAI Appraiser"), and (3) a third MAI Appraiser selected by
agreement of the Landlord MAI Appraiser and the Tenant MAI
Appraiser (the "Third MAI Appraiser") (each an "Appraiser"
and, collectively, the "Appraisers"). Landlord and Tenant
shall, as promptly as possible, but in no event later than
ten (10) days following the Option Exercise Date, select
its respective Appraiser. The Third MAI Appraiser shall be
selected no later than five (5) days after the selection
of the other Appraisers. The costs of the Appraisers'
appraisals shall be shared equally by the parties. As
promptly as possible but in no event later than fifteen
(15) days after selection of the Third Appraiser, each
Appraiser shall deliver his or her written report of the
Appraisers' determination of the fair market value of the
Leased Property, which determination shall be based, for
each Leased Property, upon the highest and best use of
such Leased Property, taking into consideration the
location of such Leased Property and other properties
comparable thereto. The "Appraised Value" of the Real
Property shall be equal to the arithmetic mean of the two
(2) fair market value determinations of the Appraisers
that are closest in value. In the event that the values of
(i)
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<PAGE>
the difference between the highest appraisal value and the
next lower appraisal value, and (ii) the difference
between the lowest appraisal value and the next higher
appraisal value, are equal, then the "Appraised Value"
shall be equal to the arithmetic mean of the fair market
value determinations of all Appraisers.
(c) Upon determination of the Property Consideration, Landlord
and Tenant agree to cooperate to close the sale and
purchase of the Leased Property entirely for cash on an "
as is, where as basis" and with no warranties by Landlord
other than in a special warranty deed, within forty-five
(45) days after the date of determination of the Property
Consideration (the "Option Closing Period"). If the sale
and purchase of the Leased Property does not close within
the Option Closing Period due to Tenant's default,
Landlord shall have no further obligations to Tenant
pursuant to this Section 16.02 (a).
ARTICLE XVII
MISCELLANEOUS
17.01 Notices. Landlord and Tenant hereby agree that all notices,
-------
demands, requests, and consents (hereinafter "Notices") required to be given
pursuant to the terms of this Lease shall be in writing and shall be addressed
as follows:
If to Tenant:
[ ]
[ ]
[ ]
[ ]
Attention:
With a copy to:
[ ]
[ ]
[ ]
[ ]
Attention:
If to Landlord:
Capital Automotive L.P.
[ ]
54
<PAGE>
[ ]
[ ]
Attention:
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
and shall be served by: (a) personal delivery; (b) certified mail, return
receipt requested, postage prepaid; or (c) nationally recognized overnight
courier. All notices shall be deemed to be given upon the earlier of actual
receipt or three (3) days after mailing, or one (1) business day after deposit
with the overnight courier. Any Notices meeting the requirements of this
Section shall be effective, regardless of whether or not actually received.
Landlord or Tenant may change its notice address at any time by giving the other
party Notice of such change. Any such Notice of change of address shall be
effective five (5) days after delivery.
17.02 Advertisement of a Leased Property. In the event the parties
----------------------------------
hereto have not executed a renewal lease, or agreed to the Extension Term, as to
the Leased Property within twelve (12) months prior to the expiration of the
Term or an Extension Term, as the case may be, then Landlord or its agent shall
have the right to enter such Leased Property at all reasonable times for the
purpose of exhibiting such Leased Property to others and to place upon such
Leased Property for and during the period commencing two-hundred seventy (270)
days prior to the expiration of the Term or an Extension Term, as the case may
be, "for sale" or "for rent" notices or signs.
17.03 Landlord's Access. Landlord, or its designated agents or
-----------------
contractors, shall have the right to enter upon each Leased Property, upon
reasonable prior notice to Tenant, for purposes of inspecting the same and
assuring Tenant's compliance with this Lease provided, any such entry by
Landlord shall be subject to all rules, guidelines and procedures prescribed by
Tenant in connection therewith. Landlord shall not be allowed entry to a Leased
Property unless accompanied by such of Tenant's personnel as Tenant shall
require and which Tenant shall promptly provide.
17.04 Entire Agreement. This Lease contains the entire agreement
----------------
between Landlord and Tenant with respect to the subject matter hereof. No
representations, warranties, and agreements have been made by Landlord or Tenant
except as set forth in this Lease.
17.05 Severability. If any term or provision of this Lease is held by
------------
Landlord to be invalid or unenforceable as to a Leased Property, such holding
shall not affect the remainder of this Lease as to such Leased Property, or the
validity or enforceability of this Lease as to any other Leased Property, and
the same shall remain in full force and effect, unless such holding
substantially
55
<PAGE>
deprives Tenant of the use of such Leased Property or Landlord of the Rents
therefor, in which case this Lease shall forthwith terminate as to such Leased
Property as if by expiration of the Term or an Extension Term, as the case may
be, but shall remain in full force and effect with respect to each other Leased
Property.
17.06 Captions and Headings. The captions and headings are inserted
---------------------
only as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Lease or the intent of any provision hereof.
17.07 Governing Law. This Lease shall be construed under the laws of
-------------
the State of Virginia (without application of choice of law provisions).
17.08 Memorandum of Lease or Certain Rights Under the Lease.
-----------------------------------------------------
Landlord and Tenant agree that a record of this Lease or of certain rights under
this Lease may be recorded by either party in a memorandum of lease approved by
Landlord and Tenant with respect to each Leased Property. The party recording
such memorandum must bear all costs of such recording.
17.09 Waiver. No waiver by Landlord of any condition or covenant
------
herein contained, or of any breach of any such condition or covenant, shall be
held or taken to be a waiver of any subsequent breach of such covenant or
condition, or to permit or excuse its continuance or any future breach thereof
or of any condition or covenant, nor shall the acceptance of Rent by Landlord at
any time when Tenant is in default in the performance or observance of any
condition or covenant herein be construed as a waiver of such default, or of
Landlord's right to terminate this Lease or exercise any other remedy granted
herein on account of such default.
17.10 Assignment; Binding Effect. Except as otherwise set forth
--------------------------
herein, this Lease shall not be assignable by Tenant, without the prior written
consent of Landlord. This Lease will be binding upon and inure to the benefit of
the heirs, successors, personal representatives, and permitted assigns of
Landlord and Tenant.
17.11 Consents and Approvals. In each instance in this Lease where
----------------------
the Landlord is required or permitted to give a consent or approval, or to make
a determination, the Landlord's decision and any conditions thereon must be
reasonable under the circumstances. Except as provided in Sections 8.07(d) and
13.01, there shall be a presumption that each such decision and any conditions
thereon by Landlord was in fact reasonable, and Tenant shall have the burden of
proof in any attempt to rebut that presumption. With respect to Sections 8.07(d)
and 13.01, there shall be a presumption that each such decision and any
conditions thereon by Landlord was in fact unreasonable, and Landlord shall have
the burden of proof in any attempt to rebut that presumption.
17.12 Single Property. Throughout the form of this Lease there are
---------------
references to "Leased Properties". If, in fact, there is only one Leased
Property being leased hereunder, all such references shall, without further
action, be deemed amended to refer solely to such Leased Property and all
provisions relating to Leased Properties, including remedies applicable to only
one Leased
56
<PAGE>
Property, shall likewise be amended to the extent necessary, but only to the
extent necessary, to give effect to the fact that there is only one Leased
Property.
17.13 Modification. This Lease may only be modified by a writing
------------
signed by both Landlord and Tenant.
17.14 Incorporation by Reference. All schedules and exhibits
---------------------------
referred to in this Lease are incorporated herein by reference.
17.15 No Merger. As to each Leased Property, the surrender of this
---------
Lease by Tenant or the cancellation of this Lease by agreement of Tenant and
Landlord or the termination of this Lease on account of Tenant's default will
not work a merger, and will, at Landlord's option, terminate any subleases or
operate as an assignment to Landlord of any subleases. Landlord's option under
this paragraph will be exercised by notice to Tenant and all known subtenants of
such Leased Property.
17.16 Force Majeure. Landlord, its agents and employees, will not be
-------------
liable for any loss, injury, death, or damage (including consequential damages)
to persons, property, or Tenant's Business occasioned by theft, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, order of governmental body or authority, fire, explosion, falling
objects, steam, water, rain or snow, leak or flow of water (including water from
the elevator system), rain or snow from any Leased Property or into any Leased
Property or from the roof, street, subsurface or from any other place, or by
dampness or from the breakage, leakage, obstruction, or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air conditioning, or lighting
fixtures of any Leased Property, or from construction, repair, or alteration of
any Leased Property or from any acts or omissions of any other occupant or
visitor of any Leased Property, or from the release, emission, discharge,
presence or disposal of any hazardous substance or material on or from any
Leased Property, or from any other cause beyond Landlord's control.
17.17 Laches. No delay or omission by either party hereto to
------
exercise any right or power accruing upon any noncompliance or default by the
other party with respect to any of the terms hereof shall impair any such right
or power or be construed to be a waiver thereof.
17.18 Waiver of Jury Trial. To the extent that there is any claim by
--------------------
one party against the other that is not to be settled by arbitration as provided
in Article XIV hereof, Landlord and Tenant waive trial by jury in any action,
proceeding or counterclaim brought by either of them against the other on all
matters arising out of this Lease or the use and occupancy of any Leased
Property (except claims for personal injury or property damage). If Landlord
commences any summary proceeding for nonpayment of Rent, Tenant will not
interpose, and waives the right to interpose, any counterclaim in any such
proceeding.
17.19 Permitted Contests. Tenant, on its own or on Landlord's behalf
------------------
(or in Landlord's name), but at Tenant's expense, may contest, by appropriate
legal proceedings conducted
57
<PAGE>
in good faith and with due diligence, the amount or validity or application, in
whole or in part, of any Imposition or any legal requirement or insurance
requirement or any lien, attachment, levy, encumbrance, charge or claim provided
that: (a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from Landlord and from the
subject Leased Property; (b) neither the subject Leased Property nor any Rent
therefrom nor any part thereof or interest therein would be in any immediate
danger of being sold, forfeited, attached or lost; (c) in the case of a legal
requirement, Landlord would not be in any immediate danger of civil or criminal
liability for failure to comply therewith pending the outcome of such
proceedings; (d) in the event that any such contest shall involve a sum of money
or potential loss in excess of Twenty Five Thousand Dollars ($25,000), Tenant
shall deliver to Landlord and its counsel an opinion of Tenant's counsel to the
effect set forth in clauses (a), (b) and (c), to the extent applicable; (e) in
the case of a legal requirement and/or an Imposition, lien, encumbrance, or
charge, Tenant shall give such reasonable security as may be demanded by
Landlord to insure ultimate payment of the same and to prevent any sale or
forfeiture of a subject Leased Property or the Rent in respect thereof by reason
of such nonpayment or noncompliance; provided, however, the provisions of this
Section shall not be construed to permit Tenant to contest the payment of Rent
(except as to contests concerning the method of computation or the basis of levy
of any Imposition or the basis for the assertion of any other claim) or any
other sums payable by Tenant to Landlord hereunder; (f) in the case of an
insurance requirement, the coverage required by Article IV shall be maintained;
and (g) if such contest be finally resolved against Landlord or Tenant, Tenant
shall, as Additional Rent due hereunder, promptly pay the amount required to be
paid, together with all interest and penalties accrued thereon, or comply with
the applicable legal requirement or insurance requirement. Landlord, at Tenant's
expense, shall execute and deliver to Tenant such authorizations and other
documents as may be reasonably required in any such contest, and, if reasonably
requested by Tenant or if Landlord so desires, Landlord shall join as a party
therein. Tenant hereby agrees to indemnify and hold harmless Landlord, its
officers, trustees, employees, shareholders, affiliates and agents from and
against any and all demands, claims, causes of action, fines, penalties, damages
(including punitive and consequential damages), losses, liabilities (including
strict liability), judgments, costs and expenses (including, without limitation,
attorneys' fees, court costs, and the costs set forth in Section 9.06) that may
be incurred in connection with or arise from any such contest.
17.20 Construction of Lease. This Lease has been reviewed by
---------------------
Landlord and Tenant and their respective professional advisors. Landlord and
Tenant believe that this Lease is the product of all their efforts, that they
express their agreement, and agree that they shall not be interpreted in favor
of either Landlord or Tenant or against either Landlord or Tenant merely because
of any party's efforts in preparing such documents.
17.21 Counterparts. This Lease may be executed in duplicate
------------
counterparts, each of which shall be deemed an original hereof or thereof.
58
<PAGE>
17.22 Relationship of Landlord and Tenant. The relationship of
-----------------------------------
Landlord and Tenant is the relationship of lessor and lessee. Landlord and
Tenant are not partners, joint venturers, or associates.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused the same to be executed by their respective duly authorized officers as
of the date first set forth above.
CAPITAL AUTOMOTIVE L.P.
By: Capital Automotive REIT,
Its General Partner
By:
Its:
[ ]
By:
Its:
60
<PAGE>
POHANKA LEASE AGREEMENT EXHIBITS AND SCHEDULES
EXHIBITS
A Leased Properties
B Permitted Liens
C Base Annual Rent Schedule
SCHEDULES
2.02 Payment Account Information
2.04 Base Annual Rent Adjustment
5.07 Environmental Reports
12.02 Material Agreements
12.03 Changes in Condition
15.02 Form of Subordination and Non-Disturbance Agreement
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Pohanka Auto Center, Inc. & Pohanka 4601 St. Barnabas
Oldsmobile-GMC Truck, Inc. Rd., Marlow
Heights, MD 20757
$483,486 + $__________* (Tax Id. 06-
0590109)
4615 St. Barnabas
Rd., Marlow
Heights, MD 20757
(Tax Id. 06-
0590091)
4619 St. Barnabas
*Amount attributable to closing costs, as set forth in Rd., Marlow
Section 7.5.1 of the Contribution Agreement, dated as Heights, MD 20757
of November 21, 1997, relating to this Property. (Tax Id. 06-
038205)
-------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
2 Pohanka Hyundai, Inc. 4809 St. Barnabas
Rd., Marlow
166,386 + $________* Heights, MD 20757
(Tax Id. 06-
0590125)
3407 Dallas
Drive,
Marlow Heights,
MD 20757
*Amount attributable to closing costs, as (Tax Id. 06-
set forth in Section 7.5.1 of the Contribution 0590117)
Agreement, dated as of November 21, 1997,
relating to this Property.
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
3 Pohanka Imports, Inc. 4608 St. Barnabas Rd.,
Marlow Heights, MD
20757
395,571 + $_______* (Tax Id. 06-0642140)
*Amount attributable to closing costs, as set
forth in Section 7.5.1 of the Contribution
Agreement, dated as of November 21, 1997,
relating to this Property.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
4 Pohanka Oldsmobile-GMC Truck, Inc. 4756 Stamp Rd.,
Marlow Heights,
$94,500 + ________* MD 20757
(Id. No. 06-
0605873)
4764 Stamp Rd.,
Marlow Heights,
*Amount attributable to closing costs, as set MD 20757
forth in Section 7.5.1 of the Contribution (Id. No. 06-
Agreement, dated as of November 21, 1997, relating 059247)
to this Property.
------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
5 Pohanka Virginia Properties 16660 Governor
Br. Rd., Bowie,
$434,500 + _________* MD 20716
(07-0801472)
*Amount attributable to closing costs, as
set forth in Section 7.5.1 of the Contribution
Agreement, dated as of November 21, 1997,
relating to this Property .
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
6 Pohanka of Chantilly, Inc. 13901 Lee Jackson
Memorial
$354,750 + ____________* Highway,
Chantilly, VA
22021
(Id. 034-4-01-00-
0051)
13909 Lee Jackson
Memorial
Highway,
*Amount attributable to closing costs, Chantilly, VA
as set forth in Section 7.5.1 of the 22021
Contribution Agreement, dated as of (Id. 034-4-01-00-
November 21, 1997, relating to this 0050)
Property.
13909 Lee Jackson
Memorial
Highway,
Chantilly, VA
22021
(Id. 034-4-01-00-
0050-A)
--------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
-----------------
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
7 Pohanka Auto West, Inc. & Pohanka Chevrolet- 13911 Lee Jackson
GEO, Inc. -- Memorial
$449,486 + _________* Highway,
Chantilly, VA
22021
(Tax Id. 034-4-01-
*Amount attributable to closing costs, as set 00-0049)
forth in Section 7.5.1 of the Contribution
Agreement dated as of November 21, 1997,
relating to this Property.
----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
LEASED PROPERTIES
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
8 Pohanka Virginia Properties 13915 Lee Jackson
Memorial
$623,789 + $_______* Highway,
Chantilly, VA
*Amount attributable to closing costs, as set 20151
forth in Section 7.5.1 of the Contribution (Tax Id. 034-4-01-
Agreement, dated as of November 21, 1997, 00-0053)
relating to this Property.
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
LEASED PROPERTIES
<TABLE>
<CAPTION>
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
9 Pohanka Auto Center, Inc. 5200 Jefferson
Davis Highway,
$383,108 + _________* Fredericksburg, VA
22408
(Id. 024-6-A10)
5200 Jefferson
Davis Highway,
Fredericksburg, VA
22408
(Id. 024-6-A20)
*Amount attributable to closing costs, as set 5200 Jefferson
forth in Section 7.5.1 of the Contribution Davis Highway,
Agreement,dated as of November 21, 1997, Fredericksburg, VA
relating to this Property. 22408
(Id. 024-6-A21)
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
---------
PERMITTED LIENS
To be in form and substance acceptable to Landlord and provided by
Tenant on or before the Commencement Date.
<PAGE>
EXHIBIT C
INITIAL BASE ANNUAL RENT SCHEDULE
See Exhibit A for Initial Base Annual Rent payments due on Leased Property.
<PAGE>
SCHEDULE 2.02
-------------
PAYMENT ACCOUNT INFORMATION
Wiring instructions for the Landlord's operating account are as follows:
FIRST UNION NATIONAL BANK OF VIRGINIA
CHARLOTTE, NC
ABA# 051400549
For Credit to: CAPITAL AUTOMOTIVE REIT, Operating Account
Account # 2050000478240
<PAGE>
SCHEDULE 2.04
-------------
BASE ANNUAL RENT ADJUSTMENT
The Base Annual Rent shall be increased, effective as of the commencement
of the third Lease Year and as of each subsequent odd-numbered Lease Year by an
amount equal to fifty percent (50%) of the change in the Index during the
immediately preceding one (1) year period; provided, however that,
(a) in the event that the above-calculated adjustment is less than
one percent (1%), such adjustment shall be equal to one percent
(1%), and
(b) in the event that the above-calculated adjustment is greater than
two percent (2%), such adjustment shall be equal to two percent
(2%).
<PAGE>
NO. 1
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for SATURN OF MARLOW HEIGHTS, PRINCE
GEORGE'S COUNTY, MARYLAND (Prepared by G.M.T. Environmental Technologies,
Inc., GMTI Project No. 97-EV-4091-D, Nov. 7, 1997).
2. Phase I Environmental Site Assessment for POHANKA OLDSMOBILE - GMC - ISUZU,
PRINCE GEORGE'S COUNTY, MARYLAND (Prepared by G.M.T. Environmental
Technologies, Inc., GMTI Project No. 97-EV-4091-C, Nov. 7, 1997).
<PAGE>
NO. 2
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA HYUNDAI - SUBARU, PRINCE
GEORGE'S COUNTY, MARYLAND (Prepared by G.M.T. Environmental Technologies,
Inc., GMTI Project No. 97-EV-4091-B2, Nov. 7, 1997).
<PAGE>
NO. 3
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA HONDA, PRINCE GEORGE'S
COUNTY, MARYLAND (Prepared by G.M.T. Environmental Technologies, Inc., GMTI
Project No. 97-EV-4091-B1, Nov. 7, 1997).
<PAGE>
NO. 4
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA OLDSMOBILE - GMC BODY
SHOP, PRINCE GEORGE'S COUNTY, MARYLAND (Prepared by G.M.T. Environmental
Technologies, Inc., GMTI Project No. 97-EV-4091-B3, Nov. 7, 1997).
<PAGE>
NO. 5
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for SATURN OF BOWIE, PRINCE GEORGE'S
COUNTY, MARYLAND (Prepared by G.M.T. Environmental Technologies, Inc., GMTI
Project No. 97-EV-4091-E, Nov. 7, 1997).
<PAGE>
NO. 6
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA LEXUS, FAIRFAX COUNTY,
VIRGINIA (Prepared by G.M.T. Environmental Technologies, Inc., GMTI Project
No. 97-EV-4091-A3, Nov. 7, 1997).
<PAGE>
NO. 7
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA ACURA, FAIRFAX COUNTY,
VIRGINIA (Prepared by G.M.T. Environmental Technologies, Inc., GMTI Project
No. 97-EV-4091-A1, Nov. 7, 1997).
<PAGE>
NO. 8
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for WEIDLEIN PROPERTY, FAIRFAX
COUNTY, VIRGINIA (Prepared by G.M.T. Environmental Technologies, Inc., GMTI
Project No. 97-EV-4091-A4, Nov. 7, 1997).
2. Phase I Environmental Site Assessment for POHANKA CHEVROLET, FAIRFAX
COUNTY, VIRGINIA (Prepared by G.M.T. Environmental Technologies, Inc., GMTI
Project No. 97-EV-4091-A2, Nov. 7, 1997).
<PAGE>
NO. 9
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA NISSAN - CADILLAC -
OLDSMOBILE -HYUNDAI, SPOTSYLVANIA COUNTY, VIRGINIA (Prepared by G.M.T.
Environmental Technologies, Inc., GMTI Project No. 97-EV-4091-F, Nov. 7,
1997).
<PAGE>
SCHEDULE 12.02
MATERIAL AGREEMENTS
-------------------
To be in form and substance acceptable to Landlord and provided by Tenant
on or before the Commencement Date.
<PAGE>
SCHEDULE 9.19
-------------
CHANGES IN CONDITION
To be in form and substance acceptable to Landlord and provided by Tenant
on or before the Commencement Date.
<PAGE>
SCHEDULE 15.02
--------------
See attached Form of Subordination and Non-Disturbance Agreement.
<PAGE>
Form
SUBORDINATION AND NON-DISTURBANCE AGREEMENT
-------------------------------------------
THIS AGREEMENT is made as of this ___ day of __________, 1997, among
_____________, a ___________ organized under the laws of the State of
_____________ ("Lender"), __________________ ("Tenant"), and CAPITAL AUTOMOTIVE
L.P., a Delaware limited partnership ("Landlord").
WITNESSETH:
-----------
WHEREAS, Landlord and Tenant have entered into a certain Lease, dated
____________________ , which lease and all amendments, modifications,
assignments, subleases and other agreements related thereto are attached hereto
as Exhibit A and incorporated herein by this reference (collectively, the
---------
"Lease"), which Lease relates to the premises described therein (the
"Premises"), and
WHEREAS, Lender has made or has committed to make a first mortgage loan to
Landlord in the principal amount not to exceed $_________ (the "Loan"), the Loan
being secured by a mortgage, deed of trust or security deed (collectively, the
"Mortgage") and an assignment(s) of leases and rents from Landlord to Lender
covering the Premises; and
WHEREAS, Tenant has agreed that the Lease shall be subject and subordinate
to the Mortgage held by Lender, provided Tenant is assured of continued
occupancy of the Premises under the terms of the Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the sum of Ten Dollars ($10.00) and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
and notwithstanding anything in the Lease to the contrary, it is hereby agreed
as follows:
1. SUBORDINATION OF LEASE. Lender, Tenant and Landlord do hereby
----------------------
covenant and agree that the Lease with all rights, options, liens and charges
created thereby, is and shall continue to be subject and subordinate in all
respects to the Mortgage and to any renewals, modifications, consolidations,
replacements and extensions thereof and to all advancements made thereunder.
2. NONDISTURBANCE OF TENANT. Lender does hereby agree with Tenant that,
------------------------
in the event Lender becomes the owner of the Premises by foreclosure, conveyance
in lieu of foreclosure or otherwise, so long as Tenant complies with and
performs its obligations under the Lease, (a) Lender will take no action which
will interfere with or disturb Tenant's possession or use of the Premises or
other rights under the Lease, and (b) the Premises shall be subject to the Lease
and Lender shall recognize Tenant as the tenant of the Premises for the
remainder of the terms of the Lease in accordance with the provisions thereof,
provided, however, that Lender shall not be subject to any offsets or defenses
which Tenant might have against any prior landlord except those which arose
<PAGE>
under the provisions of the Lease out of such landlord's default and accrued
after Tenant had notified Lender and given Lender the opportunity to cure same
as hereinbelow provided, nor shall Lender be liable for any act or omission of
any prior landlord, nor shall Lender be bound by any rent or additional rent
which Tenant might have paid for more than the current month to any prior
landlord nor shall it be bound by any amendment or modification of the Lease
made without its consent.
3. ATTORNMENT BY TENANT. Tenant does hereby agree with Lender that, in
--------------------
the event Lender becomes the owner of the Premises by foreclosure, conveyance in
lieu of foreclosure or otherwise, then Tenant shall attorn to and recognize
Lender as the landlord under the Lease for the remainder of the term thereof,
and Tenant shall perform and observe its obligations thereunder, subject only to
the terms and conditions of the Lease. In such event, Lender shall not be
liable for any act or omission of any prior landlord, liable for return of the
security deposit unless same was actually delivered to Lender, bound by any
amendment to or assignment of the Lease made without its consent, bound by any
rent paid more than thirty (30) days in advance, or be subject to any set-off or
defense Tenant might have had against any prior landlord. Tenant further
covenants and agrees to execute and deliver upon request of Lender or its
assigns, an appropriate Agreement of Attornment to Lender and any subsequent
titleholder of the Premises.
4. ACKNOWLEDGMENT OF ACQUISITION RIGHTS. Lender acknowledges that Tenant
------------------------------------
has certain purchase rights under the lease. So long as Tenant complies with
the provisions of the Lease, Lender acknowledges that Tenant may exercise such
rights and Lender will honor such rights so long as Tenant pays the acquisition
price to Lender or otherwise obtains a release from Lender.
5. CURATIVE RIGHTS, MODIFICATION OF LEASE, AND ADVANCE PAYMENT OF RENT.
-------------------------------------------------------------------
So long as the Mortgage remains outstanding and unsatisfied:
(a) Tenant will mail or deliver to Lender, at the address and in the
manner hereinbelow provided, a copy of all notices permitted or required to be
given to the Landlord by Tenant under and pursuant to the terms and provisions
of the Lease. At any time before the rights of the Landlord shall have been
forfeited or adversely affected because of any default of the Landlord, or
within the time permitted the Landlord for curing any default under the Lease as
therein provided, Lender may, but shall have no obligation to, pay any taxes and
assessment s, make any repairs and improvements, make any deposits or do any
other act or thing required of the Landlord by the terms of the Lease; and all
payments so made and all things so done and performed by Lender shall be as
effective to prevent the rights of the Landlord from being forfeited or
adversely affected because of any default under the Lease as the same would have
been if done and performed by the Landlord.
(b) Tenant will not consent to the modification of the Lease, nor to the
termination thereof, without the prior written consent of Lender, such consent
not to be unreasonably withheld or delayed, nor will Tenant pay any rent under
the Lease more than thirty (30) days in advance.
-2-
<PAGE>
Form
6. CONSENT TO ASSIGNMENT. Tenant acknowledges that Landlord will execute
---------------------
and deliver to Lender an assignment of the Lease as security for the Loan, and
Tenant hereby expressly consents to such assignment.
7. LIMITATION OF LIABILITY. So long as Lender complies with its
-----------------------
obligations hereunder, Lender shall have no liability whatsoever hereunder prior
to becoming the owner of the Premises; and Tenant agrees that if Lender becomes
the owner of the Premises, Tenant shall look solely to the estate or interest of
Lender in the Premises for satisfaction of any obligation which may be or
become owing by Lender to Tenant hereunder or under the Lease.
8. LANDLORD AND TENANT CERTIFICATIONS. Landlord and Tenant hereby
----------------------------------
certify to Lender that the Lease has been duly executed by Landlord and Tenant
and is in full force and effect, that the Lease and any modifications and
amendments specified herein are a complete statement of the agreement between
Landlord and Tenant with respect to the leasing of the Premises, and the Lease
has not been modified or amended except as specified herein; that to the
knowledge of Landlord and Tenant, no party to the Lease is in default
thereunder; that no rent under the Lease has been paid more than thirty (30)
days in advance of its due date; and that Tenant, as of this date, has no
charge, lien or claim of offset under the Lease, or otherwise, against the rents
or other charges due or to become due thereunder.
9. TENANT ESTOPPEL CERTIFICATIONS. With the knowledge that Lender, as
------------------------------
beneficiary of the mortgage encumbering the premises, will place substantial
reliance thereon in connection with the closing and funding of the Loan, Tenant
hereby makes the following certifications:
(a) The term of the Lease commenced on ________, 19__, and will terminate
on ______________.
(b) The Lease, as described above, has not been modified, amended,
assigned or subleased except as set forth in Exhibit A attached hereto, and is
---------
in good standing and in full force and effect.
(c) The Lease provides for rental payments over the term of the Lease, all
as specifically provided in the Lease. No rent under the Lease has been paid
more than thirty (30) days in advance of the due date of same. For the year
____, monthly payments, which are due on the first (1st) day of each month, are
as follows:
Basic Rent - $________
-3-
<PAGE>
Form
Payment of the above amount was timely made for the months of ______,
___and _____, ____, and the next payment of the above amount will be due on
________, ____. In addition to the above amount, certain additional sums are
due to Landlord from Tenant under the Lease, all as specifically set forth in
the Lease.
(d) Tenant has paid a security deposit under the Lease.
(e) Except as stated on the attached Exhibit B, to Tenant's knowledge
there are no defaults by Landlord under the Lease and there are no existing
circumstances which, with the passage of time, or notice, or both, would give
rise to a default under the Lease.
(f) Tenant has accepted and is occupying the Premises, and Landlord has no
unperformed obligation under the Lease to construct any improvements for the
Tenant related to the Premises.
(g) Except as stated on the attached Exhibit B, Tenant has no charge,
lien, claim of set-off or defense against rents or other charges due or to
become due under the Lease or otherwise under any of the terms, conditions, or
covenants contained therein.
(h) Except as stated on the attached Exhibit B, Tenant has received no
notice from any insurance company of any defects or inadequacies in the Premises
or in any part thereof which would adversely affect the insurability of the
Premises.
(i) Except as provided in the Lease, Tenant does not have any right or
option to purchase the Premises.
(j) Except as provided in the Lease, Tenant does not have any rights or
options to renew the Lease or to lease additional space in any building owned by
the Landlord.
10. TENANT COVENANTS.
----------------
(a) From and after the date hereof, Tenant will not pay any rent under the
Lease more
than thirty (30) days in advance of its due date.
(b) From and after the date hereof, so long as there shall be any
assignment of Landlord's interest in the Lease to Lender, or any successor
thereto, Tenant will not: consent to the modification of the Lease nor to the
termination thereof without the prior written consent of the Lender or any
successor holder of the Loan or the Mortgage which consent shall not be
unreasonably withheld or delayed (either of them being called "Mortgagee"), nor
seek to terminate the Lease by reason of any act or omission of Landlord until
Tenant shall have given written notice of such act
-4-
<PAGE>
FORM
or omission to such Mortgagee's last address furnished Tenant) and until a
reasonable period of time shall have elapsed following the giving of such
notice, during which period the Mortgagee shall have the right, but not the
obligation, to remedy such act or omission.
(c) Upon written notice of the default by Landlord under any of the
loan documents held by Mortgagee and assignment of the Landlord's interest under
the Lease by Landlord to Mortgagee, Tenant, if Mortgagee so requests, will
recognize such Mortgagee as the Landlord under the Lease and will thereafter pay
rent and other sums to Mortgagee (or to the party designated by the Mortgagee in
writing) in accordance with the terms of the Lease, and, in such event, such
Mortgagee will not be liable for any act or omission of any prior lessor, liable
for return of the security deposit unless same was actually delivered to
Mortgagee, bound by any amendment to or assignment of the Lease made without its
consent, bound by any rent paid more than thirty (30) days in advance, or be
subject to any set-off or defense Tenant might have had against any prior
lessor.
11. NOTICES. Unless and except as otherwise specifically provided
-------
herein, any and all notices, elections, approvals, consents, demands, requests
and responses thereto ("Communications") permitted or required to be given under
this Agreement shall be in writing, signed by or on behalf of the party giving
the same, and shall be deemed to have been properly given and shall be effective
upon the earlier of receipt thereof or three (3) days after deposit thereof in
the United States mail, postage prepaid, certified with return receipt
requested, to the other party at the address of such other party set forth
hereinbelow or at such other address within the continental United States as
such other party may designate by notice specifically designated as a notice of
change of address and given in accordance herewith; provided, however, that the
time period in which a response to any Communication must be given shall
commence on the date of receipt thereof, and provided further that no notice of
change of address shall be effective with respect to Communications sent prior
to the third day after receipt of such change. Receipt of Communications
hereunder shall occur upon actual delivery (whether by mail, messenger, courier
service, or otherwise) to an individual party or to an officer, member, or
general or limited partner of a party or to any agent or employee of such party
at the address of such party set forth hereinbelow, subject to change as
provided hereinabove. An attempted delivery in accordance with the foregoing,
acceptance of which is refused or rejected, shall be deemed to be and shall
constitute receipt; and an attempted delivery in accordance with the foregoing
by mail, messenger, or courier service (whichever is chosen by the sender) which
is not completed because of changed address of which no notice was received by
the sender in accordance with this provision prior to the sending of the
-5-
<PAGE>
Form
Communication shall also be deemed to be and constitute receipt. Any
Communication, if given to Lender, must be addressed as follows, subject to
change as provided hereinabove:
_____________________________________________
_____________________________________________
and, if given to Tenant, must be addressed as follows, subject to change as
provided hereinabove:
________________________
_____________________________________________
_____________________________________________
and, if given to Landlord, must be addressed as follows, subject to change as
provided hereinabove:
Capital Automotive, L.P.
_____________________________________________
_____________________________________________
12. MISCELLANEOUS. This Agreement shall be binding upon and inure to the
-------------
benefit of the parties hereto and their respective heirs, legal representatives,
successors, successors-in-title and assigns. When used herein, the term
"Landlord" or "landlord" refers to Landlord and to any successor to the interest
of Landlord under the Lease.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LENDER:
Signed, sealed and delivered
in the presence of: By:
Title:
_____________________________ _______________________________
Witness
(CORPORATE SEAL)
TENANT:
Signed, sealed and delivered
in the presence of: By:
Title:
_____________________________ _______________________________
Witness (CORPORATE SEAL)
LANDLORD:
Signed, sealed and delivered
in the presence of: By:
Title:
_____________________________ _______________________________
Witness (PARTNERSHIP SEAL)
-7-
<PAGE>
Form
EXHIBIT A
Lease Dated __________ from ________________ to _______________ with Exhibit A
attached, all in the form attached hereto as Attachment to Exhibit A.
------------------------
-8-
<PAGE>
Form
County of _________________________:
SS:
State of ___________________________:
This is to certify that on this ____ day of ________, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Lender in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Lender.
____________________________________
Notary Public
My commission expires:
-9-
<PAGE>
Form
County of __________________________:
SS:
State of ____________________________:
This is to certify that on this ____ day of _________, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Tenant in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Tenant.
____________________________________
Notary Public
My commission expires:
-10-
<PAGE>
Form
County of ____________________________
SS:
State of _____________________________
This is to certify that on this ____ day of _______, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Landlord in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Landlord.
___________________________________
Notary Public
My commission expires:
-11-
<PAGE>
EXHIBIT 4.4(c)
<PAGE>
GUARANTY AND SUBORDINATION AGREEMENT
THIS GUARANTY AND SUBORDINATION AGREEMENT (this "Agreement"), made as of
the ______ day of _________, 19__, by ______________ , a _______________
corporation ("Guarantor"), in favor of Capital Automotive, L.P., a Delaware
limited partnership ("Landlord").
WITNESSETH:
----------
WHEREAS, Landlord has this day entered into a lease (the "Lease") of
certain Properties identified on Schedule A hereto (individually a "Property"
and collectively the "Properties") with ____________, a ________________
corporation ("Tenant"), this Agreement being attached to the Lease;
WHEREAS, Tenant is a subsidiary [affilate] of Guarantor; and
WHEREAS, Landlord has required, as a condition to entering into the Lease,
Guarantor to be a guarantor of each and every obligation imposed upon Tenant by
the Lease.
NOW, THEREFORE, to induce Landlord to enter into the Lease and in
consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor, for itself, its successors and assigns, hereby covenants and agrees
for the benefit of Landlord, as follows:
1. Guaranty. Guarantor does hereby unconditionally and irrevocably
--------
guarantee to Landlord the full, complete and timely performance of all
obligations imposed on Tenant by the terms of the Lease, including, but not
limited to, the full, complete and timely payment of rent and all other sums due
by Tenant under the Lease, and the payment as required by the Lease of all
damages to Landlord which may result from Tenant's breach of any provision of
the Lease, including, but not limited to, those relating to damage to any
Property or the leased premises.
2. Guaranty of Payment and Performance. Guarantor acknowledges and agrees
------------------------------------
that this is a guaranty of payment and performance and not mere collection. The
liability of Guarantor under this Agreement shall be direct and immediate and
not conditional or contingent upon the pursuit of any remedies against Tenant or
any other person or entity. Guarantor waives any right to require that an action
be brought against Tenant or any other person or entity. In the event, on
account of the Bankruptcy Reform Act of 1978, as amended, or any other debtor
relief law (whether statutory, common law, case law or otherwise) of any
jurisdiction whatsoever, now or hereafter in effect, which may be or become
applicable, Tenant shall be relieved of the Lease or any debt, obligation or
liability as provided in the Lease, Guarantor shall nevertheless be fully liable
for the complete and timely performance of all obligations imposed on Tenant by
the Lease throughout the entire term of the Lease, all to the same extent as if
Guarantor had been the original tenant thereunder and the Lease shall be
<PAGE>
deemed unaffected by any such relief granted to Tenant. In the event of a
default under the Lease which is not cured within any applicable grace or cure
period, Landlord shall have the right to enforce its rights, powers and remedies
thereunder or hereunder, in any order to the maximum extent permitted by law,
and all rights, powers and remedies provided thereunder or hereunder or by law
or in equity. If the obligations guaranteed hereby are partially performed, paid
or discharged by reason of the exercise of any of the remedies available to
Landlord, this Agreement shall nevertheless remain in full force and effect, and
Guarantor shall continue to be liable for all remaining obligations guaranteed
hereby, even though any rights which Guarantor may have against Tenant may be
destroyed or dismissed by the exercise of any such remedy.
3. Waivers by Guarantor. To the extent permitted by law, Guarantor hereby
--------------------
waives and agrees not to assert or take advantage of:
(a) Any right to require Landlord to proceed against Tenant or any
other person or entity or to proceed against or exhaust any security held by
Landlord at any time or to pursue any other remedy in Landlord's power or under
any other agreement before proceeding against Guarantor;
(b) Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Landlord to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons:
(c) Any defense based upon an election of remedies by Landlord;
(d) Any right or claim or right to cause a marshaling of the assets
of Tenant or Guarantor;
(e) Any invalidity, irregularity or unenforceability, in whole or in
part, of any one or more provisions of the Lease;
(f) Any modification of the Lease or of any obligation of Tenant
thereunder by amendments to the Lease, by waivers granted by Landlord or by
operation of law or by action of any court, whether pursuant to the Bankruptcy
Reform Act of 1978, as amended, or any other debtor relief law (whether
statutory, common law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, or otherwise.
4. Subordination. Guarantor and those parties signing below for the
-------------
purpose of being bound by this Section 4 (collectively, "Section 4 Signers)
hereby unconditionally and irrevocably subordinate (i) all payments due or to
become due by Tenant to the Section 4 Signers, or any of them, by reason of any
and all debts or other obligations, including the obligation to pay salaries or
other compensation (collectively "Debt Payments") and (ii) the receipt of all
dividends or other distributions of any kind or nature (collectively,
"Distributions")
-2 -
<PAGE>
to the payment of all sums due or to become due by Tenant to Landlord under the
Lease, including the payment of Rent and all damages due by reason of Tenant's
breach of the Lease; provided, however, that for so long as there shall be no
existing Event of Default under the Lease, after the payment of each monthly
installment of Rent, the Section 4 Signers shall be entitled to receive Debt
Payments due for such month.
5. General Provisions.
------------------
(a) Survival. This Agreement shall be deemed to be continuing in
--------
nature and shall remain in full force and effect and shall survive the exercise
of any remedy by Landlord under the Lease;
(b) No Subrogation; No Recourse Against Landlord. Notwithstanding the
--------------------------------------------
satisfaction by Guarantor of any liability hereunder, Guarantor's rights of
subrogation, contribution, reimbursement or indemnity, if any, or any right of
recourse to or with respect to the assets or property of Tenant, shall be
subject and subordinate to the rights of Landlord. Guarantor expressly agrees
not to exercise any and all rights of subrogation against Landlord.
(c) Entire Agreement; Amendment; Severability. This Agreement
-----------------------------------------
contains the entire agreement between the parties respecting the matters herein
set forth and supersedes all prior agreements, whether written or oral, between
the parties respecting such matters. Any amendments or modifications hereto, in
order to be effective, shall be in writing and executed by Landlord and
Guarantor. A determination that any provision of this Agreement is
unenforceable or invalid shall not affect the enforceability or validity of any
other provision, and any determination that the application of any provision of
this Agreement to any person or circumstance is illegal or unenforceable shall
not affect the enforceability or validity of such provision as it may apply to
any other persons or circumstances.
(d) Governing Law: Binding Effect; Waiver of Acceptance. This
---------------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Virginia without regard to conflicts of laws principles thereof. This
Agreement shall bind Guarantor, it successors and assigns (but in the event of
an assignment, Guarantor shall not be relieved of its obligations hereunder),
and shall inure to the benefit of Landlord, its successors and assigns.
Guarantor hereby waives any acceptance of this Agreement by Landlord and this
Agreement shall immediately be binding upon Guarantor.
(e) Notice. All notices, demands, requests or other communications to
------
be sent by one party to the other hereunder or required by law shall be in
writing and shall be deemed to have been validly given or served by delivery of
the same in person to the intended addressee, or certified mail or by depositing
the same with Federal Express or another reputable private courier service for
next business day delivery to the intended addressee at its address set forth in
the last section of this Agreement or at such other address as may be designated
by such party as herein provided. All notices, demands and requests shall be
effective upon such
-3-
<PAGE>
personal delivery, or one (1) business day after being deposited with the
private courier service, or two (2) business days after being deposited in the
United States mail as required above. Rejection or other refusal to accept or
the inability to deliver because of changed address of which no notice was given
as herein required shall be deemed to be receipt of the notice, demand or
request sent. By giving to the other party hereto at least seven (7) days'
prior written notice thereof in accordance with the provisions hereof, each
party shall have the right from time to time to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.
(f) No Waiver; Time of Essence. The failure of either party to
--------------------------
enforce any of the respective rights or remedies hereunder, or to promptly
enforce any such rights or remedies, shall not constitute a waiver thereof nor
give rise to any estoppel against such party nor excuse any of the parties
hereto from their respective obligations hereunder. Any waiver of such right or
remedy must be in writing and signed by the party to be bound and must expressly
state that such right or remedy has been or thereby is waived. This Agreement
is subject to enforcement at law or in equity, including actions for damages or
specific performance. Time is of the essence hereof.
(g) Captions for Convenience. The captions and headings of the
------------------------
section and paragraphs of this Agreement are for convenience of reference only
and shall not be construed in interpreting the provisions hereof.
(h) Attorney's Fees. In the event it is necessary for Landlord to
---------------
retain the services of an attorney or any other consultants in order to enforce
this Agreement, or any portion hereof, Guarantor shall promptly pay to Landlord
any and all costs and expenses, including, without limitation, attorney's fees,
incurred by Landlord as a result thereof and such costs, fees and expenses shall
be included in the costs of the case to the extent the Landlord wins the issue
under contest.
(i) Successive Actions. Separate and successive actions may be
------------------
brought hereunder to enforce any of the provisions hereof at any time and from
time to time. No action hereunder shall preclude any subsequent action, and
Guarantor hereby waives any covenants to the maximum extent permitted by law not
to assert any defense in the nature of splitting of causes of action or merger
of judgments.
(j) Reliance. Landlord would not enter into the Lease without this
--------
Agreement. Accordingly, Guarantor intentionally, irrevocably and
unconditionally enters into the covenants and agreements as set forth above and
understand that, in reliance upon and in consideration of such covenants and
agreements, the Lease has been made.
4. Notices: The following addresses shall be used for notice purposes:
-------
If to Landlord:
-4-
<PAGE>
__________________________
__________________________
__________________________
With copies to:
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
IN WITNESS WHEREOF, Guarantor has executed this Agreement under seal as of
the day and year first above written:
GUARANTOR:
ATTEST/WITNESS: ________________________________
________________________________ By: ____________________________
Name:___________________________ Name: __________________________
Title:__________________________ Title:__________________________
-5-
<PAGE>
Exhibit 7.2.1(i)
----------------
CAPITAL AUTOMOTIVE L.P.
UNITS OF LIMITED PARTNERSHIP INTEREST
CONFIDENTIAL PURCHASER QUESTIONNAIRE
(NATURAL PERSONS)
Capital Automotive L.P.
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
The information contained in this Investor Questionnaire is being
furnished in order to determine whether the undersigned is accredited to
purchase units of limited partnership interest (the "Units") of Capital
Automotive L.P. (the "Partnership") pursuant to the Agreement of Contribution of
Interests dated November __, 1997 (the "Contribution Agreement"), by and among
the persons and entities named on Schedule I hereto consisting of all of the
----------
owners of an interest in any of the Properties (as hereafter defined) (each
individually, a "Purchaser" and collectively, the "Purchasers"), and Capital
Automotive REIT, a Maryland real estate investment trust (the "Company"), and
the Partnership.
ALL INFORMATION CONTAINED IN THIS INVESTOR QUESTIONNAIRE WILL BE
TREATED CONFIDENTIALLY. Any offer or sale to any Purchaser will be made by the
Partnership. You understand, however, that the Company may be required to
present this Investor Questionnaire to such parties as it deems appropriate if
called upon to establish that the proposed offer and sale of the Units are
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), or applicable state securities or blue sky laws or if
otherwise required. Further, the undersigned understands that the offering and
sale of the Units may be required to be reported to the Securities and Exchange
Commission and reported or registered under applicable state securities or blue
sky laws.
Name(s) of Purchaser(s):/*/
--
(1)
___________________________________________
(2)
___________________________________________
_______________________
/*/ If there is more than one Purchaser (other than husband and wife), a
- --
separate Confidential Purchaser Questionnaire must be completed for each such
Purchaser and attached to this Confidential Purchaser Questionnaire.
<PAGE>
1. Background Information.
a. Home Address:____________________________________________________
____________________________________________________
b. Home Telephone:__________________________________________________
c. Social Security #s:______________________________________________
d. U.S. Citizen: ___________ Yes ________ No
e. Occupation:______________________________________________________
f. Employer:________________________________________________________
g. Bus. Address:____________________________________________________
h. Bus. Telephone:__________________________________________________
i. Age:_____________________________________________________________
j. Send Mail to: _______ Home _______ Office
Other: __________________________________________
k. State your education and degrees earned:
Degree School Year
_____________________________________________________________
_____________________________________________________________
l. Do you currently own securities or other types of investments?
_________
_____________________________________________________________
m. Do you have means of providing for your needs and personal
contingencies?
<PAGE>
_____________________________________________________________
n. Do you have a preexisting business relationship with the person who
contacted you in connection with the offering of the Units?
_____________________________________________________________
2. Type of Ownership.
Indicate type of ownership you intend to subscribe for (if other than for a
single individual):
______ Individual
______ Joint Tenants with Rights of Survivorship
______ Tenants in Common
______ Tenants by the Entirety
3. Purchaser Suitability.
Please indicate whichever of the following (if any) certifications apply to
you by initialing the appropriate space:
(i) I certify that I am an "accredited investor" because I have an
individual net worth/**/ (or joint net worth with my spouse) in excess of
---
$1,000,000.
Yes___ No___
(ii) I certify that I am "accredited investor" because I had an
individual income (not including any amounts attributable to my spouse
or to property owned by my spouse) of more than $200,000 in each of
the previous two calendar years and I reasonably expect to reach the
same income level in the current year.
Yes ____ No ____
______________________________
/**/ For purposes of this Questionnaire, a purchaser's "net worth" is equal to
- ---
the excess of total assets at fair market value over total liabilities. Net
worth may include the equity value (i.e., current appraised value less mortgage
indebtedness) of real property owned by the Purchaser.
<PAGE>
(iii) I certify that I am an "accredited investor" because I had a
joint income with my spouse in excess of $300,000 in each of the previous
two calendar years and I reasonably expect to reach the same income level
in the current year.
Yes ____ No ____
4. The Purchaser hereby acknowledges and represents and warrants that:
1. (a) He/she has read and understands the risks associated with an
investment in the Units and understands those risks, (b) the information
contained in this Investor Questionnaire is true, complete and accurate as of
the date hereof, and (c) he/she will contact Capital Automotive REIT immediately
if any material change in any of this information occurs.
2. The Units will be acquired for the Purchaser's own account for
investment, and not for distribution or resale to others. The Purchaser agrees
that it will not sell or otherwise transfer the Units unless any third party
consents as required are first obtained and unless the securities are registered
under the Securities Act, and under applicable state securities laws or unless
an exemption from such registration is available. There is no market for the
Units and none is expected to develop.
3. All documents, records and books pertaining to this investment have
been made available to the Purchaser and his/her respective attorney, accountant
or investment representative; the Partnership has provided answers to all of
his/her or their questions concerning the offering and an investment in the
Partnership; and the books and records of the Partnership will be available upon
reasonable notice for inspection during normal business hours of the Partnership
at the Partnership's principal place of business.
_____4. The Purchaser has such knowledge and experience in financial and
business matters in general and in particular with respect to this type of
investment that it is, he/she is capable of evaluating the merits and risks of
an investment in the Partnership, and will be able to bear the financial risks
of this investment for an indefinite period of time.
5. The Purchaser has discussed with his/her investment representative,
lawyer, accountant or tax advisor, as applicable, the suitability of an
investment in the Partnership for its particular tax and financial situation.
6. The Purchaser is acquiring the Units without being furnished any
offering.
<PAGE>
7. The Purchaser has kept confidential all information furnished to them
by or on behalf of the Partnership and has not provided the same to anyone other
than their agents (including counsel and accountants) on a need to know basis.
5. Reliance by Partnership.
I understand that the Partnership will be relying on the accuracy and
completeness of my responses to the foregoing questions and I represent,
warrant and covenant to the Partnership as follows:
1. I/We certify under the penalties of perjury that the social security
number provided below and information provided with respect to Section
3406(a)(1)(C) of the Internal Revenue Code is true, correct and complete; and
2. The answers to the above questions are complete and correct and may be
relied upon by the Partnership in determining whether the offering in connection
with which I have executed this Questionnaire is exempt from registration under
the Securities Act and applicable state securities laws; and hereby agree to
indemnify the Partnership and its partners, affiliates, agents, employees and
control persons, and hold each of them harmless against any and all loss,
damages, liability or expense, including reasonable attorney's fees, which they
or any of them may suffer, sustain or incur by reason of or in connection with
any misrepresentation or breach of warranty or agreement made by the undersigned
under this Investor Questionnaire or in connection with the sale or distribution
by the undersigned of the Units purchased by the undersigned pursuant hereto in
violation of the Securities Act or any other applicable law.
__________________________________________________
(please print the exact name(s) and title in which
the Units should be issued)
(Signature of Purchaser)
__________________________________________
(Name Typed or Printed)
__________________________________________
(Date)
__________________________________________
<PAGE>
(Signature of Co-Purchaser)
__________________________________________
(Name Typed or Printed)
__________________________________________
<PAGE>
CAPITAL AUTOMOTIVE L.P.
UNITS OF LIMITED PARTNERSHIP INTEREST
CONFIDENTIAL PURCHASER QUESTIONNAIRE
(ENTITIES)
Capital Automotive L.P.
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
The information contained in this Investor Questionnaire is being furnished
in order to determine whether the undersigned is accredited to purchase units of
limited partnership interest (the "Units") of Capital Automotive L.P. (the
"Partnership") pursuant to the Agreement of Contribution of Interests dated
November __, 1997 (the "Contribution Agreement"), by and among the persons and
entities named on Schedule I hereto consisting of all of the owners of an
----------
interest in any of the Properties (as hereafter defined) (each individually, a
"Purchaser" and collectively, the "Purchasers"), and Capital Automotive REIT, a
Maryland real estate investment trust (the "Company"), and the Partnership.
ALL INFORMATION CONTAINED IN THIS INVESTOR QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. Any offer or sale to any Purchaser will be made by the
Partnership. You understand, however, that the Company may be required to
present this Investor Questionnaire to such parties as it deems appropriate if
called upon to establish that the proposed offer and sale of the Units are
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), or applicable state securities or blue sky laws or if
otherwise required. Further, the undersigned understands that the offering and
sale of the Units may be required to be reported to the Securities and Exchange
Commission and reported or registered under applicable state securities or blue
sky laws.
1. Background Information.
a. Name of Investing Entity:____________________________________
b. Address: ____________________________________
____________________________________
Address for correspondence (if different):
____________________________________
<PAGE>
____________________________________
____________________________________
c. Telephone Number: ____________________________________
d. Description of Business:_____________________________________
_____________________________________
e. Federal Tax ID Number: _____________________________________
f. Individual(s) authorized to execute documents on behalf of the entity
in connection with this investment:
Name: ____________________________________
Position or title: ____________________________________
NOTE: In the case of a partnership or trust, a power of attorney
is required if such entity's Partnership Agreement or Trust
Agreement does not specifically authorize the above-named
individual(s) to make this investment for such Partnership or
Trust. In the case of a corporate investor, corporate resolutions
(or other evidence of corporate authority) authorizing this
investment and specifying the individuals authorized to execute
investment documents on behalf of the corporation are required to
be delivered herewith.
2. Type of Entity: Corporation ______
Limited Partnership ______
General Partnership ______
Limited Liability Company ______
Revocable Trust/***/ ______
_____________________
/***/ UNLESS (i) the Trust has total assets in excess of $5,000,000; (ii) the
---
Trust was not formed for the specific purpose of acquiring the Interest; and
(iii) the purchase by the Trust is directed by a person who has such knowledge
and experience in financial and business matters that he/she is capable of
evaluating the merits and risks of an investment in the Units, the grantor(s) of
the Trust also must provide a completed individual investor questionnaire
(continued...)
<PAGE>
Irrevocable Trust ______
Pension or Profit
Sharing Plan or Trust
(indicate type of Plan
or Trust) ______
Individual Retirement
Account (Note: The
beneficiary of an
Individual Retirement
Account also must provide
a complete individual
investor questionnaire) ______
a. Place of Organization:
____________________________________________
b. Date of Organization:
_____________________________________________
c. Was the entity organized for the specific purpose of investing in
Capital Automotive L.P.?
Yes _____ No _____
d. Does the entity have a preexisting business relationship with the
person who contacted it in connection with the offering of the Units?
Yes _____ No _____
e. Number of equity owners (Note: an "equity owner" for the purposes of
this Questionnaire means (1) stockholders in the case of a
corporation, (2) limited partners only in the case of a limited
partnership, (3) general partners in the case of a general
partnership, (4) grantor(s) in the case of a trust revocable at the
sole option of grantor(s) or (5) beneficiaries in the case of other
trusts): _______
3. Accredited Investors.
_____________________
/***/ (continued)
---
for each grantor.
<PAGE>
All Purchasers will be required to represent that they meet at least
one of the following requirements. Please indicate which of the
following you meet:
(i) All of the equity owners of the entity meet either (1), (2) or
(3) below:
(1) have an individual net worth/*/ (or joint net worth
with spouse) in excess of $1,000,000;
(2) had an individual income (not including any amounts
attributable to spouse or to property owned by spouse)
of more than $200,000 in each of the previous two
calendar years and a reasonable expectation to reach
the same income level in the current year; or
(3) had a joint income with spouse in excess of $300,000 in
each of the previous two calendar years and a
reasonable expectation to reach the same income level
in the current year.
Yes ____ No _____
(ii) The Purchaser is any of the following entities (please indicate
which by initialing the appropriate line(s)):
(1)___ A bank is defined in Section 3(a)(2) of the Securities
Act or a savings and loan association or other
institution defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or
fiduciary capacity.
(2)___ A broker/dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934 (the "Exchange
Act").
(3)___ An insurance company as defined in Section 2(13) of the
Securities Act.
____________________
/****/ For purposes of this Questionnaire, a purchaser's "net worth" is equal
----
to the excess of total assets at fair market value over total liabilities
(excluding home and home furnishings).
<PAGE>
(4)___ An investment company registered under the Investment
Company Act of 1940 or a business development company as
defined in Section (2)(a)(48) of that Act.
(5)___ Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958.
(6)___ A plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality thereof, for
the benefits of its employees, if such plan has total assets
in excess of $5,000,000.
(7)___ An employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 "ERISA"), if the
investment decision is made a plan fiduciary, as defined in
Section 3(21) of ERISA, which is either a bank, savings and
loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed
plan, with investment decisions made solely by persons that
are accredited investors.
(8)___ A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
(9)___ An organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"), a
corporation, Massachusetts or similar business trust or
partnership not formed for the specific purpose of acquiring
the Units with total assets in excess of $5,000,000.
(10)___ A trust with total assets in excess of $5,000,000 not formed
for the specific purpose of acquiring the whose purchase is
directed by a sophisticated person as described in Rule
506(b)(2)(ii) under the Securities Act.
<PAGE>
4. Additional Information
a. If for a Trust:
A Trust must attach a copy of its Declaration of Trust or other
governing instrument, as amended, as well as all other documents that
authorize the Trust to invest in the Units. All documentation must be
complete and correct.
b. If for a Retirement Plan:
The Retirement Plan must attach copies of all documents governing the
Plan as well as all other documents authorizing the Retirement Plan to
invest in the Units. Include, as necessary, documents defining
permitted investments by the Retirement Plan and demonstrating the
authority of the signing individual to act on behalf of the Plan. All
documentation must be complete and correct.
5. The Purchaser hereby acknowledges and represents and warrants that:
1. (a) He/she/it has read and understands the risks associated with an
investment in the Units and understands those risks, (b) the information
contained in this Investor Questionnaire is true, complete and accurate as of
the date hereof, and (c) he/she will contact Capital Automotive REIT immediately
if any material change in any of this information occurs.
2. The Units will be acquired for the Purchaser's own account for
investment, and not for distribution or resale to others. The Purchaser agrees
that it will not sell or otherwise transfer the Units unless any third party
consents as required are first obtained and unless the securities are registered
under the Securities Act, and under applicable state securities laws or unless
an exemption from such registration is available. There is no market for the
Units and none is expected to develop.
3. All documents, records and books pertaining to this investment have
been made available to the Purchaser and his/her/it respective attorney,
accountant or investment representative; the Partnership has provided answers to
all of his/her or their questions concerning the offering and an investment in
the Partnership; and the books and records of the Partnership will be available
upon reasonable notice for inspection during normal business hours of the
Partnership at the Partnership's principal place of business.
_____4. The Purchaser has such knowledge and experience in financial and
business matters in general and in particular with respect to this type of
investment that it is,
<PAGE>
he/she is capable of evaluating the merits and risks of an investment in the
Partnership, and will be able to bear the financial risks of this investment for
an indefinite period of time.
5. The Purchaser has discussed with his/her investment representative,
lawyer, accountant or tax advisor, as applicable, the suitability of an
investment in the Partnership for its particular tax and financial situation.
6. The Purchaser is acquiring the Units without being furnished any
offering.
7. The Purchaser has kept confidential all information furnished to them
by or on behalf of the Partnership and has not provided the same to anyone other
than their agents (including counsel and accountants) on a need to know basis.
6. Reliance by Partnership.
I understand that the Partnership will be relying on the accuracy and
completeness of my responses to the foregoing questions and I represent,
warrant and covenant to the Partnership as follows:
1. I/We certify under the penalties of perjury that the social security
number provided below and information provided with respect to Section
3406(a)(1)(C) of the Internal Revenue Code is true, correct and complete;
2. The answers to the above questions are complete and correct and may be
relied upon by the Partnership in determining whether the offering in connection
with which I have executed this Questionnaire is exempt from registration under
the Securities Act and applicable state securities laws; and hereby agree to
indemnify the Partnership and its partners, affiliates, agents, employees and
control persons, and hold each of them harmless against any and all loss,
damages, liability or expense, including reasonable attorney's fees, which they
or any of them may suffer, sustain or incur by reason of or in connection with
any misrepresentation or breach of warranty or agreement made by the undersigned
under this Investor Questionnaire or in connection with the sale or distribution
by the undersigned of the Units purchased by the undersigned pursuant hereto in
violation of the Securities Act or any other applicable law; and
3. The person signing this Questionnaire on behalf of the Investing
Entity has been duly authorized to sign the Questionnaire on behalf of the
Investing Entity.
7. Other Certifications.
a. If by a Corporation:
<PAGE>
By signing the Signature Page, the undersigned certifies the
following:
(A) that the Corporation's name, address of principal office, place
of incorporation and taxpayer identification number as set forth
in this Questionnaire are true, correct and complete; and
(B) that one of the following is true and correct (check one):
[_] (i) the Corporation is a corporation organized in or under
the laws of the United States or any political subdivision
thereof.
[_] (ii) the Corporation is a corporation which is neither
created nor organized in or under the laws of the United
States or any political subdivision thereof, but which has
made an election under either Section 897(i) or 897(k) of
the United States Internal Revenue Code of 1986, as amended,
to be treated as a domestic corporation for certain purposes
of United States Federal income taxation (A COPY OF THE
INTERNAL REVENUE SERVICE ACKNOWLEDGMENT OF THE UNDERSIGNED'S
ELECTION MUST BE ATTACHED TO THIS QUESTIONNAIRE IF THIS
PROVISION IS APPLICABLE).
[_] (iii) neither (i) nor (ii) above is true.
b. If by a Partnership:
By signing the Signature Page, the undersigned certifies on
behalf of such Partnership the following:
(A) that such Partnership's name, address of principal office,
place of formation and taxpayer identification number as set
forth in this Questionnaire are true, correct and complete;
and
(B) that one of the following is true and correct (check one).
[_] (i) such Partnership is a partnership formed in or
under the laws of the United States or any political
subdivision thereof.
<PAGE>
[_] (ii) such Partnership is not a partnership formed in or
under the laws of the United States or any political
subdivision thereof.
c. If by a Trust (other than a retirement related trust) or Estate:
By signing the Signature Page, the undersigned certifies on
behalf of such Trust or Estate the following:
(A) that such Trust's or Estate's purchase of the Units in
within the investment powers and authority of such Trust of
Estate (as set forth in the declaration of trust or other
governing instruments) and that all necessary consents,
approvals and authorizations for such purchase have been
obtained and that each person who signs the Signature Page
has all requisite power and authority as trustee or executor
or administrator to execute this Questionnaire and the
Contribution Agreement on behalf of such Trust or Estate ;
(B) that such Trust has not been established in connection with
either (i) an employee benefit plan (as defined in Section
3(3) of ERISA), whether or not subject to the provisions of
Title I of ERISA, or (ii) a plan described in Section
4975(e)(i) of the Internal Revenue Code;
(C) that such Trust's or Estate's name, address of principal
office, place of formation and taxpayer identification
number as set forth in this Questionnaire are true, correct
and complete; and
(D) that one of the following is true and correct (check one):
[_] (i) such Trust is a trust whose income from sources
outside of the United States Federal tax purposes
regardless of its connection with a trade or business
carried on in the United States.
[_] (ii) such Trust is an estate or trust whose income from
sources outside of the United States Federal income tax
purposes regardless of its connection with a trade or
business carried on in the United States.
<PAGE>
d. If by a Retirement Plan:
By signing the Signature Page, the undersigned on behalf of such
Retirement Plan certifies the following:
(A) that such Retirement Plan's governing documents duly authorize
the type of investment contemplated herein, and the undersigned
is authorized and empowered to make such investment on behalf of
such Retirement Plan.
_____________________________________________________________
(please print the exact name(s) and title in which
the Units should be issued)
(Investing Entity)
(Signature of Purchaser)
__________________________________________
(Name and Title Typed or Printed)
__________________________________________
(Name of Trustee(s) (if Trust))
__________________________________________
__________________________________________
(Date)
__________________________________________
<PAGE>
EXHIBIT 7.2.1(p)
ESTOPPEL CERTIFICATE
To: CAPITAL AUTOMOTIVE REIT
1925 North Lynn Street, Suite 306
Arlington, Virginia 22209
Attention: Thomas D. Eckert, President and Chief Executive Officer
Re: Mortgagee's Interest and Mortgage Status in and of the Property owned
by __________________________________________________________________
(the "The Contributor") and commonly known as _______________________
(the "Property").
Gentlemen:
The undersigned ("Mortgagee") hereby certifies to CAPITAL AUTOMOTIVE REIT
(The "Company") and CAPITAL AUTOMOTIVE L.P. (the "Partnership") as follows:
(i) The certifications contained herein are being made with the
knowledge that the Company and the Partnership will place substantial reliance
thereon in connection with a major financial transaction involving, among other
maters, the acquisition of the Property, subject to Mortgagee's Interest and the
Mortgage, based upon the value of the Property as so subjected.
(ii) Mortgagee's interest in the property results from the lending
to the Contributor of a sum of money in the original principal amount of
$______________, upon the terms and conditions set forth in that certain
promissory note (the"Note"), an exact copy of which annexed hereto as Exhibit A.
The principal amount actually advanced under the note as of the date of this
certificate is $_____________, of which $_____________ is outstanding as of the
date of this certificate.
(iii) Mortgagee's entire interest in the Property ("Mortgagee's
Interest") is the security interest conferred by the security document annexed
hereto as Exhibit B and such other security instruments and filings as are
required by the terms of such document (collectively, the "Mortgage").
(iv) As of the date of this certificate there exists no default or
any condition or matter which, with the passage of time, could constitute a
default under or with respect to the Note or the Mortgage and there are not
prior defaults under the Note or the Mortgage which could become present or
future defaults if any presently outstanding waivers by the Mortgagee are
withdrawn.
<PAGE>
(v) If the Note or Mortgage contains any "due on sale" or other
acceleration clause based upon change of ownership of the Property, the same
shall be deemed deleted if the Property is hereafter acquired by the Partnership
or the Company.
(vi) The undersigned has not assigned, sold or otherwise encumbered
its title to the Note, Mortgage or Mortgagee's interest and has full power and
authority to execute this certificate without the approval of any other person,
corporation or other entity.
IN WITNESS WHEREOF, the undersigned has executed this certificate
under seal this ____ day of ______________, 1997, intending the same to be a
sealed instrument of the Mortgagee.
_____________________
Mortgagee
ATTEST/WITNESS By:__________________(SEAL)
Title:_____________________
<PAGE>
EXHIBIT 7.2.1(Q)
----------------
[Not on Computer]
<PAGE>
EXHIBIT 7.2.2(F)
----------------
OPINION OF WILMER, CUTLER & PICKERING TO BE DELIVERED AT CLOSING:
1. The Company is a corporation duly organized or formed, validly existing and
in good standing under the laws of the State of Delaware.
2. The Partnership is a limited partnership duly organized or formed, validly
existing and in good standing under the laws of the State of Maryland.
3. Each of the Company and the Partnership has the requisite corporate or
partnership power (respectively) to execute and deliver, and to perform its
obligations under, the Agreement.
4. The general partner of the Partnership has the requisite partnership power
and authority to carry on its business and to execute an deliver, and to perform
its obligations under, the Agreement and to execute and deliver on behalf of
such Partnership, and to bind the Partnership to, the Agreement.
5. The execution and delivery by each of the Company and the Partnership has
been duly authorized by all necessary corporate or partnership actions
(respectively).
6. The execution, delivery and performance of the Agreement by the general
partner of the Partnership on behalf of the Partnership have been duly
authorized by all necessary partnership actions, and the individuals executing
the Agreement on behalf of such general partner have been duly authorized to do
so.
7. The execution, delivery and performance by the Company will not violate the
charter or bylaws of the Company.
8. The execution, delivery and performance by the general partner of the
Partnership, and such general partner's performance of its obligations under,
the Agreement on behalf of the Partnership will not violate the Partnerships
Organizational Documents.
9. The Agreement has been duly executed and delivered by each of the
Partnership and the Company and is the legal, valid and binding obligation of
each, enforceable against each in accordance with its terms.
<PAGE>
SCHEDULE I - CONTRIBUTORS' NAMES AND ADDRESSES
----------------------------------------------
<TABLE>
<CAPTION>
Property Numbers
Name from Schedule 1.2 Address
- --------------------------------------------------------------------
<S> <C> <C>
1. Pohanka Properties, Inc. 1-7 4101 St. Barnabas Road
Marlowe Heights, Maryland.
2. Pohanka Virginia Properties 8 & 9 4601 St. Barnabas Road
Marlowe Heights, Maryland
</TABLE>
<PAGE>
SCHEDULE 1.2
------------
OWNERSHIP INTERESTS IN PROPERTIES AND PURCHASE PRICES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PROPERTY TAX ACCOUNT CONTRIBUTION
-----------
NUMBER CONTRIBUTOR NUMBER PROPERTY ADDRESS AMOUNT
------ ------------ ------ ----------------- ------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Pohanka Properties, Inc. 06-0590109 4601 St. Barnabas Rd., Marlow Heights, MD 20757 $4,204,227
06-0590091 4615 St. Barnabas Rd., Marlow Heights, MD 20757
06-038205 4619 St. Barnabas Rd., Marlow Heights, MD 20757
- -----------------------------------------------------------------------------------------------------------------------------------
2 Pohanka Properties, Inc. 06-0590125 4809 St. Barnabas Rd., Marlow Heights, MD 20757 $1,512,600
06-0590117 3407 Dallas Drive, Marlow Heights, MD 20757
- ------------------------------------------------------------------------------------------------------------------------------------
3 Pohanka Properties, Inc. 06-0642140 4608 St. Barnabas Rd., Marlow Heights, MD 20757 $3,596,100
- ------------------------------------------------------------------------------------------------------------------------------------
4 Pohanka Properties, Inc. 06-0605873 4756 Stamp Rd., Marlow Heights, MD 20757 $ 675,000
06-0059247 4764 Stamp Rd., Marlow Heights, MD 20757
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.2, CONTD.
--------------------
OWNERSHIP INTERESTS IN PROPERTIES AND PURCHASE PRICES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PROPERTY TAX ACCOUNT CONTRIBUTION
-----------
NUMBER CONTRIBUTOR NUMBER PROPERTY ADDRESS AMOUNT
------ ----------- ------ ----------------- ------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5 Pohanka Properties, Inc. 07-0801472 16600 Governor Bridge Rd., Bowie, MD 20716 $3,950,000
- ------------------------------------------------------------------------------------------------------------------------------------
6 Pohanka Properties, Inc. 034-4-01-00-0051 13901 Lee Jackson Memorial Highway, Chantilly, VA $3,411,055
22021
034-4-01-00-0050 13909 Lee Jackson Memorial Highway, Chantilly, VA
22021
034-4-01-00-0050-A 13909 Lee Jackson Memorial Highway, Chantilly, VA
22021
- ------------------------------------------------------------------------------------------------------------------------------------
7 Pohanka Properties, Inc. 034-4-01-00-0049 13911 Lee Jackson Memorial Highway, Chantilly, VA $4,200,812
22021
- ------------------------------------------------------------------------------------------------------------------------------------
8 Pohanka Virginia Properties 034-4-01-00-0053 13915 Lee Jackson Memorial Highway, Chantilly, VA $5,829,799
20151 (undeveloped property)
- ------------------------------------------------------------------------------------------------------------------------------------
9 Pohanka Virginia Properties 024-6-A10 5200 Jefferson Davis Highway, Fredericksburg, VA 22408 $3,405,407
024-6-A20 5200 Jefferson Davis Highway, Fredericksburg, VA 22408
024-6-A21 5200 Jefferson Davis Highway, Fredericksburg, VA 22408
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.3(A) -- SCHEDULE OF UNITS ISSUED IN CONSIDERATION FOR EACH PROPERTY
- ------------------------------------------------------------------------------
Each Contributor will receive a number of Units that is equal to the
Contribution Value of the Property contributed by such Contributor as determined
by application of the formula set forth in Section 1.3 of the Agreement (as
further adjusted pursuant to Section 2.1, if applicable).
<PAGE>
SCHEDULE 1.3(B) -- MORTGAGE INDEBTEDNESS
----------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Property/Parcel Name of Borrower Lender Outstanding Maturity Prepayment
Principal on Date right
November 1,
1997/on
Closing Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4809 St. Barnabas Rd., Pohanka Properties, Nations $10,431, 4/7/03 Yes; w/o
Marlow Heights, MD 20757 Inc. Bank 113/(To be penalty
(pursuant to Loan #34) determined
3407 Dallas Drive, Marlow on Closing
Heights, MD 20757 Date)
- ---------------------------------------------------------------------------------------------------------------
4608 St. Barnabas Rd., Pohanka Properties, Nations $10,431,113/ 4/7/03 Yes; w/o
Marlow Heights, MD 20757 Inc. Bank (To be penalty
(pursuant to Loan #34) determined
on Closing
Date)
- ---------------------------------------------------------------------------------------------------------------
16600 Governor's Bridge Rd., Pohanka Virginia Nations $ 2,898,002 11/1/00 Yes; w/o
Bowie, MD 20716 Properties Bank penalty
(pursuant to Loan
#273)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
Property/Parcel Name of Borrower Lender Outstanding Maturity Prepayment
Principal on Date right
November 1,
1997/on
Closing Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
13911 Lee Jackson Memorial Pohanka Virginia Nations $10,431,113/ 4/7/03 Yes; w/o
Highway, Chantilly, VA Properties Bank (To be penalty
22021 (pursuant to Loan #34) determined
on Closing
13909 Lee Jackson Memorial Date)
Highway, Chantilly, VA
22021
13915 Lee Jackson Memorial
Highway, Chantilly, VA
22021
- --------------------------------------------------------------------------------------------------------------
13911 Lee Jackson Memorial Pohanka Virginia Nations $10,431,113/ 4/7/03 Yes; w/o
Highway, Chantilly, VA Properties Bank To be penalty
20151 (pursuant to Loan #34) determined
on Closing
Date
- --------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
Property/Parcel Name of Borrower Lender Outstanding Maturity Prepayment
Principal on Date right
November 1,
1997/on
Closing Date
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
13915 Lee Jackson Memorial Pohanka Virginia Nations $10,431,113 4/7/03 Yes; w/o
Highway, Chantilly, VA Properties Bank penalty
20151 (pursuant to Loan #34)
13909 Lee Jackson Memorial *NOTE: SEVERAL
Highway, Chantilly, VA PROPERTIES ARE
20151 FINANCED
TOGETHER
13909 Lee Jackson Memorial PURSUANT TO
Highway, Chantilly, VA LOAN #34
20151
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 4.1
------------
PRIOR OCCUPANTS
1. Lease Number 1 on Schedule 9.19.2 -- Lessee: Pohanka Auto West, Inc.
2. Lease Number 2 on Schedule 9.19.2 -- Lessee: Pohanka of Chantilly,
Inc.
3. Lease Number 3 on Schedule 9.19.2 -- Lessee: Pohanka Chevrolet-GEO,
Inc.
4. Lease Number 4 on Schedule 9.19.2 -- Lessee: Pohanka Auto North, Inc.
5. Lease Number 5 on Schedule 9.19.2 -- Lessee: Pohanka Hyundai, Inc.
6. Lease Number 6 on Schedule 9.19.2 -- Lessee: Pohanka Imports, Inc.
7. Lease Number 7 on Schedule 9.19.2 -- Lessee: Pohanka Oldsmobile-GMC
Trucks, Inc.
8. Lease Number 1 on Schedule 9.19.2 -- Lessee: Pohanka Auto North,
Inc.-Saturn of Bowie.
9. Lease Number 9 on Schedule 9.19.2 -- Lessee: Pohanka Auto Center
2
<PAGE>
SCHEDULE 4.4(B)
---------------
GUARANTIES
1. The following parties are guaranteeing a lease to be entered into by and
among Pohanka Auto Center, Inc., Pohanka Oldsmobile-GMC Truck, Inc. and Capital
Automotive L.P. with respect to Property located at 4601 St. Barnabas Rd.,
Marlow Heights, MD 20757, 4615 St. Barnabas Rd., Marlow Heights, MD 20757 and
4619 St. Barnabas Rd., Marlow Heights, MD 20757:
Pohanka Hyundai, Inc.
Pohanka Imports, Inc.
Pohanka Oldsmobile-GMC Truck, Inc.
Pohanka Virginia Properties
Pohanka of Chantilly, Inc.
Pohanka Auto West, Inc. & Pohanka Chevrolet-GEO, Inc.
Pohanka Auto Center, Inc.
2. The following parties are guaranteeing a lease to be entered into by and
between Pohanka Hyundai, Inc. and Capital Automotive L.P. with respect to
Property located at 4809 St. Barnabas Rd., Marlow Heights, MD 20757 and 3407
Dallas Drive, Marlow Heights, MD 20757:
Pohanka Imports, Inc.
Pohanka Oldsmobile-GMC Truck, Inc.
Pohanka Virginia Properties
Pohanka of Chantilly, Inc.
Pohanka Auto West, Inc. & Pohanka Chevrolet-GEO, Inc.
Pohanka Auto Center, Inc.
3. The following parties are guaranteeing a lease to be entered into by and
between Pohanka Imports, Inc. and Capital Automotive L.P. with respect to
Property located at 4608 St. Barnabas Rd., Marlow Heights, MD 20757:
Pohanka Hyundai, Inc.
Pohanka Oldsmobile-GMC Truck, Inc.
Pohanka Virginia Properties
Pohanka of Chantilly, Inc.
Pohanka Auto West, Inc. & Pohanka Chevrolet-GEO, Inc.
Pohanka Auto Center, Inc.
<PAGE>
4. The following parties are guaranteeing a lease to be entered into by and
between Pohanka Oldsmobile-GMC Truck, Inc. and Capital Automotive L.P. with
respect to Property located at 4756 Stamp Rd., Marlow Heights, MD 20757:
Pohanka Hyundai, Inc.
Pohanka Imports, Inc.
Pohanka Virginia Properties
Pohanka of Chantilly, Inc.
Pohanka Auto West, Inc. & Pohanka Chevrolet-GEO, Inc.
Pohanka Auto Center, Inc.
5. The following parties are guaranteeing a lease to be entered into by and
between Pohanka Virginia Properties and Capital Automotive L.P. with respect to
Property located at 16660 Governors Br. Rd., Bowie, MD 20716:
Pohanka Hyundai, Inc.
Pohanka Imports, Inc.
Pohanka Oldsmobile-GMC Truck, Inc.
Pohanka of Chantilly, Inc.
Pohanka Auto West, Inc. & Pohanka Chevrolet-GEO, Inc.
Pohanka Auto Center, Inc.
-
6. The following parties are guaranteeing a lease to be entered into by and
between Pohanka of Chantilly, Inc. and Capital Automotive L.P. with respect to
Property located at 13901 Lee Jackson Memorial Highway, Chantilly, VA 20151,
13909 Lee Jackson Memorial Highway, Chantilly, VA, and 13909 Lee Jackson
Memorial Highway, Chantilly, VA 20151:
Pohanka Hyundai, Inc.
Pohanka Imports, Inc.
Pohanka Oldsmobile-GMC Truck, Inc.
Pohanka of Chantilly, Inc.
Pohanka Auto West, Inc. & Pohanka Chevrolet-GEO, Inc.
Pohanka Auto Center, Inc.
7. The following parties are guaranteeing a lease to be entered into by and
among Pohanka Auto West, Inc., Pohanka Chevrolet-GEO, Inc. and Capital
Automotive L.P. with respect to Property located at 13911 Lee Jackson Memorial
Highway, Chantilly, VA 20151:
Pohanka Hyundai, Inc.
Pohanka Imports, Inc.
Pohanka Oldsmobile-GMC Truck, Inc.
Pohanka Virginia Properties
Pohanka of Chantilly, Inc.
Pohanka Auto Center, Inc.
2
<PAGE>
8. The following parties are guaranteeing a lease to be entered into by and
between Pohanka Virginia Properties and Capital Automotive L.P. with respect to
Property located at 13915 Lee Jackson Memorial Highway, Chantilly, VA 20151
13911:
Pohanka Hyundai, Inc.
Pohanka Imports, Inc.
Pohanka Oldsmobile-GMC Truck, Inc.
Pohanka of Chantilly, Inc.
Pohanka Auto West, Inc. & Pohanka Chevrolet-GEO, Inc.
Pohanka Auto Center, Inc.
9. The following parties are guaranteeing a lease to be entered into by and
between Pohanka Auto Center and Capital Automotive L.P. with respect to Property
located at 5200 Jefferson Davis Highway, Fredericksburg, VA 22408:
Pohanka Hyundai, Inc.
Pohanka Imports, Inc.
Pohanka Oldsmobile-GMC Truck, Inc.
Pohanka Virginia Properties
Pohanka of Chantilly, Inc.
Pohanka Auto West, Inc. & Pohanka Chevrolet-GEO, Inc.
<PAGE>
SCHEDULE 5.1
------------
SCHEDULED EXCEPTIONS
Any disclosures required by this Schedule 5.1 shall be inserted hereon
after the execution of this Agreement according to Sections 5.1, 5.2 and
5.3 of the Agreement.
4
<PAGE>
SCHEDULE 9.6
------------
MATERIAL DEFAULTS
Any disclosures required by this Schedule 9.6 shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.13
-------------
ZONING
Property Number from Schedule 1.2 Zoning Classification
--------------------------------------------------------------
1 Each Parcel Zoned C-M
2 Both Parcels Zoned C-M
3 C-M
4 Both Parcels Zoned I-I
5 Zoned C-M
6 Each Parcel Zoned C-8
7 Both Parcels Zoned C-8
8 C-3
9 C-3
<PAGE>
SCHEDULE 9.15.5(A)
------------------
THE TREATMENT, STORAGE AND DISPOSAL LOCATIONS FOR SUBSTANCES OF CONCERN
Any disclosures required by this Schedule 9.15.5(a) shall be inserted
hereon after the execution of the Agreement according to Section 7.3.12 of
the Agreement.
<PAGE>
SCHEDULE 9.15.5(B)
STORAGE TANKS
<TABLE>
<CAPTION>
PROPERTY TANKS
<S> <C>
1. Pohanka Nissan - Cadillac - Seven aboveground storage tanks currently in use: (1) motor oil -
Oldsmobile - Hyundai volume unknown; (2) transmission fluid - volume unknown; (3) anti-
Spotsylvania County,Virginia freeze - volume unknown; (4) gasoline - volume unknown; (5) waste oil -
volume unknown; (6) waste oil - volume unknown; (7) anti-freeze-
volume unknown.
One underground storage tank not currently in use: (1) 1,000 gallon
tank closed in place (with slurry).
2. Pohanka Oldsmobile - GMC - Isuzu Three aboveground storage tanks currently in use: (1) waste oil -
Prince George's County, Maryland volume unknown; (2) motor oil - volume unknow n; (3) anti-freeze -
volume unknown.
Two underground storage tanks (volume and capacity unknown) were abandoned in
place in approximately 1972.
3. Saturn of Marlow Heights Three aboveground storage tanks currently in use: (1) waste oil - volume
Prince George's County, Maryland unknown; (2) motor oil - volume unknown; (3) anti-freeze - volume unknown.
An unknown number of underground storage tanks (volume and contents unknown)
installed by a prior owner were closed in place in 1972. Environmental
sampling indicates the presence of petroleum contamination in the soil and
the potential for groundwater contamination in the vicinity of these closed
tanks. Consultants have recommended additional testing to determine the
extent of contamination.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4. Pohanka Oldsmobile - GMC Body Shop One aboveground storage tank is currently in use: (1) waste oil - 550 gallons.
Prince George's County, Maryland
Three underground storage tanks are not currently in use: (1) gasoline - 6000
gallons; (2) gasoline - 6000 gallons; (3) gasoline - 400 gallons.
5. Pohanka Hyundai - Subaru Two aboveground storage tanks are currently in use: (1) waste oil - 550
Prince George's County, Maryland gallons; (2) motor oil -550 gallons.
6. Saturn of Bowie Three aboveground storage tanks are currently in use: (1) motor oil - 550
Prince George's County, Maryland gallons; (2) motor oil -550 gallons; (3) waste oil - 550 gallons.
7. Pohanka Honda Two aboveground storage tanks are currently in use: (1) waste oil - 550
Prince George's County, Maryland gallons; (2) motor oil -550 gallons.
8. Weidlein Property None.
Fairfax County, Virginia
9.Pohanka Chevrolet Three aboveground storage tanks are currently in use: (1) waste oil - 550
Fairfax County, Virginia gallons; (2) motor oil -550 gallons; (3) 275 gallons - transmission fluid.
10.Pohanka Lexus Two aboveground storage tanks are currently in use: (1) used anti-freeze -275
Fairfax County, Virginia gallons; (2) used anti-freeze - 275 gallons.
11.Pohanka Acura Three aboveground storage tanks are currently in use: (1) waste oil - 550
Fairfax County, Virginia gallons; (2) motor oil -550 gallons; (3) motor oil - 275 gallons.
Arlington, Virginia
</TABLE>
<PAGE>
SCHEDULE 9.15.5(C)
------------------
EXISTENCE OF ASBESTOS
None.
<PAGE>
SCHEDULE 9.15.5(F)
------------------
ENVIRONMENTAL PERMITS AND AUTHORIZATIONS
The disclosures required by this Schedule 9.15.5(f) shall be inserted
hereon after the execution of the Agreement according to Section 7.3.12 of
the Agreement.
<PAGE>
SCHEDULE 9.16
-------------
INSURANCE
The disclosures required by this Schedule 9.16 shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.19
-------------
LEASE DISCLOSURES
Any disclosures required by this Schedule 9.19 shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.19.2
---------------
LEASES AND RENT ROLLS
1. PROPERTY 7 (FROM SCHEDULE 1.2):
Lessors: Pohanka Properties, Inc.
Lessee: Pohanka Auto West, Inc.
Annual Rent: $403,200; (triple net lease)
2. PROPERTY 6 (FROM SCHEDULE 1.2)
Lessors: Pohanka Properties, Inc.
Lessee: Pohanka of Chantilly, Inc.
Annual Rent: $420,200; (triple net lease)
3. PROPERTY 7 (FROM SCHEDULE 1.2)
Lessors: Pohanka Properties, Inc.
Lessee: Pohanka Chevrolet-GEO, Inc.
Annual Rent: $450,000; (triple net lease)
4. PROPERTY 1 (FROM SCHEDULE 1.2)
Lessors: Pohanka Properties, Inc.
Lessee: Pohanka Auto North, Inc.
Annual Rent: $228,000; (triple net lease)
<PAGE>
SCHEDULE 9.19.2, CONTD.
-----------------------
LEASES AND RENT ROLLS
5. PROPERTY 2 (FROM SCHEDULE 1.2)
Lessors: Pohanka Properties, Inc.
Lessee: Pohanka Hyundai, Inc.
Annual Rent: $351,900; (triple net lease)
6. PROPERTY 3 (FROM SCHEDULE 1.2)
Lessors: Pohanka Properties, Inc.
Lessee: Pohanka Imports, Inc.
Annual Rent: $257,748; (triple net lease)
7. PROPERTY 4 (FROM SCHEDULE 1.2)
Lessors: Pohanka Properties, Inc.
Lessee: Pohanka Oldsmobile-GMC Trucks, Inc.
Annual Rent: $392,110; (triple net lease)
8. PROPERTY 5 (FROM SCHEDULE 1.2)
Lessors: Pohanka Virginia Properties
Lessee: Pohanka Auto North, Inc.-Saturn of Bowie
Annual Rent: 432,000; (triple net lease)
9. PROPERTY 9 (FROM SCHEDULE 1.2)
Lessors: Pohanka Virginia Properties
Lessee: Pohanka Auto Center
Annual Rent: $210,000; (triple net lease)
2
<PAGE>
SCHEDULE 9.19.13
----------------
OTHER LANDLORDS
Any disclosures required by this Schedule 9.19.13 shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.20(A)
----------------
SERVICE CONTRACTS
The disclosures required by this Schedule 9.20 shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.20(B)
----------------
MANAGEMENT CONTRACTS
The disclosures required by this Schedule 9.20 shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.23
-------------
LIABILITIES OF CONTRIBUTORS
See Schedule 1.3(b).
<PAGE>
SCHEDULE 9.24
-------------
CONTRACTS
The disclosures required by this Schedule 9.24 shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.26
-------------
EMPLOYEE BENEFIT PLANS/EMPLOYMENT CONTRACTS/EMPLOYEE BENEFIT LIABILITIES
The disclosures required by this Schedule 9.26 shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 12.1.5
---------------
RESTRICTIONS ON SALE AND/OR FINANCING OF SPECIFIED PROPERTIES
Property Number from Schedule 1.2 Lock-Out Period for Sale/Financing
--------------------------------- ----------------------------------
1 4 years
2 4 years
3 4 years
4 4 years
5 4 years
6 7 years
7 7 years
8 7 years
9 4 years
<PAGE>
SCHEDULE 12.4.5
---------------
LIMITATIONS ON INDEBTEDNESS
None.
<PAGE>
SCHEDULE 14.2.1
---------------
INDEMNITORS
None.
<PAGE>
EXHIBIT 10.12 (continued)
CAPITAL AUTOMOTIVE REIT
1925 North Lynn Street, #306
Arlington, Virginia
November 21, 1997
Pohanka Properties Inc.
c/o John M. Pohanka
4601 St. Barnabas Road
Marlow Heights, MD 20747
Pohanka Virginia Properties, L.P.
c/o John M. Pohanka
4601 St. Barnabas Road
Marlow Heights, MD 20747
Dear Mr. Pohanka:
We hereby agree that the first $400,000 of the increases in rent pursuant
to Section 2.04(a) of the Leases to be entered into pursuant to the Contribution
Agreement dated November 21, 1997, between us and you are waived and will be
abated.
We further agree that the deposit of Impositions pursuant to Section 3.04
of the Leases is hereby irrevocably waived.
We acknowledge that you would not enter into the Contribution Agreement if
we had not agreed to the abatement and waiver of deposit of impositions set
forth above. The waiver and abatement pursuant to this letter shall be binding
upon us and our successors and assigns.
Capital Automobile, L.P.
by /s/ Thomas D. Eckert
<PAGE>
EXHIBIT 10.13
ROSENTHAL CONTRIBUTION AGREEMENT
CAPITAL AUTOMOTIVE L.P.
-----------------------
AGREEMENT FOR CONTRIBUTION OF INTERESTS
---------------------------------------
November 21, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. CONTRIBUTION OF INTERESTS.............................................. 1
1.1 Certain Definitions........................................... 1
1.2 Contribution.................................................. 2
1.3 Consideration for Contribution................................ 3
1.4 [Intentionally omitted]....................................... 3
1.5 Subject to Partnership Agreement.............................. 3
1.6 Capitalized Terms............................................. 3
II. ADJUSTMENTS............................................................ 3
2.1 Unit Adjustment............................................... 3
2.2 Adjustments with Respect to Units............................. 4
III. REDEMPTION OF UNITS.................................................... 4
3.1 Redemption Right; Limit on Redemptions........................ 4
3.2 Registered Shares............................................. 4
IV. OPERATION OF PROPERTY THROUGH CLOSING.................................. 4
4.1 Business Practice............................................. 4
4.2 No Sale or Encumbrance........................................ 4
4.3 Leases, Service Contracts and Management Contracts............ 5
4.4 Termination of Leases; New Company Leases..................... 5
4.5 Compliance.................................................... 5
4.6 Notice of Inaccuracy or Incompleteness........................ 5
4.7 Access........................................................ 6
4.8 Insurance..................................................... 6
4.9 Fulfillment of Obligation..................................... 6
4.10 Financial Statements and Reports.............................. 6
V. STATUS OF TITLE TO PROPERTY............................................ 6
5.1 State of Title................................................ 6
5.2 Preliminary Evidence of Title................................. 6
5.3 Title Defects................................................. 8
VI. CLOSING PRORATIONS AND ADJUSTMENTS..................................... 9
6.1 Prorations and Adjustments.................................... 9
VII. CLOSING................................................................ 10
7.1 Closing Date.................................................. 10
7.2 Closing Documents............................................. 10
7.3 Conditions to the Partnership's Obligation to Close........... 14
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C>
7.4 Conditions to the Contributor's Obligation to Close............ 16
7.5 Transaction Costs.............................................. 16
VIII. CASUALTY LOSS AND CONDEMNATION.......................................... 17
8.1 Casualty....................................................... 17
8.2 Condemnation or Taking......................................... 18
IX. REPRESENTATIONS AND WARRANTIES
OF THE CONTRIBUTORS..................................................... 18
9.1 Organization................................................... 18
9.2 Authority...................................................... 18
9.3 Interest in Contributed Properties............................. 19
9.4 Investment..................................................... 19
9.5 Title to the Properties........................................ 21
9.6 No Defaults.................................................... 21
9.7 No Litigation; No Condemnation................................. 21
9.8 No Violation................................................... 21
9.9 Required Obligations........................................... 22
9.10 Condition of Properties........................................ 22
9.11 Warranties..................................................... 22
9.12 Utilities...................................................... 22
9.13 Zoning......................................................... 22
9.14 Improvements................................................... 22
9.15 Environmental Matters.......................................... 23
9.16 Insurance...................................................... 25
9.17 Management..................................................... 25
9.18 Compliance..................................................... 26
9.19 Leases; Rent Rolls............................................. 26
9.20 Service Contracts; Management Contracts........................ 28
9.21 Permits........................................................ 28
9.22 Financial Statements........................................... 28
9.23 Undisclosed Liabilities........................................ 28
9.24 Contracts...................................................... 28
9.25 Tax Matters.................................................... 28
9.26 Employee Benefit Liabilities. ................................. 29
9.27 [Intentionally Omitted]........................................ 29
9.28 Taxes.......................................................... 29
9.29 Special Filings................................................ 29
9.30 [Intentionally Omitted]........................................ 29
9.31 Books and Records.............................................. 29
9.32 No Brokers..................................................... 30
9.33 All Material Information....................................... 30
9.34 Survival of Warranties......................................... 30
</TABLE>
- iii -
<PAGE>
<TABLE>
<S> <C>
X. [INTENTIONALLY OMITTED]...................................................... 30
XI. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE PARTNERSHIP........................................... 30
11.1 Organization, Good Standing and Qualification....................... 31
11.2 Authorization....................................................... 31
11.3 No Violation........................................................ 31
11.4 Listed Shares....................................................... 31
11.5 Tax Status.......................................................... 31
11.6 No Litigation....................................................... 31
11.7 No Brokers.......................................................... 32
11.8 Survival............................................................ 32
XII. COVENANTS.................................................................... 32
12.1 Covenants of the Company and the Partnership........................ 32
12.2 Covenants of the Contributors and the Contributing Entities......... 34
12.3 No Claim Against Contributed Property............................... 35
12.4 DRO Election; Bottom Guaranty Election.............................. 36
XIII. DUE DILIGENCE PERIOD......................................................... 37
13.1 Due Diligence Period................................................ 37
13.2 Access to Properties and Materials.................................. 37
13.3 Adjustment Following Due Diligence.................................. 38
XIV. DEFAULTS AND REMEDIES........................................................ 38
14.1 Indemnification by Contributors..................................... 38
14.2 Remedies............................................................ 39
14.3 Indemnification by the Company and the Partnership.................. 40
14.4 Indemnification Procedures.......................................... 41
XV. MISCELLANEOUS................................................................ 44
15.1 Assignment.......................................................... 44
15.2 Entire Agreement.................................................... 44
15.3 Notices............................................................. 44
15.4 Governing Law....................................................... 45
15.5 Litigation Costs.................................................... 45
15.6 Counterparts........................................................ 45
15.7 Offer and Acceptance................................................ 45
15.8 Arbitration......................................................... 46
</TABLE>
- iv -
<PAGE>
EXHIBITS
A. Partnership Agreement
4.4 (a) Form of Company Lease
4.4 (c) Guaranty and Subordination Agreement
7.2.1(i) Investor Questionnaires
7.2.1(p) Lender's Estoppel Certificate
7.2.1(q) Opinion of Contributor's Counsel
7.2.2(f) Opinion of Company Counsel
SCHEDULES
DISCLOSURE SCHEDULE
I. Contributors (Names and Addresses)
1.2 Schedule of Properties; Ownership Interests in Properties and
Contribution Amounts
1.3(a) Schedule of Units Issued in Consideration for Each Property
1.3(b) Mortgage Debt
4.1 Prior Occupants
4.4(b) Guaranties
5.1 Permitted Exceptions
9.6 Material Defaults
9.13 Zoning
9.15.5(a) The Treatment, Storage and Disposal Locations for Substances of
Concern
9.15.5(b) Storage Tanks
9.15.5(c) Environmental Permits and Authorizations
9.16 Insurance
9.19 Lease Disclosures
9.19.2 Leases and Rent Rolls
9.19.13 Other Landlords
9.20(a) Service Contracts
9.20(b) Management Contracts
9.23 Assumed Liabilities of Contributors
9.24 Contracts
9.26 Employee Benefit Plans/Employment Contracts/Employee Benefit
Liabilities
12.1.5 Restrictions on Sale and/or Financing of Specified Properties
12.4.5 Limitations on Indebtedness
14.2.1 Indemnitors
- v -
<PAGE>
CAPITAL AUTOMOTIVE L.P.
AGREEMENT FOR CONTRIBUTION OF INTERESTS
---------------------------------------
THIS AGREEMENT FOR CONTRIBUTION OF INTERESTS (the "Agreement") is made and
entered into as of this 21 day of November 1997, by and among the persons and
entities named on Schedule I hereto consisting of all of the owners of an
----------
interest in any of the Properties listed on Schedule 1.2 (each individually, a
------------
"Contributor" and, if more than one Contributor, collectively, the
"Contributors"), and CAPITAL AUTOMOTIVE REIT, a Maryland real estate investment
trust (the "Company"), having offices at 1925 North Lynn Street, Suite 306,
Arlington, Virginia 22209 on its own behalf, and CAPITAL AUTOMOTIVE L.P., a
Delaware limited partnership (the "Partnership"), having offices at 1925 North
Lynn Street, Suite 306, Arlington, Virginia 22209.
RECITALS
--------
A. The Partnership was formed on November 13, 1997. At the Closing, the
Limited Partnership Agreement, as amended and restated, will be substantially in
the form appended hereto as Exhibit A (the "Partnership Agreement"). The
---------
Partnership is intended to result in an umbrella partnership real estate
investment trust in which the Company shall be the sole general partner (the
"General Partner") and shall hold the number of Units (as hereinafter defined)
of partnership interest set forth in Schedule A to the Partnership Agreement.
----------
B. Each Contributor has such interest in the real property and
improvements as is set forth opposite its name on Schedule 1.2 hereto. Each
------------
Contributor is the legal and beneficial owner of fee simple title to all of the
real property and improvements set forth on such Schedule 1.2 hereto (including
------------
the residual interests in any tenant improvements thereon), which are
individually referred to as a "Property" and collectively, the "Properties."
C. Each Contributor desires to transfer all of its interest in each of
the Properties set forth on Schedule 1.2 to the Partnership in exchange for
------------
Units (as hereafter defined) in the Partnership in the amounts set forth in
Schedule 1.3(a) upon and subject to the terms and conditions of this Agreement.
- ---------------
NOW THEREFORE, in consideration of and in reliance upon the above Recitals,
the terms, covenants and conditions contained in this Agreement, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
I. CONTRIBUTION OF INTERESTS
-------------------------
1.1 Certain Definitions. For purposes of this Agreement:
-------------------
1.1.1 "Units" means units of limited partnership interest in the
Partnership, including the limited partnership interests held
by
<PAGE>
the Company and those to be issued to the Contributors
pursuant to this Agreement. The Units to be issued to the
Contributors pursuant to this Agreement are sometimes
referred to herein as the "Initial Units."
1.1.2 "Shares" means the common shares of beneficial interest, par
value $.01 per share, of the Company.
1.1.3 "Initial Shares" means the Shares of the Company registered
under the Securities Act of 1933, as amended (the "Act"),
pursuant to a registration statement on Form S-11 (the
"Registration Statement") to be filed with the Securities and
Exchange Commission (the "Commission") on or about November
1997.
1.1.4 "Affiliate" means with respect to any Person, (i) any Person
that holds direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of voting securities or other voting
interests representing at least five percent (5%) of the
outstanding voting power of a Person or equity securities or
other equity interests representing at least five percent
(5%) of the outstanding equity securities or interests in a
Person, or (ii) any Person that directly, or indirectly
through one or more intermediaries, controls, or is
controlled by, or is under common control with such Person.
1.1.5 A "Person" shall mean and include natural persons,
corporations, limited partnerships, general partnerships,
joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts,
business trusts, Indian tribes or other organizations,
whether or not legal entities, and governments and agencies
and political subdivisions thereof.
1.1.6 For purposes of this Agreement, the "knowledge" of a party
shall mean the knowledge of such party's officers, senior
executives, managing partners, general partners, majority
shareholders, key employees or their equivalents.
1.2 Contribution. Subject to the terms and conditions of this
------------
Agreement, at the Closing (as hereinafter defined), each Contributor shall
convey and transfer its entire right, title and interest in the Properties
identified on Schedule 1.2 to the Partnership, excluding items of
------------
-2-
<PAGE>
movable personal property attached to the Property that relate to the business
conducted on the Property and may readily be removed from the Property without
material damage whether or not such items are "fixtures," ("Excluded Personal
Property"). The interests and Properties to be transferred as herein provided
are hereinafter collectively referred to as the "Contribution."
1.3 Consideration for Contribution. In consideration for the
------------------------------
Contribution, the Partnership shall issue to each Contributor, or to such
partners and beneficial owners of the Contributor as the Contributor shall
designate in writing (the "Designees"), the number of Units in consideration for
each Property as set forth on Schedule 1.3(a) hereto. The number of Units to be
---------------
issued in consideration for each Property (the "Contribution Value") shall be
the quotient of the Contribution Amount for such Property (as defined hereafter)
minus the Mortgage Debt (as defined hereafter) encumbering such Property divided
by the Market Price (as defined hereafter). The parties agree that, as of the
date hereof and as of the Closing Date, each Initial Unit has a fair market
value equal to the initial price to the public of the Initial Shares at the time
and date the Registration Statement is declared effective by the Commission (the
"Market Price"). The Contributors represent and warrant that each Property is
subject to mortgage indebtedness set forth opposite the description of such
Property on Schedule 1.3(b) of this Agreement, which mortgage indebtedness shall
---------------
be the principal balance plus the accrued interest of the mortgages encumbering
such Property at the Closing Date (the "Mortgage Debt"). For purposes of this
Agreement, "Contribution Amount" means the acquisition cost of any Property, as
stated on Schedule 1.3(a) plus the amount of the Closing Costs (as defined in
---------------
Section 7.5.1), which total shall be used to calculate the number of Units to be
- -------------
issued to the Contributors at the Closing in exchange for their contribution of
such Property to the Partnership.
1.4 [Intentionally omitted]
1.5 Subject to Partnership Agreement. The Units issued pursuant to
--------------------------------
this Agreement shall be subject in all respects to the terms and provisions of
the Partnership Agreement.
1.6 Capitalized Terms. Capitalized terms used in this Agreement that
-----------------
are not otherwise defined herein shall have, unless otherwise indicated, the
meanings assigned to them in the Partnership Agreement.
II. ADJUSTMENTS
-----------
2.1 Unit Adjustment. The number of Units issuable as consideration for
---------------
the Properties will be adjusted as follows: (a) to the extent the
total Mortgage Debt on a Property is different from the amount on
Schedule 1.3(b) ("Different Mortgage Debt"), an adjustment shall be
---------------
made to the number of Units to be issued to the Contributors
hereunder, by dividing the total dollar amount of the Different
Mortgage Debt by the Market Price and the quotient thereof shall be
the number by which the number of Units issuable pursuant to this
Agreement shall be reduced if the Mortgage Debt exceeds the
-3-
<PAGE>
scheduled amount, or increased if the Mortgage Debt is less than the
scheduled amount; and (b) pursuant to Sections 7.2.1(o), 7.5.1, 8.1,
8.2, 13.3 and 15.7 of this Agreement, as applicable.
2.2 Adjustments with Respect to Units In the event of any stock split,
---------------------------------
stock dividend, reclassification, recapitalization or other adjustment
in respect of the outstanding Shares prior to the Closing Date, the
number of Units to be issued to the Contributors will be
proportionately adjusted so that the Units will equate to the Shares
on a one-to-one basis.
III. REDEMPTION OF UNITS
-------------------
Anything in the Partnership Agreement to the contrary notwithstanding,
the following provisions shall apply:
3.1 Redemption Right; Limit on Redemptions. The Contributors shall have
--------------------------------------
the right to require the Partnership to redeem all or a portion of the
Units held by such Contributor (the "Redemption Event") on or after
the date which is two (2) years after the date that the Registration
Statement is declared effective by the Commission (the "Effective
Date") in accordance with and subject to the limitations set forth in
Section 8.05 of the Partnership Agreement.
3.2 Registered Shares. If the Company exercises its option to deliver
-----------------
Shares pursuant to Section 8.05 of the Partnership Agreement upon a
Redemption Event, the Company shall deliver to the Contributor Shares
that have been registered for resale under the Act pursuant to a
registration statement on Form S-3 (or equivalent form of registration
statement then in effect) declared effective by the Commission.
IV. OPERATION OF PROPERTY THROUGH CLOSING
-------------------------------------
Through the Closing Date:
4.1 Business Practice. Except as otherwise provided in this Article 4,
-----------------
the Contributors shall continue, or shall cause any Affiliate, tenant,
or third party managing, maintaining or occupying, as the case may be,
any of the Properties as shall be designated by the Partnership or the
Company (referred to herein individually as a "Prior Occupant" and
collectively as the "Prior Occupants") to continue, to manage,
maintain and operate the Properties in accordance with sound and
prudent business practices and keep the Properties and the tangible
personal property thereon in good condition and repair, ordinary wear
and tear excepted. The Contributors shall instruct such Prior Occupant
not to make any change in its management, maintenance or
-4-
<PAGE>
operation of the Properties or in its normal and customary other
practices. The Prior Occupants are identified on Schedule 4.1 to this
------------
Agreement.
4.2 No Sale or Encumbrance. None of the Contributors shall sell,
----------------------
mortgage, pledge, hypothecate or otherwise transfer or dispose of all,
or any part of any Property or any interest therein, nor shall any
Contributor initiate, consent to, approve or otherwise take any action
with respect to zoning or any other governmental rules or regulations
presently applicable to all or any part of any Property, nor shall any
Contributor permit any new limited or general partners, shareholders
or members to be admitted to any Contributor.
4.3 Leases, Service Contracts and Management Contracts. Except as
--------------------------------------------------
provided in Section 4.4, the Contributors shall not, nor shall they
cause or permit any Prior Occupant to, terminate, modify, extend,
amend or renew any Lease (as defined in Section 6.1.3 hereof), Service
Contract (as defined in Section 9.20 hereof), Management Contract (as
defined in Section 9.20 hereof) or enter into any new Lease (other
than the Company Lease pursuant to Section 4.4 of this Agreement) or
Service Contract without the prior written consent of the Company or
the Partnership; provided, however, that the failure of the Company or
the Partnership to object to any such action within thirty (30) days
after written notice to it by Contributor shall be deemed to reflect
the Company's or the Partnership's consent thereto. Notwithstanding
the foregoing, all Service Contracts and Management Contracts relating
to the respective Properties shall remain in effect after the Closing
Date, except for those Service Contracts and Management Contracts that
the Partnership requires to be terminated as of the Closing Date.
4.4 Termination of Leases; New Company Leases. Prior to the Closing Date
-----------------------------------------
the Contributors shall cause the termination of all Leases.
Simultaneously with the execution of this Agreement, the Contributors
shall cause the Prior Occupant of each Property, or an Affiliate
thereof, to execute and deliver to the Partnership an occupancy lease
with the Partnership for each of the Properties substantially in the
form attached hereto as Exhibit 4.4 (a) (referred to hereafter
---------------
individually as a "Company Lease" and collectively as the "Company
Leases"), on terms and conditions (including Rent (as defined in such
Company Lease)) acceptable to the Partnership. The Base Annual Rent
(as defined in the Company Lease) called for under the Company Lease
as set forth on the Exhibits and Schedules attached to the Company
Lease shall be increased by the proportion that the Closing Costs (as
defined in Section 7.5.1) bears to the acquisition cost of such
Property as stated on Schedule 1.3(a). The effective date of such
---------------
Company Leases shall be the Closing Date. The Company Leases shall be
guaranteed as set forth on
-5-
<PAGE>
Schedule 4.4(b) using a Guaranty and Subordination Agreement
---------------
substantially in the form attached hereto as Exhibit 4.4(c).
--------------
4.5 Compliance. None of the Contributors shall knowingly take or fail to
----------
take any action that will cause the Properties to fail to comply with
any federal, state, municipal and other governmental laws, ordinances,
requirements, rules, regulations, notices, codes and orders, or any
agreements, covenants, conditions, easements and restrictions
currently in effect relating to the Properties.
4.6 Notice of Inaccuracy or Incompleteness. The Contributors shall
--------------------------------------
promptly give written notice to the Company of the occurrence of any
event of which Contributors have knowledge and which may adversely
affect the completeness or accuracy of any representation or warranty
made or to be made by Contributors under or pursuant to this
Agreement.
4.7 Access. The Contributors shall cause the Company and its
------
representatives to have complete and unencumbered access to the
Properties, subject to the prior rights, if any, of any Prior
Occupant; provided, however, that without the consent of the
Contributor, the representatives of the Partnership shall not disclose
to any Prior Occupant the existence of this Agreement or the
transactions contemplated hereby.
4.8 Insurance. The Contributors shall cause the existing insurance
---------
coverages on the Properties and the business of the Contributors to be
maintained in full force and effect.
4.9 Fulfillment of Obligation. To the extent any Contributor is
-------------------------
obligated, pursuant to any contract, agreement, covenant, lease,
including any Lease, or other understanding entered into prior to the
date hereof with any Prior Occupant, governmental subdivision or any
other third party, to effect any construction, make any improvements
or take any action, the Contributors shall cause any such
construction, improvements and/or action to be taken, completed and
fully paid for by such Contributor, at its expense, prior to the
Closing Date. No such obligation shall be unfulfilled, and no
liability for or payment in respect of any such obligation shall be
unsatisfied as of the Closing Date.
4.10 Financial Statements and Reports. The Contributors shall provide to
--------------------------------
the Company financial statements, agings of accounts receivable, and
other financial, operating or statistical information for each
Property upon any reasonable request of the Company, and the general
partner or chief financial officer, as the case may be, of each
Contributor shall certify that, to the best
-6-
<PAGE>
of his or its knowledge, such financial statements and other reports
are true, accurate and complete in all material respects.
V. STATUS OF TITLE TO PROPERTY
---------------------------
5.1 State of Title. At Closing, the Contributors shall own, beneficially
--------------
and of record, good and marketable fee simple title to the Properties,
subject only to the mortgages listed on Schedule 9.23 hereto (the
-------------
"Mortgages") and those covenants, conditions and restrictions set
forth on Schedule 5.1 hereto (the "Scheduled Exceptions"). The
------------
Mortgages and acceptable Scheduled Exceptions are referred to
collectively herein as the "Permitted Exceptions."
5.2 Preliminary Evidence of Title. Within no more than 30 days after the
-----------------------------
date hereof, the Contributors and the Partnership shall obtain, in a
form acceptable to the Partnership, the following documents to
evidence the condition of the title to each of the Properties:
5.2.1 Commitments (the "Title Commitments") to the Partnership for
ALTA Form B (1987) Owner's Title Insurance Policies
committing to insure, at standard rates, title to each
Property as being good and marketable, subject only to the
Permitted Exceptions, in the amount of the fair market value
of each such Property, issued by a title company acceptable
to the Company and the Partnership (the "Title Insurer"). The
Title Commitments shall be effective as of the Closing Date,
and shall reflect that fee simple title is held by the
respective Contributor. Each Owner's Title Insurance Policy
to be issued to the Partnership at Closing pursuant to
Section 7.2.2 below ("Title Insurance Policies") shall
contain an extended coverage endorsement over the general or
standard exceptions which are a part of the printed form of
the policy and subject only to the Permitted Exceptions. Each
Title Insurance Policy shall, in addition, (a) include
provisions for co-insurance, in such amounts of liability
acceptable to the Partnership and the Company; (b) not
contain any Survey exception, (c) not contain any exceptions
for (i) liens for labor or material, whether or not of
record, (ii) parties in possession (other than Prior
Occupants under the Leases, solely as such Prior Occupants),
(iii) unrecorded easements, and (iv) taxes and special
assessments not shown on the public records, (d) provide for
the following endorsements: (i) an access endorsement
insuring that there is direct and unencumbered access to the
Land from all adjacent public streets and roads,
-7-
<PAGE>
(ii) a survey endorsement insuring that all foundations in
place as of the date of such policy are within the lot lines
and applicable setback lines, that the improvements do not
encroach on adjoining land or any easements, and that there
are no encroachments of improvements from adjoining land on
any or the Properties or any part thereof, (iii) an ALTA Form
3.1 zoning endorsement insuring that the Properties are zoned
for the buildings and the operation thereof as contemplated
by the terms and provisions of this Agreement, (iv) a non-
imputation endorsement, by which the Title Insurer waives any
defense based upon knowledge of any person or entity (other
than the knowledge of the Partnership or its designees), (v)
each Property constitutes a separate lot of record and is
separately assessed for real estate tax purposes, (vi) an
endorsement commonly referred to as a "Fairway endorsement,"
providing among other things, that the Title Insurer waives
any defense based on a dissolution or termination of the
insured partnership or the formation of a new partnership
solely by reason of one or more transfers of all or any part
of the partnership interests of any one or more of the
general partners of the insured to the Company or the
Partnership and/or any one or more of the limited partners of
the insured, and/or the transfer of any one or more of the
limited partner's interests to the current general partner,
the Company or the Partnership, and (vii) such other
endorsements as the Partnership and the Company may
reasonably require.
5.2.2 Written results of searches reflecting any liens, judgements,
tax liens, bankruptcies, and open dockets (the "UCC
Searches"), conducted by a company reasonably acceptable to
the Partnership. The UCC Searches shall name each
Contributor, Prior Occupant, and Property, and shall search
the appropriate land records and central filing office for
Uniform Commercial Code financing statements.
5.2.3 Legible copies of all documents of record referred to in any
Title Commitment or disclosed by the UCC Searches, and all
other documents evidencing or, to the extent in the
possession or control of the Contributors, relating to,
matters reflected in any Title Commitment or the UCC
Searches.
-8-
<PAGE>
5.2.4 Current ALTA/ACSM land title surveys of each of the
Properties (the "Surveys") dated on or after the date of this
Agreement, certified to the Partnership and the Title Insurer
(and such other persons or entities as the Partnership may
designate) by a surveyor registered in the State where the
Property is located. Each Survey shall be in form and
substance acceptable to the Partnership and the Title
Insurer.
5.3 Title Defects. The Partnership shall have the right to review the
-------------
Title Commitments, UCC Searches or Surveys (or any revision or update
of any of them) and to require the Contributor to remove, correct, and
cure any defects in the title or other such matters relating to the
title that the Partnership determines, in its sole discretion, are
acceptable and those that are unacceptable. The Partnership shall
notify the Contributors of those matters listed on Schedule 5.1 that
------------
are acceptable, which shall be referred to as the "Scheduled
Exceptions." The Partnership shall notify the Contributors within ten
(10) business days after the Partnership receives the Title
Commitments, UCC Searches or Surveys, as the case may be, of any such
defects or matters that the Partnership finds to be unacceptable, and,
prior to the Closing Date, such Contributors shall, (i) as to any such
exception or other matter of a nonmonetary nature, use reasonable
efforts to remove, correct and cure such defects or such other
matters, and (ii) as to any such defect or other matter of a monetary
nature, cause such lien or encumbrance or other matter to be
discharged and released, in each case to the reasonable satisfaction
of the Partnership; except that such Contributor shall not be required
to expend more than $50,000 with respect thereto. If such Contributor
fails to remove, correct and cure such defects or such other matters,
the Partnership may, at its option and as its exclusive remedy, (x)
terminate this Agreement, in which event this Agreement, without
further action of the parties, shall become null and void and neither
party shall have any further rights or obligations under this
Agreement, (y) terminate this Agreement with respect to such Property
and reduce the number of Units to be issued by the Contributors to the
Contribution Value of such Property, or (z) elect to accept title to
such Property and discharge or release any liens, encumbrances or
other matters of a monetary nature or which may otherwise be
discharged, released or removed by the payment of a monetary sum and
deduct from the number of Initial Units issuable to the Contributors
the number of Units that is equal to the lesser of (a) the quotient of
such aggregate monetary sums paid by the Partnership for the
correction, removal and cure of such defects and other matters (plus
expenses in connection therewith) divided by the Market Price, or (b)
$50,000. If the Partnership fails to make any such election, the
Partnership shall be deemed to have elected the option contained in
clause (y).
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<PAGE>
VI. CLOSING PRORATIONS AND ADJUSTMENTS
----------------------------------
6.1 Prorations and Adjustments. All prorations and adjustments (the
--------------------------
"Prorations") with respect to the Property or Properties, for the
period up to and through the Closing Date, shall be the responsibility
of or belong to the Contributors and all such Prorations for the
period after the Closing Date shall be the responsibility of or belong
to the tenant under the applicable Company Lease. The Company and the
Partnership shall have no responsibility for, and will receive no
benefit from, the Prorations, and the Contributor shall have liability
for such Prorations. Such Prorations shall include, but not be limited
to, the following:
6.1.1 real estate and personal property taxes and assessments;
6.1.2 common area maintenance fees and reimbursements for prior
years property taxes payable by Prior Occupants;
6.1.3 the rent payable by Prior Occupants under leases in effect
immediately prior to the Closing Date (the "Leases") as set
forth on Schedule 9.19.2 hereto;
---------------
6.1.4 the full amount of security deposits paid under the Leases,
together with interest thereon if required by law or
otherwise;
6.1.5 water, electric, telephone and all other utility and fuel
charges and those that are meter read will be read by the
appropriate utility and service transferred as of the Closing
Date;
6.1.6 amounts due and prepayments under the Service Contracts;
6.1.7 assignable license and permit fees;
6.1.8 other expenses of operation and similar items; and
6.1.9 all or any other disbursements, payments, and obligations
relating to the Property, except for payments under any
Mortgages transferred to the Partnership at the Closing, the
payments for which shall be obligations of the Partnership as
of, but not before, the Closing Date.
6.1.10 Notwithstanding the foregoing, any refunds of real or
personal property taxes for tax years beginning prior to the
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<PAGE>
Closing Date shall belong to Contributors, and if paid to the
Partnership shall be promptly refunded by the Partnership to
Contributors in cash.
VII. CLOSING
-------
7.1 Closing Date. The closing of the transactions contemplated by this
------------
Agreement (the "Closing") shall occur at the offices of Wilmer, Cutler
& Pickering, 2445 M Street, N.W. Washington, D.C. 20037-1420, at 10:00
a.m. on January 31, 1998, or such other time or place as shall follow
the closing of the initial public offering of Initial Shares of the
Company pursuant to the Registration Statement, provided that all
conditions to Closing have been satisfied or waived, or at such other
time and place as the Contributors and the Company shall agree in
writing, provided, however, that under no circumstances shall the
Closing occur later than March 31, 1998. The "Closing Date" shall be
the date of the Closing.
7.2 Closing Documents
-----------------
7.2.1 Contributors. Not later than five (5) business days prior to
------------
the Closing Date, the Contributors shall deliver to the
Company and the Partnership the following:
a. deeds and assignments for the Properties;
b. if not previously delivered pursuant to a waiver by the
Company, executed copies of all Company Leases,
effective at Closing;
c. any affidavits, certificates and other documents
(including without limitation non-imputation affidavits
and/or certificates) that are reasonably necessary for
the Title Insurer to issue the Owner's Title Insurance
Policies in the form and condition required by this
Agreement;
d. evidence satisfactory to the Partnership that all
mortgages and other indebtedness secured by the
Properties that are not being specifically assumed by
the Partnership have been paid in full;
e. for each Contributor that is a corporation, a corporate
resolution authorizing the transactions
-11-
<PAGE>
contemplated by this Agreement, a certificate of good
standing, a certified copy of the articles of
incorporation and bylaws, and a certificate of
incumbency certifying the titles and signatures of the
corporate officers authorized to consummate the
transactions contemplated hereunder on behalf of
Contributor and such other evidence of Contributor's
power and authority as the Company reasonably requests;
f. for each Contributor that is a partnership or a limited
liability company, a resolution authorizing the
Contribution in exchange for the Units the execution of
closing documents and the transactions contemplated by
this Agreement, a certificate of good standing, a
certified copy of the partnership or operating
agreement governing such Contributor, and a certificate
of incumbency certifying the titles and signatures of
the general partners or members authorized to
consummate the transactions contemplated hereunder on
behalf of Contributor and such other evidence of power
and authority of the Contributor as the Partnership
reasonably requests;
g. for each Contributor, an affidavit stating, under
penalty of perjury, its U.S. taxpayer identification
number and that it is not a foreign person within the
meaning of Section 1445 of the Internal Revenue Code of
1986, as amended (the "Code");
h. a counterpart of the Partnership Agreement executed by
each Contributor;
i. investor questionnaires ("Investor Questionnaires") in
the form attached to this Agreement as Exhibit 7.2.1(i)
----------------
executed by each Contributor;
j. letters advising Prior Occupants of the change in
ownership of the Properties and directing Prior
Occupants to pay Rent to the Partnership or as the
Partnership may direct;
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<PAGE>
k. an updated Rent Roll (as defined in Section 9.19.2) as
of the Closing Date (including a listing of all
delinquent and prepaid rents);
l. agreements from each Prior Occupant who leases any
Property terminating its Leases with Contributors;
m. all of the original Leases, written Service Contracts
and Management Contracts and any and all building
plans, surveys, site plans, engineering plans and
studies, utility plans, landscaping plans, development
plans, specifications drawings, marketing artwork,
construction drawings, soil tests, complete warranty
book including all contractors and subcontractors and
other documentation concerning all or any part of each
Property to the extent that any of the foregoing
documents are in the possession or control of
Contributors;
n. any bonds, warranties or guaranties which are in any
way applicable to any Property or any part thereof to
the extent any of the foregoing are in the possession
or control of Contributors;
o. If the Company shall so request, the Contributor shall
deliver to the Company a letter (an "Estoppel Letter")
in a form acceptable to the Company, dated not more
than thirty (30) days prior to the Closing Date, from
each tenant under each Lease. The Estoppel Letter shall
be fully completed in a manner reasonably satisfactory
to the Company, and with no modifications other than
those reasonably acceptable to the Company. In the
event Estoppel Letters in form and content reasonably
satisfactory to the Company are not received by the
Company and the Partnership within the time prescribed
herein, then the Partnership and the Company, at their
option and as a non-exclusive remedy, upon notice to
the Contributors, may immediately terminate this
Agreement, or may terminate this Agreement with respect
to the relevant Property, in which case the number of
Initial Units issuable
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<PAGE>
hereunder as set forth on Schedule 1.3(a) shall be
---------------
reduced by the Contribution Value of such Property.
p. a certificate in the form attached hereto as Exhibit
-------
7.2.1(p) (a "Lender's Estoppel Certificate") from each
--------
mortgagee of each Contributor and each Property and
from any other person or entity that has, or may have
as a result of the transactions contemplated hereby, a
security interest in any of the Properties. In the
event that the Lender's Estoppel Certificates in form
and content reasonably satisfactory to the Company are
not received by the Company and the Partnership within
the time period prescribed herein, then the Partnership
and the Company, at their option and as a non-exclusive
remedy, may terminate this Agreement upon notice to the
Contributor, or may terminate this Agreement with
respect to the relevant Property, in which case the
number of Initial Units issuable hereunder as set forth
on Schedule 1.3(a) shall be reduced by the Contribution
---------------
Value of such Property.
q. an opinion of Contributor's counsel substantially in
the form attached hereto as Exhibit 7.2.1(q); and
----------------
r. all other documents reasonably required by the Company
in connection with the transactions contemplated by
this Agreement.
7.2.2 Partnership. At the Closing, the Partnership shall
-----------
deliver the following:
a. Initial Units, as required by Sections 1 and 2 of this
Agreement;
b. an executed counterpart of the Partnership Agreement
executed by the Company, as the General Partner of the
Partnership;
c. for the Company, a resolution of its Board of Trustees
authorizing the transactions contemplated hereby and a
certificate of good standing from the
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<PAGE>
State Department of Assessments and Taxation of the
State of Maryland;
d. for the Partnership, a certified copy of the
Partnership Agreement and a Certificate of Limited
Partnership certified by the Secretary of State of
Delaware; and
e. an opinion of Wilmer, Cutler & Pickering, substantially
in the form attached hereto as Exhibit 7.2.2(f).
----------------
7.3 Conditions to the Partnership's Obligation to Close. At the option of
---------------------------------------------------
the Partnership, the obligations of the Company and the Partnership
under this Agreement are subject to the satisfaction of the following
conditions (unless explicitly waived in writing):
7.3.1 Each Contributor shall have terminated such existing
Management Contracts with any Prior Occupant as have been
specified in writing by the Company or the Partnership prior
to the Closing Date.
7.3.2 Each Contributor shall have terminated all Leases prior to
the Closing Date.
7.3.3 Each Contributor shall have terminated such existing Service
Contracts as have been specified in writing by the Company or
the Partnership prior to the Closing Date.
7.3.4 Each and every representation and warranty of the
Contributors is true, correct and complete as of the date
hereof and at all times through the Closing Date.
7.3.5 All Prior Occupants shall be paying rental on all Properties
as set forth in the Estoppel Letter approved by the Company
and sent to each such Prior Occupant.
7.3.6 The Contributors shall have fully performed and satisfied
each and every obligation, term and condition to be performed
and satisfied by them under this Agreement.
7.3.7 All consents, authorizations, certificates, Estoppel Letters,
Lender's Estoppel Certificates and approvals required to be
-15-
<PAGE>
obtained by the Contributors in connection with the Agreement
shall have been obtained, including but not limited to all
consents, approvals and authorizations (without any
conditions or requirements) required to be obtained under any
Mortgage, deed of trust or other instrument relating to any
of the Properties or pursuant to which any of the
Contributors are bound in order to complete the transactions
contemplated under this Agreement.
7.3.8 The Company shall simultaneously with the Closing close the
initial public offering of the Initial Shares.
7.3.9 The Contributors shall have paid in full such Mortgages and
other indebtedness secured by the Properties as required by
the Company and Partnership and shall have provided the
Company and Partnership with satisfactory evidence thereof,
and to the extent that such Mortgages are to be paid off
following Closing, the mortgagee shall deliver pay-off
letters to the Company and the Partnership.
7.3.10 The condition of the Property shall not have materially
changed.
7.3.11 The Partnership shall have received an Owner's Title
Insurance Policy (or marked-up commitment therefor) for each
Property insuring fee simple title to such Property in the
amount of the fair market value of such Property subject only
to Permitted Exceptions, and otherwise in the form and
condition required by this Agreement;
7.3.12 At the execution of this Agreement, Contributors shall
deliver to the Company and Partnership each Disclosure
----------
Schedule required by this Agreement. To the extent that
--------
Contributors do not deliver such completed Disclosure
----------
Schedules to the Company and Partnership at the time of the
---------
execution of this Agreement, Contributor shall deliver to
the Company and Partnership all substantially completed
Disclosure Schedules required by this Agreement within
--------------------
fifteen (15) business days after the date of the execution
of this Agreement. Within thirty (30) days after the
Company's and the Partnership's receipt of such Disclosure
----------
Schedules, the Partnership shall notify the Contributors of
---------
those Disclosure Schedules that are acceptable to the
--------------------
Company and the Partnership and those of
-16-
<PAGE>
the Disclosure Schedules that are not acceptable to the
--------------------
Company and the Partnership. Prior to Closing, the
Contributors shall have the obligation to correct all
Disclosure Schedules identified by the Company and the
--------------------
Partnership as unacceptable.
7.3.13 The Contributor and each Designee shall complete and deliver
to the Company and the Partnership Investor Questionnaires
evidencing such Contributor's or Designee's qualification as
an "accredited investor" under the Securities Act of 1933, as
amended.
7.4 Conditions to the Contributor's Obligation to Close. The obligations
---------------------------------------------------
of the Contributor under this Agreement are subject to the
satisfaction of the following conditions (unless explicitly waived in
writing):
7.4.1 Each of the representations and warranties of the Partnership
contained in this Agreement is true, correct and complete as
of the date hereof and at all times through the Closing Date.
7.4.2 The Partnership and the Company shall have fully performed
and satisfied each and every obligation, term and condition
to be performed and satisfied by them under this Agreement.
7.4.3 The Company shall form the Partnership.
7.4.4 All consents, authorizations and approvals required to have
been obtained by the Company and the Partnership in
connection with this Agreement shall have been obtained.
7.5 Transaction Costs.
-----------------
7.5.1 The Contributors will pay or bear all costs (including any
recordation and transfer taxes, title insurance, fees and
expenses of going to record) in connection with the transfer
by the Contributors of the Properties (collectively referred
to as the "Closing Costs"). The Company and the Partnership
shall bear the cost of their due diligence activities.
Notwithstanding anything herein to the contrary, at the
option of the Contributor in lieu of paying the Closing Costs
or Consent Fees (as defined hereafter), the Contributor may
elect to deduct from the Contribution Value of the Property,
all or part of such Closing Costs or Consent Fees, by
advising the
-17-
<PAGE>
Company to reduce the number of Units deliverable pursuant
to Schedule 1.3(a) by a number equal to the quotient
---------------
determined by dividing (i) the amount of the Closing Costs or
Consent Fees to the extent not paid by Contributor, by (ii)
the Market Price.
7.5.2 The Contributors will pay or bear all assumption fees,
prepayment penalties, premiums, lender's consent fees or
other such charges ("Consent Fees") imposed in connection
with the transactions contemplated hereby, and all Consent
Fees imposed by all other lenders in connection with the
transactions contemplated hereby.
7.5.3 Except as specified above and elsewhere in this Agreement,
each party shall bear and pay its expenses in connection with
this Agreement and the transactions contemplated herein,
including the fees of their respective professional advisors.
VIII. CASUALTY LOSS AND CONDEMNATION
------------------------------
8.1 Casualty. Prior to Closing, all risk of loss shall be on each
--------
Contributor. If, prior to Closing, the Properties or any part thereof
shall be destroyed or materially damaged by fire or other casualty,
the Partnership may, at its option, either (i) require the
appropriate Contributors to repair such damage prior to Closing to
the reasonable satisfaction of the Partnership, at no cost or expense
to the Company or the Partnership, in which event the proceeds of any
insurance applicable thereto shall be paid to the Contributor, or
(ii) itself settle the loss under all policies of insurance
applicable to the destruction or damage and receive the proceeds of
insurance applicable thereto, and the Contributor shall, at Closing
and thereafter, execute and deliver to the Partnership all required
proofs of loss, assignments of claims and other similar items.
Notwithstanding anything herein to the contrary, in the event such
loss or casualty shall constitute a total or substantial loss or
casualty or, in the opinion of the Company, in its sole discretion,
shall render the Property unsuitable for its intended purpose for a
period of ninety (90) days or longer, then the Company and the
Partnership, at their option, may terminate this Agreement with
respect to such Property upon notice to the Contributor, and the
number of Units issuable as set forth in Schedule 1.3(a) with respect
------------
to such Property shall be reduced by the Contribution Value of such
Property.
8.2 Condemnation or Taking. If, prior to Closing, any Property or any
----------------------
part thereof shall be condemned or taken and such condemnation or
taking
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<PAGE>
materially interferes with the existing business use of the Property,
the Company and the Partnership may (i) terminate this Agreement
either as to all the Properties or solely as to such Property, in the
discretion of the Partnership and the Company, or (ii) complete the
transactions contemplated by this Agreement notwithstanding such
condemnation. If the Company and the Partnership elect to complete the
transactions contemplated hereby, the Partnership shall be entitled to
receive the condemnation proceeds and the appropriate Contributor
shall, at Closing and thereafter, execute and deliver to the
Partnership and the Company all required assignments of claims and
other similar items. If the Partnership and the Company elect to
terminate this Agreement, then upon written notice to the Contributors
and without further action of the parties, this Agreement shall become
null and void and no party shall have any rights or obligations under
this Agreement. If the Partnership and the Company elect to terminate
this Agreement solely with respect to the affected Property, the
number of Initial Units issuable as set forth in Schedule 1.3(a) with
-------------
respect to such Property shall be reduced by the Contribution Value
of such Property.
IX. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTORS
--------------------------------------------------
The Contributors, jointly and severally, represent and warrant to the
Company and the Partnership that, except as described on the Disclosure
----------
Schedules attached hereto and incorporated by reference herein, the following
- ---------
are true, complete and correct as of the date of this Agreement and as of the
Closing Date.
9.1 Organization. Each Contributor is duly organized and validly existing
------------
and in good standing under the laws of the state of its organization,
and has all requisite power and authority to own or lease and operate
its properties (including the Properties) and assets and conduct its
business in the manner in which they are being owned or leased and
operated and conducted, as the case may be. Each Contributor is duly
qualified and authorized and is in good standing in all jurisdictions
where its ownership, lease or operation of assets and properties
(including the Properties) or the conduct of its business requires
such qualification or authorization.
9.2 Authority. The execution and delivery of this Agreement and all
---------
agreements, documents and instruments contemplated hereby and the
performance of all transactions contemplated herein or therein, have
been duly and validly authorized by all requisite partnership,
corporate or trust action, as the case may be, and by the general
partners, board of directors, stockholders, or trustees of each
Contributor, as the case may be. This Agreement and the agreements,
documents and instruments executed and delivered in connection
herewith constitute the legal, valid and binding obligations of the
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<PAGE>
Contributors, enforceable in accordance with their respective terms.
To the knowledge of the Contributors, no consent, authorization,
approval or waiver by any governmental agency or authority or by any
third party is required in connection with the execution and delivery
of, and the performance of the obligations to be performed under, this
Agreement and the documents and instruments executed and delivered in
connection herewith, or if any of the foregoing is required, it has
been obtained.
9.3 Interest in Contributed Properties. Each Contributor is the record
----------------------------------
and beneficial owner of, and has good and marketable title to, the
interests in the Properties set forth opposite such Contributor's name
on Schedule 1.2, free and clear of all liens, options, adverse claims
------------
or encumbrances, and such interest is not the subject of any agreement
(other than this Agreement) providing for the sale, assignment or
transfer thereof. Such Contributor has the full power, capacity and
authority to sell, transfer and assign the legal and equitable
ownership of his/her or its interest to the Partnership as provided in
this Agreement, Schedule 1.2 is true, complete and accurate in all
------------
respects as to each such Contributor, and the Contributors have not
entered into any agreement and have no knowledge of any agreement or
understanding to issue any additional interests in any Contributor to
any other person or entity.
9.4 Investment. Each Contributor hereby represents and warrants that:
----------
9.4.1 Such Contributor or its Designee is acquiring the Units
issued to him hereunder for investment for his own account
and not as an agent or nominee for any other person or
entity.
9.4.2 Such Contributor or its Designee will not, directly or
indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of such Units (each such
action, a "Transfer") unless (a) such Transfer complies with
the provisions of the Partnership Agreement, if applicable,
and this Agreement, (b) either (i) the Transfer is pursuant
to an effective registration statement under the Act, or (ii)
such Contributor or its Designee shall have furnished the
Company or the Partnership, as the case may be, with an
opinion of counsel which opinion of counsel shall be
reasonably satisfactory to the Partnership or the Company, as
the case may be, to the effect that no such registration is
required because of the availability of an exemption from
registration under the Act, and (iii) such Transfer shall be
in compliance with any applicable state or foreign securities
and "blue sky" laws.
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<PAGE>
9.4.3 Such Contributor or its Designee has been advised by the
Partnership that: (i) neither the offer nor sale of the Units
have been registered under the Act or any state or foreign
securities and "blue sky" laws; (ii) the Units are
characterized as a "restricted security" under the Act
inasmuch as they are being acquired from the Partnership or
the Company, as the case may be, in a transaction not
involving a public offering; (iii) the Units must be held
indefinitely and such Contributor or its Designee must
continue to bear the economic risk of the investment in the
Units, unless the offer and sale of such Units are
subsequently registered under the Act or an exemption from
such registration is available and all applicable state or
foreign securities and "blue sky" laws are complied with;
(iv) it is not anticipated that there will be any public
market for the Units in the foreseeable future; (v) Rule 144
promulgated under the Act is not presently available with
respect to offers or sales of the securities of the Company
or the Partnership and neither the Company nor the
Partnership has covenanted to make such Rule available nor
has it made any covenants with respect to other rules by
which offers or sales may be made; (vi) when and if the Units
may be disposed of without registration under the Act in
reliance on Rule 144, such disposition can be made only in
limited amounts in accordance with the terms and conditions
of such Rule; and (vii) if the Rule 144 exemption is not
available, public offer or sale of the Units without
registration will require the availability of another
exemption under the Act.
9.4.4 Such Contributor or its Designee is (a) an "accredited
investor" as defined in the Act and (b) has such knowledge,
skill and experience in business, financial and investment
matters so that it is capable of evaluating the merits, risks
and consequences of an investment in the Units and is able to
bear the economic risk of loss of this investment.
9.4.5 Such Contributor or its Designee has been afforded (a) the
opportunity to ask such questions as he/she or it has deemed
necessary of, and to receive answers from, representatives of
the Partnership or the Company, as the case may be,
concerning an investment in the Units and the merit and risks
of investing in the Units and (b) access to information about
the Partnership's and the Company's financial condition,
-21-
<PAGE>
business, results of operations and prospects sufficient to
enable him to evaluate his investment in the Units.
9.4.6 Such Contributor or its Designee has relied solely on its own
legal counsel with respect to the federal and state tax
consequences of an investment in the Units and all related
transactions.
9.5 Title to the Properties. The Contributor is the sole owner
-----------------------
beneficially and of record of good, marketable and insurable fee
simple title to the Properties as set forth on Schedule 1.2 free and
------------
clear of all liens, claims or encumbrances except the Permitted
Exceptions, and Schedule 1.2 is true, accurate and complete in all
------------
material respects. Between the date hereof and the Closing Date, no
liens, claims or encumbrances will be created or permitted to be
created on any Property other than the Permitted Exceptions. Prior to
or at the Closing all monetary encumbrances on any Property, other
than the Permitted Exceptions, shall be duly canceled, removed and
discharged of record, and proof thereof satisfactory to the Title
Insurer, the Company and the Partnership shall be delivered to the
Company and the Partnership. Except for Prior Occupants, there are no
parties in possession of any part of the Properties as of the Closing
Date, and there are no other rights of possession, or agreements
providing for the sale, assignment or transfer of title to any
Property or portion thereof (other than this Agreement), which have
been granted to any third parties.
9.6 No Defaults. (a) The Contributor is not in default of any of its
-----------
material obligations under any agreement, franchise, license,
contract, deed, Mortgage, lease, instrument, certificate, affidavit or
covenant affecting title to the Properties; (b) there are no contracts
or agreements, such as maintenance, service, or utility contracts
affecting the Properties other than the Service Contracts, and no
party to such contracts is in material default or breach under the
terms and conditions thereof; and (c) except for the Permitted
Exceptions and the Service Contracts, there are no contracts,
agreements, liabilities, claims or obligations of any kind or nature
relating to the Properties and to which the Contributors will be bound
or the Properties will be subject after the Closing except as
expressly described in Schedule 9.6 attached hereto.
------------
9.7 No Litigation; No Condemnation. There are no actions, suits,
------------------------------
proceedings or claims pending, or to the knowledge of the Contributor,
threatened or contemplated, with respect to or in any manner affecting
the Properties, or the Contributor's interest therein; or the ability
of the Contributors to complete the transactions contemplated by this
Agreement or which could prevent the
-22-
<PAGE>
Contributor from satisfying its obligations under this Agreement. None
of the Contributors have received notice of any pending or threatened
condemnation or similar proceedings or special assessments affecting
the Properties, or any part thereof.
9.8 No Violation. The execution and delivery of this Agreement and the
------------
agreements, documents and instruments executed and delivered in
connection herewith, the consummation of the transactions contemplated
hereby or thereby, and the operation of any Property shall not: (a)
conflict with, or result in a breach of, the terms, conditions or
provisions of, or constitute a default under, any agreement, contract,
Mortgage, deed, lease, license, franchise or instrument to which each
Contributor is a party or is subject or to which any Property is
subject; (b) violate any agreement, contract, Mortgage, deed, lease,
license, franchise, restriction, easement, restrictive covenant, or
instrument to which any Contributor or any Property is subject; (c)
constitute a violation of any applicable code, resolution, law,
statute, regulation, ordinance, rule, judgment, decree or order; (d)
with respect to each Contributor, violate any provision of its
charter, bylaws or other organizational document; (e) except as to any
indebtedness in respect of which the consent of the lender shall have
been obtained prior to the Closing Date, result in the acceleration of
any indebtedness or any encumbrance pertaining to any Contributor or
any Property, or the cancellation of any contract, agreement,
franchise, license, instrument or lease pertaining to any Property
(other than as specifically requested by the Company or the
Partnership pursuant to this Agreement); or (f) except as to any
Permitted Encumbrances, result in the creation of any lien,
encumbrance or security interest upon any Property. None of the
Contributors have received any written notice of any violation (both
as to condition of the Property and use) of any applicable laws,
statutes, ordinances, codes (including, but not limited to, zoning,
building, subdivision, pollution, environmental protection, water
disposal, health, fire and safety engineering codes, and laws and
regulations with respect to the submetering of any utilities serving
any Property), and the rules and regulations of, by governmental
authority having jurisdiction over the Properties.
9.9 Required Obligations. The Contributor has paid and performed all
--------------------
material obligations relating to the Properties required to have been
paid or performed prior to the date hereof and prior to the Closing
Date, including but not limited to all principal installments,
interest payments, taxes, penalties and other charges in connection
with all indebtedness relating to or secured by any of the Properties
or an interest in any of the Properties.
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<PAGE>
9.10 Condition of Properties. Except as disclosed on the Schedule 9.10,
----------------------- -------------
the Contributor has not been notified that the structural, mechanical,
electrical, plumbing, roofing and other major systems on any Property
and items of equipment and components located thereon, require to be
replaced or are in need of material repair.
9.11 Warranties. The Contributor has not released or modified any
----------
warranties of builders, contractors, manufacturers or other
tradespersons that have been given to the Contributor without the
consent of the Company or the Partnership.
9.12 Utilities. Usable sanitary and storm sewers and public water, and
---------
electrical utilities (collectively, the "Utilities") of adequate
capacity required for the operation of the Properties, are installed
in, and are duly connected to, the Properties and can be used without
any charge except the normal user charges for sanitary sewers and the
normal and usual charges imposed for public water, gas and electric
utilities.
9.13 Zoning. Each Property is currently located in the areas zoned for its
------
current use, as indicated on the Schedule 9.13 hereto, which
-------------
classification permits the development, use and operation of the
improvements on such Property as such improvements currently are being
used without special exception or permit. The Contributor has no
knowledge of any threat of, and has not received written notice of,
any proceeding to change adversely or down-zone the existing zoning
classification as to any portion of any Property.
9.14 Improvements. All improvements on the Properties have been
------------
constructed in accordance with, and substantially comply with, all
requirements of all applicable laws, ordinances, regulations and
orders, including without limitation applicable zoning, building and
fire safety codes and all restrictive covenants, if any, and other
easements, encumbrances or agreements affecting title to any
Properties or improvements. For purposes of this Section 9.14,
"substantially" means that Contributor shall not be permitted to
engage in even de minimis non-compliance with applicable laws,
ordinance, regulations and orders if such de minimis non-compliance
could result in any governmental, administrative or other authority
executing any penalty, fine, remedy or other disciplinary action
against the Contributor or Contributor's Business.
9.15 Environmental Matters.
---------------------
9.15.1 For purposes of this Agreement:
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<PAGE>
a. "Environmental Claim" means any claim, action, cause of
action, investigation, or notice (written or oral) by
any person or entity alleging potential liability
(including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property
damages, personal injuries, or civil or criminal
penalties) arising out of or resulting from (i) the
actual or alleged presence or release into the
environment of any Substance of Concern at any
location, whether or not owned or operated by the
Contributor, or (ii) circumstances forming the basis of
any actual or alleged violation of any Environmental
Law.
b. "Environmental Laws" means all federal, state, local,
and foreign laws and regulations relating to pollution
or protection of human health or the environment
(including, without limitation, ambient air, surface
water, ground water, wetlands, land surface, subsurface
strata, and indoor and outdoor workplace), including,
without limitation, (i) laws and regulations relating
to emissions, discharges, releases, or threatened
releases of Substances of Concern, and (ii) common law
principles of tort liability.
c. "Substances of Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous
substances, radioactive materials or genetically
modified organisms, which are, have been or become
regulated by any federal, state or local government
authority including, without limitation, (i) petroleum
or any fraction thereof, (ii) asbestos, (iii) any
substance or material defined as a "hazardous
substance" pursuant to (S) 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act
(42 U.S.C. (S) 9601), or (iv) any substance or material
defined as a "hazardous chemical" pursuant to the
federal Hazard Communication Standard (29 C.F.R. (S)
1910.1200).
-25-
<PAGE>
9.15.2 The Contributor and Property are in full compliance with all
applicable Environmental Laws, which compliance includes, but
is not limited to, possession by the Contributor of all
permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms
and conditions thereof. The Contributor has not received any
communication (written or oral), whether from a governmental
authority, citizens group, employee or otherwise, that
alleges that the Contributor or Property is not in full
compliance with the Environmental Laws, and, to the
Contributor's best knowledge after due inquiry, there are no
circumstances that may prevent or interfere with such full
compliance in the future.
9.15.3 There is no Environmental Claim pending or threatened against
the Contributor or, to the Contributor's best knowledge after
due inquiry, against any person or entity whose liability for
any Environmental Claim the Contributor has retained or
assumed either contractually or by operation of law.
9.15.4 There are no past or present actions, activities,
circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge,
presence, or disposal of any Substance of Concern, at or
relating to any of the Properties that could form the basis
of any Environmental Claim against the Contributor or, to the
Contributors' best knowledge after due inquiry, against any
person or entity whose liability for any Environmental Claim
the Contributor has retained or assumed either contractually
or by operation of law.
9.15.5 Without in any way limiting the generality of the foregoing,
to the best of Contributor's knowledge, (a) all on-site and
off-site locations where the Contributor has treated,
disposed, or arranged for the disposal of Substances of
Concern or stored hazardous wastes (as defined under the
Resource Conservation and Recovery Act or analogous state
laws) are identified in Schedule 9.15.5(a);
------------------
(b) all underground and aboveground storage tanks, whether or
not currently in use, and the capacity and contents of such
tanks, located on any of the Properties are identified in
Schedule 9.15.5(b), and except as set forth in
------------------
Schedule 9.15.5(b) no underground or above ground storage
------------------
tank that has been removed from any
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<PAGE>
Property, or that is currently located at any Property, has
leaked or is leaking; (c) except as set forth on Schedule
--------
9.15.5(c), there is no asbestos contained in or forming part
---------
of any building, building component, structure or office
space on any Property; (d) no polychlorinated biphenyls
(PCBs) are used or stored on any Property; (e) the
Contributor has previously provided to the Company copies of
all environmental audit reports, Phase I and Phase II
investigation reports, technical reports regarding
environmental sampling results, and similar environmental
reports in the possession of the Contributor or its
contractors or agents relating to any Property; and (f) all
permits and other governmental authorizations currently held
by the Contributor for any Property pursuant to the
Environmental Laws are identified in Schedule 9.15.5(f).
------------------
9.16 Insurance. Schedule 9.16 contains a complete and correct
--------- -------------
description of all policies of insurance presently maintained by
the Contributor with respect to all Properties and the operations
thereof. To the knowledge of the Contributor, the Contributor and
the Properties are in compliance with the requirements of each such
policy, there is no violation of any of the provisions of the
insurance policies, and all of such insurance policies are in full
force and effect. The Contributor has not received from any
insurance company which carries underwriters insurance on any
Property, or any Board of Fire Underwriters, any notice of any
defect or inadequacy in connection with any Property or its
operation which, since the date of such notice, has not been
corrected.
9.17 Management. Except as disclosed on the Disclosure Schedules, on
---------- --------------------
the Closing Date, there are and will be no contract or agreement in
effect between the Contributor and any third party for the
management or leasing of any Property, except for those Management
Contracts that the Partnership does not require to be terminated,
and there shall be no leasing commissions due and owing, or to
become due and owing, in connection with any of the Leases.
9.18 Compliance. The Contributor has complied in all material respects
----------
with all laws, ordinances, rules, regulations and orders of all
governmental authorities applicable to the ownership, management,
operation, construction, maintenance and repair of any Property.
9.19 Leases; Rent Rolls. Except as set forth on Schedule 9.19:
------------------ -------------
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<PAGE>
9.19.1 Copies of all Leases for each of the Properties and all parts
thereof, as amended through the date hereof have been made
available to the Company and the Partnership; such copies are and
shall be, in all material respects, true, accurate and complete
records of all agreements and understandings with respect to the
use or lease of all or any portion of any of the Properties or
otherwise constituting Leases that are currently outstanding (as
referenced on the Rent Roll) including all amendments and
modifications thereto.
9.19.2 Schedule 9.19.2 (the "Leases and Rent Roll") is a true, complete
---------------
and correct list of all current Leases for the Properties or any
part thereof.
9.19.3 Each of the Leases is in full force and effect, constitutes the
legal, valid and binding obligation of the Prior Occupant
thereunder, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy and similar laws
affecting the enforcement of creditors' rights generally or
equitable considerations which may affect a court's exercise of its
equitable powers, and has not been modified, amended or extended.
9.19.4 To the knowledge of the Contributor, none of the Prior Occupants is
in default in the performance or observance of any of the terms,
covenants or conditions to be kept, observed or performed by it
under its Lease and no event has occurred which, with the lapse of
time or the giving of notice or both, would constitute a default
thereunder.
9.19.5 No Prior Occupant has an option or right of refusal to purchase any
Property or any part thereof.
9.19.6 Except as specified in the Estoppel Letter approved by the Company
and sent to a Prior Occupant, no Prior Occupant is entitled to any
rebate, concession, deduction or offset.
9.19.7 Except as specified in the Estoppel Letter approved by the Company
and sent to a Prior Occupant, no Prior Occupant has paid any rent,
additional rent or other charge of any nature for a period of more
than thirty (30) days in advance.
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<PAGE>
9.19.8 Except as specified in the Estoppel Letter approved by the Company
and sent to a Prior Occupant, all Prior Occupants are paying full
rental under all Leases.
9.19.9 No Prior Occupant has any claim or basis for any claim for
reduction, deduction or set-off against the landlord or the rent
under such Lease.
9.19.10 No Prior Occupant has given the Contributors, or the landlords (if
different than the Contributors) named in the Leases, oral or
written notice of any intent to terminate its Lease, no Prior
Occupant has refused to execute and deliver the Occupancy Lease at
Closing, or no Prior Occupant has refused to vacate its premises or
such Property, or otherwise to cease occupancy of its premises or
such Property.
9.19.11 The Contributor is the landlord under the Leases.
9.19.12 The Contributor and the landlords (if different than the
Contributor) named in the Leases have performed all obligations,
including repairs, if any, required to be performed by them, and
are not in default under any of the Leases.
9.19.13 Except as disclosed in the Schedule 9.19.13 with respect to rent
----------------
payable to a mortgagee of any Property, the Contributors and the
landlords (if different than the Contributors) named in the Leases
have the sole right to collect all rents under the Lease for that
Property and all parts thereof, and neither such right nor any of
the Leases has been assigned, pledged, hypothecated or otherwise
encumbered.
9.19.14 Neither the Contributor, nor the landlords (if different than the
Contributor) named in the Leases, have received notice, and have no
knowledge, that any default exists under any Lease, and, to such
Contributor's or landlord's knowledge, no event has occurred which
with the lapse of time or the giving of notice or both would
constitute a default thereunder.
9.20 Service Contracts; Management Contracts. Schedule 9.20(a) is a list
--------------------------------------- ----------------
of all employment, union, purchase, service and maintenance agreements,
leasing agreements, listing agreements, equipment leases and any other
agreements, contracts, licenses and permits affecting or pertaining to the
Properties or any part thereof (the "Service Contracts"), and Schedule
--------
9.20(b) is a list of all
-------
-29-
<PAGE>
management contracts relating to the Properties (the "Management
Contracts"). The Contributor is not party to any licenses or
leases of personal property or any other contracts or agreements,
written or oral, of any kind or character, relating to the
management, operation, maintenance or repair of any Property, or
otherwise, except for the Leases and the Service Contracts. The
Contributor has performed all obligations required to be
performed by them and are not in default under any of the Service
Contracts. Each of the Service Contracts is in full force and
effect and constitutes the legal, valid and binding obligation of
the respective parties thereto, enforceable in accordance with
its terms, and has not been modified, amended or extended.
9.21 Permits. All permits, licenses, inspections and other approvals
-------
from all applicable governmental authorities having jurisdiction
over the Contributor and the Properties that are necessary in
connection with the operation of the use, ownership and operation
of the Properties as they are currently used, have been obtained
and are in full force and effect.
9.22 Financial Statements. The Contributor has delivered to the
--------------------
Partnership and the Company the Financial Statements (as defined
in Section 12.2.1) and the related statements of income, changes
in equity, and cash flow and all schedules and the notes thereto.
The Financial Statements: (a) present fairly the financial
condition and the results of operations, changes in equity, and
cash flow of each Property, as at the respective dates of and for
the periods referred to in such Financial Statements, all in
accordance with generally accepted accounting principles and
standards; (b) reflect the consistent application of such
accounting principles throughout the periods involved and for
each and all Properties; and (c) are true, complete and correct.
Since the latest date of the Financial Statements, there have
been no changes in any of the accounting policies, practices or
procedures of the Contributor.
9.23 Undisclosed Liabilities. Schedule 9.23 hereto is a true,
----------------------- -------------
complete and accurate description of all debts, liabilities and
obligations of the Contributor relating to each of the
Properties. There are no debts, liabilities or obligations
(whether known or unknown, disputed or undisputed, fixed,
contingent or otherwise) associated with or relating to any of
the Properties, or secured by any of the Properties, other than
those specified and described on Schedule 9.23 hereto.
-------------
9.24 Contracts. Attached hereto as Schedule 9.24 is a complete and
--------- -------------
accurate list of all contracts, agreements or understandings
(whether or not in writing), other than the Leases, Service
Contracts and Management Contracts, relating to any of the
Properties, to which the Contributor is a party or by which it or
any of the Properties is bound.
-30-
<PAGE>
9.25 Tax Matters. The Contributors or their Designees have relied
-----------
solely on their own counsel for advice on any and all tax matters
relating to this Agreement and have not relied on any advice or
representations of the Company, the Partnership, or their counsel
with respect to any tax matters relating to this Agreement.
9.26 Employee Benefit Liabilities. Except as listed on Schedule 9.26,
---------------------------- -------------
neither the Contributor nor any entity or Affiliate currently or
previously within a controlled group or under common control with
the Contributor within the meaning of Section 414(b) or (c) of
the Code or Section 4001 of the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended ("Controlled Group
Member"), currently sponsors or has previously sponsored,
contributed to, or been obligated to contribute to, any defined
benefit pension plan subject to Title IV of ERISA or any plan
subject to the funding rules of Section 412 of the Code or
Section 302 of ERISA ("Pension Plans"). All Pension Plans are
fully funded on a termination basis (using Pension Benefit
Guaranty Corporation assumptions), and each Contributor and
Controlled Group Member has timely made all funding contributions
required by Section 302 or Title IV of ERISA or Section 412 of
the Code. No Contributor or Controlled Group Member has any
actual or contingent liability with respect to any terminated
Pension Plan. Neither the Property nor any other assets of the
Contributor are subject to liens under the Code or ERISA with
respect to any employee benefit plan.
9.27 [Intentionally Omitted]
9.28 Taxes. The Contributor has filed all federal, state and local
-----
tax returns required to be filed by the Contributor. With respect
to any periods prior to the Closing Date, the Contributor (i) has
no knowledge of any unpaid taxes that would create a lien on any
Property, and (ii) has paid in full all taxes and assessments
payable or is diligently pursing with the appropriate authority
any dispute the Contributor has regarding any unpaid taxes or
assessments as of the Closing Date.
9.29 Special Filings. The Contributor is not required to submit any
---------------
notice, report or other filing to any governmental or regulatory
authority in connection with the execution, delivery or
performance of this Agreement or any document or instrument
executed and delivered in connection herewith or the consummation
of the transactions contemplated hereby other than the filing of
the tax returns required by the terms of this Agreement; and no
consent, approval or authorization of any governmental or
regulatory authority is required to be obtained by the
Contributor in connection with the execution,
-31-
<PAGE>
delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby.
9.30 [Intentionally Omitted]
9.31 Books and Records. The books and records of the Contributor with
-----------------
respect to each Property, all of which have been or will be made
available to the Company and the Partnership, are, and will be at
all times until Closing, complete and correct in all material
respects. All of such books and records shall be delivered to the
Company prior to the Closing.
9.32 No Brokers. Except as set forth on the Disclosure Schedule, the
----------
Contributor has not dealt with any agent, broker or other person
acting pursuant to express or implied authority of the
Contributor, and no person or entity is entitled to a commission
or finder's fee in connection with the contribution described by
this Agreement or will be entitled to make any claim against the
Company, or the Partnership for a commission or finder's fee by
reason of the Contributor having engaged him/her/it.
9.33 All Material Information. With respect to all information,
------------------------
statements, representations and warranties made herein, any
agreements or documents contemplated hereby, any schedules or
exhibits hereto, and any certificates or instruments delivered in
connection herewith, the Contributor hereby represent and warrant
that no information, statement, representation or warranty herein
or therein contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the
circumstances in which made, not misleading; or necessary in
order to provide the Partnership or the Company with true,
accurate and complete information. The Contributor has no
knowledge or information of any facts, circumstances or
conditions which do or could (whether by the passage of time or
the giving of notice or both) materially and adversely affect any
Property or the operation or intended use of the same.
9.34 Survival of Warranties, Representations and Covenants. The
-----------------------------------------------------
foregoing representations and warranties shall not be affected by
any investigation or verification made by or on behalf of the
Company or the Partnership. The representations, warranties and
covenants of Contributors made in this Agreement shall survive
the Closing and consummation of the transactions contemplated
hereby, and shall remain in full force and effect so long as the
Company or the Partnership provides the Contributor with written
notice of any breach, violation or right to indemnification
thereunder within a period ending 24 months from the date of this
Agreement, except that in the case of
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<PAGE>
any claim arising out of the representations or warranties herein
relating to Section 9.15 (Environmental Matters) and Section 9.24
(Taxes), and Section 9.26 (Employee Benefit Liabilities), such
representations and warranties shall survive in each case until
the applicable statute of limitations has run. After Closing,
neither the Company nor the Partnership shall prosecute any claim
against the Contributor for a breach of the foregoing
representations and warranties if the Company or the Partnership
have obtained actual knowledge of such breach prior to Closing.
X. [INTENTIONALLY OMITTED]
XI. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARTNERSHIP
-----------------------------------------------------------------
The Partnership and the Company, jointly and severally, represent and
warrant to the Contributor that the following are true, complete and correct as
of the date of this Agreement and as of the Closing:
11.1 Organization, Good Standing and Qualification. Each of the
---------------------------------------------
Company and the Partnership (i) is an entity duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has all requisite power
and authority to carry on its business and own or lease and
operate its assets and properties in the manner in which it is
being conducted and owned or leased and operated, as the case may
be, and (ii) is duly qualified to transact business and is in
good standing in all jurisdictions where its ownership, lease or
operation of its properties or assets or the conduct of its
business requires such qualification.
11.2 Authorization. The execution and delivery of this Agreement and
-------------
all agreements, documents and instruments contemplated hereby and
the performance of all transactions contemplated herein or
therein, have been duly and validly authorized by all requisite
action by the Company and its board of trustees; and by all
requisite action of the Partnership. This Agreement and the
agreements, documents and instruments executed and delivered in
connection herewith constitute the legal, valid and binding
obligation of each of the Company and the Partnership,
enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability,
to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at
law or in equity) and except to the extent that rights to
indemnification and contribution under or
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<PAGE>
contemplated by this Agreement or such other agreements may be
limited by federal or state securities laws or public policy
relating thereto.
11.3 No Violation. The execution and delivery of this Agreement and
------------
the agreements, documents and instruments executed and delivered
in connection herewith, the consummation of the transactions
hereby or thereby, and the operation of any Property shall not:
(i) conflict with, violate, or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, any
agreement, contract, Mortgage, deed, lease, license, franchise or
instrument to which the Company or the Partnership is a party or
is subject; (ii) constitute a violation of any applicable code,
resolution, law, statute, regulation, ordinance, rule, judgment,
decree or order to the Company or the Partnership; or (iii)
violate any provision of the organizational documents of the
Company or the Partnership.
11.4 Listed Shares. At the time of Closing, the Company's Shares
-------------
shall be listed and traded on The Nasdaq Stock Market National
Market and there will have been no suspension of trading in such
Shares.
11.5 Tax Status. As of the Closing, the Partnership will be qualified
----------
as a partnership for Federal income tax purposes, and the Company
will be qualified as a real estate investment trust organized
under the laws of the State of Maryland.
11.6 No Litigation. Neither the Partnership nor the Company is
-------------
involved in any pending or, to its knowledge, threatened
litigation that would materially or adversely effect its
operations or financial condition or the ability to perform under
this Agreement or the Partnership Agreement.
11.7 No Brokers. Except as set forth in the Disclosure Schedule,
----------
neither the Partnership nor the Company has dealt with any agent,
broker or other person acting pursuant to express or implied
authority of either such party, and no person or entity is
entitled to a commission or finder's fee in connection with the
transactions contemplated by this Agreement or will be entitled
to make any claim against any Contributor for a commission or
finder's fee by reason of the Company or the Partnership having
engaged him/her/it.
11.8 Survival. The representations and warranties of the Company and
--------
the Partnership made in this Section 11 shall survive the Closing
and consummation of the transactions contemplated hereby, and
shall remain in full force and effect so long as the Contributor
provides the Company or the Partnership with written notice of
any breach, violation or right to indemnification thereunder
within a period ending twenty-four (24) months
-34-
<PAGE>
from the date of this Agreement. After Closing, the Contributor
shall not prosecute any claim against the Company or the
Partnership for a breach of the foregoing representations and
warranties if the Contributor obtained knowledge of such breach
prior to Closing.
XII. COVENANTS
---------
12.1 Covenants of the Company and the Partnership. Each of the
--------------------------------------------
Company and the Partnership hereby covenants as follows:
12.1.1 Immediately prior to the Closing Date, Robert M.
Rosenthal shall be elected or appointed to the Board of
Trustees of the Company.
12.1.2 If this Agreement is terminated for any reason, (a) the
Partnership and the Company shall promptly return to
Contributors all materials furnished by Contributors to
the Partnership and the Company pursuant to this
Agreement, and (b) the Partnership and the Company
shall promptly restore the Properties to substantially
the same condition in which they existed immediately
before any physical tests conducted by or on behalf of
the Partnership and the Company pursuant to the
purposes of this Agreement.
12.1.3 Prior to the Closing Date, except as may be required to
be disclosed by law (including federal and state
securities laws, and the rules and regulations
thereunder), regulation or legal process, or unless
otherwise consented to in writing by the Contributors,
which consent shall not be unreasonably withheld, the
Partnership and the Company shall keep all information
learned by the Partnership and the Company in
connection with the Properties or any operation thereof
confidential.
12.1.4 In connection with inspection of the Properties, the
Partnership and the Company shall not unreasonably
interfere with any Prior Occupants or any Contributor's
business operations.
12.1.5 The Partnership shall not sell, repay Mortgage Debt,
finance, refinance or otherwise take any actions that
are prohibited with respect to any specified Properties
to the extent described on Schedule 12.1.5.
---------------
Notwithstanding the
-35-
<PAGE>
provisions of this Section, the Partnership may (A) at
any time, sell or exchange one or more of the
Properties in a "like kind exchange" under Section 1031
the Code (or any successor or similar section) in which
no gain is recognized by the Partnership and reasonable
provisions are made (such as by substituted debt) to
avoid triggering gain to the Contributor, or (B) sell
properties upon the repurchase of the Units for cash,
conversion of the Units to Shares or the transfer of
the Units. Notwithstanding the provisions of this
Section, the Company may sell the Properties which
relate to the: (1) closure of the Dealership on such
Property due to termination of the Franchise Agreement,
(2) sale of the Dealership on such Property, or (3)
closure of the Dealership on such Property for any
reason if a new Dealership does not open on such
Property with 24 months, unless expressly waived by the
Company.
12.1.6 Nothing in this Agreement, including Section 12.4 and
Section 12.5, shall require the Company or the
Partnership to take any action on the part of the
Partnership or the Company which the Trustees of the
Company believe are not in the best interests of the
Company's shareholders or refrain from taking any
action on the part of the Partnership or the Company
which the Trustees of the Company believe to be in the
best interests of the shareholders of the Company,
except that the Company and the Partnership shall be
required to perform any obligation imposed upon the
Company or the Partnership for the benefit of the
Contributor by this Agreement. The Partnership shall be
entitled from time to time as necessary to seek and
rely on a certificate, signed either by the Transfer
Agent or by the holders of a majority of the then
outstanding Initial Units issued hereunder to the
Contributors, of the basis and at risk amounts relevant
to the provisions of this Section.
12.1.7 For purposes of Section 704(c) of the Code, the
Partnership will use the traditional with ceiling
method of making allocations respecting all properties
contributed to the Partnership at or before the
Closing. For purposes of this Section 12.1.7, upon
disposition of a Property, the Partnership may make a
curative allocation of the type described in Treasury
Regulation Section 1.704-3(c)(3)(iii)(B).
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12.1.8 So long as the Contributors and their Permitted
Transferees hold 10% or more of the Initial Units, the
Company agrees that from and after the Closing Date
substantially all of the Company's business for profit
shall be conducted by or through the Partnership;
provided, however, that business may be conducted
through the Company or a Company subsidiary provided
that all labor, services and goods furnished by the
Company or its subsidiary shall be at the cost of such
entity, substantially all of the pecuniary benefit
derived from such activity shall inure to the benefit
of the Partnership, and the Company shall not make any
distributions to its shareholders from any funds, other
than distributions that the Company receives from the
Partnership in respect of its Units.
12.2 Covenants of the Contributors and the Contributing Entities. The
-----------------------------------------------------------
Contributor hereby covenants and agrees as follows:
12.2.1 The Contributor shall deliver to the Partnership such
audited financial statements and financial statement
schedules for the Properties and the Contributor and
its Affiliates (collectively, the "Financial
Statements") in form acceptable to Arthur Andersen LLP
as may be required or appropriate for reporting in the
Registration Statement, any registration statement
under the Securities Act of 1933, and in reports to
filed by the Company under the Securities Exchange Act
of 1934, and, in connection with the Registration
Statement, shall provide accountant's comfort letters
as are typically delivered on the effective date and
the closing date of a registered public offering of
securities.
12.2.2 If this Agreement is terminated as to all Properties
for any reason, the Contributor shall promptly return
to the Company or the Partnership, as the case may be,
all materials furnished by the Company or the
Partnership, to such Party pursuant to this Agreement.
12.2.3 The Contributor shall keep all information learned by
such party in connection with the Partnership or the
Company or any operation thereof confidential.
12.2.4 On the Closing Date, each Contributor shall enter or
shall cause such other party as is reasonably requested
by the
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Company or the Partnership to enter into the Company
Leases and such service or other agreements as the
Company and the Partnership shall request.
12.2.5 In the event that facts or circumstances are discovered
or develop that could form the basis of an
Environmental Claim with respect to a specific Property
or Properties, the Contributor(s) of such Property or
Properties shall take all actions necessary to fully
address such circumstances, including, without
limitation, providing notice to appropriate
governmental authorities; conducting environmental
studies, sampling and testing procedures; taking
remedial action; and modifying operations or physical
facilities to otherwise eliminate potential liability
and ensure full compliance with the Environmental Laws.
Without limiting the foregoing, each Contributor shall
ensure that it has identified any underground storage
tanks ("USTs") used in conjunction with its operations
and that all registration, investigation, remedial
action and technical upgrade requirements have been
complied with fully in respect of each such UST.
12.3 No Claim Against Contributed Property. Each Contributor hereby
-------------------------------------
represents, warrants, covenants and agrees that, as of the
Closing Date, he/she/it: (i) will have no claim of any kind or
nature against any Property by reason of the execution of this
Agreement; (ii) hereby waives, releases and discharges any claim
he/she/it has or may have; and (iii) shall not make any claim or
bring any action against any Property or the Company or the
Partnership for or in respect thereof. Notwithstanding Section
9.34, this representation, warranty, covenant and agreement shall
survive the closing of the transactions contemplated hereby and
shall continue in effect.
12.4 DRO Election; Bottom Guaranty Election.
--------------------------------------
12.4.1 The Partnership hereby agrees to send to each
Contributor (the "Annual Notice") who holds Initial
Units the following information on an annual basis at
least 30 days prior to the filing of the tax return of
the Partnership:
a. the amount of the debt secured by the
Partnership's properties and the amount of the
Partnership's total recourse, non-recourse and
partner non-recourse debt as of the end of the
most recent fiscal year;
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b. the amount of recourse, nonrecourse, and partner
non-recourse debt allocated to each such
Contributor;
c. the adjusted basis of the Partnership's properties
as of the end of the most recent fiscal year; and
d. the projected taxable income or loss of the
Partnership for such fiscal year.
12.4.2 Each Contributor who holds Initial Units, at its
written election but with no obligation to do so, may
affirmatively make on an annual basis (a) a DRO
Election or (b) a Bottom Guaranty Election. Any such
election shall be made by notice delivered to the
Partnership no later than the 30th day after the Annual
Notice was given.
12.4.3 A DRO Election shall state that if the Contributor has
a deficit balance in its capital account following the
liquidation of the Contributor's interest in the
Partnership or the liquidation of the Partnership, as
the case may be, such Contributor shall contribute to
the capital of the Partnership, no later than the end
of the fiscal year during which the Contributor's
interest in the Partnership is liquidated or during
which the Partnership is liquidated, as the case may be
(or, if later, 90 days after the date on which the
Contributor's interest in the Partnership is
liquidated, as the case may be) (the "Liquidation
Date") an amount of money equal to a designated portion
of the deficit in the Contributor's capital account.
The term "liquidation" shall have the meaning given to
it in Treas. Regs. Section 1.704-1.
12.4.4 A Bottom Guaranty Election shall state that if the
Partnership shall be in default with respect to the
Mortgage securing any of the properties of the
Partnership, then the Contributor agrees to contribute
to the capital of the Partnership a designated portion
of the principal balance of such Mortgage (the
"Contribution Limit"); however, such contribution shall
only occur if the mortgage lender shall have exhausted
all of its remedies against such property in order to
collect the amount owing the mortgage lender, and such
Contribution Limit shall be reduced on a dollar-for-
dollar basis for every dollar received by the mortgage
lender from exercising such
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<PAGE>
remedies. Any such contribution shall be made by the
Liquidation Date. For example, if the amount of the
Mortgage were $10,000,000 and the amount of the
Contribution Limit were $1,000,000, the capital
contribution would only be required if the Property
were sold in foreclosure and the proceeds of sale were
less than $1,000,000. In the event that more than one
Partner submits a Bottom Guaranty Election with respect
to the same debt, the Partnership shall notify each
such Partner and allow such Partners to appropriately
modify their respective Bottom Guaranty Elections.
12.4.5 Limitations on Indebtedness. The Company will use its
----------------------------
best efforts to maintain Mortgage Debt with respect to
the Properties and in the amounts as described on
Schedule 12.4.5, until such time as the number of
---------------
outstanding Units issued to the Contributor hereunder
is not more than the number of Units specified on such
Schedule.
XIII.DUE DILIGENCE PERIOD
--------------------
13.1 Due Diligence Period. The period from the date hereof until the
--------------------
Closing Date is referred to herein as the "Due Diligence Period."
13.2 Access to Properties and Materials. During the Due Diligence
----------------------------------
Period and upon twenty-four (24) hours prior notice, the Company
and the Partnership and their agents, engineers, surveyors,
appraisers, auditors, counsel and other representatives shall
have the right to enter upon the Properties to inspect, examine,
survey, obtain engineering inspections and environmental studies,
appraise, and otherwise do that which, in the opinion of the
Partnership and the Company, is necessary to determine the
boundaries, acreage and condition of the Properties and to
determine the suitability of the Properties for the uses intended
by the Partnership (including, without limitation, inspect,
review and copy any and all documents in the possession or
control of Contributors, or their respective agents, contractors
or employees, and which pertain to the construction, ownership,
title, use, occupancy or operation of the Properties or any part
thereof). During the Due Diligence Period, the Contributors, at
their expense and at such times as will not unreasonably
interfere with the business being conducted on the Property or
hinder the Partnership's due diligence review, shall make
available to the Company and the Partnership copies or originals
of all of their respective books, files and records relating in
any way to the Properties, complete copies (or originals when
requested) of all title information and title insurance
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policies, easements, leases, brokerage agreements, licenses,
permits, surveys, zoning information, environmental reports,
structural reports, violation or default notices, contracts, tax
bills and assessments, information regarding pending or
threatened claims, suits or proceedings, and all consents and
other documents required to be obtained for the completion of the
transactions contemplated hereunder.
13.3 Adjustment Following Due Diligence. If the Company determines
----------------------------------
that one or more representations or warranties or any information
included on any Disclosure Schedule relating to any Property is
-------------------
incomplete or inaccurate in any material respect (the "Non-
Conforming Property"), the Company shall have the option to: (a)
proceed with the transactions contemplated hereby, (b) declare
this Agreement null and void in which case no party shall have
any rights or obligations under this Agreement, or (c) terminate
this Agreement with respect to such Non-conforming Property and
proceed with the transactions hereby with respect to the other
Properties, in which case the number of Units issuable hereunder
shall be reduced by the Contribution Value of such Non-Conforming
Property. Notwithstanding anything herein to the contrary, if the
Partnership excercises its rights under Section 13.3(c) above
with respect to any Non-Conforming Property other than due to a
title defect (pursuant to Section 5.3) or a misrepresentation or
breach of any environmental representation, warranty or covenant
(as set forth in Section 9.15), then the Contributors shall have
the option of declaring this Agreement null and void with respect
to all Properties.
XIV. DEFAULTS AND REMEDIES
---------------------
14.1 Indemnification by Contributors. The Contributors, jointly and
-------------------------------
severally (each, for purposes of Sections 14.1 and 14.2, a
"Contributor Indemnifying Party"), shall indemnify, defend and
hold harmless the Partnership, the Company and their respective
shareholders, partners, trustees, officers, agents,
representatives, employees, Affiliates, successors and assigns
(collectively, for purposes of this paragraph, the "Company
Indemnified Parties") from and against any and all losses,
damages, claims, liabilities, actions, suits, proceedings and
costs and expenses of investigation or defense thereof, including
attorneys' fees payable as incurred, arising out of or relating
to any (a) misrepresentation or breach of warranty by such
Contributor Indemnifying Party or nonfulfillment of any covenant
or agreement to be performed or complied with by such Contributor
Indemnifying Party under this Agreement and any agreement,
document, instrument, certificate, schedule or exhibit
contemplated hereby; (b) untrue or incomplete statement of a
material fact contained in any statement or information provided
by such Contributor Indemnifying Party or based on
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any omission to state therein a material fact required to be
stated therein or other information necessary to make the
statements therein not misleading; (c) any debts, liabilities or
obligations (whether known or unknown, disputed or undisputed,
fixed, contingent or otherwise) associated with or relating to
any of the Contributor Indemnifying Parties, their officers,
directors, partners, trustees or Affiliates or the Properties, or
secured by any of the Contributor Indemnifying Parties, or by any
of the Properties, except those specified on Schedule 9.23
-------------
hereto, including any obligations under any of the Leases and
Service Contracts, to the extent any such obligation was to be
performed prior to the Closing Date, or was to be performed after
the Closing Date as a result of a breach or default under any of
the Leases or Service Contracts by the Contributor Indemnifying
Parties or their Affiliates prior to the Closing Date; (d) any
action taken, or any failure to act, by such Contributor
Indemnifying Party in connection with this transaction and the
transactions contemplated herein constituting a breach of this
Agreement or any agreement, document or instrument contemplated
hereby or a breach of a duty owed to any person, including,
without limitation, any action taken to redeem or otherwise
liquidate the interest of certain holders in anticipation of the
transactions contemplated herein, to the extent such action or
failure to act results in a violation (or alleged violation) of
applicable laws or of the fiduciary duties owed to such holders;
(e) pollution or threat to human health or the environment, or
any Environmental Claim against any person or entity whose
liability for such Environmental Claim the Contributors have
assumed or retained either contractually or by operation of law,
that is related in any way to any of the Properties, including,
without limitation, all on-site and off-site activities relating
to any of the Properties involving Substances of Concern, and
that occurred, existed, arises out of conditions or circumstances
that occurred or existed, or was caused, in whole or in part, on
or before the Closing Date, whether or not the pollution or
threat to human health or the environment, or the existence of
any Environmental Claim, is known to the Contributor Indemnifying
Parties; (f) regardless of whether it arises as a breach of any
representation or warranty, any debts, liabilities or obligations
of the Contributor Indemnifying Parties (whether known or
unknown, disputed or undisputed, fixed, contingent or otherwise)
of, associated with or relating to any asset or property other
than the Properties, except those specified on Schedule 9.23
-------------
hereto; and (g) any and all damages and expenses incident to any
of the foregoing or to the enforcement of this Section 14.2.
14.2 Remedies.
--------
14.2.1 Subject to subsection 14.2.2 and 14.2.3 hereof, after
the Closing hereunder, the Company or the Partnership,
in the event of a breach of any representation or
warranty under
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Section 9 hereof, also may proceed against the person
or entity identified on Schedule 14.2.1 personally (the
---------------
"Personal Indemnitor").
14.2.2 Each Contributor Indemnifying Party shall be fully
responsible and severally liable for any of the
following and any and all losses, damages, claims,
liabilities, actions, suits, proceedings and costs and
expenses of defense thereof, including attorneys' fees
payable as incurred, arising out of or relating to: (a)
each representation and warranty made by he/she/it
hereunder relating to or associated with title to
his/her/its interest in any Property, his/her/its
ability to convey his interest as contemplated by this
Agreement, and his/her/its representations under
Section 9.4 hereof; (b) regardless of whether it arises
as a breach of any representation or warranty, any
debts, liabilities or obligations (whether known or
unknown, disputed or undisputed, fixed, contingent or
otherwise) of, associated with or relating to any of
the Contributor Indemnifying Parties or the Properties,
or secured by any of the Contributor Indemnifying
Parties or by any of the Properties, except those
specified on Schedule 9.23 hereto, and (c) regardless
-------------
of whether it arises as a breach of any representation
or warranty, any debts, liabilities or obligations of
the Contributor Indemnifying Parties (whether known or
unknown, disputed or undisputed, fixed, contingent or
otherwise) of, associated with or relating to any other
asset or property other than the Properties, except
those specified on Schedule 9.23 hereto.
-------------
14.2.3 Each Contributor hereby represents, warrants, covenants
and agrees that he/she/it presently has, a tangible net
worth (such term meaning net worth exclusive of the
value (if any) of goodwill, going concern value and
similar assets, but inclusive of the value of shares of
stock, interests in partnerships and other business
enterprises and similar assets) of not less than the
aggregate Contribution Amounts, minus all Mortgage Debt
for all Properties being acquired by the Partnership
pursuant to this Agreement.
14.3 Indemnification by the Company and the Partnership. The Company
--------------------------------------------------
and the Partnership (each, for purposes of this Section 14.3, a
"Company Indemnifying Party") shall indemnify, defend and hold
harmless each Contributor and their respective shareholders,
partners, directors, officers,
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partners, agents, employees, Affiliates, successors and assigns
(collectively, for purposes of this paragraph, "Contributor
Indemnified Parties") from and against any and all losses,
damages, claims, liabilities, actions, suits, proceeds and costs
and expenses of defense therefore, including attorneys' fees
payable as incurred, arising out of or relating to any (a)
misrepresentation or breach of warranty by such Company
Indemnifying Party or nonfulfillment of any covenant or agreement
to be performed or complied with by such Company Indemnifying
Party under this Agreement; (b) untrue or incomplete statement
(or allegation by a third party of an untrue or incomplete
statement) of a material fact contained in any statement or
information provided by such Company Indemnifying Party or based
on any omission (or allegation by a third party of an untrue or
incomplete statement) to state therein a material fact required
to be stated therein or other information necessary to make the
statements therein not misleading, to the extent such alleged
untrue or incomplete statement or omission was made with the
Company's or the Partnership's knowledge that the statement was
untrue or incomplete or omitted to state a material fact; (c) any
debts, liabilities or obligations (whether known or unknown,
disputed or undisputed, fixed, contingent or otherwise) specified
on Schedule 9.23 hereto or arising and incurred after the Closing
-------------
Date (other than as a result of a breach by any Contributor of
any representation, warranty, covenant or agreement hereunder),
including the obligations under any Service Contracts that
survive the Closing Date, to the extent any such obligation is to
be performed after the Closing Date, except to the extent any
such obligation is to be performed after the Closing Date as a
result of a breach or default under any of the Leases or Service
Contracts by the Contributor prior to the Closing Date; and (d)
any and all damages and expenses incident to any of the foregoing
or to the enforcement of this Section 14.3.
14.4 Indemnification Procedures. All claims for indemnification under
--------------------------
this Article 14 shall be asserted and resolved as follows:
14.4.1 In the event that any Contributor Indemnified Party or
Company Indemnified Party (the "Indemnified Party") has
a Claim against any Contributor Indemnifying Party or
Company Indemnifying Party obligated to provide
indemnification pursuant to Sections 14.1 or 14.2
hereof, on the one hand, or Section 14.3 hereof, on the
other hand (the "Indemnifying Party"), which does not
involve a claim being asserted against or sought to be
collected by a third party, the Indemnified Party shall
with reasonable promptness send a written notice (the
"Claim Notice") with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not
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<PAGE>
notify the Indemnified Party within the fifteen days
thereafter (the "Notice Period") that the Indemnifying
Party disputes such claim, the amount of such claim
shall be conclusively deemed a liability of the
Indemnifying Party hereunder. In case an objection is
made in writing in accordance with this Section 14.4.1,
the Indemnified Party shall have thirty (30) days to
respond in a written statement to the objection. If
after such thirty (30) day period there remains a
dispute as to any claims, the parties shall attempt in
good faith for sixty (60) days to agree upon the rights
of the respective parties with respect to each of such
claims. If the parties should so agree, a memorandum
setting forth such agreement shall be prepared and
signed by both parties.
14.4.2 In the event that any claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder
is asserted, or any action or proceeding commenced,
against an Indemnified Party by a third party, the
Indemnified Party shall with reasonable promptness
notify the Indemnifying Party of such claim, specifying
the nature of such claim and the amount or the
estimated amount thereof to the extent then feasible
(which estimate shall not be conclusive of the final
amount of such Claim) (the "Third Party Claim Notice").
The Indemnifying Party shall have 30 days from the
receipt of the Claim Notice (the "Third Party Notice
Period") to notify the Indemnified Party (a) whether or
not such party disputes the liability to the
Indemnified Party hereunder with respect to such claim
and (b) if such party does not dispute such liability,
whether or not the Indemnifying Party desires, at the
sole cost and expense of the Indemnifying Party, to
defend against such claim, provided that such party is
hereby authorized (but not obligated) prior to and
during the Third Party Notice Period to file any
motion, answer or other pleading and to take any other
action which the Indemnifying Party shall deem
necessary or appropriate to protect the Indemnifying
Party's interests. In the event that the Indemnifying
Party notifies the Indemnified Party within the Third
Party Notice Period that the Indemnifying Party does
not dispute the Indemnifying Party's obligation to
indemnify hereunder and desires to defend the
Indemnified Party against such claim, except as
hereinafter provided, such party shall have the right
to defend by appropriate proceedings. No non-monetary
settlement of any such matter shall be entered into
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without the written consent of the Indemnified Party,
which consent shall not be unreasonably withheld;
provided that, unless the Indemnified Party otherwise
agrees in writing, such party may not settle any matter
(in whole or in part) unless such settlement includes a
complete and unconditional release of the Indemnified
Party. If the Indemnified Party desires to participate
in, but not control, any such defense or settlement the
Indemnified Party may do so at its sole cost and
expense. If the Indemnifying Party elects not to defend
the Indemnified Party against such claim, whether by
failure of such party to give the Indemnified Party
timely notice as provided above or otherwise, then the
Indemnified Party, without waiving any rights against
such party, may settle or defend against any such claim
in the Indemnified Party's sole discretion and the
Indemnified Party shall be entitled to recover from the
Indemnifying Party the amount of any settlement or
judgment to the extent the Indemnified Party is
entitled to indemnification and, on an ongoing basis,
all indemnifiable costs and expenses of the Indemnified
Party with respect thereto, including interest from the
date such costs and expenses were incurred.
14.4.3 If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in
writing to the Indemnifying Party, any such claim seeks
material prospective or other relief which could have a
materially adverse effect on the assets, liabilities,
financial condition, results of operations or business
prospects of any Indemnified Party or in the reasonable
opinion of counsel for the Indemnified Party a conflict
exists, the Indemnified Party shall have the right to
control or assume (as the case may be) the defense of
any such claim and the amount of any judgment or
settlement and the reasonable costs and expenses of
defense shall be included as part of the
indemnification obligations of the Indemnifying Party
hereunder. If the Indemnified Party should elect to
exercise such right, the Indemnifying Party shall have
the right to participate in, but not control, the
defense of such claim or demand at the sole cost and
expense of the Indemnifying Party.
14.4.4 Nothing herein shall be deemed to prevent the
Indemnified Party from making a claim, and an
Indemnified Party may make a claim hereunder, for
potential or contingent claims or
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<PAGE>
demands provided the Claim Notice or Third Party Claim
Notice, as the case may be, sets forth the specific
basis for any such potential or contingent claim or
demand to the extent then feasible and the Indemnified
Party has reasonable grounds to believe that such a
claim or demand may be made.
14.4.5 The Indemnified Party's failure to give reasonably
prompt notice as required by this Section 14.4 of any
actual, threatened or possible claim, demand, action or
proceeding which may give rise to a right of
indemnification hereunder shall not relieve the
Indemnifying Party of any liability which the
Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and
adversely prejudiced the Indemnifying Party or
increases the amount of indemnification which the
Indemnifying Party is obligated to pay hereunder. In
any such event, the amount of indemnification which the
Indemnified Party will be entitled to receive hereunder
shall be reduced to an amount which the Indemnified
Party would have been entitled to receive had such
notice been timely.
XV. MISCELLANEOUS
-------------
15.1 Assignment. Neither this Agreement nor any interest hereunder
----------
may be assigned or transferred by any Contributor, the Company or
the Partnership without the prior written consent of the parties
hereto.
15.2 Entire Agreement. Any prior agreement or understanding among the
----------------
parties concerning the subject matter hereof is hereby
superseded. This Agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof and the
transactions contemplated herein and shall not be modified or
amended except in a written document signed by all of the parties
hereto.
15.3 Notices. All notices or other communications required or
-------
permitted under this Agreement shall be in writing and delivered
personally or by registered or certified mail, return receipt
requested, postage prepaid, or by a nationally recognized
overnight courier (such as Federal Express) with receipted
delivery. Notices to the parties shall be addressed as follows:
If to the Contributors to the addresses contained in Schedule I;
----------
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<PAGE>
with a copy to:
___________________________
___________________________
___________________________
Attention: ________________
___________________________
If to the Partnership or to the Company:
Capital Automotive REIT
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
Attention: Thomas D. Eckert, President and Chief Executive Officer
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<PAGE>
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037
Attention: George P. Stamas, Esq.
All notices given in accordance with the terms hereof shall be deemed
effective (a) if delivered in person or by overnight courier, on the business
day it is delivered, and (b if sent by registered or certified mail, three (3)
business days after deposit with the U.S. mail. Any party hereto may change its
address by written notice to all parties hereto sent in accordance with the
terms of this Section and any such Notice of change of address shall be
effective five (5) days after delivery.
15.4 Governing Law. This Agreement shall be governed and interpreted
-------------
in accordance with the laws of the Commonwealth of Virginia
without regard to its principles of conflicts of laws, and any
action brought under or arising out of this Agreement or the
matters relating hereto shall be submitted to the jurisdiction of
the United States District Court for the Eastern District of
Virginia. Each party acknowledges and agrees to such
jurisdiction.
15.5 Litigation Costs. If there is any legal action or proceeding
----------------
between the parties hereto arising from or based upon this
Agreement, the unsuccessful party to such action or proceeding
shall pay to the prevailing party all litigation costs and
expenses, including reasonable attorneys' fees, incurred by such
prevailing party in such action or proceeding and in any appeal
in connection therewith, and if such prevailing party recovers a
judgment in any such action, proceeding or appeal, such costs,
expenses and attorneys' fees shall be included in as part of such
judgment.
15.6 Counterparts. This Agreement may be executed in any number of
------------
identical counterparts, any or all of which may contain the
signatures of fewer than all of the parties but all of which
shall be taken together as a single instrument.
15.7 Offer and Acceptance. This Agreement constitutes an offer by the
--------------------
Company and the Partnership which must be accepted, by delivery
to the Company of a duly signed and completed signature page
hereof, by all of the Contributors within five (5) days after the
date this Agreement is signed by the Company and the Partnership.
15.7.1 If, within such time period, less than all of the
persons owning any interest in a Contributor shall have
signed this Agreement, then the Contributor and the
Property owned by such Contributor shall, at the sole
option of the Company, be
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excluded from the Contribution hereunder, this
Agreement shall remain in full force and effect as to
the other Contributors and Properties, and an
appropriate adjustment shall be made with respect to
the relevant Property, in which case the number of
Units issuable hereunder as set forth on Schedule
--------
1.3(a) shall be reduced by the Contribution Value of
------
such Property as provided in this Agreement; if after
the expiration of such time period all of the
Contributors execute this Agreement, the Company, at
its sole option, may elect to re-include, or may
continue to exclude, any such Contributor and Property.
15.7.2 If any Contributor hereunder is not an "accredited
investor" as defined in the Act, then the Company, at
its sole option, may exclude any such Contributors and
any such Property from the Contribution hereunder, this
Agreement shall remain in full force and effect as to
the other Contributors and Properties, and an
appropriate adjustment shall be made with respect to
the relevant Property, in which case the number of
Units issuable hereunder as set forth on Schedule
--------
1.3(a) shall be reduced by the Contribution Value of
------
such Property as provided in this Agreement; if
thereafter all Contributors become accredited
investors, then the Company, at its sole option, may
elect to re-include, or may continue to exclude, any
such Contributors and Property.
15.8 Arbitration. In the event a dispute arises between the
-----------
parties as to any of the requirements of this Agreement or the performance under
this Agreement, which the parties are unable to resolve, the parties agree to
waive the remedy of litigation (except for extraordinary relief in an emergency
situation) and agree that such dispute or disputes shall be determined by
arbitration. Notwithstanding the foregoing, the parties acknowledge and agree
that this Section 15.8 is not intended to create new rights.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
-50-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal, with the intention that it be a sea ed instrument, as of the date set
forth above.
WITNESS CAPITAL AUTOMOTIVE REIT
By: /s/ Matt Jones By: /s/ Thomas D. Eckert (SEAL)
Name: Matt Jones Name: Thomas D. Eckert
Title:___________________________ Title:President and Chief Executive
Officer
CAPITAL AUTOMOTIVE L.P.
WITNESS By: Capital Automotive REIT, as
General Partner
By: /s/ Matt Jones By: /s/ Thomas D. Eckert (SEAL)
Name: Matt Jones Name: Thomas D. Eckert
Title:___________________________ Title:President and Chief Executive
Officer
WITNESS CONTRIBUTOR:
By: /s/ Matt Jones By: /s/ Robert M. Rosenthal (SEAL)
Name: Matt Jones Name: Robert M. Rosenthal*
Title:___________________________ Address: P.O. Box 1887
Middleburg, Virginia 22117
Telephone #: 202-965-0560
Facsimile #: 202-965-3717
Social Security # or TIN: ###-##-####
* By Donald B. Bavely as Attorney-in-Fact
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-51-
<PAGE>
WITNESS CONTRIBUTOR:
By: /s/ Ruth M. Witham By: /s/ Marion Rosenthal (SEAL)
Name: Ruth M. Witham Name: Marion Rosenthal
Title:___________________________ Address: P.O. Box 1887
Middleburg, Virginia 22117
Telephone #: 202-965-0560
Facsimile #: 202-965-3717
Social Security # or TIN: ###-##-####
WITNESS CONTRIBUTOR:
GENEVA ENTERPRISES, INC.
By: /s/ Matt Jones By: /s/ Robert M. Rosenthal (SEAL)
Name: Matt Jones Name: Robert M. Rosenthal*
Title:___________________________ Title:Chairman
Address: 1100 South Glebe Road
Arlington, Virginia 22204
Telephone #: 703-553-4300
Facsimile #: 703-553-8435
Social Security # or TIN:54-1570600
* By Donald B. Bavely as Attorney-in-Fact
-52-
<PAGE>
ROSENTHAL CONTRIBUTION AGREEMENT
EXHIBITS
A. Partnership Agreement
4.4(a) Form of Company Lease
4.4(c) Guaranty and Subordination Agreement
7.2.1(i) Investor Questionnaires
7.2.1(q) Opinion of Contributor's Counsel
7.2.1(p) Lender's Estoppel Certificate
7.2.2(f) Opinion of Company Counsel
SCHEDULES
I. Contributors (Names and Addresses)
1.2 Schedule of Properties; Ownership Interests in Properties
and Contribution Amounts
1.3(a) Schedule of Units Issued in Consideration
for Each Property
1.3(b) Mortgage Debt
4.1 Prior Occupants
4.4(b) Guaranties
5.1 Scheduled Exceptions
9.6 Material Defaults
9.13 Zoning
9.15.5(a) The Treatment, Storage and Disposal Locations for
Substances of Concern
9.15.5(b) Storage Tanks
9.15.5(c) Existence of Asbestos
9.15.5(f) Environmental Permits and Authorizations
9.16 Insurance
9.19 Lease Disclosures
9.19.2 Leases and Rent Rolls
9.19.13 Other Landlords
9.20(a) Service Contracts
9.20(b) Management Contracts
9.23 Liabilities of Contributors
9.24 Contracts
9.26 Employee Benefit Plans/Employment Contracts/Employee Benefit
Liabilities
12.1.5 Restrictions on Sale and/or Financing of Specified
Properties
12.4.5 Limitations on Indebtedness
14.2.1 Indemnitors
<PAGE>
EXHIBIT A
---------
PARTNERSHIP AGREEMENT
To be delivered at Closing.
<PAGE>
[EXHIBIT 4.4(a)
Form of Lease
No form of lease, leases executed simultaneous with execution of Contribution
Agreement.]
<PAGE>
GUARANTY AND SUBORDINATION AGREEMENT
THIS GUARANTY AND SUBORDINATION AGREEMENT (this "Agreement"), made as of
the 21st day of November 1997, by Geneva Enterprises, Inc., a Delaware
corporation ("Guarantor"), in favor of Capital Automotive, L.P., a Delaware
limited partnership ("Landlord").
WITNESSETH:
----------
WHEREAS, Landlord has this day entered into a lease (the "Lease") of
certain Properties identified on Schedule A hereto (individually a "Property"
and collectively the "Properties") with Maryland Imported Cars, Inc. d/b/a
Gaithersburg Mazda ("Tenant"), this Agreement being attached to the Lease;
WHEREAS, Tenant is an affiliate of Guarantor; and
WHEREAS, Landlord has required, as a condition to entering into the Lease,
Guarantor to be a guarantor of each and every obligation imposed upon Tenant by
the Lease.
NOW, THEREFORE, to induce Landlord to enter into the Lease and in
consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor, for itself, its successors and assigns, hereby covenants and agrees
for the benefit of Landlord, as follows:
1. Guaranty. Guarantor does hereby unconditionally and irrevocably
--------
guarantee to Landlord the full, complete and timely performance of all
obligations imposed on Tenant by the terms of the Lease, including, but not
limited to, the full, complete and timely payment of rent and all other sums due
by Tenant under the Lease, and the payment as required by the Lease of all
damages to Landlord which may result from Tenant's breach of any provision of
the Lease, including, but not limited to, those relating to damage to any
Property or the leased premises.
2. Guaranty of Payment and Performance. Guarantor acknowledges and
-----------------------------------
agrees that this is a guaranty of payment and performance and not mere
collection. The liability of Guarantor under this Agreement shall be direct and
immediate and not conditional or contingent upon the pursuit of any remedies
against Tenant or any other person or entity. Guarantor waives any right to
require that an action be brought against Tenant or any other person or entity.
In the event, on account of the Bankruptcy Reform Act of 1978, as amended, or
any other debtor relief law (whether statutory, common law, case law or
otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may
be or become applicable, Tenant shall be relieved of the Lease or any debt,
obligation or liability as provided in the Lease, Guarantor shall nevertheless
be fully liable for the complete and timely performance of all obligations
imposed on Tenant by the Lease throughout the entire term of the Lease, all to
the same extent as if Guarantor had been the original tenant thereunder and the
Lease shall be deemed unaffected by any such relief granted to Tenant. In the
event of a default under the Lease which is not cured within any applicable
grace
<PAGE>
or cure period, Landlord shall have the right to enforce its rights, powers and
remedies thereunder or hereunder, in any order to the maximum extent permitted
by law, and all rights, powers and remedies provided thereunder or hereunder or
by law or in equity. If the obligations guaranteed hereby are partially
performed, paid or discharged by reason of the exercise of any of the remedies
available to Landlord, this Agreement shall nevertheless remain in full force
and effect, and Guarantor shall continue to be liable for all remaining
obligations guaranteed hereby, even though any rights which Guarantor may have
against Tenant may be destroyed or dismissed by the exercise of any such remedy.
3. Waivers by Guarantor. To the extent permitted by law, Guarantor
--------------------
hereby waives and agrees not to assert or take advantage of:
(a) Any right to require Landlord to proceed against Tenant or any
other person or entity or to proceed against or exhaust any security held by
Landlord at any time or to pursue any other remedy in Landlord's power or under
any other agreement before proceeding against Guarantor;
(b) Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Landlord to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons:
(c) Any defense based upon an election of remedies by Landlord;
(d) Any right or claim or right to cause a marshaling of the assets of
Tenant or Guarantor;
(e) Any invalidity, irregularity or unenforceability, in whole or in
part, of any one or more provisions of the Lease;
(f) Any modification of the Lease or of any obligation of Tenant
thereunder by amendments to the Lease, by waivers granted by Landlord or by
operation of law or by action of any court, whether pursuant to the Bankruptcy
Reform Act of 1978, as amended, or any other debtor relief law (whether
statutory, common law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, or otherwise.
4. Subordination. Guarantor and those parties signing below for the
-------------
purpose of being bound by this Section 4 (collectively, "Section 4 Signers")
hereby unconditionally and irrevocably subordinate (i) all payments due or to
become due by Tenant to the Section 4 Signers, or any of them, by reason of any
and all debts or other obligations, including the obligation to pay salaries or
other compensation (collectively "Debt Payments") and (ii) the receipt of all
dividends or other distributions of any kind or nature (collectively,
"Distributions") to the payment of all sums due or to become due by Tenant to
Landlord under the Lease,
-2-
<PAGE>
including the payment of Rent and all damages due by reason of Tenant's breach
of the Lease; provided, however, that for so long as there shall be no existing
Event of Default under the Lease, after the payment of each monthly installment
of Rent, the Section 4 Signers shall be entitled to receive Debt Payments due
for such month.
5. General Provisions.
------------------
(a) Survival. This Agreement shall be deemed to be continuing in
--------
nature and shall remain in full force and effect and shall survive the exercise
of any remedy by Landlord under the Lease;
(b) No Subrogation; No Recourse Against Landlord. Notwithstanding the
--------------------------------------------
satisfaction by Guarantor of any liability hereunder, Guarantor's rights of
subrogation, contribution, reimbursement or indemnity, if any, or any right of
recourse to or with respect to the assets or property of Tenant, shall be
subject and subordinate to the rights of Landlord. Guarantor expressly agrees
not to exercise any and all rights of subrogation against Landlord.
(c) Entire Agreement; Amendment; Severability. This Agreement
-----------------------------------------
contains the entire agreement between the parties respecting the matters herein
set forth and supersedes all prior agreements, whether written or oral, between
the parties respecting such matters. Any amendments or modifications hereto, in
order to be effective, shall be in writing and executed by Landlord and
Guarantor. A determination that any provision of this Agreement is
unenforceable or invalid shall not affect the enforceability or validity of any
other provision, and any determination that the application of any provision of
this Agreement to any person or circumstance is illegal or unenforceable shall
not affect the enforceability or validity of such provision as it may apply to
any other persons or circumstances.
(d) Governing Law: Binding Effect; Waiver of Acceptance. This
---------------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Virginia without regard to conflicts of laws principles thereof. This
Agreement shall bind Guarantor, it successors and assigns (but in the event of
an assignment, Guarantor shall not be relieved of its obligations hereunder),
and shall inure to the benefit of Landlord, its successors and assigns.
Guarantor hereby waives any acceptance of this Agreement by Landlord and this
Agreement shall immediately be binding upon Guarantor.
(e) Notice. All notices, demands, requests or other communications to
------
be sent by one party to the other hereunder or required by law shall be in
writing and shall be deemed to have been validly given or served by delivery of
the same in person to the intended addressee, or certified mail or by depositing
the same with Federal Express or another reputable private courier service for
next business day delivery to the intended addressee at its address set forth in
the last section of this Agreement or at such other address as may be designated
by such party as herein provided. All notices, demands and requests shall be
effective upon such personal delivery, or one (1) business day after being
deposited with the private courier service, or two (2) business
-3-
<PAGE>
days after being deposited in the United States mail as required above.
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice was given as herein required shall be deemed
to be receipt of the notice, demand or request sent. By giving to the other
party hereto at least seven (7) days' prior written notice thereof in accordance
with the provisions hereof, each party shall have the right from time to time to
change their respective addresses and each shall have the right to specify as
its address any other address within the United States of America.
(f) No Waiver; Time of Essence. The failure of either party to
--------------------------
enforce any of the respective rights or remedies hereunder, or to promptly
enforce any such rights or remedies, shall not constitute a waiver thereof nor
give rise to any estoppel against such party nor excuse any of the parties
hereto from their respective obligations hereunder. Any waiver of such right or
remedy must be in writing and signed by the party to be bound and must expressly
state that such right or remedy has been or thereby is waived. This Agreement
is subject to enforcement at law or in equity, including actions for damages or
specific performance. Time is of the essence hereof.
(g) Captions for Convenience. The captions and headings of the
------------------------
section and paragraphs of this Agreement are for convenience of reference only
and shall not be construed in interpreting the provisions hereof.
(h) Attorney's Fees. In the event it is necessary for Landlord to
---------------
retain the services of an attorney or any other consultants in order to enforce
this Agreement, or any portion hereof, Guarantor shall promptly pay to Landlord
any and all costs and expenses, including, without limitation, attorney's fees,
incurred by Landlord as a result thereof and such costs, fees and expenses shall
be included in the costs of the case to the extent the Landlord wins the issue
under contest.
(i) Successive Actions. Separate and successive actions may be
------------------
brought hereunder to enforce any of the provisions hereof at any time and from
time to time. No action hereunder shall preclude any subsequent action, and
Guarantor hereby waives any covenants to the maximum extent permitted by law not
to assert any defense in the nature of splitting of causes of action or merger
of judgments.
(j) Reliance. Landlord would not enter into the Lease without this
--------
Agreement. Accordingly, Guarantor intentionally, irrevocably and
unconditionally enters into the covenants and agreements as set forth above and
understand that, in reliance upon and in consideration of such covenants and
agreements, the Lease has been made.
-4-
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Agreement under seal as of
the day and year first above written.
GUARANTOR:
ATTEST/WITNESS: GENEVA ENTERPRISES, INC.
/s/ Matt Jones By: /s/ Robert M. Rosenthal
Name: Matt Jones Name: Robert M. Rosenthal*
--------------------------------
Title: ________________________ Title: Chairman
-------------------------------
* By Donald Bavely as Attorney-in-Fact.
-5-
<PAGE>
Exhibit 7.2.1(i)
CAPITAL AUTOMOTIVE L.P.
UNITS OF LIMITED PARTNERSHIP INTEREST
CONFIDENTIAL PURCHASER QUESTIONNAIRE
(NATURAL PERSONS)
Capital Automotive L.P.
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
The information contained in this Investor Questionnaire is being furnished
in order to determine whether the undersigned is accredited to purchase units of
limited partnership interest (the "Units") of Capital Automotive L.P. (the
"Partnership") pursuant to the Agreement of Contribution of Interests dated
November __, 1997 (the "Contribution Agreement"), by and among the persons and
entities named on Schedule I hereto consisting of all of the owners of an
----------
interest in any of the Properties (as hereafter defined) (each individually, a
"Purchaser" and collectively, the "Purchasers"), and Capital Automotive REIT, a
Maryland real estate investment trust (the "Company"), and the Partnership.
ALL INFORMATION CONTAINED IN THIS INVESTOR QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. Any offer or sale to any Purchaser will be made by the
Partnership. You understand, however, that the Company may be required to
present this Investor Questionnaire to such parties as it deems appropriate if
called upon to establish that the proposed offer and sale of the Units are
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), or applicable state securities or blue sky laws or if
otherwise required. Further, the undersigned understands that the offering and
sale of the Units may be required to be reported to the Securities and Exchange
Commission and reported or registered under applicable state securities or blue
sky laws.
Name(s) of Purchaser(s):/*/
--
(1) ______________________________________________________
(2) ______________________________________________________
________________________
/*/ If there is more than one Purchaser (other than husband and wife), a
- --
separate Confidential Purchaser Questionnaire must be completed for each such
Purchaser and attached to this Confidential Purchaser Questionnaire.
<PAGE>
1. Background Information.
a. Home Address: __________________________________________________
__________________________________________________
b. Home Telephone: __________________________________________________
c. Social Security #s: __________________________________________________
d. U.S. Citizen: ___________ Yes ________ No
e. Occupation: __________________________________________________
f. Employer: __________________________________________________
g. Bus. Address: __________________________________________________
h. Bus. Telephone: __________________________________________________
i. Age: __________________________________________________
j. Send Mail to: _______ Home _______ Office
Other: __________________________________________
k. State your education and degrees earned:
Degree School Year
______________________________________________________________________
______________________________________________________________________
l. Do you currently own securities or other types of investments? _______
______________________________________________________________________
m. Do you have means of providing for your needs and personal
contingencies?
______________________________________________________________________
<PAGE>
n. Do you have a preexisting business relationship with the person who
contacted you in connection with the offering of the Units?
______________________________________________________________________
2. Type of Ownership.
Indicate type of ownership you intend to subscribe for (if other than for a
single individual):
______ Individual
______ Joint Tenants with Rights of Survivorship
______ Tenants in Common
______ Tenants by the Entirety
3. Purchaser Suitability.
Please indicate whichever of the following (if any) certifications apply to
you by initialing the appropriate space:
(i) I certify that I am an "accredited investor" because I have an
individual net worth/**/ (or joint net worth with my spouse) in excess of
--
$1,000,000.
Yes ____ No ____
(ii) I certify that I am "accredited investor" because I had an
individual income (not including any amounts attributable to my spouse
or to property owned by my spouse) of more than $200,000 in each of
the previous two calendar years and I reasonably expect to reach the
same income level in the current year.
Yes ____ No ____
(iii) I certify that I am an "accredited investor" because I had a
joint income with my spouse in excess of $300,000 in each of the previous
two calendar years and I reasonably expect to reach the same income level
in the current year.
_________________________
/**/ For purposes of this Questionnaire, a purchaser's "net worth" is equal
--
to the excess of total assets at fair market value over total liabilities. Net
worth may include the equity value (i.e., current appraised value less mortgage
indebtedness) of real property owned by the Purchaser.
<PAGE>
Yes ____ No ____
4. The Purchaser hereby acknowledges and represents and warrants that:
1. (a) He/she has read and understands the risks associated with an
investment in the Units and understands those risks, (b) the information
contained in this Investor Questionnaire is true, complete and accurate as of
the date hereof, and (c) he/she will contact Capital Automotive REIT immediately
if any material change in any of this information occurs.
2. The Units will be acquired for the Purchaser's own account for
investment, and not for distribution or resale to others. The Purchaser agrees
that it will not sell or otherwise transfer the Units unless any third party
consents as required are first obtained and unless the securities are registered
under the Securities Act, and under applicable state securities laws or unless
an exemption from such registration is available. There is no market for the
Units and none is expected to develop.
3. All documents, records and books pertaining to this investment have
been made available to the Purchaser and his/her respective attorney, accountant
or investment representative; the Partnership has provided answers to all of
his/her or their questions concerning the offering and an investment in the
Partnership; and the books and records of the Partnership will be available upon
reasonable notice for inspection during normal business hours of the Partnership
at the Partnership's principal place of business.
4. The Purchaser has such knowledge and experience in financial and
business matters in general and in particular with respect to this type of
investment that it is, he/she is capable of evaluating the merits and risks of
an investment in the Partnership, and will be able to bear the financial risks
of this investment for an indefinite period of time.
5. The Purchaser has discussed with his/her investment representative,
lawyer, accountant or tax advisor, as applicable, the suitability of an
investment in the Partnership for its particular tax and financial situation.
6. The Purchaser is acquiring the Units without being furnished any
offering.
7. The Purchaser has kept confidential all information furnished to them
by or on behalf of the Partnership and has not provided the same to anyone other
than their agents (including counsel and accountants) on a need to know basis.
5. Reliance by Partnership.
<PAGE>
I understand that the Partnership will be relying on the accuracy and
completeness of my responses to the foregoing questions and I represent,
warrant and covenant to the Partnership as follows:
1. I/We certify under the penalties of perjury that the social security
number provided below and information provided with respect to Section
3406(a)(1)(C) of the Internal Revenue Code is true, correct and complete; and
2. The answers to the above questions are complete and correct and may be
relied upon by the Partnership in determining whether the offering in connection
with which I have executed this Questionnaire is exempt from registration under
the Securities Act and applicable state securities laws; and hereby agree to
indemnify the Partnership and its partners, affiliates, agents, employees and
control persons, and hold each of them harmless against any and all loss,
damages, liability or expense, including reasonable attorney's fees, which they
or any of them may suffer, sustain or incur by reason of or in connection with
any misrepresentation or breach of warranty or agreement made by the undersigned
under this Investor Questionnaire or in connection with the sale or distribution
by the undersigned of the Units purchased by the undersigned pursuant hereto in
violation of the Securities Act or any other applicable law.
_____________________________________________________
(please print the exact name(s) and title in which
the Units should be issued)
(Signature of Purchaser) __________________________________________
(Name Typed or Printed) __________________________________________
(Date) __________________________________________
(Signature of Co-Purchaser) __________________________________________
(Name Typed or Printed) __________________________________________
<PAGE>
CAPITAL AUTOMOTIVE L.P.
UNITS OF LIMITED PARTNERSHIP INTEREST
CONFIDENTIAL PURCHASER QUESTIONNAIRE
(ENTITIES)
Capital Automotive L.P.
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
The information contained in this Investor Questionnaire is being furnished
in order to determine whether the undersigned is accredited to purchase units of
limited partnership interest (the "Units") of Capital Automotive L.P. (the
"Partnership") pursuant to the Agreement of Contribution of Interests dated
November __, 1997 (the "Contribution Agreement"), by and among the persons and
entities named on Schedule I hereto consisting of all of the owners of an
----------
interest in any of the Properties (as hereafter defined) (each individually, a
"Purchaser" and collectively, the "Purchasers"), and Capital Automotive REIT, a
Maryland real estate investment trust (the "Company"), and the Partnership.
ALL INFORMATION CONTAINED IN THIS INVESTOR QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. Any offer or sale to any Purchaser will be made by the
Partnership. You understand, however, that the Company may be required to
present this Investor Questionnaire to such parties as it deems appropriate if
called upon to establish that the proposed offer and sale of the Units are
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), or applicable state securities or blue sky laws or if
otherwise required. Further, the undersigned understands that the offering and
sale of the Units may be required to be reported to the Securities and Exchange
Commission and reported or registered under applicable state securities or blue
sky laws.
1. Background Information.
a. Name of Investing Entity: ________________________________________
b. Address: ________________________________________
________________________________________
Address for correspondence (if different):
________________________________________
<PAGE>
________________________________________
________________________________________
c. Telephone Number: ________________________________________
d. Description of Business: ________________________________________
________________________________________
e. Federal Tax ID Number: ________________________________________
f. Individual(s) authorized to execute documents on behalf of the entity
in connection with this investment:
Name: ________________________________________
Position or title: ________________________________________
NOTE: In the case of a partnership or trust, a power of attorney
is required if such entity's Partnership Agreement or Trust
Agreement does not specifically authorize the above-named
individual(s) to make this investment for such Partnership or
Trust. In the case of a corporate investor, corporate resolutions
(or other evidence of corporate authority) authorizing this
investment and specifying the individuals authorized to execute
investment documents on behalf of the corporation are required to
be delivered herewith.
2. Type of Entity: Corporation ______
Limited Partnership ______
General Partnership ______
Limited Liability Company ______
Revocable Trust/***/ ______
---
_____________________________
/***/ UNLESS (i) the Trust has total assets in excess of $5,000,000; (ii) the
---
Trust was not formed for the specific purpose of acquiring the Interest; and
(iii) the purchase by the Trust is directed by a person who has such knowledge
and experience in financial and business matters that he/she is capable of
evaluating the merits and risks of an investment in the Units, the grantor(s) of
the Trust also must provide a completed individual investor questionnaire for
each grantor.
<PAGE>
Irrevocable Trust ______
Pension or Profit
Sharing Plan or Trust
(indicate type of Plan
or Trust) ______
Individual Retirement
Account (Note: The
beneficiary of an
Individual Retirement
Account also must provide
a complete individual
investor questionnaire) ______
a. Place of Organization: ____________________________________________
b. Date of Organization: _____________________________________________
c. Was the entity organized for the specific purpose of investing in
Capital Automotive L.P.?
Yes _____ No _____
d. Does the entity have a preexisting business relationship with the
person who contacted it in connection with the offering of the Units?
Yes _____ No _____
e. Number of equity owners (Note: an "equity owner" for the purposes of
this Questionnaire means (1) stockholders in the case of a
corporation, (2) limited partners only in the case of a limited
partnership, (3) general partners in the case of a general
partnership, (4) grantor(s) in the case of a trust revocable at the
sole option of grantor(s) or (5) beneficiaries in the case of other
trusts): _______
3. Accredited Investors.
All Purchasers will be required to represent that they meet at least
one of the following requirements. Please indicate which of the
following you meet:
(i) All of the equity owners of the entity meet either (1), (2) or (3)
below:
<PAGE>
(1) have an individual net worth/****/ (or joint net worth
----
with spouse) in excess of $1,000,000;
(2) had an individual income (not including any amounts
attributable to spouse or to property owned by spouse)
of more than $200,000 in each of the previous two
calendar years and a reasonable expectation to reach the
same income level in the current year; or
(3) had a joint income with spouse in excess of $300,000 in
each of the previous two calendar years and a reasonable
expectation to reach the same income level in the
current year.
Yes ____ No _____
(ii) The Purchaser is any of the following entities (please indicate
which by initialing the appropriate line(s)):
(1) ___ A bank is defined in Section 3(a)(2) of the Securities
Act or a savings and loan association or other
institution defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or
fiduciary capacity.
(2) ___ A broker/dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934 (the "Exchange Act").
(3) ___ An insurance company as defined in Section 2(13) of the
Securities Act.
(4) ___ An investment company registered under the Investment
Company Act of 1940 or a business development company as
defined in Section (2)(a)(48) of that Act.
(5) ___ Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or
(d) of the Small Business Investment Act of 1958.
(6) ___ A plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality
thereof, for
__________________
/****/ For purposes of this Questionnaire, a purchaser's "net worth" is equal
----
to the excess of total assets at fair market value over total liabilities
(excluding home and home furnishings).
<PAGE>
the benefits of its employees, if such plan has total
assets in excess of $5,000,000.
(7) ___ An employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974
"ERISA"), if the investment decision is made a plan
fiduciary, as defined in Section 3(21) of ERISA, which
is either a bank, savings and loan association,
insurance company, or registered investment adviser, or
if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are
accredited investors.
(8) ___ A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of
1940.
(9) ___ An organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"),
a corporation, Massachusetts or similar business trust
or partnership not formed for the specific purpose of
acquiring the Units with total assets in excess of
$5,000,000.
(10) ___ A trust with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring the whose
purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) under the Securities
Act.
4. Additional Information
a. If for a Trust:
A Trust must attach a copy of its Declaration of Trust or other
governing instrument, as amended, as well as all other documents that
authorize the Trust to invest in the Units. All documentation must be
complete and correct.
b. If for a Retirement Plan:
The Retirement Plan must attach copies of all documents governing the
Plan as well as all other documents authorizing the Retirement Plan to
invest in the Units. Include, as necessary, documents defining
permitted investments by the Retirement Plan and demonstrating the
authority of the signing individual to act on behalf of the Plan. All
documentation must be complete and correct.
<PAGE>
5. The Purchaser hereby acknowledges and represents and warrants that:
1. (a) He/she/it has read and understands the risks associated with an
investment in the Units and understands those risks, (b) the information
contained in this Investor Questionnaire is true, complete and accurate as of
the date hereof, and (c) he/she will contact Capital Automotive REIT immediately
if any material change in any of this information occurs.
2. The Units will be acquired for the Purchaser's own account for
investment, and not for distribution or resale to others. The Purchaser agrees
that it will not sell or otherwise transfer the Units unless any third party
consents as required are first obtained and unless the securities are registered
under the Securities Act, and under applicable state securities laws or unless
an exemption from such registration is available. There is no market for the
Units and none is expected to develop.
3. All documents, records and books pertaining to this investment have
been made available to the Purchaser and his/her/it respective attorney,
accountant or investment representative; the Partnership has provided answers to
all of his/her or their questions concerning the offering and an investment in
the Partnership; and the books and records of the Partnership will be available
upon reasonable notice for inspection during normal business hours of the
Partnership at the Partnership's principal place of business.
4. The Purchaser has such knowledge and experience in financial and
business matters in general and in particular with respect to this type of
investment that it is, he/she is capable of evaluating the merits and risks of
an investment in the Partnership, and will be able to bear the financial risks
of this investment for an indefinite period of time.
5. The Purchaser has discussed with his/her investment representative,
lawyer, accountant or tax advisor, as applicable, the suitability of an
investment in the Partnership for its particular tax and financial situation.
6. The Purchaser is acquiring the Units without being furnished any
offering.
7. The Purchaser has kept confidential all information furnished to them
by or on behalf of the Partnership and has not provided the same to anyone other
than their agents (including counsel and accountants) on a need to know basis.
6. Reliance by Partnership.
<PAGE>
I understand that the Partnership will be relying on the accuracy and
completeness of my responses to the foregoing questions and I represent,
warrant and covenant to the Partnership as follows:
1. I/We certify under the penalties of perjury that the social security
number provided below and information provided with respect to Section
3406(a)(1)(C) of the Internal Revenue Code is true, correct and complete;
2. The answers to the above questions are complete and correct and may be
relied upon by the Partnership in determining whether the offering in connection
with which I have executed this Questionnaire is exempt from registration under
the Securities Act and applicable state securities laws; and hereby agree to
indemnify the Partnership and its partners, affiliates, agents, employees and
control persons, and hold each of them harmless against any and all loss,
damages, liability or expense, including reasonable attorney's fees, which they
or any of them may suffer, sustain or incur by reason of or in connection with
any misrepresentation or breach of warranty or agreement made by the undersigned
under this Investor Questionnaire or in connection with the sale or distribution
by the undersigned of the Units purchased by the undersigned pursuant hereto in
violation of the Securities Act or any other applicable law; and
3. The person signing this Questionnaire on behalf of the Investing
Entity has been duly authorized to sign the Questionnaire on behalf of the
Investing Entity.
7. Other Certifications.
a. If by a Corporation:
By signing the Signature Page, the undersigned certifies the
following:
(A) that the Corporation's name, address of principal office, place
of incorporation and taxpayer identification number as set forth
in this Questionnaire are true, correct and complete; and
(B) that one of the following is true and correct (check one):
[_] (i) the Corporation is a corporation organized in or under
the laws of the United States or any political subdivision
thereof.
[_] (ii) the Corporation is a corporation which is neither
created nor organized in or under the laws of the United
States or any political subdivision thereof, but which has
made an election under either Section 897(i) or 897(k) of the
United States Internal Revenue Code of 1986, as amended, to
be treated as a domestic corporation
<PAGE>
for certain purposes of United States Federal income taxation
(A COPY OF THE INTERNAL REVENUE SERVICE ACKNOWLEDGMENT OF THE
UNDERSIGNED'S ELECTION MUST BE ATTACHED TO THIS QUESTIONNAIRE
IF THIS PROVISION IS APPLICABLE).
[_] (iii) neither (i) nor (ii) above is true.
b. If by a Partnership:
By signing the Signature Page, the undersigned certifies on
behalf of such Partnership the following:
(A) that such Partnership's name, address of principal office,
place of formation and taxpayer identification number as set
forth in this Questionnaire are true, correct and complete;
and
(B) that one of the following is true and correct (check one).
[_] (i) such Partnership is a partnership formed in or under
the laws of the United States or any political
subdivision thereof.
[_] (ii) such Partnership is not a partnership formed in or
under the laws of the United States or any political
subdivision thereof.
c. If by a Trust (other than a retirement related trust) or Estate:
By signing the Signature Page, the undersigned certifies on
behalf of such Trust or Estate the following:
(A) that such Trust's or Estate's purchase of the Units in within
the investment powers and authority of such Trust of Estate
(as set forth in the declaration of trust or other governing
instruments) and that all necessary consents, approvals and
authorizations for such purchase have been obtained and that
each person who signs the Signature Page has all requisite
power and authority as trustee or executor or administrator
to execute this Questionnaire and the Contribution Agreement
on behalf of such Trust or Estate;
(B) that such Trust has not been established in connection with
either (i) an employee benefit plan (as defined in Section
3(3) of ERISA),
<PAGE>
whether or not subject to the provisions of Title I of ERISA,
or (ii) a plan described in Section 4975(e)(i) of the
Internal Revenue Code;
(C) that such Trust's or Estate's name, address of principal
office, place of formation and taxpayer identification number
as set forth in this Questionnaire are true, correct and
complete; and
(D) that one of the following is true and correct (check one):
[_] (i) such Trust is a trust whose income from sources
outside of the United States Federal tax purposes
regardless of its connection with a trade or business
carried on in the United States.
[_] (ii) such Trust is an estate or trust whose income from
sources outside of the United States Federal income tax
purposes regardless of its connection with a trade or
business carried on in the United States.
d. If by a Retirement Plan:
By signing the Signature Page, the undersigned on behalf of such
Retirement Plan certifies the following:
(A) that such Retirement Plan's governing documents duly authorize
the type of investment contemplated herein, and the undersigned
is authorized and empowered to make such investment on behalf of
such Retirement Plan.
_____________________________________________________________
(please print the exact name(s) and title in which
the Units should be issued)
(Investing Entity)
(Signature of Purchaser) _________________________________________
(Name and Title Typed or Printed) _________________________________________
<PAGE>
(Name of Trustee(s) (if Trust)) _________________________________________
_________________________________________
(Date) _________________________________________
<PAGE>
EXHIBIT 7.2.1(p)
ESTOPPEL CERTIFICATE
To: CAPITAL AUTOMOTIVE REIT
1925 North Lynn Street, Suite 306
Arlington, Virginia 22209
Attention: Thomas D. Eckert, President and Chief Executive Officer
Re: Mortgagee's Interest and Mortgage Status in and of the Property owned
by ______________________________________________________
(the "The Contributor") and commonly known as ________________
(the "Property").
Gentlemen:
The undersigned ("Mortgagee") hereby certifies to CAPITAL AUTOMOTIVE REIT
(The "Company") and CAPITAL AUTOMOTIVE L.P. (the "Partnership") as follows:
(i) The certifications contained herein are being made with the
knowledge that the Company and the Partnership will place substantial reliance
thereon in connection with a major financial transaction involving, among other
maters, the acquisition of the Property, subject to Mortgagee's Interest and the
Mortgage, based upon the value of the Property as so subjected.
(ii) Mortgagee's interest in the property results from the lending to
the Contributor of a sum of money in the original principal amount of
$______________, upon the terms and conditions set forth in that certain
promissory note (the"Note"), an exact copy of which annexed hereto as Exhibit A.
The principal amount actually advanced under the note as of the date of this
certificate is $_____________, of which $_____________ is outstanding as of the
date of this certificate.
(iii) Mortgagee's entire interest in the Property ("Mortgagee's
Interest") is the security interest conferred by the security document annexed
hereto as Exhibit B and such other security instruments and filings as are
required by the terms of such document (collectively, the "Mortgage").
(iv) As of the date of this certificate there exists no default or
any condition or matter which, with the passage of time, could constitute a
default under or with respect to the Note or the Mortgage and there are not
prior defaults under the Note or the Mortgage which could become present or
future defaults if any presently outstanding waivers by the Mortgagee are
withdrawn.
<PAGE>
(v) If the Note or Mortgage contains any "due on sale" or other
acceleration clause based upon change of ownership of the Property, the same
shall be deemed deleted if the Property is hereafter acquired by the Partnership
or the Company.
(vi) The undersigned has not assigned, sold or otherwise encumbered
its title to the Note, Mortgage or Mortgagee's interest and has full power and
authority to execute this certificate without the approval of any other person,
corporation or other entity.
IN WITNESS WHEREOF, the undersigned has executed this certificate
under seal this ____ day of ______________, 1997, intending the same to be a
sealed instrument of the Mortgagee.
_____________________
Mortgagee
ATTEST/WITNESS By:__________________(SEAL)
Title:_____________________
<PAGE>
[Exhibit 7.2.1(q)
Opinion of Contributor's Counsel
Not on Computer system]
<PAGE>
EXHIBIT 7.2.2(F)
----------------
OPINION OF WILMER, CUTLER & PICKERING TO BE DELIVERED AT CLOSING:
1. The Company is a corporation duly organized or formed, validly existing and
in good standing under the laws of the State of Delaware.
2. The Partnership is a limited partnership duly organized or formed, validly
existing and in good standing under the laws of the State of Maryland.
3. Each of the Company and the Partnership has the requisite corporate or
partnership power (respectively) to execute and deliver, and to perform its
obligations under, the Agreement.
4. The general partner of the Partnership has the requisite partnership power
and authority to carry on its business and to execute an deliver, and to perform
its obligations under, the Agreement and to execute and deliver on behalf of
such Partnership, and to bind the Partnership to, the Agreement.
5. The execution and delivery by each of the Company and the Partnership has
been duly authorized by all necessary corporate or partnership actions
(respectively).
6. The execution, delivery and performance of the Agreement by the general
partner of the Partnership on behalf of the Partnership have been duly
authorized by all necessary partnership actions, and the individuals executing
the Agreement on behalf of such general partner have been duly authorized to do
so.
7. The execution, delivery and performance by the Company will not violate the
charter or bylaws of the Company.
8. The execution, delivery and performance by the general partner of the
Partnership, and such general partner's performance of its obligations under,
the Agreement on behalf of the Partnership will not violate the Partnerships
Organizational Documents.
9. The Agreement has been duly executed and delivered by each of the
Partnership and the Company and is the legal, valid and binding obligation of
each, enforceable against each in accordance with its terms.
<PAGE>
SCHEDULE I
----------
CONTRIBUTORS' NAMES AND ADDRESSES
<TABLE>
<CAPTION>
Property Numbers
Name from Schedule 1.2 Address
- ---- ----------------- -------
<S> <C> <C>
1. Robert M. Rosenthal 1 - Individually and as P.O. Box 1887
Managing Joint Tenant Middleburg, VA 22117
2 - General Partner
3 - Managing Joint Tenant
4 - Individually and
In Trust
5 - Managing Joint
Tenant
6 - Individually
7 - General Partner
2. Marion Rosenthal 4(b) - Individually P.O. Box 1887
Middleburg, VA 22117
3. Geneva Enterprises, Inc. 5 1100 South Glebe
Road, Arlington, VA 22204
</TABLE>
<PAGE>
SCHEDULE 1.2
------------
OWNERSHIP INTERESTS IN PROPERTIES AND PURCHASE PRICES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Property
Number Contributor Tax Account Number
------ ----------- ------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C>
1 Robert M. Rosenthal, M. Rosenthal, B. Peterson, 029-3-01-00-0002-C
J. Cafritz, N. Rosenthal 029-3-01-00-0002-C
Robert M. Rosenthal 029-3-01-00-0002-D
- -------------------------------------------------------------------------------------------
2 8525 Leesburg Pike L.P. (44.4% R. Rosenthal, 029-3-01-00-0002-B
10.1% B. Peterson, 10.1% J. Cafritz, 10.1% N.
Rosenthal, 21.2% Grandchildren Trust, 2.0%
Richard Patterson, 2.0% D. Bavely)
- -------------------------------------------------------------------------------------------
3 Robert M. Rosenthal, M. Rosenthal, B. Peterson, 029-3-01-00-0056
J. Cafritz, N. Rosenthal
- --------------------------------------------------------------------------------------------
4(a) Robert M. Rosenthal In Trust For R. Rosenthal, 13-017-010
B. Peterson, J. Cafritz, N. Rosenthal. 13-017-001
13-017-002
13-017-003
13-017-016
13-017-017
(b) Robert M. and Marion Rosenthal (70%) and
Robert M. Rosenthal, B. Peterson, J. Cafritz, N. 13-017-009
Rosenthal.
- --------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------
Property Contribution
Number Property Address Amount
------ ---------------- --------------
- --------------------------------------------------------------------------------------------
<S> <C> <C>
1 1580 Springhill Rd., Vienna, VA 22182 $9,749,292
1592 Springhill Rd., Vienna, VA 22182
- --------------------------------------------------------------------------------------------
2 adjacent to 1592 Springhill Rd., Vienna, VA 22182 (2 acre 1,614,327
lot)
8525-8527 Leesburg Pike, Vienna, VA 22182 $23,684,114
- --------------------------------------------------------------------------------------------
3 1548 Spring Hill Rd., Vienna, VA 22102 $1,049,000
- --------------------------------------------------------------------------------------------
4(a) 750 North Glebe Rd., Arlington, VA 22203 $4,856,275
750 North Glebe Rd., Arlington, VA 22203
750 North Glebe Rd., Arlington, VA 22203
750 North Glebe Rd., Arlington, VA 22203
750 North Glebe Rd., Arlington, VA 22203
750 North Glebe Rd., Arlington, VA 22203
(b)
444 N. Wilson Blvd., Arlington, VA 22203 $458,182
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.2, CONTD.
--------------------
OWNERSHIP INTERESTS IN PROPERTIES AND PURCHASE PRICES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Property Tax Account
Number Contributor Number
------ ----------- ------
- -------------------------------------------------------------------------------------
<S> <C> <C>
5 R. Rosenthal, B. Peterson, J. Cafritz, N. 26-001-020
Rosenthal
26-001-018
Geneva Enterprises, Inc. 26-001-071
Geneva Enterprises, Inc. 26-001-072
Geneva Enterprises, Inc. 32-007-002
Geneva Enterprises, Inc. 32-007-003
Geneva Enterprises, Inc. 32-007-007
Geneva Enterprises, Inc. 32-007-008
Geneva Enterprises, Inc. 32-007-009
Geneva Enterprises, Inc. 32-007-010
Geneva Enterprises, Inc. 32-007-011
Geneva Enterprises, Inc. 32-007-013
Geneva Enterprises, Inc.
- -------------------------------------------------------------------------------------
6 Robert M. Rosenthal 31-034-001
- -------------------------------------------------------------------------------------
7 RP Gaithersburg, L.P. (40% R. Rosenthal, 20% 09-201-02571575
B. Peterson, 20% J. Cafritz, 20% N. Rosenthal)
- -------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
Property Contribution
Number Property Address Amount
------ ---------------- ----------
- -------------------------------------------------------------------------------------
5
3400 South Columbia Pike, Arlington, VA 22204 $2,743,318;
- -------------------------------------------------------------------------------------
3514 South Columbia Pike, Arlington, VA 22204 $3,982,346
1100 South Glebe Rd., Arlington, VA 22204
1110 South Glebe Rd., Arlington, VA 22204
1101 South Glebe Rd., Arlington, VA 22204
Part of 1101 South Glebe Rd., Arlington, VA 22204
S 11th Street, Lot E, Arlington, VA 22204
S 11th Street, Lot D, Arlington, VA 22204
S 11th Street, Lot C, Arlington, VA 22204
Part of South Glebe Rd., Arlington, VA 22204
Part of South Glebe Rd., Arlington, VA 22204
South Columbia Rd., Arlington, VA 22204
- -------------------------------------------------------------------------------------
6 2700 Shirley Hwy., Arlington, VA $4,852,174
- -------------------------------------------------------------------------------------
7 619-625 North Frederick Ave., Gaithersburg, MD 20879 $11,521,643
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.3(A)
---------------
SCHEDULE OF UNITS ISSUED IN CONSIDERATION FOR EACH PROPERTY
Each Contributor will receive a number of Units that is equal to the
Contribution Value of the Property contributed by such Contributor as
determined by application of the formula set forth in Section 1.3 of the
Agreement (as further adjusted pursuant to Section 2.1, if applicable).
<PAGE>
SCHEDULE 1.3(B)
---------------
MORTGAGE INDEBTEDNESS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Property/Parcel Name of Borrower Lender Outstanding Maturity Date Prepayment
Principal on right
November 1,
1997/at Closing
Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1580 Springhill Rd., Vienna, VA Robert M. Rosenthal, et al First $3,580,725/ 10/1/07 Yes
22182 (pursuant to a Deed of Virginia (To be
1592 Springhill Rd., Vienna, VA Trust) Bank determined on
22182 [Information received from Closing Date)
Dominic Conti that
individual partners in
Springhill Road Associates
L.P. filed Deed of Trust in
October, 1997]
- ------------------------------------------------------------------------------------------------------------------------------------
8525-8527 Leesburg Pike, Vienna, 8525 Leesburg Pike L.P. Nations $1,059,777/ 6/1/01 Yes
VA 22182 (pursuant to two Deeds of Bank (To be
Trusts) Determined on
Crestar Closing Date)
$14,104,000/ 6/1/01
(To be
determined on
Closing Date)
- ------------------------------------------------------------------------------------------------------------------------------------
1548 Spring Hill Road, Vienna, VA Robert Rosenthal First $211,317/ 6/1/06 Yes
22102 (pursuant to a Deed of Virginia (To be
Trust) Bank determined on
Closing Date)
- ------------------------------------------------------------------------------------------------------------------------------------
619-625 North Frederick Avenue, RP Gaithersburg L.P. First $7,291,440/ 6/1/06 Yes
Gaithersburg, MD (pursuant to a Deed of Virginia (To be
Trust) Bank determined on
Closing Date)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.3(B) CONTD.
----------------------
MORTGAGE INDEBTEDNESS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Property/Parcel Name of Borrower Lender Outstanding Maturity Date Prepayment
Principal on right
November 1,
1997/on Closing
Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
750 North Glebe Rd., Arlington, VA Robert M. Rosenthal, et al, First $2,742,939/(To 6/1/06 Yes
22203 Joint Tenants (pursuant to Virginia be determined
a Deed of Trust) Bank on Closing Date)
750 North Glebe Rd., Arlington, VA
22203
750 North Glebe Rd., Arlington, VA
22203
750 North Glebe Rd., Arlington, VA
22203
750 North Glebe Rd., Arlington, VA
22203
750 North Glebe Rd., Arlington, VA
22203
(Tax Ids. 13-017-010
13-017-009
13-017-001
13-017-002
13-017-003
13-017-016
13-017-017)
444 N. Wilson Blvd., Arlington, VA
22203
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 4.1
------------
PRIOR OCCUPANTS
1. Lease Number 1 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Chevrolet/GEO/Jeep Eagle
2. Lease Number 2 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Honda
3. Lease Number 3 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Honda
4. Lease Number 4 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Isuzu
5. Lease Number 5 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Isuzu
6. Lease Number 6 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Acura
7. Lease Number 7 on Schedule 9.19.2 -- Lessee: Maryland Imported Cars,
Inc. d/b/a Rosenthal Gaithersburg Mazda
8. Lease Number 8 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Chevrolet
9. Lease Number 9 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Infiniti
10. Lease Number 10 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.
d/b/a Rosenthal Jaguar
11. Lease Number 11 on Schedule 9.19.2 -- Lessee: Geneva Enterprise d/b/a
Rosenthal Nissan Mazda and Rosenthal Honda
12. Lease Number 12 on Schedule 9.19.2 -- Lessee: Geneva Enterprises, Inc.,
Inc. d/b/a Rosenthal Mazda-Arlington
<PAGE>
SCHEDULE 4.4(B)
---------------
GUARANTIES
Geneva Enterprises, Inc. is guaranteeing a lease to be entered into by and
between Maryland Imported Cars, Inc. d/b/a Gaithersburg Mazda and Capital
Automotive L.P. with respect to the Property located at 625 North Frederick
Ave., Gaithersburg, MD.
<PAGE>
SCHEDULE 5.1
------------
SCHEDULED EXCEPTIONS
1. Lease by and among Ethel Stein and Rose Stein and Rosenthal Chevrolet
Company dated September 8, 1965, as amended by the First Amendment to
Lease by and among Norman and Darlein Stein, et al. and Geneva
Enterprises, Inc. d/b/a Rosenthal Chevrolet/Geo/Jeep Eagle for the
property at 3500-3512 Columbia Pike.
Any further disclosures required by this Schedule 5.1 shall be inserted
hereon after the execution of this Agreement according to Sections 5.1, 5.2
and 5.3 of the Agreement.
<PAGE>
SCHEDULE 9.6
------------
MATERIAL DEFAULTS
Any disclosures required by this Schedule 9.6 shall be inserted hereon after the
execution of the Agreement according to Section 7.3.12 of the Agreement.
<PAGE>
SCHEDULE 9.13
-------------
ZONING
Property Number from Schedule 1.2 (a) Zoning Classification
- ------------------------------------- ---------------------
1 Parcel 029-3-01-00-0002-C -- C-7
Parcel 029-3-01-00-0002-C -- C-7
Parcel 029-3-01-00-0002-D -- C-7
2 C-7
3 I-5
4 Parcel 13-017-010 -- C-2
Parcel 13-017-009 -- C-2
Parcel 13-017-001 -- R-5
Parcel 13-017-002 -- R-5
Parcel 13-017-003 -- R-5
Parcel 13-017-016 -- R-5
Parcel 13-017-017 -- C-2
5 Parcel 26-001-020 -- C-3
Parcel 26-001-018 -- C-3
Parcel 26-001-071 -- C-2
Parcel 26-001-072 -- C-0
Parcel 32-007-002 -- C-2
Parcel 32-007-003 -- R-5
Parcel 32-007-007 -- C-2
Parcel 32-007-008 -- C-2
Parcel 32-007-009 -- C-2
Parcel 32-007-010 -- C-2
Parcel 32-007-011 -- C-2
Parcel 32-007-013 -- C-2
6 M-1
7 C-2
<PAGE>
SCHEDULE 9.15.5(A)
------------------
THE TREATMENT, STORAGE AND DISPOSAL LOCATIONS FOR SUBSTANCES OF CONCERN
Any disclosures required by this Schedule 9.15.5(a) shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.15.5(B)
------------------
STORAGE TANKS
<TABLE>
<CAPTION>
PROPERTY TANKS
<S> <C>
1. Rosenthal Infiniti Two aboveground storage tanks currently in use:
8527 Leesburg Pike (1) 500 gallons - used oil; (2) 500 gallons -
Tysons Corner, Virginia motor oil.
2. Rosenthal Nissan-Mazda Five underground storage tanks currently in
8525 Leesburg Pike use: (1) 12,000 gallons - heating oil; (2) 4,000
Tysons Corner, Virginia gallons - gasoline; (3) 4,000 gallons -
gasoline; (4) 1,000 gallons - motor oil; (5) 500
gallons -waste oil.
One underground storage tank not currently in
use: (1) 1,000 gallons - motor oil.
One aboveground storage tank currently in use:
(1) 275 gallons - used anti-freeze.
None.
3. Rosenthal Property
Fairfax County Tax Map 29-3-
((1))
Parcel 2D
Tysons Corner, Virginia
Three aboveground storage tanks currently in
use: (1) 550 gallons - motor oil; (2) 275
4. Rosenthal Jaguar gallons- motor oil; (3) 550 gallons - waste oil.
1592 Spring Hill Road
Tysons Corner, Virginia One former 1,000 gallon underground storage tank
used for waste oil storage was removed in March
1997. Environmental sampling indicates the
presence of petroleum contamination in the soil
in and around the site of the former tank. The
Virginia Department of Environmental Quality has
assigned Pollution Complaint No. 97-3155 to the
Property based on this contamination, and
consultants are currently conducting required
investigatory activities.
One aboveground storage tank currently in use:
(1) 500 gallons - waste paint.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5. Rosenthal Body Shop
1548 Spring Hill Road
Tysons Corner, Virginia Four aboveground storage tanks currently in use:
(1) 275 gallons - motor oil; (2) 275 gallons -
motor oil; (3) 275 gallons - waste anti-freeze; (4)
550 gallons - waste motor oil.
6. Rosenthal Mazda
750 North Glebe Road Three former 3,000 gallon underground storage
Arlington, Virginia tanks used for gasoline storage and one former
550 gallon underground storage tank used for
waste oil storage were removed in August 1993.
Environmental sampling indicates the presence
of petroleum contamination in the soil and
groundwater in and around the site of the former
tanks. The Virginia Department of Environmental
Quality has assigned Pollution Complaint No.
94-0097 to the Property based on this contamination
and consultants have completed investigatory
activities and are currently preparing a
plan for remediation of the contamination.
Eleven aboveground storage tanks currently in use:
(1) 500 gallons - motor oil; (2) 500 gallons -
waste oil; (3) 275 gallons - waste anti-freeze;
(4) 275 gallons - transmission fluid; (5) 275
gallons - motor oil; (6) 275 gallons -waste oil;
(7) 275 gallons - motor oil; (8) 275 gallons -
7. Rosenthal Gaithersburg waste oil; (9) 500 gallons - motor oil; (10) 500
Auto Park 619-625 gallons - waste oil; (11) 275 gallons - waste
North Frederick Avenue anti-freeze.
Gaithersburg, Maryland
Five aboveground storage tanks currently in use:
(1) 275 gallons - motor oil; (2) 275 gallons -
motor oil; (3) 275 gallons - waste oil; (4) 275
gallons -motor oil; (5) 275 gallons - motor oil.
One underground storage currently in use: (1) 550
gallons - waste oil.
8. Rosenthal Chevrolet
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
3400 South Columbia Pike One underground storage tank not currently in use:
Arlington County, Virginia (1) 2,000 gallon gasoline tank closed in placed
(with sand).
Three underground storage tanks currently in use:
(1) 4,000 gallons - gasoline; (2) 2,000 gallons -
gasoline; (3) 1,000 gallons - waste oil.
Three aboveground storage tanks currently in use:
(1) 550 gallons - motor oil; (2) 150 gallons -
waste anti-freeze; (3) 150 gallons - waste
anti-freeze.
9. Rosenthal Honda
1580 Spring Hill Road
Tysons Corner, Virginia Two former 3,000 gallon underground storage tanks
used for gasoline storage were removed in August
1993. Environmental sampling indicated the
presence of gasoline concentrations in the soil
and ground water in and around the site of the
former tanks. On June 5, 1995, consultants removed
approximately 600 tons of petroleum-contaminated
soil and 8,255 gallons of petroleum-contaminated
10. Shirlington Lot groundwaters from the former site of underground
2700 Shirley Highway storage tanks. Although low levels of residual and
Arlington, Virginia dissolved contaminates remain at the subsurface at
the site, consultants have concluded that the
removal of the petroleum-contaminated soils and
groundwater appears to have significantly reduced
the mass of residual and dissolved contaminates
present at the site and further concluded that
such contaminates remaining in the subsurface of
the site do not pose an appreciable risk to human
health and the environment. On July 21, 1995, the
Virginia Department of Environmental Quality
closed a previously-assigned Pollution Complaint
No. 94-0581 related to the Property.
</TABLE>
3
<PAGE>
SCHEDULE 9.15.5(C)
------------------
EXISTENCE OF ASBESTOS
1. The Property located at 2700 Shirley Highway, Arlington, Virginia
("Shirley Highway Property"), includes a warehouse building in which the
presence of asbestos-containing materials ("ACMs") has been confirmed. The
Phase I Environmental Site Assessment (prepared by Environmental Consultants and
Contractors, Inc., ECC Project No. 97-3083, Oct. 22, 1997) of the Shirley
Highway Property identifies the following types and locations of ACMs:
corrugated paper pipe insulation located in Rooms 102, 104, and 105
(approximately 1,000 linear feet); spray-applied ceiling plaster in Room 103 and
throughout the second floor (approximately 18,000 square feet); chiller unit
insulation in Room 201 (approximately two cubic feet); brown vinyl floor tile
and mastic on the second floor (approximately 10,000 square feet); cementitious
pipe fitting insulation in various locations throughout the building (400 linear
feet); and tan/green vinyl floor tile and mastic in Rooms 104 and 105
(approximately 500 square feet).
2. The Property located at 3400 South Columbia Pike, Arlington,
Virginia ("3400 South Columbia Pike Property"), includes two buildings in which
the presence of asbestos-containing materials ("ACMs") has been confirmed. The
Phase I Environmental Site Assessment (prepared by Environmental Consultants and
Contractors, Inc., ECC Project No. 97-3073, Oct. 22, 1997) of the 3400 South
Columbia Pike Property identifies the following types and locations of ACMs in
the Chevrolet showroom building: friable paper backing on approximately 80
square feet of tan sheet vinyl in the service department cashier's office; five
linear feet of friable corrugated paper insulation and cementitious fitting
insulation enclosed within the front column separating the Parts Department
Service Desk area from the Parts Department Manager's Office; ten linear feet of
friable corrugated paper insulation and cementitious fitting insulation enclosed
within the ground floor bathroom ceilings; five styles of non-friable 9" x 9"
vinyl floor tile throughout the building; and roofing materials. The Phase I
Assessment of the 3400 South Columbia Pike Property also identifies the
following ACMs in the Pre-Owned Vehicle building: non-friable roofing tar used
to seal protruding vents and equipment on the roof.
<PAGE>
SCHEDULE 9.15.5(F)
------------------
ENVIRONMENTAL PERMITS AND AUTHORIZATIONS
The disclosures required by this Schedule 9.15.5(f) shall be inserted hereon
after the execution of the Agreement according to Section 7.3.12 of the
Agreement.
<PAGE>
SCHEDULE 9.16
-------------
INSURANCE
The disclosures required by this Schedule 9.16 shall be inserted hereon after
the execution of the Agreement according to Section 7.3.12 of the Agreement.
<PAGE>
SCHEDULE 9.19
-------------
LEASE DISCLOSURES
Any disclosures required by this Schedule 9.19 shall be inserted hereon after
the execution of the Agreement according to Section 7.3.12 of the Agreement.
<PAGE>
SCHEDULE 9.19.2
---------------
LEASES AND RENT ROLLS
*Note: Each of the following entries represents a separate lease on
the Property referenced in such entries.
1. PROPERTY 5 (FROM SCHEDULE 1.2):
Lessors: Robert M. Rosenthal, Brooke Peterson, Jane Cafritz and Nancy
Rosenthal
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Chevrolet/GEO/Jeep
Eagle
Annual Rent: $147,600
2. PROPERTY 3 (FROM SCHEDULE 1.2)
Lessors: Robert M. Rosenthal, Brooke Peterson, Jane, Cafritz and Nancy
Rosenthal, Joint Tenants
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Honda (Body Shop)
Annual Rent: $123,775
3. PROPERTY 1 (FROM SCHEDULE 1.2) (2 ACRE LOT)
Lessor: Robert M. Rosenthal
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Honda
Annual Rent: $174,720
4. PROPERTY 7 (FROM SCHEDULE 1.2)
Lessor: RP Gaithersburg, L.P.
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Isuzu
Annual Rent: $431,364
5. PROPERTY 7 (FROM SCHEDULE 1.2)
Lessor: RP Gaithersburg, L.P.
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Acura
Annual Rent: $315,444
<PAGE>
SCHEDULE 9.19.2, CONTD.
-----------------------
LEASES AND RENT ROLLS
6. PROPERTY 7 (FROM SCHEDULE 1.2)
Lessor: RP Gaithersburg, L.P.
Lessee: Geneva Enterprises, Inc. d/b/a Gaithersburg Nissan
Annual Rent: $334,654
7. PROPERTY 7 (FROM SCHEDULE 1.2)
Lessor: RP Gaithersburg, L.P.
Lessee: Geneva Enterprises, Inc. d/b/a Maryland Imported Cars, Inc.
Gaithersburg Mazda
Annual Rent: $249,696
8. PROPERTY 6 (FROM SCHEDULE 1.2)
Lessor: Robert M. Rosenthal
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Chevrolet
Annual Rent: $390,000
9. PROPERTY 3 (FROM SCHEDULE 1.2)
Lessor: 8525 Leesburg Pike Limited Partnership
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Infiniti
Annual Rent: $250,056
10. PROPERTY 1 (FROM SCHEDULE 1.2)
Lessors: Joint Tenants Robert M. Rosenthal, Marion Rosenthal, Brooke
Peterson, Jane Cafritz, Nancy Rosenthal
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Jaguar
Annual Rent: $499,308
2
<PAGE>
SCHEDULE 9.19.2, CONTD.
-----------------------
LEASES AND RENT ROLLS
11. PROPERTIES 1 (FROM SCHEDULE 1.2)
Lessors: Robert M. Rosenthal, Brooke Peterson, Jane Cafritz, Nancy
Rosenthal
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Honda
Annual Rent: $499,320
12. PROPERTY 4 (FROM SCHEDULE 1.2)
Lessor: Robert M. Rosenthal
Lessee: Geneva Enterprises, Inc. d/b/a Rosenthal Mazda-Arlington
Annual Rent: $616,476
3
<PAGE>
SCHEDULE 9.19.13
----------------
OTHER LANDLORDS
Any disclosures required by this Schedule 9.19.13 shall be inserted hereon after
the execution of the Agreement according to Section 7.3.12 of the Agreement.
<PAGE>
SCHEDULE 9.20(A)
----------------
SERVICE CONTRACTS
The disclosures required by this Schedule 9.20 shall be inserted hereon after
the execution of the Agreement according to Section 7.3.12 of the Agreement.
<PAGE>
SCHEDULE 9.20(B)
----------------
MANAGEMENT CONTRACTS
The disclosures required by this Schedule 9.20 shall be inserted hereon after
the execution of the Agreement according to Section 7.3.12 of the Agreement.
<PAGE>
SCHEDULE 9.23
-------------
LIABILITIES OF CONTRIBUTORS
1. Obligation related to Property 5 of Schedule 1.2 (or contributors of
such Property): Note Payable to Geneva Enterprises Inc. in the amount
of $550,000.
2. See also Schedule 1.3(b).
<PAGE>
SCHEDULE 9.24
-------------
CONTRACTS
The disclosures required by this Schedule 9.24 shall be inserted hereon after
the execution of the Agreement according to Section 7.3.12 of the Agreement.
<PAGE>
SCHEDULE 9.26
-------------
EMPLOYEE BENEFIT PLANS/EMPLOYMENT CONTRACTS/EMPLOYEE BENEFIT LIABILITIES
The disclosures required by this Schedule 9.26 shall be inserted hereon after
the execution of the Agreement according to Section 7.3.12 of the Agreement.
<PAGE>
SCHEDULE 12.1.5
---------------
RESTRICTIONS ON SALE AND/OR FINANCING OF SPECIFIED PROPERTIES
Property Number from Schedule 1.2 Lock-Out Period for Sale and Financing
--------------------------------- --------------------------------------
1 7 years
2 7 years
3 7 years
4 7 years
5 6 years
6 6 years
7 5 years
<PAGE>
SCHEDULE 12.4.5
---------------
LIMITATIONS ON INDEBTEDNESS
<TABLE>
<CAPTION>
CONTRIBUTOR TAX PROPERTY TAX BASIS MORTGAGE DEBT TO BE
ACCOUNT ADDRESS BALANCE MAINTAINED
NUMBER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SPRING HILL 029-3-01- 1580 Springhill $2,064,057 $3,580,725 $1,516,668
ROAD ASSOCIATES 00-0002-C Rd., Vienna, VA
L.P. 029-3-01- 22182
00-0002-C 1592 Springhill
Rd., Vienna, VA
22182
1548 SPRINGHILL 029-3-01- 1548 Spring $156,932 $211,317 $54,385
ROAD ASSOCIATES, 00-0056 Hill Rd.,
L.P. Vienna, VA
RP 09-201- 619-25 North $7,025,178 $7,291,440 $266,262
GAITHERSBURG, 02571575 Frederick
L.P. Ave.,
Gaithersburg,
MD
750 NORTH GLEBE 13-017-010; 750 North $2,238,313 $2,742,939 $504,626
ROAD, L.P. 13,017-009; Glebe Rd.,
13-017- Arlington,
001*; 13- VA
017-002; 3-
017-016*; 444 North
13-017-017 Wilson Lane,
Arlington,
*L.P. owns VA
30% of
Property
----------- ----------- ----------
TOTALS $11,484,480 $13,826,421 $2,341,941
</TABLE>
<PAGE>
SCHEDULE 14.2.1
---------------
INDEMNITORS
None.
<PAGE>
EXHIBIT 10.17
FORM OF POHANKA LEASE
LEASE AGREEMENT
BETWEEN
CAPITAL AUTOMOTIVE L.P., LANDLORD
AND
[ ], TENANT
DATED: ____________, 1997
<PAGE>
<TABLE>
<S> <C>
ARTICLE I
LEASE AGREEMENT, LEASED PROPERTY AND TERM..................................1
1.01 Lease Agreement...................................................1
1.02 Contingent Upon Acquisition of the Leased Property................2
1.03 Term..............................................................2
1.04 Holding Over......................................................3
1.05 Surrender.........................................................3
ARTICLE II
RENT.......................................................................4
2.01 Base Rent.........................................................4
2.02 Payment...........................................................4
2.03 Security Deposit..................................................4
2.04 Base Annual Rent Adjustment.......................................5
2.05 Additional Rent...................................................5
2.06 Place(s) of Payment of Rent; Direct Payment of Additional Rent....5
2.07 Net Lease.........................................................5
2.08 No Termination, Abatement, Etc....................................5
ARTICLE III
IMPOSITIONS AND UTILITIES..................................................6
3.01 Payment of Impositions............................................6
3.02 Definition of Impositions.........................................7
3.03 Utilities.........................................................8
3.04 Escrow of Impositions.............................................8
3.05 Discontinuance of Utilities.......................................9
3.06 Liens.............................................................9
ARTICLE IV
INSURANCE..................................................................9
4.01 Insurance.........................................................9
4.02 Insurance Limits.................................................11
4.03 Insurance Requirements...........................................11
4.04 Replacement Cost.................................................12
4.05 Blanket Policy...................................................12
4.06 No Separate Insurance. ..........................................12
4.07 Waiver of Subrogation............................................13
4.08 Mortgages........................................................13
4.09 Other Insurance Requirements.....................................13
ARTICLE V
INDEMNITY; SUBSTANCES OF CONCERN..........................................13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.01 Tenant's Indemnification.........................................13
5.02 Substances of Concern............................................14
5.03 Audits...........................................................17
5.04 Landlord's Option Re: Compliance.................................17
5.05 Environmental Indemnification....................................17
5.06 Tenant's Cleanup Obligation......................................18
5.07 Existing Environmental Conditions................................18
5.08 Survival of Tenant's Obligations.................................18
ARTICLE VI
USE AND ACCEPTANCE OF PREMISES............................................19
6.01 Use of Leased Properties.........................................19
6.02 Acceptance of Leased Properties..................................19
6.03 Conditions of Use and Occupancy..................................19
6.04 Financial Statements and Other Information.......................20
ARTICLE VII
REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS.......................20
7.01 Maintenance......................................................20
7.02 Compliance with Laws.............................................20
7.03 Required Alterations.............................................21
7.04 Mechanics' Liens.................................................21
7.05 Replacements of Fixtures.........................................21
7.06 Encroachments; Restrictions......................................22
ARTICLE VIII
ALTERATIONS AND SIGNS; TENANT'S PROPERTY;
CAPITAL ADDITIONS TO THE LEASED PROPERTIES................................22
8.01 Tenant's Right to Construct......................................22
8.02 Scope of Right...................................................23
8.03 Cooperation of Landlord..........................................24
8.04 Commencement of Construction.....................................24
8.05 Rights in Tenant Improvements....................................25
8.06 Personal Property................................................25
8.07 Requirements for the Tenant's Personal Property..................25
8.08 Financings of Capital Additions to a Leased Property.............27
ARTICLE IX
DEFAULTS AND REMEDIES.....................................................27
9.01 Events of Default................................................27
9.02 Remedies.........................................................29
9.03 Right of Set-Off.................................................32
9.04 Performance of Tenant's Covenants................................32
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
9.05 Late Charge......................................................33
9.06 Litigation; Attorneys' Fees......................................33
9.07 Remedies Cumulative..............................................33
9.08 Escrows and Application of Payments..............................33
9.09 Power of Attorney................................................34
ARTICLE X
DAMAGE AND DESTRUCTION....................................................34
10.01 General..........................................................34
10.02 Landlord's Inspection............................................35
10.03 Landlord's Costs.................................................35
10.04 Rent Abatement...................................................35
10.05 Substantial Damage During Lease Term.............................36
10.06 Damage Near End of Term..........................................36
10.07 Risk of Loss.....................................................37
ARTICLE XI
CONDEMNATION..............................................................37
11.01 Total Taking.....................................................37
11.02 Partial Taking...................................................37
11.03 Restoration......................................................37
11.04 Landlord's Inspection............................................38
11.05 Award Distribution...............................................38
11.06 Temporary Taking.................................................39
ARTICLE XII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND FINANCIAL
COVENANTS.................................................................39
12.01 Organization and Qualification...................................39
12.02 Material Agreements..............................................40
12.03 Changes in Condition.............................................41
12.04 Franchises, Licenses, etc........................................41
12.05 Litigation.......................................................41
12.06 Authorization and Enforceability.................................41
12.07 No Legal Obstacle to Lease.......................................42
12.08 Certain Business Representations.................................42
12.09 Certain Financial Covenants......................................44
12.10 Cash Flow Coverage Ratio Covenant................................44
12.11 Disclosure.......................................................44
12.12 Covenant Not to Acquire..........................................44
ARTICLE XIII
ASSIGNMENT AND SUBLETTING; ATTORNMENT ....................................46
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
13.01 Prohibition Against Subletting and Assignment....................46
13.02 Changes of Control...............................................46
13.03 Operating/Service Agreements.....................................47
13.04 Assignment.......................................................48
13.05 REIT Limitations.................................................48
13.06 Attornment.......................................................49
13.07 Severance and Spin-Off...........................................49
ARTICLE XIV
ARBITRATION...............................................................50
14.01 Controversies....................................................50
14.02 Appointment of Arbitrators.......................................50
14.03 Arbitration Procedure............................................50
14.04 Expenses.........................................................50
14.05 Enforcement of the Arbitration Award.............................51
ARTICLE XV
QUIET ENJOYMENT, SUBORDINATION,
ATTORNMENT, ESTOPPEL CERTIFICATES.........................................51
15.01 Quiet Enjoyment..................................................51
15.02 Landlord Mortgages; Subordination................................51
15.03 Attornment.......................................................51
15.04 Estoppel Certificates............................................52
15.05 Waiver of Landlord's Lien........................................52
ARTICLE XVI
RIGHT OF FIRST OFFER......................................................53
16.01 Right of First Offer During Lease Term or Extension Term.........53
16.02 Right to Purchase at End of an Extension Term....................54
ARTICLE XVII
MISCELLANEOUS.............................................................55
17.01 Notices..........................................................55
17.02 Advertisement of a Leased Property...............................56
17.03 Landlord's Access................................................56
17.04 Entire Agreement.................................................56
17.05 Severability.....................................................57
17.06 Captions and Headings............................................57
17.07 Governing Law....................................................57
17.08 Memorandum of Lease or Certain Rights Under the Lease............57
17.09 Waiver...........................................................57
17.10 Assignment; Binding Effect.......................................57
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
17.11 Consents and Approvals...........................................57
17.12 Single Property..................................................58
17.13 Modification.....................................................58
17.14 Incorporation by Reference.......................................58
17.15 No Merger........................................................58
17.16 Force Majeure....................................................58
17.17 Laches...........................................................58
17.18 Waiver of Jury Trial.............................................58
17.19 Permitted Contests...............................................59
17.20 Construction of Lease............................................59
17.21 Counterparts.....................................................60
17.22 Relationship of Landlord and Tenant..............................60
</TABLE>
EXHIBITS
A Leased Properties
B Permitted Liens
C Base Annual Rent Schedule
SCHEDULES
2.02 Payment Account Information
2.04 Base Annual Rent Adjustment
5.07 Environmental Reports
12.02 Material Agreements
12.03 Changes in Condition
15.02 Form of Subordination and Non-Disturbance Agreement
v
<PAGE>
LEASE AGREEMENT
This Lease Agreement ("Lease") dated as of the ______ day of November,
1997 by and between CAPITAL AUTOMOTIVE L.P., a Delaware limited partnership
("Landlord"), having its principal office at [__________________] and [
], a ___________ [corporation], having its principal office at
[________________] ("Tenant").
RECITALS
WHEREAS, Tenant or an Affiliate (as hereafter defined) has conveyed or
will convey to Landlord certain parcels of real estate and improvements thereon
upon which Tenant engages in motor vehicle retail and/or motor vehicle related
businesses (the "Business"), which parcels of real estate and improvements
thereon are described on Schedule A attached hereto and incorporated herein by
reference (each hereinafter a "Leased Property" or collectively, the "Leased
Properties"), and Landlord and Tenant desire to provide for the lease by
Landlord to Tenant of the Leased Properties; and
WHEREAS, Landlord and Tenant desire that each of the Leased Properties
shall be the subject of this Lease and be used by Tenant in its operation of the
Business; and
WHEREAS, this Lease provides that additional real estate and
improvements thereon may be made subject to the operation and effect of this
Lease, upon execution by Landlord and Tenant of a Lease Supplement designating
each such additional property as a Leased Property hereunder.
NOW, THEREFORE, in consideration of the foregoing premises and of
their respective agreements and undertakings herein, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree as follows:
ARTICLE I
LEASE AGREEMENT, LEASED PROPERTY AND TERM
1.01 Lease Agreement. Landlord does hereby let and lease unto Tenant,
---------------
and Tenant does hereby take and hire from Landlord, the Leased Properties, which
shall respectively consist of:
(a) The parcels of land described and located at the addresses listed
in Schedule A hereto, as more particularly described therein,
together with any additional parcels of real estate and
improvements thereon subsequently designated as a Leased Property
by the parties pursuant to a Lease Supplement as provided for
herein, together with all rights, titles, appurtenant interests,
covenants, licenses, privileges and benefits thereto belonging,
and any easements, rights-of-way, rights of ingress or egress or
other interests in, on, or to any land, highway, street, road or
avenue, open
<PAGE>
or proposed, in, on, across, in front of, abutting or adjoining
such real property including, without limitation, any strips and
gores adjacent to or lying between such real estate and any
adjacent real estate (the "Land");
(b) All buildings, improvements, structures and Fixtures (as
hereinafter defined) now located or to be located or to be
constructed on the Land, including, without limitation,
sidewalks, landscaping, parking lots and structures, roads,
drainage and all above ground and underground utility structures
and conduits (on-site or off-site), equipment systems and other
so-called "infrastructure" improvements (the "Improvements");
(c) All equipment, machinery, fixtures, and other items of real
and/or personal property, including all components thereof,
located in, on or used in connection with, and permanently
affixed to or incorporated into, the Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection
equipment, and similar systems, all of which, to the greatest
extent permitted by law, are hereby deemed to constitute real
estate, together with all replacements, modifications,
alterations and additions thereto (collectively the "Fixtures");
and
(d) All easements, rights and appurtenances relating to the Land
and the Improvements.
SUBJECT, HOWEVER, to the liens, encumbrances, restrictions,
agreements, and other title matters listed or specifically referred to in
Schedule B ("Permitted Exceptions").
The Leased Properties shall however exclude all furniture, equipment,
inventory and items of moveable personal property attached to the Land or
Improvements that relate to the business being conducted on the Leased Property
which items may readily be removed without material damage to the Land and
Improvements whether or not such items might legally be considered to be
"fixtures" (all of which are owned by Tenant and shall hereinafter be defined as
the "Excluded Personal Property").
1.02 Contingent Upon Acquisition of the Leased Property. In the event
--------------------------------------------------
this Lease is executed prior to the conveyance by Tenant or an Affiliate of the
Leased Property to Landlord, the parties acknowledge that the effectiveness of
this Lease in respect of such Leased Property is contingent upon the closing of
such conveyance (the "Commencement Date").
1.03 Term. The initial term of this Lease (the "Term") shall be for a
----
fixed term of One Hundred and Twenty (120) months commencing on the Commencement
Date. The
2
<PAGE>
initial term for any Leased Property designated in a Lease Supplement shall
begin on the date of such Lease Supplement and expire at the end of the Term or
then current Extension Term (as hereafter defined), as the case may be. Tenant
shall have the right to extend this Lease for the Leased Properties as a group,
at Tenant's option, for one One Hundred and Twenty (120) month renewal term from
the expiration of the Term (the "First Extension Term"), provided that no Event
of Default (as defined in Section 9.01 hereof) shall exist and be continuing.
In addition, Tenant shall have the right to extend this Lease for the Leased
Properties as a group at Tenant's option, for a second One Hundred and Twenty
(120) month renewal term from the expiration of the First Extension Term (the
"Second Extension Term", each an "Extension Term", and collectively with the
First Extension Term, the "Extension Terms") provided that no Event of Default
(as defined in Section 9.01 hereof) shall exist and be continuing. Tenant shall
exercise the First Extension Term by written notice to Landlord no later than
twelve months prior to the end of the Term. Tenant shall exercise the Second
Extension Term by written notice to Landlord no later than twelve (12) months
prior to the end of the First Extension Term. Notwithstanding anything else to
the contrary in this Agreement, the Rent during the Second Extension Term shall
be the Fair Market Rent (as hereafter defined) for the Leased Property. Fair
Market Rent shall be determined as soon as possible after receipt by Landlord of
Tenant's notice of option exercise, on the basis of appraisals of independent
appraisers selected in accordance with the provisions of Section 16.02(b).
Tenant shall have the right, in its sole discretion, to rescind the exercise of
Tenant's option to extend the Lease for the Second Extension Term during a
period of five (5) business days after the determination of the Fair Market
Rent. If Tenant shall fail to exercise the right to rescind within such five
(5) day period, the election to extend shall be irrevocable and the Fair Market
Rent so determined shall be the Base Annual Rent during the Second Extension
Term notwithstanding any changes in the market rental rates, whether upward or
downward, which may occur after such determination. However, notwithstanding
anything else in this Agreement, Fair Market Rent shall become the Base Annual
Rent (as defined hereafter) and shall be subject to Base Annual Rent Adjustments
as set forth in Section 2.04.
1.04 Holding Over. Should Tenant, without the express consent of
------------
Landlord, continue to hold and occupy any Leased Property after the expiration
or earlier termination of the Term or any Extension Term, as the case may be,
such holding over beyond the Term and the acceptance or collection of Rent (as
defined hereinafter) by Landlord shall operate and be construed as creating a
tenancy from month-to-month and not for any other term whatsoever. During any
such holdover period Tenant shall pay to Landlord for each month (or portion
thereof) Tenant remains in such Leased Property, in lieu of the Base Annual Rent
(as defined hereafter) for such Leased Property, an amount equal to the sum of
one-twelfth (1/12) of (i) one hundred seven percent (107%) of such Base Annual
Rent (the "Holdover Rate"), and (ii) as applicable, one hundred percent (100%)
of the Additional Rent (as defined hereinafter) for such Leased Property and
Other Additional Rent (as defined hereinafter) for such Leased Property, each as
in effect on the expiration date. Said month-to-month tenancy may be terminated
by Landlord by giving Tenant thirty (30) days written notice, and at any time
thereafter Landlord may re-enter and take possession of such Leased Property.
3
<PAGE>
1.05 Surrender. Except as a result of (a) Tenant Improvements and
---------
Capital Additions (as defined hereinafter); (b) normal and reasonable wear and
tear (subject to the obligation of Tenant to maintain each Leased Property in
good order and repair during the Term); and (c) casualty, taking or other damage
and destruction not required to be repaired by Tenant, Tenant shall surrender
and deliver up each Leased Property at the expiration or termination of the Term
or the Extension Term therefor, as the case may be, broom clean, in good order
and repair, free of the Excluded Personal Property and any additional items of
Tenant's personal property (together with the Excluded Personal Property, the
"Tenant's Personal Property"), all of which Tenant shall remove prior to such
surrender and delivery, and in as good order and condition as of the
Commencement Date.
ARTICLE II
RENT
2.01 Base Rent. Tenant shall pay Landlord annual base rent (the "Base
---------
Annual Rent") as to the Leased Property for each year during the Term or the
Extension Term (each such year a "Lease Year"), which Base Annual Rent shall be
subject to upward adjustment pursuant to Section 2.04. In the first Lease Year,
Base Annual Rent shall be in the amount set forth on Schedule A (the "Initial
Base Annual Rent"), paid to Landlord in twelve equal monthly installments.
2.02 Payment. Tenant shall pay Landlord the Base Annual Rent as to
-------
the Leased Property for each Lease Year, without notice, demand, set-off or
counterclaim in advance, in lawful money of the United States of America and
payable in consecutive monthly installments commencing on the Commencement Date
and thereafter on the first day of each month during the Term. Tenant will, to
the extent that such method of payment is compatible with its business
practices, make such payments by direct deposit of immediately available funds
to the account set forth in Exhibit 2.02 (which Exhibit 2.02 may be modified by
Landlord from time to time upon Notice (as hereafter defined) to Tenant).
2.03 Security Deposit. Prior to the Commencement Date, Tenant shall
----------------
deliver to Landlord an amount equal to one-twelfth (1/12th) of the Base Annual
Rent, which amount shall be held by Landlord as security (the "Security
Deposit") for the performance of Tenant's payment and other obligations under
this Lease. Upon an Event of Default and the continuance thereof, Landlord shall
have the right, but not the obligation, to apply the Security Deposit as set
forth in Section 9.08. Landlord shall return the Security Deposit, without
interest, after expiration of this Lease, if Tenant has fully and faithfully
carried out all of the terms, covenants and conditions hereof. In the event that
Landlord eliminates its standard business policy of requiring security deposits
from tenants, then Landlord shall refund the Security Deposit to Tenant within
thirty (30) days of such policy change.
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2.04 Base Annual Rent Adjustment.
---------------------------
(a) The Base Annual Rent shall be adjusted during the Lease Term
or the Extension Terms under the procedures set forth in
Exhibit 2.04 (the "Base Annual Rent Adjustment").
(b) As used in Exhibit 2.04, the "Index" shall mean the CPI-U
published by the United States Department of Labor, Bureau
of Labor Statistics Consumer Price Index for All Urban
Consumers, U.S. City Average. If at any time during the Term
or the Extension Term, as the case may be, the Index shall
be discontinued, Landlord shall select a substitute index,
being an existing official index published by the Bureau of
Labor Statistics or its successor or another, similar
governmental agency, which index is most nearly equivalent
to the Index.
2.05 Additional Rent. As to each Leased Property, in addition to the
---------------
Base Annual Rent, Tenant shall pay all other amounts, liabilities, obligations
and Impositions (as hereinafter defined) which Tenant assumes or agrees to pay
under this Lease and any fine, penalty, interest, charge and cost which may be
added for nonpayment or late payment of such items (collectively, the
"Additional Rent").
2.06 Place(s) of Payment of Rent; Direct Payment of Additional Rent.
--------------------------------------------------------------
The Base Annual Rent and Additional Rent are hereinafter referred to as "Rent."
Landlord shall have all legal, equitable and contractual rights, powers and
remedies provided in this Lease or by statute or otherwise in the case of
nonpayment of the Rent for each Leased Property. Tenant shall make all payments
of Rent at Landlord's address set forth in Section 17.01 or as Landlord may
otherwise from time to time direct in writing, or, if Landlord shall direct
Tenant, directly to a bank account specified by Landlord to Tenant in writing.
At the direction of the Landlord, Tenant shall make payments of Additional Rent
directly to the person or persons to whom such amount is owing at the time and
times when such payments are due, and Tenant shall give to Landlord such
evidence of such direct payments as Landlord shall reasonably request.
2.07 Net Lease. This Lease shall be deemed and construed to be an
---------
"absolute net lease" or "triple net lease," (i.e. that Tenant shall pay all
costs and expenses related to the ownership and operations of each Leased
Property, thereby leaving all Rent as an absolutely net return to Landlord) and
as to each Leased Property, Tenant shall pay all Rent, Impositions, and other
charges and expenses in connection with such Leased Property throughout the Term
and any Extension Term, without abatement, deduction or set-off.
2.08 No Termination, Abatement, Etc. Except as otherwise specifically
------------------------------
provided herein, Tenant shall remain bound by this Lease in accordance with its
terms. Except as otherwise specifically provided herein, Tenant shall not,
without the prior written consent of
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Landlord, modify, surrender or terminate this Lease as to any Leased Property,
nor seek nor be entitled to any abatement, deduction, deferment or reduction of
Rent, or set-off against the Rent as to any Leased Property for any reason
whatsoever. Except as specifically provided herein, the obligations of Landlord
and Tenant shall not be affected by reason of: (a) the lawful or unlawful
prohibition of, or restriction upon, Tenant's use of any Leased Property, or any
part thereof, the interference with such use by any person, corporation,
partnership or other entity, or by reason of eviction by paramount title; (b)
any claim which Tenant has or might have against Landlord or by reason of any
default or breach of any warranty by Landlord under this Lease or any other
agreement between Landlord and Tenant, or to which Landlord and Tenant are
parties; (c) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceeding affecting
Landlord or any assignee or transferee of Landlord; (d) any damage to, or
destruction of, any Leased Property or any portion thereof for whatever cause,
or any taking of the Leased Property or any portion thereof; or (e) any other
cause, whether similar or dissimilar to any of the foregoing, other than a
discharge of Tenant from any such obligations as a matter of law. Except as
otherwise specifically provided herein, and to the maximum extent permitted by
law, Tenant hereby specifically waives all rights, including but not limited to
any rights under any statute relating to rights of tenants in the jurisdictions
where the Leased Properties are located, which may now be conferred upon it by
law, relating to: (a) the modification, surrender or termination of this Lease,
or the quitting or surrender of any Leased Property or any portion thereof; (b)
any abatement, reduction, suspension or deferment of the Rent or other sums
payable by Tenant hereunder; or (c) any rights of redemption. As to each Leased
Property, the obligations of Landlord and Tenant hereunder shall be separate and
the Rent and all other sums shall continue to be payable in all events unless
the obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason of
an Event of Default.
ARTICLE III
IMPOSITIONS AND UTILITIES
3.01 Payment of Impositions. Subject to the adjustments set forth
----------------------
herein, Tenant shall pay, in the manner set forth in Section 3.04, as Additional
Rent, to the Landlord an amount equal to the amount necessary to pay all
Impositions (as hereinafter defined) that may be levied or become a lien on any
Leased Property or any part thereof at any time (whether prior to or during the
Term), without regard to prior ownership of said Leased Property, before the
same becomes delinquent. Tenant's obligation to pay such Impositions shall be
deemed absolutely fixed upon the date such I mpositions become a lien upon any
Leased Property or any part thereof. Tenant, at its expense, shall prepare and
file all tax returns and reports in respect of any Imposition as may be required
by governmental authorities, provided, however, that Tenant shall provide to
Landlord copies of all filings of such tax returns or reports in respect of any
real or personal property owned by Landlord. Tenant shall be entitled to any
refund due in respect of such Impositions from any taxing authority if no Event
of Default shall have occurred hereunder and be continuing. Any refunds in
respect of such Impositions retained by Landlord due to an
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Event of Default shall be applied as provided in Section 9.08. Landlord and
Tenant shall, upon request of the other, provide such data as is maintained by
the party to whom the request is made with respect to a Leased Property as may
be necessary to prepare any required tax returns and reports. In the event
governmental authorities classify any property covered by this Lease as personal
property, Landlord and Tenant shall file all personal property tax returns in
such jurisdictions where it may legally so file with respect to their respective
owned personal property. Landlord, to the extent it possesses the same, and
Tenant, to the extent it possesses the same, will provide the other party, upon
request, with cost and depreciation records necessary for filing such returns or
reports for any property so classified as personal property. To the extent that
Landlord is legally required to file personal property tax returns, Tenant will
be provided with copies of assessment notices indicating a value in excess of
the reported value in sufficient time for Tenant to file a protest. Tenant may,
upon notice to Landlord, at Tenant's option and at Tenant's sole cost and
expense, protest, appeal, or institute such other proceedings as Tenant may deem
appropriate to effect a reduction of real estate or personal property
assessments and Landlord, at Tenant's expense as aforesaid, shall fully
cooperate with Tenant in such protest, appeal, or other action. Tenant shall
provide Landlord copies of all materials filed or presented in connection with
any such proceeding. Tenant shall promptly reimburse Landlord for all taxes
paid by Landlord, which were not paid with deposits received from Tenant, upon
receipt of billings accompanied by copies of a bill therefor and payments
thereof which identify the property with respect to which such payments are
made. Impositions imposed with respect to the tax-fiscal period during which
the Term commences and terminates as to each Leased Property shall be adjusted
and prorated between Landlord and Tenant on a per diem basis, with Tenant being
obligated to pay its pro rata share from and including the Commencement Date to
and including the expiration or termination date of the Term or Extension Term,
as the case may be, whether or not such Imposition is imposed before or after
such commencement or termination, and Tenant's obligation to pay its prorated
share thereof shall survive such termination. Tenant shall also pay to Landlord
a sum equal to the amount which Landlord may be caused to pay of any privilege
tax, sales tax, gross receipts tax, rent tax, occupancy tax or like tax
(excluding any tax based on net income), hereinafter levied, assessed, or
imposed by any federal, state, city, county or municipal or other local
governmental authority, or any subdivision thereof, upon or measured by rent or
other consideration required to be paid by Tenant under this Lease.
3.02 Definition of Impositions. "Impositions" means, collectively:
-------------------------
(a) taxes (including without limitation, all real estate and personal property
ad valorem (whether assessed as part of the real estate or separately assessed
as unsecured personal property), sales and use, business or occupation, single
business, gross receipts, transaction, privilege, rent or similar taxes, but not
including income or franchise or excise taxes payable with respect to Landlord's
receipt of Rent); (b) assessments, whether in the nature of a special assessment
or otherwise (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not to be completed within the Term or any Extension
Term, as the case may be); (c) ground rents, water, sewer or other rents and
charges, excises, tax levies, and fees (including, without limitation, license,
permit, inspection, authorization and similar fees); (d) to the extent they may
become a lien on a Leased
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Property, all taxes imposed on Tenant's operations of such Leased Property
including without limitation, employee withholding taxes, income taxes and
intangible taxes; and (e) all other governmental charges, in each case whether
general or special, ordinary or extraordinary, or foreseen or unforseen, of
every character in respect of each Leased Property or any part thereof, the
Business conducted by Tenant thereon, and/or the Rent (including all interest
and penalties thereon due to any failure in payment by Tenant), which at any
time prior to, during or in respect of the Term or any Extension Term, as the
case may be, hereof may be assessed or imposed on or in respect of or be a lien
upon (i) Landlord or Landlord's interest in any Leased Property or any part
thereof; (ii) any Leased Property or any part thereof or any rent therefrom or
any estate, right, title or interest therein; or (iii) any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with any Leased Property or the leasing or use of any Leased Property or any
part thereof. Tenant shall not, however, be required to pay: (x) any tax based
on net income (whether denominated as a franchise or capital stock or other tax)
imposed on Landlord or (y) except as provided in Section 13.01, any tax imposed
with respect to the sale, exchange or other disposition by Landlord of a Leased
Property or the proceeds thereof; provided, however, that if any tax,
assessment, tax levy or charge which Tenant is obligated to pay pursuant to the
first sentence of this definition and which is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy or
charge set forth in clause (x) or (y) immediately above is levied, assessed or
imposed expressly in lieu thereof Tenant shall then pay such tax, levy, or
charge set forth in said clause (x) or (y).
3.03 Utilities. Tenant shall contract for, in its own name, and will
---------
pay, as Additional Rent all taxes, assessments, charges/deposits, and bills for
utilities, including without limitation charges for water, gas, oil, sanitary
and storm sewer, electricity, telephone service, trash collection, and all other
utilities which may be charged against the occupant of the Improvements during
the Term. Tenant shall at all times maintain that amount of heat necessary to
ensure against the freezing of water lines. Tenant hereby agrees to indemnify
and hold Landlord harmless from and against any liability or damages to the
utility systems of each Leased Property that may result from Tenant's failure to
maintain sufficient heat in the Improvements therefor.
3.04 Escrow of Impositions. Unless waived by written notice from
---------------------
Landlord to Tenant, Tenant shall thereafter deposit with Landlord on the first
day of each month during the Term hereof and any Extension Term, as the case may
be, a sum equal to one-twelfth (1/12th) of the Impositions assessed against such
Leased Property which sums shall be used by Landlord toward payment of such
Impositions. If, at the end of any applicable tax year, any such funds held by
Landlord are insufficient to make full payment of taxes or other Impositions for
which such funds are held, Tenant, on demand, shall pay to Landlord any
additional funds necessary to pay and discharge in full the obligations of
Tenant pursuant to the provisions of this Section. If, however, at the end of
any applicable tax year, such funds held by Landlord are in excess of the total
payment required to satisfy taxes or other Impositions for which such funds are
held, Landlord shall apply such excess amounts to a tax and Imposition escrow
fund for the next tax year. With respect to each Leased Property, if any such
excess exists following the expiration or
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earlier termination of this Lease, and subject to Section 8.08 below, Landlord
shall promptly refund such excess amounts to Tenant. The receipt by Landlord of
the payment of such Impositions by and from Tenant shall only be as an
accommodation to Tenant and the taxing authorities, and shall not be construed
as rent or income to Landlord, Landlord serving, if at all, only as a conduit
for delivery purposes.
3.05 Discontinuance of Utilities. Landlord will not be liable for
---------------------------
damages to person or property or for injury to, or interruption of, business for
any discontinuance of utilities at any Leased Property nor will such
discontinuance in any way be construed as an eviction of Tenant from such Leased
Property or cause an abatement of Rent as to such Leased Property or operate to
release Tenant from any of Tenant's obligations as to such Leased Property under
this Lease. Notwithstanding the forgoing, however, Landlord shall be liable for
damages to person or property or for injury to, or interruption of business, for
any discontinuance of utilities at any Leased Property, in the event and to the
extent, such damages or injury are caused by the wilful misconduct of the
Landlord.
3.06 Liens. Subject to Section 17.19 relating to contests, Tenant
-----
shall not directly or indirectly create or allow to remain, and will promptly
discharge at its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon any Leased Property or any attachment, levy, claim or
encumbrance in respect of any Rent provided under this Lease, not including,
however: (a) this Lease; (b) utility easements and road rights-of-way in the
customary form (i) provided the same do not adversely affect the intended use of
the Leased Properties (including the Improvements) and do not create a Material
Adverse Effect on the value of the Leased Properties or (ii) which result solely
from the action or inaction of Landlord; (c) zoning and building laws or
ordinances, provided they do not prohibit the use of the Leased Properties for
the Business and so long as the Leased Properties are in compliance with same;
(d) such encumbrances as are subsequently consented to in writing by Landlord,
but excluding liens in respect of Impositions required to be paid under Section
3.01; (e) liens for Impositions so long as (i) the same are not yet payable or
are payable without the addition of any fine or penalty or (ii) such liens are
being contested as permitted under Section 16.18; and (f) other encumbrances,
easements, rights of way or liens (i) provided the same do not adversely affect
the intended use of the Leased Properties (including the Improvements) and do
not create a Material Adverse Effect on the value of the Leased properties, or
(ii) which result solely from the action or inaction of Landlord.
ARTICLE IV
INSURANCE
4.01 Insurance. Tenant shall, at Tenant's expense, keep the
---------
Improvements, Fixtures, and other components of each Leased Property insured
against the following risks:
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(a) Loss or damage by fire with extended coverage (including
windstorm and subsidence), vandalism and malicious mischief,
sprinkler leakage and all other physical loss perils
commonly covered by "All Risk" insurance in an amount not
less than one hundred percent (100%) of the then full
replacement cost thereof (as hereinafter defined). Such
policy shall include an agreed amount endorsement if
available at a reasonable cost. Such policy shall also
include endorsements for contingent liability for operation
of building laws, demolition costs, and increased cost of
construction.
(b) Loss or damage by explosion of steam boilers, pressure
vessels, or similar apparatus, now or hereafter installed on
any Leased Property, in commercially reasonable amounts
acceptable to Landlord.
(c) Loss of rent under a rental value or Business interruption
insurance policy covering risk of loss during the first
twelve (12) months of reconstruction necessitated by the
occurrence of any hazards described in Sections 4.01(a) or
4.01(b), above, and which causes an abatement of Rent as
provided in Article X hereof, in an amount sufficient to
prevent Landlord or Tenant from becoming a co-insurer,
containing endorsements for extended period of indemnity and
premium adjustment, and written with an agreed amount
clause, if the insurance provided for in this clause (c) is
available.
(d) If the Land or any portion thereof related to a Leased
Property is located in whole or in part within a designated
flood plain area, loss or damage caused by flood in
commercially reasonable amounts acceptable to Landlord.
(e) Loss or damage commonly covered by blanket crime insurance
including employee dishonesty, loss of money orders or paper
currency, depositor's forgery, and loss of property accepted
by Tenant for safekeeping, in commercially reasonable
amounts acceptable to Landlord.
(f) Workers' compensation insurance as required by statute in
respect of any work or other operations on or about each
Leased Property.
(g) Comprehensive liability insurance as to each Leased Property
in amounts equal to the greater of (i) One Million Dollars
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($1,000,000) for each occurrence and Two Million Dollars
($2,000,000) in the aggregate, or (ii) the limits of
liability generally required under the franchise agreements
or other agreements pursuant to which Tenant operates the
Businesses conducted on or about each Leased Property.
(h) Commercial comprehensive catastrophic liability insurance
with limits of liability of not less than the greater of (i)
Five Million ($5,000,000) and (ii) the limits of liability
generally required under the franchise agreements or other
agreements pursuant to which Tenant operates the Businesses
conducted on or about each Leased Property.
(i) upon Landlord's request, earthquake insurance in an amount
not less than the full insurable value of each Leased
Property.
(j) During the period when any addition, alteration,
construction, installation or demolition is being made or
performed to any part of the Leased Property, contingent
liability, public liability, completed value, builder's risk
(non-reporting form) workers' compensation and other
insurance as is deemed prudent by Landlord.
4.02 Insurance Limits. Deductible provisions for the insurance
----------------
required under Section 4.01(a) shall not exceed Twenty-Five Thousand Dollars
($25,000) per location per occurrence and One Hundred Thousand Dollars
($100,000) aggregate per occurrence; under clause(d), Twenty-Five Thousand
Dollars ($25,000) per occurrence, except that if federal flood insurance is
available then such deductible shall not be greater than the lowest deductible
available with respect to such federal flood insurance; under clause (g),
Twenty-Five Thousand Dollars ($25,000) per occurrence; under clause (h),
Twenty-FiveThousand Dollars ($25,000) per occurrence; and under clause (j),
Twenty-Five Thousand Dollars ($25,000) per occurrence.
4.03 Insurance Requirements. The following provisions shall apply to
----------------------
all insurance coverages required hereunder:
(a) The carriers of all policies shall have a Best's
Rating of "A-" or better and a Best's Financial Category of
XII or larger and shall be authorized to do insurance
business in the jurisdiction in which the Leased Property is
located.
(b) Tenant shall be the "named insured" and Landlord and any
mortgagee of Landlord shall be an "additional named insured"
on each policy.
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(c) Tenant shall deliver to Landlord certificates or policies
showing the required coverages and endorsements. Each policy
or certificate of insurance shall provide that such policy
or certificate (i) may not be canceled, (ii) may not lapse
for failure to renew, and (iii) no material change or
reduction in coverage may be made, without at least thirty
(30) days' prior written notice to Landlord.
(d) The policies shall contain a severability of interest and/or
cross-liability endorsement, provide that the acts or
omissions of Tenant will not invalidate Landlord's coverage,
and provide that Landlord shall not be responsible for
payment of premiums.
(e) All loss adjustment shall require the written consent of
Landlord and Tenant, as their interests may appear.
(f) At least (30) thirty days prior to the expiration of each
policy, Tenant shall deliver to Landlord a certificate
showing renewal of such policy and payment of the annual
premium therefor.
Landlord shall have the right to review the insurance coverages
required hereunder with Tenant from time to time, to obtain the input of third
party professional insurance advisors (at Landlord's expense) with respect to
such insurance coverages, and to consult with Tenant in Tenant's annual review
and renewal of such insurance coverages. All insurance coverages hereunder shall
be in such form, substance and amounts as are customary or standard in Tenant's
industry, but at a minimum shall comply with the requirements set forth herein.
4.04 Replacement Cost. The term "full replacement cost" means the
----------------
actual replacement cost of the Improvements from time to time including
increased cost of construction, with no reductions or deductions. Tenant shall,
not later than thirty (30) days after the anniversary of each policy of
insurance, increase the amount of the replacement cost endorsement for the
Improvements to the extent necessary to reflect increased costs of construction.
If Tenant makes any Permitted Alterations (as hereinafter defined) to any Leased
Property, Landlord may have such full replacement cost redetermined at any time
after such Permitted Alterations are made, regardless of when the full
replacement cost was last determined.
4.05 Blanket Policy. Tenant may carry the insurance required by this
--------------
Article under a blanket policy of insurance, provided that the coverage afforded
Tenant will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all of the requirements of
this Lease and the Landlord approves the form of the policy.
4.06 No Separate Insurance. Tenant shall not take out separate
---------------------
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or
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increase the amounts of any then existing insurance by securing an additional
policy or additional policies, unless all parties having an insurable interest
in the subject matter of the insurance, including Landlord and any mortgagees,
are included therein as additional named insureds or loss payees, the loss is
payable under said insurance in the same manner as losses are payable under this
Lease, and such additional insurance is not prohibited by the existing policies
of insurance required pursuant to this Article. Tenant shall immediately notify
Landlord of the taking out of such separate insurance or the increasing of any
of the amounts of the existing insurance by securing an additional policy or
additional policies. The term "mortgages" as used in this Lease includes, but
is not limited to, Deeds of Trust and the term "mortgagees" includes, but is not
limited to, trustees and beneficiaries under a Deed of Trust.
4.07 Waiver of Subrogation. Each party hereto hereby waives any and
---------------------
every claim which arises or may arise in its favor and against the other party
hereto during the Term or any Extension Term or renewal thereof, for any and all
loss of, or damage to, any of its property located within or upon, or
constituting a part of, any Leased Property, which loss or damage is covered by
valid and collectible insurance policies, to the extent that such loss or damage
is recoverable in full under such policies. Said mutual waiver shall be in
addition to, and not in limitation or derogation of, any other waiver or release
contained in this Lease with respect to any loss or damage to property of the
parties hereto. Inasmuch as the said waivers will preclude the assignment of any
aforesaid claim by way of subrogation (or otherwise) to an insurance company (or
any other person), each party hereto agrees immediately to give each insurance
company which has issued to it policies of insurance, written notice of the
terms of said mutual waivers, and to have such insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverage
by reason of said waivers, so long as such endorsement is available at a
reasonable cost.
4.08 Mortgages. The following provisions shall apply if Landlord now
---------
or hereafter places a mortgage on any Leased Property or any part thereof: (a)
Tenant shall obtain a standard form of mortgage clause insuring the interest of
the mortgagee; (b) Tenant shall deliver evidence of insurance to such mortgagee;
(c) loss adjustment shall require the consent of the mortgagee but such consent
shall not be unreasonably withheld and may not include any requirement that the
funds be paid to mortgagee in lieu of reconstruction; and (d) Tenant shall
obtain such other coverages and provide such other information and documents as
may be reasonably required by the mortgagee.
4.09 Other Insurance Requirements. Notwithstanding anything in this
----------------------------
Lease to the contrary and not by way of limitation, in addition to the types and
amounts of insurance required to be carried by Tenant herein, Tenant covenants
to insure and continue in effect such types and amounts of insurance as the
Tenant shall be required to carry pursuant to any contract, agreement,
instrument, statute, law, rule or regulation relating to the use of the Leased
Property and the operations of any Business or other activities thereon,
including noncancellable written notice to mortgagee.
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ARTICLE V
INDEMNITY; SUBSTANCES OF CONCERN
5.01 Tenant's Indemnification. Subject to Section 4.07, Tenant hereby
------------------------
agrees to indemnify and hold harmless Landlord, its agents, and employees from
and against any and all demands, claims, causes of action, fines, penalties,
damages (including punitive and consequential damages), losses, liabilities
(including strict liability), judgments, costs and expenses (including, without
limitation, attorneys' fees, court costs, and the costs set forth in Section
9.06) (the "Claims") incurred in connection with or arising from: (a) the use,
condition, operation or occupancy of the Leased Properties; (b) any activity,
work, or thing done, or permitted or suffered by Tenant in, on or about the
Leased Properties; (c) any acts, omissions, or negligence of Tenant or any
person claiming under Tenant, or the contractors, agents, employees, invitees,
or visitors of Tenant or any such person; (d) any breach, violation, or
nonperformance by Tenant or any person claiming under Tenant or the employees,
agents, contractors, invitees, or visitors of Tenant or of any such person, of
any term, representation, warranty, covenant, or provision of this Lease or any
law, ordinance, or governmental requirement of any kind; (e) any injury or
damage to the person, property or Business of Tenant, its employees, agents,
contractors, invitees, visitors, or any other person entering upon any Leased
Property; (f) any accident, injury to or death of persons or loss or damage to
any item of property occurring on or about any Leased Property; (g) any
Environmental Law or any pollution or other threat to human health or the
environment at, arising out of or relating to any Leased Property as set forth
in Section 5.05, and (h) any brokers' or agents' fees and commissions. If any
action or proceeding is brought against Landlord, its employees, or agents by
reason of any such demand, claim, or cause of action, Tenant, upon notice from
Landlord, will defend the same at Tenant's expense with counsel reasonably
satisfactory to Landlord. In the event Landlord reasonably determines that its
interests and the interests of Tenant in any such action or proceeding are not
substantially the same and that Tenant's counsel cannot adequately represent the
interests of Landlord therein, Landlord shall have the right to hire separate
counsel in any such action or proceeding and the reasonable costs thereof shall
be paid for by Tenant. Tenant's indemnification obligations with respect to a
Claim shall survive the expiration or earlier termination of this Lease until
the later of (i) two (2) years from the date hereof, or (ii) the expiration of
the period ninety (90) days after the date on which Landlord has actual
knowledge of the existence of such Claim, provided, however, that Tenant's
indemnification obligations shall survive the expiration or earlier termination
of this Lease until ninety (90) days after the expiration of the applicable
statute of limitations for Claims incurred in connection with, arising out of,
or related to (i) Section 5.01(g) or (ii) the failure to pay, as provided for in
this Agreement, any Imposition.
5.02 Substances of Concern.
---------------------
(a) For purposes of this Section 5:
(i) "Substances of Concern" means, without limitation,
chemicals, pollutants, conta minants, wastes, toxic
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substances, radioactive materials or genetically
modified organisms, which are, have been or become
regulated by any federal, state or local government
authority including, without limitation, (1)
petroleum or any fraction thereof, (2) asbestos, (3)
any substance or material defined as a "hazardous
substance" pursuant to (S) 101 of the Comprehensive
Environmental Response Compensation and Liability Act
(42 U.S.C. (S) 9601), or (4) any substance or
material defined as a "hazardous chemical" pursuant
to the federal Hazard Communication Standard (29
C.F.R. (S) 1910.1200).
(ii) "Environmental Laws" means all federal, state, local,
and foreign laws and regulations relating to
pollution or protection of human health or the
environment (including, without limitation, ambient
air, surface water, ground water, wetlands, land
surface, subsurface strata, and indoor and outdoor
workplace), including, without limitation, (1) laws
and regulations relating to emissions, discharges,
releases, or threatened releases of Substances of
Concern, and (2) common law principles of tort
liability.
(b) Tenant shall not, either with or without negligence, injure,
overload, deface, damage or otherwise harm any Leased
Property or any part or component thereof; commit any
nuisance; permit the emission of any Substances of Concern;
allow the release or other escape of any biologically or
chemically active substances or materials or other
Substances of Concern so as to impregnate, impair or in any
manner affect, even temporarily, any element or part of any
Leased Property or neighboring property, or allow the
storage or use of such substances or materials in any manner
not sanctioned by law and by reasonable standards prevailing
in the automobile retail and related industries for the
storage and use of such substances or materials; nor shall
Tenant permit the occurrence of objectionable noise or
odors; or make, allow or suffer any waste whatsoever to any
Leased Property. Landlord may inspect each Leased Property
from time to time, and Tenant will cooperate with such
inspections.
(c) Notwithstanding the foregoing, Tenant anticipates using,
storing and disposing of certain Substances of Concern in
connection with operation of its Business. Such Substances
of Concern include, but are not limited to, the following:
motor oil, waste motor oil and
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filters, transmission fluid, antifreeze, refrigerants, waste
paint and lacquer thinner, batteries, solvents, lubricants,
degreasing agents, gasoline and diesel fuels. Tenant shall
ascertain and comply fully with all applicable Environmental
Laws and environmental standards and requirements set by
federal, state or local laws, rules, regulations or
governmental directives related to the Leased Properties or
Tenant's use or occupancy of the Leased Property
("Environmental Standards"), including but not limited to
any laws or standards (a) regulating the use, storage,
generation or disposal of Substances of Concern, (b)
regulating the monitoring or use of any underground or
aboveground storage tanks at the Leased Properties, or (c)
establishing any permitting, notification or reporting
requirements. As promptly as practicable after the
Commencement Date (but in no event later than 120 days
thereafter), Tenant shall establish and implement a program
of compliance with all applicable Environmental Laws and
Environmental Standards ("Environmental Compliance
Program"). Tenant shall update such Environmental Compliance
Program every three (3) years during the Term. Tenant shall
submit its Environmental Compliance Program and each update
thereto to Landlord; provided, however, such submittal shall
not relieve Tenant of its obligations pursuant to this
Section 5. Tenant's Environmental Compliance Program shall
include a program for monitoring Tenant's compliance with
Environmental Laws and Environmental Standards and a plan
for correcting immediately any incident of noncompliance.
Tenant shall comply with its Environmental Compliance
Program.
(d) In the event of any noncompliance with any Environmental
Laws or Environmental Standards or any spill, release or
discharge of Substances of Concern in a reportable quantity
under federal, state or local law, Tenant shall:
(i) give Landlord immediate notice of the incident by
telephone or facsimile, providing as much detail as
possible. Such notice shall be provided to Landlord's
National Dealership Real Estate Manager or to such
other person as Landlord shall designate in
accordance with Section 16.01 below;
(ii) as soon as possible, but no later than seventy-two
(72) hours, after discovery of an incident of
noncompliance, submit a written report to Landlord,
identifying the source
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or case of the noncompliance or spill, release or
discharge (including the names and quantities of any
Substances of Concern involved) and the method or
action required to correct the problem; and
(iii) cooperate with Landlord or its designated agents or
contractors with respect to the investigation and
correction of such problem.
Tenant shall also be solely responsible for providing any notice
to any federal, state or local governmental authority required by applicable
laws and regulations as a result of such incident.
5.03 Audits. Landlord shall have the right to conduct, at its
------
expense, periodic audits of Tenant's compliance with the Environmental
Compliance Program and management of Substances of Concern at the Leased
Properties and/or periodic tests of air, soil, surface water or groundwater at
or near the Leased Properties. Landlord shall not be obligated to provide Tenant
with the results of any audit or tests unless such results are the basis for a
claim by Landlord that Tenant has breached its obligations under this Lease or a
demand by Landlord that Tenant modify its Environmental Compliance Program or
operations or remediate or remove a spill, release or discharge of Substances of
Concern in accordance with Section 5.06 below. Tenant agrees promptly to modify
its Environmental Compliance Program or the conduct of its operations in
accordance with Landlord's reasonable recommendations directed at improvement of
Tenant's handling, use and disposal of Substances of Concern in, on or from any
Leased Property. If, as a result of an environmental audit performed by Landlord
with respect to any Leased Property, Landlord reasonably determines in its
judgment that alterations or improvements of equipment or buildings located on
the Leased Property are necessary, Tenant shall perform such alterations or
improvements as are reasonable under the circumstances and pay all costs and
expenses relating thereto. If Tenant shall fail to pay any such costs or
expenses, Tenant shall deposit with Landlord the full amount necessary to pay
such costs in full within ten (10) days of Landlord's demand. Nothing contained
herein shall be construed to obligate or require Landlord to perform any audits,
tests, inquiry or investigation. Should Landlord elect or be required to
disclose to Tenant the results of any audit or tests, Landlord shall not be
liable in any way for the truth or accuracy of such information.
5.04 Landlord's Option Re: Compliance. If Tenant, after notice from
--------------------------------
Landlord, fails to comply with or perform any of its obligations pursuant to
this Section 5, including, but not limited to, obligations to clean up spills,
releases or discharges, Landlord may, but shall not be obligated to, perform
such obligations and Tenant shall pay Landlord within ten (10) days of demand
Landlord's costs therefor, including any overhead and administrative costs.
5.05 Environmental Indemnification. Tenant shall indemnify and hold
-----------------------------
harmless Landlord from and against all demands, claims, causes of action, fines,
penalties,
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damages (including punitive and consequential damages), losses, liabilities
(including strict liability), judgments, and expenses (including, without
limitation, attorneys' fees, court costs, and the costs set forth in Section
9.06) imposed upon or asserted against Tenant, Landlord or any Leased Property
on account of any Environmental Law (irrespective of whether there has occurred
any violation of any Environmental Law) relating to any Leased Property,
including (a) response costs and costs of removal and remedial action incurred
by the United States Government or any state or local governmental unit to any
other person or entity, or damages from injury to or destruction or loss of
natural resources, including the reasonable costs of assessing such injury,
destruction or loss, incurred pursuant to any Environmental Law, (b) costs and
expenses of abatement, investigation, removal, remediation, correction or
cleanup, fines, damages, response costs or penalties which arise from the
provisions of any Environmental Law, (c) liability for personal injury or
property damage arising under any statutory or common-law tort theory, including
damages assessed for the maintenance of a public or private nuisance or for
carrying on of a dangerous activity, (d) liability by reason of a breach of an
environmental representation or warranty by Tenant, and (e) failure of Tenant to
complete in a timely manner alterations or improvements of equipment or
buildings located on the Leased Property deemed necessary or advisable by
Landlord pursuant to Section 5.03 in a manner acceptable to Landlord.
5.06 Tenant's Cleanup Obligation. If any spill, release or discharge
---------------------------
of Substances of Concern occurs on, at or from the Leased Properties during the
Term, Tenant shall promptly take all actions, at its sole expense, as are
necessary to remove or remediate such spill, release or discharge and to return
the Leased Property to the condition existing prior to the introduction of any
such Substances of Concern to the Leased Property, provided that Landlord's
approval of such action shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse effect on the Leased Property.
5.07 Existing Environmental Conditions. Tenant acknowledges that it
---------------------------------
has had the opportunity to review the Environmental Reports attached hereto as
Exhibit 5.07. Tenant hereby represents that it has reviewed and is aware of the
matters disclosed in the Environmental Reports.
As a material consideration for Landlord's willingness to enter
into this Lease, Tenant, for itself and its Affiliates, and each of their
shareholders, directors, officers, employees, agents, contractors,
representatives, insurers, successors and assigns hereby waives and releases
Landlord and its Affiliates and each of their shareholders, directors, officers,
employees, representatives, agents, contractors, representatives, insurers,
successors and assigns from any and all claims, demands, liabilities, costs,
expenses, causes of action and rights of action whatsoever, past, present or
future, known or unknown, suspected or unsuspected, which arise out of or relate
in any way to the violation of Environmental Laws or the use, storage,
treatment, disposal, presence, spill, release, or discharge of Substances of
Concern at, on or from the Leased Properties before the Commencement Date
(collectively, the "Released Claims").
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In the event that Landlord is ordered by a governmental agency,
or determines that it is in its best interest, to remedy any violation of
Environmental Laws or to remove or remediate any Substances of Concern present
on, under or about the Leased Properties on the Commencement Date, or spilled,
released or discharged on, at or from the Leased Properties before the
Commencement Date, Tenant shall immediately upon notice from Landlord take all
actions, at Tenant's sole expense, to promptly complete such removal or
remediation.
5.08 Survival of Tenant's Obligations. Tenant's obligations under
--------------------------------
this Section 5 shall survive the expiration or earlier termination of this
Lease. During any period of time employed by Tenant after the termination of
this Lease to complete the removal from the Leased Property of any Substances of
Concern, if the premises are not rentable for uses contemplated under this
Lease, Tenant shall continue to pay the full amount of Rent due under this
Lease, which Rent shall be prorated daily for the final month of such period of
time.
ARTICLE VI
USE AND ACCEPTANCE OF PREMISES
6.01 Use of Leased Properties. For so long as this Lease is in effect
------------------------
(including following any sublease or assignment thereof), Tenant shall use and
occupy each Leased Property exclusively for the purpose of conducting the
Business or for any other legal purpose for which such Leased Property is being
used as of the Commencement Date, and for no other purpose without the prior
written consent of Landlord. Tenant shall obtain and maintain all approvals,
licenses, and consents needed to use and operate the Leased Properties for such
purposes. Tenant shall promptly deliver to Landlord complete copies of surveys,
examinations, certification and licensure inspections, compliance certificates,
and other similar reports issued to Tenant by any governmental agency.
6.02 Acceptance of Leased Properties. Except as otherwise
-------------------------------
specifically provided in this Lease, Tenant acknowledges (i) Tenant and its
agents have had an opportunity to inspect each Leased Property; (ii) Tenant has
found each Leased Property fit for Tenant's use; (iii) delivery of each Leased
Property to Tenant is in an "as-is" condition; (iv) Landlord is not obligated to
make any improvements or repairs to any Leased Property; and (v) the roof,
walls, foundation, heating, ventilating, air conditioning, telephone, sewer,
electrical, mechanical, utility, plumbing, and other portions of each Leased
Property are in good working order. Tenant waives any claim or action against
Landlord with respect to the condition of any Leased Property. LANDLORD MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTIES OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION OR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO QUALITY OR THE
MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH
RISKS ARE TO BE BORNE BY TENANT.
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6.03 Conditions of Use and Occupancy. Tenant agrees that during the
-------------------------------
Term it shall use and keep each Leased Property in a careful, safe and proper
manner; not commit or suffer waste thereon; not use or occupy any Leased
Property for any unlawful purposes; not use or occupy any Leased Property or
permit the same to be used or occupied, for any purpose or business deemed extra
hazardous on account of fire or otherwise; keep each Leased Property in such
repair and condition as may be required by the local board of health, or other
city, state or federal authorities, free of all cost to Landlord; not permit any
acts to be done which will cause the cancellation, invalidation, or suspension
of any insurance policy; and permit Landlord and its agents to enter upon each
Leased Property at all reasonable times after notice to Tenant to examine the
condition thereof. In addition, at any time and from time to time upon not less
than fifteen (15) days prior written notice, Tenant shall permit Landlord and
any mortgagee or lender and their authorized representatives, to inspect the
Leased Properties during normal Business hours, provided that such inspections
shall not unreasonably interfere with Business of Tenant.
6.04 Financial Statements and Other Information. Tenant shall provide
------------------------------------------
Landlord and any mortgagee or lender regularly (or more often as may be
reasonably requested by Landlord in writing), the following financial
information: (a) as to each Leased Property within thirty (30) days after each
fiscal quarter during the Term or any Extension Term, as the case may be,
(except the fourth quarter), Tenant-prepared financial statements prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied; and (b) as to each Leased Property and itself, Tenant shall use its
best efforts to provide Landlord within ninety (90) days after the end of each
fiscal year of Tenant during the Term or any Extension Term, as the case may be,
and in no event later than one hundred and twenty (120) days after the end of
each fiscal year of Tenant during the Term or any Extension Term, as the case
may be, financial statements, audited, reviewed or compiled by a certified
public accountant (the "Annual Financial Statements"). Tenant shall also
deliver to Landlord such additional financial information as Landlord may
reasonably request, provided the same is of a type normally maintained by Tenant
or can be obtained without undue cost or burden on Tenant's personnel and does
not constitute information which Tenant reasonably determines to be proprietary
or confidential. Additionally, upon Landlord's request, Tenant shall provide
Landlord with copies of Tenant's annual capital expenditure budgets for each
Leased Property and any reports generated by Tenant regarding maintenance and
repairs of each Leased Property.
ARTICLE VII
REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS
7.01 Maintenance. Tenant shall maintain each Leased Property in good
-----------
order, repair and appearance, and repair each Leased Property, including without
limitation, all interior and exterior, structural and nonstructural repairs and
replacements to the roof, foundations, exterior walls, building systems, HVAC
systems, parking areas, sidewalks, water, sewer and gas connections, pipes, and
mains. Tenant shall pay as Additional Rent the full cost of such
20
<PAGE>
maintenance, repairs, and replacements. Tenant shall maintain all drives,
sidewalks, parking areas, and lawns on or about each Leased Property in a clean
and orderly condition, free of accumulations of dirt, rubbish, snow and ice.
Tenant shall permit Landlord to inspect each Leased Property at all reasonable
times, and shall implement all reasonable suggestions of Landlord as to the
maintenance and repair of each Leased Property.
7.02 Compliance with Laws. Tenant shall comply with all laws,
--------------------
ordinances, orders, rules, regulations, and other governmental requirements
relating to the use, condition, or occupancy of each Leased Property, whether
now or hereafter enacted and in force including without limitation: (a)
licensure requirements for operation of the Business; (b) requirements of any
board of casualty insurance underwriters or insurance service office for any
other similar body having jurisdiction over any Leased Property; (c) all zoning
and building codes; and (d) Environmental Laws. At Landlord's request, from
time to time, Tenant shall deliver to Landlord copies of certificates or permits
evidencing compliance with such laws, including without limitation, copies of
any applicable licenses, certificates of occupancy and building permits. Tenant
shall provide Landlord with copies of any notice from any governmental authority
alleging any non-compliance by Tenant or any Leased Property with any of the
foregoing requirements and such evidence as Landlord may reasonably require of
Tenant's remediation thereof. Tenant hereby agrees to defend, indemnify and
hold Landlord, its agents, and employees from and against any and all demands,
claims, causes of action, fines, penalties, damages (including punitive and
consequential damages), losses, liabilities (including strict liability),
judgments, costs and expenses (including, without limitation, attorneys' fees,
court costs, and the costs set forth in Section 9.06) resulting from any failure
by Tenant to comply with any laws, ordinances, rules, regulations, and other
governmental requirements.
7.03 Required Alterations. Tenant shall, at Tenant's sole cost and
--------------------
expense, make any additions, changes, improvements or alterations to each Leased
Property, including structural alterations, which may be required by any
governmental authorities, including those required to continue to satisfy any
licensure requirements related to the operation of the Business, whether such
changes are required by Tenant's use, changes in the law, ordinances, or
governmental regulations, defects existing as of the date of this Lease, or any
other cause whatsoever. Tenant shall provide thirty (30) days prior written
notice to Landlord of any changes to a Leased Property pursuant to this Section
7.03 which involve changes to the structural integrity thereof or materially
affect the operational capabilities thereof. All such additions, changes,
improvements or alterations shall be deemed to be a Tenant Improvement and shall
comply with all laws relating to such alterations and with the provisions of
Section 8.01.
7.04 Mechanics' Liens. Tenant shall have no authority to permit or
----------------
create a lien against Landlord's interest in any Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord's interest in each Leased Property against liens. Tenant hereby agrees
to defend, indemnify, and hold Landlord harmless from and against any mechanics'
liens against any Leased Property by reason of work, labor services or materials
21
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supplied or claimed to have been supplied on or to such Leased Property. Tenant
shall immediately remove, bond-off, or otherwise obtain the release of any
mechanics' lien filed against any Leased Property. Tenant shall pay all
expenses in connection therewith, including without limitation, damages,
interest, court costs and reasonable attorneys' fees.
7.05 Replacements of Fixtures. Tenant shall not remove Fixtures from
-------------------------
any Leased Property except to replace such Fixtures with other items used for
similar or analogous purposes, which replacement items are of equal or greater
quality and value. Items being replaced by Tenant may be removed and shall
become the property of Tenant and items replacing the same shall be and remain
the property of Landlord. Tenant shall execute, upon written request from
Landlord, any and all documents necessary to evidence Landlord's ownership of
the Fixtures and replacements therefor. Tenant may not finance replacements by
security agreement or equipment lease unless: (a) Landlord has consented to the
terms and conditions of the equipment lease or security agreement; (b) the
equipment lessor or lender has entered into a non-disturbance agreement with
Landlord upon terms and conditions acceptable to Landlord, including without
limitation (i) Landlord shall have the right (but not the obligation) to assume
such security agreement or equipment lease upon the occurrence of an Event of
Default by Tenant hereunder; (ii) the equipment lessor or lender shall promptly
notify Landlord of any default by Tenant under the equipment lease or security
agreement and give Landlord a reasonable opportunity to cure such default; and
(iii) Landlord shall have the right to assign its rights under the equipment
lease, security agreement, or non-disturbance agreement; (c) the equipment
lessor or lender shall subordinate its security interest to the security
interest of any of Landlord's lessors, mortgagors or lenders, whether now
created or hereafter existing, and (d) Tenant shall, within ten (10) days after
receipt of an invoice from Landlord, reimburse Landlord for all costs and
expenses incurred in reviewing and approving the equipment lease, security
agreement, and non-disturbance agreement, including without limitation,
reasonable attorneys' fees and costs.
7.06 Encroachments; Restrictions. If any of the Improvements shall,
---------------------------
at any time, encroach upon any property, street or right-of-way adjacent to a
Leased Property, or shall violate the agreements or conditions contained in any
restrictive covenant or other agreement affecting a Leased Property, other than
one which is created or consented to by Landlord without Tenant's consent, or
shall impair the rights of others under an easement or right-of-way to which a
Leased Property is subject, other than one which is created or consented to by
Landlord without Tenant's consent, then promptly upon the request of Landlord or
at the request of any person affected by any such encroachment, violation or
impairment, Tenant shall, at its expense, subject to its right to contest the
existence of any encroachment, violation or impairment and in such case, in the
event of an adverse final determination, either (a) obtain valid and effective
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation or impairment, whether the same shall affect
Landlord or Tenant or (b) make such changes in the Improvements and take such
other actions as shall be necessary to remove such encroachment and to end such
violation or impairment, including, if necessary, the alteration of
22
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improvements. Any such alteration shall be made in conformity with the
requirements of Article VIII.
ARTICLE VIII
ALTERATIONS AND SIGNS; TENANT'S PROPERTY;
CAPITAL ADDITIONS TO THE LEASED PROPERTIES
8.01 Tenant's Right to Construct. As to each Leased Property, during
---------------------------
the Term of this Lease or any Extension Term, as the case may be, so long as no
Event of Default shall have occurred and be continuing as to such Leased
Property, Tenant may make Capital Additions (as defined herein), or other
alterations, additions, changes and/or improvements to such Leased Property as
deemed necessary or useful to operate such Leased Property for Tenant's Business
(individually, a "Tenant Improvement," or collectively, the "Tenant
Improvements"). "Capital Additions" shall mean the construction of one or more
new buildings or one or more additional structures annexed to any portion of any
of the Improvements on a Leased Property, which are constructed on any parcel
or portion of the Land comprising a Leased Property, including the construction
of a new floor, or the repair, replacement, restoration, remodeling or
rebuilding of the Improvements or any portion thereof on a Leased Property which
are not normal, ordinary or recurring to maintain such Leased Property. Except
as otherwise agreed to by Landlord herein or otherwise in writing, any such
Tenant Improvement or Capital Addition shall be made at Tenant's sole expense
and shall become the property of Landlord upon termination of this Lease. Unless
made on an emergency basis to prevent injury to person or property, as to each
Leased Property, Tenant must obtain Landlord's prior written approval, such
approval not to be unreasonably withheld or delayed, for any Capital Addition or
for any Tenant Improvement which is not a Capital Addition and which has a cost
of more than One Hundred Thousand Dollars ($100,000) or a cost which, when
aggregated with the costs of all such Tenant Improvements on such Leased
Property in a given Lease Year, would cause the total costs of all such Tenant
Improvements on such Leased Property to exceed Two Hundred Fifty Thousand
Dollars ($250,000). Additionally, in connection with any Tenant Improvement,
including any Capital Addition, Tenant shall provide Landlord with copies of any
plans and specification therefor, Tenant's budget relating thereto, any required
governmental permits or approvals, any construction contracts or agreements
relating thereto, and any other information relating to such Tenant Improvement
as Landlord shall reasonably request.
8.02 Scope of Right. Subject to Section 8.01 herein and Section 7.03
--------------
concerning required alterations, at Tenant's cost and expense, Tenant shall have
the right to:
(a) seek any governmental approvals, including building permits,
licenses, conditional use permits and any certificates of
need that Tenant requires to construct any Tenant
Improvement;
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(b) erect upon each Leased Property such Tenant Improvements as
Tenant deems desirable;
(c) make additions, alterations, changes and improvements in any
Tenant Improvement so erected; and
(d) engage in any other lawful activities that Tenant determines
are necessary or desirable for the development of each
Leased Property in accordance with the Tenant's Business;
provided, however, Tenant shall not make any Tenant Improvement which would, in
Landlord's reasonable judgment, impair the value of the Leased Property or the
Tenant's Business without Landlord's prior written consent and provided, further
that Tenant shall not be permitted to create a mortgage, lien or any other
encumbrance on any Leased Property without Landlord's prior written consent.
8.03 Cooperation of Landlord. Landlord shall cooperate with Tenant
-----------------------
and take such actions, including the execution and delivery to Tenant of any
applications or other documents, reasonably requested by Tenant in order to
obtain any governmental permits, licenses or approvals sought by Tenant to
construct any Tenant Improvement within fifteen (15) business days following the
later of: (a) the date Landlord receives Tenant's request or (b) the date of
delivery of any such application or document to Landlord; provided, the taking
of such action by Landlord, including the execution of said applications or
documents, shall be without cost to Landlord (or if there is a cost to Landlord,
such cost shall be reimbursed by Tenant), shall not cause Landlord to be in
violation of any law, ordinance or regulation, and shall not be deemed a waiver
by Landlord of any of its rights or of any of Tenant's obligations, including
but not limited to indemnification.
8.04 Commencement of Construction. Tenant agrees that:
----------------------------
(a) Tenant shall diligently seek all governmental approvals
relating to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant
Improvement, Tenant shall diligently oversee any such
construction to completion in accordance with applicable
insurance requirements and the laws, rules and regulations
of all governmental bodies or agencies having jurisdiction
over the subject Leased Property;
(c) Landlord shall have the right at any time and from time to
time to post and maintain upon each Leased Property such
notices as may be necessary to protect Landlord's interest
from mechanics' liens, materialmen's liens or liens of a
similar nature;
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(d) Tenant shall not suffer or permit any mechanics' liens or
any other claims or demands arising from the work of
construction of any Tenant Improvement to be enforced
against any Leased Property or any part thereof, and Tenant
agrees to hold Landlord, its agents and employees and said
Leased Property free and harmless from all demands, claims,
causes of action, fines, penalties, damages (including
punitive and consequential damages), losses, liabilities
(including strict liability), judgments, costs and expenses
(including, without limitation, attorneys' fees, court
costs, and the costs set forth in Section 9.06) incurred in
connection with or arising therefrom;
(e) All work shall be performed in a satisfactory and
workmanlike manner consistent with standards in the
industry; and
(f) Subject to Section 8.08 in the case of Capital Additions,
Tenant shall not secure any construction or other financing
for the Tenant Improvements which is secured by a portion of
any Leased Property without Landlord's prior written
consent, and any such financing (i) shall not exceed the
cost of the Tenant Improvements, (ii) shall be subordinate
to any mortgage or encumbrance now existing or hereinafter
created with respect to such Leased Property, and (iii)
shall be limited solely to Tenant's interest in the subject
Leased Property.
8.05 Rights in Tenant Improvements. Notwithstanding anything to the
------------------------------
contrary in this Lease, all Tenant Improvements existing on the Leased Property
or constructed upon each Leased Property pursuant to Section 8.01, any and all
subsequent additions thereto and alterations and replacements thereof shall be
the sole and absolute property of Tenant during the Term and any Extension Term,
as the case may be, of this Lease (in respect of such Leased Property). Upon
the expiration or early termination of this Lease in respect of a Leased
Property, all such Tenant Improvements located thereon shall become the property
of Landlord. Without limiting the generality of the foregoing, prior to the
expiration or early termination of this Lease in respect of a Leased Property,
Tenant shall be entitled to all federal and state income tax benefits associated
with all Tenant Improvements located on such Leased Property.
8.06 Personal Property. Tenant shall install, place, and use on each
-----------------
Leased Property such fixtures, furniture, equipment, inventory and other
personal property in addition to the Fixtures as may be required or as Tenant
may, from time to time, deem necessary or useful to operate such Leased Property
in the operation of the Business.
8.07 Requirements for the Tenant's Personal Property. Tenant shall
-----------------------------------------------
comply with all of the following requirements in connection with the Tenant's
Personal Property:
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(a) RESERVED.
(b) The Tenant's Personal Property shall be installed in a good
and workmanlike manner, in compliance with all governmental
laws, ordinances, rules, and regulations and all insurance
requirements, and be installed free and clear of any
mechanics' liens.
(c) Tenant shall, at Tenant's sole cost and expense, maintain,
repair, and replace the Tenant's Personal Property.
(d) Tenant shall, at Tenant's sole cost and expense, keep the
Tenant's Personal Property insured against loss or damage by
fire, vandalism and malicious mischief, sprinkler leakage,
and other physical loss perils commonly covered by fire and
extended coverage, boiler and machinery, and difference in
conditions insurance (which insurance shall meet the
requirements of Section 4.03 hereof) in an amount not less
than the full replacement cost thereof or such other amount
as appears on a schedule submitted by Tenant to Landlord,
which schedule shall be subject to Landlord's approval, and
Tenant shall use the proceeds from any such policy for the
repair and replacement of such items of Tenant's Personal
Property; provided, however, that if Landlord fails to
object to the schedule so submitted by Tenant within five
(5) business days of Landlord's receipt of such schedule,
Landlord's approval of such schedule shall be deemed given.
(e) Tenant shall pay all Impositions and other taxes applicable
to Tenant's Personal Property.
(f) If Tenant's Personal Property is damaged or destroyed by
fire or otherwise, Tenant shall promptly repair or replace
Tenant's Personal Property unless Tenant is entitled to and
elects to terminate the Lease pursuant to Section 10.05.
(g) As to each Leased Property, unless an Event of Default (or
any event which, with the giving of notice or lapse of time,
or both, would constitute an Event of Default) has occurred
and remains uncured beyond any applicable grace period,
Tenant may remove Tenant's Personal Property from such
Leased Property from time to time provided that: (i) the
items removed are not required or necessary to operate the
Business on such Leased Property (unless such items are
being replaced by Tenant) and (ii) Tenant promptly
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repairs any damage to such Leased Property resulting from
the removal of Tenant's Personal Property.
(h) As to each Leased Property, Tenant shall remove all of
Tenant's Personal Property upon the termination or
expiration of the Lease and shall promptly repair any damage
to such Leased Property resulting from the removal thereof
to the reasonable satisfaction of Landlord; provided,
however, if Tenant fails to remove Tenant's Personal
Property from such Leased Property within thirty (30) days
after the termination or expiration of this Lease with
respect thereto, then Tenant shall be deemed to have
abandoned such items of Tenant's Personal Property, all of
which shall become the property of Landlord, and Landlord
may remove, store and dispose of such property and Tenant
shall have no claim or right against Landlord for such
property or the value thereof regardless of the disposition
thereof by Landlord. Tenant shall pay Landlord, upon
demand, all expenses incurred by Landlord in removing,
storing, and disposing of such items of Tenant's Personal
Property and repairing any damage caused by such removal.
Tenant's obligations hereunder shall survive the termination
or expiration of this Lease as to such Leased Property.
(i) Tenant shall perform its obligations under any equipment
lease or security agreement for Tenant's Personal Property.
8.08 Financings of Capital Additions to a Leased Property. Landlord
-----------------------------------------------------
may, but shall be under no obligation to, provide or arrange construction,
permanent or other financing for any Capital Addition proposed to be made to a
Leased Property by Tenant. Any financing so provided by Landlord shall be made
in accordance with, and subject to, a written Addendum to this Lease.
ARTICLE IX
DEFAULTS AND REMEDIES
9.01 Events of Default. The occurrence of any one or more of the
-----------------
following shall be an event of default ("Event of Default") hereunder:
(a) Tenant fails to pay in full any installment of Rent, or any
other monetary obligation payable by Tenant to Landlord
hereunder, within ten (10) days after the due date thereof
and after written notice thereof and an opportunity to cure
within a ten (10) day period after such notice is given to
Tenant by Landlord. In the
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event of Tenant's failure to make timely payment of such
obligations two (2) times during any twelve (12) month
period, each subsequent such failure within the twelve (12)
months immediately following such second failure shall
immediately constitute an Event of Default, and Landlord
shall not be required to provide notice thereof, nor shall
Tenant have any further opportunity to cure such failure;
(b) Tenant fails to observe and perform any covenant (other than
the covenant in respect of insurance set forth in Article
IV), condition or agreement hereunder to be performed by
Tenant (except those described in Section 9.01(a) of this
Lease) and such failure continues for a period of twenty
(20) days after written notice thereof is given to Tenant by
Landlord; or if, by reason of the nature of such default,
the same cannot with due diligence be remedied within said
twenty (20) days, such failure will not be deemed to
continue if Tenant proceeds promptly and with due diligence
to remedy the failure and diligently completes the remedy
thereof; provided, however, said cure period will not extend
beyond forty (40) days if the facts or circumstances giving
rise to the default are creating a further harm to Landlord
or the subject Leased Property and Landlord makes a good
faith determination that Tenant is not undertaking remedial
steps that Landlord would cause to be taken if this Lease
were then to terminate;
(c) If Tenant: (i) admits in writing its inability to pay its
debts generally as they become due; (ii) files a petition in
bankruptcy or a petition to take advantage of any insolvency
act; (iii) makes an assignment for the benefit of its
creditors; (iv) is unable to pay its debts as they mature;
(v) consents to the appointment of a receiver of itself or
of the whole or any substantial part of its property; or
(vi) files a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any state thereof;
(d) If Tenant, on insolvency proceedings or on a petition in
bankruptcy filed against it, is adjudicated as bankrupt or a
court of competent jurisdiction enters an order or decree
appointing, without the consent of Tenant, a receiver of
Tenant of the whole or substantially all of its property, or
approving a petition filed against it seeking reorganization
or arrangement of Tenant under
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the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state
thereof, and such judgment, order or decree is not vacated,
dismissed or set aside within sixty (60) days from the date
of the entry thereof;
(e) If the estate or interest of Tenant in a Leased Property or
any part thereof is levied upon or attached in any
proceeding and the same is not vacated or discharged within
fifteen (15) days after commencement thereof (unless Tenant
is contesting such lien or attachment in accordance with
this Lease) or if such estate or interest of Tenant is
assigned, conveyed or involuntarily transferred in violation
of this Lease;
(f) Any representation, warranty or covenant made by Tenant on
behalf of itself or an Affiliate in this Lease or in any
certificate, demand or request made pursuant hereto proves
to be incorrect, in any material respect, as of the date of
issuance or making thereof;
(g) Conviction of Tenant or an Affiliate of a crime or offense
constituting a felony in the jurisdiction in which committed
or under federal law which conviction results in the
termination of the franchise.
(h) Termination or relinquishment of the franchise or license
pursuant to which Tenant or an Affiliate conducts business
on or from any Leased Property, provided that such event
shall not constitute an Event of Default if (i) no other
Event of Default enumerated in this Section 9.01 shall occur
and be continuing, and (ii) at a date no later than twenty-
four (24) months following such date of termination or
relinquishment, Tenant or an Affiliate has entered into
written new or amended franchises or licenses for operation
of motor vehicle retail or motor vehicle related businesses
at such Leased Property satisfactory to Landlord in its
discretion applying commercially reasonable standards;
(i) Default under any franchise or license pursuant to which
Tenant or an Affiliate conducts business at a Leased
Property, if in the Landlord's judgment such default in
light of commercially reasonable standards and industry
practice would have a Material Adverse Effect (as hereafter
defined) on the Leased Property;
(j) A final, non-appealable judgment or judgments for the
payment of money not fully covered (excluding deductibles)
by insurance is
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rendered against Tenant and the same remains undischarged,
unvacated, unbonded, unappealed or unstayed for a period of
thirty (30) consecutive days;
(k) Tenant shall fail to observe the covenant in respect to
insurance under Article IV provided Landlord shall have
provided notice of such failure to Tenant and Tenant shall
have failed to cure such failure within three (3) business
days of such notice; or
(l) Except after the effective date of a permitted assignment
meeting the requirements of Article XIII, if Tenant is
liquidated or dissolved, or begins proceedings toward
liquidation or dissolution, or in any manner permits the
sale or divestiture of substantially all of its assets.
9.02 Remedies. To the extent an Event of Default is applicable only
--------
to a specific Leased Property or specific Leased Properties (in accordance with
Section 9.01 above), the remedies set forth herein shall be exercisable solely
with respect to such Leased Property or Leased Properties, and shall not be
exercisable with respect to any other Leased Property. To the extent an Event
of Default constitutes an Event of Default as to all of the Leased Properties
(in accordance with Section 9.01 above), the remedies set forth herein shall be
exercisable with respect to all of the Leased Properties. Subject to the
foregoing provisions, Landlord may exercise any one or more of the following
remedies upon the occurrence of an Event of Default:
(a) Landlord may terminate this Lease, exclude Tenant from
possession of the subject Leased Property and use reasonable
efforts to lease the subject Leased Property to others. If
this Lease is terminated pursuant to the provisions of this
subparagraph (a) with respect to one or more, but less than
all, of the Leased Properties identified on Schedule A
hereto, Tenant will remain liable to Landlord for the Rent
for all of the Leased Properties identified on Schedule A
and other sums then due and for the balance of the Term as
if the Lease had not been terminated with respect to the
subject Leased Property, less the net proceeds, if any, of
any re-letting of the subject Leased Property by Landlord
subsequent to such termination, after deducting all
Landlord's expenses in connection with such re-letting,
including without limitation, the expenses set forth in
Section 9.02(b)(ii) below. Notwithstanding the termination
of this Lease with respect to a subject Leased Property,
Tenant shall pay to Landlord all amounts due as Rent, and
such other amounts then due, under this Lease on the days
that such Rent and such other amounts become due and payable
as required by this Lease.
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(b) Without demand or notice, Landlord may re-enter and take
possession of the subject Leased Property or any part
thereof; and repossess such Leased Property as of Landlord's
former estate; and expel Tenant and those claiming through
or under Tenant from such Leased Property; and, remove the
effects of both or either, without being deemed guilty of
any manner of trespass and without prejudice to any remedies
for arrears of Rent or preceding breach of covenants or
conditions. If Landlord elects to re-enter, as provided in
this paragraph (b) or if Landlord takes possession of such
Leased Property pursuant to legal proceedings or pursuant to
any notice provided by law, Landlord may, from time to time,
without terminating any portion of this Lease, re-let such
Leased Property or any part of such Leased Property, either
alone or in conjunction with other portions of the
Improvements of which such Leased Property are a part, in
Landlord's name but for the account of Tenant, for such term
or terms (which may be greater or less than the period which
would otherwise have constituted the balance of the Term of
this Lease) and on such terms and conditions (which may
include concessions of free rent, and the alteration and
repair of such Leased Property) as Landlord, in its
uncontrolled discretion, may determine. Landlord may
collect and receive the Rents for such Leased Property.
Landlord will not be responsible or liable for any failure
to re-let such Leased Property, or any part of such Leased
Property, or for any failure to collect any Rent due upon
such re-letting. No such re-entry or taking possession of
such Leased Property by Landlord will be construed as an
election on Landlord's part to terminate this Lease unless a
written notice of such intention is given to Tenant. No
notice from Landlord under this Lease or under a forcible
entry and detainer statute or similar law will constitute an
election by Landlord to terminate this Lease unless such
notice specifically says so. Landlord reserves the right
following any such re-entry or re-letting, or both, to
exercise its right to terminate this Lease by giving Tenant
such written notice, and, in that event such Lease will
terminate as specified in such notice.
(c) If Landlord elects to take possession of a Leased Property
according to subparagraph (b) of this Section 9.02 without
terminating this Lease, Tenant will pay Landlord (A) the
Rent and other sums which would be payable under this Lease
with respect to such Leased Property if such repossession
had not occurred, less (B) the net proceeds, if any, of any
re-letting of such Leased Property after deducting all of
Landlord's expenses incurred in
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connection with such re-letting, including without
limitation, all repossession costs, brokerage commissions,
legal expense, attorneys' fees, expense of employees,
alteration, remodeling, repair costs, and expense of
preparation for such re-letting. If, in connection with any
re-letting, any resulting lease term for the subject Leased
Property extends beyond the existing Term or Extension Term,
as the case may be, or such Leased Property covered by such
re-letting includes areas which are not part of such Leased
Property, a fair apportionment of the Rent received from
such re-letting and the expenses incurred in connection with
such re-letting will be made in determining the net proceeds
received from such re-letting. In addition, in determining
the net proceeds from such re-letting, any rent concessions
will be apportioned over the term of the new lease. Tenant
will pay such amounts to Landlord monthly on the days on
which the Rent and all other amounts owing under this Lease
would have been payable if possession had not been retaken,
and Landlord will be entitled to receive the rent and other
amounts from Tenant on each such day. Notwithstanding
anything herein to the contrary, Landlord, at its option,
may collect and apply any Rent received from such re-letting
in accordance herewith and in such case shall remit any
balance thereof to Tenant. Landlord shall incur no liability
or obligation to Tenant arising out of the collection or
application of Rent by Landlord hereunder.
(d) Landlord may re-enter the applicable Leased Property and
have, repossess and enjoy such Leased Property as if this
Lease had not been made, and in such event, Tenant and its
successors and assigns shall remain liable for any
contingent or unliquidated obligations or sums owing at the
time of such repossession.
(e) Landlord may take whatever action at law or in equity as may
appear necessary or desirable to collect the Rent and other
amounts payable hereunder with respect to the subject Leased
Property then due and thereafter to become due, or to
enforce performance and observance of any obligations,
agreements or covenants of Tenant under this Lease.
9.03 Right of Set-Off. Landlord may, and is hereby authorized by
-----------------
Tenant, at any time and from time to time, after advance notice to Tenant, to
set-off and apply any and all sums held by Landlord in respect of a Leased
Property, including all sums held in any escrow for Impositions, any
indebtedness of Landlord to Tenant, and any claims by Tenant against Landlord,
against any obligations of Tenant under this Lease in respect of such Leased
Property
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and against any claims by Landlord against Tenant, whether or not Landlord has
exercised any other remedies hereunder. Landlord shall set-off and apply such
sums first, to delinquent real estate taxes, unless such taxes are being
protested in good faith and no lien has attached to any Leased Property with
respect thereto, second, to currently due and owing real estate taxes, and next,
to other Tenant's obligations in the order which Landlord may determine. The
rights of Landlord under this Section are in addition to any other rights and
remedies Landlord may have against Tenant.
9.04 Performance of Tenant's Covenants. Landlord may, without waiving
---------------------------------
or releasing any obligation of Tenant, and without waiving or releasing any
obligation or default, perform any obligation of Tenant which Tenant has failed
to perform within five (5) business days after Landlord has sent a written
notice to Tenant informing it of its specific failure (provided no such notice
shall be required if Landlord has previously notified Tenant of such failure
under the provisions of Section 9.01). In the event Landlord deems, in its
discretion, that Tenant's failure to perform such obligation has given rise to
an emergency situation, Landlord may perform such obligation without waiving or
releasing any obligation of Tenant, and without waiving or releasing any
obligation or default; provided, however, that Landlord shall notify Tenant of
such performance as soon as it is reasonably practicable to do so. Tenant shall
reimburse Landlord on demand, as Additional Rent, for any expenditures thus
incurred by Landlord and shall pay interest thereon at the New York Prime Rate.
9.05 Late Charge. Any payment not made by Tenant for more than five
-----------
(5) business days after the due date shall be subject to a late charge payable
by Tenant as Rent of four percent (4%) of the amount of such overdue payment.
Notwithstanding the foregoing, in the event that Tenant's payment is not made
more than five (5) business days after the due date more than two (2) times
during any twelve (12) month period, any such subsequent overdue payments within
the twelve (12) months immediately following such second failure shall be
subject to a late charge payable by Tenant as Rent of seven percent (7%) of the
amount of such overdue payment.
9.06 Litigation; Attorneys' Fees. Within ten (10) days after Tenant
----------------------------
has knowledge of any litigation or other proceeding related to or arising out of
this Agreement or the Leased Property in which claims are asserted in an amount
in excess of $50,000, that (1) may be instituted against Tenant, (2) may be
instituted against any Leased Property to secure or recover possession thereof,
or (3) may affect the title to or the interest of Landlord in any Leased
Property, Tenant shall give written notice thereof to Landlord. In the event
that Landlord determines that Tenant has failed to give adequate cooperation or
information with respect to any such litigation, investigation, receivership,
administrative, bankruptcy, insolvency or other similar proceeding, Landlord
may, after notice to Tenant, undertake such investigation or proceeding and
Tenant shall pay all reasonable costs and expenses (the "Costs") related thereto
that are incurred by Landlord, whether or not Landlord has received notice from
Tenant of such investigation or proceeding, and whether or not an Event of
Default has actually occurred or has been declared and thereafter cured, which
Costs shall include, without limitation: (a) the fees,
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expenses, and costs of any litigation, investigation, receivership,
administrative, bankruptcy, insolvency or other similar proceeding; (b)
reasonable attorney, paralegal, consulting and witness fees and disbursements;
and (c) the expenses, including, without limitation, lodging, meals, and
transportation, of Landlord and its employees, agents, attorneys, and witnesses
in investigating or preparing for litigation, administrative, bankruptcy,
insolvency or other similar proceedings and attendance at hearings, depositions,
and trials in connection therewith. Within ten (10) days of Landlord's
presentation of an invoice of Costs incurred by Landlord pursuant to the
preceeding sentence or otherwise incurred by Landlord in enforcing or preserving
Landlord's rights under this Lease, whether or not an Event of Default has
actually occurred or has been declared and thereafter cured, Tenant shall pay
all such Costs. All such Costs as incurred shall be deemed to be Additional
Rent under this Lease.
9.07 Remedies Cumulative. The remedies of Landlord herein are
-------------------
cumulative to and not in lieu of any other remedies available to Landlord at law
or in equity. The use of, or failure to use, any one remedy shall not be taken
to exclude or waive the right to use any other remedy.
9.08 Escrows and Application of Payments. As security for the
-----------------------------------
performance of its obligations hereunder, Tenant hereby assigns to Landlord all
its right, title and interest in and to all monies escrowed with Landlord under
this Lease and all deposits with utility companies, taxing authorities, and
insurance companies; provided, however, that Landlord shall not exercise its
rights hereunder with respect to any Leased Property until an Event of Default
has occurred in respect of such Leased Property. Any payments received by
Landlord under any provisions of this Lease during the existence, or continuance
of an Event of Default shall be applied to Tenant's obligations, first, to
delinquent real estate taxes, unless such taxes are being protested in good
faith and no lien has attached to any Leased Property with respect thereto,
second, to currently due and owing real estate taxes, and next, to other
Tenant's obligations in the order which Landlord may determine.
9.09 Power of Attorney. Tenant hereby irrevocably and unconditionally
-----------------
appoints Landlord, or Landlord's authorized officer, agent, employee or
designee, as Tenant's true and lawful attorney-in-fact, to act, after an Event
of Default, for Tenant in Tenant's name, place, and stead, and for Tenant's and
Landlord's use and benefit, to execute, deliver and file all applications and
any and all other necessary documents or things, to effect a transfer,
reinstatement, renewal and/or extension of any and all licenses and other
governmental authorizations issued to Tenant in connection with Tenant's
operation of the Leased Properties, and to do any and all other acts incidental
to any of the foregoing. Tenant irrevocably and unconditionally grants to
Landlord as its attorney-in-fact full power and authority to do and perform,
after an Event of Default, every act necessary and proper to be done in the
exercise of any of the foregoing powers as fully as Tenant might or could do if
personally present or acting, with full power of substitution, hereby ratifying
and confirming all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and is
irrevocable prior to the full performance of Tenant's obligations hereunder.
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ARTICLE X
DAMAGE AND DESTRUCTION
10.01 General. Tenant shall notify Landlord if any Leased Property is
-------
damaged or destroyed by reason of fire or any other cause. Tenant shall
promptly repair, rebuild, or restore such Leased Property, at Tenant's expense,
so as to make such Leased Property at least equal in value to such Leased
Property existing immediately prior to such occurrence and as nearly similar to
it in character as is practicable and reasonable. Before beginning such repairs
or rebuilding, or executing any contracts in connection with such repairs or
rebuilding, Tenant will submit for Landlord's approval, which approval Landlord
will not unreasonably withhold or delay, complete and detailed plans and
specifications for such repairs or rebuilding. Promptly after receiving
Landlord's approval of the plans and specifications, Tenant will begin such
repairs or rebuilding and will oversee the repairs and rebuilding to completion
with diligence, subject, however, to strikes, lockouts, acts of God, embargoes,
governmental restrictions, and other causes beyond Tenant's reasonable control.
Landlord will make available to Tenant the net proceeds of any fire or other
casualty insurance paid to Landlord for such repair or rebuilding as the same
progresses, after deduction of any costs of collection, including attorneys'
fees. Payment will be made against properly certified vouchers of a competent
architect in charge of the work and approved by Landlord. Prior to commencing
the repairing or rebuilding, Tenant shall deliver to Landlord for Landlord's
approval a schedule setting forth the estimated monthly draws for such work.
Landlord will contribute to such payments out of the insurance proceeds an
amount equal to the proportion that the total net amount received by Landlord
from insurers bears to the total estimated cost of the rebuilding or repairing,
multiplied by the payment by Tenant on account of such work. Landlord may,
however, withhold ten percent (10%) from each such payment and shall disburse
such amount after: (a) the work of repairing or rebuilding is completed and
proof has been furnished to Landlord that no lien or liability has attached or
will attach to such Leased Property or to Landlord in connection with such
repairing or rebuilding and (b) Tenant has obtained a certificate of use and
occupancy (or its functional equivalent) for the portion of such Leased Property
being repaired or rebuilt. Upon the completion of rebuilding or repairing and
the furnishing of such proof, the balance of the net proceeds of such insurance
payable to Tenant on account of such repairs or rebuilding will be paid to
Tenant. Tenant will obtain and deliver to Landlord a temporary or final
certificate of occupancy before such Leased Property is reoccupied for any
purpose. Tenant shall complete such repairs or rebuilding free and clear of
mechanic's or other liens, and in accordance with the building codes and all
applicable laws, ordinances, regulations, or orders of any state, municipal, or
other public authority affecting the repairs or rebuilding, and also in
accordance with all requirements of the insurance rating organization, or
similar body. Any remaining proceeds of insurance after such restoration will
be Tenant's property.
10.02 Landlord's Inspection. During the progress of such repairs or
----------------------
rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the subject Leased Property and will be furnished, if required by them,
with copies of all plans, shop drawings, and
35
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specifications relating to such repairs or rebuilding. Tenant will keep all
plans, shop drawings, and specifications available, and Landlord and its
architects and engineers may examine them at all reasonable times. If, during
such repairs or rebuilding, Landlord and its architects and engineers determine
that the repairs or rebuilding are not being done in accordance with the
approved plans and specifications, Landlord will give prompt notice in writing
to Tenant, specifying in detail the particular deficiency, omission, or other
respect in which Landlord claims such repairs or rebuilding do not accord with
the approved plans and specifications. Upon the receipt of any such notice,
Tenant will cause corrections to be made to any deficiencies, omissions, or such
other respect. Tenant's obligations to supply insurance, according to Article
IV, will be applicable to any repairs or rebuilding under this Section 10.02.
10.03 Landlord's Costs. Tenant shall, within fifteen (15) days after
----------------
receipt of an invoice from Landlord, pay the reasonable costs, expenses, and
fees of any architect or engineer employed by Landlord to review any plans and
specifications and to supervise and approve any construction, or for any
services rendered by such architect or engineer to Landlord as contemplated by
any of the provisions of this Lease, or for any services performed by Landlord's
attorneys in connection therewith; provided, however, that Landlord will consult
with Tenant and notify Tenant of the estimated amount of such expenses.
10.04 Rent Abatement. In the event that the provisions of Section
--------------
10.01 above shall become applicable as to any Leased Property, and subject to
the last sentence of this Section 10.04, the applicable Base Annual Rent shall
be abated or reduced proportionately during any period in which, by reason of
such damage or destruction, there is substantial interference with the operation
of the Business of Tenant in such Leased Property, having regard to the extent
to which Tenant may be required to discontinue any Business on such Leased
Property, and such abatement or reduction shall continue for the period
commencing with such destruction or damage and ending with the substantial
completion by Tenant of such work or repair and/or reconstruction. In the event
that only a portion of any Leased Property is rendered untenantable or incapable
of such use, the Base Annual Rent payable hereunder in respect thereof shall be
reduced proportionately considering the extent to which the Tenant is unable to
practicably use the Leased Property for Business. Tenant shall use reasonably
diligent efforts to make the Leased Property tenantable and capable of such use.
Notwithstanding any other provision hereof, such rental abatement shall be
limited to the amount of any rental or Business interruption insurance proceeds
actually received by Landlord under Article IV.
10.05 Substantial Damage During Lease Term. Provided Tenant has fully
------------------------------------
complied with Section 4.01 hereof (including actually maintaining in effect
rental value insurance or Business interruption insurance provided for in clause
(c) thereof) and has satisfied the conditions of the last sentence of this
Section 10.05, if, at any time during the Term or any Extension Term, as the
case may be, of this Lease, any Leased Property is so damaged by fire or
otherwise that it is Completely Destroyed or Partially Destroyed (as such terms
are hereafter defined), Tenant may, within one hundred and eighty (180) days
after such damage, give notice of its election to terminate this Lease with
respect to such Leased Property and, subject to the
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further provisions of this Section, this Lease will cease with respect to such
Leased Property on the thirtieth (30th) day after the delivery of such notice.
If the Lease is so terminated, Tenant will have no obligation to repair, rebuild
or replace such Leased Property, and the entire insurance proceeds will belong
to Landlord. If the Lease is not so terminated, Tenant shall rebuild such
Leased Property in accordance with Section 10.01. If Tenant elects to terminate
this Lease pursuant to this Section 10.05, Tenant will pay (or cause to be paid)
to Landlord, an amount equal to the excess amount, if any, of the book value of
the damaged property as shown in Landlord's financial statements as of the date
of such termination, over the amount of all insurance proceeds received by
Landlord. A Leased Property shall be deemed to be "Completely Destroyed" if
there is sufficient damage to such Leased Property that Landlord and Tenant
agree to its classification as such. A Leased Property shall be deemed to be
"Partially Destroyed" if, as a result of damages to it, a substantial part of
the Business (as determined by a reasonable dealer in the trade, in light of
standard trade practices) cannot be conducted on it within one hundred and
eighty (180) days of the occurrence of such damages. In the event that Landlord
and Tenant are unable to agree to a determination of whether any Leased Property
is Completely Destroyed, Partially Destroyed or otherwise, such determination
shall be made pursuant to the Arbitration provisions set forth in Article XIV.
10.06 Damage Near End of Term. Notwithstanding any provisions of
-----------------------
Sections 10.01 or 10.05 to the contrary, if damage to or destruction of any
Leased Property occurs during the last twenty-four (24) months of the Term, and
if such damage or destruction renders the Leased Property Completely Destroyed
or Partially Destroyed, either party shall have the right to terminate this
Lease as to such Leased Property by giving notice to the other within ten (10)
days after the date of damage or destruction, in which event Landlord shall be
entitled to retain the insurance proceeds and Tenant shall pay to Landlord on
demand the amount of any deductible or uninsured loss arising in connection
therewith; provided, however, that any such notice given by Landlord shall be
void and of no force and effect if Tenant exercises an available option for an
Extension Term with respect to such Leased Property pursuant to provisions of
this Lease within ten (10) business days following receipt of such termination
notice.
10.07 Risk of Loss. Notwithstanding anything herein to the contrary,
------------
during the Term or any Extension Term, as the case may be, the risk of loss of
or decrease in the enjoyment and beneficial use of the Leased Properties in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise is assumed by Tenant, and Landlord
shall in no event be answerable or accountable therefor except in the case of
gross negligence, willful misconduct or breach of this Lease by Landlord
resulting in such damage or destruction. In addition, all risk of loss or
decrease in enjoyment and beneficial use in consequence of foreclosures,
attachments, levies or executions is assumed by Tenant except for foreclosure
due to Landlord's indebtedness.
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ARTICLE XI
CONDEMNATION
11.01 Total Taking. If at any time during the Term or any Extension
------------
Term, as the case may be, any Leased Property is totally and permanently taken
by right of eminent domain or by conveyance made in response to the threat of
the exercise of such right ("Condemnation"), this Lease shall terminate as to
such Leased Property on the Date of Taking (which shall mean the date the
condemning authority has the right to possession of the property being
condemned), and Tenant shall promptly pay all outstanding applicable Rent and
other charges through the date of termination, provided, however, this Lease
shall not so terminate if the Condemnation occurred due to the failure of Tenant
to maintain such Leased Property as required by Article VII hereof or other
applicable provisions hereof, whether or not such failure on the part of Tenant
constituted an Event of Default hereunder at the time of the Condemnation.
11.02 Partial Taking. If a portion of a Leased Property is taken by
--------------
Condemnation, this Lease shall remain in effect as to such Leased Property if
such Leased Property is not thereby rendered Unsuitable for the continuation of
Tenant's Business on that Leased Property (which shall mean that such Leased
Property is in such a state or condition such that in the good faith judgment of
Tenant, reasonably exercised, it cannot be used on a commercially practicable
basis in the operation of the Business), but if such Leased Property is thereby
rendered Unsuitable for the continuation of Tenant's Business on that Leased
Property, this Lease shall terminate as to such Leased Property on the Date of
Taking, provided such Condemnation was not as a result of Tenant's failure to
maintain such Leased Property as provided for in Section 11.01.
11.03 Restoration. If there is a partial taking of any Leased Property
-----------
and this Lease remains in full force and effect pursuant to Section 11.02,
Landlord shall retain the amount of any Landlord Award (as hereafter defined)
received by Landlord, Landlord shall apply such Landlord Award to accomplish all
necessary restoration to the Leased Property, and any excess after such
application shall be retained by Landlord. If there is a partial taking of any
Leased Property and this Lease remains in full force and effect pursuant to
Section 11.02, Tenant shall retain the amount of any Tenant Award (as hereafter
defined) received by Tenant, Tenant shall apply such Tenant Award to accomplish
all necessary restoration of Tenant's property, and any excess after such
application shall be retained by Tenant. Notwithstanding anything in this
Section to the contrary, in the event that there is a partial taking of any
Leased Property and this Lease remains in full force and effect pursuant to
Section 11.02, and there is a single Award with respect to such partial taking,
then the Landlord and Tenant shall use their good faith efforts to determine the
proper apportionment of such Award (as hereafter defined) to restoration of
Landlord's and Tenant's respective properties. In the event that the parties
are unable to agree on such apportionment within thirty (30) days, the parties
shall submit to arbitration of an apportionment subject to the arbitration
provisions set forth in Article XIV.
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11.04 Landlord's Inspection. During the progress of such restoration,
---------------------
Landlord and its architects and engineers may, from time to time, inspect the
subject Leased Property and will be furnished, if required by them, with copies
of all plans, shop drawings, and specifications relating to such restoration.
Tenant will keep all plans, shop drawings, and specifications available, and
Landlord and its architects and engineers may examine them at all reasonable
times. If, during such restoration, Landlord and its architects and engineers
determine that the restoration is not being done in accordance with the approved
plans and specifications, Landlord will give prompt notice in writing to Tenant,
specifying in detail the particular deficiency, omission, or other respect in
which Landlord claims such restoration does not accord with the approved plans
and specifications. Upon the receipt of any such notice, Tenant will cause
corrections to be made to any deficiencies, omissions, or such other respect.
Tenant's obligations to supply insurance, according to Article IV, will be
applicable to any restoration under this Section.
11.05 Award Distribution. The entire compensation, sums or anything of
------------------
value awarded, paid or received on a total or partial Condemnation of a Leased
Property that is awarded to Landlord shall belong to Landlord (the "Landlord
Award"). The entire compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation of a Leased Property that is awarded
to Tenant shall belong to Tenant (the "Tenant Award", collectively with the
Landlord Award, the "Awards", and each, individually, an "Award").
Notwithstanding anything in this Section to the contrary, in the event that
there is a total or partial Condemnation of a Leased Property and there is a
single Award with respect to such Condemnation, then the Landlord and Tenant
shall use their good faith efforts to determine the proper apportionment of such
Award to Landlord's and Tenant's respective properties. In the event that the
parties are unable to agree on such apportionment within thirty (30) days, the
parties shall submit to arbitration of an apportionment subject to the
arbitration provisions set forth in Article XIV.
11.06 Temporary Taking. The taking of any Leased Property, or any part
----------------
thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than twenty four (24) months. During any such twenty-four
(24) month period, which shall be a temporary taking, all the provisions of this
Lease shall remain in full force and effect as to such Leased Property with no
abatement of rent payable by Tenant hereunder. In the event of any such
temporary taking, the entire amount of any such Award made for such temporary
taking allocable to the Term hereof, whether paid by way of damages, Rent or
otherwise, shall be paid to Tenant.
39
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ARTICLE XII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND FINANCIAL COVENANTS
Tenant hereby represents, warrants and covenants to Landlord as
follows:
12.01 Organization and Qualification.
------------------------------
(a) Tenant is a [__________] corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation or organization, with all power and authority,
corporate or otherwise, necessary to: (i) enter into and
perform this Lease and (ii) own and lease its assets and
properties, and conduct its Business, as it is now being
conducted or proposed to be conducted. Tenant is duly
qualified as a foreign corporation or other entity, as the
case may be, to conduct its Business and own and lease its
assets and properties, and is in good standing, in each
jurisdiction where the character of its assets and
properties owned or held under lease or the nature of its
Business makes such qualification necessary or advisable,
and is duly qualified and licensed under all laws,
regulations, ordinances or orders of public or governmental
authorities, or otherwise to carry on its Business and own
or lease its assets and properties in the places and in the
manner in which they are owned, leased or conducted or
proposed to be owned, leased or conducted, except where the
failure to be so organized, qualified and in good standing
or to have such authority, qualification or licensing could
not result in a Material Adverse Change. Complete and
correct copies of Tenant's Charter, as in effect on the date
hereof, and Tenant's by-laws, also as in effect on the date
hereof, have been delivered to Landlord.
(b) Each Affiliate that conducts operations or business on or
from any Leased Property, whether now or at any time in the
future, is duly organized, validly existing and in good
standing under the laws of its organization, with all power
and authority, corporate or otherwise, necessary to own and
lease its assets and properties, and conduct its business,
as it is now being conducted or proposed to be conducted.
Each Affiliate is duly qualified as a foreign corporation or
other entity, as the case may be, to do business and own and
lease its assets and properties, and is in good standing, in
each jurisdiction where the character of its assets and
properties owned or held under lease or the nature of its
activities or business makes such qualification necessary or
advisable, and is duly qualified and licensed under all
laws, regulations, ordinances or orders or public or
governmental authorities or otherwise to carry on its
business and own or lease its assets and properties in the
places and in the manner in which they are owned, leased or
is conducted or proposed to be owned, leased or conducted,
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except where the failure to be so organized, qualified and
in good standing or to have such authority, qualification or
licensing could not result in a Material Adverse Change.
"Material Adverse Change" since a particular specified date, or a date
which may be specified from the circumstances existing immediately prior to the
happening of a specified event or occurrence, or, if no date or event is
specified, with reference to the most recent Annual Financial Statements
delivered pursuant to this Lease, means a material adverse change in the
Business, assets, properties, franchises, financial condition or income of
Tenant or the operations, business, assets, properties, franchises, financial
condition, income or prospects of any Affiliate, whether or not such event or
occurrence is an Event of Default. Nothing that would otherwise be a breach of
any representation, warranty, covenant or obligation herein by any Affiliate
shall be a breach of this Agreement, unless such breach constitutes or causes a
material adverse effect on the Business.
"Affiliate" means with respect to any Person, (i) any Person that holds
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least five percent (5%) of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least five percent (5%) of the outstanding equity securities or
interests in a Person, or (ii) any Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with such Person.
A "Person" shall mean and include natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, Indian tribes or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
12.02 Material Agreements. Tenant has previously furnished to Landlord
-------------------
correct and complete copies of (including all exhibits, schedules and amendments
thereto) each agreement listed in Exhibit 12.02, each as in effect on the date
hereof (the "Material Agreements").
12.03 Changes in Condition. Since the date of the latest Annual
---------------------
Financial Statements, no Material Adverse Change has occurred between such date
and the date hereof, and neither Tenant nor any Affiliate has entered into any
material transaction outside the ordinary course of its or their operations or
business, including the Business, except as set forth in Exhibit 12.03 and the
matters contemplated by this Lease.
12.04 Franchises, Licenses, etc. Tenant and its subsidiaries own, or
--------------------------
have sufficient interests in, all franchises, trademarks, trademark rights,
trade names, trade name rights, copyrights, licenses, permits, authorizations
and other rights as are necessary for the conduct of Tenant's Business and its
subsidiaries' businesses as now conducted or proposed to be
41
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conducted by Tenant or any Affiliate, as well as rights under any agreement
under which Tenant or its subsidiaries has access to confidential information
used by Tenant or its subsidiaries in Tenants' Business or the businesses of its
subsidiaries, as the case may be (collectively, the "Intellectual Property").
All Intellectual Property is in full force and effect in all material respects,
and Tenant and its subsidiaries are in substantial compliance with the foregoing
without any conflict with the valid rights of others, which has resulted, or
could be reasonably likely to result in any Material Adverse Change. Neither
Tenant nor any Affiliate has violated, or received any communication that by
conducting its Business or any Affiliate's businesses, it or any Affiliate would
violate any franchises, licenses, patents, trademarks, service marks, trade
names, copyrights, trade secrets, proprietary rights or processes of any other
Person (as hereafter defined) nor is Tenant or any Affiliate aware of any such
violations. No event has occurred which permits, or after notice or lapse of
time or both would permit, the revocation or termination of any such license,
franchise or other right or affect the rights of Tenant or any Affiliate so as
to result in or reasonably be likely to result in any Material Adverse Change.
There is no litigation or other proceeding or dispute or, to the knowledge of
Tenant or any Affiliate, threat thereof with respect to the validity or, where
applicable, the extension or renewal, of any of the foregoing which has
resulted, or could result, in any Material Adverse Change.
12.05 Litigation. No litigation, at law or in equity, or any
-----------
proceeding before any court, board or other governmental or administrative
agency or any arbitrator or other forum of alternative dispute resolution is
pending or, to the knowledge of Tenant or any Affiliate, threatened which
involves any risk of any final judgment, order or liability which, after giving
effect to any applicable insurance, has resulted, or could result, in any
Material Adverse Change or which seeks to enjoin the execution and consummation
of this Lease and the performance of Tenant's obligations hereunder. No
judgment, decree or order of any court, board or other governmental or
administrative agency or any arbitrator has been issued against or binds Tenant
or any Affiliate, which has resulted, or could result, in any Material Adverse
Change.
12.06 Authorization and Enforceability. Tenant has taken all corporate
---------------------------------
or other action required to execute, deliver and perform this Lease. This Lease
constitutes the legal, valid and binding obligation of Tenant and is enforceable
against Tenant in accordance with its terms.
12.07 No Legal Obstacle to Lease. Neither the execution and delivery of
---------------------------
this Lease nor the performance of any obligation hereunder has constituted or
resulted in or will constitute or result in:
(a) any breach, violation of, conflict with, default under or
termination of any agreement, contract, mortgage,
instrument, deed or lease to which Tenant or any Affiliate
is a party or by which it or they are bound;
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(b) the violation of or conflict with any law, statute,
ordinance, judgment, decree, order, rule or regulation
applicable to Tenant, any Affiliate, any Improvements or any
Leased Property; or
(c) any violation of or conflict with Tenant's or any
Affiliate's Charter or By-Laws or other organizational
documents, as the case may be.
No approval, authorization or other action by, or declaration to or filing
with, any governmental or administrative authority or any other Person is
required to be obtained or made by Tenant in connection with the execution,
delivery and performance of this Lease.
12.08 Certain Business Representations:
--------------------------------
(a) Labor Relations. No dispute or controversy between Tenant or
---------------
any Affiliate and its or their employees has resulted in, or
is reasonably likely to result in, any Material Adverse
Change, and neither Tenant nor any Affiliate anticipates
that its relationships with its unions or employees will
result, or are reasonably likely to result, in any Material
Adverse Change. Tenant and each Affiliate is in compliance
in all material respects with all federal and state laws
relating to employees and labor relations, including, but
not limited to, laws relating to health and safety in the
workplace, non-discrimination in employment and the payment
of wages.
(b) Antitrust. Tenant and each Affiliate is in compliance in all
----------
material respects with all federal and state antitrust laws
relating to Tenant's Business and the subsidiaries'
businesses and the geographic concentration thereof.
(c) Consumer Protection. Neither Tenant nor any Affiliate is in
--------------------
violation of any rule, regulation, order, or interpretation
of any rule, regulation or order of the Federal Trade
Commission (including truth-in-lending) or other federal,
state or local public or governmental authority or agency,
with which the failure to comply, in the aggregate, has
resulted in, could result in, a Material Adverse Change.
(d) Future Expenditures. Neither Tenant nor any Affiliate,
-------------------
anticipates that further expenditures, if any, by Tenant or
any Affiliate needed to meet the provisions of any federal,
state or foreign governmental statutes, orders, rules or
regulation could result in any Material Adverse Change.
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(e) Benefit Liabilities. Neither Tenant nor any ERISA Affiliate
-------------------
(as hereafter defined) maintains, contributes to, or is
obligated to contribute to, nor has Tenant or any ERISA
Affiliate maintained, contributed to, been obligated to
contribute to, or had any direct, indirect, or contingent
liability with respect to, any Title IV Plan (as hereafter
defined). Tenant and each ERISA Affiliate have timely made
all contributions required to be made with respect to each
of their Tenant Benefit Plans (as hereafter defined). Each
Tenant Benefit Plan has been maintained in compliance with
its terms and with applicable laws (including specifically
the Code and the Employee Retirement Income Security Act of
1974 ("ERISA"). Neither Tenant nor any ERISA Affiliate has
incurred any obligation in connection with the termination
or withdrawal from any Tenant Benefit Plan. Contributions
made by Tenant or its ERISA Affiliates, as the case may be,
to any Tenant Benefit Plan have been accounted for, and the
liabilities associated therewith are disclosed, in Tenant's
or its ERISA Affiliates', as the case may be, financial
statements for the fiscal year ending before the date as of
which this representation is given. The present value of the
accrued benefit liabilities (whether or not vested) under
each Tenant Benefit Plan, determined as of the end of
Tenant's or its ERISA Affiliates', as the case may be, most
recently ended fiscal year on the basis of actuarial
assumptions, each of which is reasonable, did not exceed the
current value of the assets of such Tenant Benefit Plan
allocable to such benefit liabilities. "Tenant Benefit Plan"
means any plan, fund, or other similar program described in
Section 3(2) of ERISA and established or maintained or with
respect to which Tenant and/or any ERISA Affiliate has an
obligation to contribute for the benefit of its employees
(or for which Tenant could be directly or contingently
liable). "Title IV Plan" means an "employee benefit plan"
(as defined in Section 3(3) of ERISA) that is subject to
Title IV of ERISA and is or has been established or
maintained, by Tenant or any ERISA Affiliate, or to which
contributions are, have been, or should have been made.
"ERISA Affiliate" means any trade or business, whether or
not incorporated, that, together with Tenant, is or has been
under common control, within the meaning of Section 414(b),
(c), (m), or (o) of the Code or Section 4001 of ERISA.
12.09 Certain Financial Covenants. Tenant or an Affiliate, as
---------------------------
applicable, is in compliance in all material respects with all financial
covenants required to be maintained pursuant to any franchise or other agreement
pursuant to which Tenant or such Affiliate operates its business, except in such
respects as shall not result in any franchisor under any franchise or
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operating agreement to which Tenant is a party taking any action that could
result in a Material Adverse Change.
12.10 Cash Flow Coverage Ratio Covenant. On the date of this Lease and
---------------------------------
measured at a date that is twenty-four (24) months following such date (each a
"Cash Flow Measurement Date"), and on each anniversary date that is twenty-four
(24) months following a prior Cash Flow Measurement Date, Tenant shall have
maintained a Cash Flow Coverage Ratio of not less than 1.5 to 1.0 based on the
Annual Financial Statements to be delivered to Landlord in accordance with
Section 6.04 hereof. "Cash Flow Coverage Ratio" means the aggregate of net
income before taxes plus mortgage interest, rent expense, depreciation,
compensation of principals of the Business, management fees plus the annual LIFO
adjustment and other non-cash expenses, less recurring capital expenditures and
gain (loss) on sale of real estate, dividends and/or profits taken out of Tenant
divided by the aggregate of the Tenant's obligations under this Lease.
Notwithstanding anything herein to the contrary, in the event that Tenant shall
not be in compliance with this covenant at a Cash Flow Measurement Date or
Tenant shall have knowledge of such non-compliance prior to any Cash Flow
Measurement Date, the Tenant shall have the right to cure such breach through
any reasonable commercial means, including, but not limited to, providing
guarantees acceptable to Landlord, increasing capital, or cross collateralizing
with any other property of Tenant or an Affiliate, provided that such breach is
cured within one hundred and eighty (180) days after Notice by Landlord to
Tenant of the existence of such breach.
12.11 Disclosure. This Lease does not contain any untrue statement of
----------
a material fact or omit to state a material fact necessary in order to make any
statement contained herein not misleading in light of the circumstances under
which it was made. To Tenant's knowledge, there is no event, fact or occurrence
that has resulted, or in the future (so far as Tenant can reasonably foresee)
could result, in any Material Adverse Change, except to the extent that present
or future general and sector-specific economic conditions may result in a
Material Adverse Change.
12.12 Covenant Not to Acquire. Tenant covenants and agrees that during
-----------------------
the Term and any Extension Term, as the case may be, Tenant and its controlling
shareholders or its or their Affiliates will not acquire, directly or
indirectly, more that 9.90% of the outstanding common shares of beneficial
interest of Capital Automotive REIT. Tenant covenants and agrees that it will
divest itself of such shares of Capital Automotive REIT as may be necessary to
satisfy the limitations of this Section 12.12.
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ARTICLE XIII
ASSIGNMENT AND SUBLETTING; ATTORNMENT
13.01 Prohibition Against Subletting and Assignment. Subject to
---------------------------------------------
Section 13.03, Tenant shall not, without the prior written consent of Landlord,
or upon compliance with any conditions established by Landlord, in its sole
discretion, assign, mortgage, pledge, hypothecate, encumber or otherwise
transfer (except to an Affiliate) this Lease or any interest herein, or all or
any part of any Leased Property, or suffer or permit this Lease or the leasehold
estate created hereby or any other rights arising hereunder to be assigned,
transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in
part, whether voluntarily, involuntarily or by operation of law. For purposes
of this Section 13.01, an assignment of this Lease shall be deemed to include
any Change of Control of Tenant, as if such Change of Control were an assignment
of the Lease. In the event that (i) Landlord shall withhold any consent to any
assignment or transfer of this Lease or any interest herein, and (ii) such
assignee or transferee is approved by the relevant manufacturer for continuation
as a franchisee, there shall be a presumption that such assignment or transfer
was reasonable and Landlord shall have the burden of rebutting such presumption
and of proving that such consent was in fact reasonably withheld (or that such
conditions were reasonable).
13.02 Changes of Control. A Change of Control requiring the consent
------------------
of Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any
shareholder or equity holder of Tenant of a Controlling
(which shall mean, as applied to any Person, the
possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of
such Person, whether through the ownership of voting
securities, by contract or otherwise) interest in Tenant
to a Person other than an Affiliate of Tenant, other than
in either case a distribution to the public pursuant to an
effective registration statement under the Securities Act
of 1933, as amended (a "Registered Offering");
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by
operation of law or otherwise) provided, however, that no
Change of Control shall be deemed to have occurred in the
event of the transfer of assets as a result of the death
of a person involved in the Business, so long as the
transferee is approved by the manufacturer for the
continuation of the Business; or
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(c) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an entity
owned and Controlled by an Affiliate), and Tenant is not
the surviving entity.
13.03 Operating/Service Agreements.
-----------------------------
(a) Permitted Agreements. Tenant shall, without Landlord's
--------------------
prior approval, be permitted to enter into such
operating/service agreements for portions of each Leased
Property to various licensees in connection with Tenant's
Business as are customarily associated with or incidental
to the operation of such Leased Property, which agreements
may be in the nature of a sublease agreement.
(b) Terms of Agreements. Each operating/service agreement
-------------------
concerning a Leased Property shall be subject and
subordinate to the provisions hereof. No agreement made as
permitted by Section 13.03(a) shall affect or reduce any
of the obligations of Tenant hereunder, and all such
obligations shall continue in full force and effect as if
no agreement had been made. No agreement shall impose any
additional obligations on Landlord hereunder.
(c) Copies. Tenant shall, within ten (10) days after the
------
execution and delivery of any operating/service agreement
permitted by Section 13.03(a), deliver a duplicate
original thereof to Landlord.
(d) Assignment of Rights in Agreements. As security for
----------------------------------
performance of its obligations hereunder, Tenant hereby
grants, conveys and assigns to Landlord all right, title
and interest of Tenant in and to all operating/service
agreements now in existence or hereinafter entered into
for each Leased Property, and all extensions,
modifications and renewals thereof and all rents, issues
and profits therefrom, to the extent the same are
assignable by Tenant. Landlord hereby grants to Tenant a
license to collect and enjoy all rents and other sums of
money payable under any such agreement; provided, however,
that Landlord shall have the absolute right at any time
after the occurrence and continuance of an Event of
Default upon notice to Tenant and any vendors or licensees
to revoke said license and to collect such rents and sums
of money and to retain the same. Tenant shall not (i)
after the occurrence and continuance of an Event of
Default, consent to, cause, or allow, any material
modification or alteration of any of the terms, conditions
or covenants of any of the agreements or the
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termination thereof, without the prior written approval of
Landlord nor (ii) accept any rents (other than customary
security deposits) more than thirty (30) days in advance
of the accrual thereof nor permit anything to be done, the
doing of which, nor omit or refrain from doing anything,
the omission of which, will or could be a breach of or
default in the terms of any of the agreements.
(e) Licenses, Etc. For purposes of Section 13.03, the
-------------
operating/service agreements shall mean any licenses,
concession arrangements, or other arrangements relating to
the possession or use of all or any part of any Leased
Property.
13.04 Assignment. If Landlord shall withhold its consent to any
----------
assignment or if Landlord shall have established conditions to approval of any
assignment but such conditions shall not have been complied with, to the
satisfaction of Landlord, such assignment shall not in any way impair the
continuing primary liability of Tenant hereunder. No consent to any assignment
in a particular instance shall be deemed to be a general waiver of the
prohibition set forth in Article XIII. Any assignment shall be solely of
Tenant's entire interest in this Lease with respect to the subject Leased
Property or Leased Properties. Any assignment or other transfer of all or any
portion of Tenant's interest in this Lease in contravention of Article XIII
shall be voidable at Landlord's option.
13.05 REIT Limitations.
----------------
(a) Anything contained herein to the contrary notwithstanding,
Tenant shall not: (a) sublet or assign a Leased Property
or this Lease on any basis such that the rental or other
amounts to be paid by the sublessee or assignee thereunder
would be based, in whole or in part, on the income or
profits derived by the business activities of the
sublessee or assignee; (b) sublet or assign a Leased
Property or this Lease to any Person that, under Section
856(d)(2)(B) of the Internal Revenue Code of 1986, as
amended (the "Code"), Landlord or its general partner
owns, directly or indirectly (by applying constructive
ownership rules set forth in Section 856(d) (5) of the
Code, a ten percent (10%) or greater interest; or (c)
sublet or assign a Leased Property or this Lease in any
other manner or otherwise derive any income which could
cause any portion of the amounts received by Landlord
pursuant hereto or any sublease to fail to qualify as
"rents from real property" within the meaning of Section
856(d) of the Code, or which could cause any other income
received by Landlord to fail to qualify as income
described in Section 856(c) (2) of the Code. The
requirements of
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this Section 13.05 shall likewise apply to any further
subleasing by any subtenant.
(b) Tenant acknowledges that Capital Automotive REIT, a
Maryland real estate investment trust and the general
partner of Landlord (the "Company"), intends to elect to
be taxed as a real estate investment trust (a "REIT")
under the Code. Tenant shall not do anything which would
adversely affect the Company's status as a REIT. Tenant
hereby agrees to modifications of this Lease which do not
materially adversely affect Tenant's rights and
liabilities if such modifications are required to retain
or clarify the Company's status as a REIT.
13.06 Attornment. Tenant shall insert in each sublease permitted
----------
under Section 13.03(a) provisions to the effect that: (a) such sublease is
subject and subordinate to all of the terms and provisions of this Lease and to
the rights of Landlord hereunder; (b) in the event this Lease shall terminate
before the expiration of such sublease, the sublessee thereunder will, at
Landlords' option, attorn to Landlord and waive any right the sublessee may have
to terminate the sublease or to surrender possession thereunder, as a result of
the termination hereof; and (c) in the event the sublessee receives a written
notice from Landlord or Landlord's assignees, if any, stating that Tenant is in
default under this Lease, the sublessee shall thereafter be obligated to pay all
rentals accruing under said sublease directly to the party giving such notice,
or as such party may direct. All rentals received from the sublessee by Landlord
or Landlord's assignees in respect of a Leased Property, if any, as the case may
be, shall be credit against the amounts owing by Tenant hereunder with respect
to such Leased Property.
13.07 Severance and Spin-Off. If at any time while this Lease is in
----------------------
effect any Leased Property shall be utilized by Tenant in the operation of more
than one automobile franchise, then provided that there is no existing Event of
Default and there exists no condition which, with the passage of time, could
become an Event of Default, Tenant shall have the right (the "Spin-Off Right")
to sever and spin-off one or more parcels (each referred to as a "Spin-Off
Parcel") of the Leased Property from this Lease, subject to compliance with the
requirements of Section 13.08.
13.08 Assignment. If the Leased Property is not a separate subdivided
----------
lot, Landlord may condition its approval of an assignment upon Tenant showing
that there are appropriate provisions (such as a condominium regime,
subdivision, and/or reciprocal easements, lender and/or franchisor consents if
necessary, and separate tax lots) which allow the Leased Property to be
separately owned and operated without interference from or dependence upon,
another person as to items such as access, real estate taxes, or utilities.
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ARTICLE XIV
ARBITRATION
14.01 Controversies. Except with respect to the payment of Rent
-------------
hereunder, which shall be subject to the provisions of Section 9.02, in the
event a controversy arises between the parties as to any of the requirements of
this Lease or the performance hereunder, which the parties are unable to
resolve, the parties agree to waive the remedy of litigation (except for
extraordinary relief in an emergency situation) and agree that such controversy
or controversies shall be determined by arbitration as hereafter provided in
this Article.
14.02 Appointment of Arbitrators. The party or parties requesting
--------------------------
arbitration shall serve upon the other a demand therefor, in writing, specifying
in detail the controversy and matter(s) to be submitted to arbitration before
the American Arbitration Association. The selection of arbitrators shall be
conducted pursuant to the rules for resolution of commercial disputes
promulgated by the American Arbitration Association. The party or parties giving
notice shall request a listing of available arbitrators from the American
Arbitration Association, and each party shall respond in the selection process
within fifteen (15) days after each receipt of such listings until a panel of
three (3) arbitrators has been designated. If either party fails to respond
within fifteen (15) days, it is agreed that the American Arbitration Association
may make such selections as are necessary to complete the panel of three (3)
arbitrators.
14.03 Arbitration Procedure. Within five (5) business days after the
---------------------
selection of the arbitration panel, the arbitrators shall give written notice to
each party as to the time and the place of each meeting, which shall be held in
Washington, D.C., at which the parties may appear and be heard, which shall be
no later than fifteen (15) days after certification of the arbitration panel.
The parties specifically waive discovery, and further waive the applicability of
rules of evidence or rules of procedure in the proceedings. The applicable rules
shall be those in effect at the time for the resolution of commercial disputes
promulgated by the American Arbitration Association. Notwithstanding the
foregoing, the substantive law governing the arbitration shall be the laws of
the State of Delaware (without application of choice of law provisions). The
arbitrators shall take such testimony and make such examination and
investigations as the arbitrators reasonably deem necessary. The decision of the
arbitrators shall be in writing signed by a majority of the panel which decision
shall be final and binding upon the parties to the controversy. Provided,
however, in rendering their decisions and making awards, the arbitrators shall
not add to, subtract from or otherwise modify the provisions of this Lease.
14.04 Expenses. The expenses of the arbitration shall be assessed by
--------
the arbitrators and specified in the written decision. In the absence of a
determination or assessment of expenses of the arbitration procedure in the
award, all of the expenses of such arbitration shall be divided equally between
Landlord and Tenant. Each party in interest shall be responsible for and pay the
fees, costs and expenses of its own counsel, unless the arbitration award
provides for an assessment of reasonable attorneys' fees and costs.
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<PAGE>
14.05 Enforcement of the Arbitration Award. There shall be no appeal
------------------------------------
from the decision of the arbitrators, and upon the rendering of an award, any
party thereto may file the arbitrators' decision in the United States District
Court for the Eastern District of Virginia for enforcement as provided by
applicable law.
ARTICLE XV
QUIET ENJOYMENT, SUBORDINATION,
ATTORNMENT, ESTOPPEL CERTIFICATES
15.01 Quiet Enjoyment. So long as Tenant performs all of its
---------------
obligations under this Lease, Tenant's possession of the Leased Properties will
not be disturbed by or through Landlord.
15.02 Landlord Mortgages; Subordination. Subject to Section 15.03,
---------------------------------
without the consent of Tenant, Landlord may, from time to time, directly or
indirectly, create or otherwise cause to exist any liens, encumbrances, security
interests or title retention agreements on any Leased Property, or any portion
thereof or any interest therein, whether to secure any borrowing or other means
of financing or refinancing. Tenant shall execute, acknowledge and deliver to
Landlord, at any time and from time to time upon demand by Landlord or any
mortgagee or any holder of any mortgage or other instrument described in this
Section, without cost to Landlord, a Subordination and Non-Disturbance Agreement
in the form attached hereto as Exhibit 15.02, which provides that (i) Tenant's
rights hereunder are subordinate to any ground lease or underlying lease, first
mortgage, first deed of trust, or other first lien against any Leased Property,
together with any renewal, consolidation, extension, modification, or
replacement thereof, which now or at any subsequent time affects any Leased
Property or any interest of Landlord in any Leased Property, except to the
extent that any such instrument expressly provides that this Lease is superior;
and (ii) in the event such party succeeds to Landlord's interest under the Lease
and provided that no Event of Default by Tenant exists, such party will not
disturb Tenant's possession, use or occupancy of the subject Leased Property. If
Tenant fails or refuses to execute, acknowledge, and deliver such Subordination
and Non-Disclosure Agreement within ten (10) business days after written demand,
then Landlord shall send to Tenant a second written demand. If Tenant fails or
refuses to execute, acknowledge and deliver such Subordination and Non-
Disclosure Agreement within ten (10) days after such second written demand, then
Landlord or such successor in interest may execute, acknowledge and deliver such
Subordination and Non-Disclosure Agreement on behalf of Tenant as Tenant's
attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord,
its successors and assigns, as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant the Subordination and Non-
Disclosure Agreement. This power of attorney is coupled with an interest and is
irrevocable.
15.03 Attornment. If any holder of any mortgage, indenture, deed of
----------
trust, or other similar instrument described in Section 15.02 succeeds to
Landlord's interest in any Leased
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<PAGE>
Property, Tenant will pay to such holder all Rent subsequently payable hereunder
as to such Leased Property. Tenant shall, upon request of anyone succeeding to
the interest of Landlord, automatically become the tenant of, and attorn to,
such successor in interest without changing this Lease. The successor in
interest will not be bound by: (a) any payment of Rent for more than one (1)
month in advance; (b) any amendment or modification hereof made without its
written consent; (c) any claim against Landlord arising prior to the date on
which the successor succeeded to Landlord's interest; or (d) any claim or offset
of Rent against Landlord.
15.04 Estoppel Certificates. At the request of Landlord or any
---------------------
mortgagee or purchaser of a Leased Property, Tenant shall execute, acknowledge,
and deliver an estoppel certificate, in recordable form, in favor of Landlord or
any mortgagee or purchaser of any Leased Property certifying the following as to
such Leased Property: (a) that this Lease is unmodified and in full force and
effect, or if there have been modifications that the same is in full force and
effect as modified and stating the modifications; (b) the date to which Rent and
other charges have been paid; (c) that neither Tenant nor Landlord is in default
nor is there any fact or condition which, with notice or lapse of time, or both,
would constitute a default, if that be the case, or specifying any existing
default; (d) that Tenant has accepted and occupies such Leased Property; (e)
that Tenant has no defenses, set-offs, deductions, credits, or counterclaims
against Landlord, if that be the case, or specifying such that exist; (f) that
Landlord has no outstanding construction or repair obligations; and (g) such
other information as may reasonably be requested by Landlord or any mortgagee or
purchaser. Any purchaser or mortgagee may rely on this estoppel certificate. If
Tenant fails to deliver the estoppel certificates to Landlord within ten (10)
business days after the request of Landlord, then Landlord shall request such
delivery a second time. If Tenant fails to deliver the estoppel certificates to
Landlord within ten (10) days after such second request by Landlord, then Tenant
shall be deemed to have certified that: (a) this Lease is in full force and
effect and has not been modified, or that this Lease has been modified as set
forth in the certificate delivered to Tenant; (b) Tenant has not prepaid any
Rent or other charges except for the current month; (c) Tenant has accepted and
occupies such Leased Property; (d) neither Tenant nor Landlord is in default nor
is there any fact or condition which, with notice or lapse of time, or both,
would constitute a default; (e) Landlord has no outstanding construction or
repair obligation; and (f) Tenant has no defenses, set-offs, deductions,
credits, or counterclaims against Landlord. Tenant hereby irrevocably appoints
Landlord as Tenant's attorney-in-fact to execute, acknowledge and deliver on
Tenant's behalf any estoppel certificate which Tenant does not object to within
twenty (20) days after Landlord sends the certificate to Tenant. This power of
attorney is coupled with an interest and is irrevocable.
15.05 Waiver of Landlord's Lien. Landlord agrees to and does hereby
-------------------------
Waiver its Landlord's lien and any other rights that it may have with respect to
property or assets representing the security or collateral under Tenant's
"floor-plan" or similar financing arrangements, during the Term or any Extension
Term. Landlord shall, upon request by any such lender, execute an acknowledgment
of such waiver.
52
<PAGE>
ARTICLE XVI
RIGHT OF FIRST OFFER
16.01 Right of First Offer During Lease Term or Extension Term.
---------------------------------------------------------
(a) If and when during the Term or Extension Term, as the case
may be, Landlord shall decide to sell the Leased
Properties to a Person who is not an Affiliate of Landlord
(the "Decision to Sell"), provided that no Event of
Default has occurred and is continuing under the Lease,
Landlord shall notify Tenant in writing within ten (10)
business days after Landlord makes a Decision to Sell.
Tenant shall have ten (10) business days thereafter in
which to notify Landlord in writing of its desire to
purchase the Leased Properties. If Tenant shall give such
notice, Tenant shall have a period of thirty (30) days
within which to make a written offer to purchase the
property (the "First Offer"). The First Offer must set
forth the purchase price, deposit amounts and closing date
and any and all other terms and conditions being proposed
by Tenant.
(b) Within thirty (30) days of receipt of the First Offer,
Landlord shall give Tenant written notice of its
acceptance or rejection thereof. If accepted, Tenant
shall, within five (5) days after receipt of the
acceptance notice, make the deposit called for in the
First Offer and the parties shall proceed to contract and
closing upon the terms thereof. If the First Offer is
rejected, then, subject to the provisions of subsections
(c) and (d) of this Section 16.01, Tenant shall have no
further rights with respect to the purchase of the Leased
Properties during the Term or Extension Term, as the case
may be.
(c) If Landlord shall reject the First Offer, for a one year
period thereafter it may proceed to sell the Leased
Properties, subject to the Lease and the remaining Term or
Extension Term thereof, as the case may be, to any third
party, provided (i) the purchase price of such sale shall
exceed that specified in the First Offer, or (ii) if the
purchase price of such sale does not exceed that specified
in the First Offer, the terms of such sale, taken
together, are more favorable to Landlord, in Landlord's
reasonable judgement, than those of the First Offer. There
shall be a presumption that Landlord's judgment was
reasonable and Tenant shall have the burden of rebutting
such presumption and of proving that such judgment was in
fact unreasonable.
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<PAGE>
(d) If no sale is effected by Landlord within the period
specified in subsection (c) above, then if Landlord
thereafter desires to sell the Leased Properties, the
procedure set forth in subsections (a), (b) and (c) shall
be followed.
(e) This option shall terminate in any event twenty (20) years
after the death of the last descendant of the father of
John J. Pohanka living at the time of execution of this
Lease.
16.02 Right to Purchase at End of an Extension Term.
----------------------------------------------
(a) Landlord hereby grants the Tenant the right and option to
purchase the Leased Properties (the "Option to Purchase")
at an amount equal to the Property Consideration (as
hereafter defined) upon termination of an Extension Term
of this Lease. The Option to Purchase shall not be granted
if Tenant does not extend the Term of this Lease pursuant
to Section 1.03 or if on the Option Exercise Date (as
hereafter defined) an Event of Default with respect to any
Leased Property exists and has not been cured. The Tenant
shall notify Landlord in writing of its intent to exercise
this Option to Purchase, thirty (30) days prior to the end
of an Extension Term of this Lease (the "Option Exercise
Date").
(b) The consideration to be paid for the Leased Properties
upon exercise of the Option to Purchase (the "Property
Consideration") shall be the Appraised Value (as hereafter
defined) determined by (1) an independent appraiser, who
is a member of the Appraisal Institute, and will be
selected by Landlord, (the "Landlord MAI Appraiser"), (2)
a second appraiser, who is a member of the Appraisal
Institute, and will be selected by the Tenant (the "Tenant
MAI Appraiser"), and (3) a third MAI Appraiser selected by
agreement of the Landlord MAI Appraiser and the Tenant MAI
Appraiser (the "Third MAI Appraiser") (each an "Appraiser"
and, collectively, the "Appraisers"). Landlord and Tenant
shall, as promptly as possible, but in no event later than
ten (10) days following the Option Exercise Date, select
its respective Appraiser. The Third MAI Appraiser shall be
selected no later than five (5) days after the selection
of the other Appraisers. The costs of the Appraisers'
appraisals shall be shared equally by the parties. As
promptly as possible but in no event later than fifteen
(15) days after selection of the Third Appraiser, each
Appraiser shall deliver his or her written report of the
Appraisers' determination of the fair market value of the
Leased Property,
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<PAGE>
which determination shall be based, for each Leased
Property, upon the highest and best use of such Leased
Property, taking into consideration the location of such
Leased Property and other properties comparable thereto.
The "Appraised Value" of the Real Property shall be equal
to the arithmetic mean of the two (2) fair market value
determinations of the Appraisers that are closest in
value. In the event that the values of (i) the difference
between the highest appraisal value and the next lower
appraisal value, and (ii) the difference between the
lowest appraisal value and the next higher appraisal
value, are equal, then the "Appraised Value" shall be
equal to the arithmetic mean of the fair market value
determinations of all Appraisers.
(c) Upon determination of the Property Consideration, Landlord
and Tenant agree to cooperate to close the sale and
purchase of the Leased Property entirely for cash on an "
as is, where as basis" and with no warranties by Landlord
other than in a special warranty deed, within forty-five
(45) days after the date of determination of the Property
Consideration (the "Option Closing Period"). If the sale
and purchase of the Leased Property does not close within
the Option Closing Period due to Tenant's default,
Landlord shall have no further obligations to Tenant
pursuant to this Section 16.02 (a).
ARTICLE XVII
MISCELLANEOUS
17.01 Notices. Landlord and Tenant hereby agree that all notices,
-------
demands, requests, and consents (hereinafter "Notices") required to be given
pursuant to the terms of this Lease shall be in writing and shall be addressed
as follows:
If to Tenant:
[ ]
[ ]
[ ]
[ ]
Attention:
With a copy to:
[ ]
[ ]
[ ]
55
<PAGE>
[ ]
Attention:
If to Landlord:
Capital Automotive L.P.
[ ]
[ ]
[ ]
Attention:
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
and shall be served by: (a) personal delivery; (b) certified mail, return
receipt requested, postage prepaid; or (c) nationally recognized overnight
courier. All notices shall be deemed to be given upon the earlier of actual
receipt or three (3) days after mailing, or one (1) business day after deposit
with the overnight courier. Any Notices meeting the requirements of this
Section shall be effective, regardless of whether or not actually received.
Landlord or Tenant may change its notice address at any time by giving the other
party Notice of such change. Any such Notice of change of address shall be
effective five (5) days after delivery.
17.02 Advertisement of a Leased Property. In the event the parties
----------------------------------
hereto have not executed a renewal lease, or agreed to the Extension Term, as to
the Leased Property within twelve (12) months prior to the expiration of the
Term or an Extension Term, as the case may be, then Landlord or its agent shall
have the right to enter such Leased Property at all reasonable times for the
purpose of exhibiting such Leased Property to others and to place upon such
Leased Property for and during the period commencing two-hundred seventy (270)
days prior to the expiration of the Term or an Extension Term, as the case may
be, "for sale" or "for rent" notices or signs.
17.03 Landlord's Access. Landlord, or its designated agents or
-----------------
contractors, shall have the right to enter upon each Leased Property, upon
reasonable prior notice to Tenant, for purposes of inspecting the same and
assuring Tenant's compliance with this Lease provided, any such entry by
Landlord shall be subject to all rules, guidelines and procedures prescribed by
Tenant in connection therewith. Landlord shall not be allowed entry to a Leased
Property unless accompanied by such of Tenant's personnel as Tenant shall
require and which Tenant shall promptly provide.
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<PAGE>
17.04 Entire Agreement. This Lease contains the entire agreement
----------------
between Landlord and Tenant with respect to the subject matter hereof. No
representations, warranties, and agreements have been made by Landlord or Tenant
except as set forth in this Lease.
17.05 Severability. If any term or provision of this Lease is held by
------------
Landlord to be invalid or unenforceable as to a Leased Property, such holding
shall not affect the remainder of this Lease as to such Leased Property, or the
validity or enforceability of this Lease as to any other Leased Property, and
the same shall remain in full force and effect, unless such holding
substantially deprives Tenant of the use of such Leased Property or Landlord of
the Rents therefor, in which case this Lease shall forthwith terminate as to
such Leased Property as if by expiration of the Term or an Extension Term, as
the case may be, but shall remain in full force and effect with respect to each
other Leased Property.
17.06 Captions and Headings. The captions and headings are inserted
----------------------
only as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Lease or the intent of any provision hereof.
17.07 Governing Law. This Lease shall be construed under the laws of
-------------
the State of Virginia (without application of choice of law provisions).
17.08 Memorandum of Lease or Certain Rights Under the Lease. Landlord
-----------------------------------------------------
and Tenant agree that a record of this Lease or of certain rights under this
Lease may be recorded by either party in a memorandum of lease approved by
Landlord and Tenant with respect to each Leased Property. The party recording
such memorandum must bear all costs of such recording.
17.09 Waiver. No waiver by Landlord of any condition or covenant
------
herein contained, or of any breach of any such condition or covenant, shall be
held or taken to be a waiver of any subsequent breach of such covenant or
condition, or to permit or excuse its continuance or any future breach thereof
or of any condition or covenant, nor shall the acceptance of Rent by Landlord at
any time when Tenant is in default in the performance or observance of any
condition or covenant herein be construed as a waiver of such default, or of
Landlord's right to terminate this Lease or exercise any other remedy granted
herein on account of such default.
17.10 Assignment; Binding Effect. Except as otherwise set forth
--------------------------
herein, this Lease shall not be assignable by Tenant, without the prior written
consent of Landlord. This Lease will be binding upon and inure to the benefit of
the heirs, successors, personal representatives, and permitted assigns of
Landlord and Tenant.
17.11 Consents and Approvals. In each instance in this Lease where
----------------------
the Landlord is required or permitted to give a consent or approval, or to make
a determination, the Landlord's decision and any conditions thereon must be
reasonable under the circumstances. Except as provided in Sections 8.07(d) and
13.01, there shall be a presumption that each such
57
<PAGE>
decision and any conditions thereon by Landlord was in fact reasonable, and
Tenant shall have the burden of proof in any attempt to rebut that presumption.
With respect to Sections 8.07(d) and 13.01, there shall be a presumption that
each such decision and any conditions thereon by Landlord was in fact
unreasonable, and Landlord shall have the burden of proof in any attempt to
rebut that presumption.
17.12 Single Property. Throughout the form of this Lease there are
---------------
references to "Leased Properties". If, in fact, there is only one Leased
Property being leased hereunder, all such references shall, without further
action, be deemed amended to refer solely to such Leased Property and all
provisions relating to Leased Properties, including remedies applicable to only
one Leased Property, shall likewise be amended to the extent necessary, but only
to the extent necessary, to give effect to the fact that there is only one
Leased Property.
17.13 Modification. This Lease may only be modified by a writing
------------
signed by both Landlord and Tenant.
17.14 Incorporation by Reference. All schedules and exhibits referred
---------------------------
to in this Lease are incorporated herein by reference.
17.15 No Merger. As to each Leased Property, the surrender of this
---------
Lease by Tenant or the cancellation of this Lease by agreement of Tenant and
Landlord or the termination of this Lease on account of Tenant's default will
not work a merger, and will, at Landlord's option, terminate any subleases or
operate as an assignment to Landlord of any subleases. Landlord's option under
this paragraph will be exercised by notice to Tenant and all known subtenants of
such Leased Property.
17.16 Force Majeure. Landlord, its agents and employees, will not be
-------------
liable for any loss, injury, death, or damage (including consequential damages)
to persons, property, or Tenant's Business occasioned by theft, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, order of governmental body or authority, fire, explosion, falling
objects, steam, water, rain or snow, leak or flow of water (including water from
the elevator system), rain or snow from any Leased Property or into any Leased
Property or from the roof, street, subsurface or from any other place, or by
dampness or from the breakage, leakage, obstruction, or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air conditioning, or lighting
fixtures of any Leased Property, or from construction, repair, or alteration of
any Leased Property or from any acts or omissions of any other occupant or
visitor of any Leased Property, or from the release, emission, discharge,
presence or disposal of any hazardous substance or material on or from any
Leased Property, or from any other cause beyond Landlord's control.
17.17 Laches. No delay or omission by either party hereto to exercise
------
any right or power accruing upon any noncompliance or default by the other party
with respect to any of the terms hereof shall impair any such right or power or
be construed to be a waiver thereof.
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17.18 Waiver of Jury Trial. To the extent that there is any claim by
--------------------
one party against the other that is not to be settled by arbitration as provided
in Article XIV hereof, Landlord and Tenant waive trial by jury in any action,
proceeding or counterclaim brought by either of them against the other on all
matters arising out of this Lease or the use and occupancy of any Leased
Property (except claims for personal injury or property damage). If Landlord
commences any summary proceeding for nonpayment of Rent, Tenant will not
interpose, and waives the right to interpose, any counterclaim in any such
proceeding.
17.19 Permitted Contests. Tenant, on its own or on Landlord's behalf
-------------------
(or in Landlord's name), but at Tenant's expense, may contest, by appropriate
legal proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any legal
requirement or insurance requirement or any lien, attachment, levy, encumbrance,
charge or claim provided that: (a) in the case of an unpaid Imposition, lien,
attachment, levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Landlord and from the subject Leased Property; (b) neither the subject Leased
Property nor any Rent therefrom nor any part thereof or interest therein would
be in any immediate danger of being sold, forfeited, attached or lost; (c) in
the case of a legal requirement, Landlord would not be in any immediate danger
of civil or criminal liability for failure to comply therewith pending the
outcome of such proceedings; (d) in the event that any such contest shall
involve a sum of money or potential loss in excess of Twenty Five Thousand
Dollars ($25,000), Tenant shall deliver to Landlord and its counsel an opinion
of Tenant's counsel to the effect set forth in clauses (a), (b) and (c), to the
extent applicable; (e) in the case of a legal requirement and/or an Imposition,
lien, encumbrance, or charge, Tenant shall give such reasonable security as may
be demanded by Landlord to insure ultimate payment of the same and to prevent
any sale or forfeiture of a subject Leased Property or the Rent in respect
thereof by reason of such nonpayment or noncompliance; provided, however, the
provisions of this Section shall not be construed to permit Tenant to contest
the payment of Rent (except as to contests concerning the method of computation
or the basis of levy of any Imposition or the basis for the assertion of any
other claim) or any other sums payable by Tenant to Landlord hereunder; (f) in
the case of an insurance requirement, the coverage required by Article IV shall
be maintained; and (g) if such contest be finally resolved against Landlord or
Tenant, Tenant shall, as Additional Rent due hereunder, promptly pay the amount
required to be paid, together with all interest and penalties accrued thereon,
or comply with the applicable legal requirement or insurance requirement.
Landlord, at Tenant's expense, shall execute and deliver to Tenant such
authorizations and other documents as may be reasonably required in any such
contest, and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant hereby agrees to indemnify and
hold harmless Landlord, its officers, trustees, employees, shareholders,
affiliates and agents from and against any and all demands, claims, causes of
action, fines, penalties, damages (including punitive and consequential
damages), losses, liabilities (including strict liability), judgments, costs and
expenses (including, without limitation, attorneys' fees, court costs, and the
costs set forth in Section 9.06) that may be incurred in connection with or
arise from any such contest.
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17.20 Construction of Lease. This Lease has been reviewed by Landlord
---------------------
and Tenant and their respective professional advisors. Landlord and Tenant
believe that this Lease is the product of all their efforts, that they express
their agreement, and agree that they shall not be interpreted in favor of either
Landlord or Tenant or against either Landlord or Tenant merely because of any
party's efforts in preparing such documents.
17.21 Counterparts. This Lease may be executed in duplicate
-------------
counterparts, each of which shall be deemed an original hereof or thereof.
17.22 Relationship of Landlord and Tenant. The relationship of
-----------------------------------
Landlord and Tenant is the relationship of lessor and lessee. Landlord and
Tenant are not partners, joint venturers, or associates.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused the same to be executed by their respective duly authorized officers as
of the date first set forth above.
CAPITAL AUTOMOTIVE L.P.
By: Capital Automotive REIT,
Its General Partner
By:
Its:
[ ]
By:
Its:
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POHANKA LEASE AGREEMENT EXHIBITS AND SCHEDULES
EXHIBITS
A Leased Properties
B Permitted Liens
C Base Annual Rent Schedule
SCHEDULES
2.02 Payment Account Information
2.04 Base Annual Rent Adjustment
5.07 Environmental Reports
12.02 Material Agreements
12.03 Changes in Condition
15.02 Form of Subordination and Non-Disturbance Agreement
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Pohanka Auto Center, Inc. & Pohanka 4601 St. Barnabas
Oldsmobile-GMC Truck, Inc. Rd., Marlow
Heights, MD 20757
$483,486 + $__________* (Tax Id. 06-
0590109)
4615 St. Barnabas
Rd., Marlow
Heights, MD 20757
(Tax Id. 06-
0590091)
4619 St. Barnabas
*Amount attributable to closing costs, as set forth in Section Rd., Marlow
7.5.1 of the Contribution Agreement, dated as of November Heights, MD 20757
21, 1997, relating to this Property. (Tax Id. 06-
038205)
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
2 Pohanka Hyundai, Inc. 4809 St. Barnabas
Rd., Marlow
$166,386 + $________* Heights, MD 20757
(Tax Id. 06-
0590125)
3407 Dallas Drive,
Marlow Heights,
MD 20757
*Amount attributable to closing costs, as set forth in Section (Tax Id. 06-
7.5.1 of the Contribution Agreement, dated as of November 0590117)
21, 1997, relating to this Property.
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
3 Pohanka Imports, Inc. 4608 St. Barnabas Rd.,
Marlow Heights, MD
20757
$395,571 + $_______* (Tax Id. 06-0642140)
*Amount attributable to closing costs, as set forth in Section
7.5.1 of the Contribution Agreement, dated as of November
21, 1997, relating to this Property.
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
4 Pohanka Oldsmobile-GMC Truck, Inc. 4756 Stamp Rd.,
Marlow Heights,
$94,500 + ________* MD 20757
(Id. No. 06-
0605873)
4764 Stamp Rd.,
Marlow Heights,
*Amount attributable to closing costs, as set forth MD 20757
in Section 7.5.1 of the Contribution Agreement, (Id. No. 06-
dated as of November 21, 1997, relating to this 0059247)
Property.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
5 Pohanka Virginia Properties 16660 Governor
Br. Rd., Bowie,
$434,500 + _________* MD 20716
(07-0801472)
*Amount attributable to closing costs, as set forth
in Section 7.5.1 of the Contribution Agreement,
dated as of November 21, 1997, relating to this
Property.
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
6 Pohanka of Chantilly, Inc. 13901 Lee Jackson
Memorial
$354,750 + ____________* Highway,
Chantilly, VA
22021
(Id. 034-4-01-00-
0051)
13909 Lee Jackson
Memorial
Highway,
*Amount attributable to closing costs, as set forth Chantilly, VA
in Section 7.5.1 of the Contribution Agreement, 22021
dated as of November 21, 1997, relating to this (Id. 034-4-01-00-
Property. 0050)
13909 Lee Jackson
Memorial
Highway,
Chantilly, VA
22021
(Id. 034-4-01-00-
0050-A)
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
LEASED PROPERTIES
-----------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
7 Pohanka Auto West, Inc. & Pohanka Chevrolet- 13911 Lee Jackson
GEO, Inc. -- Memorial
$449,486 + _________* Highway,
Chantilly, VA
22021
(Tax Id. 034-4-01-
*Amount attributable to closing costs, as set forth 00-0049)
in Section 7.5.1 of the Contribution Agreement,
dated as of November 21, 1997, relating to this
Property.
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
LEASED PROPERTIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
8 Pohanka Virginia Properties 13915 Lee Jackson
Memorial
$623,789 + $_______* Highway,
Chantilly, VA
*Amount attributable to closing costs, as set forth 20151
in Section 7.5.1 of the Contribution Agreement, (Tax Id. 034-4-01-
dated as of November 21, 1997, relating to this 00-0053)
Property.
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
LEASED PROPERTIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Properties Covered
Rent for Leased Properties by Lease
- --------------------------------------------------------------------------------------------
<S> <C> <C>
9 Pohanka Auto Center, Inc. 5200 Jefferson
Davis Highway,
$383,108 + _________* Fredericksburg, VA
22408
(Id. 024-6-A10)
5200 Jefferson
Davis Highway,
Fredericksburg, VA
22408
(Id. 024-6-A20)
*Amount attributable to closing costs, as set forth 5200 Jefferson
in Section 7.5.1 of the Contribution Agreement, Davis Highway,
dated as of November 21, 1997, relating to this Fredericksburg, VA
Property. 22408
(Id. 024-6-A21)
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
---------
PERMITTED LIENS
To be in form and substance acceptable to Landlord and provided by Tenant
on or before the Commencement Date.
<PAGE>
EXHIBIT C
INITIAL BASE ANNUAL RENT SCHEDULE
See Exhibit A for Initial Base Annual Rent payments due on Leased Property.
<PAGE>
SCHEDULE 2.02
-------------
PAYMENT ACCOUNT INFORMATION
Wiring instructions for the Landlord's operating account are as follows:
FIRST UNION NATIONAL BANK OF VIRGINIA
CHARLOTTE, NC
ABA# 051400549
For Credit to: CAPITAL AUTOMOTIVE REIT, Operating Account
Account # 2050000478240
<PAGE>
SCHEDULE 2.04
-------------
BASE ANNUAL RENT ADJUSTMENT
The Base Annual Rent shall be increased, effective as of the commencement
of the third Lease Year and as of each subsequent odd-numbered Lease Year by an
amount equal to fifty percent (50%) of the change in the Index during the
immediately preceding one (1) year period; provided, however that,
(a) in the event that the above-calculated adjustment is less than
one percent (1%), such adjustment shall be equal to one percent
(1%), and
(b) in the event that the above-calculated adjustment is greater than
two percent (2%), such adjustment shall be equal to two percent
(2%).
<PAGE>
NO. 1
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for SATURN OF MARLOW HEIGHTS, PRINCE
GEORGE'S COUNTY, MARYLAND (Prepared by G.M.T. Environmental Technologies,
Inc., GMTI Project No. 97-EV-4091-D, Nov. 7, 1997).
2. Phase I Environmental Site Assessment for POHANKA OLDSMOBILE - GMC - ISUZU,
PRINCE GEORGE'S COUNTY, MARYLAND (Prepared by G.M.T. Environmental
Technologies, Inc., GMTI Project No. 97-EV-4091-C, Nov. 7, 1997).
<PAGE>
NO. 2
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA HYUNDAI - SUBARU, PRINCE
GEORGE'S COUNTY, MARYLAND (Prepared by G.M.T. Environmental Technologies,
Inc., GMTI Project No. 97-EV-4091-B2, Nov. 7, 1997).
<PAGE>
NO. 3
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA HONDA, PRINCE GEORGE'S
COUNTY, MARYLAND (Prepared by G.M.T. Environmental Technologies, Inc., GMTI
Project No. 97-EV-4091-B1, Nov. 7, 1997).
<PAGE>
NO. 4
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA OLDSMOBILE - GMC BODY
SHOP, PRINCE GEORGE'S COUNTY, MARYLAND (Prepared by G.M.T. Environmental
Technologies, Inc., GMTI Project No. 97-EV-4091-B3, Nov. 7, 1997).
<PAGE>
NO. 5
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for SATURN OF BOWIE, PRINCE GEORGE'S
COUNTY, MARYLAND (Prepared by G.M.T. Environmental Technologies, Inc., GMTI
Project No. 97-EV-4091-E, Nov. 7, 1997).
<PAGE>
NO. 6
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA LEXUS, FAIRFAX COUNTY,
VIRGINIA (Prepared by G.M.T. Environmental Technologies, Inc., GMTI Project
No. 97-EV-4091-A3, Nov. 7, 1997).
<PAGE>
NO. 7
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA ACURA, FAIRFAX COUNTY,
VIRGINIA (Prepared by G.M.T. Environmental Technologies, Inc., GMTI Project
No. 97-EV-4091-A1, Nov. 7, 1997).
<PAGE>
NO. 8
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for WEIDLEIN PROPERTY, FAIRFAX
COUNTY, VIRGINIA (Prepared by G.M.T. Environmental Technologies, Inc., GMTI
Project No. 97-EV-4091-A4, Nov. 7, 1997).
2. Phase I Environmental Site Assessment for POHANKA CHEVROLET, FAIRFAX
COUNTY, VIRGINIA (Prepared by G.M.T. Environmental Technologies, Inc., GMTI
Project No. 97-EV-4091-A2, Nov. 7, 1997).
<PAGE>
NO. 9
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for POHANKA NISSAN - CADILLAC -
OLDSMOBILE -HYUNDAI, SPOTSYLVANIA COUNTY, VIRGINIA (Prepared by G.M.T.
Environmental Technologies, Inc., GMTI Project No. 97-EV-4091-F, Nov. 7,
1997).
<PAGE>
SCHEDULE 12.02
MATERIAL AGREEMENTS
-------------------
To be in form and substance acceptable to Landlord and provided by Tenant
on or before the Commencement Date.
<PAGE>
SCHEDULE 9.19
-------------
CHANGES IN CONDITION
To be in form and substance acceptable to Landlord and provided by Tenant
on or before the Commencement Date.
<PAGE>
SCHEDULE 15.02
--------------
See attached Form of Subordination and Non-Disturbance Agreement.
<PAGE>
Form
SUBORDINATION AND NON-DISTURBANCE AGREEMENT
-------------------------------------------
THIS AGREEMENT is made as of this ___ day of __________, 1997, among
_____________, a ___________ organized under the laws of the State of
_____________ ("Lender"), __________________ ("Tenant"), and CAPITAL AUTOMOTIVE
L.P., a Delaware limited partnership ("Landlord").
WITNESSETH:
-----------
WHEREAS, Landlord and Tenant have entered into a certain Lease, dated
____________________ , which lease and all amendments, modifications,
assignments, subleases and other agreements related thereto are attached hereto
as Exhibit A and incorporated herein by this reference (collectively, the
---------
"Lease"), which Lease relates to the premises described therein (the
"Premises"), and
WHEREAS, Lender has made or has committed to make a first mortgage loan to
Landlord in the principal amount not to exceed $_________ (the "Loan"), the Loan
being secured by a mortgage, deed of trust or security deed (collectively, the
"Mortgage") and an assignment(s) of leases and rents from Landlord to Lender
covering the Premises; and
WHEREAS, Tenant has agreed that the Lease shall be subject and subordinate
to the Mortgage held by Lender, provided Tenant is assured of continued
occupancy of the Premises under the terms of the Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the sum of Ten Dollars ($10.00) and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
and notwithstanding anything in the Lease to the contrary, it is hereby agreed
as follows:
1. SUBORDINATION OF LEASE. Lender, Tenant and Landlord do hereby
----------------------
covenant and agree that the Lease with all rights, options, liens and charges
created thereby, is and shall continue to be subject and subordinate in all
respects to the Mortgage and to any renewals, modifications, consolidations,
replacements and extensions thereof and to all advancements made thereunder.
2. NONDISTURBANCE OF TENANT. Lender does hereby agree with Tenant that,
------------------------
in the event Lender becomes the owner of the Premises by foreclosure, conveyance
in lieu of foreclosure or otherwise, so long as Tenant complies with and
performs its obligations under the Lease, (a) Lender will take no action which
will interfere with or disturb Tenant's possession or use of the Premises or
other rights under the Lease, and (b) the Premises shall be subject to the Lease
and Lender shall recognize Tenant as the tenant of the Premises for the
remainder of the terms of the Lease in accordance with the provisions thereof,
provided, however, that Lender
<PAGE>
Form
shall not be subject to any offsets or defenses which Tenant might have against
any prior landlord except those which arose under the provisions of the Lease
out of such landlord's default and accrued after Tenant had notified Lender and
given Lender the opportunity to cure same as hereinbelow provided, nor shall
Lender be liable for any act or omission of any prior landlord, nor shall Lender
be bound by any rent or additional rent which Tenant might have paid for more
than the current month to any prior landlord nor shall it be bound by any
amendment or modification of the Lease made without its consent.
3. ATTORNMENT BY TENANT. Tenant does hereby agree with Lender that, in
--------------------
the event Lender becomes the owner of the Premises by foreclosure, conveyance in
lieu of foreclosure or otherwise, then Tenant shall attorn to and recognize
Lender as the landlord under the Lease for the remainder of the term thereof,
and Tenant shall perform and observe its obligations thereunder, subject only to
the terms and conditions of the Lease. In such event, Lender shall not be
liable for any act or omission of any prior landlord, liable for return of the
security deposit unless same was actually delivered to Lender, bound by any
amendment to or assignment of the Lease made without its consent, bound by any
rent paid more than thirty (30) days in advance, or be subject to any set-off or
defense Tenant might have had against any prior landlord. Tenant further
covenants and agrees to execute and deliver upon request of Lender or its
assigns, an appropriate Agreement of Attornment to Lender and any subsequent
titleholder of the Premises.
4. ACKNOWLEDGMENT OF ACQUISITION RIGHTS. Lender acknowledges that Tenant
------------------------------------
has certain purchase rights under the lease. So long as Tenant complies with
the provisions of the Lease, Lender acknowledges that Tenant may exercise such
rights and Lender will honor such rights so long as Tenant pays the acquisition
price to Lender or otherwise obtains a release from Lender.
5. CURATIVE RIGHTS, MODIFICATION OF LEASE, AND ADVANCE PAYMENT OF RENT.
-------------------------------------------------------------------
So long as the Mortgage remains outstanding and unsatisfied:
(a) Tenant will mail or deliver to Lender, at the address and in the
manner hereinbelow provided, a copy of all notices permitted or required to be
given to the Landlord by Tenant under and pursuant to the terms and provisions
of the Lease. At any time before the rights of the Landlord shall have been
forfeited or adversely affected because of any default of the Landlord, or
within the time permitted the Landlord for curing any default under the Lease as
therein provided, Lender may, but shall have no obligation to, pay any taxes and
assessments, make any repairs and improvements, make any deposits or do any
other act or thing required of the Landlord by the terms of the Lease; and all
payments so made and all things so done and performed by Lender shall be as
effective to prevent the rights of the Landlord from being forfeited or
adversely affected because of any default under the Lease as the same would have
been if done and performed by the Landlord.
-2-
<PAGE>
Form
(b) Tenant will not consent to the modification of the Lease, nor to the
termination thereof, without the prior written consent of Lender, such consent
not to be unreasonably withheld or delayed, nor will Tenant pay any rent under
the Lease more than thirty (30) days in advance.
6. CONSENT TO ASSIGNMENT. Tenant acknowledges that Landlord will execute
---------------------
and deliver to Lender an assignment of the Lease as security for the Loan, and
Tenant hereby expressly consents to such assignment.
7. LIMITATION OF LIABILITY. So long as Lender complies with its
-----------------------
obligations hereunder, Lender shall have no liability whatsoever hereunder prior
to becoming the owner of the Premises; and Tenant agrees that if Lender becomes
the owner of the Premises, Tenant shall look solely to the estate or interest of
Lender in the Premises for satisfaction of any obligation which may be or
become owing by Lender to Tenant hereunder or under the Lease.
8. LANDLORD AND TENANT CERTIFICATIONS. Landlord and Tenant hereby
----------------------------------
certify to Lender that the Lease has been duly executed by Landlord and Tenant
and is in full force and effect, that the Lease and any modifications and
amendments specified herein are a complete statement of the agreement between
Landlord and Tenant with respect to the leasing of the Premises, and the Lease
has not been modified or amended except as specified herein; that to the
knowledge of Landlord and Tenant, no party to the Lease is in default
thereunder; that no rent under the Lease has been paid more than thirty (30)
days in advance of its due date; and that Tenant, as of this date, has no
charge, lien or claim of offset under the Lease, or otherwise, against the rents
or other charges due or to become due thereunder.
9. TENANT ESTOPPEL CERTIFICATIONS. With the knowledge that Lender, as
------------------------------
beneficiary of the mortgage encumbering the premises, will place substantial
reliance thereon in connection with the closing and funding of the Loan, Tenant
hereby makes the following certifications:
(a) The term of the Lease commenced on ________, 19__, and will terminate
on ______________.
(b) The Lease, as described above, has not been modified, amended,
assigned or subleased except as set forth in Exhibit A attached hereto, and is
---------
in good standing and in full force and effect.
(c) The Lease provides for rental payments over the term of the Lease, all
as specifically provided in the Lease. No rent under the Lease has been paid
more than thirty (30) days in advance of the due date of same. For the year
____, monthly payments, which are due on the first (1st) day of each month, are
as follows:
-3-
<PAGE>
Form
Basic Rent - $________
Payment of the above amount was timely made for the months of ______,
___and _____, ____, and the next payment of the above amount will be due on
________, ____. In addition to the above amount, certain additional sums are
due to Landlord from Tenant under the Lease, all as specifically set forth in
the Lease.
(d) Tenant has paid a security deposit under the Lease.
(e) Except as stated on the attached Exhibit B, to Tenant's knowledge
there are no defaults by Landlord under the Lease and there are no existing
circumstances which, with the passage of time, or notice, or both, would give
rise to a default under the Lease.
(f) Tenant has accepted and is occupying the Premises, and Landlord has no
unperformed obligation under the Lease to construct any improvements for the
Tenant related to the Premises.
(g) Except as stated on the attached Exhibit B, Tenant has no charge,
lien, claim of set-off or defense against rents or other charges due or to
become due under the Lease or otherwise under any of the terms, conditions, or
covenants contained therein.
(h) Except as stated on the attached Exhibit B, Tenant has received no
notice from any insurance company of any defects or inadequacies in the Premises
or in any part thereof which would adversely affect the insurability of the
Premises.
(i) Except as provided in the Lease, Tenant does not have any right or
option to purchase the Premises.
(j) Except as provided in the Lease, Tenant does not have any rights or
options to renew the Lease or to lease additional space in any building owned by
the Landlord.
10. TENANT COVENANTS.
----------------
(a) From and after the date hereof, Tenant will not pay any rent under the
Lease more than thirty (30) days in advance of its due date.
(b) From and after the date hereof, so long as there shall be any
assignment of Landlord's interest in the Lease to Lender, or any successor
thereto, Tenant will not: consent to
-4-
<PAGE>
Form
the modification of the Lease nor to the termination thereof without the prior
written consent of the Lender or any successor holder of the Loan or the
Mortgage which consent shall not be unreasonably withheld or delayed (either of
them being called "Mortgagee"), nor seek to terminate the Lease by reason of any
act or omission of Landlord until Tenant shall have given written notice of such
act or omission to such Mortgagee's last address furnished Tenant) and until a
reasonable period of time shall have elapsed following the giving of such
notice, during which period the Mortgagee shall have the right, but not the
obligation, to remedy such act or omission.
(c) Upon written notice of the default by Landlord under any of the loan
documents held by Mortgagee and assignment of the Landlord's interest under the
Lease by Landlord to Mortgagee, Tenant, if Mortgagee so requests, will recognize
such Mortgagee as the Landlord under the Lease and will thereafter pay rent and
other sums to Mortgagee (or to the party designated by the Mortgagee in writing)
in accordance with the terms of the Lease, and, in such event, such Mortgagee
will not be liable for any act or omission of any prior lessor, liable for
return of the security deposit unless same was actually delivered to Mortgagee,
bound by any amendment to or assignment of the Lease made without its consent,
bound by any rent paid more than thirty (30) days in advance, or be subject to
any set-off or defense Tenant might have had against any prior lessor.
11. NOTICES. Unless and except as otherwise specifically provided herein,
-------
any and all notices, elections, approvals, consents, demands, requests and
responses thereto ("Communications") permitted or required to be given under
this Agreement shall be in writing, signed by or on behalf of the party giving
the same, and shall be deemed to have been properly given and shall be effective
upon the earlier of receipt thereof or three (3) days after deposit thereof in
the United States mail, postage prepaid, certified with return receipt
requested, to the other party at the address of such other party set forth
hereinbelow or at such other address within the continental United States as
such other party may designate by notice specifically designated as a notice of
change of address and given in accordance herewith; provided, however, that the
time period in which a response to any Communication must be given shall
commence on the date of receipt thereof, and provided further that no notice of
change of address shall be effective with respect to Communications sent prior
to the third day after receipt of such change. Receipt of Communications
hereunder shall occur upon actual delivery (whether by mail, messenger, courier
service, or otherwise) to an individual party or to an officer, member, or
general or limited partner of a party or to any agent or employee of such party
at the address of such party set forth hereinbelow, subject to change as
provided hereinabove. An attempted delivery in accordance with the foregoing,
acceptance of which is refused or rejected, shall be deemed to be and shall
constitute receipt; and an attempted delivery in accordance with the foregoing
by mail, messenger, or courier service (whichever is chosen by the sender) which
is not completed because of changed address of which no notice was received by
the sender in accordance with
-5-
<PAGE>
Form
this provision prior to the sending of the Communication shall also be deemed to
be and constitute receipt. Any Communication, if given to Lender, must be
addressed as follows, subject to change as provided hereinabove:
__________________________
__________________________
and, if given to Tenant, must be addressed as follows, subject to change as
provided hereinabove:
__________________________
__________________________
__________________________
and, if given to Landlord, must be addressed as follows, subject to change as
provided hereinabove:
Capital Automotive, L.P.
__________________________
__________________________
12. MISCELLANEOUS. This Agreement shall be binding upon and inure to the
-------------
benefit of the parties hereto and their respective heirs, legal representatives,
successors, successors-in-title and assigns. When used herein, the term
"Landlord" or "landlord" refers to Landlord and to any successor to the interest
of Landlord under the Lease.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-6-
<PAGE>
Form
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LENDER:
Signed, sealed and delivered
in the presence of: By:
Title:
____________________________ _________________________
Witness
(CORPORATE SEAL)
TENANT:
Signed, sealed and delivered
in the presence of: By:
Title:
____________________________ _________________________
Witness (CORPORATE SEAL)
LANDLORD:
Signed, sealed and delivered
in the presence of: By:
Title:
____________________________ _________________________
Witness (PARTNERSHIP SEAL)
-7-
<PAGE>
Form
EXHIBIT A
Lease Dated __________ from ________________ to _______________ with Exhibit A
attached, all in the form attached hereto as Attachment to Exhibit A.
------------------------
-8-
<PAGE>
Form
County of _______________________:
SS:
State of ________________________:
This is to certify that on this ____ day of ________, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Lender in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Lender.
________________________________________
Notary Public
My commission expires:
-9-
<PAGE>
Form
County of ______________________:
SS:
State of ________________________:
This is to certify that on this ____ day of _________, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Tenant in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Tenant.
____________________________________
Notary Public
My commission expires:
-10-
<PAGE>
Form
County of ________________________
SS:
State of _________________________
This is to certify that on this ____ day of _______, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Landlord in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Landlord.
_______________________________
Notary Public
My commission expires:
-11-
<PAGE>
EXHIBIT 10.18
ROSENTHAL LEASE (Lease for each Property in Substantially the Same Form)
LEASE AGREEMENT
BETWEEN
CAPITAL AUTOMOTIVE L.P., LANDLORD
AND
MARYLAND IMPORTED CARS, INC. d/b/a GAITHERSBURG MAZDA, TENANT
DATED: NOVEMBER 21, 1997
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ARTICLE I
LEASE AGREEMENT, LEASED PROPERTY AND TERM.................................1
1.01 Lease Agreement..................................................1
1.02 Contingent Upon Acquisition of the Leased Property...............2
1.03 Term.............................................................2
1.04 Holding Over.....................................................3
1.05 Surrender........................................................4
ARTICLE II
RENT......................................................................4
2.01 Base Rent........................................................4
2.02 Payment..........................................................4
2.03 Security Deposit.................................................4
2.04 Base Annual Rent Adjustment......................................5
2.05 Additional Rent..................................................5
2.06 Place(s) of Payment of Rent; Direct Payment of Additional Rent...5
2.07 Net Lease........................................................5
2.08 No Termination, Abatement, Etc...................................5
ARTICLE III
IMPOSITIONS AND UTILITIES.................................................6
3.01 Payment of Impositions...........................................6
3.02 Definition of Impositions........................................7
3.03 Utilities........................................................8
3.04 Escrow of Impositions............................................8
3.05 Discontinuance of Utilities......................................9
3.06 Liens............................................................9
ARTICLE IV
INSURANCE.................................................................9
4.01 Insurance........................................................9
4.02 Insurance Limits................................................11
4.03 Insurance Requirements..........................................11
4.04 Replacement Cost................................................12
4.05 Blanket Policy..................................................12
4.06 No Separate Insurance. .........................................12
4.07 Waiver of Subrogation...........................................13
4.08 Mortgages.......................................................13
4.09 Other Insurance Requirements....................................13
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ARTICLE V
INDEMNITY; SUBSTANCES OF CONCERN.........................................14
5.01 Tenant's Indemnification........................................14
5.02 Substances of Concern...........................................14
5.03 Audits..........................................................17
5.04 Landlord's Option Re: Compliance................................17
5.05 Environmental Indemnification...................................17
5.06 Tenant's Cleanup Obligation.....................................18
5.07 Existing Environmental Conditions...............................18
5.08 Survival of Tenant's Obligations................................19
ARTICLE VI
USE AND ACCEPTANCE OF PREMISES...........................................19
6.01 Use of Leased Properties........................................19
6.02 Acceptance of Leased Properties.................................19
6.03 Conditions of Use and Occupancy.................................20
6.04 Financial Statements and Other Information......................20
ARTICLE VII
REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS......................20
7.01 Maintenance.....................................................20
7.02 Compliance with Laws............................................21
7.03 Required Alterations............................................21
7.04 Mechanics' Liens................................................21
7.05 Replacements of Fixtures........................................22
7.06 Encroachments; Restrictions.....................................22
ARTICLE VIII
ALTERATIONS AND SIGNS; TENANT'S PROPERTY;
CAPITAL ADDITIONS TO THE LEASED PROPERTIES...............................23
8.01 Tenant's Right to Construct.....................................23
8.02 Scope of Right..................................................23
8.03 Cooperation of Landlord.........................................24
8.04 Commencement of Construction....................................24
8.05 Rights in Tenant Improvements...................................25
8.06 Personal Property...............................................25
8.07 Requirements for the Tenant's Personal Property.................25
8.08 Financings of Capital Additions to a Leased Property............27
ARTICLE IX
DEFAULTS AND REMEDIES....................................................27
9.01 Events of Default...............................................27
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9.02 Remedies........................................................30
9.03 Right of Set-Off................................................32
9.04 Performance of Tenant's Covenants...............................33
9.05 Late Charge.....................................................33
9.06 Litigation; Attorneys' Fees.....................................33
9.07 Remedies Cumulative.............................................34
9.08 Escrows and Application of Payments.............................34
9.09 Power of Attorney...............................................34
ARTICLE X
DAMAGE AND DESTRUCTION...................................................35
10.01 General.........................................................35
10.02 Landlord's Inspection...........................................35
10.03 Landlord's Costs................................................36
10.04 Rent Abatement..................................................36
10.05 Substantial Damage During Lease Term............................36
10.06 Damage Near End of Term.........................................37
10.07 Risk of Loss....................................................37
ARTICLE XI
CONDEMNATION.............................................................38
11.01 Total Taking....................................................38
11.02 Partial Taking..................................................38
11.03 Restoration.....................................................38
11.04 Landlord's Inspection...........................................39
11.05 Award Distribution..............................................39
11.06 Temporary Taking................................................39
ARTICLE XII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND FINANCIAL COVENANTS...........40
12.01 Organization and Qualification..................................40
12.02 Material Agreements.............................................41
12.03 Changes in Condition............................................41
12.04 Franchises, Licenses, etc.......................................41
12.05 Litigation......................................................42
12.06 Authorization and Enforceability................................42
12.07 No Legal Obstacle to Lease......................................42
12.08 Certain Business Representations................................43
12.09 Certain Financial Covenants.....................................44
12.10 Cash Flow Coverage Ratio Covenant...............................45
12.11 Disclosure......................................................45
12.12 Covenant Not to Acquire.........................................45
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ARTICLE XIII
ASSIGNMENT AND SUBLETTING; ATTORNMENT ...................................46
13.01 Prohibition Against Subletting and Assignment...................46
13.02 Changes of Control..............................................46
13.03 Operating/Service Agreements....................................47
13.04 Assignment......................................................48
13.05 REIT Limitations................................................48
13.06 Attornment......................................................49
13.07 Severance and Spin-Off..........................................49
ARTICLE XIV
ARBITRATION..............................................................50
14.01 Controversies...................................................50
14.02 Appointment of Arbitrators......................................50
14.03 Arbitration Procedure...........................................50
14.04 Expenses........................................................50
14.05 Enforcement of the Arbitration Award............................51
ARTICLE XV
QUIET ENJOYMENT, SUBORDINATION,
ATTORNMENT, ESTOPPEL CERTIFICATES........................................51
15.01 Quiet Enjoyment.................................................51
15.02 Landlord Mortgages; Subordination...............................51
15.03 Attornment......................................................51
15.04 Estoppel Certificates...........................................52
15.05 Waiver of Landlord's Lien.......................................52
ARTICLE XVI
RIGHT OF FIRST OFFER.....................................................53
16.01 Right of First Offer During Lease Term or Extension Term........53
16.02 Right to Purchase at End of an Extension Term...................54
ARTICLE XVII
MISCELLANEOUS............................................................55
17.01 Notices..........................................................55
17.02 Advertisement of a Leased Property..............................56
17.03 Landlord's Access...............................................56
17.04 Entire Agreement................................................56
17.05 Severability....................................................57
17.06 Captions and Headings...........................................57
17.07 Governing Law...................................................57
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17.08 Memorandum of Lease or Certain Rights Under the Lease...........57
17.09 Waiver..........................................................57
17.10 Assignment; Binding Effect......................................57
17.11 Consents and Approvals..........................................57
17.12 Single Property.................................................58
17.13 Modification....................................................58
17.14 Incorporation by Reference......................................58
17.15 No Merger.......................................................58
17.16 Force Majeure...................................................58
17.17 Laches..........................................................58
17.18 Waiver of Jury Trial............................................58
17.19 Permitted Contests..............................................59
17.20 Construction of Lease...........................................59
17.21 Counterparts....................................................60
17.22 Relationship of Landlord and Tenant.............................60
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SCHEDULES
A Leased Properties
B Permitted Liens
C Base Annual Rent Schedule
EXHIBITS
2.02 Payment Account Information
2.04 Base Annual Rent Adjustment
5.07 Environmental Reports
12.02 Material Agreements
12.03 Changes in Condition
15.02 Form of Subordination and Non-Disturbance Agreement
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NO. 11
LEASE AGREEMENT
This Lease Agreement ("Lease") dated as of the 21st day of November,
1997 by and between CAPITAL AUTOMOTIVE L.P., a Delaware limited partnership
("Landlord"), having its principal office at 1925 North Lynn Street, Suite 306,
Arlington, Virginia 22209 and Maryland Imported Cars, Inc. d/b/a Gaithersburg
Mazda, a Maryland corporation, having its principal office at 1100 South Glebe
Road, Arlington, Virginia 22204 ("Tenant").
RECITALS
WHEREAS, Tenant or an Affiliate (as hereafter defined) has conveyed or
will convey to Landlord certain parcels of real estate and improvements thereon
upon which Tenant engages in motor vehicle retail and/or motor vehicle related
businesses (the "Business"), which parcels of real estate and improvements
thereon are described on Schedule A attached hereto and incorporated herein by
reference (each hereinafter a "Leased Property" or collectively, the "Leased
Properties"), and Landlord and Tenant desire to provide for the lease by
Landlord to Tenant of the Leased Properties; and
WHEREAS, Landlord and Tenant desire that each of the Leased Properties
shall be the subject of this Lease and be used by Tenant in its operation of the
Business; and
WHEREAS, this Lease provides that additional real estate and
improvements thereon may be made subject to the operation and effect of this
Lease, upon execution by Landlord and Tenant of a Lease Supplement designating
each such additional property as a Leased Property hereunder.
NOW, THEREFORE, in consideration of the foregoing premises and of
their respective agreements and undertakings herein, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree as follows:
ARTICLE I
LEASE AGREEMENT, LEASED PROPERTY AND TERM
1.01 Lease Agreement. Landlord does hereby let and lease unto
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Tenant, and Tenant does hereby take and hire from Landlord, the Leased
Properties, which shall respectively consist of:
(a) The parcels of land described and located at the addresses
listed in Schedule A hereto, as more particularly described
therein, together with any additional parcels of real estate and
improvements thereon subsequently designated as a Leased
Property by the parties pursuant to a Lease Supplement as
provided for herein, together with all rights, titles,
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appurtenant interests, covenants, licenses, privileges and
benefits thereto belonging, and any easements, rights-of-way,
rights of ingress or egress or other interests in, on, or to any
land, highway, street, road or avenue, open or proposed, in, on,
across, in front of, abutting or adjoining such real property
including, without limitation, any strips and gores adjacent to
or lying between such real estate and any adjacent real estate
(the "Land");
(b) All buildings, improvements, structures and Fixtures (as
hereinafter defined) now located or to be located or to be
constructed on the Land, including, without limitation,
sidewalks, landscaping, parking lots and structures, roads,
drainage and all above ground and underground utility structures
and conduits (on-site or off-site), equipment systems and other
so-called "infrastructure" improvements (the "Improvements");
(c) All equipment, machinery, fixtures, and other items of real
and/or personal property, including all components thereof,
located in, on or used in connection with, and permanently
affixed to or incorporated into, the Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection
equipment, and similar systems, all of which, to the greatest
extent permitted by law, are hereby deemed to constitute real
estate, together with all replacements, modifications,
alterations and additions thereto (collectively the "Fixtures");
and
(d) All easements, rights and appurtenances relating to the Land and
the Improvements.
SUBJECT, HOWEVER, to the liens, encumbrances, restrictions,
agreements, and other title matters listed or specifically referred to in
Schedule B ("Permitted Exceptions").
The Leased Properties shall however exclude all furniture, equipment,
inventory and items of moveable personal property attached to the Land or
Improvements that relate to the business being conducted on the Leased Property
which items may readily be removed without material damage to the Land and
Improvements whether or not such items might legally be considered to be
"fixtures" (all of which are owned by Tenant and shall hereinafter be defined as
the "Excluded Personal Property").
1.02 Contingent Upon Acquisition of the Leased Property. In the
--------------------------------------------------
event this Lease is executed prior to the conveyance by Tenant or an Affiliate
of the Leased Property to Landlord, the parties acknowledge that the
effectiveness of this Lease in respect of such Leased Property is contingent
upon the closing of such conveyance (the "Commencement Date").
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1.03 Term. The initial term of this Lease (the "Term") shall be for
----
a fixed term of One Hundred and Twenty (120) months commencing on the
Commencement Date. The initial term for any Leased Property designated in a
Lease Supplement shall begin on the date of such Lease Supplement and expire at
the end of the Term or then current Extension Term (as hereafter defined), as
the case may be. Tenant shall have the right to extend this Lease for the Leased
Properties as a group, at Tenant's option, for one One Hundred and Twenty (120)
month renewal term from the expiration of the Term (the "First Extension Term"),
provided that no Event of Default (as defined in Section 9.01 hereof) shall
exist and be continuing. In addition, Tenant shall have the right to extend this
Lease for the Leased Properties as a group at Tenant's option, for a second One
Hundred and Twenty (120) month renewal term from the expiration of the First
Extension Term (the "Second Extension Term", each an "Extension Term", and
collectively with the First Extension Term, the "Extension Terms") provided that
no Event of Default (as defined in Section 9.01 hereof) shall exist and be
continuing. Tenant shall exercise the First Extension Term by written notice to
Landlord no later than twelve months prior to the end of the Term. Tenant shall
exercise the Second Extension Term by written notice to Landlord no later than
twelve (12) months prior to the end of the First Extension Term. Notwithstanding
anything else to the contrary in this Agreement, the Rent during the Second
Extension Term shall be the Fair Market Rent (as hereafter defined) for the
Leased Property. Fair Market Rent shall be determined as soon as possible after
receipt by Landlord of Tenant's notice of option exercise, on the basis of
appraisals of independent appraisers selected in accordance with the provisions
of Section 16.02(b). Tenant shall have the right, in its sole discretion, to
rescind the exercise of Tenant's option to extend the Lease for the Second
Extension Term during a period of five (5) business days after the determination
of the Fair Market Rent. If Tenant shall fail to exercise the right to rescind
within such five (5) day period, the election to extend shall be irrevocable and
the Fair Market Rent so determined shall be the Base Annual Rent during the
Second Extension Term notwithstanding any changes in the market rental rates,
whether upward or downward, which may occur after such determination. However,
notwithstanding anything else in this Agreement, Fair Market Rent shall become
the Base Annual Rent (as defined hereafter) and shall be subject to Base Annual
Rent Adjustments as set forth in Section 2.04.
1.04 Holding Over. Should Tenant, without the express consent of
------------
Landlord, continue to hold and occupy any Leased Property after the expiration
or earlier termination of the Term or any Extension Term, as the case may be,
such holding over beyond the Term and the acceptance or collection of Rent (as
defined hereinafter) by Landlord shall operate and be construed as creating a
tenancy from month-to-month and not for any other term whatsoever. During any
such holdover period Tenant shall pay to Landlord for each month (or portion
thereof) Tenant remains in such Leased Property, in lieu of the Base Annual Rent
(as defined hereafter) for such Leased Property, an amount equal to the sum of
one-twelfth (1/12) of (i) one hundred seven percent (107%) of such Base Annual
Rent (the "Holdover Rate"), and (ii) as applicable, one hundred percent (100%)
of the Additional Rent (as defined hereinafter) for such Leased Property and
Other Additional Rent (as defined hereinafter) for such Leased Property, each as
in effect on the expiration date. Said month-to-month tenancy may be terminated
by
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Landlord by giving Tenant thirty (30) days written notice, and at any time
thereafter Landlord may re-enter and take possession of such Leased Property.
1.05 Surrender. Except as a result of (a) Tenant Improvements and
---------
Capital Additions (as defined hereinafter); (b) normal and reasonable wear and
tear (subject to the obligation of Tenant to maintain each Leased Property in
good order and repair during the Term); and (c) casualty, taking or other damage
and destruction not required to be repaired by Tenant, Tenant shall surrender
and deliver up each Leased Property at the expiration or termination of the Term
or the Extension Term therefor, as the case may be, broom clean, in good order
and repair, free of the Excluded Personal Property and any additional items of
Tenant's personal property (together with the Excluded Personal Property, the
"Tenant's Personal Property"), all of which Tenant shall remove prior to such
surrender and delivery, and in as good order and condition as of the
Commencement Date.
ARTICLE II
RENT
2.01 Base Rent. Tenant shall pay Landlord annual base rent (the
---------
"Base Annual Rent") as to the Leased Property for each year during the Term or
the Extension Term (each such year a "Lease Year"), which Base Annual Rent shall
be subject to upward adjustment pursuant to Section 2.04. In the first Lease
Year, Base Annual Rent shall be in the amount set forth on Schedule A (the
"Initial Base Annual Rent"), paid to Landlord in twelve equal monthly
installments.
2.02 Payment. Tenant shall pay Landlord the Base Annual Rent as to
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the Leased Property for each Lease Year, without notice, demand, set-off or
counterclaim in advance, in lawful money of the United States of America and
payable in consecutive monthly installments commencing on the Commencement Date
and thereafter on the first day of each month during the Term. Tenant will, to
the extent that such method of payment is compatible with its business
practices, make such payments by direct deposit of immediately available funds
to the account set forth in Exhibit 2.02 (which Exhibit 2.02 may be modified by
Landlord from time to time upon Notice (as hereafter defined) to Tenant).
2.03 Security Deposit. Prior to the Commencement Date, Tenant shall
----------------
deliver to Landlord an amount equal to one-twelfth (1/12th) of the Base Annual
Rent, which amount shall be held by Landlord as security (the "Security
Deposit") for the performance of Tenant's payment and other obligations under
this Lease. Upon an Event of Default and the continuance thereof, Landlord shall
have the right, but not the obligation, to apply the Security Deposit as set
forth in Section 9.08. Landlord shall return the Security Deposit, without
interest, after expiration of this Lease, if Tenant has fully and faithfully
carried out all of the terms, covenants and conditions hereof. In the event that
Landlord eliminates its standard business policy of
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requiring security deposits from tenants, then Landlord shall refund the
Security Deposit to Tenant within thirty (30) days of such policy change.
2.04 Base Annual Rent Adjustment.
---------------------------
(a) The Base Annual Rent shall be adjusted during the Lease
Term or the Extension Terms under the procedures set forth
in Exhibit 2.04 (the "Base Annual Rent Adjustment").
(b) As used in Exhibit 2.04, the "Index" shall mean the CPI-U
published by the United States Department of Labor, Bureau
of Labor Statistics Consumer Price Index for All Urban
Consumers, U.S. City Average. If at any time during the
Term or the Extension Term, as the case may be, the Index
shall be discontinued, Landlord shall select a substitute
index, being an existing official index published by the
Bureau of Labor Statistics or its successor or another,
similar governmental agency, which index is most nearly
equivalent to the Index.
2.05 Additional Rent. As to each Leased Property, in addition to the
---------------
Base Annual Rent, Tenant shall pay all other amounts, liabilities, obligations
and Impositions (as hereinafter defined) which Tenant assumes or agrees to pay
under this Lease and any fine, penalty, interest, charge and cost which may be
added for nonpayment or late payment of such items (collectively, the
"Additional Rent").
2.06 Place(s) of Payment of Rent; Direct Payment of Additional Rent.
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The Base Annual Rent and Additional Rent are hereinafter referred to as "Rent."
Landlord shall have all legal, equitable and contractual rights, powers and
remedies provided in this Lease or by statute or otherwise in the case of
nonpayment of the Rent for each Leased Property. Tenant shall make all payments
of Rent at Landlord's address set forth in Section 17.01 or as Landlord may
otherwise from time to time direct in writing, or, if Landlord shall direct
Tenant, directly to a bank account specified by Landlord to Tenant in writing.
At the direction of the Landlord, Tenant shall make payments of Additional Rent
directly to the person or persons to whom such amount is owing at the time and
times when such payments are due, and Tenant shall give to Landlord such
evidence of such direct payments as Landlord shall reasonably request.
2.07 Net Lease. This Lease shall be deemed and construed to be an
---------
"absolute net lease" or "triple net lease," (i.e. that Tenant shall pay all
costs and expenses related to the ownership and operations of each Leased
Property, thereby leaving all Rent as an absolutely net return to Landlord) and
as to each Leased Property, Tenant shall pay all Rent, Impositions, and other
charges and expenses in connection with such Leased Property throughout the Term
and any Extension Term, without abatement, deduction or set-off.
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2.08 No Termination, Abatement, Etc. Except as otherwise specifically
-------------------------------
provided herein, Tenant shall remain bound by this Lease in accordance with its
terms. Except as otherwise specifically provided herein, Tenant shall not,
without the prior written consent of Landlord, modify, surrender or terminate
this Lease as to any Leased Property, nor seek nor be entitled to any abatement,
deduction, deferment or reduction of Rent, or set-off against the Rent as to any
Leased Property for any reason whatsoever. Except as specifically provided
herein, the obligations of Landlord and Tenant shall not be affected by reason
of: (a) the lawful or unlawful prohibition of, or restriction upon, Tenant's use
of any Leased Property, or any part thereof, the interference with such use by
any person, corporation, partnership or other entity, or by reason of eviction
by paramount title; (b) any claim which Tenant has or might have against
Landlord or by reason of any default or breach of any warranty by Landlord under
this Lease or any other agreement between Landlord and Tenant, or to which
Landlord and Tenant are parties; (c) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceeding affecting Landlord or any assignee or transferee of Landlord; (d) any
damage to, or destruction of, any Leased Property or any portion thereof for
whatever cause, or any taking of the Leased Property or any portion thereof; or
(e) any other cause, whether similar or dissimilar to any of the foregoing,
other than a discharge of Tenant from any such obligations as a matter of law.
Except as otherwise specifically provided herein, and to the maximum extent
permitted by law, Tenant hereby specifically waives all rights, including but
not limited to any rights under any statute relating to rights of tenants in the
jurisdictions where the Leased Properties are located, which may now be
conferred upon it by law, relating to: (a) the modification, surrender or
termination of this Lease, or the quitting or surrender of any Leased Property
or any portion thereof; (b) any abatement, reduction, suspension or deferment of
the Rent or other sums payable by Tenant hereunder; or (c) any rights of
redemption. As to each Leased Property, the obligations of Landlord and Tenant
hereunder shall be separate and the Rent and all other sums shall continue to be
payable in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.
ARTICLE III
IMPOSITIONS AND UTILITIES
3.01 Payment of Impositions. Subject to the adjustments set forth
----------------------
herein, Tenant shall pay, in the manner set forth in Section 3.04, as Additional
Rent, to the Landlord an amount equal to the amount necessary to pay all
Impositions (as hereinafter defined) that may be levied or become a lien on any
Leased Property or any part thereof at any time (whether prior to or during the
Term), without regard to prior ownership of said Leased Property, before the
same becomes delinquent. Tenant's obligation to pay such Impositions shall be
deemed absolutely fixed upon the date such Impositions become a lien upon any
Leased Property or any part thereof. Tenant, at its expense, shall prepare and
file all tax returns and reports in respect of any Imposition as may be required
by governmental authorities, provided, however, that Tenant shall provide to
Landlord copies of all filings of such tax returns or reports in respect of any
real or
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personal property owned by Landlord. Tenant shall be entitled to any refund due
in respect of such Impositions from any taxing authority if no Event of Default
shall have occurred hereunder and be continuing. Any refunds in respect of such
Impositions retained by Landlord due to an Event of Default shall be applied as
provided in Section 9.08. Landlord and Tenant shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made with
respect to a Leased Property as may be necessary to prepare any required tax
returns and reports. In the event governmental authorities classify any property
covered by this Lease as personal property, Landlord and Tenant shall file all
personal property tax returns in such jurisdictions where it may legally so file
with respect to their respective owned personal property. Landlord, to the
extent it possesses the same, and Tenant, to the extent it possesses the same,
will provide the other party, upon request, with cost and depreciation records
necessary for filing such returns or reports for any property so classified as
personal property. To the extent that Landlord is legally required to file
personal property tax returns, Tenant will be provided with copies of assessment
notices indicating a value in excess of the reported value in sufficient time
for Tenant to file a protest. Tenant may, upon notice to Landlord, at Tenant's
option and at Tenant's sole cost and expense, protest, appeal, or institute such
other proceedings as Tenant may deem appropriate to effect a reduction of real
estate or personal property assessments and Landlord, at Tenant's expense as
aforesaid, shall fully cooperate with Tenant in such protest, appeal, or other
action. Tenant shall provide Landlord copies of all materials filed or presented
in connection with any such proceeding. Tenant shall promptly reimburse Landlord
for all taxes paid by Landlord, which were not paid with deposits received from
Tenant, upon receipt of billings accompanied by copies of a bill therefor and
payments thereof which identify the property with respect to which such payments
are made. Impositions imposed with respect to the tax-fiscal period during which
the Term commences and terminates as to each Leased Property shall be adjusted
and prorated between Landlord and Tenant on a per diem basis, with Tenant being
obligated to pay its pro rata share from and including the Commencement Date to
and including the expiration or termination date of the Term or Extension Term,
as the case may be, whether or not such Imposition is imposed before or after
such commencement or termination, and Tenant's obligation to pay its prorated
share thereof shall survive such termination. Tenant shall also pay to Landlord
a sum equal to the amount which Landlord may be caused to pay of any privilege
tax, sales tax, gross receipts tax, rent tax, occupancy tax or like tax
(excluding any tax based on net income), hereinafter levied, assessed, or
imposed by any federal, state, city, county or municipal or other local
governmental authority, or any subdivision thereof, upon or measured by rent or
other consideration required to be paid by Tenant under this Lease.
3.02 Definition of Impositions. "Impositions" means, collectively:
-------------------------
(a) taxes (including without limitation, all real estate and personal property
ad valorem (whether assessed as part of the real estate or separately assessed
as unsecured personal property), sales and use, business or occupation, single
business, gross receipts, transaction, privilege, rent or similar taxes, but not
including income or franchise or excise taxes payable with respect to Landlord's
receipt of Rent); (b) assessments, whether in the nature of a special assessment
or otherwise (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not to be completed within
7
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the Term or any Extension Term, as the case may be); (c) ground rents, water,
sewer or other rents and charges, excises, tax levies, and fees (including,
without limitation, license, permit, inspection, authorization and similar
fees); (d) to the extent they may become a lien on a Leased Property, all taxes
imposed on Tenant's operations of such Leased Property including without
limitation, employee withholding taxes, income taxes and intangible taxes; and
(e) all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforseen, of every character in
respect of each Leased Property or any part thereof, the Business conducted by
Tenant thereon, and/or the Rent (including all interest and penalties thereon
due to any failure in payment by Tenant), which at any time prior to, during or
in respect of the Term or any Extension Term, as the case may be, hereof may be
assessed or imposed on or in respect of or be a lien upon (i) Landlord or
Landlord's interest in any Leased Property or any part thereof; (ii) any Leased
Property or any part thereof or any rent therefrom or any estate, right, title
or interest therein; or (iii) any occupancy, operation, use or possession of, or
sales from, or activity conducted on, or in connection with any Leased Property
or the leasing or use of any Leased Property or any part thereof. Tenant shall
not, however, be required to pay: (x) any tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on Landlord or
(y) except as provided in Section 13.01, any tax imposed with respect to the
sale, exchange or other disposition by Landlord of a Leased Property or the
proceeds thereof; provided, however, that if any tax, assessment, tax levy or
charge which Tenant is obligated to pay pursuant to the first sentence of this
definition and which is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (x) or (y) immediately above is levied, assessed or imposed expressly in
lieu thereof Tenant shall then pay such tax, levy, or charge set forth in said
clause (x) or (y).
3.03 Utilities. Tenant shall contract for, in its own name, and will
---------
pay, as Additional Rent all taxes, assessments, charges/deposits, and bills for
utilities, including without limitation charges for water, gas, oil, sanitary
and storm sewer, electricity, telephone service, trash collection, and all other
utilities which may be charged against the occupant of the Improvements during
the Term. Tenant shall at all times maintain that amount of heat necessary to
ensure against the freezing of water lines. Tenant hereby agrees to indemnify
and hold Landlord harmless from and against any liability or damages to the
utility systems of each Leased Property that may result from Tenant's failure to
maintain sufficient heat in the Improvements therefor.
3.04 Escrow of Impositions. Unless waived by written notice from
---------------------
Landlord to Tenant, Tenant shall thereafter deposit with Landlord on the first
day of each month during the Term hereof and any Extension Term, as the case may
be, a sum equal to one-twelfth (1/12th) of the Impositions assessed against such
Leased Property which sums shall be used by Landlord toward payment of such
Impositions. If, at the end of any applicable tax year, any such funds held by
Landlord are insufficient to make full payment of taxes or other Impositions for
which such funds are held, Tenant, on demand, shall pay to Landlord any
additional funds necessary to pay and discharge in full the obligations of
Tenant pursuant to the provisions of this Section. If, however, at the end of
any applicable tax year, such funds held by Landlord are in excess of the
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total payment required to satisfy taxes or other Impositions for which such
funds are held, Landlord shall apply such excess amounts to a tax and Imposition
escrow fund for the next tax year. With respect to each Leased Property, if any
such excess exists following the expiration or earlier termination of this
Lease, and subject to Section 8.08 below, Landlord shall promptly refund such
excess amounts to Tenant. The receipt by Landlord of the payment of such
Impositions by and from Tenant shall only be as an accommodation to Tenant and
the taxing authorities, and shall not be construed as rent or income to
Landlord, Landlord serving, if at all, only as a conduit for delivery purposes.
3.05 Discontinuance of Utilities. Landlord will not be liable for
---------------------------
damages to person or property or for injury to, or interruption of, business for
any discontinuance of utilities at any Leased Property nor will such
discontinuance in any way be construed as an eviction of Tenant from such Leased
Property or cause an abatement of Rent as to such Leased Property or operate to
release Tenant from any of Tenant's obligations as to such Leased Property under
this Lease. Notwithstanding the forgoing, however, Landlord shall be liable for
damages to person or property or for injury to, or interruption of business, for
any discontinuance of utilities at any Leased Property, in the event and to the
extent, such damages or injury are caused by the wilful misconduct of the
Landlord.
3.06 Liens. Subject to Section 17.19 relating to contests, Tenant
-----
shall not directly or indirectly create or allow to remain, and will promptly
discharge at its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon any Leased Property or any attachment, levy, claim or
encumbrance in respect of any Rent provided under this Lease, not including,
however: (a) this Lease; (b) utility easements and road rights-of-way in the
customary form (i) provided the same do not adversely affect the intended use of
the Leased Properties (including the Improvements) and do not create a Material
Adverse Effect on the value of the Leased Properties or (ii) which result solely
from the action or inaction of Landlord; (c) zoning and building laws or
ordinances, provided they do not prohibit the use of the Leased Properties for
the Business and so long as the Leased Properties are in compliance with same;
(d) such encumbrances as are subsequently consented to in writing by Landlord,
but excluding liens in respect of Impositions required to be paid under Section
3.01; (e) liens for Impositions so long as (i) the same are not yet payable or
are payable without the addition of any fine or penalty or (ii) such liens are
being contested as permitted under Section 16.18; and (f) other encumbrances,
easements, rights of way or liens (i) provided the same do not adversely affect
the intended use of the Leased Properties (including the Improvements) and do
not create a Material Adverse Effect on the value of the Leased properties, or
(ii) which result solely from the action or inaction of Landlord.
ARTICLE IV
INSURANCE
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4.01 Insurance. Tenant shall, at Tenant's expense, keep the
---------
Improvements, Fixtures, and other components of each Leased Property insured
against the following risks:
(a) Loss or damage by fire with extended coverage (including
windstorm and subsidence), vandalism and malicious
mischief, sprinkler leakage and all other physical loss
perils commonly covered by "All Risk" insurance in an
amount not less than one hundred percent (100%) of the then
full replacement cost thereof (as hereinafter defined).
Such policy shall include an agreed amount endorsement if
available at a reasonable cost. Such policy shall also
include endorsements for contingent liability for operation
of building laws, demolition costs, and increased cost of
construction.
(b) Loss or damage by explosion of steam boilers, pressure
vessels, or similar apparatus, now or hereafter installed
on any Leased Property, in commercially reasonable amounts
acceptable to Landlord.
(c) Loss of rent under a rental value or Business interruption
insurance policy covering risk of loss during the first
twelve (12) months of reconstruction necessitated by the
occurrence of any hazards described in Sections 4.01(a) or
4.01(b), above, and which causes an abatement of Rent as
provided in Article X hereof, in an amount sufficient to
prevent Landlord or Tenant from becoming a co-insurer,
containing endorsements for extended period of indemnity
and premium adjustment, and written with an agreed amount
clause, if the insurance provided for in this clause (c) is
available.
(d) If the Land or any portion thereof related to a Leased
Property is located in whole or in part within a designated
flood plain area, loss or damage caused by flood in
commercially reasonable amounts acceptable to Landlord.
(e) Loss or damage commonly covered by blanket crime insurance
including employee dishonesty, loss of money orders or
paper currency, depositor's forgery, and loss of property
accepted by Tenant for safekeeping, in commercially
reasonable amounts acceptable to Landlord.
(f) Workers' compensation insurance as required by statute in
respect of any work or other operations on or about each
Leased Property.
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(g) Comprehensive liability insurance as to each Leased
Property in amounts equal to the greater of (i) One Million
Dollars ($1,000,000) for each occurrence and Two Million
Dollars ($2,000,000) in the aggregate, or (ii) the limits
of liability generally required under the franchise
agreements or other agreements pursuant to which Tenant
operates the Businesses conducted on or about each Leased
Property.
(h) Commercial comprehensive catastrophic liability insurance
with limits of liability of not less than the greater of
(i) Five Million ($5,000,000) and (ii) the limits of
liability generally required under the franchise agreements
or other agreements pursuant to which Tenant operates the
Businesses conducted on or about each Leased Property.
(i) upon Landlord's request, earthquake insurance in an amount
not less than the full insurable value of each Leased
Property.
(j) During the period when any addition, alteration,
construction, installation or demolition is being made or
performed to any part of the Leased Property, contingent
liability, public liability, completed value, builder's
risk (non-reporting form) workers' compensation and other
insurance as is deemed prudent by Landlord.
4.02 Insurance Limits. Deductible provisions for the insurance
----------------
required under Section 4.01(a) shall not exceed Twenty-Five Thousand Dollars
($25,000) per location per occurrence and One Hundred Thousand Dollars
($100,000) aggregate per occurrence; under clause(d), Twenty-Five Thousand
Dollars ($25,000) per occurrence, except that if federal flood insurance is
available then such deductible shall not be greater than the lowest deductible
available with respect to such federal flood insurance; under clause (g),
Twenty-Five Thousand Dollars ($25,000) per occurrence; under clause (h), Twenty-
Five Thousand Dollars ($25,000) per occurrence; and under clause (j), Twenty-
Five Thousand Dollars ($25,000) per occurrence.
4.03 Insurance Requirements. The following provisions shall apply to
-----------------------
all insurance coverages required hereunder:
(a) The carriers of all policies shall have a Best's Rating of
"A-" or better and a Best's Financial Category of XII or
larger and shall be authorized to do insurance business in
the jurisdiction in which the Leased Property is located.
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(b) Tenant shall be the "named insured" and Landlord and any
mortgagee of Landlord shall be an "additional named
insured" on each policy.
(c) Tenant shall deliver to Landlord certificates or policies
showing the required coverages and endorsements. Each
policy or certificate of insurance shall provide that such
policy or certificate (i) may not be canceled, (ii) may not
lapse for failure to renew, and (iii) no material change or
reduction in coverage may be made, without at least thirty
(30) days' prior written notice to Landlord.
(d) The policies shall contain a severability of interest
and/or cross-liability endorsement, provide that the acts
or omissions of Tenant will not invalidate Landlord's
coverage, and provide that Landlord shall not be
responsible for payment of premiums.
(e) All loss adjustment shall require the written consent of
Landlord and Tenant, as their interests may appear.
(f) At least (30) thirty days prior to the expiration of each
policy, Tenant shall deliver to Landlord a certificate
showing renewal of such policy and payment of the annual
premium therefor.
Landlord shall have the right to review the insurance coverages
required hereunder with Tenant from time to time, to obtain the input of third
party professional insurance advisors (at Landlord's expense) with respect to
such insurance coverages, and to consult with Tenant in Tenant's annual review
and renewal of such insurance coverages. All insurance coverages hereunder shall
be in such form, substance and amounts as are customary or standard in Tenant's
industry, but at a minimum shall comply with the requirements set forth herein.
4.04 Replacement Cost. The term "full replacement cost" means the
----------------
actual replacement cost of the Improvements from time to time including
increased cost of construction, with no reductions or deductions. Tenant shall,
not later than thirty (30) days after the anniversary of each policy of
insurance, increase the amount of the replacement cost endorsement for the
Improvements to the extent necessary to reflect increased costs of construction.
If Tenant makes any Permitted Alterations (as hereinafter defined) to any Leased
Property, Landlord may have such full replacement cost redetermined at any time
after such Permitted Alterations are made, regardless of when the full
replacement cost was last determined.
4.05 Blanket Policy. Tenant may carry the insurance required by this
--------------
Article under a blanket policy of insurance, provided that the coverage afforded
Tenant will not be reduced or diminished or otherwise be different from that
which would exist under a separate
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policy meeting all of the requirements of this Lease and the Landlord approves
the form of the policy.
4.06 No Separate Insurance. Tenant shall not take out separate
----------------------
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or increase the amounts of any then existing insurance
by securing an additional policy or additional policies, unless all parties
having an insurable interest in the subject matter of the insurance, including
Landlord and any mortgagees, are included therein as additional named insureds
or loss payees, the loss is payable under said insurance in the same manner as
losses are payable under this Lease, and such additional insurance is not
prohibited by the existing policies of insurance required pursuant to this
Article. Tenant shall immediately notify Landlord of the taking out of such
separate insurance or the increasing of any of the amounts of the existing
insurance by securing an additional policy or additional policies. The term
"mortgages" as used in this Lease includes, but is not limited to, Deeds of
Trust and the term "mortgagees" includes, but is not limited to, trustees and
beneficiaries under a Deed of Trust.
4.07 Waiver of Subrogation. Each party hereto hereby waives any and
---------------------
every claim which arises or may arise in its favor and against the other party
hereto during the Term or any Extension Term or renewal thereof, for any and all
loss of, or damage to, any of its property located within or upon, or
constituting a part of, any Leased Property, which loss or damage is covered by
valid and collectible insurance policies, to the extent that such loss or damage
is recoverable in full under such policies. Said mutual waiver shall be in
addition to, and not in limitation or derogation of, any other waiver or release
contained in this Lease with respect to any loss or damage to property of the
parties hereto. Inasmuch as the said waivers will preclude the assignment of any
aforesaid claim by way of subrogation (or otherwise) to an insurance company (or
any other person), each party hereto agrees immediately to give each insurance
company which has issued to it policies of insurance, written notice of the
terms of said mutual waivers, and to have such insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverage
by reason of said waivers, so long as such endorsement is available at a
reasonable cost.
4.08 Mortgages. The following provisions shall apply if Landlord now
---------
or hereafter places a mortgage on any Leased Property or any part thereof: (a)
Tenant shall obtain a standard form of mortgage clause insuring the interest of
the mortgagee; (b) Tenant shall deliver evidence of insurance to such mortgagee;
(c) loss adjustment shall require the consent of the mortgagee but such consent
shall not be unreasonably withheld and may not include any requirement that the
funds be paid to mortgagee in lieu of reconstruction; and (d) Tenant shall
obtain such other coverages and provide such other information and documents as
may be reasonably required by the mortgagee.
4.09 Other Insurance Requirements. Notwithstanding anything in this
----------------------------
Lease to the contrary and not by way of limitation, in addition to the types and
amounts of insurance required to be carried by Tenant herein, Tenant covenants
to insure and continue in effect such
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types and amounts of insurance as the Tenant shall be required to carry pursuant
to any contract, agreement, instrument, statute, law, rule or regulation
relating to the use of the Leased Property and the operations of any Business or
other activities thereon, including noncancellable written notice to mortgagee.
ARTICLE V
INDEMNITY; SUBSTANCES OF CONCERN
5.01 Tenant's Indemnification. Subject to Section 4.07, Tenant hereby
------------------------
agrees to indemnify and hold harmless Landlord, its agents, and employees from
and against any and all demands, claims, causes of action, fines, penalties,
damages (including punitive and consequential damages), losses, liabilities
(including strict liability), judgments, costs and expenses (including, without
limitation, attorneys' fees, court costs, and the costs set forth in Section
9.06) (the "Claims") incurred in connection with or arising from: (a) the use,
condition, operation or occupancy of the Leased Properties; (b) any activity,
work, or thing done, or permitted or suffered by Tenant in, on or about the
Leased Properties; (c) any acts, omissions, or negligence of Tenant or any
person claiming under Tenant, or the contractors, agents, employees, invitees,
or visitors of Tenant or any such person; (d) any breach, violation, or
nonperformance by Tenant or any person claiming under Tenant or the employees,
agents, contractors, invitees, or visitors of Tenant or of any such person, of
any term, representation, warranty, covenant, or provision of this Lease or any
law, ordinance, or governmental requirement of any kind; (e) any injury or
damage to the person, property or Business of Tenant, its employees, agents,
contractors, invitees, visitors, or any other person entering upon any Leased
Property; (f) any accident, injury to or death of persons or loss or damage to
any item of property occurring on or about any Leased Property; (g) any
Environmental Law or any pollution or other threat to human health or the
environment at, arising out of or relating to any Leased Property as set forth
in Section 5.05, and (h) any brokers' or agents' fees and commissions. If any
action or proceeding is brought against Landlord, its employees, or agents by
reason of any such demand, claim, or cause of action, Tenant, upon notice from
Landlord, will defend the same at Tenant's expense with counsel reasonably
satisfactory to Landlord. In the event Landlord reasonably determines that its
interests and the interests of Tenant in any such action or proceeding are not
substantially the same and that Tenant's counsel cannot adequately represent the
interests of Landlord therein, Landlord shall have the right to hire separate
counsel in any such action or proceeding and the reasonable costs thereof shall
be paid for by Tenant. Tenant's indemnification obligations with respect to a
Claim shall survive the expiration or earlier termination of this Lease until
the later of (i) two (2) years from the date hereof, or (ii) the expiration of
the period ninety (90) days after the date on which Landlord has actual
knowledge of the existence of such Claim, provided, however, that Tenant's
indemnification obligations shall survive the expiration or earlier termination
of this Lease until ninety (90) days after the expiration of the applicable
statute of limitations for Claims incurred in connection with, arising out of,
or related to (i) Section 5.01(g) or (ii) the failure to pay, as provided for in
this Agreement, any Imposition.
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5.02 Substances of Concern.
---------------------
(a) For purposes of this Section 5:
(i) "Substances of Concern" means, without limitation,
chemicals, pollutants, contaminants, wastes, toxic
substances, radioactive materials or genetically
modified organisms, which are, have been or become
regulated by any federal, state or local government
authority including, without limitation, (1)
petroleum or any fraction thereof, (2) asbestos, (3)
any substance or material defined as a "hazardous
substance" pursuant to (S) 101 of the Comprehensive
Environmental Response Compensation and Liability Act
(42 U.S.C. (S) 9601), or (4) any substance or
material defined as a "hazardous chemical" pursuant
to the federal Hazard Communication Standard (29
C.F.R. (S) 1910.1200).
(ii) "Environmental Laws" means all federal, state, local,
and foreign laws and regulations relating to
pollution or protection of human health or the
environment (including, without limitation, ambient
air, surface water, ground water, wetlands, land
surface, subsurface strata, and indoor and outdoor
workplace), including, without limitation, (1) laws
and regulations relating to emissions, discharges,
releases, or threatened releases of Substances of
Concern, and (2) common law principles of tort
liability.
(b) Tenant shall not, either with or without negligence,
injure, overload, deface, damage or otherwise harm any
Leased Property or any part or component thereof; commit
any nuisance; permit the emission of any Substances of
Concern; allow the release or other escape of any
biologically or chemically active substances or materials
or other Substances of Concern so as to impregnate, impair
or in any manner affect, even temporarily, any element or
part of any Leased Property or neighboring property, or
allow the storage or use of such substances or materials in
any manner not sanctioned by law and by reasonable
standards prevailing in the automobile retail and related
industries for the storage and use of such substances or
materials; nor shall Tenant permit the occurrence of
objectionable noise or odors; or make, allow or suffer any
waste whatsoever to any Leased Property. Landlord
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<PAGE>
may inspect each Leased Property from time to time, and
Tenant will cooperate with such inspections.
(c) Notwithstanding the foregoing, Tenant anticipates using,
storing and disposing of certain Substances of Concern in
connection with operation of its Business. Such Substances
of Concern include, but are not limited to, the following:
motor oil, waste motor oil and filters, transmission fluid,
antifreeze, refrigerants, waste paint and lacquer thinner,
batteries, solvents, lubricants, degreasing agents,
gasoline and diesel fuels. Tenant shall ascertain and
comply fully with all applicable Environmental Laws and
environmental standards and requirements set by federal,
state or local laws, rules, regulations or governmental
directives related to the Leased Properties or Tenant's use
or occupancy of the Leased Property ("Environmental
Standards"), including but not limited to any laws or
standards (a) regulating the use, storage, generation or
disposal of Substances of Concern, (b) regulating the
monitoring or use of any underground or aboveground storage
tanks at the Leased Properties, or (c) establishing any
permitting, notification or reporting requirements. As
promptly as practicable after the Commencement Date (but in
no event later than 120 days thereafter), Tenant shall
establish and implement a program of compliance with all
applicable Environmental Laws and Environmental Standards
("Environmental Compliance Program"). Tenant shall update
such Environmental Compliance Program every three (3) years
during the Term. Tenant shall submit its Environmental
Compliance Program and each update thereto to Landlord;
provided, however, such submittal shall not relieve Tenant
of its obligations pursuant to this Section 5. Tenant's
Environmental Compliance Program shall include a program
for monitoring Tenant's compliance with Environmental Laws
and Environmental Standards and a plan for correcting
immediately any incident of noncompliance. Tenant shall
comply with its Environmental Compliance Program.
(d) In the event of any noncompliance with any Environmental
Laws or Environmental Standards or any spill, release or
discharge of Substances of Concern in a reportable quantity
under federal, state or local law, Tenant shall:
(i) give Landlord immediate notice of the incident by
telephone or facsimile, providing as much detail as
possible. Such notice shall be provided to Landlord's
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National Dealership Real Estate Manager or to such
other person as Landlord shall designate in
accordance with Section 16.01 below;
(ii) as soon as possible, but no later than seventy-two
(72) hours, after discovery of an incident of
noncompliance, submit a written report to Landlord,
identifying the source or case of the noncompliance
or spill, release or discharge (including the names
and quantities of any Substances of Concern involved)
and the method or action required to correct the
problem; and
(iii) cooperate with Landlord or its designated agents or
contractors with respect to the investigation and
correction of such problem.
Tenant shall also be solely responsible for providing any notice
to any federal, state or local governmental authority required by applicable
laws and regulations as a result of such incident.
5.03 Audits. Landlord shall have the right to conduct, at its
------
expense, periodic audits of Tenant's compliance with the Environmental
Compliance Program and management of Substances of Concern at the Leased
Properties and/or periodic tests of air, soil, surface water or groundwater at
or near the Leased Properties. Landlord shall not be obligated to provide Tenant
with the results of any audit or tests unless such results are the basis for a
claim by Landlord that Tenant has breached its obligations under this Lease or a
demand by Landlord that Tenant modify its Environmental Compliance Program or
operations or remediate or remove a spill, release or discharge of Substances of
Concern in accordance with Section 5.06 below. Tenant agrees promptly to modify
its Environmental Compliance Program or the conduct of its operations in
accordance with Landlord's reasonable recommendations directed at improvement of
Tenant's handling, use and disposal of Substances of Concern in, on or from any
Leased Property. If, as a result of an environmental audit performed by Landlord
with respect to any Leased Property, Landlord reasonably determines in its
judgment that alterations or improvements of equipment or buildings located on
the Leased Property are necessary, Tenant shall perform such alterations or
improvements as are reasonable under the circumstances and pay all costs and
expenses relating thereto. If Tenant shall fail to pay any such costs or
expenses, Tenant shall deposit with Landlord the full amount necessary to pay
such costs in full within ten (10) days of Landlord's demand. Nothing contained
herein shall be construed to obligate or require Landlord to perform any audits,
tests, inquiry or investigation. Should Landlord elect or be required to
disclose to Tenant the results of any audit or tests, Landlord shall not be
liable in any way for the truth or accuracy of such information.
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5.04 Landlord's Option Re: Compliance. If Tenant, after notice from
--------------------------------
Landlord, fails to comply with or perform any of its obligations pursuant to
this Section 5, including, but not limited to, obligations to clean up spills,
releases or discharges, Landlord may, but shall not be obligated to, perform
such obligations and Tenant shall pay Landlord within ten (10) days of demand
Landlord's costs therefor, including any overhead and administrative costs.
5.05 Environmental Indemnification. Tenant shall indemnify and hold
-----------------------------
harmless Landlord from and against all demands, claims, causes of action, fines,
penalties, damages (including punitive and consequential damages), losses,
liabilities (including strict liability), judgments, and expenses (including,
without limitation, attorneys' fees, court costs, and the costs set forth in
Section 9.06) imposed upon or asserted against Tenant, Landlord or any Leased
Property on account of any Environmental Law (irrespective of whether there has
occurred any violation of any Environmental Law) relating to any Leased
Property, including (a) response costs and costs of removal and remedial action
incurred by the United States Government or any state or local governmental unit
to any other person or entity, or damages from injury to or destruction or loss
of natural resources, including the reasonable costs of assessing such injury,
destruction or loss, incurred pursuant to any Environmental Law, (b) costs and
expenses of abatement, investigation, removal, remediation, correction or
cleanup, fines, damages, response costs or penalties which arise from the
provisions of any Environmental Law, (c) liability for personal injury or
property damage arising under any statutory or common-law tort theory, including
damages assessed for the maintenance of a public or private nuisance or for
carrying on of a dangerous activity, (d) liability by reason of a breach of an
environmental representation or warranty by Tenant, and (e) failure of Tenant to
complete in a timely manner alterations or improvements of equipment or
buildings located on the Leased Property deemed necessary or advisable by
Landlord pursuant to Section 5.03 in a manner acceptable to Landlord.
5.06 Tenant's Cleanup Obligation. If any spill, release or discharge
---------------------------
of Substances of Concern occurs on, at or from the Leased Properties during the
Term, Tenant shall promptly take all actions, at its sole expense, as are
necessary to remove or remediate such spill, release or discharge and to return
the Leased Property to the condition existing prior to the introduction of any
such Substances of Concern to the Leased Property, provided that Landlord's
approval of such action shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse effect on the Leased Property.
5.07 Existing Environmental Conditions. Tenant acknowledges that it
---------------------------------
has had the opportunity to review the Environmental Reports attached hereto as
Exhibit 5.07. Tenant hereby represents that it has reviewed and is aware of the
matters disclosed in the Environmental Reports.
As a material consideration for Landlord's willingness to enter
into this Lease, Tenant, for itself and its Affiliates, and each of their
shareholders, directors, officers, employees, agents, contractors,
representatives, insurers, successors and assigns hereby waives
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and releases Landlord and its Affiliates and each of their shareholders,
directors, officers, employees, representatives, agents, contractors,
representatives, insurers, successors and assigns from any and all claims,
demands, liabilities, costs, expenses, causes of action and rights of action
whatsoever, past, present or future, known or unknown, suspected or unsuspected,
which arise out of or relate in any way to the violation of Environmental Laws
or the use, storage, treatment, disposal, presence, spill, release, or discharge
of Substances of Concern at, on or from the Leased Properties before the
Commencement Date (collectively, the "Released Claims").
In the event that Landlord is ordered by a governmental agency,
or determines that it is in its best interest, to remedy any violation of
Environmental Laws or to remove or remediate any Substances of Concern present
on, under or about the Leased Properties on the Commencement Date, or spilled,
released or discharged on, at or from the Leased Properties before the
Commencement Date, Tenant shall immediately upon notice from Landlord take all
actions, at Tenant's sole expense, to promptly complete such removal or
remediation.
5.08 Survival of Tenant's Obligations. Tenant's obligations under
--------------------------------
this Section 5 shall survive the expiration or earlier termination of this
Lease. During any period of time employed by Tenant after the termination of
this Lease to complete the removal from the Leased Property of any Substances of
Concern, if the premises are not rentable for uses contemplated under this
Lease, Tenant shall continue to pay the full amount of Rent due under this
Lease, which Rent shall be prorated daily for the final month of such period of
time.
ARTICLE VI
USE AND ACCEPTANCE OF PREMISES
6.01 Use of Leased Properties. For so long as this Lease is in
------------------------
effect (including following any sublease or assignment thereof), Tenant shall
use and occupy each Leased Property exclusively for the purpose of conducting
the Business or for any other legal purpose for which such Leased Property is
being used as of the Commencement Date, and for no other purpose without the
prior written consent of Landlord. Tenant shall obtain and maintain all
approvals, licenses, and consents needed to use and operate the Leased
Properties for such purposes. Tenant shall promptly deliver to Landlord complete
copies of surveys, examinations, certification and licensure inspections,
compliance certificates, and other similar reports issued to Tenant by any
governmental agency.
6.02 Acceptance of Leased Properties. Except as otherwise
-------------------------------
specifically provided in this Lease, Tenant acknowledges (i) Tenant and its
agents have had an opportunity to inspect each Leased Property; (ii) Tenant has
found each Leased Property fit for Tenant's use; (iii) delivery of each Leased
Property to Tenant is in an "as-is" condition; (iv) Landlord is not obligated to
make any improvements or repairs to any Leased Property; and (v) the roof,
walls, foundation, heating, ventilating, air conditioning, telephone, sewer,
electrical, mechanical, utility, plumbing, and other portions of each Leased
Property are in good working order. Tenant waives
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any claim or action against Landlord with respect to the condition of any Leased
Property. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN
RESPECT OF THE LEASED PROPERTIES OR ANY PART THEREOF, EITHER AS TO ITS FITNESS
FOR USE, DESIGN OR CONDITION OR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS
TO QUALITY OR THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.
6.03 Conditions of Use and Occupancy. Tenant agrees that during the
-------------------------------
Term it shall use and keep each Leased Property in a careful, safe and proper
manner; not commit or suffer waste thereon; not use or occupy any Leased
Property for any unlawful purposes; not use or occupy any Leased Property or
permit the same to be used or occupied, for any purpose or business deemed extra
hazardous on account of fire or otherwise; keep each Leased Property in such
repair and condition as may be required by the local board of health, or other
city, state or federal authorities, free of all cost to Landlord; not permit any
acts to be done which will cause the cancellation, invalidation, or suspension
of any insurance policy; and permit Landlord and its agents to enter upon each
Leased Property at all reasonable times after notice to Tenant to examine the
condition thereof. In addition, at any time and from time to time upon not less
than fifteen (15) days prior written notice, Tenant shall permit Landlord and
any mortgagee or lender and their authorized representatives, to inspect the
Leased Properties during normal Business hours, provided that such inspections
shall not unreasonably interfere with Business of Tenant.
6.04 Financial Statements and Other Information. Tenant shall
------------------------------------------
provide Landlord and any mortgagee or lender regularly (or more often as may be
reasonably requested by Landlord in writing), the following financial
information: (a) as to each Leased Property within thirty (30) days after each
fiscal quarter during the Term or any Extension Term, as the case may be,
(except the fourth quarter), Tenant-prepared financial statements prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied; and (b) as to each Leased Property and itself, Tenant shall use its
best efforts to provide Landlord within ninety (90) days after the end of each
fiscal year of Tenant during the Term or any Extension Term, as the case may be,
and in no event later than one hundred and twenty (120) days after the end of
each fiscal year of Tenant during the Term or any Extension Term, as the case
may be, financial statements, audited, reviewed or compiled by a certified
public accountant (the "Annual Financial Statements"). Tenant shall also deliver
to Landlord such additional financial information as Landlord may reasonably
request, provided the same is of a type normally maintained by Tenant or can be
obtained without undue cost or burden on Tenant's personnel and does not
constitute information which Tenant reasonably determines to be proprietary or
confidential. Additionally, upon Landlord's request, Tenant shall provide
Landlord with copies of Tenant's annual capital expenditure budgets for each
Leased Property and any reports generated by Tenant regarding maintenance and
repairs of each Leased Property.
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ARTICLE VII
REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS
7.01 Maintenance. Tenant shall maintain each Leased Property in
-----------
good order, repair and appearance, and repair each Leased Property, including
without limitation, all interior and exterior, structural and nonstructural
repairs and replacements to the roof, foundations, exterior walls, building
systems, HVAC systems, parking areas, sidewalks, water, sewer and gas
connections, pipes, and mains. Tenant shall pay as Additional Rent the full cost
of such maintenance, repairs, and replacements. Tenant shall maintain all
drives, sidewalks, parking areas, and lawns on or about each Leased Property in
a clean and orderly condition, free of accumulations of dirt, rubbish, snow and
ice. Tenant shall permit Landlord to inspect each Leased Property at all
reasonable times, and shall implement all reasonable suggestions of Landlord as
to the maintenance and repair of each Leased Property.
7.02 Compliance with Laws. Tenant shall comply with all laws,
--------------------
ordinances, orders, rules, regulations, and other governmental requirements
relating to the use, condition, or occupancy of each Leased Property, whether
now or hereafter enacted and in force including without limitation: (a)
licensure requirements for operation of the Business; (b) requirements of any
board of casualty insurance underwriters or insurance service office for any
other similar body having jurisdiction over any Leased Property; (c) all zoning
and building codes; and (d) Environmental Laws. At Landlord's request, from time
to time, Tenant shall deliver to Landlord copies of certificates or permits
evidencing compliance with such laws, including without limitation, copies of
any applicable licenses, certificates of occupancy and building permits. Tenant
shall provide Landlord with copies of any notice from any governmental authority
alleging any non-compliance by Tenant or any Leased Property with any of the
foregoing requirements and such evidence as Landlord may reasonably require of
Tenant's remediation thereof. Tenant hereby agrees to defend, indemnify and hold
Landlord, its agents, and employees from and against any and all demands,
claims, causes of action, fines, penalties, damages (including punitive and
consequential damages), losses, liabilities (including strict liability),
judgments, costs and expenses (including, without limitation, attorneys' fees,
court costs, and the costs set forth in Section 9.06) resulting from any failure
by Tenant to comply with any laws, ordinances, rules, regulations, and other
governmental requirements.
7.03 Required Alterations. Tenant shall, at Tenant's sole cost
--------------------
and expense, make any additions, changes, improvements or alterations to each
Leased Property, including structural alterations, which may be required by any
governmental authorities, including those required to continue to satisfy any
licensure requirements related to the operation of the Business, whether such
changes are required by Tenant's use, changes in the law, ordinances, or
governmental regulations, defects existing as of the date of this Lease, or any
other cause whatsoever. Tenant shall provide thirty (30) days prior written
notice to Landlord of any changes to a Leased Property pursuant to this Section
7.03 which involve changes to the structural integrity thereof or materially
affect the operational capabilities thereof. All such additions, changes,
improvements or alterations shall be deemed to be a Tenant Improvement
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and shall comply with all laws relating to such alterations and with the
provisions of Section 8.01.
7.04 Mechanics' Liens. Tenant shall have no authority to permit
----------------
or create a lien against Landlord's interest in any Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord's interest in each Leased Property against liens. Tenant hereby agrees
to defend, indemnify, and hold Landlord harmless from and against any mechanics'
liens against any Leased Property by reason of work, labor services or materials
supplied or claimed to have been supplied on or to such Leased Property. Tenant
shall immediately remove, bond-off, or otherwise obtain the release of any
mechanics' lien filed against any Leased Property. Tenant shall pay all expenses
in connection therewith, including without limitation, damages, interest, court
costs and reasonable attorneys' fees.
7.05 Replacements of Fixtures. Tenant shall not remove Fixtures
-------------------------
from any Leased Property except to replace such Fixtures with other items used
for similar or analogous purposes, which replacement items are of equal or
greater quality and value. Items being replaced by Tenant may be removed and
shall become the property of Tenant and items replacing the same shall be and
remain the property of Landlord. Tenant shall execute, upon written request from
Landlord, any and all documents necessary to evidence Landlord's ownership of
the Fixtures and replacements therefor. Tenant may not finance replacements by
security agreement or equipment lease unless: (a) Landlord has consented to the
terms and conditions of the equipment lease or security agreement; (b) the
equipment lessor or lender has entered into a non-disturbance agreement with
Landlord upon terms and conditions acceptable to Landlord, including without
limitation (i) Landlord shall have the right (but not the obligation) to assume
such security agreement or equipment lease upon the occurrence of an Event of
Default by Tenant hereunder; (ii) the equipment lessor or lender shall promptly
notify Landlord of any default by Tenant under the equipment lease or security
agreement and give Landlord a reasonable opportunity to cure such default; and
(iii) Landlord shall have the right to assign its rights under the equipment
lease, security agreement, or non-disturbance agreement; (c) the equipment
lessor or lender shall subordinate its security interest to the security
interest of any of Landlord's lessors, mortgagors or lenders, whether now
created or hereafter existing, and (d) Tenant shall, within ten (10) days after
receipt of an invoice from Landlord, reimburse Landlord for all costs and
expenses incurred in reviewing and approving the equipment lease, security
agreement, and non-disturbance agreement, including without limitation,
reasonable attorneys' fees and costs.
7.06 Encroachments; Restrictions. If any of the Improvements
---------------------------
shall, at any time, encroach upon any property, street or right-of-way adjacent
to a Leased Property, or shall violate the agreements or conditions contained in
any restrictive covenant or other agreement affecting a Leased Property, other
than one which is created or consented to by Landlord without Tenant's consent,
or shall impair the rights of others under an easement or right-of-way to which
a Leased Property is subject, other than one which is created or consented to by
Landlord without Tenant's consent, then promptly upon the request of Landlord or
at the request of any person
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affected by any such encroachment, violation or impairment, Tenant shall, at its
expense, subject to its right to contest the existence of any encroachment,
violation or impairment and in such case, in the event of an adverse final
determination, either (a) obtain valid and effective waivers or settlements of
all claims, liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Landlord or Tenant or (b)
make such changes in the Improvements and take such other actions as shall be
necessary to remove such encroachment and to end such violation or impairment,
including, if necessary, the alteration of improvements. Any such alteration
shall be made in conformity with the requirements of Article VIII.
ARTICLE VIII
ALTERATIONS AND SIGNS; TENANT'S PROPERTY;
CAPITAL ADDITIONS TO THE LEASED PROPERTIES
8.01 Tenant's Right to Construct. As to each Leased Property,
---------------------------
during the Term of this Lease or any Extension Term, as the case may be, so long
as no Event of Default shall have occurred and be continuing as to such Leased
Property, Tenant may make Capital Additions (as defined herein), or other
alterations, additions, changes and/or improvements to such Leased Property as
deemed necessary or useful to operate such Leased Property for Tenant's Business
(individually, a "Tenant Improvement," or collectively, the "Tenant
Improvements"). "Capital Additions" shall mean the construction of one or more
new buildings or one or more additional structures annexed to any portion of any
of the Improvements on a Leased Property, which are constructed on any parcel or
portion of the Land comprising a Leased Property, including the construction of
a new floor, or the repair, replacement, restoration, remodeling or rebuilding
of the Improvements or any portion thereof on a Leased Property which are not
normal, ordinary or recurring to maintain such Leased Property. Except as
otherwise agreed to by Landlord herein or otherwise in writing, any such Tenant
Improvement or Capital Addition shall be made at Tenant's sole expense and shall
become the property of Landlord upon termination of this Lease. Unless made on
an emergency basis to prevent injury to person or property, as to each Leased
Property, Tenant must obtain Landlord's prior written approval, such approval
not to be unreasonably withheld or delayed, for any Capital Addition or for any
Tenant Improvement which is not a Capital Addition and which has a cost of more
than One Hundred Thousand Dollars ($100,000) or a cost which, when aggregated
with the costs of all such Tenant Improvements on such Leased Property in a
given Lease Year, would cause the total costs of all such Tenant Improvements on
such Leased Property to exceed Two Hundred Fifty Thousand Dollars ($250,000).
Additionally, in connection with any Tenant Improvement, including any Capital
Addition, Tenant shall provide Landlord with copies of any plans and
specification therefor, Tenant's budget relating thereto, any required
governmental permits or approvals, any construction contracts or agreements
relating thereto, and any other information relating to such Tenant Improvement
as Landlord shall reasonably request.
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8.02 Scope of Right. Subject to Section 8.01 herein and Section
--------------
7.03 concerning required alterations, at Tenant's cost and expense, Tenant shall
have the right to:
(a) seek any governmental approvals, including building
permits, licenses, conditional use permits and any
certificates of need that Tenant requires to construct
any Tenant Improvement;
(b) erect upon each Leased Property such Tenant
Improvements as Tenant deems desirable;
(c) make additions, alterations, changes and improvements
in any Tenant Improvement so erected; and
(d) engage in any other lawful activities that Tenant
determines are necessary or desirable for the
development of each Leased Property in accordance with
the Tenant's Business;
provided, however, Tenant shall not make any Tenant Improvement which would, in
Landlord's reasonable judgment, impair the value of the Leased Property or the
Tenant's Business without Landlord's prior written consent and provided, further
that Tenant shall not be permitted to create a mortgage, lien or any other
encumbrance on any Leased Property without Landlord's prior written consent.
8.03 Cooperation of Landlord. Landlord shall cooperate with
-----------------------
Tenant and take such actions, including the execution and delivery to Tenant of
any applications or other documents, reasonably requested by Tenant in order to
obtain any governmental permits, licenses or approvals sought by Tenant to
construct any Tenant Improvement within fifteen (15) business days following the
later of: (a) the date Landlord receives Tenant's request or (b) the date of
delivery of any such application or document to Landlord; provided, the taking
of such action by Landlord, including the execution of said applications or
documents, shall be without cost to Landlord (or if there is a cost to Landlord,
such cost shall be reimbursed by Tenant), shall not cause Landlord to be in
violation of any law, ordinance or regulation, and shall not be deemed a waiver
by Landlord of any of its rights or of any of Tenant's obligations, including
but not limited to indemnification.
8.04 Commencement of Construction. Tenant agrees that:
----------------------------
(a) Tenant shall diligently seek all governmental approvals
relating to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant
Improvement, Tenant shall diligently oversee any such
construction to completion in accordance with
applicable insurance requirements
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and the laws, rules and regulations of all governmental
bodies or agencies having jurisdiction over the subject
Leased Property;
(c) Landlord shall have the right at any time and from time
to time to post and maintain upon each Leased Property
such notices as may be necessary to protect Landlord's
interest from mechanics' liens, materialmen's liens or
liens of a similar nature;
(d) Tenant shall not suffer or permit any mechanics' liens
or any other claims or demands arising from the work of
construction of any Tenant Improvement to be enforced
against any Leased Property or any part thereof, and
Tenant agrees to hold Landlord, its agents and
employees and said Leased Property free and harmless
from all demands, claims, causes of action, fines,
penalties, damages (including punitive and
consequential damages), losses, liabilities (including
strict liability), judgments, costs and expenses
(including, without limitation, attorneys' fees, court
costs, and the costs set forth in Section 9.06)
incurred in connection with or arising therefrom;
(e) All work shall be performed in a satisfactory and
workmanlike manner consistent with standards in the
industry; and
(f) Subject to Section 8.08 in the case of Capital
Additions, Tenant shall not secure any construction or
other financing for the Tenant Improvements which is
secured by a portion of any Leased Property without
Landlord's prior written consent, and any such
financing (i) shall not exceed the cost of the Tenant
Improvements, (ii) shall be subordinate to any mortgage
or encumbrance now existing or hereinafter created with
respect to such Leased Property, and (iii) shall be
limited solely to Tenant's interest in the subject
Leased Property.
8.05 Rights in Tenant Improvements. Notwithstanding anything to
------------------------------
the contrary in this Lease, all Tenant Improvements existing on the Leased
Property or constructed upon each Leased Property pursuant to Section 8.01, any
and all subsequent additions thereto and alterations and replacements thereof
shall be the sole and absolute property of Tenant during the Term and any
Extension Term, as the case may be, of this Lease (in respect of such Leased
Property). Upon the expiration or early termination of this Lease in respect of
a Leased Property, all such Tenant Improvements located thereon shall become the
property of Landlord. Without limiting the generality of the foregoing, prior to
the expiration or early termination of this Lease in respect of a Leased
Property, Tenant shall be entitled to all federal and state income tax benefits
associated with all Tenant Improvements located on such Leased Property.
25
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8.06 Personal Property. Tenant shall install, place, and use on
-----------------
each Leased Property such fixtures, furniture, equipment, inventory and other
personal property in addition to the Fixtures as may be required or as Tenant
may, from time to time, deem necessary or useful to operate such Leased Property
in the operation of the Business.
8.07 Requirements for the Tenant's Personal Property. Tenant
-----------------------------------------------
shall comply with all of the following requirements in connection with the
Tenant's Personal Property:
(a) RESERVED.
(b) The Tenant's Personal Property shall be installed in a
good and workmanlike manner, in compliance with all
governmental laws, ordinances, rules, and regulations
and all insurance requirements, and be installed free
and clear of any mechanics' liens.
(c) Tenant shall, at Tenant's sole cost and expense,
maintain, repair, and replace the Tenant's Personal
Property.
(d) Tenant shall, at Tenant's sole cost and expense, keep
the Tenant's Personal Property insured against loss or
damage by fire, vandalism and malicious mischief,
sprinkler leakage, and other physical loss perils
commonly covered by fire and extended coverage, boiler
and machinery, and difference in conditions insurance
(which insurance shall meet the requirements of Section
4.03 hereof) in an amount not less than the full
replacement cost thereof or such other amount as
appears on a schedule submitted by Tenant to Landlord,
which schedule shall be subject to Landlord's approval,
and Tenant shall use the proceeds from any such policy
for the repair and replacement of such items of
Tenant's Personal Property; provided, however, that if
Landlord fails to object to the schedule so submitted
by Tenant within five (5) business days of Landlord's
receipt of such schedule, Landlord's approval of such
schedule shall be deemed given.
(e) Tenant shall pay all Impositions and other taxes
applicable to Tenant's Personal Property.
(f) If Tenant's Personal Property is damaged or destroyed
by fire or otherwise, Tenant shall promptly repair or
replace Tenant's Personal Property unless Tenant is
entitled to and elects to terminate the Lease pursuant
to Section 10.05.
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(g) As to each Leased Property, unless an Event of Default
(or any event which, with the giving of notice or lapse
of time, or both, would constitute an Event of Default)
has occurred and remains uncured beyond any applicable
grace period, Tenant may remove Tenant's Personal
Property from such Leased Property from time to time
provided that: (i) the items removed are not required
or necessary to operate the Business on such Leased
Property (unless such items are being replaced by
Tenant) and (ii) Tenant promptly repairs any damage to
such Leased Property resulting from the removal of
Tenant's Personal Property.
(h) As to each Leased Property, Tenant shall remove all of
Tenant's Personal Property upon the termination or
expiration of the Lease and shall promptly repair any
damage to such Leased Property resulting from the
removal thereof to the reasonable satisfaction of
Landlord; provided, however, if Tenant fails to remove
Tenant's Personal Property from such Leased Property
within thirty (30) days after the termination or
expiration of this Lease with respect thereto, then
Tenant shall be deemed to have abandoned such items of
Tenant's Personal Property, all of which shall become
the property of Landlord, and Landlord may remove,
store and dispose of such property and Tenant shall
have no claim or right against Landlord for such
property or the value thereof regardless of the
disposition thereof by Landlord. Tenant shall pay
Landlord, upon demand, all expenses incurred by
Landlord in removing, storing, and disposing of such
items of Tenant's Personal Property and repairing any
damage caused by such removal. Tenant's obligations
hereunder shall survive the termination or expiration
of this Lease as to such Leased Property.
(i) Tenant shall perform its obligations under any
equipment lease or security agreement for Tenant's
Personal Property.
8.08 Financings of Capital Additions to a Leased Property.
-----------------------------------------------------
Landlord may, but shall be under no obligation to, provide or arrange
construction, permanent or other financing for any Capital Addition proposed to
be made to a Leased Property by Tenant. Any financing so provided by Landlord
shall be made in accordance with, and subject to, a written Addendum to this
Lease.
ARTICLE IX
DEFAULTS AND REMEDIES
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9.01 Events of Default. The occurrence of any one or more of the
-----------------
following shall be an event of default ("Event of Default") hereunder:
(a) Tenant fails to pay in full any installment of Rent, or
any other monetary obligation payable by Tenant to
Landlord hereunder, within ten (10) days after the due
date thereof and after written notice thereof and an
opportunity to cure within a ten (10) day period after
such notice is given to Tenant by Landlord. In the
event of Tenant's failure to make timely payment of
such obligations two (2) times during any twelve (12)
month period, each subsequent such failure within the
twelve (12) months immediately following such second
failure shall immediately constitute an Event of
Default, and Landlord shall not be required to provide
notice thereof, nor shall Tenant have any further
opportunity to cure such failure;
(b) Tenant fails to observe and perform any covenant (other
than the covenant in respect of insurance set forth in
Article IV), condition or agreement hereunder to be
performed by Tenant (except those described in Section
9.01(a) of this Lease) and such failure continues for a
period of twenty (20) days after written notice thereof
is given to Tenant by Landlord; or if, by reason of the
nature of such default, the same cannot with due
diligence be remedied within said twenty (20) days,
such failure will not be deemed to continue if Tenant
proceeds promptly and with due diligence to remedy the
failure and diligently completes the remedy thereof;
provided, however, said cure period will not extend
beyond forty (40) days if the facts or circumstances
giving rise to the default are creating a further harm
to Landlord or the subject Leased Property and Landlord
makes a good faith determination that Tenant is not
undertaking remedial steps that Landlord would cause to
be taken if this Lease were then to terminate;
(c) If Tenant: (i) admits in writing its inability to pay
its debts generally as they become due; (ii) files a
petition in bankruptcy or a petition to take advantage
of any insolvency act; (iii) makes an assignment for
the benefit of its creditors; (iv) is unable to pay its
debts as they mature; (v) consents to the appointment
of a receiver of itself or of the whole or any
substantial part of its property; or (vi) files a
petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any
other
28
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applicable law or statute of the United States of
America or any state thereof;
(d) If Tenant, on insolvency proceedings or on a petition
in bankruptcy filed against it, is adjudicated as
bankrupt or a court of competent jurisdiction enters an
order or decree appointing, without the consent of
Tenant, a receiver of Tenant of the whole or
substantially all of its property, or approving a
petition filed against it seeking reorganization or
arrangement of Tenant under the federal bankruptcy laws
or any other applicable law or statute of the United
States of America or any state thereof, and such
judgment, order or decree is not vacated, dismissed or
set aside within sixty (60) days from the date of the
entry thereof;
(e) If the estate or interest of Tenant in a Leased
Property or any part thereof is levied upon or attached
in any proceeding and the same is not vacated or
discharged within fifteen (15) days after commencement
thereof (unless Tenant is contesting such lien or
attachment in accordance with this Lease) or if such
estate or interest of Tenant is assigned, conveyed or
involuntarily transferred in violation of this Lease;
(f) Any representation, warranty or covenant made by Tenant
on behalf of itself or an Affiliate in this Lease or in
any certificate, demand or request made pursuant hereto
proves to be incorrect, in any material respect, as of
the date of issuance or making thereof;
(g) Conviction of Tenant or an Affiliate of a crime or
offense constituting a felony in the jurisdiction in
which committed or under federal law which conviction
results in the termination of the franchise.
(h) Termination or relinquishment of the franchise or
license pursuant to which Tenant or an Affiliate
conducts business on or from any Leased Property,
provided that such event shall not constitute an Event
of Default if (i) no other Event of Default enumerated
in this Section 9.01 shall occur and be continuing, and
(ii) at a date no later than twenty-four (24) months
following such date of termination or relinquishment,
Tenant or an Affiliate has entered into written new or
amended franchises or licenses for operation of motor
vehicle retail or motor vehicle related businesses at
such Leased Property satisfactory to Landlord in its
discretion applying commercially reasonable standards;
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(i) Default under any franchise or license pursuant to
which Tenant or an Affiliate conducts business at a
Leased Property, if in the Landlord's judgment such
default in light of commercially reasonable standards
and industry practice would have a Material Adverse
Effect (as hereafter defined) on the Leased Property;
(j) A final, non-appealable judgment or judgments for the
payment of money not fully covered (excluding
deductibles) by insurance is rendered against Tenant
and the same remains undischarged, unvacated, unbonded,
unappealed or unstayed for a period of thirty (30)
consecutive days;
(k) Tenant shall fail to observe the covenant in respect to
insurance under Article IV provided Landlord shall have
provided notice of such failure to Tenant and Tenant
shall have failed to cure such failure within three (3)
business days of such notice; or
(l) Except after the effective date of a permitted
assignment meeting the requirements of Article XIII, if
Tenant is liquidated or dissolved, or begins
proceedings toward liquidation or dissolution, or in
any manner permits the sale or divestiture of
substantially all of its assets.
9.02 Remedies. To the extent an Event of Default is applicable
--------
only to a specific Leased Property or specific Leased Properties (in accordance
with Section 9.01 above), the remedies set forth herein shall be exercisable
solely with respect to such Leased Property or Leased Properties, and shall not
be exercisable with respect to any other Leased Property. To the extent an Event
of Default constitutes an Event of Default as to all of the Leased Properties
(in accordance with Section 9.01 above), the remedies set forth herein shall be
exercisable with respect to all of the Leased Properties. Subject to the
foregoing provisions, Landlord may exercise any one or more of the following
remedies upon the occurrence of an Event of Default:
(a) Landlord may terminate this Lease, exclude Tenant from
possession of the subject Leased Property and use
reasonable efforts to lease the subject Leased Property
to others. If this Lease is terminated pursuant to the
provisions of this subparagraph (a) with respect to one
or more, but less than all, of the Leased Properties
identified on Schedule A hereto, Tenant will remain
liable to Landlord for the Rent for all of the Leased
Properties identified on Schedule A and other sums then
due and for the balance of the Term as if the Lease had
not been terminated with respect to the subject Leased
Property, less the net proceeds, if any, of any re-
letting of the subject Leased Property by Landlord
30
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subsequent to such termination, after deducting all
Landlord's expenses in connection with such re-letting,
including without limitation, the expenses set forth in
Section 9.02(b)(ii) below. Notwithstanding the
termination of this Lease with respect to a subject
Leased Property, Tenant shall pay to Landlord all
amounts due as Rent, and such other amounts then due,
under this Lease on the days that such Rent and such
other amounts become due and payable as required by
this Lease.
(b) Without demand or notice, Landlord may re-enter and
take possession of the subject Leased Property or any
part thereof; and repossess such Leased Property as of
Landlord's former estate; and expel Tenant and those
claiming through or under Tenant from such Leased
Property; and, remove the effects of both or either,
without being deemed guilty of any manner of trespass
and without prejudice to any remedies for arrears of
Rent or preceding breach of covenants or conditions. If
Landlord elects to re-enter, as provided in this
paragraph (b) or if Landlord takes possession of such
Leased Property pursuant to legal proceedings or
pursuant to any notice provided by law, Landlord may,
from time to time, without terminating any portion of
this Lease, re-let such Leased Property or any part of
such Leased Property, either alone or in conjunction
with other portions of the Improvements of which such
Leased Property are a part, in Landlord's name but for
the account of Tenant, for such term or terms (which
may be greater or less than the period which would
otherwise have constituted the balance of the Term of
this Lease) and on such terms and conditions (which may
include concessions of free rent, and the alteration
and repair of such Leased Property) as Landlord, in its
uncontrolled discretion, may determine. Landlord may
collect and receive the Rents for such Leased Property.
Landlord will not be responsible or liable for any
failure to re-let such Leased Property, or any part of
such Leased Property, or for any failure to collect any
Rent due upon such re-letting. No such re-entry or
taking possession of such Leased Property by Landlord
will be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such
intention is given to Tenant. No notice from Landlord
under this Lease or under a forcible entry and detainer
statute or similar law will constitute an election by
Landlord to terminate this Lease unless such notice
specifically says so. Landlord reserves the right
following any such re-entry or re-letting, or both, to
exercise its right to terminate this Lease by
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giving Tenant such written notice, and, in that event
such Lease will terminate as specified in such notice.
(c) If Landlord elects to take possession of a Leased
Property according to subparagraph (b) of this Section
9.02 without terminating this Lease, Tenant will pay
Landlord (A) the Rent and other sums which would be
payable under this Lease with respect to such Leased
Property if such repossession had not occurred, less
(B) the net proceeds, if any, of any re-letting of such
Leased Property after deducting all of Landlord's
expenses incurred in connection with such re-letting,
including without limitation, all repossession costs,
brokerage commissions, legal expense, attorneys' fees,
expense of employees, alteration, remodeling, repair
costs, and expense of preparation for such re-letting.
If, in connection with any re-letting, any resulting
lease term for the subject Leased Property extends
beyond the existing Term or Extension Term, as the case
may be, or such Leased Property covered by such re-
letting includes areas which are not part of such
Leased Property, a fair apportionment of the Rent
received from such re-letting and the expenses incurred
in connection with such re-letting will be made in
determining the net proceeds received from such re-
letting. In addition, in determining the net proceeds
from such re-letting, any rent concessions will be
apportioned over the term of the new lease. Tenant will
pay such amounts to Landlord monthly on the days on
which the Rent and all other amounts owing under this
Lease would have been payable if possession had not
been retaken, and Landlord will be entitled to receive
the rent and other amounts from Tenant on each such
day. Notwithstanding anything herein to the contrary,
Landlord, at its option, may collect and apply any Rent
received from such re-letting in accordance herewith
and in such case shall remit any balance thereof to
Tenant. Landlord shall incur no liability or obligation
to Tenant arising out of the collection or application
of Rent by Landlord hereunder.
(d) Landlord may re-enter the applicable Leased Property
and have, repossess and enjoy such Leased Property as
if this Lease had not been made, and in such event,
Tenant and its successors and assigns shall remain
liable for any contingent or unliquidated obligations
or sums owing at the time of such repossession.
(e) Landlord may take whatever action at law or in equity
as may appear necessary or desirable to collect the
Rent and other amounts
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payable hereunder with respect to the subject Leased
Property then due and thereafter to become due, or to
enforce performance and observance of any obligations,
agreements or covenants of Tenant under this Lease.
9.03 Right of Set-Off. Landlord may, and is hereby authorized by
-----------------
Tenant, at any time and from time to time, after advance notice to Tenant, to
set-off and apply any and all sums held by Landlord in respect of a Leased
Property, including all sums held in any escrow for Impositions, any
indebtedness of Landlord to Tenant, and any claims by Tenant against Landlord,
against any obligations of Tenant under this Lease in respect of such Leased
Property and against any claims by Landlord against Tenant, whether or not
Landlord has exercised any other remedies hereunder. Landlord shall set-off and
apply such sums first, to delinquent real estate taxes, unless such taxes are
being protested in good faith and no lien has attached to any Leased Property
with respect thereto, second, to currently due and owing real estate taxes, and
next, to other Tenant's obligations in the order which Landlord may determine.
The rights of Landlord under this Section are in addition to any other rights
and remedies Landlord may have against Tenant.
9.04 Performance of Tenant's Covenants. Landlord may, without
---------------------------------
waiving or releasing any obligation of Tenant, and without waiving or releasing
any obligation or default, perform any obligation of Tenant which Tenant has
failed to perform within five (5) business days after Landlord has sent a
written notice to Tenant informing it of its specific failure (provided no such
notice shall be required if Landlord has previously notified Tenant of such
failure under the provisions of Section 9.01). In the event Landlord deems, in
its discretion, that Tenant's failure to perform such obligation has given rise
to an emergency situation, Landlord may perform such obligation without waiving
or releasing any obligation of Tenant, and without waiving or releasing any
obligation or default; provided, however, that Landlord shall notify Tenant of
such performance as soon as it is reasonably practicable to do so. Tenant shall
reimburse Landlord on demand, as Additional Rent, for any expenditures thus
incurred by Landlord and shall pay interest thereon at the New York Prime Rate.
9.05 Late Charge. Any payment not made by Tenant for more than
-----------
five (5) business days after the due date shall be subject to a late charge
payable by Tenant as Rent of four percent (4%) of the amount of such overdue
payment. Notwithstanding the foregoing, in the event that Tenant's payment is
not made more than five (5) business days after the due date more than two (2)
times during any twelve (12) month period, any such subsequent overdue payments
within the twelve (12) months immediately following such second failure shall be
subject to a late charge payable by Tenant as Rent of seven percent (7%) of the
amount of such overdue payment.
9.06 Litigation; Attorneys' Fees. Within ten (10) days after
----------------------------
Tenant has knowledge of any litigation or other proceeding related to or arising
out of this Agreement or the Leased Property in which claims are asserted in an
amount in excess of $50,000, that (1) may be
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instituted against Tenant, (2) may be instituted against any Leased Property to
secure or recover possession thereof, or (3) may affect the title to or the
interest of Landlord in any Leased Property, Tenant shall give written notice
thereof to Landlord. In the event that Landlord determines that Tenant has
failed to give adequate cooperation or information with respect to any such
litigation, investigation, receivership, administrative, bankruptcy, insolvency
or other similar proceeding, Landlord may, after notice to Tenant, undertake
such investigation or proceeding and Tenant shall pay all reasonable costs and
expenses (the "Costs") related thereto that are incurred by Landlord, whether or
not Landlord has received notice from Tenant of such investigation or
proceeding, and whether or not an Event of Default has actually occurred or has
been declared and thereafter cured, which Costs shall include, without
limitation: (a) the fees, expenses, and costs of any litigation, investigation,
receivership, administrative, bankruptcy, insolvency or other similar
proceeding; (b) reasonable attorney, paralegal, consulting and witness fees and
disbursements; and (c) the expenses, including, without limitation, lodging,
meals, and transportation, of Landlord and its employees, agents, attorneys, and
witnesses in investigating or preparing for litigation, administrative,
bankruptcy, insolvency or other similar proceedings and attendance at hearings,
depositions, and trials in connection therewith. Within ten (10) days of
Landlord's presentation of an invoice of Costs incurred by Landlord pursuant to
the preceeding sentence or otherwise incurred by Landlord in enforcing or
preserving Landlord's rights under this Lease, whether or not an Event of
Default has actually occurred or has been declared and thereafter cured, Tenant
shall pay all such Costs. All such Costs as incurred shall be deemed to be
Additional Rent under this Lease.
9.07 Remedies Cumulative. The remedies of Landlord herein are
-------------------
cumulative to and not in lieu of any other remedies available to Landlord at law
or in equity. The use of, or failure to use, any one remedy shall not be taken
to exclude or waive the right to use any other remedy.
9.08 Escrows and Application of Payments. As security for the
-----------------------------------
performance of its obligations hereunder, Tenant hereby assigns to Landlord all
its right, title and interest in and to all monies escrowed with Landlord under
this Lease and all deposits with utility companies, taxing authorities, and
insurance companies; provided, however, that Landlord shall not exercise its
rights hereunder with respect to any Leased Property until an Event of Default
has occurred in respect of such Leased Property. Any payments received by
Landlord under any provisions of this Lease during the existence, or continuance
of an Event of Default shall be applied to Tenant's obligations, first, to
delinquent real estate taxes, unless such taxes are being protested in good
faith and no lien has attached to any Leased Property with respect thereto,
second, to currently due and owing real estate taxes, and next, to other
Tenant's obligations in the order which Landlord may determine.
9.09 Power of Attorney. Tenant hereby irrevocably and
-----------------
unconditionally appoints Landlord, or Landlord's authorized officer, agent,
employee or designee, as Tenant's true and lawful attorney-in-fact, to act,
after an Event of Default, for Tenant in Tenant's name, place, and stead, and
for Tenant's and Landlord's use and benefit, to execute, deliver and file all
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applications and any and all other necessary documents or things, to effect a
transfer, reinstatement, renewal and/or extension of any and all licenses and
other governmental authorizations issued to Tenant in connection with Tenant's
operation of the Leased Properties, and to do any and all other acts incidental
to any of the foregoing. Tenant irrevocably and unconditionally grants to
Landlord as its attorney-in-fact full power and authority to do and perform,
after an Event of Default, every act necessary and proper to be done in the
exercise of any of the foregoing powers as fully as Tenant might or could do if
personally present or acting, with full power of substitution, hereby ratifying
and confirming all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and is
irrevocable prior to the full performance of Tenant's obligations hereunder.
ARTICLE X
DAMAGE AND DESTRUCTION
10.01 General. Tenant shall notify Landlord if any Leased
-------
Property is damaged or destroyed by reason of fire or any other cause. Tenant
shall promptly repair, rebuild, or restore such Leased Property, at Tenant's
expense, so as to make such Leased Property at least equal in value to such
Leased Property existing immediately prior to such occurrence and as nearly
similar to it in character as is practicable and reasonable. Before beginning
such repairs or rebuilding, or executing any contracts in connection with such
repairs or rebuilding, Tenant will submit for Landlord's approval, which
approval Landlord will not unreasonably withhold or delay, complete and detailed
plans and specifications for such repairs or rebuilding. Promptly after
receiving Landlord's approval of the plans and specifications, Tenant will begin
such repairs or rebuilding and will oversee the repairs and rebuilding to
completion with diligence, subject, however, to strikes, lockouts, acts of God,
embargoes, governmental restrictions, and other causes beyond Tenant's
reasonable control. Landlord will make available to Tenant the net proceeds of
any fire or other casualty insurance paid to Landlord for such repair or
rebuilding as the same progresses, after deduction of any costs of collection,
including attorneys' fees. Payment will be made against properly certified
vouchers of a competent architect in charge of the work and approved by
Landlord. Prior to commencing the repairing or rebuilding, Tenant shall deliver
to Landlord for Landlord's approval a schedule setting forth the estimated
monthly draws for such work. Landlord will contribute to such payments out of
the insurance proceeds an amount equal to the proportion that the total net
amount received by Landlord from insurers bears to the total estimated cost of
the rebuilding or repairing, multiplied by the payment by Tenant on account of
such work. Landlord may, however, withhold ten percent (10%) from each such
payment and shall disburse such amount after: (a) the work of repairing or
rebuilding is completed and proof has been furnished to Landlord that no lien or
liability has attached or will attach to such Leased Property or to Landlord in
connection with such repairing or rebuilding and (b) Tenant has obtained a
certificate of use and occupancy (or its functional equivalent) for the portion
of such Leased Property being repaired or rebuilt. Upon the completion of
rebuilding or repairing and the furnishing of such proof, the balance of the net
proceeds of such insurance payable to Tenant on account of such repairs or
rebuilding will be paid to Tenant. Tenant will
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obtain and deliver to Landlord a temporary or final certificate of occupancy
before such Leased Property is reoccupied for any purpose. Tenant shall
complete such repairs or rebuilding free and clear of mechanic's or other liens,
and in accordance with the building codes and all applicable laws, ordinances,
regulations, or orders of any state, municipal, or other public authority
affecting the repairs or rebuilding, and also in accordance with all
requirements of the insurance rating organization, or similar body. Any
remaining proceeds of insurance after such restoration will be Tenant's
property.
10.02 Landlord's Inspection. During the progress of such repairs
----------------------
or rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the subject Leased Property and will be furnished, if required by them,
with copies of all plans, shop drawings, and specifications relating to such
repairs or rebuilding. Tenant will keep all plans, shop drawings, and
specifications available, and Landlord and its architects and engineers may
examine them at all reasonable times. If, during such repairs or rebuilding,
Landlord and its architects and engineers determine that the repairs or
rebuilding are not being done in accordance with the approved plans and
specifications, Landlord will give prompt notice in writing to Tenant,
specifying in detail the particular deficiency, omission, or other respect in
which Landlord claims such repairs or rebuilding do not accord with the approved
plans and specifications. Upon the receipt of any such notice, Tenant will
cause corrections to be made to any deficiencies, omissions, or such other
respect. Tenant's obligations to supply insurance, according to Article IV,
will be applicable to any repairs or rebuilding under this Section 10.02.
10.03 Landlord's Costs. Tenant shall, within fifteen (15) days
----------------
after receipt of an invoice from Landlord, pay the reasonable costs, expenses,
and fees of any architect or engineer employed by Landlord to review any plans
and specifications and to supervise and approve any construction, or for any
services rendered by such architect or engineer to Landlord as contemplated by
any of the provisions of this Lease, or for any services performed by Landlord's
attorneys in connection therewith; provided, however, that Landlord will consult
with Tenant and notify Tenant of the estimated amount of such expenses.
10.04 Rent Abatement. In the event that the provisions of Section
--------------
10.01 above shall become applicable as to any Leased Property, and subject to
the last sentence of this Section 10.04, the applicable Base Annual Rent shall
be abated or reduced proportionately during any period in which, by reason of
such damage or destruction, there is substantial interference with the operation
of the Business of Tenant in such Leased Property, having regard to the extent
to which Tenant may be required to discontinue any Business on such Leased
Property, and such abatement or reduction shall continue for the period
commencing with such destruction or damage and ending with the substantial
completion by Tenant of such work or repair and/or reconstruction. In the event
that only a portion of any Leased Property is rendered untenantable or incapable
of such use, the Base Annual Rent payable hereunder in respect thereof shall be
reduced proportionately considering the extent to which the Tenant is unable to
practicably use the Leased Property for Business. Tenant shall use reasonably
diligent efforts to make the Leased Property tenantable and capable of such use.
Notwithstanding any other
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provision hereof, such rental abatement shall be limited to the amount of any
rental or Business interruption insurance proceeds actually received by Landlord
under Article IV.
10.05 Substantial Damage During Lease Term. Provided Tenant has
------------------------------------
fully complied with Section 4.01 hereof (including actually maintaining in
effect rental value insurance or Business interruption insurance provided for in
clause (c) thereof) and has satisfied the conditions of the last sentence of
this Section 10.05, if, at any time during the Term or any Extension Term, as
the case may be, of this Lease, any Leased Property is so damaged by fire or
otherwise that it is Completely Destroyed or Partially Destroyed (as such terms
are hereafter defined), Tenant may, within one hundred and eighty (180) days
after such damage, give notice of its election to terminate this Lease with
respect to such Leased Property and, subject to the further provisions of this
Section, this Lease will cease with respect to such Leased Property on the
thirtieth (30th) day after the delivery of such notice. If the Lease is so
terminated, Tenant will have no obligation to repair, rebuild or replace such
Leased Property, and the entire insurance proceeds will belong to Landlord. If
the Lease is not so terminated, Tenant shall rebuild such Leased Property in
accordance with Section 10.01. If Tenant elects to terminate this Lease pursuant
to this Section 10.05, Tenant will pay (or cause to be paid) to Landlord, an
amount equal to the excess amount, if any, of the book value of the damaged
property as shown in Landlord's financial statements as of the date of such
termination, over the amount of all insurance proceeds received by Landlord. A
Leased Property shall be deemed to be "Completely Destroyed" if there is
sufficient damage to such Leased Property that Landlord and Tenant agree to its
classification as such. A Leased Property shall be deemed to be "Partially
Destroyed" if, as a result of damages to it, a substantial part of the Business
(as determined by a reasonable dealer in the trade, in light of standard trade
practices) cannot be conducted on it within one hundred and eighty (180) days of
the occurrence of such damages. In the event that Landlord and Tenant are unable
to agree to a determination of whether any Leased Property is Completely
Destroyed, Partially Destroyed or otherwise, such determination shall be made
pursuant to the Arbitration provisions set forth in Article XIV.
10.06 Damage Near End of Term. Notwithstanding any provisions of
-----------------------
Sections 10.01 or 10.05 to the contrary, if damage to or destruction of any
Leased Property occurs during the last twenty-four (24) months of the Term, and
if such damage or destruction renders the Leased Property Completely Destroyed
or Partially Destroyed, either party shall have the right to terminate this
Lease as to such Leased Property by giving notice to the other within ten (10)
days after the date of damage or destruction, in which event Landlord shall be
entitled to retain the insurance proceeds and Tenant shall pay to Landlord on
demand the amount of any deductible or uninsured loss arising in connection
therewith; provided, however, that any such notice given by Landlord shall be
void and of no force and effect if Tenant exercises an available option for an
Extension Term with respect to such Leased Property pursuant to provisions of
this Lease within ten (10) business days following receipt of such termination
notice.
10.07 Risk of Loss. Notwithstanding anything herein to the
------------
contrary, during the Term or any Extension Term, as the case may be, the risk of
loss of or decrease in the enjoyment
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and beneficial use of the Leased Properties in consequence of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by Tenant, and Landlord shall in no event be answerable or
accountable therefor except in the case of gross negligence, willful misconduct
or breach of this Lease by Landlord resulting in such damage or destruction. In
addition, all risk of loss or decrease in enjoyment and beneficial use in
consequence of foreclosures, attachments, levies or executions is assumed by
Tenant except for foreclosure due to Landlord's indebtedness.
ARTICLE XI
CONDEMNATION
11.01 Total Taking. If at any time during the Term or any
------------
Extension Term, as the case may be, any Leased Property is totally and
permanently taken by right of eminent domain or by conveyance made in response
to the threat of the exercise of such right ("Condemnation"), this Lease shall
terminate as to such Leased Property on the Date of Taking (which shall mean the
date the condemning authority has the right to possession of the property being
condemned), and Tenant shall promptly pay all outstanding applicable Rent and
other charges through the date of termination, provided, however, this Lease
shall not so terminate if the Condemnation occurred due to the failure of Tenant
to maintain such Leased Property as required by Article VII hereof or other
applicable provisions hereof, whether or not such failure on the part of Tenant
constituted an Event of Default hereunder at the time of the Condemnation.
11.02 Partial Taking. If a portion of a Leased Property is taken
--------------
by Condemnation, this Lease shall remain in effect as to such Leased Property if
such Leased Property is not thereby rendered Unsuitable for the continuation of
Tenant's Business on that Leased Property (which shall mean that such Leased
Property is in such a state or condition such that in the good faith judgment of
Tenant, reasonably exercised, it cannot be used on a commercially practicable
basis in the operation of the Business), but if such Leased Property is thereby
rendered Unsuitable for the continuation of Tenant's Business on that Leased
Property, this Lease shall terminate as to such Leased Property on the Date of
Taking, provided such Condemnation was not as a result of Tenant's failure to
maintain such Leased Property as provided for in Section 11.01.
11.03 Restoration. If there is a partial taking of any Leased
-----------
Property and this Lease remains in full force and effect pursuant to Section
11.02, Landlord shall retain the amount of any Landlord Award (as hereafter
defined) received by Landlord, Landlord shall apply such Landlord Award to
accomplish all necessary restoration to the Leased Property, and any excess
after such application shall be retained by Landlord. If there is a partial
taking of any Leased Property and this Lease remains in full force and effect
pursuant to Section 11.02, Tenant shall retain the amount of any Tenant Award
(as hereafter defined) received by Tenant, Tenant shall apply such Tenant Award
to accomplish all necessary restoration of Tenant's property, and any excess
after such application shall be retained by Tenant. Notwithstanding anything in
this
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Section to the contrary, in the event that there is a partial taking of any
Leased Property and this Lease remains in full force and effect pursuant to
Section 11.02, and there is a single Award with respect to such partial taking,
then the Landlord and Tenant shall use their good faith efforts to determine the
proper apportionment of such Award (as hereafter defined) to restoration of
Landlord's and Tenant's respective properties. In the event that the parties
are unable to agree on such apportionment within thirty (30) days, the parties
shall submit to arbitration of an apportionment subject to the arbitration
provisions set forth in Article XIV.
11.04 Landlord's Inspection. During the progress of such
---------------------
restoration, Landlord and its architects and engineers may, from time to time,
inspect the subject Leased Property and will be furnished, if required by them,
with copies of all plans, shop drawings, and specifications relating to such
restoration. Tenant will keep all plans, shop drawings, and specifications
available, and Landlord and its architects and engineers may examine them at all
reasonable times. If, during such restoration, Landlord and its architects and
engineers determine that the restoration is not being done in accordance with
the approved plans and specifications, Landlord will give prompt notice in
writing to Tenant, specifying in detail the particular deficiency, omission, or
other respect in which Landlord claims such restoration does not accord with the
approved plans and specifications. Upon the receipt of any such notice, Tenant
will cause corrections to be made to any deficiencies, omissions, or such other
respect. Tenant's obligations to supply insurance, according to Article IV, will
be applicable to any restoration under this Section.
11.05 Award Distribution. The entire compensation, sums or
------------------
anything of value awarded, paid or received on a total or partial Condemnation
of a Leased Property that is awarded to Landlord shall belong to Landlord (the
"Landlord Award"). The entire compensation, sums or anything of value awarded,
paid or received on a total or partial Condemnation of a Leased Property that is
awarded to Tenant shall belong to Tenant (the "Tenant Award", collectively with
the Landlord Award, the "Awards", and each, individually, an "Award").
Notwithstanding anything in this Section to the contrary, in the event that
there is a total or partial Condemnation of a Leased Property and there is a
single Award with respect to such Condemnation, then the Landlord and Tenant
shall use their good faith efforts to determine the proper apportionment of such
Award to Landlord's and Tenant's respective properties. In the event that the
parties are unable to agree on such apportionment within thirty (30) days, the
parties shall submit to arbitration of an apportionment subject to the
arbitration provisions set forth in Article XIV.
11.06 Temporary Taking. The taking of any Leased Property, or any
----------------
part thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than twenty four (24) months. During any such twenty-four
(24) month period, which shall be a temporary taking, all the provisions of this
Lease shall remain in full force and effect as to such Leased Property with no
abatement of rent payable by Tenant hereunder. In the event of any such
temporary
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taking, the entire amount of any such Award made for such temporary taking
allocable to the Term hereof, whether paid by way of damages, Rent or otherwise,
shall be paid to Tenant.
ARTICLE XII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND FINANCIAL COVENANTS
Tenant hereby represents, warrants and covenants to Landlord as
follows:
12.01 Organization and Qualification.
------------------------------
(a) Tenant is a Maryland corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation or organization, with all power and authority,
corporate or otherwise, necessary to: (i) enter into and
perform this Lease and (ii) own and lease its assets and
properties, and conduct its Business, as it is now being
conducted or proposed to be conducted. Tenant is duly qualified
as a foreign corporation or other entity, as the case may be,
to conduct its Business and own and lease its assets and
properties, and is in good standing, in each jurisdiction where
the character of its assets and properties owned or held under
lease or the nature of its Business makes such qualification
necessary or advisable, and is duly qualified and licensed
under all laws, regulations, ordinances or orders of public or
governmental authorities, or otherwise to carry on its Business
and own or lease its assets and properties in the places and in
the manner in which they are owned, leased or conducted or
proposed to be owned, leased or conducted, except where the
failure to be so organized, qualified and in good standing or
to have such authority, qualification or licensing could not
result in a Material Adverse Change. Complete and correct
copies of Tenant's Charter, as in effect on the date hereof,
and Tenant's by-laws, also as in effect on the date hereof,
have been delivered to Landlord.
(b) Each Affiliate that conducts operations or business on or from
any Leased Property, whether now or at any time in the future,
is duly organized, validly existing and in good standing under
the laws of its organization, with all power and authority,
corporate or otherwise, necessary to own and lease its assets
and properties, and conduct its business, as it is now being
conducted or proposed to be conducted. Each Affiliate is duly
qualified as a foreign corporation or other entity, as the case
may be, to do business and own and lease its assets and
properties, and is in good standing, in each jurisdiction where
the character of its assets and properties owned or held under
lease or the nature of its activities or business makes such
qualification necessary or advisable, and is duly qualified and
licensed
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under all laws, regulations, ordinances or orders or public or
governmental authorities or otherwise to carry on its business
and own or lease its assets and properties in the places and in
the manner in which they are owned, leased or is conducted or
proposed to be owned, leased or conducted, except where the
failure to be so organized, qualified and in good standing or
to have such authority, qualification or licensing could not
result in a Material Adverse Change.
"Material Adverse Change" since a particular specified date, or a date
which may be specified from the circumstances existing immediately prior to the
happening of a specified event or occurrence, or, if no date or event is
specified, with reference to the most recent Annual Financial Statements
delivered pursuant to this Lease, means a material adverse change in the
Business, assets, properties, franchises, financial condition or income of
Tenant or the operations, business, assets, properties, franchises, financial
condition, income or prospects of any Affiliate, whether or not such event or
occurrence is an Event of Default. Nothing that would otherwise be a breach of
any representation, warranty, covenant or obligation herein by any Affiliate
shall be a breach of this Agreement, unless such breach constitutes or causes a
material adverse effect on the Business.
"Affiliate" means with respect to any Person, (i) any Person that
holds direct or indirect beneficial ownership (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least five percent (5%) of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least five percent (5%) of the outstanding equity securities or
interests in a Person, or (ii) any Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with such Person.
A "Person" shall mean and include natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts, Indian tribes or other organizations, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
12.02 Material Agreements. Tenant has previously furnished to
-------------------
Landlord correct and complete copies of (including all exhibits, schedules and
amendments thereto) each agreement listed in Exhibit 12.02, each as in effect on
the date hereof (the "Material Agreements").
12.03 Changes in Condition. Since the date of the latest Annual
---------------------
Financial Statements, no Material Adverse Change has occurred between such date
and the date hereof, and neither Tenant nor any Affiliate has entered into any
material transaction outside the ordinary course of its or their operations or
business, including the Business, except as set forth in Exhibit 12.03 and the
matters contemplated by this Lease.
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12.04 Franchises, Licenses, etc. Tenant and its subsidiaries own,
--------------------------
or have sufficient interests in, all franchises, trademarks, trademark rights,
trade names, trade name rights, copyrights, licenses, permits, authorizations
and other rights as are necessary for the conduct of Tenant's Business and its
subsidiaries' businesses as now conducted or proposed to be conducted by Tenant
or any Affiliate, as well as rights under any agreement under which Tenant or
its subsidiaries has access to confidential information used by Tenant or its
subsidiaries in Tenants' Business or the businesses of its subsidiaries, as the
case may be (collectively, the "Intellectual Property"). All Intellectual
Property is in full force and effect in all material respects, and Tenant and
its subsidiaries are in substantial compliance with the foregoing without any
conflict with the valid rights of others, which has resulted, or could be
reasonably likely to result in any Material Adverse Change. Neither Tenant nor
any Affiliate has violated, or received any communication that by conducting its
Business or any Affiliate's businesses, it or any Affiliate would violate any
franchises, licenses, patents, trademarks, service marks, trade names,
copyrights, trade secrets, proprietary rights or processes of any other Person
(as hereafter defined) nor is Tenant or any Affiliate aware of any such
violations. No event has occurred which permits, or after notice or lapse of
time or both would permit, the revocation or termination of any such license,
franchise or other right or affect the rights of Tenant or any Affiliate so as
to result in or reasonably be likely to result in any Material Adverse Change.
There is no litigation or other proceeding or dispute or, to the knowledge of
Tenant or any Affiliate, threat thereof with respect to the validity or, where
applicable, the extension or renewal, of any of the foregoing which has
resulted, or could result, in any Material Adverse Change.
12.05 Litigation. No litigation, at law or in equity, or any
-----------
proceeding before any court, board or other governmental or administrative
agency or any arbitrator or other forum of alternative dispute resolution is
pending or, to the knowledge of Tenant or any Affiliate, threatened which
involves any risk of any final judgment, order or liability which, after giving
effect to any applicable insurance, has resulted, or could result, in any
Material Adverse Change or which seeks to enjoin the execution and consummation
of this Lease and the performance of Tenant's obligations hereunder. No
judgment, decree or order of any court, board or other governmental or
administrative agency or any arbitrator has been issued against or binds Tenant
or any Affiliate, which has resulted, or could result, in any Material Adverse
Change.
12.06 Authorization and Enforceability. Tenant has taken all
---------------------------------
corporate or other action required to execute, deliver and perform this Lease.
This Lease constitutes the legal, valid and binding obligation of Tenant and is
enforceable against Tenant in accordance with its terms.
12.07 No Legal Obstacle to Lease. Neither the execution and
---------------------------
delivery of this Lease nor the performance of any obligation hereunder has
constituted or resulted in or will constitute or result in:
(a) any breach, violation of, conflict with, default under
or termination of any agreement, contract, mortgage,
instrument, deed or lease to
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which Tenant or any Affiliate is a party or by which it
or they are bound;
(b) the violation of or conflict with any law, statute,
ordinance, judgment, decree, order, rule or regulation
applicable to Tenant, any Affiliate, any Improvements
or any Leased Property; or
(c) any violation of or conflict with Tenant's or any
Affiliate's Charter or By-Laws or other organizational
documents, as the case may be.
No approval, authorization or other action by, or declaration to or
filing with, any governmental or administrative authority or any other Person is
required to be obtained or made by Tenant in connection with the execution,
delivery and performance of this Lease.
12.08 Certain Business Representations:
--------------------------------
(a) Labor Relations. No dispute or controversy between
---------------
Tenant or any Affiliate and its or their employees has
resulted in, or is reasonably likely to result in, any
Material Adverse Change, and neither Tenant nor any
Affiliate anticipates that its relationships with its
unions or employees will result, or are reasonably
likely to result, in any Material Adverse Change.
Tenant and each Affiliate is in compliance in all
material respects with all federal and state laws
relating to employees and labor relations, including,
but not limited to, laws relating to health and safety
in the workplace, non-discrimination in employment and
the payment of wages.
(b) Antitrust. Tenant and each Affiliate is in compliance
----------
in all material respects with all federal and state
antitrust laws relating to Tenant's Business and the
subsidiaries' businesses and the geographic
concentration thereof.
(c) Consumer Protection. Neither Tenant nor any
--------------------
Affiliate is in violation of any rule, regulation,
order, or interpretation of any rule, regulation or
order of the Federal Trade Commission (including truth-
in-lending) or other federal, state or local public or
governmental authority or agency, with which the
failure to comply, in the aggregate, has resulted in,
could result in, a Material Adverse Change.
(d) Future Expenditures. Neither Tenant nor any Affiliate,
-------------------
anticipates that further expenditures, if any, by
Tenant or any Affiliate needed to meet the provisions
of any federal, state or foreign governmental
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statutes, orders, rules or regulation could result in
any Material Adverse Change.
(e) Benefit Liabilities. Neither Tenant nor any ERISA
-------------------
Affiliate (as hereafter defined) maintains, contributes
to, or is obligated to contribute to, nor has Tenant or
any ERISA Affiliate maintained, contributed to, been
obligated to contribute to, or had any direct,
indirect, or contingent liability with respect to, any
Title IV Plan (as hereafter defined). Tenant and each
ERISA Affiliate have timely made all contributions
required to be made with respect to each of their
Tenant Benefit Plans (as hereafter defined). Each
Tenant Benefit Plan has been maintained in compliance
with its terms and with applicable laws (including
specifically the Code and the Employee Retirement
Income Security Act of 1974 ("ERISA"). Neither Tenant
nor any ERISA Affiliate has incurred any obligation in
connection with the termination or withdrawal from any
Tenant Benefit Plan. Contributions made by Tenant or
its ERISA Affiliates, as the case may be, to any Tenant
Benefit Plan have been accounted for, and the
liabilities associated therewith are disclosed, in
Tenant's or its ERISA Affiliates', as the case may be,
financial statements for the fiscal year ending before
the date as of which this representation is given. The
present value of the accrued benefit liabilities
(whether or not vested) under each Tenant Benefit Plan,
determined as of the end of Tenant's or its ERISA
Affiliates', as the case may be, most recently ended
fiscal year on the basis of actuarial assumptions, each
of which is reasonable, did not exceed the current
value of the assets of such Tenant Benefit Plan
allocable to such benefit liabilities. "Tenant Benefit
Plan" means any plan, fund, or other similar program
described in Section 3(2) of ERISA and established or
maintained or with respect to which Tenant and/or any
ERISA Affiliate has an obligation to contribute for the
benefit of its employees (or for which Tenant could be
directly or contingently liable). "Title IV Plan" means
an "employee benefit plan" (as defined in Section 3(3)
of ERISA) that is subject to Title IV of ERISA and is
or has been established or maintained, by Tenant or any
ERISA Affiliate, or to which contributions are, have
been, or should have been made. "ERISA Affiliate" means
any trade or business, whether or not incorporated,
that, together with Tenant, is or has been under common
control, within the meaning of Section 414(b), (c),
(m), or (o) of the Code or Section 4001 of ERISA.
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12.09 Certain Financial Covenants. Tenant or an Affiliate, as
----------------------------
applicable, is in compliance in all material respects with all financial
covenants required to be maintained pursuant to any franchise or other agreement
pursuant to which Tenant or such Affiliate operates its business, except in such
respects as shall not result in any franchisor under any franchise or operating
agreement to which Tenant is a party taking any action that could result in a
Material Adverse Change.
12.10 Cash Flow Coverage Ratio Covenant. On the date of this
---------------------------------
Lease and measured at a date that is twenty-four (24) months following such date
(each a "Cash Flow Measurement Date"), and on each anniversary date that is
twenty-four (24) months following a prior Cash Flow Measurement Date, Tenant
shall have maintained a Cash Flow Coverage Ratio of not less than 1.5 to 1.0
based on the Annual Financial Statements to be delivered to Landlord in
accordance with Section 6.04 hereof. "Cash Flow Coverage Ratio" means the
aggregate of net income before taxes plus mortgage interest, rent expense,
depreciation, compensation of principals of the Business, management fees plus
the annual LIFO adjustment and other non-cash expenses, less recurring capital
expenditures and gain (loss) on sale of real estate, dividends and/or profits
taken out of Tenant divided by the aggregate of the Tenant's obligations under
this Lease. Notwithstanding anything herein to the contrary, in the event that
Tenant shall not be in compliance with this covenant at a Cash Flow Measurement
Date or Tenant shall have knowledge of such non-compliance prior to any Cash
Flow Measurement Date, the Tenant shall have the right to cure such breach
through any reasonable commercial means, including, but not limited to,
providing guarantees acceptable to Landlord, increasing capital, or cross
collateralizing with any other property of Tenant or an Affiliate, provided that
such breach is cured within one hundred and eighty (180) days after Notice by
Landlord to Tenant of the existence of such breach.
12.11 Disclosure. This Lease does not contain any untrue
----------
statement of a material fact or omit to state a material fact necessary in order
to make any statement contained herein not misleading in light of the
circumstances under which it was made. To Tenant's knowledge, there is no event,
fact or occurrence that has resulted, or in the future (so far as Tenant can
reasonably foresee) could result, in any Material Adverse Change, except to the
extent that present or future general and sector-specific economic conditions
may result in a Material Adverse Change.
12.12 Covenant Not to Acquire. Tenant covenants and agrees that
-----------------------
during the Term and any Extension Term, as the case may be, Tenant and its
controlling shareholders or its or their Affiliates will not acquire, directly
or indirectly, more that 9.90% of the outstanding common shares of beneficial
interest of Capital Automotive REIT. Tenant covenants and agrees that it will
divest itself of such shares of Capital Automotive REIT as may be necessary to
satisfy the limitations of this Section 12.12.
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ARTICLE XIII
ASSIGNMENT AND SUBLETTING; ATTORNMENT
13.01 Prohibition Against Subletting and Assignment. Subject to
---------------------------------------------
Section 13.03, Tenant shall not, without the prior written consent of Landlord,
or upon compliance with any conditions established by Landlord, in its sole
discretion, assign, mortgage, pledge, hypothecate, encumber or otherwise
transfer (except to an Affiliate) this Lease or any interest herein, or all or
any part of any Leased Property, or suffer or permit this Lease or the leasehold
estate created hereby or any other rights arising hereunder to be assigned,
transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in
part, whether voluntarily, involuntarily or by operation of law. For purposes of
this Section 13.01, an assignment of this Lease shall be deemed to include any
Change of Control of Tenant, as if such Change of Control were an assignment of
the Lease. In the event that (i) Landlord shall withhold any consent to any
assignment or transfer of this Lease or any interest herein, and (ii) such
assignee or transferee is approved by the relevant manufacturer for continuation
as a franchisee, there shall be a presumption that such assignment or transfer
was reasonable and Landlord shall have the burden of rebutting such presumption
and of proving that such consent was in fact reasonably withheld (or that such
conditions were reasonable).
13.02 Changes of Control. A Change of Control requiring the consent
------------------
of Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any
shareholder or equity holder of Tenant of a Controlling
(which shall mean, as applied to any Person, the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person,
whether through the ownership of voting securities, by
contract or otherwise) interest in Tenant to a Person other
than an Affiliate of Tenant, other than in either case a
distribution to the public pursuant to an effective
registration statement under the Securities Act of 1933, as
amended (a "Registered Offering");
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by
operation of law or otherwise) provided, however, that no
Change of Control shall be deemed to have occurred in the
event of the transfer of assets as a result of the death of
a person involved in the Business, so long as the transferee
is approved by the manufacturer for the continuation of the
Business; or
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(c) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an entity owned
and Controlled by an Affiliate), and Tenant is not the
surviving entity.
13.03 Operating/Service Agreements.
----------------------------
(a) Permitted Agreements. Tenant shall, without Landlord's prior
--------------------
approval, be permitted to enter into such operating/service
agreements for portions of each Leased Property to various
licensees in connection with Tenant's Business as are
customarily associated with or incidental to the operation
of such Leased Property, which agreements may be in the
nature of a sublease agreement.
(b) Terms of Agreements. Each operating/service agreement
-------------------
concerning a Leased Property shall be subject and
subordinate to the provisions hereof. No agreement made as
permitted by Section 13.03(a) shall affect or reduce any of
the obligations of Tenant hereunder, and all such
obligations shall continue in full force and effect as if no
agreement had been made. No agreement shall impose any
additional obligations on Landlord hereunder.
(c) Copies. Tenant shall, within ten (10) days after the
------
execution and delivery of any operating/service agreement
permitted by Section 13.03(a), deliver a duplicate original
thereof to Landlord.
(d) Assignment of Rights in Agreements. As security for
----------------------------------
performance of its obligations hereunder, Tenant hereby
grants, conveys and assigns to Landlord all right, title and
interest of Tenant in and to all operating/service
agreements now in existence or hereinafter entered into for
each Leased Property, and all extensions, modifications and
renewals thereof and all rents, issues and profits
therefrom, to the extent the same are assignable by Tenant.
Landlord hereby grants to Tenant a license to collect and
enjoy all rents and other sums of money payable under any
such agreement; provided, however, that Landlord shall have
the absolute right at any time after the occurrence and
continuance of an Event of Default upon notice to Tenant and
any vendors or licensees to revoke said license and to
collect such rents and sums of money and to retain the same.
Tenant shall not (i) after the occurrence and continuance of
an Event of Default, consent to, cause, or allow, any
material modification or alteration of any of the terms,
conditions or covenants of any of the agreements or the
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termination thereof, without the prior written approval of
Landlord nor (ii) accept any rents (other than customary
security deposits) more than thirty (30) days in advance of
the accrual thereof nor permit anything to be done, the
doing of which, nor omit or refrain from doing anything, the
omission of which, will or could be a breach of or default
in the terms of any of the agreements.
(e) Licenses, Etc. For purposes of Section 13.03, the
-------------
operating/service agreements shall mean any licenses,
concession arrangements, or other arrangements relating to
the possession or use of all or any part of any Leased
Property.
13.04 Assignment. If Landlord shall withhold its consent to any
----------
assignment or if Landlord shall have established conditions to approval of any
assignment but such conditions shall not have been complied with, to the
satisfaction of Landlord, such assignment shall not in any way impair the
continuing primary liability of Tenant hereunder. No consent to any assignment
in a particular instance shall be deemed to be a general waiver of the
prohibition set forth in Article XIII. Any assignment shall be solely of
Tenant's entire interest in this Lease with respect to the subject Leased
Property or Leased Properties. Any assignment or other transfer of all or any
portion of Tenant's interest in this Lease in contravention of Article XIII
shall be voidable at Landlord's option.
13.05 REIT Limitations.
----------------
(a) Anything contained herein to the contrary notwithstanding,
Tenant shall not: (a) sublet or assign a Leased Property or
this Lease on any basis such that the rental or other
amounts to be paid by the sublessee or assignee thereunder
would be based, in whole or in part, on the income or
profits derived by the business activities of the sublessee
or assignee; (b) sublet or assign a Leased Property or this
Lease to any Person that, under Section 856(d)(2)(B) of the
Internal Revenue Code of 1986, as amended (the "Code"),
Landlord or its general partner owns, directly or indirectly
(by applying constructive ownership rules set forth in
Section 856(d) (5) of the Code, a ten percent (10%) or
greater interest; or (c) sublet or assign a Leased Property
or this Lease in any other manner or otherwise derive any
income which could cause any portion of the amounts received
by Landlord pursuant hereto or any sublease to fail to
qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or which could cause any other
income received by Landlord to fail to qualify as income
described in Section 856(c) (2) of the Code. The
requirements of
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this Section 13.05 shall likewise apply to any further
subleasing by any subtenant.
(b) Tenant acknowledges that Capital Automotive REIT, a Maryland
real estate investment trust and the general partner of
Landlord (the "Company"), intends to elect to be taxed as a
real estate investment trust (a "REIT") under the Code.
Tenant shall not do anything which would adversely affect
the Company's status as a REIT. Tenant hereby agrees to
modifications of this Lease which do not materially
adversely affect Tenant's rights and liabilities if such
modifications are required to retain or clarify the
Company's status as a REIT.
13.06 Attornment. Tenant shall insert in each sublease permitted
----------
under Section 13.03(a) provisions to the effect that: (a) such sublease is
subject and subordinate to all of the terms and provisions of this Lease and to
the rights of Landlord hereunder; (b) in the event this Lease shall terminate
before the expiration of such sublease, the sublessee thereunder will, at
Landlords' option, attorn to Landlord and waive any right the sublessee may have
to terminate the sublease or to surrender possession thereunder, as a result of
the termination hereof; and (c) in the event the sublessee receives a written
notice from Landlord or Landlord's assignees, if any, stating that Tenant is in
default under this Lease, the sublessee shall thereafter be obligated to pay all
rentals accruing under said sublease directly to the party giving such notice,
or as such party may direct. All rentals received from the sublessee by Landlord
or Landlord's assignees in respect of a Leased Property, if any, as the case may
be, shall be credit against the amounts owing by Tenant hereunder with respect
to such Leased Property.
13.07 Severance and Spin-Off. If at any time while this Lease is in
----------------------
effect any Leased Property shall be utilized by Tenant in the operation of more
than one automobile franchise, then provided that there is no existing Event of
Default and there exists no condition which, with the passage of time, could
become an Event of Default, Tenant shall have the right (the "Spin-Off Right")
to sever and spin-off one or more parcels (each referred to as a "Spin-Off
Parcel") of the Leased Property from this Lease, subject to compliance with the
requirements of Section 13.08.
13.08 Assignment. If the Leased Property is not a separate subdivided
----------
lot, Landlord may condition its approval of an assignment upon Tenant showing
that there are appropriate provisions (such as a condominium regime,
subdivision, and/or reciprocal easements, lender and/or franchisor consents if
necessary, and separate tax lots) which allow the Leased Property to be
separately owned and operated without interference from or dependence upon,
another person as to items such as access, real estate taxes, or utilities.
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ARTICLE XIV
ARBITRATION
14.01 Controversies. Except with respect to the payment of Rent
-------------
hereunder, which shall be subject to the provisions of Section 9.02, in the
event a controversy arises between the parties as to any of the requirements of
this Lease or the performance hereunder, which the parties are unable to
resolve, the parties agree to waive the remedy of litigation (except for
extraordinary relief in an emergency situation) and agree that such controversy
or controversies shall be determined by arbitration as hereafter provided in
this Article.
14.02 Appointment of Arbitrators. The party or parties requesting
--------------------------
arbitration shall serve upon the other a demand therefor, in writing, specifying
in detail the controversy and matter(s) to be submitted to arbitration before
the American Arbitration Association. The selection of arbitrators shall be
conducted pursuant to the rules for resolution of commercial disputes
promulgated by the American Arbitration Association. The party or parties giving
notice shall request a listing of available arbitrators from the American
Arbitration Association, and each party shall respond in the selection process
within fifteen (15) days after each receipt of such listings until a panel of
three (3) arbitrators has been designated. If either party fails to respond
within fifteen (15) days, it is agreed that the American Arbitration Association
may make such selections as are necessary to complete the panel of three (3)
arbitrators.
14.03 Arbitration Procedure. Within five (5) business days after the
---------------------
selection of the arbitration panel, the arbitrators shall give written notice to
each party as to the time and the place of each meeting, which shall be held in
Washington, D.C., at which the parties may appear and be heard, which shall be
no later than fifteen (15) days after certification of the arbitration panel.
The parties specifically waive discovery, and further waive the applicability of
rules of evidence or rules of procedure in the proceedings. The applicable rules
shall be those in effect at the time for the resolution of commercial disputes
promulgated by the American Arbitration Association. Notwithstanding the
foregoing, the substantive law governing the arbitration shall be the laws of
the State of Delaware (without application of choice of law provisions). The
arbitrators shall take such testimony and make such examination and
investigations as the arbitrators reasonably deem necessary. The decision of the
arbitrators shall be in writing signed by a majority of the panel which decision
shall be final and binding upon the parties to the controversy. Provided,
however, in rendering their decisions and making awards, the arbitrators shall
not add to, subtract from or otherwise modify the provisions of this Lease.
14.04 Expenses. The expenses of the arbitration shall be assessed by
--------
the arbitrators and specified in the written decision. In the absence of a
determination or assessment of expenses of the arbitration procedure in the
award, all of the expenses of such arbitration shall be divided equally between
Landlord and Tenant. Each party in interest shall be responsible for and pay the
fees, costs and expenses of its own counsel, unless the arbitration award
provides for an assessment of reasonable attorneys' fees and costs.
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14.05 Enforcement of the Arbitration Award. There shall be no appeal
------------------------------------
from the decision of the arbitrators, and upon the rendering of an award, any
party thereto may file the arbitrators' decision in the United States District
Court for the Eastern District of Virginia for enforcement as provided by
applicable law.
ARTICLE XV
QUIET ENJOYMENT, SUBORDINATION,
ATTORNMENT, ESTOPPEL CERTIFICATES
15.01 Quiet Enjoyment. So long as Tenant performs all of its
---------------
obligations under this Lease, Tenant's possession of the Leased Properties will
not be disturbed by or through Landlord.
15.02 Landlord Mortgages; Subordination. Subject to Section 15.03,
---------------------------------
without the consent of Tenant, Landlord may, from time to time, directly or
indirectly, create or otherwise cause to exist any liens, encumbrances, security
interests or title retention agreements on any Leased Property, or any portion
thereof or any interest therein, whether to secure any borrowing or other means
of financing or refinancing. Tenant shall execute, acknowledge and deliver to
Landlord, at any time and from time to time upon demand by Landlord or any
mortgagee or any holder of any mortgage or other instrument described in this
Section, without cost to Landlord, a Subordination and Non-Disturbance Agreement
in the form attached hereto as Exhibit 15.02, which provides that (i) Tenant's
rights hereunder are subordinate to any ground lease or underlying lease, first
mortgage, first deed of trust, or other first lien against any Leased Property,
together with any renewal, consolidation, extension, modification, or
replacement thereof, which now or at any subsequent time affects any Leased
Property or any interest of Landlord in any Leased Property, except to the
extent that any such instrument expressly provides that this Lease is superior;
and (ii) in the event such party succeeds to Landlord's interest under the Lease
and provided that no Event of Default by Tenant exists, such party will not
disturb Tenant's possession, use or occupancy of the subject Leased Property. If
Tenant fails or refuses to execute, acknowledge, and deliver such Subordination
and Non-Disclosure Agreement within ten (10) business days after written demand,
then Landlord shall send to Tenant a second written demand. If Tenant fails or
refuses to execute, acknowledge and deliver such Subordination and Non-
Disclosure Agreement within ten (10) days after such second written demand, then
Landlord or such successor in interest may execute, acknowledge and deliver such
Subordination and Non-Disclosure Agreement on behalf of Tenant as Tenant's
attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord,
its successors and assigns, as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant the Subordination and Non-
Disclosure Agreement. This power of attorney is coupled with an interest and is
irrevocable.
15.03 Attornment. If any holder of any mortgage, indenture, deed of
----------
trust, or other similar instrument described in Section 15.02 succeeds to
Landlord's interest in any Leased
51
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Property, Tenant will pay to such holder all Rent subsequently payable hereunder
as to such Leased Property. Tenant shall, upon request of anyone succeeding to
the interest of Landlord, automatically become the tenant of, and attorn to,
such successor in interest without changing this Lease. The successor in
interest will not be bound by: (a) any payment of Rent for more than one (1)
month in advance; (b) any amendment or modification hereof made without its
written consent; (c) any claim against Landlord arising prior to the date on
which the successor succeeded to Landlord's interest; or (d) any claim or offset
of Rent against Landlord.
15.04 Estoppel Certificates. At the request of Landlord or any
---------------------
mortgagee or purchaser of a Leased Property, Tenant shall execute, acknowledge,
and deliver an estoppel certificate, in recordable form, in favor of Landlord or
any mortgagee or purchaser of any Leased Property certifying the following as to
such Leased Property: (a) that this Lease is unmodified and in full force and
effect, or if there have been modifications that the same is in full force and
effect as modified and stating the modifications; (b) the date to which Rent and
other charges have been paid; (c) that neither Tenant nor Landlord is in default
nor is there any fact or condition which, with notice or lapse of time, or both,
would constitute a default, if that be the case, or specifying any existing
default; (d) that Tenant has accepted and occupies such Leased Property; (e)
that Tenant has no defenses, set-offs, deductions, credits, or counterclaims
against Landlord, if that be the case, or specifying such that exist; (f) that
Landlord has no outstanding construction or repair obligations; and (g) such
other information as may reasonably be requested by Landlord or any mortgagee or
purchaser. Any purchaser or mortgagee may rely on this estoppel certificate. If
Tenant fails to deliver the estoppel certificates to Landlord within ten (10)
business days after the request of Landlord, then Landlord shall request such
delivery a second time. If Tenant fails to deliver the estoppel certificates to
Landlord within ten (10) days after such second request by Landlord, then Tenant
shall be deemed to have certified that: (a) this Lease is in full force and
effect and has not been modified, or that this Lease has been modified as set
forth in the certificate delivered to Tenant; (b) Tenant has not prepaid any
Rent or other charges except for the current month; (c) Tenant has accepted and
occupies such Leased Property; (d) neither Tenant nor Landlord is in default nor
is there any fact or condition which, with notice or lapse of time, or both,
would constitute a default; (e) Landlord has no outstanding construction or
repair obligation; and (f) Tenant has no defenses, set-offs, deductions,
credits, or counterclaims against Landlord. Tenant hereby irrevocably appoints
Landlord as Tenant's attorney-in-fact to execute, acknowledge and deliver on
Tenant's behalf any estoppel certificate which Tenant does not object to within
twenty (20) days after Landlord sends the certificate to Tenant. This power of
attorney is coupled with an interest and is irrevocable.
15.05 Waiver of Landlord's Lien. Landlord agrees to and does hereby
-------------------------
Waiver its Landlord's lien and any other rights that it may have with respect to
property or assets representing the security or collateral under Tenant's
"floor-plan" or similar financing arrangements, during the Term or any Extension
Term. Landlord shall, upon request by any such lender, execute an acknowledgment
of such waiver.
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ARTICLE XVI
RIGHT OF FIRST OFFER
16.01 Right of First Offer During Lease Term or Extension Term.
--------------------------------------------------------
(a) If and when during the Term or Extension Term, as the case
may be, Landlord shall decide to sell the Leased Properties
to a Person who is not an Affiliate of Landlord (the
"Decision to Sell"), provided that no Event of Default has
occurred and is continuing under the Lease, Landlord shall
notify Tenant in writing within ten (10) business days after
Landlord makes a Decision to Sell. Tenant shall have ten
(10) business days thereafter in which to notify Landlord in
writing of its desire to purchase the Leased Properties. If
Tenant shall give such notice, Tenant shall have a period of
thirty (30) days within which to make a written offer to
purchase the property (the "First Offer"). The First Offer
must set forth the purchase price, deposit amounts and
closing date and any and all other terms and conditions
being proposed by Tenant.
(b) Within thirty (30) days of receipt of the First Offer,
Landlord shall give Tenant written notice of its acceptance
or rejection thereof. If accepted, Tenant shall, within five
(5) days after receipt of the acceptance notice, make the
deposit called for in the First Offer and the parties shall
proceed to contract and closing upon the terms thereof. If
the First Offer is rejected, then, subject to the provisions
of subsections (c) and (d) of this Section 16.01, Tenant
shall have no further rights with respect to the purchase of
the Leased Properties during the Term or Extension Term, as
the case may be.
(c) If Landlord shall reject the First Offer, for a one year
period thereafter it may proceed to sell the Leased
Properties, subject to the Lease and the remaining Term or
Extension Term thereof, as the case may be, to any third
party, provided (i) the purchase price of such sale shall
exceed that specified in the First Offer, or (ii) if the
purchase price of such sale does not exceed that specified
in the First Offer, the terms of such sale, taken together,
are more favorable to Landlord, in Landlord's reasonable
judgement, than those of the First Offer. There shall be a
presumption that Landlord's judgment was reasonable and
Tenant shall have the burden of rebutting such presumption
and of proving that such judgment was in fact unreasonable.
53
<PAGE>
(d) If no sale is effected by Landlord within the period
specified in subsection (c) above, then if Landlord
thereafter desires to sell the Leased Properties, the
procedure set forth in subsections (a), (b) and (c) shall be
followed.
(e) This option shall terminate in any event twenty (20) years
after the death of the last descendant of the father of John
J. Pohanka living at the time of execution of this Lease.
16.02 Right to Purchase at End of an Extension Term.
----------------------------------------------
(a) Landlord hereby grants the Tenant the right and option to
purchase the Leased Properties (the "Option to Purchase") at
an amount equal to the Property Consideration (as hereafter
defined) upon termination of an Extension Term of this
Lease. The Option to Purchase shall not be granted if Tenant
does not extend the Term of this Lease pursuant to Section
1.03 or if on the Option Exercise Date (as hereafter
defined) an Event of Default with respect to any Leased
Property exists and has not been cured. The Tenant shall
notify Landlord in writing of its intent to exercise this
Option to Purchase, thirty (30) days prior to the end of an
Extension Term of this Lease (the "Option Exercise Date").
(b) The consideration to be paid for the Leased Properties upon
exercise of the Option to Purchase (the "Property
Consideration") shall be the Appraised Value (as hereafter
defined) determined by (1) an independent appraiser, who is
a member of the Appraisal Institute, and will be selected by
Landlord, (the "Landlord MAI Appraiser"), (2) a second
appraiser, who is a member of the Appraisal Institute, and
will be selected by the Tenant (the "Tenant MAI Appraiser"),
and (3) a third MAI Appraiser selected by agreement of the
Landlord MAI Appraiser and the Tenant MAI Appraiser (the
"Third MAI Appraiser") (each an "Appraiser" and,
collectively, the "Appraisers"). Landlord and Tenant shall,
as promptly as possible, but in no event later than ten (10)
days following the Option Exercise Date, select its
respective Appraiser. The Third MAI Appraiser shall be
selected no later than five (5) days after the selection of
the other Appraisers. The costs of the Appraisers'
appraisals shall be shared equally by the parties. As
promptly as possible but in no event later than fifteen (15)
days after selection of the Third Appraiser, each Appraiser
shall deliver his or her written report of the Appraisers'
determination of the fair market value of the Leased
Property,
54
<PAGE>
which determination shall be based, for each Leased
Property, upon the highest and best use of such Leased
Property, taking into consideration the location of such
Leased Property and other properties comparable thereto. The
"Appraised Value" of the Real Property shall be equal to the
arithmetic mean of the two (2) fair market value
determinations of the Appraisers that are closest in value.
In the event that the values of (i) the difference between
the highest appraisal value and the next lower appraisal
value, and (ii) the difference between the lowest appraisal
value and the next higher appraisal value, are equal, then
the "Appraised Value" shall be equal to the arithmetic mean
of the fair market value determinations of all Appraisers.
(c) Upon determination of the Property Consideration, Landlord
and Tenant agree to cooperate to close the sale and purchase
of the Leased Property entirely for cash on an " as is,
where as basis" and with no warranties by Landlord other
than in a special warranty deed, within forty-five (45) days
after the date of determination of the Property
Consideration (the "Option Closing Period"). If the sale and
purchase of the Leased Property does not close within the
Option Closing Period due to Tenant's default, Landlord
shall have no further obligations to Tenant pursuant to this
Section 16.02 (a).
ARTICLE XVII
MISCELLANEOUS
17.01 Notices. Landlord and Tenant hereby agree that all notices,
-------
demands, requests, and consents (hereinafter "Notices") required to be given
pursuant to the terms of this Lease shall be in writing and shall be addressed
as follows:
If to Tenant:
Geneva Enterprises, Inc.
1100 South Glebe Road
Arlington, Virginia 22204
Attention: Donald Bavely
With a copy to:
Charapp, Deese & Weisse, LLP
1901 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Michael G. Charapp, Esq.
55
<PAGE>
If to Landlord:
Capital Automotive L.P.
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
Attention: Thomas D. Eckert, President and Chief Executive Officer
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
and shall be served by: (a) personal delivery; (b) certified mail, return
receipt requested, postage prepaid; or (c) nationally recognized overnight
courier. All notices shall be deemed to be given upon the earlier of actual
receipt or three (3) days after mailing, or one (1) business day after deposit
with the overnight courier. Any Notices meeting the requirements of this
Section shall be effective, regardless of whether or not actually received.
Landlord or Tenant may change its notice address at any time by giving the other
party Notice of such change. Any such Notice of change of address shall be
effective five (5) days after delivery.
17.02 Advertisement of a Leased Property. In the event the parties
----------------------------------
hereto have not executed a renewal lease, or agreed to the Extension Term, as to
the Leased Property within twelve (12) months prior to the expiration of the
Term or an Extension Term, as the case may be, then Landlord or its agent shall
have the right to enter such Leased Property at all reasonable times for the
purpose of exhibiting such Leased Property to others and to place upon such
Leased Property for and during the period commencing two-hundred seventy (270)
days prior to the expiration of the Term or an Extension Term, as the case may
be, "for sale" or "for rent" notices or signs.
17.03 Landlord's Access. Landlord, or its designated agents or
-----------------
contractors, shall have the right to enter upon each Leased Property, upon
reasonable prior notice to Tenant, for purposes of inspecting the same and
assuring Tenant's compliance with this Lease provided, any such entry by
Landlord shall be subject to all rules, guidelines and procedures prescribed by
Tenant in connection therewith. Landlord shall not be allowed entry to a Leased
Property unless accompanied by such of Tenant's personnel as Tenant shall
require and which Tenant shall promptly provide.
17.04 Entire Agreement. This Lease contains the entire agreement
----------------
between Landlord and Tenant with respect to the subject matter hereof. No
representations, warranties, and agreements have been made by Landlord or Tenant
except as set forth in this Lease.
56
<PAGE>
17.05 Severability. If any term or provision of this Lease is held by
------------
Landlord to be invalid or unenforceable as to a Leased Property, such holding
shall not affect the remainder of this Lease as to such Leased Property, or the
validity or enforceability of this Lease as to any other Leased Property, and
the same shall remain in full force and effect, unless such holding
substantially deprives Tenant of the use of such Leased Property or Landlord of
the Rents therefor, in which case this Lease shall forthwith terminate as to
such Leased Property as if by expiration of the Term or an Extension Term, as
the case may be, but shall remain in full force and effect with respect to each
other Leased Property.
17.06 Captions and Headings. The captions and headings are inserted
---------------------
only as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Lease or the intent of any provision hereof.
17.07 Governing Law. This Lease shall be construed under the laws of
-------------
the State of Virginia (without application of choice of law provisions).
17.08 Memorandum of Lease or Certain Rights Under the Lease. Landlord
-----------------------------------------------------
and Tenant agree that a record of this Lease or of certain rights under this
Lease may be recorded by either party in a memorandum of lease approved by
Landlord and Tenant with respect to each Leased Property. The party recording
such memorandum must bear all costs of such recording.
17.09 Waiver. No waiver by Landlord of any condition or covenant
------
herein contained, or of any breach of any such condition or covenant, shall be
held or taken to be a waiver of any subsequent breach of such covenant or
condition, or to permit or excuse its continuance or any future breach thereof
or of any condition or covenant, nor shall the acceptance of Rent by Landlord at
any time when Tenant is in default in the performance or observance of any
condition or covenant herein be construed as a waiver of such default, or of
Landlord's right to terminate this Lease or exercise any other remedy granted
herein on account of such default.
17.10 Assignment; Binding Effect. Except as otherwise set forth
--------------------------
herein, this Lease shall not be assignable by Tenant, without the prior written
consent of Landlord. This Lease will be binding upon and inure to the benefit of
the heirs, successors, personal representatives, and permitted assigns of
Landlord and Tenant.
17.11 Consents and Approvals. In each instance in this Lease where
----------------------
the Landlord is required or permitted to give a consent or approval, or to make
a determination, the Landlord's decision and any conditions thereon must be
reasonable under the circumstances. Except as provided in Sections 8.07(d) and
13.01, there shall be a presumption that each such decision and any conditions
thereon by Landlord was in fact reasonable, and Tenant shall have the burden of
proof in any attempt to rebut that presumption. With respect to Sections 8.07(d)
and 13.01, there shall be a presumption that each such decision and any
conditions thereon by
57
<PAGE>
Landlord was in fact unreasonable, and Landlord shall have the burden of proof
in any attempt to rebut that presumption.
17.12 Single Property. Throughout the form of this Lease there are
---------------
references to "Leased Properties". If, in fact, there is only one Leased
Property being leased hereunder, all such references shall, without further
action, be deemed amended to refer solely to such Leased Property and all
provisions relating to Leased Properties, including remedies applicable to only
one Leased Property, shall likewise be amended to the extent necessary, but only
to the extent necessary, to give effect to the fact that there is only one
Leased Property.
17.13 Modification. This Lease may only be modified by a writing
------------
signed by both Landlord and Tenant.
17.14 Incorporation by Reference. All schedules and exhibits referred
--------------------------
to in this Lease are incorporated herein by reference.
17.15 No Merger. As to each Leased Property, the surrender of this
---------
Lease by Tenant or the cancellation of this Lease by agreement of Tenant and
Landlord or the termination of this Lease on account of Tenant's default will
not work a merger, and will, at Landlord's option, terminate any subleases or
operate as an assignment to Landlord of any subleases. Landlord's option under
this paragraph will be exercised by notice to Tenant and all known subtenants of
such Leased Property.
17.16 Force Majeure. Landlord, its agents and employees, will not be
-------------
liable for any loss, injury, death, or damage (including consequential damages)
to persons, property, or Tenant's Business occasioned by theft, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, order of governmental body or authority, fire, explosion, falling
objects, steam, water, rain or snow, leak or flow of water (including water from
the elevator system), rain or snow from any Leased Property or into any Leased
Property or from the roof, street, subsurface or from any other place, or by
dampness or from the breakage, leakage, obstruction, or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air conditioning, or lighting
fixtures of any Leased Property, or from construction, repair, or alteration of
any Leased Property or from any acts or omissions of any other occupant or
visitor of any Leased Property, or from the release, emission, discharge,
presence or disposal of any hazardous substance or material on or from any
Leased Property, or from any other cause beyond Landlord's control.
17.17 Laches. No delay or omission by either party hereto to exercise
------
any right or power accruing upon any noncompliance or default by the other party
with respect to any of the terms hereof shall impair any such right or power or
be construed to be a waiver thereof.
17.18 Waiver of Jury Trial. To the extent that there is any claim by
--------------------
one party against the other that is not to be settled by arbitration as provided
in Article XIV hereof,
58
<PAGE>
Landlord and Tenant waive trial by jury in any action, proceeding or
counterclaim brought by either of them against the other on all matters arising
out of this Lease or the use and occupancy of any Leased Property (except claims
for personal injury or property damage). If Landlord commences any summary
proceeding for nonpayment of Rent, Tenant will not interpose, and waives the
right to interpose, any counterclaim in any such proceeding.
17.19 Permitted Contests. Tenant, on its own or on Landlord's behalf
------------------
(or in Landlord's name), but at Tenant's expense, may contest, by appropriate
legal proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any legal
requirement or insurance requirement or any lien, attachment, levy, encumbrance,
charge or claim provided that: (a) in the case of an unpaid Imposition, lien,
attachment, levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Landlord and from the subject Leased Property; (b) neither the subject Leased
Property nor any Rent therefrom nor any part thereof or interest therein would
be in any immediate danger of being sold, forfeited, attached or lost; (c) in
the case of a legal requirement, Landlord would not be in any immediate danger
of civil or criminal liability for failure to comply therewith pending the
outcome of such proceedings; (d) in the event that any such contest shall
involve a sum of money or potential loss in excess of Twenty Five Thousand
Dollars ($25,000), Tenant shall deliver to Landlord and its counsel an opinion
of Tenant's counsel to the effect set forth in clauses (a), (b) and (c), to the
extent applicable; (e) in the case of a legal requirement and/or an Imposition,
lien, encumbrance, or charge, Tenant shall give such reasonable security as may
be demanded by Landlord to insure ultimate payment of the same and to prevent
any sale or forfeiture of a subject Leased Property or the Rent in respect
thereof by reason of such nonpayment or noncompliance; provided, however, the
provisions of this Section shall not be construed to permit Tenant to contest
the payment of Rent (except as to contests concerning the method of computation
or the basis of levy of any Imposition or the basis for the assertion of any
other claim) or any other sums payable by Tenant to Landlord hereunder; (f) in
the case of an insurance requirement, the coverage required by Article IV shall
be maintained; and (g) if such contest be finally resolved against Landlord or
Tenant, Tenant shall, as Additional Rent due hereunder, promptly pay the amount
required to be paid, together with all interest and penalties accrued thereon,
or comply with the applicable legal requirement or insurance requirement.
Landlord, at Tenant's expense, shall execute and deliver to Tenant such
authorizations and other documents as may be reasonably required in any such
contest, and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant hereby agrees to indemnify and
hold harmless Landlord, its officers, trustees, employees, shareholders,
affiliates and agents from and against any and all demands, claims, causes of
action, fines, penalties, damages (including punitive and consequential
damages), losses, liabilities (including strict liability), judgments, costs and
expenses (including, without limitation, attorneys' fees, court costs, and the
costs set forth in Section 9.06) that may be incurred in connection with or
arise from any such contest.
17.20 Construction of Lease. This Lease has been reviewed by Landlord
---------------------
and Tenant and their respective professional advisors. Landlord and Tenant
believe that this Lease is
59
<PAGE>
the product of all their efforts, that they express their agreement, and agree
that they shall not be interpreted in favor of either Landlord or Tenant or
against either Landlord or Tenant merely because of any party's efforts in
preparing such documents.
17.21 Counterparts. This Lease may be executed in duplicate
------------
counterparts, each of which shall be deemed an original hereof or thereof.
17.22 Relationship of Landlord and Tenant. The relationship of
-----------------------------------
Landlord and Tenant is the relationship of lessor and lessee. Landlord and
Tenant are not partners, joint venturers, or associates.
{Remainder of this page left intentionally blank}
60
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused the same to be executed by their respective duly authorized officers as
of the date first set forth above.
CAPITAL AUTOMOTIVE L.P.
By: Capital Automotive REIT,
Its General Partner
By: /s/ Thomas D. Eckert
Name: Thomas D. Eckert
Title: President and Chief Executive Officer
MARYLAND IMPORTED CARS, INC. d/b/a
ROSENTHAL GAITHERSBURG MAZDA
By: /s/ Robert M. Rosenthal
Name: Robert M. Rosenthal *
Title: Chairman
*By Donald Bavely as Attorney-in-Fact
61
<PAGE>
ROSENTHAL LEASE AGREEMENT EXHIBITS AND SCHEDULES
EXHIBITS
A Leased Properties
B Permitted Liens
C Base Annual Rent Schedule
SCHEDULES
2.02 Payment Account Information
2.04 Base Annual Rent Adjustment
5.07 Environmental Reports
12.02 Material Agreements
12.03 Changes in Condition
15.02 Form of Subordination and Non-Disturbance Agreement
<PAGE>
EXHIBIT A
LEASED PROPERTIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Lease Lessees and Lessees Total Annual Initial Base Rent for Properties Covered by
Leased Properties Lease
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
11 Maryland Imported Cars, Inc. d/b/a Gaithersburg Mazda 625 North Frederick
Ave.
$253,944 + $___________* (Tax Id. No. 09-201-
02571575)
*Amount attributable to closing costs, as set forth in
Section 7.5.1 of the Contribution Agreement, dated as
of November 21, 1997, relating to this Property.
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
---------
PERMITTED LIENS
To be provided by Tenant in form and substance acceptable to Landlord prior to
the Commencement Date of the Lease.
<PAGE>
EXHIBIT C
INITIAL BASE ANNUAL RENT SCHEDULE
See Exhibit A for Initial Base Annual Rent payments due on Leased Property.
<PAGE>
SCHEDULE 2.02
-------------
PAYMENT ACCOUNT INFORMATION
Wiring instructions for the Landlord's operating account are as follows:
FIRST UNION NATIONAL BANK OF VIRGINIA
CHARLOTTE, NC
ABA# 051400549
For Credit to: CAPITAL AUTOMOTIVE REIT, Operating Account
Account # 2050000478240
<PAGE>
SCHEDULE 2.04
-------------
BASE ANNUAL RENT ADJUSTMENT
The Base Annual Rent shall be increased, effective as of the commencement
of the third Lease Year and as of each subsequent odd-numbered Lease Year by an
amount equal to fifty percent (50%) of the change in the Index during the
immediately preceding one (1) year period; provided, however that,
(a) in the event that the above-calculated adjustment is less than one
percent (1%), such adjustment shall be equal to one percent (1%), and
(b) in the event that the above-calculated adjustment is greater than two
percent (2%), such adjustment shall be equal to two percent (2%).
<PAGE>
SCHEDULE 5.07
(LEASE 11)
ENVIRONMENTAL REPORTS
See attached Phase I Environmental Site Assessment for ROSENTHAL
GAITHERSBURG AUTO PARK, 619-625 NORTH FREDERICK AVENUE, GAITHERSBURG, MARYLAND
(Prepared by Environmental Consultants and Contractors, Inc., ECC Project No.
97-3085, Oct. 22, 1997).
<PAGE>
SCHEDULE 12.02
--------------
MATERIAL AGREEMENTS
To be provided by Tenant in form and substance acceptable to Landlord prior
to the Commencement Date of the Lease.
<PAGE>
SCHEDULE 12.03
--------------
CHANGES IN CONDITION
To be provided by Tenant in form and substance acceptable to Landlord prior
to the Commencement Date of the Lease.
<PAGE>
SCHEDULE 15.02
--------------
See attached Form of Subordination and Non-Disturbance Agreement.
<PAGE>
Form
----
SUBORDINATION AND NON-DISTURBANCE AGREEMENT
-------------------------------------------
THIS AGREEMENT is made as of this ___ day of __________, 1997, among
_____________, a ___________ organized under the laws of the State of
_____________ ("Lender"), __________________ ("Tenant"), and CAPITAL AUTOMOTIVE
L.P., a Delaware limited partnership ("Landlord").
WITNESSETH:
-----------
WHEREAS, Landlord and Tenant have entered into a certain Lease, dated
____________________ , which lease and all amendments, modifications,
assignments, subleases and other agreements related thereto are attached hereto
as Exhibit A and incorporated herein by this reference (collectively, the
---------
"Lease"), which Lease relates to the premises described therein (the
"Premises"), and
WHEREAS, Lender has made or has committed to make a first mortgage loan to
Landlord in the principal amount not to exceed $_________ (the "Loan"), the Loan
being secured by a mortgage, deed of trust or security deed (collectively, the
"Mortgage") and an assignment(s) of leases and rents from Landlord to Lender
covering the Premises; and
WHEREAS, Tenant has agreed that the Lease shall be subject and subordinate
to the Mortgage held by Lender, provided Tenant is assured of continued
occupancy of the Premises under the terms of the Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the sum of Ten Dollars ($10.00) and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
and notwithstanding anything in the Lease to the contrary, it is hereby agreed
as follows:
1. SUBORDINATION OF LEASE. Lender, Tenant and Landlord do hereby
----------------------
covenant and agree that the Lease with all rights, options, liens and charges
created thereby, is and shall continue to be subject and subordinate in all
respects to the Mortgage and to any renewals, modifications, consolidations,
replacements and extensions thereof and to all advancements made thereunder.
2. NONDISTURBANCE OF TENANT. Lender does hereby agree with Tenant that,
------------------------
in the event Lender becomes the owner of the Premises by foreclosure, conveyance
in lieu of foreclosure or otherwise, so long as Tenant complies with and
performs its obligations under the Lease, (a) Lender will take no action which
will interfere with or disturb Tenant's possession or use of the Premises or
other rights under the Lease, and (b) the Premises shall be subject to the Lease
and Lender shall recognize Tenant as the tenant of the Premises for the
remainder of the terms of the Lease in accordance with the provisions thereof,
provided, however, that Lender shall not be subject to any offsets or defenses
<PAGE>
which Tenant might have against any prior landlord except those which arose
under the provisions of the Lease out of such landlord's default and accrued
after Tenant had notified Lender and given Lender the opportunity to cure same
as hereinbelow provided, nor shall Lender be liable for any act or omission of
any prior landlord, nor shall Lender be bound by any rent or additional rent
which Tenant might have paid for more than the current month to any prior
landlord nor shall it be bound by any amendment or modification of the Lease
made without its consent.
3. ATTORNMENT BY TENANT. Tenant does hereby agree with Lender that, in
--------------------
the event Lender becomes the owner of the Premises by foreclosure, conveyance in
lieu of foreclosure or otherwise, then Tenant shall attorn to and recognize
Lender as the landlord under the Lease for the remainder of the term thereof,
and Tenant shall perform and observe its obligations thereunder, subject only to
the terms and conditions of the Lease. In such event, Lender shall not be
liable for any act or omission of any prior landlord, liable for return of the
security deposit unless same was actually delivered to Lender, bound by any
amendment to or assignment of the Lease made without its consent, bound by any
rent paid more than thirty (30) days in advance, or be subject to any set-off or
defense Tenant might have had against any prior landlord. Tenant further
covenants and agrees to execute and deliver upon request of Lender or its
assigns, an appropriate Agreement of Attornment to Lender and any subsequent
titleholder of the Premises.
4. ACKNOWLEDGMENT OF ACQUISITION RIGHTS. Lender acknowledges that Tenant
------------------------------------
has certain purchase rights under the lease. So long as Tenant complies with
the provisions of the Lease, Lender acknowledges that Tenant may exercise such
rights and Lender will honor such rights so long as Tenant pays the acquisition
price to Lender or otherwise obtains a release from Lender.
5. CURATIVE RIGHTS, MODIFICATION OF LEASE, AND ADVANCE PAYMENT OF RENT.
-------------------------------------------------------------------
So long as the Mortgage remains outstanding and unsatisfied:
(a) Tenant will mail or deliver to Lender, at the address and in the
manner hereinbelow provided, a copy of all notices permitted or required to be
given to the Landlord by Tenant under and pursuant to the terms and provisions
of the Lease. At any time before the rights of the Landlord shall have been
forfeited or adversely affected because of any default of the Landlord, or
within the time permitted the Landlord for curing any default under the Lease as
therein provided, Lender may, but shall have no obligation to, pay any taxes and
assessments, make any repairs and improvements, make any deposits or do any
other act or thing required of the Landlord by the terms of the Lease; and all
payments so made and all things so done and performed by Lender shall be as
effective to prevent the rights of the Landlord from being forfeited or
adversely affected because of any default under the Lease as the same would have
been if done and performed by the Landlord.
(b) Tenant will not consent to the modification of the Lease, nor to
the termination thereof, without the prior written consent of Lender, such
consent not to be unreasonably withheld or delayed, nor will Tenant pay any rent
under the Lease more than thirty (30) days in advance.
2
<PAGE>
6. CONSENT TO ASSIGNMENT. Tenant acknowledges that Landlord will execute
---------------------
and deliver to Lender an assignment of the Lease as security for the Loan, and
Tenant hereby expressly consents to such assignment.
7. LIMITATION OF LIABILITY. Lender shall have no liability whatsoever
-----------------------
hereunder prior to becoming the owner of the Premises; and Tenant agrees that if
Lender becomes the owner of the Premises, Tenant shall look solely to the estate
or interest of Lender in the Premises for satisfaction of any obligation which
may be or become owing by Lender to Tenant hereunder or under the Lease.
8. LANDLORD AND TENANT CERTIFICATIONS. Landlord and Tenant hereby
----------------------------------
certify to Lender that the Lease has been duly executed by Landlord and Tenant
and is in full force and effect, that the Lease and any modifications and
amendments specified herein are a complete statement of the agreement between
Landlord and Tenant with respect to the leasing of the Premises, and the Lease
has not been modified or amended except as specified herein; that to the
knowledge of Landlord and Tenant, no party to the Lease is in default
thereunder; that no rent under the Lease has been paid more than thirty (30)
days in advance of its due date; and that Tenant, as of this date, has no
charge, lien or claim of offset under the Lease, or otherwise, against the rents
or other charges due or to become due thereunder.
a. 9. TENANT ESTOPPEL CERTIFICATIONS. With the knowledge that Lender,
------------------------------
as beneficiary of the mortgage encumbering the premises, will place substantial
reliance thereon in connection with the closing and funding of the Loan, Tenant
hereby makes the following certifications:
(a) The term of the Lease commenced on ________, 19__, and will
terminate on ______________.
(b) The Lease, as described above, has not been modified, amended,
assigned or subleased except as set forth in Exhibit A attached hereto, and is
---------
in good standing and in full force and effect.
(c) The Lease provides for rental payments over the term of the
Lease, all as specifically provided in the Lease. No rent under the Lease has
been paid more than thirty (30) days in advance of the due date of same. For the
year ____, monthly payments, which are due on the first (1st) day of each month,
are as follows:
Basic Rent - $________
Payment of the above amount was timely made for the months of ______,
___and _____, ____, and the next payment of the above amount will be due on
________, ____. In addition to the above
3
<PAGE>
amount, certain additional sums are due to Landlord from Tenant under the Lease,
all as specifically set forth in the Lease.
(d) Tenant has paid a security deposit under the Lease.
(e) To Tenant's knowledge there are no defaults by Landlord under the
Lease and there are no existing circumstances which, with the passage of time,
or notice, or both, would give rise to a default under the Lease.
(f) Tenant has accepted and is occupying the Premises, and Landlord
has no unperformed obligation under the Lease to construct any improvements for
the Tenant related to the Premises.
(g) Tenant has no charge, lien, claim of set-off or defense against
rents or other charges due or to become due under the Lease or otherwise under
any of the terms, conditions, or
covenants contained therein.
(h) Tenant has received no notice from any insurance company of any
defects or inadequacies in the Premises or in any part thereof which would
adversely affect the insurability of the Premises.
(i) Except as provided in the Lease, Tenant does not have any right
or option to purchase the Premises.
(j) Except as provided in the Lease, Tenant does not have any rights
or options to renew the Lease or to lease additional space in any building owned
by the Landlord.
10. TENANT COVENANTS.
----------------
(a) From and after the date hereof, Tenant will not pay any rent
under the Lease more than thirty (30) days in advance of its due date.
(b) From and after the date hereof, so long as there shall be any
assignment of Landlord's interest in the Lease to Lender, or any successor
thereto, Tenant will not: consent to the modification of the Lease nor to the
termination thereof without the prior written consent of the Lender or any
successor holder of the Loan or the Mortgage which consent shall not be
unreasonably withheld or delayed (either of them being called "Mortgagee"), nor
seek to terminate the Lease by reason of any act or omission of Landlord until
Tenant shall have given written notice of such act or omission to such
Mortgagee's last address furnished Tenant) and until a reasonable period of time
shall have elapsed following the giving of such notice, during which period the
Mortgagee shall have the right, but not the obligation, to remedy such act or
omission.
4
<PAGE>
(c) Upon written notice of the default by Landlord under any of the
loan documents held by Mortgagee and assignment of the Landlord's interest under
the Lease by Landlord to Mortgagee, Tenant, if Mortgagee so requests, will
recognize such Mortgagee as the Landlord under the Lease and will thereafter pay
rent and other sums to Mortgagee (or to the party designated by the Mortgagee in
writing) in accordance with the terms of the Lease, and, in such event, such
Mortgagee will not be liable for any act or omission of any prior lessor, liable
for return of the security deposit unless same was actually delivered to
Mortgagee, bound by any amendment to or assignment of the Lease made without its
consent, bound by any rent paid more than thirty (30) days in advance, or be
subject to any set-off or defense Tenant might have had against any prior
lessor.
11. NOTICES. Unless and except as otherwise specifically provided
-------
herein, any and all notices, elections, approvals, consents, demands, requests
and responses thereto ("Communications") permitted or required to be given under
this Agreement shall be in writing, signed by or on behalf of the party giving
the same, and shall be deemed to have been properly given and shall be effective
upon the earlier of receipt thereof or three (3) days after deposit thereof in
the United States mail, postage prepaid, certified with return receipt
requested, to the other party at the address of such other party set forth
hereinbelow or at such other address within the continental United States as
such other party may designate by notice specifically designated as a notice of
change of address and given in accordance herewith; provided, however, that the
time period in which a response to any Communication must be given shall
commence on the date of receipt thereof, and provided further that no notice of
change of address shall be effective with respect to Communications sent prior
to the time of receipt of such change. Receipt of Communications hereunder shall
occur upon actual delivery (whether by mail, facsimile transmission, messenger,
courier service, or otherwise) to an individual party or to an officer, member,
or general or limited partner of a party or to any agent or employee of such
party at the address of such party set forth hereinbelow, subject to change as
provided hereinabove. An attempted delivery in accordance with the foregoing,
acceptance of which is refused or rejected, shall be deemed to be and shall
constitute receipt; and an attempted delivery in accordance with the foregoing
by mail, messenger, or courier service (whichever is chosen by the sender) which
is not completed because of changed address of which no notice was received by
the sender in accordance with this provision prior to the sending of the
Communication shall also be deemed to be and constitute receipt. Any
Communication, if given to Lender, must be addressed as follows, subject to
change as provided hereinabove:
__________________________________
__________________________________
and, if given to Tenant, must be addressed as follows, subject to change as
provided hereinabove:
__________________________________
__________________________________
__________________________________
5
<PAGE>
and, if given to Landlord, must be addressed as follows, subject to change as
provided hereinabove:
Capital Automotive, L.P.
__________________________________
__________________________________
12. MISCELLANEOUS. This Agreement shall be binding upon and inure to
-------------
the benefit of the parties hereto and their respective heirs, legal
representatives, successors, successors-in-title and assigns. When used herein,
the term "Landlord" or "landlord" refers to Landlord and to any successor to the
interest of Landlord under the Lease.
[THIS SPACE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LENDER:
Signed, sealed and delivered
in the presence of: By:
Title:
__________________________________ _________________________
Witness
(CORPORATE SEAL)
TENANT:
Signed, sealed and delivered
in the presence of: By:
Title:
__________________________________ _________________________
Witness (CORPORATE SEAL)
LANDLORD:
Signed, sealed and delivered
in the presence of: By:
Title:
__________________________________ _________________________
Witness (PARTNERSHIP SEAL)
7
<PAGE>
EXHIBIT A
Lease Dated __________ from ________________ to _______________ with Exhibit A
attached, all in the form attached hereto as Attachment to Exhibit A.
------------------------
8
<PAGE>
County of ___________________________:
SS:
State of _____________________________:
This is to certify that on this ____ day of ________, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Lender in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Lender.
_______________________________
Notary Public
My commission expires:
10
<PAGE>
County of ____________________________:
SS:
State of _____________________________:
This is to certify that on this ____ day of _________, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Tenant in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Tenant.
______________________________
Notary Public
My commission expires:
<PAGE>
County of ____________________________
SS:
State of _____________________________
This is to certify that on this ____ day of _______, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to me
(or satisfactorily identified to me) to be the individual signing on behalf of
Landlord in the capacity stated by his signature, and that he acknowledged the
within document to be the act and deed of the Landlord.
______________________________
Notary Public
My commission expires:
11
<PAGE>
EXHIBIT 10.24
FORM OF GUARANTY OF POHANKA LEASES
GUARANTY AND SUBORDINATION AGREEMENT
THIS GUARANTY AND SUBORDINATION AGREEMENT (this "Agreement"), made as of
the ______ day of _________, 19__, by ______________ , a _______________
corporation ("Guarantor"), in favor of Capital Automotive, L.P., a Delaware
limited partnership ("Landlord").
WITNESSETH:
----------
WHEREAS, Landlord has this day entered into a lease (the "Lease") of
certain Properties identified on Schedule A hereto (individually a "Property"
and collectively the "Properties") with ____________, a ________________
corporation ("Tenant"), this Agreement being attached to the Lease;
WHEREAS, Tenant is a subsidiary [affilate] of Guarantor; and
WHEREAS, Landlord has required, as a condition to entering into the Lease,
Guarantor to be a guarantor of each and every obligation imposed upon Tenant by
the Lease.
NOW, THEREFORE, to induce Landlord to enter into the Lease and in
consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor, for itself, its successors and assigns, hereby covenants and agrees
for the benefit of Landlord, as follows:
1. Guaranty. Guarantor does hereby unconditionally and irrevocably
--------
guarantee to Landlord the full, complete and timely performance of all
obligations imposed on Tenant by the terms of the Lease, including, but not
limited to, the full, complete and timely payment of rent and all other sums due
by Tenant under the Lease, and the payment as required by the Lease of all
damages to Landlord which may result from Tenant's breach of any provision of
the Lease, including, but not limited to, those relating to damage to any
Property or the leased premises.
2. Guaranty of Payment and Performance. Guarantor acknowledges and agrees
-----------------------------------
that this is a guaranty of payment and performance and not mere collection. The
liability of Guarantor under this Agreement shall be direct and immediate and
not conditional or contingent upon the pursuit of any remedies against Tenant or
any other person or entity. Guarantor waives any right to require that an action
be brought against Tenant or any other person or entity. In the event, on
account of the Bankruptcy Reform Act of 1978, as amended, or any other debtor
relief law (whether statutory, common law, case law or otherwise) of any
jurisdiction whatsoever, now or hereafter in effect, which may be or become
applicable, Tenant
<PAGE>
shall be relieved of the Lease or any debt, obligation or liability as provided
in the Lease, Guarantor shall nevertheless be fully liable for the complete and
timely performance of all obligations imposed on Tenant by the Lease throughout
the entire term of the Lease, all to the same extent as if Guarantor had been
the original tenant thereunder and the Lease shall be deemed unaffected by any
such relief granted to Tenant. In the event of a default under the Lease which
is not cured within any applicable grace or cure period, Landlord shall have the
right to enforce its rights, powers and remedies thereunder or hereunder, in any
order to the maximum extent permitted by law, and all rights, powers and
remedies provided thereunder or hereunder or by law or in equity. If the
obligations guaranteed hereby are partially performed, paid or discharged by
reason of the exercise of any of the remedies available to Landlord, this
Agreement shall nevertheless remain in full force and effect, and Guarantor
shall continue to be liable for all remaining obligations guaranteed hereby,
even though any rights which Guarantor may have against Tenant may be destroyed
or dismissed by the exercise of any such remedy.
3. Waivers by Guarantor. To the extent permitted by law, Guarantor
--------------------
hereby waives and agrees not to assert or take advantage of:
(a) Any right to require Landlord to proceed against Tenant or any
other person or entity or to proceed against or exhaust any security held by
Landlord at any time or to pursue any other remedy in Landlord's power or under
any other agreement before proceeding against Guarantor;
(b) Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Landlord to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons:
(c) Any defense based upon an election of remedies by Landlord;
(d) Any right or claim or right to cause a marshaling of the assets
of Tenant or Guarantor;
(e) Any invalidity, irregularity or unenforceability, in whole or in
part, of any one or more provisions of the Lease;
(f) Any modification of the Lease or of any obligation of Tenant
thereunder by amendments to the Lease, by waivers granted by Landlord or by
operation of law or by action of any court, whether pursuant to the Bankruptcy
Reform Act of 1978, as amended, or any other debtor relief law (whether
statutory, common law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, or otherwise.
4. Subordination. Guarantor and those parties signing below for the
-------------
purpose of being bound by this Section 4 (collectively, "Section 4 Signers)
hereby unconditionally and irrevocably subordinate (i) all payments due or to
become due by Tenant to the Section 4 Signers, or any of them, by reason of any
and all debts or other obligations, including the
<PAGE>
obligation to pay salaries or other compensation (collectively "Debt Payments")
and (ii) the receipt of all dividends or other distributions of any kind or
nature (collectively, "Distributions") to the payment of all sums due or to
become due by Tenant to Landlord under the Lease, including the payment of Rent
and all damages due by reason of Tenant's breach of the Lease; provided,
however, that for so long as there shall be no existing Event of Default under
the Lease, after the payment of each monthly installment of Rent, the Section 4
Signers shall be entitled to receive Debt Payments due for such month.
5. General Provisions.
------------------
(a) Survival. This Agreement shall be deemed to be continuing in
--------
nature and shall remain in full force and effect and shall survive the exercise
of any remedy by Landlord under the Lease;
(b) No Subrogation; No Recourse Against Landlord. Notwithstanding
--------------------------------------------
the satisfaction by Guarantor of any liability hereunder, Guarantor's rights of
subrogation, contribution, reimbursement or indemnity, if any, or any right of
recourse to or with respect to the assets or property of Tenant, shall be
subject and subordinate to the rights of Landlord. Guarantor expressly agrees
not to exercise any and all rights of subrogation against Landlord.
(c) Entire Agreement; Amendment; Severability. This Agreement
-----------------------------------------
contains the entire agreement between the parties respecting the matters herein
set forth and supersedes all prior agreements, whether written or oral, between
the parties respecting such matters. Any amendments or modifications hereto, in
order to be effective, shall be in writing and executed by Landlord and
Guarantor. A determination that any provision of this Agreement is unenforceable
or invalid shall not affect the enforceability or validity of any other
provision, and any determination that the application of any provision of this
Agreement to any person or circumstance is illegal or unenforceable shall not
affect the enforceability or validity of such provision as it may apply to any
other persons or circumstances.
(d) Governing Law: Binding Effect; Waiver of Acceptance. This
---------------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Virginia without regard to conflicts of laws principles thereof. This
Agreement shall bind Guarantor, it successors and assigns (but in the event of
an assignment, Guarantor shall not be relieved of its obligations hereunder),
and shall inure to the benefit of Landlord, its successors and assigns.
Guarantor hereby waives any acceptance of this Agreement by Landlord and this
Agreement shall immediately be binding upon Guarantor.
(e) Notice. All notices, demands, requests or other communications
------
to be sent by one party to the other hereunder or required by law shall be in
writing and shall be deemed to have been validly given or served by delivery of
the same in person to the intended addressee, or certified mail or by depositing
the same with Federal Express or another reputable private courier service for
next business day delivery to the intended addressee at its address set forth in
the last section of this Agreement or at such other address as may be designated
by such party as herein provided. All notices, demands and requests shall be
effective upon such
<PAGE>
personal delivery, or one (1) business day after being deposited with the
private courier service, or two (2) business days after being deposited in the
United States mail as required above. Rejection or other refusal to accept or
the inability to deliver because of changed address of which no notice was given
as herein required shall be deemed to be receipt of the notice, demand or
request sent. By giving to the other party hereto at least seven (7) days'
prior written notice thereof in accordance with the provisions hereof, each
party shall have the right from time to time to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.
(f) No Waiver; Time of Essence. The failure of either party to
--------------------------
enforce any of the respective rights or remedies hereunder, or to promptly
enforce any such rights or remedies, shall not constitute a waiver thereof nor
give rise to any estoppel against such party nor excuse any of the parties
hereto from their respective obligations hereunder. Any waiver of such right or
remedy must be in writing and signed by the party to be bound and must expressly
state that such right or remedy has been or thereby is waived. This Agreement is
subject to enforcement at law or in equity, including actions for damages or
specific performance. Time is of the essence hereof.
(g) Captions for Convenience. The captions and headings of the
------------------------
section and paragraphs of this Agreement are for convenience of reference only
and shall not be construed in interpreting the provisions hereof.
(h) Attorney's Fees. In the event it is necessary for Landlord to
---------------
retain the services of an attorney or any other consultants in order to enforce
this Agreement, or any portion hereof, Guarantor shall promptly pay to Landlord
any and all costs and expenses, including, without limitation, attorney's fees,
incurred by Landlord as a result thereof and such costs, fees and expenses shall
be included in the costs of the case to the extent the Landlord wins the issue
under contest.
(i) Successive Actions. Separate and successive actions may be
------------------
brought hereunder to enforce any of the provisions hereof at any time and from
time to time. No action hereunder shall preclude any subsequent action, and
Guarantor hereby waives any covenants to the maximum extent permitted by law not
to assert any defense in the nature of splitting of causes of action or merger
of judgments.
(j) Reliance. Landlord would not enter into the Lease without this
--------
Agreement. Accordingly, Guarantor intentionally, irrevocably and
unconditionally enters into the covenants and agreements as set forth above and
understand that, in reliance upon and in consideration of such covenants and
agreements, the Lease has been made.
4. Notices: The following addresses shall be used for notice purposes:
-------
If to Landlord:
<PAGE>
__________________________
__________________________
__________________________
With copies to:
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
IN WITNESS WHEREOF, Guarantor has executed this Agreement under seal
as of the day and year first above written:
GUARANTOR:
ATTEST/WITNESS: ________________________________
_______________________________ By: ____________________________
Name: _________________________ Name: __________________________
Title: __________________________ Title: ___________________________
<PAGE>
EXHIBIT 10.25
GUARANTY AND SUBORDINATION AGREEMENT
FORM OF GUARANTY OF ROSENTHAL LEASE
THIS GUARANTY AND SUBORDINATION AGREEMENT (this "Agreement"), made as
of the 21st day of November 1997, by Geneva Enterprises, Inc., a Delaware
corporation ("Guarantor"), in favor of Capital Automotive, L.P., a Delaware
limited partnership ("Landlord").
WITNESSETH:
----------
WHEREAS, Landlord has this day entered into a lease (the "Lease") of
certain Properties identified on Schedule A hereto (individually a "Property"
and collectively the "Properties") with Maryland Imported Cars, Inc. d/b/a
Gaithersburg Mazda ("Tenant"), this Agreement being attached to the Lease;
WHEREAS, Tenant is an affiliate of Guarantor; and
WHEREAS, Landlord has required, as a condition to entering into the
Lease, Guarantor to be a guarantor of each and every obligation imposed upon
Tenant by the Lease.
NOW, THEREFORE, to induce Landlord to enter into the Lease and in
consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor, for itself, its successors and assigns, hereby covenants and agrees
for the benefit of Landlord, as follows:
1. Guaranty. Guarantor does hereby unconditionally and irrevocably
--------
guarantee to Landlord the full, complete and timely performance of all
obligations imposed on Tenant by the terms of the Lease, including, but not
limited to, the full, complete and timely payment of rent and all other sums due
by Tenant under the Lease, and the payment as required by the Lease of all
damages to Landlord which may result from Tenant's breach of any provision of
the Lease, including, but not limited to, those relating to damage to any
Property or the leased premises.
2. Guaranty of Payment and Performance. Guarantor acknowledges and
-----------------------------------
agrees that this is a guaranty of payment and performance and not mere
collection. The liability of Guarantor under this Agreement shall be direct and
immediate and not conditional or contingent upon the pursuit of any remedies
against Tenant or any other person or entity. Guarantor waives any right to
require that an action be brought against Tenant or any other person or entity.
In the event, on account of the Bankruptcy Reform Act of 1978, as amended, or
any other debtor relief law (whether statutory, common law, case law or
otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may
be or become applicable, Tenant
<PAGE>
shall be relieved of the Lease or any debt, obligation or liability as provided
in the Lease, Guarantor shall nevertheless be fully liable for the complete and
timely performance of all obligations imposed on Tenant by the Lease throughout
the entire term of the Lease, all to the same extent as if Guarantor had been
the original tenant thereunder and the Lease shall be deemed unaffected by any
such relief granted to Tenant. In the event of a default under the Lease which
is not cured within any applicable grace or cure period, Landlord shall have the
right to enforce its rights, powers and remedies thereunder or hereunder, in any
order to the maximum extent permitted by law, and all rights, powers and
remedies provided thereunder or hereunder or by law or in equity. If the
obligations guaranteed hereby are partially performed, paid or discharged by
reason of the exercise of any of the remedies available to Landlord, this
Agreement shall nevertheless remain in full force and effect, and Guarantor
shall continue to be liable for all remaining obligations guaranteed hereby,
even though any rights which Guarantor may have against Tenant may be destroyed
or dismissed by the exercise of any such remedy.
3. Waivers by Guarantor. To the extent permitted by law, Guarantor
--------------------
hereby waives and agrees not to assert or take advantage of:
(a) Any right to require Landlord to proceed against Tenant or
any other person or entity or to proceed against or exhaust any security held by
Landlord at any time or to pursue any other remedy in Landlord's power or under
any other agreement before proceeding against Guarantor;
(b) Any defense that may arise by reason of the incapacity, lack
of authority, death or disability of any other person or persons or the failure
of Landlord to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons:
(c) Any defense based upon an election of remedies by Landlord;
(d) Any right or claim or right to cause a marshaling of the
assets of Tenant or Guarantor;
(e) Any invalidity, irregularity or unenforceability, in whole
or in part, of any one or more provisions of the Lease;
(f) Any modification of the Lease or of any obligation of Tenant
thereunder by amendments to the Lease, by waivers granted by Landlord or by
operation of law or by action of any court, whether pursuant to the Bankruptcy
Reform Act of 1978, as amended, or any other debtor relief law (whether
statutory, common law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, or otherwise.
4. Subordination. Guarantor and those parties signing below for the
-------------
purpose of being bound by this Section 4 (collectively, "Section 4 Signers")
hereby unconditionally and irrevocably subordinate (i) all payments due or to
become due by Tenant to the Section 4 Signers, or any of them, by reason of any
and all debts or other obligations, including the obligation to pay salaries or
other compensation (collectively "Debt Payments") and (ii) the receipt of all
dividends or other distributions of any kind or nature (collectively,
"Distributions")
<PAGE>
to the payment of all sums due or to become due by Tenant to Landlord under the
Lease, including the payment of Rent and all damages due by reason of Tenant's
breach of the Lease; provided, however, that for so long as there shall be no
existing Event of Default under the Lease, after the payment of each monthly
installment of Rent, the Section 4 Signers shall be entitled to receive Debt
Payments due for such month.
5. General Provisions.
------------------
(a) Survival. This Agreement shall be deemed to be continuing
--------
in nature and shall remain in full force and effect and shall survive the
exercise of any remedy by Landlord under the Lease;
(b) No Subrogation; No Recourse Against Landlord.
--------------------------------------------
Notwithstanding the satisfaction by Guarantor of any liability hereunder,
Guarantor's rights of subrogation, contribution, reimbursement or indemnity, if
any, or any right of recourse to or with respect to the assets or property of
Tenant, shall be subject and subordinate to the rights of Landlord. Guarantor
expressly agrees not to exercise any and all rights of subrogation against
Landlord.
(c) Entire Agreement; Amendment; Severability. This Agreement
-----------------------------------------
contains the entire agreement between the parties respecting the matters herein
set forth and supersedes all prior agreements, whether written or oral, between
the parties respecting such matters. Any amendments or modifications hereto, in
order to be effective, shall be in writing and executed by Landlord and
Guarantor. A determination that any provision of this Agreement is unenforceable
or invalid shall not affect the enforceability or validity of any other
provision, and any determination that the application of any provision of this
Agreement to any person or circumstance is illegal or unenforceable shall not
affect the enforceability or validity of such provision as it may apply to any
other persons or circumstances.
(d) Governing Law: Binding Effect; Waiver of Acceptance. This
---------------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Virginia without regard to conflicts of laws principles thereof. This
Agreement shall bind Guarantor, it successors and assigns (but in the event of
an assignment, Guarantor shall not be relieved of its obligations hereunder),
and shall inure to the benefit of Landlord, its successors and assigns.
Guarantor hereby waives any acceptance of this Agreement by Landlord and this
Agreement shall immediately be binding upon Guarantor.
(e) Notice. All notices, demands, requests or other
------
communications to be sent by one party to the other hereunder or required by law
shall be in writing and shall be deemed to have been validly given or served by
delivery of the same in person to the intended addressee, or certified mail or
by depositing the same with Federal Express or another reputable private courier
service for next business day delivery to the intended addressee at its address
set forth in the last section of this Agreement or at such other address as may
be designated by such party as herein provided. All notices, demands and
requests shall be effective upon such personal delivery, or one (1) business day
after being deposited with the private courier service, or two (2) business days
after being deposited in the United States mail as required above.
<PAGE>
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice was given as herein required shall be deemed
to be receipt of the notice, demand or request sent. By giving to the other
party hereto at least seven (7) days' prior written notice thereof in accordance
with the provisions hereof, each party shall have the right from time to time to
change their respective addresses and each shall have the right to specify as
its address any other address within the United States of America.
(f) No Waiver; Time of Essence. The failure of either party to
--------------------------
enforce any of the respective rights or remedies hereunder, or to promptly
enforce any such rights or remedies, shall not constitute a waiver thereof nor
give rise to any estoppel against such party nor excuse any of the parties
hereto from their respective obligations hereunder. Any waiver of such right or
remedy must be in writing and signed by the party to be bound and must expressly
state that such right or remedy has been or thereby is waived. This Agreement is
subject to enforcement at law or in equity, including actions for damages or
specific performance. Time is of the essence hereof.
(g) Captions for Convenience. The captions and headings of the
------------------------
section and paragraphs of this Agreement are for convenience of reference only
and shall not be construed in interpreting the provisions hereof.
(h) Attorney's Fees. In the event it is necessary for Landlord
---------------
to retain the services of an attorney or any other consultants in order to
enforce this Agreement, or any portion hereof, Guarantor shall promptly pay to
Landlord any and all costs and expenses, including, without limitation,
attorney's fees, incurred by Landlord as a result thereof and such costs, fees
and expenses shall be included in the costs of the case to the extent the
Landlord wins the issue under contest.
(i) Successive Actions. Separate and successive actions may be
------------------
brought hereunder to enforce any of the provisions hereof at any time and from
time to time. No action hereunder shall preclude any subsequent action, and
Guarantor hereby waives any covenants to the maximum extent permitted by law not
to assert any defense in the nature of splitting of causes of action or merger
of judgments.
(j) Reliance. Landlord would not enter into the Lease without
--------
this Agreement. Accordingly, Guarantor intentionally, irrevocably and
unconditionally enters into the covenants and agreements as set forth above and
understand that, in reliance upon and in consideration of such covenants and
agreements, the Lease has been made.
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Agreement under seal
as of the day and year first above written.
GUARANTOR:
ATTEST/WITNESS: GENEVA ENTERPRISES, INC.
/s/ Matt Jones By: /s/ Robert M. Rosenthal
Name: Matt Jones Name: Robert M. Rosenthal*
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Title: __________________________ Title: Chairman
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* By Donald Bavely as Attorney-in-Fact.
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EXHIBIT 21.1
SUBSIDIARIES OF CAPITAL AUTOMOTIVE REIT
CAPITAL AUTOMOTIVE L.P., a Delaware limited partnership, of which Capital
Automotive REIT is the sole General Partner
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EXHIBIT 23.11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on Capital Automotive REIT (and to all references to our firm) included in or
made a part of this Registration Statement.
/s/ Arthur Andersen LLP
Washington, D.C.
January 16, 1998
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EXHIBIT 23.12
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the Geneva Enterprises, Inc. and Affiliated Company (and to all
references to our firm) included in or made a part of this Registration
Statement.
/s/ Walpert, Smullian & Blumenthal,
P.A.
Baltimore, Maryland
January 16, 1998
