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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________.
COMMISSION FILE NUMBER 000-23733
---------
CAPITAL AUTOMOTIVE REIT
(Exact name of registrant as specified in its charter)
Maryland 54-1870224
(State of organization) (I.R.S. Employer Identification Number)
1420 Spring Hill Road, Suite 525, McLean, Virginia 22102
(Address of principal executive offices and zip code)
(703) 288-3075
(Registrant's telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- --------
Number of common shares of beneficial interest outstanding as of August 10, 1999
was 21,607,415.
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CAPITAL AUTOMOTIVE REIT
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets -- June 30, 1999 (unaudited) and
December 31, 1998. 3
Consolidated Statements of Operations (unaudited) -- three months
and six months ended June 30, 1999 and June 30, 1998. 4
Consolidated Statements of Cash Flows (unaudited) -- six months
ended June 30, 1999 and June 30, 1998. 5
Notes to Consolidated Financial Statements (unaudited) 6 - 11
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 18
Item 3 -- Quantitative and Qualitative Disclosures About
Market Risk 19
Part II -- Other Information
Item 1 -- Legal Proceedings 20
Item 2 -- Changes in Securities 20
Item 3 -- Defaults Upon Senior Securities 20
Item 4 -- Submission of Matters to Vote of Security Holders 20 - 21
Item 5 -- Other Information 22
Item 6 -- Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
CAPITAL AUTOMOTIVE REIT
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1999 1998
------------- --------------
(unaudited)
ASSETS
Real estate:
Land $ 292,686 $ 238,970
Buildings and improvements 353,771 272,162
Accumulated depreciation (13,720) (6,145)
------------- -------------
632,737 504,987
Cash and cash equivalents 7,734 72,106
Other assets, net 8,579 6,118
------------- -------------
Total Assets $ 649,050 $ 583,211
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage loans $ 161,865 $ 161,997
Borrowings under credit facility 62,000 -
Accounts payable and accrued expenses 6,675 14,752
Security deposits payable 4,668 3,907
------------- -------------
Total Liabilities 235,208 180,656
------------- -------------
Minority Interest 103,163 93,898
Shareholders' Equity
Preferred shares, $.01 par value; 20,000,000
shares authorized; none outstanding - -
Common shares, $.01 par value; 100,000,000 shares
authorized; 24,792,115 shares issued 248 248
Additional paid-in-capital 345,716 345,905
Accumulated deficit (1,814) (4,025)
Less treasury shares at cost, 3,184,700
common shares (33,471) (33,471)
------------- -------------
Total shareholders' equity 310,679 308,657
------------- -------------
Total liabilities and shareholders' equity $ 649,050 $ 583,211
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rental $ 15,677 $ 5,098 $ 30,249 $ 6,829
Interest and other 221 3,447 437 5,037
----------- ------------ ------------ ------------
Total revenue 15,898 8,545 30,686 11,866
----------- ------------ ------------ ------------
Expenses:
Depreciation and amortization 3,834 995 7,679 1,339
General and administrative 1,733 1,470 3,627 2,362
Interest 3,725 127 7,000 168
----------- ------------ ------------ ------------
Total expenses 9,292 2,592 18,306 3,869
----------- ------------ ------------ ------------
Net income before minority interest 6,606 5,953 12,380 7,997
Minority interest (1,641) (1,206) (3,026) (1,620)
----------- ------------ ------------ ------------
Net income $ 4,965 $ 4,747 $ 9,354 $ 6,377
=========== ============ ============ ============
Shares of common stock outstanding used to
compute basic earnings per share 21,607 24,792 21,607 18,504
=========== ============ ============ ============
Basic earnings per share $ 0.23 $ 0.19 $ 0.43 $ 0.34
=========== ============ ============ ============
Shares of common stock outstanding used to
compute diluted earnings per share 21,630 24,876 21,619 18,606
=========== ============ ============ ============
Diluted earnings per share $ 0.23 $ 0.19 $ 0.43 $ 0.34
=========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
CAPITAL AUTOMOTIVE REIT
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended June 30,
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,354 $ 6,377
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,903 1,339
Income applicable to minority interest 3,026 1,620
Increase in other assets (2,735) (643)
Increase in accounts payable and accrued expenses 880 697
Increase in security deposits payable 761 2,640
----------- ------------
Net cash provided by operating activities 19,189 12,030
----------- ------------
Cash flows from investing activities:
Purchase of furniture and equipment (30) (226)
Real estate acquisitions, net of sales (126,971) (168,822)
----------- ------------
Net cash used in investing activities (127,001) (169,048)
----------- ------------
Cash flows from financing activities:
Proceeds from bank borrowings 62,000 8,570
Repayment of bank and other borrowings - (1,000)
Mortgage principal payments (132) -
Proceeds from issuance of initial public offering of
common shares and underwriters' over-allotment
option, net of issuance costs - 317,285
Proceeds from issuance of private placement,
net of issuance costs - 25,000
Payment of cash dividend (14,057) (1,884)
Payment of partner distribution (4,278) (378)
Other fees (93) -
----------- ------------
Net cash provided by financing activities 43,440 347,593
----------- ------------
Net increase (decrease) in cash and cash equivalents (64,372) 190,575
Cash and cash equivalents at beginning of period 72,106 25
----------- ------------
Cash and cash equivalents at end of period $ 7,734 $ 190,600
=========== ============
Supplemental Data:
Real estate acquisitions in exchange for equity issuance $ 8,379 $ 95,135
=========== ============
Interest paid during the period $ 5,787 $ 168
=========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
5
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CAPITAL AUTOMOTIVE REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Capital Automotive REIT (the "Company") is a Maryland real estate investment
trust formed in October 1997. The Company owns its property interests through
Capital Automotive L.P. (the "Operating Partnership") and its subsidiaries.
The Company is the sole general partner of the Operating Partnership. The
Company completed its initial public offering of common shares and began
generating rental income in February 1998. The term "Capital Automotive
Group" refers to the Company and the Operating Partnership and their
subsidiaries. In this Quarterly Report on Form 10-Q, the term "subsidiary" of
the Company or the Operating Partnership means a corporation, partnership,
limited liability company or similar entity if the Company or the Operating
Partnership, alone or together, directly or indirectly, own at least a majority
of the equity interests of the entity. Typically the Operating Partnership
forms a subsidiary limited liability company or limited partnership to own
properties acquired from a given dealership group. This structure is intended
to facilitate financing and transfers involving such properties.
Capital Automotive Group's primary business purpose is to own and lease real
estate properties (land, buildings and other improvements) to operators of
franchised automobile dealerships, motor vehicle service, repair or parts
businesses and related businesses. In this Quarterly Report on Form 10-Q,
Capital Automotive Group uses the term "dealerships" to refer to these types
of businesses that are operated on its properties.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by the Company's management in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and in conformity with the
rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the six months
ended June 30, 1999, are not necessarily indicative of the results that may be
expected for the full year. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes thereto, included in the Company's Annual Report on Form 10-K.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with GAAP and include the accounts of Capital Automotive Group. All
intercompany balances and transactions have been eliminated in consolidation.
6
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Real Estate and Depreciation
Real estate assets are recorded at cost. External acquisition costs directly
related to each property are capitalized as a cost of the respective property.
The cost of real estate properties acquired is allocated between land and
buildings based upon estimated market values at the time of acquisition.
Depreciation is computed using the straight-line method over an estimated useful
life of 20 to 30 years for the buildings and improvements.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid instruments purchased
with original maturities of three months or less.
Income Taxes
The Company is qualified 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 generally not subject to federal income tax to the extent
that it distributes annually at least 95% of its taxable income to its
shareholders and complies with certain other requirements.
Rental Revenue Recognition
The Company leases its real estate under long-term triple-net leases which
require the lessees to pay substantially all expenses associated with the
operations, including taxes, utilities, insurance, repairs, maintenance and
other expenses. All leases are accounted for as operating leases.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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.
3. ACQUISITION OF PROPERTIES
During the three months ended June 30, 1999, Capital Automotive Group acquired
13 dealership properties, representing 37 automotive franchises, for an
aggregate purchase price of $50.5 million. Consideration for the properties
consisted of approximately $46.5 million in cash and $4.0 million in Operating
Partnership units ("Units"). The properties were acquired from various dealer
groups or their affiliates, including Auffenberg Enterprises of Illinois, Inc.,
Hoz de Vila Automotive, Kelley Automotive Group, Lithia Motors, Momentum
Motorcars and Orr Automotive. The properties total approximately 428,000 square
feet of buildings and improvements on 66.9 acres of land and are located in five
states (Illinois, Indiana, New Jersey, Oregon and Texas). These properties have
initial lease terms ranging from 12 to 15 years, with an average initial term of
13.9 years, and have renewal options (generally ranging from a total of 20 years
to 40 years) exercisable by the tenant.
As of June 30, 1999, Capital Automotive Group had invested approximately $646
million in properties. Capital Automotive Group's portfolio consisted of 154
properties, representing 246
7
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automotive franchises in 22 states. These properties total approximately 5.4
million square feet of buildings and improvements on 853 acres of land. The
properties are leased on long-term, triple-net leases with an average initial
lease term of 13.2 years.
4. EARNINGS PER SHARE
Basic earnings per share is computed as net income divided by the weighted
average common shares outstanding for the period. Diluted earnings per share is
computed as net income divided by the weighted average common shares outstanding
for the period plus the effect of dilutive common equivalent shares outstanding
for the period, based on the treasury stock method. Dilutive common equivalent
shares include restricted shares, options and warrants. For the three-months
and six-months ended June 30, 1999, there was 22,000 and 11,000 dilutive common
equivalent shares outstanding, respectively. For the three-months and six-months
ended June 30, 1998, there were 84,000 and 102,000 dilutive common equivalent
shares outstanding, respectively.
5. MORTGAGE LOANS
As of June 30, 1999, Capital Automotive Group had mortgage indebtedness totaling
$162 million secured by 64 dealership properties owned by subsidiaries of the
Operating Partnership. The $162 million consisted of the following:
. A $150 million, non-recourse loan ("Permanent Loan") with Global Alliance
Finance Company, L.L.C. (the "Lender"), evidenced by four notes, that closed
in November 1998. The original terms of the Permanent Loan require
consecutive monthly payments of interest only for two years. Thereafter,
monthly payments of principal and interest will be required in an amount
sufficient to amortize the Permanent Loan over a 25-year term. The term of
the Permanent Loan is ten years and bears interest at a coupon rate of 7.67%
per annum until maturity on December 1, 2008. The Permanent Loan is secured
by mortgages on the approximately 60 properties financed. The Operating
Partnership has provided a limited $35 million guaranty of the Permanent
Loan, which guaranty is contingent upon the occurrence of certain
circumstances. A majority of the loan proceeds was used to finance
acquisitions. During the first quarter of 1999, Capital Automotive Group and
the Lender modified the terms of one of the notes (approximately $38 million
of the Permanent Loan) in order for the Lender to have more flexibility in
structuring a commercial mortgage backed security execution. The interest
rate on this note was reduced to 7.59% per annum, the monthly interest-only
payments were reduced to approximately one year and the amortization period
was reduced to approximately 17 years. As of June 30, 1999, the principal
amount outstanding on the Permanent Loan was $150 million. At maturity on
December 1, 2008, a final payment of approximately $121.4 million will be
required.
. A $12 million mortgage note with a financial institution assumed by Capital
Automotive Group in November 1998 as partial consideration for the
acquisition of four dealership properties. The note is secured by the
properties acquired. The mortgage note bears interest at 7.50% per annum
until maturity. Principal and interest are payable monthly. At June 30, 1999,
the principal amount outstanding was approximately $11.9 million. At maturity
on January 1, 2003, a final payment of approximately $10.8 million will be
required.
8
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6. SHORT-TERM REVOLVING CREDIT FACILITY
As of June 30, 1999, Capital Automotive Group had commitments from four
financial institutions for a syndicated short-term revolving credit facility in
the aggregate amount of $115 million. As of June 30, 1999, Capital Automotive
Group had short-term revolving credit facilities from two financial institutions
participating in the syndicated credit facility, under which $62 million (of a
total of $70 million available under these facilities) was outstanding. As of
June 30, 1999, the blended interest rate on the amount outstanding was 7.13% per
annum. Upon closing of the syndicated credit facility, expected to occur in the
third quarter of 1999, any amounts outstanding under the existing credit
facilities will be rolled into the syndicated credit facility. The syndicated
credit facility will have a three-year term and borrowings will bear interest at
a rate currently equal to the one-month LIBOR plus 175 basis points. The
syndicated credit facility will provide funds for the acquisition of dealership
properties and for general corporate purposes.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement was originally
effective for all fiscal quarters of fiscal years beginning after June 15, 1999;
however, during the second quarter of 1999 the FASB deferred the effective date
until June 15, 2000. SFAS No. 133 does not require restatement of financial
statements from prior periods. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company believes that
the adoption of SFAS 133 will not have a significant impact on the Company's
consolidated financial position, results of operations or cash flows.
8. MINORITY INTEREST
Minority Interest is calculated at approximately 24.9 percent of the Operating
Partnership's partners' capital and net income. The ownership of the Operating
Partnership as of June 30, 1999 is as follows (Units in thousands):
Units Percent
----------- ----------
Partners' capital:
Limited Partners 7,175 24.9%
The Company 21,607 75.1%
------ -----
Total 28,782 100.0%
====== =====
9. 401(K) PLAN
During 1998, the Company adopted the Capital Automotive L.P. Employee 401 (k)
Plan. Employees who are at least 21 years of age are eligible to participate in
the plan after three months of service. Participants may contribute up to 20%
of their earnings, on a pre-tax basis, subject to annual limitations imposed by
the Internal Revenue Code. The Company may make matching or discretionary
contributions to the plan at the discretion of management. Employer
contributions
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generally vest over five years. No matching or discretionary contributions have
been paid or declared for the six months ended June 30, 1999.
10. COMMITMENTS
Debt Financing Commitment as of June 30, 1999
- ---------------------------------------------
During April 1999, Capital Automotive Group executed a $100 million mortgage
loan commitment from Ford Motor Credit Company, which was subsequently closed
during July 1999. The mortgage loan is secured by approximately 48 dealership
properties owned by the Operating Partnership and certain subsidiaries of the
Operating Partnership. The term of the financing is 12 years with principal
amortization based on a 25-year amortization schedule. The interest rate was
fixed at the 10-year US Treasury rate plus 250 basis points or 7.54% per annum
until maturity. Principal and interest will be payable quarterly. The proceeds
will be used to fund future property acquisitions, to repay short-term
borrowings under the Company's revolving credit facility and for general
corporate purposes.
MMR Holdings, L.L.C. ("MMR") Definitive Purchase Agreement As of June 30, 1999
- -------------------------------------------------------------------------------
On June 30, 1999, Capital Automotive Group signed a definitive purchase
agreement to acquire MMR, an affiliate of Sonic Automotive, Inc. ("Sonic"). MMR
and its subsidiaries own, or by closing expect to own, 58 dealership properties
valued at approximately $206 million. The 58 properties are located in ten
states (Alabama, Florida, Georgia, Maryland, North Carolina, Ohio, South
Carolina, Tennessee, Texas and Virginia). These properties contain 75
franchises including Ford, BMW, Chrysler and Toyota. Sonic will guarantee the
leases on all but approximately eight of the properties, which are leased to
other dealer groups, including United Auto Group. Affiliates of Sonic will enter
into new leases with lease provisions substantially consistent with Capital
Automotive Groups' portfolio. Initial lease terms will be approximately ten
years; however, Sonic has agreed to renew at least 75% of the portfolio rental
stream for an additional 5-year period. In addition, Capital Automotive Group
has agreed that, during the term of the leases, Sonic may substitute replacement
properties for leased properties with an aggregate original purchase price and
allocated costs of up to an aggregate of $51 million. Any substituted property
must have a value approximately equal to the purchase price and allocated costs
of the original property. Sonic must provide a guarantee relating to the lease
of the replacement property, and rent for the replacement property may not be
less than the rent for the original property at the time of substitution. The
substituted property must also satisfy the requirements of Ford Motor Credit
Company (see below) for a replacement property. Subject to satisfactory
completion of due diligence, it is anticipated that the transaction will close
during the third quarter of 1999. Capital Automotive Group has also issued a
firm commitment to Sonic to purchase up to $75 million in additional dealership
properties, through the end of 1999, in conjunction with future acquisitions of
dealership operations by Sonic.
Debt Financing Commitments Subsequent to June 30, 1999
- ------------------------------------------------------
During July 1999, Capital Automotive Group executed several commitments with
financial institutions to fund the MMR acquisition, future property acquisitions
and general corporate purposes. Details of these executed commitments include
the following:
. A $150 million mortgage loan assumption commitment from Ford Motor Credit
Company to finance the majority of the MMR acquisition. The mortgage loan
will be secured by substantially all of the properties acquired in the MMR
acquisition. The mortgage loan will be assumed and
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amended. During July 1999, Capital Automotive Group locked the interest rate
for the mortgage loan at the 10-year US Treasury rate plus 229 basis points
or 8.03% per annum commencing on September 30, 1999 until maturity. The
mortgage loan will have a 12-year term, with two years interest only followed
by principal amortization based on a 25-year amortization schedule.
. A $55 million bridge loan commitment with a financial institution to fund the
difference between the assumed $150 million mortgage loan commitment and the
MMR acquisition price. The bridge loan will require interest only payments
made monthly at a rate equal to the one month LIBOR plus 200 basis points.
The bridge loan will mature on the earlier of (a) 90 days following the
closing date and (b) the closing date of an $85 million permanent mortgage
loan commitment ("Committed Permanent Loan") with the same financial
institution.
The Committed Permanent Loan is expected to have a term of 15 years from the
date of closing, an amortization period of 15 years and an interest rate equal
to the 10-year US Treasury rate plus 222 basis points. The Committed
Permanent Loan will be secured by various properties owned by subsidiaries of
the Operating Partnership. Upon closing the Committed Permanent Loan, the
interest rate on approximately $112 million of the Permanent Loan that closed
during 1998 will be adjusted downwards by 3.5 basis points (from 7.67% to
7.635%). In addition, the maturity date and amortization period on this
portion of the Permanent Loan will be modified to conform to the terms of the
Committed Permanent Loan.
11. SUBSEQUENT EVENTS
Declaration of Dividend
- -----------------------
On July 26, 1999, the Company declared a dividend of $0.34 per share, which will
be paid on August 20, 1999 to shareholders of record as of August 10, 1999.
11
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CAPITAL AUTOMOTIVE REIT
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--THREE MONTHS AND SIX MONTHS ENDED JUNE 30,
1999 AND JUNE 30, 1998
The following discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements and notes thereto.
OVERVIEW
Capital Automotive REIT (the "Company") is a Maryland real estate investment
trust formed in October 1997. The Company owns its property interests through
Capital Automotive L.P. (the "Operating Partnership") and its subsidiaries.
The Company is the sole general partner of the Operating Partnership. The
Company completed its initial public offering of common shares and began
generating rental income in February 1998. The term "Capital Automotive
Group" refers to the Company and the Operating Partnership and their
subsidiaries. In this Quarterly Report on Form 10-Q, the term "subsidiary" of
the Company or the Operating Partnership means a corporation, partnership,
limited liability company or similar entity if the Company or the Operating
Partnership, alone or together, directly or indirectly, own at least a majority
of the equity interests of the entity. Typically the Operating Partnership
forms a subsidiary limited liability company or limited partnership to own
properties acquired from a given dealership group. This structure is intended
to facilitate financing and transfers involving such properties.
Capital Automotive Group's primary business purpose is to own and lease real
estate properties (land, buildings and other improvements) to operators of
franchised automobile dealerships, motor vehicle service, repair or parts
businesses and related businesses. In this Quarterly Report on Form 10-Q,
Capital Automotive Group uses the term "dealerships" to refer to these types
of businesses that are operated on its properties. Capital Automotive Group's
strategy focuses on acquiring real estate used by multi-site, multi-franchised
dealerships located predominately in major metropolitan areas throughout the
United States.
All properties are leased under triple-net leases, under which the lessees
typically pay substantially all operating expenses of a property, including, but
not limited to, all taxes, assessments and other government charges, insurance,
utilities, service, repairs and maintenance. The leases are generally for a
period of ten to 20 years, with options to renew upon the same terms and
conditions for one or more additional periods of five to ten years exercisable
at the option of the lessee.
Substantially all of Capital Automotive Group's revenues are derived from (1)
rents received under long-term, triple-net leases; and (2) interest earned from
the temporary investment of funds in short-term investments.
Capital Automotive Group incurs general 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. Capital Automotive Group is self-administered
and managed by its trustees, executive officers and staff. The primary non-cash
expense of Capital Automotive Group is the depreciation of its properties.
Capital Automotive Group depreciates buildings and improvements on the
properties currently owned by it over a 40-year period for tax purposes and a
20-year to 30-year period for financial reporting purposes. Capital Automotive
Group does not own or lease any significant personal property, furniture or
equipment at any property currently owned by it.
12
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ACQUISITIONS
During the three months ended June 30, 1999, Capital Automotive Group acquired
13 dealership properties, representing 37 automotive franchises, for an
aggregate purchase price of $50.5 million. Consideration for the properties
consisted of approximately $46.5 million in cash and $4.0 million in Operating
Partnership units ("Units"). The properties were acquired from various dealer
groups or their affiliates, including Auffenberg Enterprises of Illinois, Inc.,
Hoz de Vila Automotive, Kelley Automotive Group, Lithia Motors, Momentum
Motorcars and Orr Automotive. The properties total approximately 428,000 square
feet of buildings and improvements on 66.9 acres of land and are located in five
states (Illinois, Indiana, New Jersey, Oregon and Texas). These properties have
initial lease terms ranging from 12 to 15 years, with an average initial term of
13.9 years, and have renewal options (generally ranging from a total of 20 years
to 40 years) exercisable by the tenant.
As of June 30, 1999, Capital Automotive Group had invested approximately $646
million in properties. Capital Automotive Group's portfolio consisted of 154
properties, representing 246 automotive franchises in 22 states. These
properties total approximately 5.4 million square feet of buildings and
improvements on 853 acres of land. The properties are leased on long-term,
triple-net leases with an average initial lease term of 13.2 years. The
Company's portfolio weighted average initial cap rate at June 30, 1999 was
10.6%, which is calculated as the percentage of the initial annual base rent
over the purchase price paid to the sellers for the related properties.
MMR HOLDINGS, L.L.C. ("MMR") DEFINITIVE PURCHASE AGREEMENT
On June 30, 1999, Capital Automotive Group signed a definitive purchase
agreement to acquire MMR, an affiliate of Sonic Automotive, Inc. ("Sonic"). MMR
and its subsidiaries own, or by closing expect to own, 58 dealership properties
valued at approximately $206 million. The 58 properties are located in ten
states (Alabama, Florida, Georgia, Maryland, North Carolina, Ohio, South
Carolina, Tennessee, Texas and Virginia). These properties contain 75
franchises including Ford, BMW, Chrysler and Toyota. Sonic will guarantee the
leases on all but approximately eight of the properties, which are leased to
other dealer groups, including United Auto Group. Affiliates of Sonic will enter
into new leases with lease provisions substantially consistent with Capital
Automotive Groups' portfolio. Initial lease terms will be approximately ten
years; however, Sonic has agreed to renew at least 75% of the portfolio rental
stream for an additional 5-year period. In addition, Capital Automotive Group
has agreed that, during the term of the leases, Sonic may substitute replacement
properties for leased properties with an aggregate original purchase price and
allocated costs of up to an aggregate of $51 million. Any substituted property
must have a value approximately equal to the purchase price and allocated costs
of the original property. Sonic must provide a guarantee relating to the lease
of the replacement property, and rent for the replacement property may not be
less than the rent for the original property at the time of substitution. The
substituted property must also satisfy the requirements of Ford Motor Credit
Company (see below) for a replacement property. Subject to satisfactory
completion of due diligence, it is anticipated that the transaction will close
during the third quarter of 1999. Capital Automotive Group has also issued a
firm commitment to Sonic to purchase up to $75 million in additional dealership
properties, through the end of 1999, in conjunction with future acquisitions of
dealership operations by Sonic.
13
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RESULTS OF OPERATIONS
Although the Company was formed prior to January 1, 1998, it did not complete
its initial public offering ("IPO") until February 19, 1998, at which time
Capital Automotive Group purchased its initial properties and began generating
rental income.
Rental revenue for the second quarter of 1999 rose 208% to $15.7 million from
$5.1 million in the same quarter of 1998. Rental revenue for the six months
ended June 30, 1999 rose 343% to $30.2 million from $6.8 million for the same
period of 1998. The increase was attributable to the growth of Capital
Automotive Group's real estate portfolio (154 properties as of June 30, 1999
versus 64 properties as of June 30, 1998), from which Capital Automotive Group
generates its rental income.
Interest and other income for the second quarter decreased 94% to $221,000 from
$3.4 million in the same quarter of 1998. Interest and other income for the six
months ended June 30, 1999 decreased 91% to $437,000 from $5.0 million for the
same period of 1998. Interest and other income during the six months ended June
30, 1998 was primarily generated from the investment of the excess of the net
proceeds of a private placement offering and the Company's IPO including the
exercise of the underwriters' over-allotment option (both of which were
completed during the first quarter of 1998). These net proceeds were fully
invested during 1998 and therefore did not generate interest income during the
quarter and six months ended June 30, 1999. Offsetting the decrease during the
second quarter was a gain on the sale of property of $164,000 and interest
income generated from the investment of the excess of debt issuance proceeds
over the amount invested in properties.
Depreciation and amortization for the second quarter of 1999 increased 285% to
$3.8 million from $995,000 in the same quarter of 1998. Depreciation and
amortization for the six months ended June 30, 1999 increased 473% to $7.7
million from $1.3 million for the same period of 1998 and consisted primarily of
depreciation on buildings and improvements owned during those periods. The
increase is attributable to the growth of Capital Automotive Group's real estate
portfolio.
Capital Automotive Group had general and administrative expenses of $1.7 million
for the second quarter of 1999 compared to $1.5 million for the second quarter
of 1998, representing an increase of 18%. General and administrative expenses
for the six months ended June 30, 1999 increased 54% to $3.6 million from $2.4
million for the same period of 1998. The increase in the six month period ended
June 30, 1999, compared to the same period of 1998, was due primarily to
increased payroll and related benefits attributable to personnel additions in
1998, and severance payments relating to the elimination of four employees
during the first quarter of 1999, or approximately 15% of Capital Automotive
Group's total staff. Also contributing to the increase was increased marketing
expenses as well as increased professional fees and other administrative costs
associated with public reporting requirements. These increases were partially
offset by the reduction in payroll and related expenses as a result of staffing
reductions as well as the closing of the Chicago office during the second
quarter of 1999.
Interest expense for the second quarter of 1999 increased to $3.7 million from
$127,000 for the same quarter of 1998. Interest expense for the six-month
period ended June 30, 1999 increased to $7.0 million compared to $168,000 for
the same period of 1998. The increase was due to interest charged on Capital
Automotive Group's outstanding debt (including mortgage debt and borrowings
under its credit facility) issued in the third and fourth quarters of 1998 and
the first and second quarters of 1999.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7.7 million and $72.1 million at June 30, 1999
and December 31, 1998, respectively. The changes in cash and cash equivalents
during the six months ended June 30, 1999 were attributable to operating,
investing and financing activities, as described below.
Cash flow from operating activities for the six months ended June 30, 1999 and
1998 was $19.2 million and $12.0 million, respectively, and represents cash
received from rental income plus interest and other income less normal recurring
general and administrative expenses and interest payments on debt outstanding.
The Company's net cash used in investing activities for the six months ended
June 30, 1999 and 1998 was $127.0 million and $169.0 million, respectively and
primarily reflects the acquisition of dealership properties during those
periods. Cash flow from financing activities for the six months ended June 30,
1999 and 1998 was $43.4 million and $347.6 million, respectively. Cash flow
from financing activities for the six months ended June 30, 1999, primarily
reflects the proceeds from bank borrowings partially offset by distributions
made to the Company's shareholders and the Operating Partnership's limited
partners. Cash flow from financing activities for the six months ended June 30,
1998, primarily reflects the proceeds of a private placement offering and the
Company's IPO including the exercise of the underwriters' over-allotment option,
partially offset by distributions made to the Company's shareholders and the
Operating Partnership's limited partners.
As of June 30, 1999, Capital Automotive Group had commitments from four
financial institutions for a syndicated short-term revolving credit facility in
the aggregate amount of $115 million. As of June 30, 1999, Capital Automotive
Group had short-term revolving credit facilities from two financial institutions
participating in the syndicated credit facility, under which $62 million (of a
total of $70 million available under these facilities) was outstanding. As of
June 30, 1999, the blended interest rate on the amount outstanding was 7.13% per
annum. Upon closing of the syndicated credit facility, expected to occur in the
third quarter of 1999, any amounts outstanding under the existing credit
facilities will be rolled into the syndicated credit facility. The syndicated
credit facility will have a three-year term and borrowings will bear interest at
a rate currently equal to the one-month LIBOR plus 175 basis points. The
syndicated credit facility will provide funds for the acquisition of dealership
properties and for general corporate purposes.
During April 1999, Capital Automotive Group executed a $100 million mortgage
loan commitment from Ford Motor Credit Company, which was subsequently closed
during July 1999. The mortgage loan is secured by approximately 48 dealership
properties owned by the Operating Partnership and certain subsidiaries of the
Operating Partnership. The term of the financing is 12 years with principal
amortization based on a 25-year amortization schedule. The interest rate was
fixed at the 10-year US Treasury rate plus 250 basis points or 7.54% per annum
until maturity. Principal and interest will be payable quarterly. The proceeds
will be used to fund future property acquisitions, to repay short-term
borrowings under the Company's revolving credit facility and for general
corporate purposes.
During July 1999, Capital Automotive Group executed several commitments with
financial institutions to fund the MMR acquisition, future property acquisitions
and general corporate purposes. Details of these executed commitments include
the following:
. A $150 million mortgage loan assumption commitment from Ford Motor Credit
Company to finance the majority of the MMR acquisition. The mortgage loan
will be secured by substantially all of the properties acquired in the MMR
acquisition. The mortgage loan will be assumed and amended. During July 1999,
Capital Automotive Group locked the interest rate for the mortgage loan at
the 10-year US Treasury rate plus 229 basis points or 8.03% per annum
commencing on
15
<PAGE>
September 30, 1999 until maturity. The mortgage loan will have a 12-year
term, with two years interest only followed by principal amortization based
on a 25-year amortization schedule.
. A $55 million bridge loan commitment with a financial institution to fund the
difference between the assumed $150 million mortgage loan commitment and the
MMR acquisition price. The bridge loan will require interest only payments
made monthly at a rate equal to the one month LIBOR plus 200 basis points.
The bridge loan will mature on the earlier of (a) 90 days following the
closing date and (b) the closing date of an $85 million permanent mortgage
loan commitment ("Committed Permanent Loan") with the same financial
institution.
The Committed Permanent Loan is expected to have a term of 15 years from the
date of closing, an amortization period of 15 years and an interest rate
equal to the 10-year US Treasury rate plus 222 basis points. The Committed
Permanent Loan will be secured by various properties owned by subsidiaries of
the Operating Partnership. Upon closing the Committed Permanent Loan, the
interest rate on approximately $112 million of the Permanent Loan that closed
during 1998 will be adjusted downwards by 3.5 basis points (from 7.67% to
7.635%). In addition, the maturity date and amortization period on this
portion of the Permanent Loan will be modified to conform to the terms of the
Committed Permanent Loan.
Short-term liquidity requirements consist primarily of normal recurring
operating expenses, regular debt service requirements (including debt service
relating to additional and replacement debt), recurring capital expenditures,
distributions to shareholders and unitholders, and amounts required for
additional property acquisitions and renovations or expansion of properties.
The Company expects to meet these requirements (other than amounts required for
additional property acquisitions and renovations or expansion of properties)
through cash flow provided by operating activities. The Company anticipates
that any additional acquisition of properties, and renovation and expansion of
properties, during the next 12 months will be funded with additional amounts
available under Capital Automotive Group's committed syndicated revolving credit
facility and existing and future long-term secured and unsecured debt.
Acquisitions will be made subject to the investment objectives and policies of
the Company to maximize both current income and long-term growth in income.
As of June 30, 1999, long-term liquidity requirements consisted primarily of
maturities under Capital Automotive Group's long-term debt. The Company
anticipates that long-term liquidity requirements will also include amounts
required for acquisition of properties, and renovation and expansion of
properties. The Company expects to meet long-term liquidity requirements through
long-term secured and unsecured borrowings and other debt and equity financing
alternatives. The availability and terms of any such financing will depend upon
market and other conditions.
The Company's liquidity requirements with respect to future acquisitions may be
reduced to the extent the Company uses Units as consideration for such
purchases.
During the second quarter of 1999, the Company's Board of Trustees approved a
resolution providing that the policy of the Company shall be to operate with a
debt to asset ratio of not more than approximately 65%. This policy may be
changed by the Company's Board of Trustees at any time without shareholder
approval. As of June 30, 1999, the Company had a debt to asset ratio of
approximately 34%.
As a result of the change in policy to operate with a debt to asset ratio of not
more than approximately 65%, the Company anticipates that it will be able to
obtain additional financing for its long-term capital needs. However, there can
be no assurance that additional financing or capital will be available, or that
16
<PAGE>
the terms will be acceptable or advantageous to the Company.
YEAR 2000 READINESS DISCLOSURE
Management of Capital Automotive Group has adopted a plan to confront year 2000
issues. Under the plan, management is assessing the potential material effect of
year 2000 issues on the Company's business, results of operations, and financial
condition and is determining ways to mitigate those issues.
Capital Automotive Group has completed discussions with a sample of its tenants
regarding their year 2000 compliance. In addition, each of Capital Automotive
Group's tenants were sent questionnaires in the fourth quarter of 1998 and
during 1999, regarding the year 2000 compliance of their financial data and
operating systems. Capital Automotive Group is presently obtaining and reviewing
the questionnaires and to date has found no instances where a tenant is not
materially year 2000 compliant. Capital Automotive Group is currently not aware
of any tenants who are not materially year 2000 compliant and does not feel a
need for a contingency plan to mitigate year 2000 issues.
Overall, Capital Automotive Group believes that it will not incur significant
costs in modifying its existing software applications, replacing hardware or
hiring consultants in resolving year 2000 issues both internally and externally.
Although Capital Automotive Group has not incurred any material expenditures
relating to year 2000 issues as of June 30, 1999, there can be no assurance as
to the magnitude of future costs until Capital Automotive Group's assessment is
complete.
Failure to correct material year 2000 issues may result in the interruption, or
failure of, certain normal business activities or operations and may adversely
affect the Company's results of operations, liquidity and financial condition.
Management of Capital Automotive Group believes that continued progress in
implementing the year 2000 plan will significantly reduce Capital Automotive
Group's potential of a year 2000 operational interruption. As of June 30, 1999,
management of Capital Automotive Group had no knowledge of a year 2000 event or
uncertainty that is likely to materially affect Capital Automotive Group.
FUNDS FROM OPERATIONS
Funds From Operations ("FFO") is defined under the revised definition adopted by
the National Association of Real Estate Investment Trusts (NAREIT) as net income
(loss) (computed in accordance with generally accepted accounting principles)
excluding gains (or losses) from debt restructuring or sales of property plus
depreciation/amortization of assets unique to the real estate industry.
Depreciation/amortization of assets not unique to the industry, such as
amortization of deferred financing costs and non-real estate assets, is not
added back. FFO does not represent cash flows from operating activities in
accordance with generally accepted accounting principles (which, unlike FFO,
generally reflects all cash effects of transactions and other events in the
determination of net income) and should not be considered an alternative to net
income as an indication of the Company's performance or to cash flow as a
measure of liquidity or ability to make distributions. The Company considers
FFO a meaningful, additional measure of operating performance because it
primarily excludes the assumption that the value of the real estate assets
diminishes predictably over time, and because industry analysts have accepted it
as a performance measure. Comparison of the Company's presentation of FFO,
using the NAREIT definition, to similarly titled measures for other REITs may
not necessarily be meaningful due to possible differences in the application of
the NAREIT definition used by such REITs.
17
<PAGE>
FFO of the Operating Partnership for the three months and six months ended June
30, 1999 and June 30, 1998 is computed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income before Minority
Interest $ 6,606 $ 5,953 $ 12,380 $ 7,997
Real Estate Depreciation and
Amortization 3,808 965 7,628 1,294
Gain on Sale of Asset (164) - (164) -
--------- --------- --------- ---------
Funds From Operations $ 10,250 $ 6,918 $ 19,844 $ 9,291
========= ========= ========= =========
</TABLE>
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which
are intended to be covered by the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward looking statements involve a
number of 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," "intends," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon or
comparable terminology. Certain factors that may cause the actual results of
operations in future periods to differ materially from forecast or anticipated
results are set forth in the Company's Current Report on Form 8-K, dated
February 26, 1999 and filed February 26, 1999, include, but are not limited to
(i) the failure of lessees of real property owned by Capital Automotive Group to
pay rent or otherwise perform the terms of their leases, (ii) increases in
operating costs, (iii) the availability and terms of additional capital to fund
the acquisition of additional properties, (iv) risks that new or pending
acquisitions may not be consummated, (v) the inability of the Company to
identify and acquire suitable real properties that conform to its business
strategy, (vi) general economic and business conditions, both nationally and in
the regions in which the Company owns real property, including, but not limited
to, conditions affecting the motor vehicle retail and related businesses
specifically and real estate generally, (vii) changes to laws, rules and
governmental regulations affecting the Company, including the tax laws affecting
real estate investment trusts and zoning regulations affecting the operation of
the properties, (viii) risks that current or former operators of the properties
fail or have failed to comply with environmental laws and regulations, (ix) the
termination or abandonment of the dealerships or other motor vehicle related
businesses that occupy any real property owned by Capital Automotive Group, (x)
competition, (xi) the ability of the Company to retain its executive officers
and attract and retain additional key personnel, (xii) changes in business
strategy, (xiii) the ability to sell properties on suitable terms at such time
as the Company elects, (xiv) the impact on the Company of computer and related
problems that may arise from year 2000, and (xv) other risks described from time
to time in the registrant's filings with the Securities and Exchange Commission.
18
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
------------------------------------------------------------
The Company is exposed to certain financial market risks, the most predominant
being fluctuations in interest rates. Interest rate fluctuations are monitored
by the Company's management as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results of
operations.
As of June 30, 1999, there have been no material changes in the Company's
financial market risk since December 31, 1998 as reported in the Company's
Annual Report on Form 10-K.
19
<PAGE>
CAPITAL AUTOMOTIVE REIT
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
The Company has not sold any common shares of beneficial interest, par value
$.01 per share ("Common Shares"), during the six-month period ended June 30,
1999.
On June 30, 1999, the Operating Partnership issued 320,000 Units to Auffenberg
Enterprises of Illinois, Inc., as partial consideration for the acquisition of
two parcels of real property and improvements located thereon in O'Fallon,
Illinois. The Units will be eligible for redemption beginning on July 31, 2000
for cash by the Operating Partnership, or at the option of the Company, Common
Shares on a one for one basis. The issuance of such Units was effected in
reliance on an exemption from registration under Section 4(2) of the Securities
Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
The first annual meeting of shareholders of Capital Automotive REIT (the
"Meeting")was held on May 7, 1999. The matters voted upon at the meeting were:
(1) Election of Trustees; (2) Approval of Amendments to the 1998 Equity
Incentive Plan; and (3) Ratification of Arthur Andersen LLP as Independent
Accountants for 1999. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities and Exchange Act of 1934, as amended, and the
regulations promulgated thereunder. There was no solicitation in opposition to
management's solicitations. All of management's nominees for trust managers
were elected. The following table sets forth the results of these votes:
20
<PAGE>
<TABLE>
<CAPTION>
Proposal Results
- ----------------------------------------------------- --------------------------------------
(1) A proposal to elect ten Board of Trustee members:
<S> <C> <C>
Thomas D. Eckert For: 18,649,971
Withheld: 4,500
Craig L. Fuller For: 18,649,971
Withheld: 4,500
William E. Hoglund For: 18,649,971
Withheld: 4,500
R. Michael McCullough For: 18,649,971
Withheld: 4,500
Lee P. Munder For: 18,649,971
Withheld: 4,500
John J. Pohanka For: 18,649,971
Withheld: 4,500
John E. Reilly For: 18,649,971
Withheld: 4,500
Robert M. Rosenthal For: 18,649,971
Withheld: 4,500
Vincent A. Sheehy For: 18,649,971
Withheld: 4,500
William R. Swanson For: 18,649,971
Withheld: 4,500
(2) Approval of Amendments to the 1998 Equity Incentive Plan:
For: 10,556,473
Against: 5,898,873
Abstain: 18,775
Broker No Vote: 2,180,350
(3) Ratification of Arthur Andersen LLP as Independent Accountants:
For: 17,159,791
Against: 2,219
Abstain: 1,492,461
Broker No Vote: 0
</TABLE>
21
<PAGE>
Item 5. Other Information
On May 7, 1999, the Board of Trustees unanimously elected David Gladstone to
fill the remaining vacancy on the Board of Trustees, bringing the total number
of trustees to 11.
David Gladstone, 56, is the Vice-Chairman of the Board of American Capital
Strategies, a buyout and specialty finance firm. Mr. Gladstone has over 24
years of experience in making loans to small and medium-sized businesses and is
considered an industry leader in venture capital investing. Prior to joining
American Capital, Mr. Gladstone was Chairman and CEO of Allied Capital
Corporation. Mr. Gladstone is also Chairman of Coastal Berry Company, a large
agricultural business. He is a Trustee of George Washington University, a past
member of the Listings and Hearing Committee at the National Association of
Securities Dealers, Inc. and a former director of Riggs National Corporation.
Mr. Gladstone holds a Master of Business Administration degree from Harvard
Business School, a Master of Arts degree from American University and a Bachelor
of Arts degree from the University of Virginia.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits:
- -- --------
<S> <C>
*2.1 Acquisition Agreement dated as of June 30, 1999, as amended, by and
among CAR MMR L.L.C., O. Bruton Smith, Sonic Financial Corporation, MMR
Holdings L.L.C., MMR Viking Investment Associates, L.P. and MMR
Tennessee, L.L.C.
*2.2 Sonic Agreement made and entered into as of June 30, 1999, by and among
(i) Sonic Automotive, Inc., (the "Guarantor"), (ii) certain subsidiaries
or affiliates of the Guarantor (the "Tenants"), and (iii) CAR MMR
L.L.C., (the "Acquirer"), in connection with that certain Acquisition
Agreement dated of even date.
10.46 Loan Agreement dated as of July 7, 1999, between CAR CZ L.L.C.,
CARS-FEN, L.L.C., CAR HDV L.L.C., CAR Alexander L.P., Capital Automotive
L.P., CAR MOT II, L.L.C., CAR MOT L.L.C., CAR AUF L.L.C., CAR I Jackson
L.P., and CAR MUL L.L.C., as Borrower and Ford Motor Credit Company as
Lender.
27 Financial Data Schedule
*Confidential portions omitted pursuant to a request for confidential treatment
and supplied separately to the Securities and Exchange Commission. Exhibits and
Schedules omitted but will be furnished supplementally to the Securities and
Exchange Commission upon request.
(b) Reports on Form 8-K
-------------------
Not applicable
</TABLE>
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL AUTOMOTIVE REIT
(Registrant)
BY: /s/ Thomas D. Eckert
-------------------------
Thomas D. Eckert
President and Chief Executive Officer
(principal executive officer)
BY: /s/ David S. Kay
-------------------------
David S. Kay
Vice President and Chief Financial
Officer
(principal financial and accounting
officer)
Dated: August 11, 1999
-------------------
23
<PAGE>
EXHIBIT 2.1
CONFIDENTIAL TREATMENT
ACQUISITION AGREEMENT
BY
AND
AMONG
CAR MMR L.L.C.,
O. BRUTON SMITH,
SONIC FINANCIAL CORPORATION,
MMR HOLDINGS, L.L.C.,
MMR VIKING INVESTMENT ASSOCIATES, L.P.
AND
MMR TENNESSEE, L.L.C.
<PAGE>
CONFIDENTIAL TREATMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS........................................................................... 2
ARTICLE 2 PURCHASE PRICE, DEPOSITS AND STUDY PERIOD............................................. 8
ARTICLE 3 COVENANTS AND OTHER AGREEMENTS........................................................ 14
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLERS AND OWNERS.................................. 17
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE ACQUIRER........................................ 24
ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRER................................... 26
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS AND OWNERS............................. 28
ARTICLE 8 CLOSING............................................................................... 28
ARTICLE 9 COOPERATION ON TAX MATTERS............................................................ 32
ARTICLE 10 DISPOSITION OF CASH ASSETS AND TERMINATION OF CONTRACTS OF THE OWNERS UPON CLOSING.. 33
ARTICLE 11 DEFAULT AND REMEDIES................................................................. 34
ARTICLE 12 INDEMNIFICATION...................................................................... 35
ARTICLE 13 MISCELLANEOUS........................................................................ 37
</TABLE>
-i-
<PAGE>
CONFIDENTIAL TREATMENT
<TABLE>
EXHIBITS:
<S> <C>
*Exhibit 2.2 - Form of Escrow Agreement
*Exhibit 2.5(a)(i) - Schedule of Documents to be Delivered to the Acquirer
*Exhibit 2.5(a)(ii) - Schedule of Documents to be Made Available to the Acquirer
*Exhibit 3.12 - General Release
*Exhibit 6.3(a) - Pre-Acquisition Lease Termination Agreement and Estoppel Certificate
*Exhibit 6.3(b) - Tenant Estoppel Certificate
*Exhibit 8.2(a)(i) - Assignment of Membership Interests - Smith and SFC
*Exhibit 8.2(a)(ii) - Assignment of Partnership Interests - Smith
*Exhibit 8.2(a)(iii) - Assignment of Membership Interests - Smith
*Exhibit 8.2(l) - Opinion of Sellers' and Owners' Counsel
*Exhibit 8.3(c) - Opinion of the Acquirer's Counsel
*Exhibit 13.15 - Representation Letter Regarding Audit of Books & Records
SCHEDULES:
*Schedule A - Properties and Descriptions per Owner
*Schedule 1.1 - Mortgage Debt
*Schedule 1.2 - Current Title Policies
*Schedule 1.3 - Rent Roll
*Schedule 4.1(d) - Litigation
*Schedule 4.2(i) - Environmental Reports
*Schedule X - Disclosures
</TABLE>
* Omitted. The Registrant agrees to furnish supplementally to the Commission a
copy of any omitted exhibit or schedule upon request.
-ii-
<PAGE>
EXHIBIT 2.1
CONFIDENTIAL TREATMENT
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT ("Agreement") is made and entered into as of the
30th day of June, 1999 (the "Effective Date"), by and among (i) O. BRUTON SMITH,
an individual ("Smith"), (ii) SONIC FINANCIAL CORPORATION, a North Carolina
corporation ("SFC" and, together with Smith, collectively "Sellers" and
individually, "Seller"), (iii) MMR HOLDINGS, L.L.C., a North Carolina limited
liability company ("MMR Holdings"), (iv) MMR VIKING INVESTMENT ASSOCIATES, L.P.,
a Texas limited partnership ("MMR Viking"), (v) MMR TENNESSEE, L.L.C., a North
Carolina limited liability company ("MMR Tennessee", and together with MMR
Holdings and MMR Viking, collectively, the "Owners" and individually, "Owner"),
and (vi) CAR MMR L.L.C., a Delaware limited liability company (the "Acquirer"),
under the following circumstances:
RECITALS:
1. The Owners own (or will own prior to the Closing) the properties
listed in Schedule A (such properties, together with all other rights,
----------
privileges, hereditaments and interests appurtenant thereto constituting Real
Property, and all Improvements, Leases, Personal Property and Intangible
Property (each as defined herein) relating thereto, the "Properties" and,
individually, a "Property").
2. The only members in MMR Holdings are Smith, who owns a fifty-four and
eighty-eight one hundredths percent (54.88%) membership interest in MMR
Holdings, and SFC, which owns a forty-five and twelve one-hundredths percent
(45.12%) membership interest in MMR Holdings (collectively, the "Membership
Interests").
3. The only partners in MMR Viking are Smith, who owns a one percent (1%)
partnership interest in MMR Viking, and MMR Holdings, which owns a ninety-nine
percent (99%) partnership interest in MMR Viking (the "Holdings' Viking
Interest").
4. The only members in MMR Tennessee are Smith, who owns a one percent
(1%) membership interest in MMR Tennessee, and MMR Holdings, which owns a
ninety-nine percent (99%) membership interest in MMR Tennessee (the "Holdings'
Tennessee Interest" and together with the Holdings' Viking Interest, the
"Holdings' Interest").
5. At Closing hereunder, the Sellers will sell the Sellers' Membership
Interests in MMR Holdings and Smith will sell his partnership interests in MMR
Viking and his membership interests in MMR Tennessee (the "Smith Interests", and
together with the
<PAGE>
Membership Interests, the "Interests"), as the case may be, and the Acquirer
will purchase the Interests upon and subject to the terms and conditions, as
more particularly set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby mutually acknowledged, the parties
hereto agree as follows:
ARTICLE 1
DEFINITIONS
.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
"Acquirer" has the meaning set forth in the Preamble.
"Adjusted Purchase Price" means the aggregate Purchase Price for
all Interests sold by the Sellers, as the same may be increased or decreased as
follows: first, by deducting the principal amount of all then-outstanding
-----
mortgage indebtedness encumbering the Properties as of the Closing Date and
deducting all interest on such mortgage indebtedness accrued and unpaid as of
the Closing Date; second, by deducting the amount (determined by the Acquirer in
------
good faith and agreed to by the Sellers) of all liabilities, claims, demands,
losses or damages arising from any breaches by the Sellers or the Owners of
their respective representations and warranties in Article 4 which are known
prior to the Closing Date; third, to the extent provided in Section 3.9, by
-----
deducting the amount of any damage (determined by the Acquirer in good faith and
agreed to by the Sellers relating to the Owners or the Properties) to a Property
as determined prior to the Closing Date; fourth, by deducting the amount of any
------
other known and determinable liabilities (determined by the Acquirer in good
faith and agreed to by the Sellers) relating to an Owner or a Property as
determined prior to the Closing Date; and fifth, by deducting the amount of any
-----
Acquisition Expenses relating to the sale and purchase of the Interests. If any
of the items discussed in clauses "second," "third," and "fourth" above have
occurred, but there has not been agreement between the Acquirer and the Sellers
on or before the required adjustment date as set forth above, then, to the
extent of such disagreement, such item shall not result in an adjustment to the
Purchase Price, provided, that no party shall be deemed to have waived any of
its other rights or remedies with respect to such item.
"Acquisition Expenses" means the sum of (a) all out-of-pocket fees
and expenses relating to the closing of the acquisition of any Properties, the
conveyance of which is contemplated by this Agreement, in which Lender does not
have a security interest as of the Effective Date (including, without
limitation, environmental audit costs; survey costs; zoning report costs;
appraisal costs; building condition survey costs; title insurance policy costs;
title company and closing costs; deed, mortgage and other recordation, transfer,
document and stamp taxes; and similar out-of-pocket expenses), (b) the costs of
obtaining Phase I ASTM
-2-
<PAGE>
Compliant Environmental Audits for any Properties for which a Phase I ASTM
Compliant Environmental Audit was not obtained after the date that is six (6)
months prior to the date on which such Property was purchased by the applicable
Owner, (c) the costs of obtaining Phase II ASTM Compliant Environmental Audits
for any Properties for which the Phase I environmental audits obtained for such
Property recommended obtaining a Phase II environmental audit, but for which a
Phase II ASTM Compliant Environmental Audit was not obtained, (d) the costs of
obtaining an ALTA Compliant Survey (as hereinafter defined) for any Properties
for which an ALTA Compliant Survey was not obtained at the time such Property
was purchased by the applicable Owner, (e) the costs of obtaining zoning reports
for any Properties for which neither (i) an ALTA 3.1 zoning endorsement to the
owner's title insurance policy (regardless of whether such an endorsement could
have been obtained pursuant to applicable law), nor (ii) other evidence of
zoning, reasonably acceptable to the Acquirer, was obtained after the date that
is six (6) months prior to the date on which such Property was purchased by the
applicable Owner, (f) the costs of obtaining building condition surveys for the
Properties to the extent the same have not been obtained as of the Effective
Date; and (g) title insurance policy costs, title company and closing costs,
recordation, deed, mortgage and other transfer, document and stamp taxes
relating to the closing of the acquisition of any Properties, the conveyance of
which is contemplated by this Agreement, in which Lender has a security interest
as of the Effective Date. If Lender elects to accept the Body Shop Properties as
collateral for the Mortgage Debt, then no expenses incurred in connection with
the Body Shop Properties (other than those set forth in clauses (a) and (b)
above), shall be included within Acquisition Expenses. Notwithstanding the
foregoing to the contrary, (i) Acquisition Expenses shall not include costs and
expenses which have been incurred by the Acquirer in the internal administrative
and overhead costs incurred in connection with the acquisition by the Acquirer,
and (ii) the aggregate of the elements of Acquisition Expenses set forth in
clauses (e) through (g) above (the "Partial Acquisition Expenses Amount") shall
be deemed to equal fifty percent (50%) of the difference between (A) the actual
Partial Acquisition Expenses Amount, minus (B) One Hundred Thousand Dollars
($100,000), but, in any event, the Partial Acquisition Expenses Amount shall not
be deemed to be less than Zero Dollars ($0) nor more than One Hundred Seventy-
Five Thousand Dollars ($175,000).
"Affiliate" means with respect to a Person, another Person who or that
directly or indirectly controls, is controlled by or is under common control
with the first Person; and the term "control" means the power to direct the
management of an entity through voting rights, ownership or contractual
obligations.
"Allocated Mortgage Debt" shall mean, with respect to each Property,
the product of (a) the Purchase Price allocable to such Property, multiplied by
(b) a fraction having a numerator equal to the original principal amount of the
Mortgage Debt (as modified at Closing) and a denominator equal to the Purchase
Price.
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<PAGE>
"ASTM Compliant Environmental Audit" shall mean, with respect to a
Phase I environmental audit, an audit that meets the American Society for
Testing and Materials Standard E1527-97, and, with respect to a Phase II
environmental audit, an audit that meets the American Society for Testing and
Materials Standard E1903-97.
"Body Shop Properties" means those Properties known as ABRA Auto Body
& Glass, L.L.C., Chattanooga, Tennessee; JSI Collision Center, Inc., Bedford,
Ohio; JSI Collision Center, Inc., Cleveland, Ohio; and JSI Collision Center,
Inc., Cuyahoga Falls, Ohio.
"Business Day" means any day of the year other than Saturday, Sunday
or any other day on which banks located in Charlotte, North Carolina, generally
are closed for business.
"Closing" has the meaning set forth in Section 8.1.
"Closing Date" has the meaning set forth in Section 8.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contingent Properties" means those Properties set forth on Schedule A
----------
to which the Owners do not have legal title as of the date that is five (5)
Business Days prior to the Closing Date.
"Continuing Leases" means the Leases with respect to those Properties
known as Citrus Chrysler-Plymouth-Dodge, Dade City, Florida; Chrysler-Plymouth
Used Car Lot, Dade City, Florida; Saturn of Chattanooga, Chattanooga, Tennessee;
Toyota of Cleveland, Cleveland, Tennessee; and the Body Shop Properties.
"Effective Date" has the meaning set forth in the Preamble.
"Environmental Laws" means the Resource Conservation and Recovery Act
and the Comprehensive Environmental Response Compensation and Liability Act and
other federal laws governing the environment as in effect on the date of this
Agreement together with their implementing regulations and guidelines as of the
date of this Agreement, and all state, regional, county, municipal and other
local laws, regulations and ordinances that are equivalent or similar to the
federal laws recited above or that purport to regulate Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Hazardous Materials" means petroleum, including crude oil or any
fraction thereof, natural gas, natural gas liquids, liquefied natural gas or
synthetic gas usable for fuel (or mixtures of natural gas or such synthetic
gas), and any substance, material, waste, pollutant or contaminant listed or
defined as hazardous or toxic under any Environmental Law.
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<PAGE>
"Improvement" has the meaning set forth in the definition of Real
Property.
"Intangible Property" means, with respect to each Owner, all
intangible property now or on the Closing Date owned by the Owners or used in
connection with the Real Property or the Personal Property by the Owners, to the
extent assignable in accordance with its terms or under applicable law,
including, without limitation, all right, title and interest in and to all:
licenses, approvals, applications and permits issued or approved by any
governmental authority and relating to the use, operation, ownership, occupancy
and/or maintenance of the Real Property or the Personal Property; utility
arrangements; indemnities; claims against third parties; plans; drawings;
specifications; surveys; maps; engineering reports and other technical
descriptions; books and records; insurance proceeds and condemnation awards; and
all other intangible rights held by the Owners or used in connection with or
relating to the Real Property or the Personal Property, including rights, if
any, to current and past names of the Owners and Real Property.
"Interests" means the Membership Interests and the Smith Interests.
"Knowledge" means, with respect to an Owner, the actual knowledge of
Benjamin F. Bracy, Mark J. Iuppenlatz or Virginia R. Dunn. With respect to both
Sellers and Owners, "Knowledge" shall not mean or impute the knowledge of SAI
(except to the extent the knowledge of SAI is informed by the knowledge of one
or more of the aforementioned individuals).
"Leases" means, with respect to each Property, all leases and other
agreements granting the right to occupy or use all or any portion thereof, as
well as leases which may be made by Owner after the date hereof and before the
Closing as permitted by this Agreement.
"Lender" means Ford Motor Credit Company, a Delaware corporation.
"Lien" means any mortgage, lien (statutory or other), charge,
restriction, pledge, security interest, option, lease or sublease, claim, right
of any third party, easement, encroachment or other encumbrance.
"Membership Interests" shall mean all membership interests in MMR
Holdings.
"MMR Holdings" has the meaning set forth in the Preamble.
"MMR Tennessee" has the meaning set forth in the Preamble.
"MMR Viking" has the meaning set forth in the Preamble.
"Mortgage Debt" means the existing mortgage indebtedness as set forth
on Schedule 1.1 which encumbers certain of the Properties and which indebtedness
------------
will be
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<PAGE>
modified and assumed at the Closing by the Acquirer on terms and conditions
satisfactory to the Acquirer, provided the Lender consents to such modification
and assumption. The Mortgage Debt is secured by a deed of trust and/or mortgage
lien against the Properties held by the Lender.
"Owner" and "Owners" has the meaning set forth in the Preamble.
"Partnership Interests" shall mean all partnership interests in MMR
Viking.
"Permitted Exceptions" means (a) those exceptions contained on
Schedule "B" of the title policies currently held by the Owners, a list of which
title policies is set forth on Schedule 1.2 (excluding Liens securing or
------------
evidencing indebtedness other than the Mortgage Debt), (b) such additional
encumbrances approved by Acquirer, such approval not to be unreasonably withheld
or delayed, as do not adversely affect the use, value or marketability of the
Property affected thereby, (c) those additional matters that may be specifically
approved in writing by the Acquirer (which approval shall not be unreasonably
withheld), (d) the Leases, (e) Liens for taxes which are not yet due and
payable, and (f) Liens evidencing or securing Mortgage Debt to the extent and in
the manner such Liens are in existence on the date hereof.
"Person" means any individual, corporation, partnership, limited
liability company, trust, unincorporated organization, association or other
entity.
"Personal Property" means, with respect to each Owner, all tangible
property owned by the Owners now or on the Closing Date or used by the Owners in
conjunction with the operation, maintenance, ownership and/or occupancy of the
Real Property, if any, including, without limitation: furniture; furnishings;
art work; sculptures; paintings; office equipment and supplies; landscaping;
plants; lawn equipment; and whether stored on or off the Real Property, tools
and supplies, maintenance equipment, materials and supplies used in connection
with the operation, maintenance, ownership or occupancy of the Real Property,
shelving and partitions and any construction and finish materials and supplies
not incorporated into the Improvements and held for repairs and replacements
thereto, wherever located. The Personal Property does not include tools,
supplies, equipment or other personal property owned by any tenant under the
Leases.
"Property" has the meaning set forth in the Recitals.
"Purchase Price" means an amount equal to *.
* Text deleted pursuant to application for Confidential Treatment
under Rule 24b-2 of the Securities Exchange Act of 1934 and filed separately
with the Securities Exchange Commission
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<PAGE>
"Real Property" means, with respect to each Property, the fee simple
absolute estate in and to the real property described or referred to on Schedule
--------
A, together with all rights, privileges, hereditaments and interests appurtenant
- -
thereto including, without limitation: any water and mineral rights, development
rights, air rights, easements and any and all rights of the Sellers and the
Owners in and to any streets, alleys, passages and other rights of way; and all
buildings and other improvements located on or affixed to such real property and
all replacements and additions thereto (collectively, "Improvements").
"SAI" means Sonic Automotive, Inc., a Delaware corporation.
"Sellers" has the meaning set forth in the Preamble.
"SFC" has the meaning set forth in the Preamble.
"Smith" has the meaning set forth in the Preamble.
"Smith Interests" means all partnership interests held by Smith
individually in MMR Viking, and all membership interests held by Smith
individually in MMR Tennessee.
"Sonic Agreement" shall mean that certain Sonic Agreement dated as of
even date herewith by and among the Acquirer, SAI and the tenants set forth in
such agreement.
"Sonic Lease" has the meaning set forth in the Sonic Agreement.
"Substitute Property" shall mean, with respect to a Disqualified
Property or a Contingent Property, a parcel or parcels of real property that has
or have been approved in writing by the Acquirer pursuant to the criteria set
forth in Article 2 below and approved in writing by Lender pursuant to Lender's
standard underwriting criteria, provided that the aggregate value (calculated on
both the basis of an appraisal and on a capitalized rent basis of all such
Substitute Properties) is equal to or greater than the aggregate value
(calculated on both such bases) of all Disqualified Properties and Contingent
Properties; provided, however, that the aggregate appraised value of all
Substitute Properties shall not exceed the sum of (a) the aggregate appraised
value of all Disqualified Properties, plus (b) the aggregate appraised value of
all Contingent Properties by more than Three Million Dollars ($3,000,000).
"Tax" or "Taxes" means all taxes, however, denominated, imposed by any
federal, state, local or foreign government or any agency or political
subdivision of any government, which taxes shall include, without limiting the
generality of the foregoing, all income or profits taxes (including any
interest, penalties or additions attributable to or imposed on or with respect
to any such taxes), real property gain taxes, payroll and employee withholding
taxes, unemployment insurance taxes, social security taxes, sales and use taxes,
ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, workers' compensation, Pension Benefit Guaranty Corporation
premiums and other
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<PAGE>
government charges, and other obligations of the same or of a similar nature to
any of the foregoing.
"Tax Return" means any return, report, information return or
schedule or other document (including, without limitation, any related or
supporting information or schedule, such as self-employment schedules and
returns, federal Tax Form 1099's for all applicable transactions, property tax
filings, sales and use tax returns, federal and state payroll reports and
federal Tax Form 5500's) filed or required to be filed with any federal, state,
local or foreign governmental entity or other authority in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administrative requirements relating to any Tax.
"Title Company" means Chicago Title Insurance Company or First
American Title Insurance Company, as applicable.
"Yield Differential" shall mean, with respect to funds placed in an
escrow account or other account acceptable to Lender (as more specifically set
forth in Sections 2.5, 2.6 and 8.4 below), the interest accruing on such funds
pursuant to the documents governing the Mortgage Debt, less the interest earned
on such funds in accordance with the Lender's reinvestment requirements set
forth in the instruments relating to the Mortgage Debt; provided, however, that
at any time and to the extent that the Mortgage Debt does not accrue interest on
a fixed-rate basis, the Yield Differential shall be deemed to equal zero.
ARTICLE 2
PURCHASE PRICE,
DEPOSITS AND STUDY PERIOD
Upon the terms and subject to the conditions of this Agreement, the events
set forth in this Article 2 shall be effected as of the Closing Date. Each
Seller hereby agrees to sell, transfer, convey and assign to the Acquirer all
right, title and interest in and to the Membership Interests, and Smith hereby
agrees to sell, transfer, convey and assign to the Acquirer all right, title and
interest in and to the Smith Interests, free and clear of all Liens, and the
Acquirer hereby agrees to acquire such Interests in the manner described herein.
.1 Payment of Purchase Price. Subject to the terms and conditions set
-------------------------
forth herein, (a) on the Closing Date, the Acquirer shall pay to the Sellers the
Adjusted Purchase Price in cash or other immediately available funds, and (b) on
the Second Funding Date, the Acquirer shall pay to the Sellers the Second
Purchase Price in cash or other immediately available funds.
.2 Deposit and Escrow Agreement. Within three (3) Business Days after
----------------------------
the Effective Date, the Acquirer shall place in escrow with Chicago Title
Insurance Company the sum of Five Hundred Thousand Dollars ($500,000),
representing a deposit (the deposit, together with accrued interest thereon, are
herein referred to as the "Deposit"), to be held in accordance
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<PAGE>
with an Escrow Agreement (the "Escrow Agreement") substantially in the form
attached hereto as Exhibit 2.2. The Deposit shall be disbursed by Chicago Title
-----------
Insurance Company in accordance with the terms and conditions of this Agreement
and the Escrow Agreement.
.3 Title Insurance.
---------------
(a) Each of the Properties is currently covered by an owner's
policy of title insurance held by the Owners. The Acquirer, at its expense
(subject to inclusion in the Acquisition Expenses), shall obtain (or cause to be
obtained) for each Property from the applicable Title Company at Closing an
owner's title insurance policy (or modifications to the existing owner's title
insurance policy) issued by the applicable Title Company in favor of the Owners
and the Owners shall cooperate and facilitate Acquirer in obtaining such policy
of title insurance (i) dated the Closing Date, (ii) in the full amount of the
Purchase Price allocated to the applicable Property, (iii) in the current form
of an American Land Title Association ("ALTA") Owner's Policy (or such other
form as is acceptable to the Acquirer, if such ALTA form is not available in the
state in which the applicable Property is located), (iv) subject only to the
standard exclusions from coverage contained in such policy and the Permitted
Exceptions, with full extended coverage over all standard and general exceptions
(where available), and (v) which policy, together with all addendums to such
policy, shall contain the following endorsements, if available in such state:
A. an ALTA 3.1 zoning endorsement;
B. a non-imputation endorsement;
C. an owner's comprehensive endorsement;
D. an access endorsement;
E. a contiguity endorsement, if applicable;
F. a survey endorsement;
G. a creditor's rights endorsement;
H. a fairways endorsement;
I. a separate tax lot; and
J. such other endorsements as the Acquirer shall
reasonably require after review of the survey,
title insurance commitment and Leases.
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<PAGE>
(b) The Sellers and the Owners shall promptly deliver to the
Acquirer a copy of the existing title insurance policies covering the
Properties. The Sellers and the Owners shall, at or prior to the Closing,
deliver or cause to be delivered such commercially reasonable affidavits,
certificates, information and customary instruments of indemnification, such as
lien indemnitees, as shall be reasonably required to induce the applicable Title
Company to issue the title insurance policies contemplated by this Section 2.3.
.4 Survey.
------
(a) Prior to the Closing, the Acquirer, at its option and expense
(subject to inclusion in the Acquisition Expenses), may obtain a survey of each
Property, prepared by a land surveyor licensed to perform surveys in the state
in which such Property is located, that meets the "Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys" as adopted by the American Land
Title Association/American Society and American Congress on Surveying and
Mapping in 1997 (or equivalent in the state in which such Property is located)
(each, an "ALTA Compliant Survey") and is acceptable to the Acquirer.
(b) The Sellers and the Owners shall promptly deliver or cause to
be delivered to the Acquirer a copy of the surveys of the Properties currently
in their possession.
.5 Access to Information; Environmental Audits.
-------------------------------------------
(a) The Sellers and the Owners have delivered to the Acquirer, or
shall deliver not later than five (5) days following the Effective Date,
legible, true, correct and complete copies of the items set forth in Exhibit
-------
2.5(a)(i). At all times before the Closing, each Seller and Owner shall provide
- ---------
or cause to be provided to the Acquirer and its affiliates, their respective
agents, employees, consultants and representatives, with continuing and
reasonable access to all files, books, records and other materials in the
possession or control of the Sellers and the Owners, as the case may be,
relating to the Properties and to the operations, assets and liabilities of the
Owners (including, without limitation, the items set forth in Exhibit
-------
2.5(a)(ii)) and the right to examine, inspect and make copies of such materials
- -----------
as appropriate; provided, however, that all documents delivered to the Acquirer
in original form before the Effective Date are subject to the letter agreement
dated June 22, 1999, between the Acquirer and MMR Holdings.
(b) At all times prior to Closing, each Seller and Owner shall
also provide or cause to be provided for such parties to have reasonable
physical access to the Properties for the purpose of conducting surveys,
architectural, engineering, geotechnical and environmental inspections and tests
(including sampling and invasive testing for the presence of Hazardous Materials
performed in connection with Phase I environmental audits and, if necessary and
with the prior written approval of the Sellers and the Owners (such approval not
to be unreasonably withheld), Phase II environmental audits), feasibility
studies and any other inspections, studies or tests reasonably required by them.
The applicable Owner shall contract
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<PAGE>
with and pay for in full (or the Sellers shall provide for payment in full prior
to Closing), Engineering Consulting Services, Ltd., or such other environmental
audit firm as may be designated by the Acquirer and reasonably agreed to by the
Sellers to perform any environmental audit pursuant to this Agreement. The
Acquirer may conduct a "walk-through" of tenant spaces upon reasonable and
appropriate notice to tenants and subject to the rights of tenants. In the
course of its investigations, the Acquirer may make inquiries to third parties
including, without limitation, contractors, property managers, parties to any
contracts relating to the Sellers, Owners and the Properties, if any, lenders,
tenants and municipal, local and other governmental officials and
representatives.
(c) The Acquirer hereby agrees to indemnify and hold the Owners
harmless from and against any loss, cost, liability or damage to persons or the
improvements at the Properties suffered or incurred by the Owners (other than
Acquisition Expenses) as a result of the entry on the Properties prior to the
Closing by the Acquirer or its employees or agents.
(d) The Acquisition Expenses shall be paid by Sellers as set forth in
this Agreement.
(e) In the event that the Sellers and the Owners have not timely
fulfilled their obligations pursuant to the first two (2) sentences of Section
2.5(a), then, with respect to each Property for which any such obligation has
been breached (it being agreed that any breach of an obligation to provide
information with respect to an Owner shall be deemed a breach of such obligation
with respect to each Property owned by such Owner) (each, an "Unreviewed
Property"), and without reducing the Adjusted Purchase Price (but by means of
delaying the delivery to Sellers of that portion of the Adjusted Purchase Price
allocated to such Property), (i) the Acquirer may (or, if any Yield Differential
would be payable as a result of interest accruing on the Mortgage Debt on a
long-term fixed-rate basis, shall) cause the Lender at Closing to place into an
escrow account (or such other account as may be acceptable to Lender) an amount
equal to the Allocated Mortgage Debt for such Unreviewed Property for the period
commencing on the Closing Date and expiring on the Unreviewed Property Yield
Differential Expiration Date (as hereinafter defined), (ii) the Adjusted
Purchase Price payable or to be paid at Closing shall be reduced by an amount
equal to the Adjusted Purchase Price allocated to such Unreviewed Property as
shown on the Rent Roll, and (iii) prior to Closing, the Sellers shall cause the
Owner of such Unreviewed Property to transfer such Unreviewed Property to Seller
or an Affiliate of Seller reasonably approved in writing by the Acquirer by
quitclaim deed, without any representation or warranty, such that the applicable
Owner shall be released from any and all liability related thereto. With
respect to each Unreviewed Property, not later than the date (the "Extended
Study Period Expiration Date") that is sixteen (16) days after the date on which
the Acquirer receives legible copies of the title policy and/or commitment (and
the accompanying title exception documents), survey, leases, environmental
audit, building condition survey and appraisal for such Unreviewed Property in
the Owners' and Sellers' possession and other information to be received under
Exhibits 2.5(a)(i) or to which access is granted under Section 2.5(a)(ii)
- ------------------ ----------
(including, if a Phase I environmental audit for an
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<PAGE>
Unreviewed Property required or recommended the performance of a Phase II
environmental audit, and Acquirer elects to have performed a Phase II
environmental audit for such Unreviewed Property, the resulting Phase II
environmental audit), if at all, the Acquirer shall deliver to the Sellers a
Dissatisfaction Notice and the specific reasons therefor, after which such
Unreviewed Property shall be deemed a Disqualified Property and the disposition
of such Property shall be governed pursuant to Section 2.6. In the event that an
Unreviewed Property is not a Disqualified Property pursuant to this Section
2.5(e), then, at such time as the Lender releases from escrow (or such other
account as may have been acceptable to Lender) the Allocated Mortgage Debt for
such Unreviewed Property (the "Unreviewed Property Yield Differential Expiration
Date"), the parties shall proceed to Closing with respect to such Unreviewed
Property in accordance with the other provisions of this Agreement (including,
without limitation, Articles 6 and 8). During the period commencing on the
Closing Date and expiring on the Unreviewed Property Yield Differential
Expiration Date (upon which date the Yield Differential shall cease to accrue
with respect to such Unreviewed Property), the Sellers shall pay to the
Acquirer, not less often than monthly, the Yield Differential.
.6 Investigation. Notwithstanding any other provision of this Agreement,
-------------
the Acquirer shall have a period (the "Study Period") expiring at the close of
business on the date that is twenty-one (21) days following the Effective Date
to perform such examinations, inspections, testing, studies and/or
investigations of the condition of the Properties as the Acquirer deems
necessary. If, prior to the expiration of such Study Period, the Acquirer
shall, in its reasonable discretion, be dissatisfied with a material matter
adversely affecting title to any Property (it being agreed that a document that
prevents the use of the Property for uses conducted thereon immediately prior to
the Effective Date, a site control agreement, a restrictive covenant, and a
lease or purchase option each constitutes a matter affecting title to such
Property), the survey of any Property, the environmental condition of any
Property, or the condition of an improvement located on any Property (any such
matter being hereinafter referred to as a "Property Defect" and any Property
that is subject to a Property Defect being hereinafter referred to as a
"Disqualified Property") then, prior to the expiration of the Study Period, the
Acquirer shall so notify the Owners in writing (the "Dissatisfaction Notice") of
its dissatisfaction with such Property or Properties and the specific reasons
therefor. With respect to each Dissatisfaction Notice, within five (5) days
after receipt thereof, the Owners may elect to (x) cure the Property Defect
disclosed in the Dissatisfaction Notice by delivering written notice to the
Acquirer of its intent to cure, and not less than five (5) Business Days prior
to Closing, cure such Property Defect to the Acquirer's reasonable satisfaction,
(y) cure the Property Defect (solely for the purposes of this Agreement and not
the applicable Sonic Lease) by causing (i) SAI, or (ii) SAI and the tenant under
the applicable Sonic Lease, to execute and deliver to the Acquirer a writing
reasonably acceptable to the Acquirer in form and content stating that, pursuant
to the terms of the applicable Sonic Lease, SAI or the tenant under the
applicable Sonic Lease, as applicable, will be responsible for remedying the
Property Defect set forth in such Dissatisfaction Notice, or (z) exclude the
Disqualified Property affected by the Property Defect from the transaction. In
the event that a Disqualified Property is excluded
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<PAGE>
from the transaction, (1) the Adjusted Purchase Price shall be reduced by the
amount equal to the Adjusted Purchase Price allocated to such excluded
Disqualified Property, and (2) Sellers shall cause the Owner of such
Disqualified Property to transfer such Disqualified Property to another Person
by quitclaim deed on or before the Closing Date, without any representation or
warranty, such that the applicable Owner shall be released from any and all
liability related thereto. Notwithstanding the foregoing sentence to the
contrary, in the event a Property Defect constitutes a violation or, with the
giving of notice would constitute a violation of Environmental Law and, in the
Acquirer's reasonable judgment, the "worst case" scenario for the costs of
remediating such violation or potential violation of Environmental Law could
exceed Two Hundred Fifty Thousand Dollars ($250,000), and the Owners do not or
cannot elect clause (z) above, then the Acquirer may, at its option, exclude the
applicable Disqualified Property from the transaction. In the event a Property
is excluded by the Owners pursuant to clause (z) above or excluded by the
Acquirer pursuant to the foregoing sentence, then, without reducing the Adjusted
Purchase Price (but by means of delaying the delivery to Sellers of that portion
of the Adjusted Purchase Price allocated to such Property), the Acquirer may
(or, if any Yield Differential would be payable as a result of interest accruing
on the Mortgage Debt on a long-term fixed-rate basis, shall) cause the Lender at
Closing to place into an escrow account (or such other account as may have been
acceptable to Lender) an amount equal to the Allocated Mortgage Debt for such
excluded Disqualified Property for the period (the "Yield Differential Period")
commencing on the Closing Date and expiring on the Yield Differential Period
Expiration Date (as hereinafter defined), in which event the Sellers shall pay
to Acquirer, not less often than monthly, the Yield Differential. At such time
as (a)(1) SAI obtains title to a Substitute Property and the same is conveyed to
the Acquirer on terms and conditions mutually agreeable to SAI and the Acquirer,
or (2) with the Sellers' prior written consent the Acquirer elects to substitute
another property owned by it for such Disqualified Property and (b) the Lender
releases from escrow the Allocated Mortgage Debt for such Substitute Property
(the "Yield Differential Period Expiration Date"), the Yield Differential shall
cease to accrue with respect to such Property. In the event the Sellers (I)
elect not to cure the Property Defect disclosed in the Dissatisfaction Notice,
(II) fail to cure the same, (III) fail to cause SAI, the tenant under the
applicable Sonic Lease, or both, to acknowledge SAI's or such tenant's
responsibility (as more particularly set forth above) to cure the same, and (IV)
fail to exclude the Property or Properties affected by the Property Defect, the
Acquirer may, at its option, (A) waive such matters and proceed to Closing, or
(B) exclude such Disqualified Property and cause the Sellers (1) to use best
efforts to cause SAI to deliver a Substitute Property and, (2) in the interim,
to bear any Yield Differential. If the Acquirer shall not have provided a
Dissatisfaction Notice as to a Property, the Acquirer shall not be entitled to
assert a breach of any representation or warranty against Seller or Owner
pursuant to this Agreement for any matter disclosed herein or in the due
diligence materials provided pursuant to this Agreement (except as a result of
actions by the Sellers or the Owners, as the case may be, occurring after the
expiration of such Study Period) for such Property.
-13-
<PAGE>
ARTICLE 3
COVENANTS AND OTHER AGREEMENTS
.1 Implementing Agreement. Subject to the terms and conditions hereof,
----------------------
each party hereto shall use its commercially reasonable efforts to take all
action required of it to fulfill its obligations under the terms of this
Agreement and to facilitate the consummation of the transactions contemplated
hereby.
.2 Preservation of Business. From the date of this Agreement until the
------------------------
Closing, the Sellers and the Owners shall cause the Properties to be operated
only in the ordinary and usual course of business and consistent with past
practice and maintained in good working condition and repair (ordinary wear and
tear excepted), shall preserve the goodwill and advantageous relationships of
the Sellers and the Owners with customers, suppliers, independent contractors,
employees, tenants and other Persons material to the operation of the
Properties, shall perform their material obligations under the Leases and other
material agreements affecting the Properties and shall not take or permit any
action or omission which would cause any of the representations or warranties of
the Sellers and the Owners contained herein to become inaccurate or any of the
covenants of the Sellers and the Owners herein to be breached.
.3 Consents and Approvals. The Sellers and the Owners shall use their
----------------------
commercially reasonable efforts to obtain all third-party consents, approvals,
certificates and other documents required in connection with the performance by
them of this Agreement and the consummation of the transactions contemplated
hereby prior to Closing. The Sellers and the Owners shall make all filings,
applications, statements and reports to all governmental authorities and other
Persons which are required to be made prior to the Closing by or on behalf of
the Sellers or the Owners or any of their respective affiliates pursuant to any
applicable law or contract in connection with this Agreement and the
transactions contemplated hereby. The Acquirer shall make all filings,
applications, statements and reports to all governmental authorities and other
Persons which are required to be made prior to the Closing by or on behalf of
the Acquirer or any of its affiliates pursuant to any applicable law or contract
in connection with this Agreement and the transactions contemplated hereby.
.4 Maintenance of Insurance. The Owners shall cause the tenants under
------------------------
the Leases to continue to carry the insurance with respect to the Properties
required under the Leases through the Closing Date.
.5 Exclusivity. The Sellers or the Owners shall not provide, except as
-----------
may be required to be disclosed pursuant to a law or an order of any court, any
Confidential Material (as defined in Section 13.12(b)) concerning the Properties
to, solicit offers for, or participate in any discussions or negotiations with,
any Person other than the Acquirer, the Sellers' or Owners' consultants and
advisors, and holders of debt currently encumbering the Properties concerning
any sale, financing, merger or other similar transaction involving the
Properties.
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<PAGE>
.6 New Contracts and Liens. Without the Acquirer's prior written consent
-----------------------
in each instance, which will not be unreasonably withheld or delayed, the
Sellers and the Owners, directly or indirectly, shall not, except as permitted
by Section 3.7, grant, enter into, amend, terminate or grant concessions
regarding any Liens affecting title to any Property or any contract or agreement
that will be an obligation affecting the Properties, or binding on the Acquirer,
after the Closing.
.7 Leasing Arrangements. The Sellers and the Owners, directly or
--------------------
indirectly, shall not enter into, amend, terminate or grant concessions
regarding any Lease unless the Acquirer has given its written consent, which
consent shall not be unreasonably withheld or delayed, or unless otherwise
permitted or required by this Agreement. The Sellers and the Owners shall
provide the Acquirer with all material information related to each request for
consent, including, without limitation, lease form, lease terms, leasing
commissions, tenant improvement obligations and other lease procurement costs,
description of tenant's business and tenant's financial statements or a Dunn &
Bradstreet credit report.
.8 Obligation to Supplement Information. From time to time prior to the
------------------------------------
Closing, the Sellers, the Owners and the Acquirer shall promptly disclose in
writing to each other party to this Agreement any matter hereafter arising or
discovered which, to its knowledge, (a) would be reasonably likely to have a
material adverse effect on the condition, value, use or marketability of a
Property or an Interest, or (b) if existing, occurring or known at the date of
this Agreement would have been required to be disclosed to the other parties or
which would render inaccurate in a material way any representation or warranty
by the disclosing party made in this Agreement. No information provided
pursuant to this Section 3.8 shall be deemed to cure any inaccuracy in or breach
of any representation, warranty or covenant made in this Agreement.
.9 Damage. The Sellers and the Owners shall, promptly after learning of
------
the same, give the Acquirer written notice of any material damage to one or more
of the Properties, describing such damage, whether such damage is covered by
insurance and the estimated cost of repairing such damage. In the event of any
such damage to one or more of the Properties which under the applicable Lease is
not the tenant's responsibility to repair, (a) the Sellers and the Owner of the
Property affected by such damage shall, to the extent practicable and as may be
required under the applicable Lease, begin repairs prior to the Closing out of
any insurance proceeds received by the Owner of the Property affected by such
damage, (b) at Closing, all insurance proceeds due to the Sellers and not yet
received and all proceeds received by the Sellers but not expended prior to the
Closing shall be assigned or given, as the case may be, to the Acquirer
(including rent loss insurance applicable to any period from and after the
Closing Date, (c) any uninsured damage or deductible and any post-Closing rent
abatement not covered by rent loss insurance proceeds delivered to the Sellers
or the Owners, as reasonably estimated by the Acquirer and reasonably approved
by the Sellers, shall be credited to the Acquirer at the Closing, and (d) the
Acquirer shall assume the responsibility for repair after the Closing.
-15-
<PAGE>
.10 Condemnation. The Sellers and the Owners of the Property affected
------------
shall, promptly after learning of the same, give the Acquirer written notice of
any eminent domain proceedings that are contemplated, threatened or instituted
by any body having the power of eminent domain with respect to one or more of
the Properties. By notice to the Sellers and the Owner of such affected
Property after the Acquirer receives notice of such contemplated, threatened or
instituted proceedings, the Acquirer, Sellers and the Owner of the Property
affected by such condemnation shall have the joint right during the pendency of
this Agreement to negotiate and otherwise deal with the condemning authority in
respect of such matter and shall cooperate in good faith in doing so.
.11 Material Agreements. The Sellers and the Owners shall not materially
-------------------
amend, modify or terminate any material agreement, including, without
limitation, the Sellers' operating agreement and certificate of formation and
the Owners' operating agreement and certification of organization or partnership
agreement and the certificate of limited partnership, as the case may be, except
such agreements that may terminate pursuant to their own terms prior to the
Closing, except with the consent of the Acquirer, which will not be unreasonably
withheld or delayed.
.12 Releases. At Closing, Smith, SFC, and Mar Mar Realty Trust, a
--------
Maryland real estate investment trust, will execute and deliver general releases
to the Owners in the form attached hereto as Exhibit 3.12.
------------
.13 Termination of Prior Contribution Agreement. At Closing, Mar Mar
-------------------------------------------
Realty Trust, Mar Mar Realty L.P., and the other parties thereto shall terminate
that certain Contribution Agreement Relating to the Capitalization of Mar Mar
Realty Trust dated as of July 9, 1998.
.14 Satisfaction of Note. At Closing, MMR Holdings shall satisfy,
--------------------
discharge and pay that certain Subordinated Promissory Note dated December 29,
1998, made by the Owners and in favor of Smith in the original principal amount
of Forty Million Dollars ($40,000,000).
.15 Pre-Acquisition Lease Termination Agreement and Estoppel Certificate.
--------------------------------------------------------------------
At Closing, (a) the Owners shall have terminated all of the Leases (including,
without limitation, all licenses and occupancy agreements (and any amendments
thereto or extensions thereof), rights of occupancy, and rights of possession)
with respect to the Properties, other than the Continuing Leases, using a Pre-
Acquisition Lease Termination Agreement and Estoppel Certificate substantially
in the form of Exhibit 6.3(a) attached hereto, and (b) with respect to the
--------------
Continuing Leases, the Sellers and the Owners shall have delivered a Tenant
Estoppel Certificate substantially in the form of Exhibit 6.3(b) attached
--------------
hereto.
-16-
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS AND OWNERS
.1 Representations and Warranties of Sellers. Except as set forth in
-----------------------------------------
Schedule X, the Sellers hereby represent and warrant to the Acquirer that the
- ----------
representations and warranties set forth below are true and correct as of the
Effective Date and shall be true and correct in all material respects on and as
of the Closing:
(a) Due Organization. Each Seller (other than Smith) has been duly
----------------
organized and is validly existing and in good standing under the laws of its
jurisdiction of organization, and is qualified to do business and in good
standing in all other jurisdictions where such qualification is necessary to
carry on its business as now conducted except where the failure to so qualify
would not have a material adverse effect on the ability of the Sellers and
Owners to perform their respective obligations under this Agreement.
(b) Due Authorization. Each Seller has full power and authority
-----------------
to enter into this Agreement and the other documents to be executed by it
pursuant to this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by each Seller, as the case may
be, of this Agreement have been, and the documents to be executed by it pursuant
to this Agreement shall be, duly and validly approved by all necessary
applicable action and no other actions or proceedings on the part of such Seller
are necessary to authorize this Agreement and the transactions contemplated
hereby and thereby. Each Seller has complied with applicable law and valid
agreements binding upon it in connection with its solicitation of any necessary
approvals or consents related to this transaction and obtaining appropriate
authorization. No consent, waiver, approval or authorization of, or filing,
registration or qualification with, or notice to, any governmental
instrumentality or any other Person is required to be made, obtained or given by
such Seller in connection with the execution, delivery and performance of this
Agreement and the documents executed by such Seller pursuant to this Agreement.
The joinder of no entity or Person other than such Seller will be necessary to
perform its obligations hereunder. Such Seller has duly and validly executed and
delivered this Agreement. This Agreement constitutes, and the documents executed
by such Seller pursuant to this Agreement when executed will constitute, legal,
valid and binding obligations of such Seller enforceable against it in
accordance with their respective terms, subject to (a) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and transfer and
other similar laws of general application, heretofore or hereafter enacted or in
effect, affecting the rights and remedies of creditors generally, and (b) the
exercise of judicial or administrative discretion in accordance with general
equitable principles, particularly as to the availability of the remedy of
specific performance or other injunctive relief. Each Seller represents and
warrants that the Interests to be sold by it to the Acquirer pursuant to the
terms of this Agreement do not constitute "plan assets" (within the meaning of
29 C.F.R. ss.2510.3-101) of any "employee benefit plan" subject to Title I of
ERISA or a "governmental plan" as defined in Section 3(32) of ERISA.
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<PAGE>
(c) Conflicts. The execution and delivery of this Agreement and the
---------
other documents to be executed by each of the Sellers pursuant to this Agreement
do not and will not conflict with or result in a breach of (with or without the
passage of time or notice or both) the terms of any of the constituent documents
of the Sellers, any judgment, order or decree of any court, governmental
authority or arbitrator binding on the Sellers and, to the Sellers' knowledge,
do not and will not breach or violate any applicable law, rule or regulation of
any governmental authority. Except with respect to (i) the terms of the
Mortgage Debt for which the Sellers will use commercially reasonable efforts to
obtain the consent of the Lender to permit the modification and assumption of
the Mortgage Debt by Acquirer, and (ii) that certain loan from First Union
National Bank ("FUNB") to Smith in the original principal amount of Forty
Million Dollars ($40,000,000), pursuant to that certain Credit Agreement dated
as of December 29, 1998, the execution and delivery of, and performance by the
Sellers and the Owners under this Agreement, and the documents executed by the
Sellers pursuant to this Agreement, will not result in a breach or violation of
(with or without the passage of time or notice or both) the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Sellers are a party or
by which the Sellers are bound or to which any of the Properties are subject.
(d) Litigation. Except as shown on Schedule 4.1(d) attached hereto,
---------- ---------------
there is no action, suit, litigation or proceeding (i) pending or, to the
Sellers' knowledge, threatened against the Owners, (ii) pending or, to the
Sellers' knowledge, threatened against the Sellers which, if adversely
determined, would have a material adverse effect on the financial condition of
the Sellers, or (iii) which challenges or impairs the ability of any such Seller
to execute or deliver, or perform its obligations under, this Agreement and the
documents executed by it pursuant to this Agreement or to consummate the
transactions contemplated herein.
(e) Ownership of MMR Holdings, MMR Viking and MMR Tennessee and
-----------------------------------------------------------
Properties.
- ----------
(i) The Smith Interests and the Holdings Interests, as set
forth in the Recitals, are owned by Smith and MMR Holdings, respectively, free
and clear of all Liens. The Membership Interests are owned by Smith and SFC, as
set forth in the Recitals, free and clear of all Liens. The Owners hold an
owner's title insurance policy for each Property. With respect to each Property,
since the effective date of the owner's title insurance policy therefor, the
applicable Owner has not sold, transferred or encumbered any interest in such
Property or suffered any Liens (other than Permitted Exceptions) to be placed
against such Property, and no claim has been made or judgment entered against
the applicable Owner in connection with such Property.
(ii) The Interests were validly issued, fully paid and,
except for any general partnership interest, non-assessable, and constitute all
of the issued and outstanding partnership interests of MMR Viking and membership
interests of MMR Holdings and MMR Tennessee, as the case may be; all such
Interests were not issued in violation of any
-18-
<PAGE>
preemptive rights. The Interests were issued in compliance with applicable law
and the relevant organizational documents (as then in effect). There are no
enforceable rights, subscriptions, warrants, options, conversion rights,
preemptive rights or agreements of any kind outstanding to purchase or to
otherwise acquire any of the interests of MMR Holdings, MMR Viking or MMR
Tennessee or in any securities or obligations of any kind convertible into any
interests in MMR Holdings, MMR Viking or MMR Tennessee or other equity interests
or profit participations of any kind. The Owners are and, as of the Closing
Date, will be subject to no liabilities, whether matured or contingent, whether
disclosed or undisclosed, except for (A) such liabilities which have been taken
into account in determining the Adjusted Purchase Price, (B) any Mortgage Debt
or other mortgage debt to be repaid or assumed as of the Closing Date, and (C)
any other liabilities which have arisen in the ordinary course of business
(which shall be paid or discharged on or before the Closing Date).
(f) Distributions and Payments. All material obligations and
--------------------------
disclosures and all distributions in connection with the sale of the Membership
Interests by the Sellers that, under applicable law or any applicable, valid and
binding agreements, are required to be performed, given or made with respect to
any Person that directly or indirectly holds an interest in the Sellers shall,
at the Closing Date, have been performed, given and made.
(g) No Brokers. Neither the Sellers nor any of their respective
----------
officers, partners, directors, employees or agents has employed or made any
agreement with any broker, finder or similar agent or any Person or firm which
will result in the obligation of the Acquirer or any of its affiliates to pay
any finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by this Agreement.
(h) Solvency. Each Seller is solvent as of the date hereof and
--------
will be solvent immediately following the transaction contemplated by this
Agreement.
.2 Representations and Warranties of Owner. Except as set forth in
---------------------------------------
Schedule X, the Owners hereby represent and warrant to the Acquirer that the
- ----------
representations and warranties set forth below:
(a) Due Organization. Each Owner has been duly organized and is
----------------
validly existing and in good standing under the laws of its jurisdiction of
organization, and is qualified to do business and in good standing in all other
jurisdictions where such qualification is necessary to carry on its business as
now conducted except where the failure to so qualify would not have a material
adverse effect on the ability of the Sellers and Owners to perform their
respective obligations under this Agreement.
(b) Due Authorization. Each Owner has full power and authority to
-----------------
own, lease, operate and sell the Properties and has full power and authority to
enter into this Agreement and the other documents to be executed by it pursuant
to this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by each
-19-
<PAGE>
Owner of this Agreement have been, and the documents to be executed by it
pursuant to this Agreement shall be, duly and validly approved by all necessary
applicable action and no other actions or proceedings on the part of such Owner
are necessary to authorize this Agreement and the transactions contemplated
hereby and thereby. Each Owner has complied with applicable law and valid
agreements binding upon it in connection with its solicitation of any necessary
approvals or consents related to this transaction and obtaining appropriate
authorization. No consent, waiver, approval or authorization of, or filing,
registration or qualification with, or notice to, any governmental
instrumentality or any other Person is required to be made, obtained or given by
such Owner in connection with the execution, delivery and performance of this
Agreement and the documents executed by such Owner pursuant to this Agreement.
The joinder of no entity or Person other than such Owner will be necessary to
perform its obligations hereunder. Such Owner has duly and validly executed and
delivered this Agreement. This Agreement constitutes, and the documents executed
by such Owner pursuant to this Agreement when executed will constitute, legal,
valid and binding obligations of such Owner enforceable against it in accordance
with their respective terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and transfer and other similar
laws of general application, heretofore or hereafter enacted or in effect,
affecting the rights and remedies of creditors generally, and (ii) the exercise
of judicial or administrative discretion in accordance with general equitable
principles, particularly as to the availability of the remedy of specific
performance or other injunctive relief.
(c) Conflicts. The execution and delivery of this Agreement and the
---------
other documents to be executed by each of the Owners pursuant to this Agreement
do not and will not conflict with or result in a breach of (with or without the
passage of time or notice or both) the terms of any of the constituent documents
of the Owners, any judgment, order or decree of any court, governmental
authority or arbitrator binding on the Owners and, to the Owners' knowledge, do
not and will not breach or violate any applicable law, rule or regulation of any
governmental authority. Except with respect to the terms of the Mortgage Debt
for which the Owners will use commercially reasonable efforts to obtain the
consent of the Lender to permit the modification and assumption of the Mortgage
Debt by Acquirer, the execution and delivery of, and performance by the Owners
under this Agreement, and the documents executed by the Owners pursuant to this
Agreement, will not result in a breach or violation of (with or without the
passage of time or notice or both) the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Owners are a party or by which the Owners
are bound or to which any of the Properties are subject.
(d) Litigation. Except as shown on Schedule 4.1(d) attached hereto,
---------- ---------------
there is no action, suit, litigation or proceeding (i) pending or, to the
Owners' knowledge, threatened against the Owners, (ii) pending or, to the
Owners' knowledge, threatened against the Sellers which, if adversely
determined, would have a material adverse effect on the financial condition of
the Sellers, or (iii) which challenges or impairs the ability of any such Owner
to execute or
-20-
<PAGE>
deliver, or perform its obligations under, this Agreement and the documents
executed by it pursuant to this Agreement or to consummate the transactions
contemplated herein.
(e) Repair and Service Contracts. There are no repair or service
----------------------------
contracts to which the Owners are a party.
(f) Leases and Rent Roll. The documents constituting the Leases
--------------------
(including, without limitation, all amendments, modifications, supplements,
renewals, extensions and guarantees in connection therewith) that are delivered
to the Acquirer pursuant to this Agreement are true, correct and complete, in
all material respects. There are no leasing or other fees or commissions due,
nor will any become due, pursuant to the terms of any Lease or any renewal or
extension or expansion of any Lease, and no understanding or agreement with any
party exists as to payment of any leasing commissions or fees regarding future
leases or as to the procuring of tenants. To the Owners' knowledge, except as
disclosed in the Leases, no tenants have asserted in writing that there are any
defenses or offsets to rent accruing before or after the Closing Date. The
Owners have not received any notice of any default or breach on the part of the
landlord under any Lease, nor, to the Owners' knowledge, does there exist any
such default or breach on the part of the landlord. To the Owners' knowledge,
all rental payments due under each Lease have been paid through the date hereof,
the Owners have not received any prepayment of rent for a period in excess of
thirty (30) days, and no condition or event exists which, with the giving of
notice or the passage of time, or both, would constitute a material default by
any tenant under any Lease. The Owners have no notice that any of the
landlord's obligations to construct tenant improvements or reimburse the tenants
for tenant improvements under the Leases have not been paid and performed in
full, or any concessions from the landlord under the Leases have not been paid
and performed in full. The Owners have no notice of any obligation, and have
received no demand from any tenant, to perform any capital improvements or to
provide funds for any tenant to perform capital improvements. All such
improvements shall be completed without Liens and the costs of such improvements
shall be fully paid as of the Closing Date. At Closing (I) each Lease with
respect to a Property (other than the Continuing Leases) will (A) be a Sonic
Lease within the meaning of the Sonic Agreement, and (B) be guaranteed by SAI,
and (II) each Continuing Lease will be guaranteed by the Person, if any,
guaranteeing such Lease as of the Effective Date.
(g) Financial Statements. The unaudited and consolidated financial
--------------------
statements of MMR Holdings as of March 31, 1999, for the quarter then ended,
delivered to the Acquirer and any updates thereof requested by Acquirer prior to
the Closing, are or will be true, correct and complete in all material respects.
Such financial statements shall fairly present, in all material respects, the
financial position of the Owners as of the dates thereof and the results of
operations for the periods then ended, subject to normal year-end audit
adjustments. Except as set forth in the unaudited consolidated financial
statements, the Owners do not have any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise).
-21-
<PAGE>
(h) Permits, Legal Compliance and Notice of Defects. No Owner has
-----------------------------------------------
applied to or entered into any agreement with any governmental official, agency
or body or with any other Person or entity with respect to any modification,
variance or exception regarding zoning, building codes and similar laws and
regulations that materially and adversely affects the value, use or operation of
any of the Properties. Except as disclosed in due diligence materials delivered
to the Acquirer, the Owners have received no written notice from any
governmental authority that (i) the Owners do not have all licenses, permits and
certificates necessary for the use and operation of the Properties (as presently
used and operated), including, without limitation, all certificates of occupancy
necessary for the occupancy of such Properties, except where the failure to have
such licenses, permits and certificates would not materially and adversely
affect the value, use or operation of the Property affected thereby, (ii) the
Properties or the current use thereof violates any governmental law, rule
regulation or code (exclusive of any Environmental Laws, which are addressed in
Section 4.2(i)) or any covenants or restrictions encumbering such Properties,
except such violations which would not materially and adversely affect the
value, use or operation of the Property affected thereby, or (iii) there is any
pending or contemplated condemnation or other eminent domain proceeding
affecting all or any part of the Properties. Except as disclosed in due
diligence materials delivered to the Acquirer, the Owners have no knowledge that
any structural, mechanical, electrical, plumbing, roofing or other major system
of any Property are in need of material repair or replacement. To the Owners'
knowledge, the tenants of the Properties, now have in force insurance policies
relating to such Properties as required by the Leases. Except as disclosed in
due diligence materials delivered to the Acquirer, no Owner has received any
written notice from any insurance company or underwriter of any defect that
would materially adversely affect the insurability of any of the Properties.
With respect to any Property for which the current owner's title insurance
policy does not contain an ALTA 3.1 zoning endorsement and for which the Sellers
have not provided to the Acquirer a zoning opinion letter, each of such
Properties is currently zoned with a classification that permits the ownership
and operation of an automobile dealership and the development, use and operation
of such Property as currently being used without special exception or permit.
The Owners have not received any written notice from or on behalf of a person or
entity that can assert a claim in connection with a violation of a Permitted
Exception that the Owners have not performed all obligations under and no Owner
is in default in complying with the terms and provisions of any of the
covenants, conditions, restrictions, rights-of-way and easements constituting
one or more of the Permitted Exceptions.
(i) Environmental. The Owners have no knowledge, without independent
-------------
investigation, of any violation of Environmental Laws related to the Properties
or the presence or release of Hazardous Materials on or from such Properties,
except as reflected in the environmental reports listed or otherwise disclosed
on Schedule 4.2(i). Schedule 4.2(i) is a list of all written environmental
--------------- ---------------
reports and results of environmental inspections and tests in the possession of
the Owners, which list is complete in all material respects.
-22-
<PAGE>
(j) No Employees. The Owners have never maintained any deferred
------------
compensation plan, bonus plan, stock option plan, employee stock purchase plan,
incentive compensation plan, agreement, arrangement or commitment. As of the
Closing Date, the Owners will have no employees. As of the Closing Date, no
former employee of the Sellers or Owners will have any claims against any Owner
in connection with any employment contract, agreement or employment relationship
between such employee and any Owner. The Owners have never maintained or had
any obligation to contribute to (i) an "employee pension benefit plan," as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), which is not a "multi-employer plan" within the meaning of
Section 3(37) of ERISA, (ii) an "employee welfare benefit plan," as defined in
Section 3(1) of ERISA which is not a "multi-employer plan" within the meaning of
Section 3(37) of ERISA, or (iii) a Pension Benefit Plan or Welfare Benefit Plan
which is a "multi-employer plan" as defined in Section 3(37) of ERISA.
(k) Ownership of MMR Holdings, MMR Viking and MMR Tennessee and
-----------------------------------------------------------
Properties.
- ----------
(i) The Smith Interests and the Holdings Interests, as set
forth in the Recitals, are owned by Smith and MMR Holdings, respectively, free
and clear of all Liens. The Membership Interests are owned by Smith and SFC, as
set forth in the Recitals, free and clear of all Liens. The Owners hold an
owner's title insurance policy for each Property. With respect to each Property,
since the effective date of the owner's title insurance policy therefor, the
applicable Owner has not sold, transferred or encumbered any interest in such
Property or suffered any Liens (other than Permitted Exceptions) to be placed
against such Property, and no claim has been made or judgment entered against
the applicable Owner in connection with such Property.
(ii) The Interests were validly issued, fully paid and,
except for any general partnership interest, non-assessable, and constitute all
of the issued and outstanding partnership interests of MMR Viking and membership
interests of MMR Holdings and MMR Tennessee, as the case may be; all such
Interests were not issued in violation of any preemptive rights. The Interests
were issued in compliance with applicable law and the relevant organizational
documents (as then in effect). There are no enforceable rights, subscriptions,
warrants, options, conversion rights, preemptive rights or agreements of any
kind outstanding to purchase or to otherwise acquire any of the interests of MMR
Holdings, MMR Viking or MMR Tennessee or in any securities or obligations of any
kind convertible into any interests in MMR Holdings, MMR Viking or MMR Tennessee
or other equity interests or profit participations of any kind. The Owners are
subject to no liabilities, whether matured or contingent, whether disclosed or
undisclosed, except for (A) such liabilities which have been taken into account
in determining the Adjusted Purchase Price, (B) any Mortgage Debt or other
mortgage debt to be repaid or assumed as of the Closing Date, and (C) any other
liabilities which have arisen in the ordinary course of business (which are the
responsibility of such Seller or Owner). As of the Closing Date, the Owners will
be subject to no liabilities,
-23-
<PAGE>
whether matured or contingent, whether disclosed or undisclosed, except for (A)
such liabilities which have been taken into account in determining the Adjusted
Purchase Price, and (B) any Mortgage Debt or other mortgage debt to be repaid or
assumed as of the Closing Date.
(l) No Brokers. Neither the Owners nor any of their respective
----------
officers, partners, directors, employees or agents has employed or made any
agreement with any broker, finder or similar agent or any Person or firm which
will result in the obligation of the Acquirer or any of its affiliates to pay
any finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by this Agreement.
(m) Solvency. Each Owner is solvent as of the date hereof and will
--------
be solvent immediately following the transaction contemplated by this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE ACQUIRER
The Acquirer hereby represents and warrants to the Sellers that the
representations and warranties set forth below are true and correct as of the
Effective Date and shall be true and correct in all material respects on and as
of the Closing:
.1 Due Organization. The Acquirer has been (or will be as of the Closing)
----------------
duly organized and is (or will be as of the Closing) validly existing and in
good standing under the laws of its jurisdiction of organization, and is
qualified to do business in all other jurisdictions where such qualification is
necessary to carry on its business as now conducted and as proposed to be
conducted except where the failure to so qualify would not have an adverse
effect on the ability of such party to perform its obligations under this
Agreement.
.2 Due Authorization. The Acquirer has full power and authority to enter
-----------------
into this Agreement and the other documents to be executed by it pursuant to
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Acquirer of this Agreement have been,
and the other documents to be executed by it pursuant to this Agreement shall
be, duly and validly approved by all necessary limited liability company or
limited partnership action and no other consent or approval on the part of the
Acquirer is necessary to authorize this Agreement and the other documents to be
executed by it pursuant to this Agreement and the transactions contemplated
hereby. No consent, waiver, approval or authorization of, or filing,
registration or qualification with, or notice to, any governmental
instrumentality (including, without limitation, any filing required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended), or any other
entity or Person (including without limitation, its shareholders or partners) is
required to be made, obtained or given by the Acquirer in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except for such consents as have been
obtained or will be obtained by the Closing. Each of the Acquirer has duly and
validly executed and delivered this Agreement. This Agreement constitutes, and
the
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<PAGE>
documents executed by the Acquirer, as the case may be, pursuant to this
Agreement when executed will constitute, legal, valid and binding obligations of
the Acquirer, as the case may be, enforceable against such party in accordance
with their respective terms, subject to (a) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and transfer and other similar
laws of general application, heretofore or hereafter enacted or in effect,
affecting the rights and remedies of creditors generally, and (b) the exercise
of judicial or administrative discretion in accordance with general equitable
principles, particularly as to the availability of the remedy of specific
performance or other injunctive relief.
.3 Conflicts. The execution and delivery of this Agreement and the other
---------
documents to be executed by the Acquirer pursuant to this Agreement, and the
performance by the Acquirer under this Agreement and such other documents, do
not and will not conflict with or result in a breach of (with or without the
passage of time or notice or both) the terms of any of the constituent documents
of the Acquirer or any judgment, order or decree of any court, governmental
authority or arbitrator binding on the Acquirer and, to the Acquirer's
knowledge, do not and will not breach or violate any applicable law, rule or
regulation of any governmental authority. The execution and delivery of, and
performance by the Acquirer under this Agreement and the documents executed by
the Acquirer will not result in a breach or violation of (with or without the
passage of time or notice or both) the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Acquirer is a party or by which the
Acquirer is bound.
.4 Litigation. There is no action, suit or proceeding pending or, to the
----------
Acquirer's knowledge, threatened against the Acquirer which, if adversely
determined, would have a material adverse effect on the financial condition or
results of operations of the Acquirer or which challenges or impairs the ability
of the Acquirer to execute or deliver, or perform its obligations under, this
Agreement and the documents executed by it pursuant to this Agreement or to
consummate the transactions contemplated herein.
.5 Solvency. The Acquirer has been solvent at all times prior to and
--------
will be solvent immediately following the Closing.
.6 No Brokers. The Acquirer or any of its members, officers, directors,
----------
trustees or employees has not used any investment banker, broker, trader or
similar agent or any Person or firm which will result in the obligation of the
Acquirer to pay any finder's fee, brokerage fees or commissions or similar
payment in connection with the transactions contemplated by this Agreement.
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<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRER
The obligation of the Acquirer to consummate the Closing is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
and failure to satisfy any such condition shall excuse and discharge all
obligations of the Acquirer to carry out the provisions of this Agreement unless
such failure is waived in writing by the Acquirer. Promptly after becoming aware
that any of the following conditions has not been or cannot be satisfied at or
prior to the Closing, the Acquirer shall so notify all other parties to this
Agreement.
.1 Representations and Warranties. The representations and warranties
------------------------------
made by the Sellers and the Owners in Article 4 of this Agreement and the
statements contained in any document furnished by the Sellers or the Owners in
connection with the Closing pursuant to this Agreement shall be true, correct
and complete when made and on and as of the Closing Date as though such
representations and warranties were made on and as of such date (except to the
extent any such representation and warranty is limited to a specific date by its
express terms), except for inaccuracies which, individually or in the aggregate,
would not have a material adverse effect on (a) a Property, (b) the financial
condition of an Owner, or (c) the results of operations of an Owner.
.2 Compliance with Agreements and Covenants. All Persons other than the
----------------------------------------
Acquirer shall have performed and complied with all of their covenants,
obligations and agreements contained in this Agreement to be performed and
complied with by them on or prior to the Closing Date, except for failures to
perform or comply which, individually or in the aggregate, would not have a
material adverse effect on (a) a Property, (b) the financial condition of an
Owner, or (c) the results of operations of the Owner.
.3 Pre-Acquisition Lease Termination Agreement and Estoppel Certificate.
--------------------------------------------------------------------
The Owners shall have terminated all of the Leases (including, without
limitation, licenses and occupancy agreements (and any amendments thereto or
extensions thereof), rights of occupancy and rights of possession), other than
the Continuing Leases, using a Pre-Acquisition Lease Termination Agreement and
Estoppel Certificate substantially in the form of Exhibit 6.3(a) attached
--------------
hereto. With respect to the Continuing Leases, the Sellers and the Owners
shall have delivered a Tenant Estoppel Certificate substantially in the form of
Exhibit 6.3(b) attached hereto.
- --------------
.4 Other Contracts. As of the Closing Date, there shall exist no material
---------------
default by any Owner under any material agreement to which any Owner is a party
or to which the Properties are subject.
.5 Legal Proceedings. As of the Closing Date, no litigation, action or
-----------------
proceeding by or before any governmental authority shall have been instituted or
threatened (and not subsequently dismissed, settled or otherwise terminated)
which is reasonably expected to
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<PAGE>
restrain, prohibit or invalidate the transactions contemplated by this
Agreement, other than an action or proceeding instituted or threatened by the
Acquirer.
.6 Leases and Guaranties. The Sellers and the Owners will have delivered
---------------------
or caused to be delivered the Sonic Leases and Sonic Guarantees as required
under the Sonic Agreement.
.7 Other Conditions. All other conditions to the obligations of the
----------------
Acquirer set forth in this Agreement shall have been satisfied as of the dates
required.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
AND OWNERS
The obligation of each Seller and Owner to consummate the Closing is
subject to the fulfillment, at or prior to the Closing, of each of the following
conditions, and failure to satisfy any such condition shall excuse and discharge
all obligations of all Sellers and Owners to carry out the provisions of this
Agreement unless such failure is waived in writing by all Sellers and Owners.
Promptly after becoming aware that any of the following conditions has not been
or cannot be satisfied at or prior to the Closing, any Seller or Owner shall so
notify the Acquirer.
.1 Representations and Warranties. The representations and warranties
------------------------------
made by the Acquirer in Article 5 of this Agreement and the statements contained
in any document furnished by the Acquirer in connection with the Closing
pursuant to this Agreement shall be true, correct and complete when made and on
and as of the Closing Date as though such representations and warranties were
made on and as of such date (except to the extent any such representation and
warranty is limited to a specific date by its express terms), except for
inaccuracies which, individually or in the aggregate for all parties, would not
have a material adverse effect on the financial condition of the Acquirer.
.2 Compliance with Agreements and Covenants. Acquirer shall have
----------------------------------------
performed and complied with all of its covenants, obligations and agreements
contained in this Agreement to be performed and complied with by it on or prior
to the Closing Date, except for failures to perform or comply which,
individually or in the aggregate, would not have a material adverse effect on
the financial condition of the Acquirer.
.3 Legal Proceedings. No litigation, action or proceeding by or before
-----------------
any governmental authority shall have been instituted or threatened (and not
subsequently dismissed, settled or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the transactions contemplated by
this Agreement, other than an action or proceeding instituted or threatened by
the Sellers or the Owners.
.4 Release of Liability. Each Seller has been released from all personal
--------------------
liability in connection with all of the Mortgage Debt to be incurred as of the
Closing Date and thereafter,
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including, without limitation, liability for payments of principal, interest and
liability for any type of indemnification under customary nonrecourse carveouts
to the extent the act or omission, unless fraudulent or committed in bad faith
before the Closing Date, giving rise to any such liability occurs on or after
the Closing Date. Each Owner has been or contemporaneously with the Closing will
be released by virtue of the payment of the Adjusted Purchase Price to the
Sellers at Closing or otherwise from personal liability in connection with any
indebtedness owed to any Seller.
.5 Other Conditions. All other conditions to the Sellers' or Owners'
----------------
obligations set forth in this Agreement shall have been satisfied as of the
dates required.
ARTICLE 8
CLOSING
.1 Closing. The consummation of the transactions contemplated hereby
-------
(the "Closing") shall take place at the offices of Parker, Poe, Adams &
Bernstein (unless the parties otherwise agree) on or before (the "Closing
Deadline") (a) August 17, 1999; provided that Lender has consented in writing to
permit the assumption and modification of the Mortgage Debt by Acquirer on terms
and conditions acceptable to the Acquirer (it being agreed that the fees,
charges or other obligations imposed by the Lender relating to its consent to
the assumption and modification of the Mortgage Debt by the Acquirer shall be
the responsibility of the Acquirer, except to the extent the same constitute
Acquisition Expenses), or (b) if Lender does not consent to such modification
and assumption of the Mortgage Debt, the date that is ninety (90) days after the
Effective Date. "Closing Date" shall mean the date on which the Closing occurs.
A pre-Closing conference shall commence at least three (3) days before the
Closing Date, during which all deliveries (other than any delivery of cash)
shall be made into an escrow with the Title Company, or, at the option of the
parties, such deliveries may be made in such manner as the parties may
determine. All deliveries made during the pre-closing period shall be deemed
deliveries made at the Closing, and the transfers described herein and all
closing deliveries shall be deemed concurrent for all purposes. The deliveries
set forth in this Article 8 shall be conditions precedent to the Closing. Upon
completion of the deliveries set forth in this Article 8 and satisfaction of the
other conditions to the Closing herein set forth, the parties shall direct the
Title Company to make such deliveries and disbursements according to the terms
of this Agreement and under an escrow instruction letter mutually acceptable to
the parties hereto.
.2 Deliveries by Sellers and Owners. At the Closing, in addition to any
--------------------------------
other documents or agreements required under any other provision of this
Agreement, each Seller and Owner, as applicable, shall make the following
deliveries and performance:
(a) Assignment of Interests. The Sellers shall execute and
-----------------------
deliver to the Acquirer an assignment of all of the Membership Interests, such
assignment to be substantially in the form attached hereto as Exhibit 8.2(a)(i);
-----------------
Smith shall execute and deliver to the Acquirer
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<PAGE>
an assignment of his partnership interests in MMR Viking, such assignment to be
substantially in the form attached hereto as Exhibit 8.2(a)(ii); and Smith shall
------------------
execute and deliver to the Acquirer an assignment of his membership interests in
MMR Tennessee, such assignment to be substantially in the form attached hereto
as Exhibit 8.2(a)(iii);
-------------------
(b) Title Searches, Surveys and Tenant Estoppels. Except to the
--------------------------------------------
extent previously delivered to the Acquirer, the requirements in Section 2.3
(Title Insurance), Section 2.4 (Survey), and Section 6.3 (Pre-Acquisition Lease
Termination Agreement and Estoppel Certificate) shall have been complied with,
provided such failure to comply with Section 2.3 or Section 2.4 is not caused by
the Acquirer's failure to use commercially reasonable efforts to obtain a title
policy or survey;
(c) Assumed Mortgage Documents. In the event Lender consents to the
--------------------------
modification and assumption of the Mortgage Debt on the terms and conditions
acceptable to the Acquirer, the documents evidencing the modification and
assumption of the Mortgage Debt;
(d) Notice to Tenants. A notice to each tenant in form reasonably
-----------------
satisfactory to the parties hereto, directing payment of all rents occurring
after the Closing Date to be made to the Owner at the address of the Acquirer;
(e) FIRPTA. A Foreign Investment in Real Property Tax Act ("FIRPTA")
------
affidavit executed by the Sellers. If any of the Sellers fails to provide the
necessary affidavit and/or documentation of exemption on the Closing Date, the
Acquirer may proceed in accordance with the withholding provisions as provided
in FIRPTA;
(f) Affidavits. Such owner's affidavit or other documents as are
----------
customarily provided by transferors of real estate in the applicable
jurisdiction;
(g) Authority. Evidence of the existence, organization and authority
---------
of the Sellers and the Owners and of the authority of the persons executing
documents on behalf of such Seller and Owner reasonably satisfactory to the
Acquirer;
(h) Delivery of Books and Records. Delivery to the offices of the
-----------------------------
Acquirer: the original Leases and the guarantees related thereto, as terminated
in accordance with the Sonic Agreement; copies or originals of all books and
records of account; contracts; copies of correspondence with tenants and
suppliers; receipts for deposits; unpaid bills and other papers or documents
which pertain to the Properties; all advertising materials, booklets, keys and
other items, if any, used in the operation of the Properties; if in the
possession or control of the Sellers or Owners, the original "as-built" plans
and specifications and all other available plans and specifications; and any
other items set forth in Exhibit 2.5(a)(ii); each Seller and Owner shall
------------------
cooperate with the Acquirer after the Closing to provide to the Acquirer any
such information stored electronically;
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<PAGE>
(i) Consents and Organizational Documents. Copies of consents or
-------------------------------------
other appropriate documentation, executed by or on behalf of all Sellers and
Owners who are not natural persons approving the entering into of this Agreement
and the other documents contemplated herein by such Seller and agreeing, among
other things, to be bound by the indemnification obligations set forth in
Article 12 and copies of the organizational documents certified by the
appropriate officer, member or partner, that such organizational documents are
true and complete and have not been amended or modified except as otherwise set
forth in such certification;
(j) Amendment to Operating Agreements of MMR Holdings and MMR
---------------------------------------------------------
Tennessee. An amendment to the Operating Agreements of MMR Holdings reflecting
- ---------
the Sellers' assignment of their Interests to the Acquirer executed by SFC,
Smith and MMR Holdings, as applicable;
(k) Amendment to the Partnership Agreements of MMR Viking. An
-----------------------------------------------------
amendment to the partnership agreement of MMR Viking reflecting Smith's
assignment of Smith's partnership interests to the Acquirer executed by Smith
and MMR Viking, as applicable;
(l) Legal Opinion. Usual and customary legal opinions from
-------------
counsel to the Sellers and the Owners, which opinions may be relied upon by the
Acquirer and shall be substantially in the form attached hereto as Exhibit
-------
8.2(l); and
- ------
(m) Payment of Acquisition Expenses; Reimbursement of Costs. At
-------------------------------------------------------
the Closing, the Sellers shall pay all Acquisition Expenses and provide
reasonable evidence therefor; and
(n) Other. Such other documents and instruments as may reasonably
-----
be required by the Acquirer, its counsel or the Title Company that may be
necessary to consummate the transaction and to otherwise effect the agreements
of the parties under this Agreement.
.3 Deliveries by the Acquirer. At the Closing, the Acquirer shall make
--------------------------
the following deliveries and performance:
(a) Authority. Evidence of existence, organization and authority
---------
of the Acquirer and the authority of the person executing documents on behalf of
the Acquirer;
(b) Mortgage Debt. In the event Lender consents to the
-------------
modification and assumption of the Mortgage Debt, the documents evidencing the
assumption of the Mortgage Debt and evidence of the release and discharge of the
Sellers, as applicable for all personal liabilities under the Mortgage Debt in
accordance with Section 7.5;
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<PAGE>
(c) Legal Opinions. Usual and customary legal opinions from
--------------
counsel to the Acquirer, which opinions may be relied on by the Sellers, which
shall be substantially the form attached hereto as Exhibit 8.3(c);
--------------
(d) Amendment to the Operating Agreements of MMR Holdings and MMR
-------------------------------------------------------------
Tennessee. An amendment to the Operating Agreements of MMR Holdings and MMR
- ---------
Tennessee reflecting the Sellers' assignment of their Interests to the Acquirer
executed by the Acquirer;
(e) Amendment to the Partnership Agreement of MMR Viking. An
----------------------------------------------------
amendment to the Partnership Agreement of MMR Viking reflecting Smith's
assignment of his Interests to the Acquirer executed by the Acquirer; and
(f) Other. Such other documents and instruments as may reasonably
-----
be required by the Sellers, or their respective counsel that may be necessary to
consummate the transaction and to otherwise effect the agreement of the parties
under this Agreement.
.4 Contingent Property. On the Closing Date, without reducing the
-------------------
Adjusted Purchase Price (but as a means of delaying the delivery to Sellers of
that portion of the Adjusted Purchase Price allocated to each Contingent
Property, the Acquirer may (or, if any Yield Differential would be payable as a
result of the interest accruing on the Mortgage Debt on a long-term fixed-rate
basis, shall) cause the Lender at Closing to place into an escrow account (or
such other account as may be acceptable to Lender) an amount equal to the
Allocated Mortgage Debt for such Contingent Property for the period commencing
on the Closing Date and expiring on the Contingent Property Yield Differential
Period Expiration Date (as hereinafter defined), in which event the Sellers
shall pay to the Acquirer, not less often than monthly, the Yield Differential.
At such time as Seller or an Affiliate of Seller reasonably approved in writing
by the Acquirer obtains legal title to (a)(1)(A) such Contingent Property or (B)
a Substitute Property, and the same is conveyed to the Acquirer on terms and
conditions mutually agreeable to Seller or such Affiliate (as applicable) and
the Acquirer, or (2) with the Sellers' prior written consent, the Acquirer
elects to substitute another property owned by it for such Contingent Property,
and (b) the Lender releases from escrow the Allocated Loan Proceeds for such
Contingent or Substitute Property (the "Contingent Property Yield Differential
Period Expiration Date"), the parties shall proceed to Closing with respect to
such Contingent or Substitute Property in accordance with the other provisions
of this Agreement (including, without limitation, Article 6 and the other
sections of this Article 8). Notwithstanding the foregoing to the contrary, in
the event that a Contingent or Substitute Property also constitutes an
Unreviewed Property or a Disqualified Property, then, after Seller or its
Affiliate obtains legal title to the Contingent Property or designates the
Substitute Property, as applicable, such Property shall be governed by Sections
2.5 or 2.6 above, or both.
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<PAGE>
ARTICLE 9
COOPERATION ON TAX MATTERS
.1 Cooperation on Tax Matters.
--------------------------
(a) The Sellers, the Owners and the Acquirer agree to furnish, or
cause to be furnished to the other, upon request, as promptly as practicable,
such information (including access to books and records) and assistance relating
to the Properties as is reasonably necessary for (i) the filing of any Tax
Return, the preparation for any Tax audit, and the prosecution or defense of any
claim, suit and proceeding relating to any proposed Tax adjustment which may
affect the allocation of tax liabilities under this Agreement, and (ii) the
performance by the Sellers, the Owners and the Acquirer of their respective
obligations under this Agreement. The Sellers, the Owners and the Acquirer
shall keep all such information and documents received by them confidential
unless otherwise required to be disclosed by law or by the order of a court.
(b) The Sellers, the Owners and the Acquirer agree to give the other
reasonable notice prior to transferring, discarding or destroying any such books
and records relating to Tax matters of the Properties and, if so requested, the
Sellers, the Owners and the Acquirer shall allow the requesting party to take
possession of such books and records.
(c) The Sellers, the Owners and the Acquirer shall cooperate with
each other in the conduct of any audit or other proceedings with respect to the
Properties for any Tax purposes.
(d) The parties recognize that the transfer of Interests provided
herein shall result in a termination of the Owners for Federal and state income
tax purposes under Section 708 of the Code and that subsequent to the transfer
of Interests provided herein, the Owners shall be disregarded for Federal and
state income tax purposes.
(i) The Sellers shall have the sole responsibility for preparing
the Tax Returns of the Owners for periods prior to and ending on the Closing
Date. The Acquirer shall allow the Sellers reasonable access to the records of
the Owners for the purpose of preparing such Tax Returns.
(ii) The Sellers shall be liable for, shall have the sole
responsibility for paying and hereby jointly and severally agree to indemnify
and hold the Acquirer harmless for and against any and all liability whatsoever
for any Taxes relating to the Owners (or any Property) arising out of or
relating to the periods prior to and ending on the Closing Date.
.2 Representations and Warranties on Tax Matters.
---------------------------------------------
(a) The Owners and the Sellers represent and warrant that as of the
Closing:
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(i) Each Owner is either (A) taxed as a partnership or (B)
disregarded for Federal and state income tax purposes. No Owner or any member or
partner of any Owner has made or will make an election under Treasury Regulation
section 301.7701-3(c) that has caused or may cause any Owner to be classified as
an association taxable as a corporation for Federal or state income tax
purposes.
(ii) The Owners are currently the beneficiaries of an extension
of time within which to file their 1998 Tax Returns. In accordance with Section
9.1(d)(i), Sellers shall prepare the 1998 and partial year 1999 Tax Returns for
Owners on or before October 15, 1999. The only jurisdictions in which the Owners
are required to file Tax Returns relating to income (other than federal Tax
Returns relating to income) are the jurisdictions in which the Properties are
located, and no claim has ever been made by an authority in a jurisdiction other
than the jurisdictions in which the Properties are located that any Owner may be
subject to taxation.
(iii) Each Owner has withheld and paid all taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, partner, member, or other third party.
(b) No Federal, state or local taxing authority has asserted any tax
deficiency, lien, interest or penalty against any Owner (or any property owned
by any Owner) which has not been paid. No Owner has received any written notice
of audit or investigation that is currently pending, and are not currently under
any audit or investigation relating to Taxes that has not been resolved as of
the date hereof. No event has occurred and no condition or circumstance exists
which presents a material risk that any tax deficiency, lien, interest or
penalty will be imposed on any Owner (or any property owned by any Owner).
ARTICLE 10
DISPOSITION OF CASH ASSETS AND TERMINATION OF CONTRACTS
OF THE OWNERS UPON CLOSING
.1 Prior to the Closing, the Owners may distribute to the Sellers or
their designees all of the cash assets of the Owner and the personal property of
the Owners that, in the ordinary course of business, is located in the Owners'
principal executive offices (the "Distributed Assets"), except for (a) any
security deposits and any amounts representing prepaid rent or other income
under the Leases applicable to any period of time after the Closing, (b)
insurance proceeds to be given to the Acquirer pursuant to Section 3.9 hereof,
and (c) proceeds from any condemnation awards under Section 3.10 hereof
regarding any Property and received after the Effective Date and before the
Closing Date, which excepted amounts shall be retained by the Owners for the
benefit of the Acquirer.
.2 Effective as of the first Closing Date, each Owner shall have (a)
terminated all contracts and agreements to which it is a party (other than this
Agreement), and (b) discharged
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all obligations and liabilities that have accrued as of the Closing Date and
paid all amounts payable (other than any security deposits under the Leases).
ARTICLE 11
DEFAULT AND REMEDIES
.1 Default by the Acquirer. If this transaction fails to close as a
-----------------------
result of a material default by the Acquirer with respect to any of the terms of
this Agreement, and such material default continues for a period of ten (10)
days after the Sellers notify the Acquirer in writing of such default, the
Sellers' sole and exclusive remedy for such material default shall be the right
to cancel and terminate this Agreement and receive and retain the Deposit.
Unless the Sellers waive the Acquirer's default in writing within five (5) days
after the expiration of the 10-day period specified in the preceding sentence,
or such default is cured within such 10-day period, this Agreement shall
automatically terminate effective fifteen (15) days after the notice of default
is given without the necessity of further notice being given. Upon such
termination, each party shall be released from all duties or obligations
contained herein and the Chicago Title Insurance Company shall immediately pay
the Deposit to the Sellers as liquidated damages as the sole and exclusive
remedy of the Sellers, it being understood and agreed that the Sellers are
hereby releasing and/or waiving any right they might have to either specifically
enforce this Agreement or to sue for damages. The Sellers have agreed to this
liquidated damage provision because of the difficulty of ascertaining the
Sellers' actual damages given the uncertainties of the real estate market,
fluctuating property values and differences of opinion with respect to such
matters.
.2 Default by Sellers and Owners. At any time prior to the Closing Date,
-----------------------------
if there shall have been a material breach of any covenant, representation or
warranty of any Seller or Owner hereunder, or failure of any condition to the
Acquirer's obligation to close which is not or cannot be cured prior to five (5)
Business Days before the Closing Date (except with respect to a default
resulting solely in the exclusion of one or more Properties by Seller pursuant
to clause (z) of Section 2.6 or the exclusion of one or more Properties by the
Acquirer pursuant to Section 2.6, which shall be governed by the terms of
Section 2.6), then the Acquirer may elect, by written notice to the Sellers (a)
to terminate this Agreement, whereupon the Deposit shall be returned to the
Acquirer and the parties shall have no further rights or obligations hereunder
except as otherwise expressly set forth herein, which notice shall be given by
the Acquirer within thirty (30) days after becoming aware of such material
breach, failure or material adverse change or development or such longer period
to which the Sellers may agree; (b) to waive the default or failure to perform
and proceed with the Closing; or (c) to pursue any legal or equitable remedies
to which the Acquirer may be entitled on account of the foregoing, including,
without limitation, specific performance.
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ARTICLE 12
INDEMNIFICATION
.1 Agreement to Indemnify by the Sellers. Subject to the terms and
-------------------------------------
conditions of Section 12.5 hereof, the Sellers hereby jointly and severally
agree to indemnify and save the Acquirer, the Owners, their respective
shareholders, officers, directors and employees, and the successors and assigns
of each of the foregoing (each an "Acquirer Indemnitee") harmless from and
against, for and in respect of, any and all damages, losses, obligations,
liabilities, demands, judgments, injuries, penalties, claims, actions or causes
of action, encumbrances, costs and expenses (including, without limitation,
reasonable attorneys' fees and expert witness fees), suffered, sustained,
incurred or required to be paid by any Acquirer indemnitee (collectively,
"Acquirer's Damages") arising out of, based upon, in connection with, or as a
result of:
(a) the untruth, inaccuracy or breach of any representation and
warranty of the Sellers or Owners (regardless of any knowledge thereof by the
Acquirer at or prior to the Closing) contained in or made pursuant to this
Agreement, including any Schedule or certificate delivered hereunder or in
connection herewith; provided, however, the Sellers shall have no obligation to
pay Acquirer's Damages pursuant to this Section 12.1(a) unless and until (and
only to the extent that) all claims with respect to Acquirer's Damages pursuant
to this Section 12.1(a) exceed a cumulative aggregate of total of Fifty Thousand
Dollars ($50,000.00);
(b) the breach or non-fulfillment of any covenant or agreement of any
Seller or Owners contained in this Agreement or in any other agreement, document
or instrument delivered hereunder or pursuant hereto; or
(c) any and all Taxes arising out of or based upon the Distributed
Assets or the distribution thereof as contemplated by Article 10; or
(d) any liability whether or not asserted or due to the extent
accruing against any Owner or the Properties prior to the Closing except for
breach of representations or warranties addressed in Section 12.1(a).
.2 Agreement to Indemnify by Acquirer. Subject to the terms and
----------------------------------
conditions of Section 12.5 hereof, the Acquirer hereby agrees to indemnify and
save the Sellers and their successors and assigns (each a "Seller Indemnitee")
harmless from or against, for and in respect of, any and all damages, losses,
obligations, liabilities, demands, judgments, injuries, penalties, claims,
actions or causes of action, encumbrances, costs and expenses (including,
without limitation, reasonable attorneys' fees and expert witness fees)
suffered, sustained, incurred or required to be paid by any Seller Indemnitee
arising out of, based upon or in connection with or as a result of:
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<PAGE>
(a) the untruth, inaccuracy or breach of any representation and
warranty of the Acquirer (regardless of any knowledge thereof by the Sellers at
or prior to the Closing) contained in or made pursuant to this Agreement,
including in any schedule or certificate delivered hereunder or in connection
herewith; or
(b) the breach or non-fulfillment of any covenant or agreement of the
Acquirer contained in this Agreement or in any other agreement, document or
instrument delivered hereunder or pursuant hereto; or
(c) any liability to the extent accruing against any Owner or the
Properties after Closing.
.3 Effectiveness. The provisions of this Article 12 shall be effective
-------------
upon consummation of the Closing and, prior to the Closing, shall have no force
and effect.
.4 Environmental Excluded. The indemnities set forth in this Article 12
----------------------
do not cover indemnification relating to environmental conditions or claims
including, without limitation, asbestosis, with the exception of a breach by the
Sellers or Owners of their representations and warranties in Section 4.2(i).
Each party explicitly reserves all rights with respect to such claims under any
other provision of this Agreement and under applicable law.
.5 Procedure. The following provisions govern all actions for indemnity
---------
under this Article 12 and any other provision of this Agreement. Promptly after
receipt by an indemnitee of notice of any claim, such indemnitee shall, if a
claim in respect thereof is to be made against the indemnitor, deliver to the
indemnitor written notice thereof and the indemnitor shall have the right to
participate in and, if the indemnitor agrees in writing that it shall be
responsible for any costs, expenses, judgments, damages and losses incurred by
the indemnitee with respect to such claim, to assume the defense thereof, with
counsel mutually satisfactory to the parties; provided, however, that an
indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnitor, if the indemnitee reasonably believes
that representation of such indemnitee by the counsel retained by the indemnitor
would be inappropriate due to actual or potential differing interests between
such indemnitee and any other party represented by such counsel in such
proceeding. The failure of an indemnitee to deliver written notice to the
indemnitor within a reasonable time after the indemnitee receives notice of any
such claim shall relieve such indemnitor of any liability to the indemnitee
under this indemnity only if and to the extent that such failure is prejudicial
to the indemnitor's ability to defend such action. If an indemnitee settles a
claim without the prior written consent of the indemnitor, then the indemnitor
shall be released from liability with respect to such claim unless the
indemnitor has unreasonably withheld such consent.
.6 Limitation on Liability. Notwithstanding any other provision in this
-----------------------
Article 12, the aggregate liability of each Seller, respectively, with respect
to any and all liabilities, claims,
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<PAGE>
demands, losses or damages effected under Section 12.1 shall not exceed the
amount of the Purchase Price allocable to such Seller.
.7 Exclusivity. The parties hereto agree that, from and after the
-----------
Closing Date, with respect to any breach or violation of any representation or
warranty or any covenant, obligation or other term set forth in this Agreement
or the other documents among Sellers and Acquirer delivered in connection
herewith, the only relief and remedy available to a party in respect of such
breach shall be (a) damages, but only to the extent properly claimable hereunder
pursuant to this Article 12 as may be limited pursuant to Section 12.1 or
Section 12.5, (b) specific performance, if a court of competent jurisdiction in
its discretion grants the same, or (c) injunctive or declaratory relief, if a
court of competent jurisdiction in its discretion grants the same.
ARTICLE 13
MISCELLANEOUS
.1 Survival. The representations and warranties contained in this
--------
Agreement and the indemnification obligations and other provisions of this
Agreement that contemplate performance after the Closing shall survive the
Closing for a period of five (5) years from the Closing Date (except that
representations and warranties and related indemnification obligations relating
to any of the Properties shall survive Closing for a period of one (1) year from
the Closing Date) and shall not be deemed to be merged into or waived by the
instruments of the Closing; provided, however, that the representations in
Section 9.2 shall survive the closing until thirty (30) days after the
applicable statute of limitations period has expired. Notice of a good faith
claim for indemnification under Article 12 must be given in writing by an
indemnitee pursuant to Section 12.5 within five (5) years or one (1) year, as
applicable, after the date of this Agreement if a claim in respect thereof is to
be made against the indemnitor (other than claims arising out of a breach of the
representations and warranties in Section 9.2, for which claims for
indemnification shall be given during the applicable survival period). The
Acquirer's obligation to pay the Second Purchase Price on the Second Funding
Date, pursuant to Section 2.1 hereof, shall survive the Closing until such
obligation is discharged.
.2 Expenses. Except with respect to the Acquisition Expenses as
--------
otherwise expressly provided herein, each party hereto shall pay its own
expenses incident to this Agreement and the transactions contemplated hereby,
including all costs and expenses incurred by such party in connection with (a)
the performance of any due diligence reviews of the other parties and, as
applicable, the Properties and (b) the acquisition or disposition, as
applicable, of the Interests.
.3 Additional Actions and Documents. Each of the parties hereto hereby
--------------------------------
agrees to use its commercially reasonable efforts to take or cause to be taken
such further actions, to execute, deliver and file or cause to be executed,
delivered and filed such further documents, and to obtain such consents, as may
be necessary or as may be reasonably requested in order to
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<PAGE>
fully effectuate the purposes, terms and conditions of this Agreement. The
obligations of the parties set forth in this Section 13.3 shall survive the
Closing and shall not be deemed to be merged into or waived by any instrument of
conveyance delivered at Closing.
.4 Remedies Cumulative. The remedies provided in this Agreement shall be
-------------------
cumulative and, except as otherwise expressly provided, shall not preclude the
assertion or exercise of any other rights or remedies available by law, in
equity or otherwise.
.5 Entire Agreement; Amendment. This Agreement, including the exhibits,
---------------------------
schedules and other documents referred to herein or therein or furnished
pursuant hereto or thereto, constitutes the entire agreement among the parties
hereto with respect to the transactions contemplated herein, and supersedes all
prior oral or written agreements, commitments or understandings with respect to
the matters provided for herein. No amendment, modification or discharge of
this Agreement shall be valid or binding unless set forth in writing and duly
executed and delivered by the party against whom enforcement of the amendment,
modification or discharge is sought.
.6 Notices. All notices, demands, requests or other communications which
-------
may be or are required to be given, served or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
facsimile, telegram, telecopy or telex, to the following addresses:
If to the Acquirer CAR MMR L.L.C.
(and, on and after the c/o Capital Automotive REIT
Closing Date, to any 1420 Spring Hill Road
Owner): Suite 525
McLean, Virginia 22102
Attn: General Counsel
Telecopy: 703-288-3375
with a copy to: Shaw Pittman
2300 N Street, N.W.
Washington, D.C. 20037
Attn: Richard F. Williamson, Esq.
Telecopy: 202-663-8007
If to any Seller: Sonic Financial Corporation
5401 East Independence Boulevard
Charlotte, North Carolina 28212
Attn: William R. Brooks
Telecopy: 704-532-3312
with a copy to: Parker, Poe, Adams & Bernstein, L.L.P.
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<PAGE>
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Attn: Peter J. Shea, Esq.
Telecopy: 704-334-4706
If to any Owner MMR Holdings, LLC
(prior to the Closing Date): 6407 Idlewild Road
Building 2, Suite 111
Charlotte, North Carolina 28212
Attn: Mark J. Iuppenlatz
Telecopy: 704-566-6031
with a copy to: Parker, Poe, Adams & Bernstein, L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Attn: Peter J. Shea, Esq.
Telecopy: 704-334-4706
Each party may designate by notice in writing a new address or additional
addresses to which any notice, demand, request or communication may thereafter
be so given, served or sent. Each notice, demand, request or communication
which shall be hand delivered, sent, mailed, faxed, telecopied or telexed in the
manner described above, or which shall be delivered to a telegraph company,
shall be deemed sufficiently given, served, sent, received or delivered for all
purposes at such time as it is delivered to the addressee (with the return
receipt, the delivery receipt, the confirmation receipt (with respect to a
facsimile) or the answer-back (with respect to a telecopy or telex) being deemed
conclusive, but not exclusive, evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
.7 Waivers. No delay or failure on the part of any party hereto in
-------
exercising any right, power or privilege under this Agreement or under any other
documents furnished in connection with or pursuant to this Agreement shall
impair any such right, power or privilege or be construed as a waiver of any
default or any acquiescence therein. No single or partial exercise of any such
right, power or privilege shall preclude the further exercise of such right,
power or privilege, or the exercise of any other right, power or privilege. No
waiver shall be valid against any party hereto unless made in writing and signed
by the party against whom enforcement of such waiver is sought and then only to
the extent expressly specified therein.
.8 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Faxed signatures shall have the same binding
effects as original signatures.
.9 Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claim or disputes relating thereto, shall be governed by
and construed in accordance with the laws of the State of North Carolina
(excluding the choice of law rules thereof).
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<PAGE>
.10 Assignment. No party hereto shall assign its rights and/or
----------
obligations under this Agreement, in whole or in part, whether by operation of
law or otherwise, without the prior written consent of the other parties hereto;
provided, that the Acquirer may assign its rights and/or obligations under this
Agreement to any Affiliate. Notwithstanding any assignment by the Acquirer of
its rights and obligations under this Agreement, the Acquirer shall remain
liable for its obligations under this Agreement, jointly and severally, with any
assignee.
.11 No Third Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties hereto, and no provision of this Agreement shall be
deemed to confer any benefit on any third party.
.12 Confidentiality.
---------------
(a) Before the Closing Date, no Seller, directly or indirectly, shall
make any public announcement or disclosure of this Agreement or any information
related to this Agreement to third parties, other than their respective auditors
and accountants, legal counsel, tenants and lenders without the prior written
consent of the Acquirer.
(b) As used herein, "Confidential Material" means, with respect to
each party hereto (the "Providing Party"), all information, whether oral,
written or otherwise, furnished to any other party hereto (the "Receiving
Party") or such Receiving Party's directors, officers, partners, affiliates,
employees, agents or representatives (collectively, "Representatives"), by the
Providing Party and all reports, analyses, compilations, studies and other
material prepared by the Receiving Party or its Representatives (in whatever
form maintained, whether documentary, computer storage or otherwise) containing,
reflecting or based upon, in whole or in part, any such information. The term
"Confidential Material" does not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by the
Receiving Party, its Representatives or anyone to whom the Receiving Party or
any of its Representatives transmit any Confidential Material in violation of
this Agreement, (ii) is or becomes known or available to the Receiving Party on
a non-confidential basis from a source (other than the Providing Party or
another Receiving Party or one of their Representatives) who is not, to the
knowledge of the Receiving Party after reasonable inquiry, prohibited from
transmitting the information to the Receiving Party or its Representatives by a
contractual, legal, fiduciary or other obligation or (iii) is subsequently
disclosed in any other public disclosure permitted under this Section 13.12.
(c) Subject to paragraph (d) below or except as required by law or as
ordered by a court of competent jurisdiction, the Confidential Material will be
kept confidential and will not, without the prior written consent of the
Providing Party, be disclosed by the Receiving Party or its Representatives, in
whole or in part, and will not be used by the Receiving Party or its
Representatives, directly or indirectly, for any purpose other than in
connection with this Agreement, the Consolidation or the conducting, negotiating
or advising with respect to a transaction contemplated herein. Moreover, each
Receiving Party agrees to
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<PAGE>
transmit Confidential Material to its Representatives only if and to the extent
that such Representatives need to know the Confidential Material for purposes of
such transaction and are informed by such Receiving Party of the confidential
nature of the Confidential Material and of the terms of this Section 13.12. In
any event, each Receiving Party will be responsible for any actions by its
Representatives which are not in accordance with the provisions hereof.
(d) In the event that any Receiving Party, its Representatives or
anyone to whom such Receiving Party or its Representatives supply the
Confidential Material, are requested (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand, any
informal or formal investigation by any government or governmental agency or
authority or otherwise in connection with legal process) to disclose any
Confidential Material, such Receiving Party agrees (i) to immediately notify the
Providing Party of the existence, terms and circumstances surrounding such a
request, (ii) to consult with the Providing Party on the advisability of taking
available legal steps to resist or narrow such request and (iii) if disclosure
of such information is required, to furnish only that portion of the
Confidential Material which, in the opinion of such Receiving Party's counsel,
such Receiving Party is legally compelled to disclose and to cooperate with any
action by the Providing Party to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the Confidential
Material (it being agreed that the Providing Party shall reimburse the Receiving
Party for all reasonable out-of-pocket expenses incurred by the Receiving Party
in connection with such cooperation).
(e) The provisions of this Section 13.12 shall terminate upon the
Closing. In the event of the termination of this Agreement in accordance with
its terms, promptly upon request from a Providing Party, each Receiving Party
shall, except to the extent prevented by law, redeliver to such Providing Party
or destroy all tangible Confidential Material and will not retain any copies,
extracts or other reproductions thereof in whole or in part. Any such
destruction shall be certified in writing to such Providing Party by an
authorized officer of the Receiving Party supervising the same. Notwithstanding
the foregoing, each Receiving Party and one Representative designated by each
Receiving Party shall be permitted to retain one permanent file copy of each
document constituting Confidential Material.
.13 Severability. If any provision of this Agreement shall be held
------------
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
.14 Acquirer Access to Information. Upon the Acquirer's reasonable
------------------------------
request, at any time before or after the Closing Date, each Seller and Owner
shall provide the Acquirer reasonable access to the books and records of the
Properties and all related information in order for the Acquirer to verify any
payments or receipts from tenants, suppliers, service providers and any other
party.
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<PAGE>
.15 Information and Audit Cooperation. At the Acquirer's request, at any
---------------------------------
time before or after the Closing Date, the Sellers and the Owners shall provide
to the Acquirer's designated independent auditor access to the books and records
of the Properties and all related information regarding the period for which the
Acquirer or any of its Affiliates are required to have the Properties audited
under the regulations of the Securities and Exchange Commission, and a
representation letter regarding the books and records of the Properties
substantially in the form of Exhibit 13.15 in connection with the normal course
-------------
of auditing the Properties in accordance with generally accepted auditing
standards.
.16 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective successors and assigns.
.17 Headings. The headings contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
.18 Limitation of Liability. Any obligation or liability whatsoever of
-----------------------
the Acquirer which may arise at any time under this Agreement or any obligation
or liability which may be incurred by it pursuant to any other instrument,
transaction or undertaking contemplated hereby shall be satisfied, if at all,
out of the Acquirer's assets only. No such obligation or liability shall be
personally binding upon, nor shall resort for the enforcement thereof be had to,
the property of any of its shareholders, trustees, officers, employees or
agents, regardless of whether such obligation or liability is in the nature of
contract, tort or otherwise.
.19 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
--------------------
PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. THE PROVISIONS OF THIS SECTION 13.19 SHALL
SURVIVE ANY TERMINATION OF THIS AGREEMENT.
.20 No Board Seat. The Sellers acknowledge and agree that nothing
-------------
contained in this Agreement shall be construed or deemed to grant any Seller the
power or right to designate or appoint a member of the Board of Trustees of
Capital Automotive REIT, a Maryland real estate investment trust.
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[Remainder Of This Page Left Intentionally Blank]
[Signatures Follow On Next Page]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Acquisition
Agreement to be duly executed on their behalf as of the date first above
written.
ACQUIRER:
CAR MMR L.L.C., a Delaware limited liability
company
By: Capital Automotive L.P., a Delaware
limited partnership,
its Managing Member
By: Capital Automotive REIT,
a Maryland real estate
investment trust,
its General Partner
By: /s/ David S. Kay
----------------------------
Name: David S. Kay
---------------------------
Title: Vice President and
Chief Financial Officer
-------------------------
SELLERS:
/s/ O. Bruton Smith
--------------------------------------------
O. BRUTON SMITH, individually
SONIC FINANCIAL CORPORATION,
a North Carolina corporation
By: /s/ William R. Brooks
----------------------------------------
Name: William R. Brooks
-------------------------------------
Title: Vice President
-------------------------------------
[Signatures Continue On Next Page]
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<PAGE>
[Signature Page To Acquisition Agreement]
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<PAGE>
OWNERS:
MMR HOLDINGS, L.L.C.,
a North Carolina limited liability company
By: /s/ Benjamin F. Bracy
----------------------------------
Name: Benjamin F. Bracy
----------------------------------
Title: President
----------------------------------
MMR VIKING INVESTMENT ASSOCIATES,
L.P., a Texas limited partnership
By: /s/ O. Bruton Smith
----------------------------------
Name: O. Bruton Smith
----------------------------------
Title: General Partner
----------------------------------
MMR TENNESSEE, L.L.C.,
a North Carolina limited liability company
By: /s/ Benjamin F. Bracy
----------------------------------
Name: Benjamin F. Bracy
----------------------------------
Title: President
----------------------------------
[Signature Page To Acquisition Agreement]
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<PAGE>
AMENDMENT NUMBER 1
TO
ACQUISITION AGREEMENT
THIS AMENDMENT NUMBER 1 TO ACQUISITION AGREEMENT ("Amendment") is made and
entered into as of the 8/th/ day of July, 1999, by and among (i) O. BRUTON
SMITH, an individual ("Smith"), (ii) SONIC FINANCIAL CORPORATION, a North
Carolina corporation ("SFC" and, together with Smith, the "Sellers"), (iii) MMR
HOLDINGS, L.L.C., a North Carolina limited liability company ("MMR Holdings"),
(iv) MMR VIKING INVESTMENT ASSOCIATES, L.P., a Texas limited partnership ("MMR
Viking"), (v) MMR TENNESSEE, L.L.C., a North Carolina limited liability company
("MMR Tennessee" and, together with MMR Holdings and MMR Viking, the "Owners"),
and (vi) CAR MMR L.L.C., a Delaware limited liability company (the "Acquirer"),
and amends the Acquisition Agreement dated as of June 30, 1999 (the "Agreement")
by and among the Sellers, the Owners and the Acquirer, under the following
circumstances:
WHEREAS, the parties to the Agreement desire to amend the Agreement
pursuant to Section 13.5 thereof.
NOW, THEREFORE, in consideration of the mutual agreements contained in this
Amendment and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the parties hereto agree
as follows:
Section 1. Amendment of Section 8.1 of the Agreement. The date of August
17, 1999 contained in clause (a) of Section 8.1 of the Agreement is hereby
amended to read August 16, 1999.
Section 2. Miscellaneous.
(a) Effectiveness of Agreement. Except as expressly amended in Section 1
--------------------------
of this Amendment, all provisions of the Agreement shall remain in full force
and effect, binding on and for the benefit of the parties thereto, as when
originally executed and delivered. This Amendment shall be considered and
construed as part of the Agreement.
(b) Binding Effect. This Amendment shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective successors and assigns.
(c) Headings. The headings contained in this Amendment are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(d) Counterparts. This Amendment may be executed in counterparts, each of
------------
which shall be deemed an original, but which together shall constitute one and
the same instrument. Faxed signatures shall have the same binding effects as
original signatures.
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<PAGE>
[SIGNATURES TO FOLLOW ON NEXT PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on their behalf as of the date first above written.
ACQUIRER:
CAR MMR L.L.C., a Delaware limited liability
company
By: Capital Automotive L.P., a Delaware
limited partnership,
its Managing Member
By: Capital Automotive REIT,
a Maryland real estate
investment trust,
its General Partner
By: /s/ John M. Weaver
----------------------
Name: John M. Weaver
----------------------
Title: Vice President
---------------------
SELLERS:
/s/ O. Bruton Smith
-------------------------------------------
O. BRUTON SMITH, individually
SONIC FINANCIAL CORPORATION,
a North Carolina corporation
By: /s/ William R. Brooks
-----------------------------------
Name: William R. Brooks
-----------------------------------
Title: Vice President
-----------------------------------
[Signatures Continue On Next Page]
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<PAGE>
OWNERS:
MMR HOLDINGS, L.L.C.,
a North Carolina limited liability company
By: /s/ Benjamin F. Bracy
-------------------------------------
Name: Benjamin F. Bracy
-------------------------------------
Title: President
-------------------------------------
MMR VIKING INVESTMENT ASSOCIATES,
L.P., a Texas limited partnership
By: /s/ O. Bruton Smith
-------------------------------------
Name: O. Bruton Smith
-------------------------------------
Title: General Partner
-------------------------------------
MMR TENNESSEE, L.L.C.,
a North Carolina limited liability company
By: /s/ Benjamin F. Bracy
-------------------------------------
Name: Benjamin F. Bracy
-------------------------------------
Title: President
-------------------------------------
-3-
<PAGE>
EXHIBIT 2.2
CONFIDENTIAL TREATMENT
SONIC AGREEMENT
---------------
THIS SONIC AGREEMENT (this "Agreement") is made and entered into as of June
30, 1999, by and among (i) SONIC AUTOMOTIVE, INC., a Delaware corporation (the
"Guarantor"), (ii) the signatories listed on Schedule A attached hereto (the
----------
"Tenants"), and (iii) CAR MMR L.L.C., a Delaware limited liability company (the
"Acquirer"), in connection with that certain Acquisition Agreement dated of even
date herewith (the "Acquisition Agreement") by and among (a) O. Bruton Smith, an
individual, Sonic Financial Corporation, a North Carolina corporation
(collectively, the "Sellers"), MMR Holdings, L.L.C., a North Carolina limited
liability company ("MMR Holdings"), MMR Viking Investment Associates, L.P., a
Texas limited partnership ("MMR Viking"), and MMR Tennessee, L.L.C., a North
Carolina limited liability company ("MMR Tennessee"), and (b) the Acquirer.
RECITALS
--------
A. Pursuant to the Acquisition Agreement, the Sellers are selling,
transferring, conveying and assigning their membership interests and partnership
interests, as the case may be, and the Acquirer is acquiring such membership
interests and partnership interests, in MMR Holdings, MMR Viking, and MMR
Tennessee (collectively, the "Landlords", and each, a "Landlord"), in exchange
for cash.
B. Upon consummation of the transaction contemplated by the Acquisition
Agreement, the Acquirer will own, directly or indirectly, one hundred percent
(100%) of the ownership interests in the Landlords.
C. Pursuant to certain leases (the "Pre-Acquisition Leases"), the
Landlords have leased to the Tenants the Properties.
D. Pursuant to certain guaranties (the "Pre-Acquisition Guaranties") in
favor of the Landlords, Guarantor has guaranteed the obligations of the Tenants
under each of the Pre-Acquisition Leases.
E. In order to induce the Acquirer to consummate the transaction in
accordance with the Acquisition Agreement and in connection with the obligations
of the parties thereto which include, inter alia, that: (i) the Landlords and
the Tenants of the Properties shall terminate the Pre-Acquisition Leases and
enter into the Sonic Lease (as defined herein); (ii) the Pre-Acquisition
Guaranties shall be terminated and the Guarantor shall execute the Sonic
Guaranties (as defined herein); and (iii) the Acquirer shall commit to purchase
additional automobile dealership properties from Guarantor, the parties have
agreed to set forth certain of their rights and obligations, all as more
particularly set forth hereinbelow.
<PAGE>
F. Unless otherwise provided herein, all terms used in this Agreement
that are defined in the Acquisition Agreement shall have the meanings provided
in the Acquisition Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the parties hereto agree as follows:
1. Tenants.
-------
(a) Representations and Warranties. The Tenants hereby represent and
------------------------------
warrant jointly and severally to the Acquirer that the representations and
warranties set forth below are true and correct as of the date first above
written and shall be true and correct in all material respects on and as of the
Closing:
(i) Litigation. Except as shown on Schedule 1(a)(i) attached
---------- ----------------
hereto, there is no action, suit, litigation or proceeding pending or, to the
Tenants' knowledge, threatened against any of the Tenants or the Properties that
could reasonably be expected to have a material adverse effect on any of the
Properties or on the ability of any Tenant to execute or deliver, or perform its
obligations under, this Agreement or any of the Sonic Leases (as hereinafter
defined).
(ii) Environmental. The Tenants have no knowledge of any
-------------
violation of Environmental Laws related to the Properties or the presence or
release of Hazardous Materials on or from such Properties, except as reflected
in the environmental reports listed on Schedule 1(a)(ii). Schedule 1(a)(ii) is a
----------------- -----------------
list of all written environmental reports and results of environmental
inspections and tests in the possession of the Tenants, which list is complete
in all material respects. The Tenants have not used the Properties for the
generation, treatment, storage, handling or disposal of any Hazardous Materials
in violation of any Environmental Laws.
(b) Termination Agreements. Each of the Tenants agrees that it will
----------------------
at Closing enter into a Pre-Acquisition Lease Termination Agreement and Estoppel
Certificate in the form attached hereto as Exhibit 1(b).
------------
(c) Sonic Leases. Each of the Tenants agrees that, with respect to
------------
each Property subject to a Pre-Acquisition Lease, it will at Closing (or with
respect to a Substitute Property or Contingent Property, Sonic or its Affiliate
will, at the closing of the transaction consummating the acquisition of such
Substitute Property or Contingent Property), enter into a lease in the form
attached hereto as Exhibit 1(c) (each, a "Sonic Lease"); provided, however, (i)
------------
that the term of each Sonic Lease shall be the unexpired term of the Pre-
Acquisition Lease it is replacing (and the initial term of each Sonic Lease with
respect to the Contingent Property or
-2-
<PAGE>
the Substitute Property shall be for a period of ten (10) years), and (ii) the
base rent and escalation thereof under each Sonic Lease shall be as set forth in
Section 4 of the lease attached hereto as Exhibit 1(c).
------------
2. Guarantor.
---------
(a) Representations and Warranties. Guarantor hereby represents and
------------------------------
warrants to the Acquirer that the representations and warranties set forth below
are true and correct as of the date first above written and shall be true and
correct in all material respects on and as of the Closing:
(i) Due Authorization. The execution and delivery of, and
-----------------
performance under, this Agreement and the Sonic Guaranties (as hereinafter
defined) has been duly and validly approved by all necessary applicable
corporate action and constitutes (or, with respect to the Sonic Guaranties, upon
execution will constitute) the valid, legally binding, and enforceable agreement
of Guarantor, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and transfer and other similar laws of general
application heretofore or hereafter enacted or in effect, affecting the rights
and remedies of creditors generally.
(ii) Litigation. Except as shown on Schedule 2(a)(ii) attached
---------- -----------------
hereto, there is no action, suit, litigation or proceeding pending or, to
Guarantor's knowledge, threatened against the Tenants, Guarantor, or the
Properties that could reasonably be expected to have a material adverse effect
on the financial condition of Guarantor or its ability to execute or deliver, or
perform its obligations under, this Agreement or any of the Sonic Guaranties.
(iii) Financial Statements. The financial statements of
--------------------
Guarantor, and the notes related thereto, included in the Form 10K for the
fiscal year ended December 31, 1998, and 10Q for the quarter ended March 31,
1999, present fairly the consolidated financial condition of Guarantor as of the
dates indicated and the results of the operations and changes in consolidated
cash flows for the periods specified; such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis; and there has occurred no material adverse change in the
financial condition or prospects of Guarantor since the date of such financial
statements.
(b) Sonic Guaranties. Guarantor agrees that, with respect to each
----------------
Sonic Lease, it will at Closing execute a guaranty in the form attached hereto
as Exhibit 2(b) (each, a "Sonic Guaranty").
------------
-3-
<PAGE>
(c) Legal Opinion. Guarantor shall cause its counsel to deliver a
legal opinion which may be relied upon by the Acquirer, opining as to the
enforceability of this Agreement, the Sonic Leases and the Sonic Guaranties.
3. Repurchase Option. Subject to the terms and conditions provided in
-----------------
this Section 3, Guarantor shall have the right (the "Option to Substitute") from
time to time to purchase one or more of the Properties and to substitute
therefor one or more properties (each, a "Replacement Property").
(a) Guarantor may exercise the Option to Substitute only by
delivering written notice (each, a "Substitution Option Notice") of the exercise
of such right to the Acquirer during the period commencing on the day after the
Closing Date and expiring, with respect to each Property, on the date on which
the initial term of the Sonic Lease for such Property expires or is sooner
terminated (each, a "Substitution Window Expiration Date").
(b) In the event that Guarantor elects to purchase a Property,
Guarantor shall simultaneously sell to the Acquirer a Replacement Property that
has previously been approved in writing by the financial institution (the
"Lender") that has made to the Acquirer or an Affiliate thereof a loan (the
"Loan") secured by the Property in accordance with the qualifications for a
Replacement Property under such Lender's requirements. Each date on which the
transactions contemplated by this Section 3 are consummated with respect to a
Property and a Replacement Property shall be known as a "Substitution Date",
which Substitution Date in all events shall not be later than ninety (90) days
after the date of the applicable Substitution Option Notice. The parties shall
reasonably cooperate to consummate the substitution contemplated by this Section
3 within the aforesaid ninety (90) day period. The value of the Replacement
Property shall be approximately equal to the Purchase Price allocated to the
Property being replaced but in no event less than the Purchase Price allocated
to such Property, and the aggregate value of all Replacement Properties shall
not exceed the aggregate value of such replaced Properties by more than Three
Million Dollars ($3,000,000.00).
(c) On the Substitution Date:
(i) Guarantor shall (A) execute, or cause the Designated Grantee
(as hereinafter defined) to execute, a lease in the form attached hereto as
Exhibit 1(c) for the Replacement Property (provided, however, (I) that the
- ------------
initial term of such lease shall be the unexpired initial term of the lease of
the Property being repurchased, plus two five (5) year renewal periods, and (II)
during each year of the term of the lease for the Replacement Property, the base
rent and escalation thereunder shall be not less than the base rent and
escalation under the lease for the applicable Property being repurchased, (B)
execute a guaranty in the form attached hereto as Exhibit 2(b), (C) execute,
------------
acknowledge, and deliver to the Acquirer a special warranty deed for the
Replacement Property, (D) pay the Allocated
-4-
<PAGE>
Property Cost (as hereinafter defined) for such Property in cash or readily
available funds (E) execute, acknowledge and deliver to the Acquirer such other
documents as may reasonably be requested by the Acquirer or the Lender, and (F)
pay to the Acquirer all out-of-pocket costs incurred by the Acquirer in
connection with such purchase of the Replacement Property and sale of the
Property (including, without limitation, costs incurred in connection with title
insurance policies, surveys, zoning reports, appraisals, building condition
surveys, attorneys' fees, deed, mortgage and other recordation, transfer,
document and stamp taxes, and any fees imposed by the Lender in connection with
such substitution); and
(ii) the Acquirer shall (A) execute, acknowledge and deliver to
Guarantor or the Designated Grantee a special warranty deed for the Property,
(B) execute and deliver the lease for the Replacement Property set forth in
Section 3(c)(i)(A) and (C) pay the Replacement Property Purchase Price (as
hereinafter defined) in cash or readily available funds. The Property shall be
conveyed to Guarantor or the Designated Grantee in its "as is" condition as of
the Substitution Date, subject to all restrictions, covenants, declarations, and
easements of record as of such date and subject to the tenancy of the applicable
entity under the applicable Sonic Lease. The Guarantor shall provide to the
Acquirer representations and warranties customary in a sale transaction in
connection with the conveyance of the Replacement Property. The Substitution
Date shall occur, if at all, prior to the earlier of (X) the Substitution Window
Expiration Date, and (Y) the date on which the Loan (as hereinafter defined) is
discharged. "Allocated Property Cost" shall mean the Purchase Price allocated
to the Property being replaced, plus all allocated costs capitalized by the
Acquirer in connection with the Acquirer's acquisition and ownership of such
Property. "Replacement Property Purchase Price" shall mean the fair market
value of the Replacement Property as determined by an appraisal reasonably
acceptable to the Acquirer.
(d) Guarantor's rights under this Section 3 may only be exercised
with respect to Properties, the Allocated Property Cost of which, when
aggregated with the Allocated Property Cost of all Properties that are then
being or have previously been repurchased, does not exceed an amount equal to
Fifty-One Million Four Hundred Seventy-Six Thousand Nine Hundred Two and 75/100
Dollars ($51,476,902.75).
(e) Guarantor's rights under this Section 3 may be exercised by Sonic
Automotive, Inc. only, and may not be exercised by any other Person or entity;
provided, however, that by written notice to the Acquirer within five (5)
Business Days prior to the Substitution Date, Guarantor may elect to have title
to the applicable Property conveyed to any Affiliate of Guarantor (a "Designated
Grantee"). No such election, and no assignment of this Agreement or Guarantor's
rights hereunder, shall discharge Guarantor from its obligations hereunder.
(f) If Guarantor is in default under this Agreement or there exists
an Event of Default under the applicable Sonic Lease on the date the
Substitution Option Notice is given
-5-
<PAGE>
or at any time thereafter prior to the Substitution Date, then, at Landlord's
option, the Substitution Option Notice shall be null, void, and of no force or
effect.
(g) Notwithstanding anything to the contrary contained in this
Section 3, Guarantor shall have no option to purchase the Lone Star Nissan
Oldsmobile Property located in Stafford, Texas unless Guarantor simultaneously
purchases the Lute Riley Property located in Dallas, Texas in connection with an
Option to Substitute.
4. Future Acquisition Commitment. The parties hereto acknowledge that
-----------------------------
Guarantor will be acquiring additional automobile dealership properties (the
"Additional Properties") from third parties. During the period (the "Future
Acquisition Period") commencing one (1) day after the Closing Date, and ending
on December 31, 1999 (the "Future Acquisition Period Expiration Date"), the
Guarantor may agree to sell and the Acquirer agrees, if requested by the
Guarantor, to purchase, from time to time during the Future Acquisition Period,
such Additional Properties, the purchase price of which shall not exceed
Seventy-Five Million Dollars ($75,000,000) in the aggregate, on the terms and
conditions set forth herein. From time to time during the Future Acquisition
Period, the Guarantor may provide written notice (the "Acquisition Notice") to
the Acquirer of its desire to sell one or more Additional Properties. Within
ten (10) days after the Acquirer's receipt of the Acquisition Notice, the
Guarantor and the Acquirer shall enter into a mutually acceptable purchase
agreement (or mutually acceptable assignment of an existing purchase agreement
between the Guarantor and the seller of the Additional Property) providing,
among other things, (a) that the purchase price for such Additional Property
shall be based on a capitalization rate (the "Cap Rate") equal to the lesser of
(i) *, and (ii) a rate equal to two hundred fifty (250) basis points over the
Acquirer's "all-in cost of long-term fixed debt refinancing" for the acquisition
of the Additional Properties; (b) that such acquisition shall be subject to
customary due diligence by Acquirer (the results of which due diligence shall be
made available to the Guarantor), including, without limitation, review of (i)
the environmental and structural condition of such Additional Property, (ii)
title and survey, and (iii) appraisals/valuation; (c) that the Guarantor pay,
except as otherwise mutually agreed by the parties, all reasonable costs and
expenses of such closing, including, without limitation, the cost of recording
and transfer fees, title insurance, surveys, environmental studies, structural
reports and appraisals and legal and accounting fees, and (d) that the Acquirer
shall enter into a lease with or guaranteed by Guarantor, using a lease in the
form attached hereto as Exhibit 1(c), provided that the annual rent under such
------------
lease shall be equal to the product of (i) the purchase price, multiplied by
(ii) the Cap Rate.
*Text deleted pursuant to application for Confidential Treatment under
Rule 24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission.
-6-
<PAGE>
5. Postponed Conveyance or Substituting of Properties. Pursuant to the
--------------------------------------------------
Acquisition Agreement, in certain instances in which Owners do not convey all of
the Properties, then until such time as such Property or Substitute Property is
conveyed to the Acquirer or its Affiliate as more particularly set forth in the
Acquisition Agreement, Guarantor shall use best efforts to convey to the
Acquirer or its Affiliate, such Property or such Substitute Property, as
applicable, in accordance with and subject to the terms and conditions of
transferring a Property or Substitute Property under the Acquisition Agreement.
6. Obligation to Renew. During each calendar year in which the Initial
-------------------
Term of any Sonic Lease expires, Guarantor shall cause the Tenants of Sonic
Leases expiring in such calendar year not to, and the Tenants of the Sonic
Leases expiring in such calendar year shall not, give notices effecting the
termination of any combination of Sonic Leases during such calendar year, the
aggregate annual Base Rent of which during the last year of the Initial Term
exceeds twenty-five percent (25%) of the aggregate annual Base Rent during the
last year of the Initial Term of all Sonic Leases expiring in such calendar
year.
7. Miscellaneous.
-------------
(a) Survival. The representations and warranties contained in this
--------
Agreement shall survive the Closing for a period of five (5) years from the
Closing Date (except that representations and warranties relating to any of the
Properties shall survive Closing for a period of one (1) year from the Closing
Date) and shall not be deemed to be merged into or waived by the instruments of
the Closing.
(b) Additional Actions and Documents. Each of the parties hereto
--------------------------------
hereby agrees to use its commercially reasonable efforts to take or cause to be
taken such further actions, to execute, deliver and file or cause to be
executed, delivered and filed such further documents, and to obtain such
consents, as may be necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this Agreement. The
obligations of the parties set forth in this Section 7(b) shall survive the
Closing and shall not be deemed to be merged into or waived by any instrument of
conveyance delivered at Closing.
(c) Entire Agreement; Amendment. This Agreement, including the
---------------------------
exhibits, schedules and other documents referred to herein or therein or
furnished pursuant hereto or thereto, constitutes the entire agreement among the
parties hereto with respect to the transactions contemplated herein, and
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein. No amendment, modification or
discharge of this Agreement shall be valid or binding unless set forth in
writing and duly executed and delivered by the party against whom enforcement of
the amendment, modification or discharge is sought.
-7-
<PAGE>
(d) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Faxed signatures shall have the same
binding effect as original signatures.
(e) Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claim or disputes relating thereto, shall be governed by
and construed in accordance with the laws of the State of North Carolina
(excluding the choice of law rules thereof) except for actions affecting title
to real property, in which case the laws of the state in which the real property
is located shall apply.
(f) No Third Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties hereto and the Acquirer, and no provision of this
Agreement shall be deemed to confer any benefit on any third party other than
the Acquirer.
(g) Severability. If any provision of this Agreement shall be held
------------
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
(h) Binding Effect. This Agreement shall inure to the benefit of and
--------------
be binding upon the parties hereto and their respective successors and assigns.
(i) Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
--------------------
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ACQUISITION
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE PROVISIONS
OF THIS SECTION 7(j) SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT.
(k) Assignment. The Acquirer may assign its rights and/or obligations
----------
under this Agreement to any Affiliate.
(l) Confidentiality. Guarantor and Tenants agree to keep confidential
---------------
the Cap Rate as defined in the Acquisition Agreement and in this Agreement, and
shall not disclose the Cap Rate to any Person.
(m) Wire Transfer. Guarantor agrees that it shall use best efforts to
-------------
cause the payment of all Rent under the Sonic Leases to be made by one wire
transfer on a monthly basis.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GUARANTOR:
SONIC AUTOMOTIVE, INC.,
a Delaware corporation
By: /s/ Theodore M. Wright
--------------------------------------
Name: Theodore M. Wright
--------------------------------------
Title: Vice President and Chief Financial
Officer
--------------------------------------
ACQUIRER:
CAR MMR L.L.C., a Delaware limited liability
company
By: Capital Automotive L.P., a Delaware
limited partnership,
its Managing Member
By: Capital Automotive REIT,
a Maryland real estate
investment trust,
its General Partner
By: /s/ David S. Kay
-----------------------
Name: David S. Kay
-----------------------
Title: Vice President and
Chief Financial
Officer
-----------------------
TENANTS:
[See Attached Schedule A]
-9-
<PAGE>
EXHIBIT 2.2
CONFIDENTIAL TREATMENT
LIST OF SCHEDULES AND EXHIBITS
------------------------------
*Schedule A Signature Blocks for Tenants
*Schedule 1(a)(i) Litigation
*Schedule 1(a)(ii) Environmental Reports
*Schedule 2(a)(ii) Litigation (Guarantor)
*Exhibit 1(b) Form of Pre-Acquisition Lease Termination
Agreement and Estoppel Certificate
*Exhibit 1(c) Form of Lease Agreement
*Exhibit 2(b) Form of Lease Guaranty
*Omitted. The Registrant agrees to furnish supplementally to the Commission a
copy of any omitted exhibit or schedule upon request.
<PAGE>
EXHIBIT 10.46
LOAN AGREEMENT
BE IT KNOWN, that on this 7th day of July, 1999,
--- ----
BEFORE ME, Margaret S. Kimbrough, a Notary Public, duly commissioned and
---------------------
qualified in and for the District of Columbia, therein residing, and in the
presence of witnesses hereinafter name and undersigned:
PERSONALLY CAME AND APPEARED:
CAR CZ L.L.C., a Delaware limited liability company, CARS-FEN, L.L.C., a
Delaware limited liability company, CAR HDV L.L.C., a Delaware limited liability
company, CAR Alexander L. P., a Delaware limited partnership, Capital Automotive
L. P., a Delaware limited partnership, CAR MOT II, L.L.C., a Delaware limited
liability company, CAR MOT L.L.C., a Delaware limited liability company, CAR AUF
L.L.C., a Delaware limited liability company, CAR I Jackson L.P., a Delaware
limited partnership, and CAR MUL L.L.C., a Delaware limited liability company
(individually, a "Co-Borrower", and collectively with Guarantor (as hereinafter
defined), "Borrower"), whose address is c/o Capital Automotive L. P., 1420
Spring Hill Road, Suite 525, McLean, Virginia 22102, 2298 Crain Highway L.L.C.,
a Maryland limited liability company ("Guarantor", also, a "Co-Borrower"), whose
address is c/o Capital Automotive L. P., 1420 Spring Hill Road, Suite 525,
McLean, Virginia 22102 and Ford Motor Credit Company, a Delaware corporation
("Lender"), whose address is 1000 Abernathy Road, Building 400, Suite 180,
Atlanta, Georgia 30328 ("Lender's Address")
Who all declared to me, Notary, that they hereby enter into this Loan
Agreement on the following terms and conditions:
WHEREAS, each Co-Borrower is or will be the owner of certain real property
consisting of various parcels of land (the "Land"), located in various cities
and states, as more particularly described in Schedule A attached hereto and as
such Schedule A is amended, from time to time; and
WHEREAS, Borrower desires to borrow up to $100,000,000.00 (the "Loan") from
Lender to finance the costs of acquisition of the Property (defined herein), and
the improvements thereon, and other corporate purposes, and Lender desires to
make such loan to Borrower under the terms and conditions specified in this
Agreement and in the Loan Documents (defined herein); and
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants contained herein, Borrower and Lender hereby agree as follows:
1. Definitions. Any terms not otherwise specifically defined herein shall
-----------
have the meaning assigned to such terms in the Loan Documents. As used herein,
the following terms shall have the following meanings:
<PAGE>
(a) Additional Properties. Any additional parcel of land and the
---------------------
improvements located thereon, which Borrower proposes to mortgage to Lender
after the date hereof, as substitute security for the Loan.
(b) Allocated Loan Value. The values designated for each Property on
--------------------
Schedule A attached hereto and as such Schedule A is amended, from time to time.
(c) Closing Date. The date for the closing of the Loan which shall be
------------
mutually satisfactory to Borrower and Lender but in no event later than July 15,
1999.
(d) Deeds of Trust. Collectively, or any one or each, of the Deeds
---------------
of Trust and Assignment of Leases and Rents and Security Agreement (and
Financing Statement and Fixture Filing) and the (Open End) Mortgages and
Assignment of Leases and Rents and Security Agreement (and Financing Statement
and Fixture Filing), executed in multiple counterparts dated as of even date
herewith from any one or more Co-Borrower, as grantor, or mortgagor, as the case
may be, to the trustees named therein, in trust for Lender, as beneficiary, or
to Lender, as mortgagee, as the case may be, which will constitute a first
priority lien on the Properties, subject only to the Permitted Encumbrances.
The term "Deeds of Trust" shall include other deeds of trust and mortgages from
any one or more Co-Borrower, as grantor or mortgagor, as the case may be, to the
trustee named therein in trust for Lender, as beneficiary or to Lender as
mortgagee, as the case may be, hereafter granted in connection with the Loan.
(e) Guaranty: The guaranty, or collectively the guaranties, of even
--------
date herewith, executed by Guarantor guaranteeing the obligations of Borrower
under this Agreement, the Deeds of Trust, the Note and the other Loan
Documents.
(f) Improvements: Any and all improvements to the Land, consisting of
------------
full sales and service automobile dealership facilities and related improvements
thereto, as described in Schedule A attached hereto, explicitly excluding
therefrom any of the right, title and interest in and to the same of any and all
Tenants (as defined in the Deeds of Trust).
(g) Leases: Any and all leases, subleases, licenses, concessions or
------
grants of other possessory interests now or hereafter in force, oral or written,
and all amendments thereto, covering or affecting the Property, or any part
thereof, together with all rights, powers, privileges, options and other
benefits of Borrower thereunder.
(h) Liabilities: The principal of and interest on and all other
-----------
amounts, payments, premiums, advances and other indebtedness of Borrower to
Lender and any and all of the covenants, promises and other obligations of
Borrower to Lender under the Loan Documents, including any amendments,
modifications, renewals and extensions of any of the Loan Documents.
(i) Licenses. All certificates, permits, licenses and other
--------
approvals, governmental or otherwise, necessary for the conduct of Borrower's
business at the Property, including, without limitation, the operation of the
Property pursuant to the Leases.
(j) Loan Documents: This Agreement, the Note, the Deeds of Trust, the
--------------
Hazardous Waste Indemnification Agreement dated as of even date herewith from
Borrower to Lender, the Guaranty, and any and all promissory notes, loan
agreements, guaranties, assignments, and other instruments from Borrower and
others to Lender evidencing the Loan
-2-
<PAGE>
and creating or securing the Liabilities, including any amendments,
modifications, renewals, increases and extensions thereof. Any one of the
foregoing documents may be referred to herein as a "Loan Document".
(k) Maturity Date. The Loan shall mature 12 years less one day after
-------------
the Closing Date.
(l) Non-Compliant Properties. Any Property(ies): (i) at which a
------------------------
violation or asserted violation of any Restrictions, Licenses or Environmental
Laws materially adversely affects the ability of the Tenant of such Property to
conduct business in accordance with its Lease in the manner contemplated by this
Agreement and the other Loan Documents; or (ii) with respect to which the entry
into or the performance of this Agreement, the Loan Documents or any other
instrument executed by Borrower pursuant hereto or thereto will constitute a
violation of any statute, rule or regulation applicable to any Borrower or such
Property.
(m) Note. The Promissory Note, made by Borrower to the order of
----
Lender, in the principal amount of $100,000,000.00, together with all
extensions, renewals, modifications and amendments thereof, secured, in part, by
the Deeds of Trust.
(n) Permitted Encumbrances. The encumbrances described, with
----------------------
particularity, in Schedule B of the Deeds of Trust.
(o) Property(ies). The Land and the Improvements.
-------------
(p) Restrictions. All conditions, restrictions, reservations (whether
------------
or not of record), statutes, regulations and ordinances affecting the Property,
including, without limitation, all pollution control, environmental protection,
zoning and land use regulations, building codes and all restrictions and
requirements imposed by the jurisdictions where the Property is located and all
other governmental entities with respect to the Property and the contemplated
uses of the Property.
2. The Loan. (a) Lender hereby agrees to make, and Borrower hereby agrees
--------
to accept, the Loan under the terms and conditions set forth in this Agreement
and the other Loan Documents. The proceeds of the Loan are to be used by
Borrower to (i) offset a portion of the expenses incurred in connection with the
cost of acquisition of the Property, (ii) finance the acquisition of additional
properties by Borrower or its affiliates, and (iii) general corporate purposes.
(b) The Loan shall be evidenced by the Note, and payment of the Loan
will be secured by the Loan Documents. Reference is hereby made to the Note and
the Loan Documents for particulars relating to the Loan, which provisions are
incorporated herein by this reference.
(c) All payments of principal and interest on the Loan shall be made
without the right of set-off and without deduction of any present and future
taxes, levies, duties, imposts, deductions, charges or withholdings imposed by
any existing or future law, rule, regulation, treaty, directive or requirement
whether or not having the force of law, which amounts shall be paid by Borrower.
Borrower will pay the amounts necessary such that the gross amount of the
principal and interest received by Lender is not less than that required by this
Agreement and the Loan Documents. All stamp and documentary taxes shall be paid
by Borrower. If, notwithstanding the foregoing, Lender pays such taxes (which
Lender shall not do
-3-
<PAGE>
unless and until Borrower fails to do the same within thirty (30) days after
written notice from Lender), Borrower will reimburse Lender for the amount paid,
within five (5) days of Lender's demand for payment. Upon Lender's written
request from time to time, Borrower will furnish Lender official tax receipts or
other evidence of payment of all such amounts.
3. Representations and Warranties of Borrower. As of the date first above
------------------------------------------
written, Borrower hereby represents and warrants to Lender as follows:
(a) Organization; Existence. Borrower is duly organized and validly
-----------------------
existing under the laws of its state of organization.
(b) Authority. Borrower has the power and authority to execute and
---------
deliver this Agreement, the Loan Documents and all other documents and
instruments required hereunder to be executed by Borrower and to comply with the
terms hereof and thereof. All of such documents have been duly authorized,
executed and delivered by Borrower and constitute the legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms,
except as the enforceability thereof may be limited by (i) bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally, and (ii) general equitable principals (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(c) Title. On or before the Closing Date, each Co-Borrower, as the
-----
case may be, has, or will have, good and marketable (or, in the case of
Properties located in the State of Texas, indefeasible) title to the
Properties, subject only to the Permitted Encumbrances.
(d) Restrictions. Borrower is familiar with the "Restrictions", and
------------
has obtained, or will be able to obtain, or will cause the Tenants to obtain,
all permits, approvals, consents and other authorizations necessary under the
Restrictions to enable business to be conducted on the Property in accordance
with the Leases and in the manner contemplated by this Agreement and the other
Loan Documents. As of the date hereof, to the best of Borrower's knowledge, and
except at Non-Compliant Properties, there is no violation or asserted violation
of any Restrictions or the existing or contemplated use thereof. Borrower is
not aware of any action or proceeding pending or threatened before any court or
governmental agency with respect to the validity of any Restrictions or any
permit, approval, consent or other authorization necessary under or in
connection therewith.
(e) Financial Statements. All financial statements delivered to
--------------------
Lender concerning Borrower fairly and accurately present their financial
condition and have been prepared in accordance with generally accepted
accounting principles, and there are no contingent liabilities not disclosed
thereby which would materially adversely affect the financial condition of
Borrower. Since the close of the period covered by the latest financial
statement delivered to Lender with respect to Borrower, there have been no
material adverse changes in any of their assets, liabilities or financial
condition. No event has occurred, including, without limitation, any litigation
or administrative proceedings, and no condition exists or, to the knowledge of
Borrower, is threatened, which (i) might render Borrower unable to perform its
obligations hereunder or under the Loan Documents or any other document
contemplated herein or therein, (ii) constitutes or, after notice or lapse of
time or both, would constitute an Event of Default, or (iii) might materially
adversely affect the validity or priority of the lien of the Deeds of Trust or
the financial condition of Borrower.
-4-
<PAGE>
(f) No Violation. Borrower is not in violation of any agreement or
------------
instrument to which it is a party or to which any of its property is subject or
of any judgment, decree, order, franchise or permit applicable to Borrower, nor
has Borrower (except for Capital Automotive L.P.) received any written notice
that it is in violation of any statute, rule or regulation applicable to its
Property, nor has Capital Automotive L.P. received any written notice that it is
in violation of any statute, rule or regulation applicable to its property.
Neither the entry into nor the performance of this Agreement, the Loan Documents
or any other instrument executed by Borrower pursuant hereto or thereto will:
(i) result in any violation of, or be in conflict with, or result in the
creation of, any mortgage, deed of trust, lien or encumbrance (other than those
contemplated in this Agreement) upon any of the properties or assets of Borrower
pursuant to, or constitute a default under, any mortgage, deed of trust,
indenture, contract, agreement, or instrument to which Borrower is a party or to
which any of its property is subject, or (ii) constitute a violation of any
permit, judgment, decree or order applicable to Borrower, or (iii) constitute a
violation of the articles of incorporation, articles of organization, limited
partnership certificate, bylaws, operating agreement, partnership agreement,
trust agreement or any other corporate governance document applicable to any
Borrower or its operations; or (iv) to the best of Borrower's knowledge, and
except with respect to Non-Compliant Properties and the Borrowers owning such
Properties, constitute a violation of any statute, rule or regulation applicable
to any Borrower or any Property.
(g) Condemnation. No taking of the Properties or any part thereof
------------
through eminent domain, conveyance in lieu thereof, condemnation or similar
proceeding is pending or, to the knowledge of Borrower, threatened by any
governmental agency, except as shown on Schedule C attached hereto.
(h) Actions. There is no action, proceeding or investigation pending
-------
or threatened (or any basis therefor) which questions, directly or indirectly,
the validity of the Agreement, the Loan Documents or any other document
pertaining to the Loan or any action taken or to be taken pursuant hereto or
thereto, or which affects Borrower or to the best of Borrower's knowledge, the
Property, or which could result in forfeiture of the Property.
(i) Legality. Borrower is engaged in no illegal activities and the
--------
intended use of the proceeds of the Loan is for legally permitted uses.
(j) Brokers. Borrower and Lender have not dealt with any person,
-------
firm or corporation who is or may be entitled to any finder's fee, brokerage
commission, loan commission or other sum in connection with the Loan. Borrower
and Lender hereby agree to indemnify and defend each other and hold each other
harmless against any and all loss, liability, cost or expense, including
reasonable attorneys' fees, which the other may suffer or sustain should such
warranty or representation prove inaccurate in whole or in part.
(k) Statements. Neither this Agreement, the Loan Documents nor any
----------
document, certificate or statement furnished to Lender by Borrower, its agents
or employees, in connection with the Loan, Borrower or the Property, whether or
not referred to herein, contains any material misrepresentation or omits to
state a material fact.
(l) Hazardous Materials. Except as disclosed in the Environmental
-------------------
Reports (as hereinafter defined), no release (a "Release") of any Hazardous
Materials has occurred which has not been remediated in compliance with
applicable law, on the Land, and Borrower has not received any notice from any
governmental agency or from any Tenant under a Lease or from any other party
with respect to any such Release. Except as disclosed in the Environmental
Audit Reports, and except for Non-Compliant Properties, each Property complies
with all laws,
-5-
<PAGE>
rules, regulations and orders relating to industrial hygiene and/or
environmental conditions, including soil and ground water conditions, and all
laws, rules, regulations and orders relating to the use, generation and storage
of Hazardous Materials on, under or about the Property ("Environmental Laws").
To the knowledge of Borrower, no Hazardous Materials are manufactured or
disposed on the Property, except in accordance with applicable law.
(m) Existing Leases and Contracts. Other than the leases listed in
-----------------------------
Schedule A attached hereto, there are no leases, or, to the knowledge of
Borrower, subleases affecting the Property. There are no contracts or agreements
to which Borrower is a party, affecting the use, operation or maintenance of the
Property other than (i) the management agreement(s) between Borrower and Capital
Automotive L.P., (ii) documents of record, (iii) agreements to which Lender is a
party, and those expressly referred to in this Agreement.
(n) Non-Foreign Entity; Tax Identification Number. Section 1445 of
---------------------------------------------
the Internal Revenue Code of 1986, as amended (the "Code"), provides that a
transferee of a real property interest in the United States must withhold tax
if the transferor is a foreign person. To inform Lender that the withholding of
tax will not be required in the event of a disposition of the Property pursuant
to the terms of this Agreement and the Deeds of Trust, Borrower hereby certifies
that it is not a foreign person, foreign corporation, foreign partnership,
foreign trust or foreign estate (as such terms are defined in the Code and the
regulations promulgated thereunder) and that its principal place of business is
at the address set forth for notices to Borrower in the Deeds of Trust. The tax
identification number of each Co-Borrower is listed in Schedule A attached
hereto. It is agreed that Lender may disclose the contents of this
certification to the Internal Revenue Service.
(o) Insurance. All insurance coverages required to be obtained and
---------
maintained pursuant to the Leases have been obtained and are in full force and
effect, and such insurance satisfies the requirements as set forth in Section 4
(h) hereof.
(p) Licenses. Borrower has obtained, or will be able to obtain, or
--------
will cause the Tenants to obtain, all Licenses necessary to enable business to
be conducted on the Property in accordance with the Leases and in the manner
contemplated by this Agreement and the other Loan Documents. As of the date
hereof, to the best of Borrower's knowledge, and except with respect to the Non-
Compliant Properties, all Licenses are in full force and effect and there is no
violation or asserted violation of any License.
(q) Allocated Loan Value of Non-Compliant Properties. The aggregate
------------------------------------------------
Allocated Loan Value of all Non-Compliant Properties is less than
$10,000,000.00.
4. Conditions Precedent to Funding the Loan. Lender's obligation to fund
----------------------------------------
the Loan, is subject to each of the following conditions being satisfied prior
to the Closing Date:
(a) Amount of the Loan. The amount of the Loan shall be the lesser of
------------------
$100,000,000.00 or 74.32% of the lesser of the Historical Cost or Adjusted
Appraised Value of the Properties. The "Historical Cost" shall mean the most
recent purchase price for a Property in an unrelated arms-length transaction, as
evidenced by documentation satisfactory to Lender. The "Adjusted Appraised
Value" shall mean the value of the Properties, as determined by M.A.I.
appraisals (addressed to Lender or subject to a reliance letter from the
appraiser), dated within one year of submission of such appraisal(s) to Lender,
and adjusted by Lender, in its sole discretion. The amount advanced under the
Loan shall be determined in accordance with the provisions set forth in the Loan
Documents and described herein.
-6-
<PAGE>
(b) Loan Documents. Borrower shall have executed and delivered to
--------------
Lender this Agreement, the Note, the Deeds of Trust, a financing statement or
statements in form and substance satisfactory to Lender and all other Loan
Documents required by Lender.
(c) Environmental Audit Report. Borrower shall have delivered to
--------------------------
Lender and Lender shall have approved a written report prepared by a consultant
or other person acceptable to Lender relating to the presence of Hazardous
Materials in, on or around the Property (the "Environmental Audit Report"), and
confirming that all Hazardous Materials described in such report have been
mitigated in accordance with the requirements of any applicable government
agency.
(d) Entity Documents. Borrower shall have delivered to Lender and
----------------
Lender shall have approved:
(i) Entity Documentation. Certified copies of Borrower's
--------------------
operational and organizational documents recorded in the official records of the
counties, if required, where the Property is located and the Secretary of State
(or equivalent authority) of organization and operation, together with certified
copies of any amendments thereto.
(ii) Authority. Copies of all necessary actions taken by Borrower
---------
to authorize the execution, delivery and performance by Borrower of this
Agreement, the Note, the Deeds of Trust and all other Loan Documents.
(e) Recordation and Title Policy. All Deeds of Trust on the Property
----------------------------
shall have been duly executed by Borrower and Lender shall have received the
title policy or policies, or a marked commitment(s) in form and substance
acceptable to Lender evidencing the title company's irrevocable commitment to
issue the insurance therein described, which must have a liability in the amount
of the Loan, with allocated loan value for each Property (based on 100% of the
lesser of the Historical Cost or Adjusted Appraised Value for aggregated
policies and 125% of the lesser of the Historical Cost or Adjusted Appraised
Value for non-aggregated policies), as determined by Lender in its sole
discretion, insuring, as of the effective date of such title policy, that fee
simple title to the Property is vested in Borrower, and that the lien of such
Deeds of Trust are a valid first priority lien on the Property, subject only to
the Permitted Encumbrances acceptable to Lender in its sole discretion, and
containing the following endorsements, to the extent available by law in a given
jurisdiction (the "Endorsements"):
(i) Comprehensive Endorsement (form ALTA 9 or equivalent);
(ii) ALTA form 3.1 Zoning Endorsement (or equivalent) (or opinion of
counsel or other evidence acceptable to Lender in its sole
discretion, in lieu thereof);
(iii) Truth in Lending Endorsement;
(iv) Usury Endorsement;
(v) Tie-in Endorsement;
(vi) Survey Endorsement;
-7-
<PAGE>
(vii) Last Dollar Endorsement;
(viii) Aggregation Endorsement;
(ix) Tax Parcel Endorsement;
(x) Contiguity Endorsement;
(xi) Endorsement eliminating the Creditor's Rights Exception;
(xii) Access;
(xiii) Endorsement providing affirmative coverage over the Leases;
and
(xiv) Such additional endorsements as may be reasonably required by
Lender based upon its review of the title policy and survey (the "Title
Policy").
(f) UCC Filings. Lender shall have received and approved a search
-----------
of the records of the filing office in the state and county where each Property
is located and in the state where each Borrower is organized showing all
financing statements and fixture filings.
(g) Compliance With Loan Documents. All of the representations and
------------------------------
warranties of Borrower in Section 3 hereof shall be true and correct, and
Borrower shall be in compliance with all applicable covenants set forth in
Section 6 hereof, and Lender shall have received such documents and opinions as
it may request regarding the substance thereof. All documents and materials
required by Lender shall be satisfactory in form and substance to Lender.
(h) Insurance. Borrower shall have delivered to Lender, and Lender
---------
shall have approved, insurance binders, policies or certificates evidencing the
obtaining and premium payment of all policies of insurance required by the Deeds
of Trust, and as follows:
(i) During the term of the Loan, the Improvements shall be
insured against physical damage under policies issued by companies satisfactory
to Lender containing endorsements naming Lender as mortgagee and additional
insured under a standard mortgagee clause acceptable to Lender and insuring the
replacement cost of the Improvements. Such policies shall be in amounts not less
than full replacement cost of the Improvements, full replacement cost being the
cost of replacing the Improvements exclusive of the cost of excavation,
foundations and footings below the lowest basement floor, less physical
depreciation of the Improvements, and subject to a maximum deductible of $25,000
per occurrence.
(ii) Borrower shall obtain liability coverage satisfactory to
Lender, including public liability coverage for the project in minimum amounts
of $3,000,000.00.
(iii) If the Improvements are located in a flood-prone area as
designated by HUD, Borrower shall obtain and maintain flood insurance in an
amount equal to the lesser of the principal amount of the Loan or the maximum
limit of coverage available for the Property under the National Flood Insurance
Program.
-8-
<PAGE>
(i) Financial Condition. Lender shall have given final approval of
-------------------
the financial condition of Borrower.
(j) Commitment Fee. The commitment fee (the "Commitment Fee") in the
--------------
amount of $500,000.00 shall be paid by Borrower.
(k) Survey. Lender shall have received with respect to each Property,
------
an ALTA (or equivalent) survey of the Land and Improvements prepared by a
licensed surveyor or civil engineer reasonably satisfactory to Lender and the
Title Company in conformance with the requirements set forth in the then-
applicable ALTA/ACSM (or equivalent) Minimum Standard Requirements, including
Items 1-4, 6-11 and 13 of Table A, and including, but not limited to, whether
the Property is located in an area identified as a flood plain area as defined
by the U.S. Department of Housing and Urban Development pursuant to the Flood
Disaster Protection Act of 1973.
(l) Evidence of Compliance. Evidence of compliance with the
----------------------
Restrictions, including, without limitation, evidence that (1) each parcel of
the Land is a legal and separate lot under any applicable subdivision acts and
for tax assessment purposes, and (2) Borrower has complied with all building and
zoning Restrictions.
(m) Leases. Borrower shall have delivered to Lender, and Lender shall
------
have approved copies of all Leases, as amended, of the Property, which Leases
shall be subordinated to the Lender's mortgage or deed of trust pursuant to
Subordination and Non-Disturbance Agreements satisfactory to Lender. Lender's
approval of the Leases and the Tenants under such Leases shall be in Lender's
sole and absolute discretion. Borrower shall deliver to Lender the following
documents for each Property, and with respect to each Tenant, to assist Lender
in its review of the Leases and Tenants:
(i) Certified statement from Borrower, setting forth the purchase
price of each Property, which shall be subject to verification by Lender of
Borrower's purchase agreements and all due diligence performed by Borrower
pursuant thereto;
(ii) Copies of Tenant's financial statements provided to the
Borrower, prepared as of (i) the end of the month or quarter, as the case may
be, immediately preceding the execution of the purchase agreement (the "Purchase
Agreement") by and between Borrower or its affiliate, as purchaser and Tenant or
its affiliate as seller, for the acquisition of the Property, and (ii) the end
of the year for the two years immediately preceding the execution of the
Purchase Agreement for the acquisition of the Property; and the Tenant's
statements of profit and loss for such periods; and
(iii) Such other financial or other statements respecting the
condition, operation and affairs of tenant and its property as Lender may from
time to time reasonably request and are provided for in the applicable lease.
(n) Property Inspection Report. Borrower shall have delivered to
--------------------------
Lender, and Lender shall have approved, copies of the report(s) addressed to
Borrower (and subject to reliance letters from the inspector), dated within one
year of the Closing Date, detailing the construction of the Improvements and the
condition of the systems located thereon, performed by an engineer acceptable to
Lender, and identifying all deferred maintenance and the cost to remediate such
deferred maintenance.
-9-
<PAGE>
(o) Inspection of Property by Lender. Subject to the terms of the
--------------------------------
leases, Lender shall be allowed, at Lender's expense, to conduct an on-site
inspection of all Properties prior to the Closing Date and the results of such
inspections must be satisfactory to Lender in its sole and absolute discretion.
Borrower shall make all appointments for the inspections at mutually agreeable
times; and, at Borrower's expense, Borrower's representative shall accompany
Lender during such on-site inspections.
(p) No Damage. No part of the Improvements shall have been materially
---------
injured or damaged by fire or other casualty unless Lender shall have received
insurance proceeds sufficient in its judgment to effect the satisfactory
restoration thereof.
(q) No Material Adverse Change. There shall have occurred no material
--------------------------
adverse change in the condition of Borrower or in the Property, and no event
shall have occurred which will give Lender reasonable cause to believe that the
Borrower cannot carry out the terms of this Agreement and the Loan Documents.
(r) Compliance With Loan Documents. The representations and
------------------------------
warranties of Borrower set forth in Section 3 hereof shall be true and correct
in all respects, Borrower shall be in compliance with all applicable conditions
set forth in Section 4 and all applicable covenants set forth in Section 8
hereof and, if requested by Lender, Borrower shall have delivered a certificate
to such effect together with any corroborating materials as Lender shall
request. No Event of Default, or event which with notice or lapse of time or
both, would become an Event of Default, shall then exist.
(s) Legal Advance. The funding of the Loan shall be legally
-------------
permissible under the laws and regulations to which Lender is subject and
Borrower shall have delivered to Lender such factual certificates or other
evidence as Lender or its counsel may reasonably request in order to establish
compliance with this condition.
(t) Expenses. Borrower pays all of Lender's expenses, on the
--------
Closing Date, related to the closing of the Loan including but not limited to
appraisal fees, escrow fees, recording fees and taxes, environmental reports,
legal fees and expenses and title insurance premiums; provided, however, that
legal fees and expenses of Lender in connection with the initial closing of the
Loan shall not exceed $150,000.00 in the aggregate.
(u) Conditions Solely for the Benefit of Lender. All conditions of
-------------------------------------------
Lender's obligation to fund the Loan are solely for the benefit of Lender, its
successors and assigns. No other person shall have standing to require
satisfaction of any condition, and no other person shall be deemed a beneficiary
of any condition or have any right to rely on any determination made by Lender,
any and all of which may be freely waived in whole or in part by Lender in
Lender's sole discretion.
(v) Other. Any other information or material relating to the
-----
Property as requested by Lender.
5. Substitution and Release of Property. During the term of the Loan,
------------------------------------
Lender will release its lien on any individual Property provided the following
conditions are met:
(a) Prior to such release, Borrower provides Lender 60 days advance
written notice of its request to have a certain Property released;
-10-
<PAGE>
(b) Borrower pays a release fee, on the date on which the Property is
released, equal to .25% of the then allocated portion of the Loan for the
Property to be released;
(c) The value of the released Property, together with all other
released Properties during the term of the Loan, shall not exceed 25% of the
total original appraised value of all Properties securing the Loan;
(d) Prior to such release, at Lender's request, Borrower shall
deliver to Lender supplemental information that addresses what effect the
requested release might have on the remaining Properties, the operations
thereon, or any uses thereof (including public utilities, public access roads
and the automobile dealerships), and Lender shall be reasonably satisfied that
the release will have no adverse effect on the remaining Properties;
(e) At the time of such partial release, Borrower shall deliver to
Lender an endorsement to the Title Policy insuring Lender's first lien granted
under the mortgage or deed of trust securing such Property, in form and
substance satisfactory to Lender, assuring that Lender's first lien remains in
full force and effect, subject only to the Permitted Encumbrances, and is in no
way adversely affected by such release, and remains in the full Loan amount;
(f) Prior to such partial release, Borrower shall provide evidence
reasonably acceptable and satisfactory to Lender demonstrating that the
requested release will not violate any local, state or other governmental plat
act or other governmental regulatory restriction, or any covenant, condition,
restriction, limitation, zoning or other requirement applicable to the Property
or any portion thereof;
(g) There exists no Event of Default under the Loan;
(h) Borrower shall pay Lender's out of pocket expenses related to any
such partial release, including but not limited to, escrow fees, legal fees and
expenses, appraisal fees, recording fees and endorsements to Lender's title
policy; and
(i) Borrower provides an Additional Property(ies) of greater or equal
value of the Property to be released which meets all the criteria to qualify as
a "Property" under the Loan, acceptable to Lender in its sole discretion. Lender
shall determine whether such Additional Properties are acceptable, in its sole
discretion. Borrower shall be required, at its expense, to furnish to Lender all
the items listed in Section 4, with respect to the proposed Additional
Property(ies), all of which shall be in form and substance satisfactory to
Lender. When (1) Lender has received all of the foregoing, and any other items
it reasonably requires, with respect to the Additional Property(ies) and all
conditions have been satisfied; (2) Lender has determined, in its sole
discretion that the Additional Property(ies) satisfy all conditions herein, and
(3) the Title Company is unconditionally obligated to insure Lender's deed of
trust on the Additional Property(ies) as a first lien subject only to Permitted
Encumbrances acceptable to Lender, each such Additional Property shall be deemed
a "Property" and a part of the "Properties" under the terms of the Loan and the
other Loan Documents. All covenants and conditions contained in the Loan
Documents relating to the Properties initially mortgaged to secure the Loan
shall apply to such Additional Properties. All appraisal fees, reasonable legal
fees, recording costs, taxes and documentary stamps, abstracting and title
insurance premiums and cost, survey charges, and other costs incurred in
connection with the adding of such Additional Properties to the Properties shall
be paid by Borrower as a condition of Lender's acceptance of the Additional
Property(ies) as Properties.
-11-
<PAGE>
(j) If the Additional Property(ies) is accepted as a Property under
the Loan and the owner thereof is not a Borrower hereunder, such owner shall
become a Borrower hereunder by executing and delivering a Joinder Agreement, in
the form attached hereto as Schedule B.
6. Covenants of Borrower. In addition to the covenants contained
---------------------
elsewhere in this Agreement and in the other Loan Documents, Borrower agrees as
follows:
(a) Additional Indebtedness. During the term of the Loan, the
-----------------------
entities comprising Borrower other than Capital Automotive L.P. shall not create
or permit to exist any indebtedness, without the prior written consent of
Lender.
(b) Restrictions of Management Fees. During the term of the Loan,
-------------------------------
without the prior written consent of Lender, no Co-Borrower shall (i) pay or
incur management fees in excess of 1% of rental income on each Property financed
by Lender under the Loan, which management fees shall be subordinated to Lender,
or (ii) enter into a management agreement for the management of the Properties.
(c) Minimum Debt Service Coverage Ratios. On the Closing Date,
------------------------------------
Borrower shall maintain a minimum aggregate debt service coverage ratio for
Properties financed by Lender under the Loan of 2.0:1 (total annual rental
income, less management fees, on Lender financed Properties divided by total
annual debt service on the Loan).
(d) Maximum Debt to Asset Ratio. During the term of the Loan, Capital
---------------------------
Automotive REIT, a Maryland real estate investment trust ("CARS") shall maintain
a maximum aggregate debt to asset ratio of 65% (total debt less payables and
accruals divided by the value of all real estate assets plus real estate
depreciation and amortization).
(e) Junior Financing. During the term of the Loan, Borrower shall
----------------
not create or permit to exist any liens on or security interests in the Property
or any other property on which Lender has a lien to secure the Loan, and shall
not enter into a lease of all or any portion of the Property, which is outside
the leasing criteria to be agreed upon between Borrower and Lender, without the
prior written consent of Lender, provided, however, if a Lease requires the
consent of Borrower, subject to the prior written consent of Lender, Tenants
may mortgage their leasehold interest, provided such mortgages do not require
subordination of Borrower's fee interest in the Property. Borrower shall not
agree to any mortgage, hypothecation, pledge, encumbrance or transfer by Tenant
without Lender's consent, such consent not to be unreasonably conditioned,
withheld or delayed.
(f) Due on Sale. In the event of (i) any lease of one year or longer
-----------
(other than the Leases), sale, transfer, assignment, agreement for deed,
conveyance, hypothecation or encumbrance, whether voluntary or involuntary, of
all or any part of the Property or any interest therein, or (ii) without the
prior written consent of Lender (which consent shall not be unreasonably
withheld, conditioned or delayed), any sale, assignment, pledge, encumbrance or
transfer to a third party of more than 20% of the corporate voting stock of
Borrower, if such entity is a corporation, or more than 20% of the partnership
interests of Borrower, if such entity is a partnership, or more than 20% of the
ownership interests of Borrower, if such entity is a limited liability company
or other form of ownership organization, or (iii) without the prior written
consent of Lender, CARS (or a wholly owned corporate subsidiary of CARS) shall
fail to be the sole General Partner of Capital Automotive L.P., a Delaware
limited partnership, or Capital Automotive L.P. (or a wholly owned corporate
subsidiary of CARS) shall fail to be the general partner or manager of Borrower,
or the manager of the general partner of Borrower, or (iv) the
-12-
<PAGE>
seizure of the Property or attachment of any lien on the Property, whether
voluntary or involuntary, in an aggregate amount in excess of $2,500,000.00 for
all Properties, which has not been removed or bonded off to Lender's
satisfaction within 60 days of such attachment, then and in such event Lender
may, by written notice to Borrower, accelerate and declare the principal balance
of the Loan and interest accrued thereon immediately due and payable. Borrower
shall notify Lender promptly in writing of any transaction or event that may
give rise to a right of acceleration hereunder.
(g) Use of Property. If for any reason the Property ceases to be used
---------------
primarily as an automobile dealership facility for the sale and/or service of
both new and used automobiles, or such other use permitted by Lender as of the
Closing Date ("Permitted Use"), immediately upon Borrower receiving notice of
such event, Borrower shall immediately provide notice to Lender, and the
following provisions shall govern:
(i) Lease not in Default. If no other default exists under the
--------------------
Co-Borrower's Lease, and so long as the aggregate debt service coverage ratio
with respect to the Loan is 1.5 to 1 or greater at all times during which the
Property ceases to be operated as a Permitted Use, the failure of the Property
to be so operated for a period not to exceed 24 months (and in the case where a
Property is non-conforming use, for a period not to exceed the period of time
allowed under the zoning regulations applicable thereto to maintain the use
variance for such Property) from the cessation of the Permitted Use, shall not
constitute an Event of Default hereunder. Subject to the foregoing conditions,
at the expiration of such 24 month period Borrower shall take one of the actions
in sub-paragraph (iii) below.
(ii) Lease in Default. If the Tenant for such Property is in
----------------
default under its Lease (other than a violation of the Permitted Use), Borrower
shall take one of the actions in sub-paragraph (iii) below.
(iii) Borrower's Action. Borrower shall take one of the
-----------------
following actions, in the following order of preference: (A) re-let the Property
within 12 months, to a tenant and for a lawful use that does not diminish the
value of the Property, such tenant and use to be satisfactory to Lender in its
sole reasonable discretion, (B) substitute an Additional Property for the
Property in accordance with Section 5 (Section 5 (b) and 5 (c) herein shall not
be applicable to any such substitution hereunder), or (C) pay to the Lender, in
reduction of the principal balance of the Loan, an amount equal to the then
allocated portion of the Loan associated with such Property, plus any prepayment
consideration required pursuant to the Note.
(iv) Lender's Action. If Borrower fails to take any of the
---------------
actions in sub-paragraph (iii) above, Lender may, at its option, declare a
default under the Loan and declare the unpaid portion of the Loan immediately
due and payable.
(h) Insurance. (i) During the term of the Loan, the Improvements
---------
shall be insured against physical damage under policies issued by companies
satisfactory to Lender containing endorsements naming Lender as mortgagee and
additional insured under a standard mortgagee clause acceptable to Lender and
insuring the replacement cost of the Improvements. Such policies shall be in
amounts not less than full replacement cost of the Improvements, full
replacement cost being the cost of replacing the Improvements exclusive of the
cost of excavation, foundations and footings below the lowest basement floor,
less physical depreciation of the Improvements, and subject to a maximum
deductible of $25,000 per occurrence.
-13-
<PAGE>
(ii) Borrower shall obtain liability coverage satisfactory to
Lender, including public liability coverage for the Property in minimum amounts
of $3,000,000.00.
(iii) If the Improvements are located in a flood-prone area as
designated by HUD, Borrower shall obtain and maintain flood insurance in an
amount equal to the lesser of the principal amount of the Loan or the maximum
limit of coverage available for the Property under the National Flood Insurance
Program.
(i) Insurance and Condemnation Proceeds. The following provisions
-----------------------------------
shall apply to the application of insurance and condemnation proceeds payable in
respect of any Property:
(i) Insurance Proceeds.
------------------
(A) Lease Allows Termination. If the Lease allows Tenant to
------------------------
terminate the Lease upon occurrence of a casualty event, and the Lease is
terminated in accordance with its terms, Borrower at its sole discretion may
substitute an Additional Property, in accordance with Section 5 hereof (Section
5 (b) and 5 (c) herein shall not be applicable to any such substitution
hereunder), and if Borrower elects, not to substitute an Additional Property,
then, at Lender's sole option, (1) that portion of the insurance proceeds equal
to the Allocated Loan Value for the Property shall be used to reduce the
outstanding principal balance of the Loan (such payment shall not be subject to
the prepayment premium), with the balance being payable to Borrower and such
Property shall be released from the Deed of Trust, or (2) all insurance
proceeds shall be used to restore the Improvements. If insurance proceeds are
less than the Allocated Loan Value for the Property, Borrower shall pay to
Lender the difference between the amount of the insurance proceeds and the
Allocated Loan Value.
(B) Lease Requires Restoration. If the Lease requires Tenant to
--------------------------
restore the Improvements after a casualty, insurance proceeds will be made
available to Borrower, in accordance with Lender's then current construction
loan disbursement procedures.
(ii) Condemnation Proceeds.
---------------------
(A) Full Condemnation. In the event of a full condemnation of a
-----------------
Property, or partial condemnation which allows Tenant to terminate the Lease and
the Lease is terminated in accordance with its terms, at Borrower's option, (1)
that portion of condemnation proceeds equal to the Allocated Loan Value for the
Property, shall be used to reduce the reduce the outstanding principal balance
of the Loan (such payment shall not be subject to the prepayment premium) with
the balance being payable to Borrower and such Property shall be released from
the Deed of Trust, or (2) all condemnation proceeds shall be remitted to
Borrower provided Borrower substitutes an Additional Property in accordance with
Section 5 herein (Section 5 (b) and 5 (c) herein shall not be applicable to any
such substitution hereunder). In the event Borrower elects (1) above and
condemnation proceeds are less than the Allocated Loan Value for the Property,
Borrower shall pay to Lender the difference between the amount of the
condemnation proceeds and the Allocated Loan Value.
(B) Partial Condemnation. In the event of a partial condemnation,
--------------------
where the value of the condemned portion of the Property is finally determined
to be $200,000.00 or less, and provided the aggregate of the condemned portion
of all Properties at any given time does not exceed $2,000,000.00, and further
provided such partial condemnation
-14-
<PAGE>
does not impair the use of Improvements or ingress or egress to the Property,
condemnation proceeds shall be made available to Borrower for restoration of the
Improvements, if impaired.
(C) Partial Condemnation in Excess of the Amounts Specified in
----------------------------------------------------------
Subparagraph (B). In the event of a partial condemnation, where the value of
- ----------------
the condemned Property is in excess of the limitation set forth in subsection
(B) above, and such partial condemnation does not impair the use of the
Improvements or ingress or egress to the Property, the condemnation proceeds
shall be made available to Borrower for restoration of the Improvements if
impaired, in accordance with Lender's then current construction loan
disbursement procedures.
(iii) Costs and Expenses. In addition to any amounts Borrower is to
------------------
pay under this Section 6 (i), Borrower shall reimburse Lender for Lender's out
of pocket expenses and reasonable attorneys' fees incurred in connection with
collecting the condemnation proceeds and insurance proceeds, and such amount
shall not reduce any amounts payable to Lender under this Section 6 (i).
(j) Financial Statements. During the term of the Loan, both
--------------------
Borrower and CARS will maintain full and complete books of account and other
records reflecting the results of its operations (in conjunction with its other
operations as well as its operation of the Property), in accordance with
generally accepted accounting principles, and furnish or cause to be furnished
to Lender such financial data as Lender shall, from time to time, reasonably
request with respect to Borrower and the ownership and operation of the
Property, and Lender shall have the right, at reasonable times and with
reasonable notice, to audit Borrower's and CARS' books of account and records.
(k) Inspection; Books and Records. Borrower shall keep, at its
-----------------------------
principal place of business or cause the Tenants under the Leases to keep, at
the Property, the records, books of accounting and all other documents, reports
and papers relating to the use and operation of the Improvements. Subject to
the terms of the Leases, Lender shall be entitled, at any reasonable time, to
inspect the Property (including, without limitation, inspections to determine
the existence of Hazardous Materials thereon and the compliance of the Property
and its use with any law, rule or regulation relating to industrial hygiene or
environmental conditions, including soil and ground water conditions and the
compliance of the Borrower and the Property with the conditions and covenants
set forth herein and the Loan Documents with respect to Hazardous Materials),
all records relating to the Property, and the books and other financial records
of Borrower and Borrower shall cooperate with Lender in enabling Lender to
accomplish such inspection and permit Lender to make such copies as Lender may
request. This authority is for Lender's protection only and Lender shall not be
deemed to have assumed any responsibility to Borrower or any third party as a
result of any such action.
(l) Compliance with Restrictions, Laws and Contracts. The Property
------------------------------------------------
shall be maintained in compliance in all material respects with all applicable
Restrictions. Borrower shall not violate any law of any nature that could
result in the forfeiture of all or any portion of the Property. Borrower shall
comply with the material terms of all contracts entered into by Borrower
relating to the Property and the use and operation of the Improvements
(collectively, "Contracts"). Borrower will not amend any of the Contracts
without the prior written consent of Lender and will not terminate any of the
Contracts or accept a surrender thereof or waive, excuse, condone or in any
manner release or discharge any party to any of the Contracts from the
obligations and agreements of such party to be performed thereunder without the
prior written consent of Lender.
-15-
<PAGE>
(m) Title Exceptions. Borrower shall not impose any restrictive
----------------
covenants, easements, rights of way or encumbrances upon the Property without
the prior written consent of Lender. Notwithstanding the foregoing, Lender's
consent shall not be required for the imposition of any utility easements, or
other easements and encumbrances required by law or local authorities, or
necessary for the continued lawful use and operation of the Property, provided
such easements and encumbrances do not materially adversely affect the value of
the Property and do not contain any continuing maintenance or expense
obligations on the part of Borrower. Lender shall join in, and otherwise
reasonably cooperate with the imposition of any restrictions, the imposition of
which it approves or for which its approval is not required, at no cost to
Lender.
(n) Injunction Defense and Notice. If any proceedings are filed
-----------------------------
seeking to enjoin or otherwise prevent or declare invalid or unlawful the
occupancy, maintenance or operation of the Property or any portion thereof,
Borrower, upon receiving written notice of the same, will give prompt written
notice thereof to Lender and will cause such proceedings to be vigorously
contested in good faith and, in the event of any adverse ruling or decision,
prosecute all allowable appeals.
(o) Publicity and Advertisement. Subject to the terms of the Leases
---------------------------
(and any other confidentiality agreements with the Tenants or their affiliates)
and Borrower's prior written consent (which consent shall not be unreasonably
withheld, conditioned or delayed), (i) Borrower shall permit Lender to publicize
its involvement in the Property, and (ii) Borrower shall consent to the taking
of photographs and the publication thereof.
(p) Further Assurances. Borrower will, at the request of Lender,
------------------
execute, deliver and furnish such documents or take such further action as
Lender may deem reasonably necessary or desirable to evidence the Loan, perfect
the security therefor, or otherwise carry out the terms of this Agreement and
any of the other documents delivered to Lender in connection herewith.
(q) No Further Liens. All equipment, personal property, fixtures and
----------------
other property subject to the lien of the security interest granted to Lender in
the Deeds of Trust shall be fully paid for by Borrower and no security interest,
lien or other encumbrance, other than that granted to Lender and the Permitted
Encumbrances, shall exist thereon.
(r) Removal of Liens. If at any time an encumbrance, lien or charge
----------------
is placed or claimed upon the Property, Borrower shall satisfy and remove such
encumbrance, lien or charge by bonding or by other method satisfactory to Lender
or cause the Title Company to provide affirmative coverage over such liens, as
Lender may require. In addition to all other rights and remedies of Lender
referred to in this Agreement, if such encumbrance, lien or charge is not
removed within sixty (60) days, Lender, at its sole discretion, may pay off the
same and Borrower shall reimburse Lender within five (5) days of Lender's demand
for payment.
(s) Notices Received. Borrower shall comply with and promptly furnish
----------------
to Lender true and complete copies of any notices pertaining to the Property by
any governmental authority of the United States, the state, cities, counties, or
any other political subdivision in which the Property is located or which
exercises jurisdiction over Borrower or the Property. Borrower shall promptly
notify Lender of any fire or other casualty or any notice of taking or eminent
domain proceeding affecting the Property of which it acquires notice. Borrower
shall
-16-
<PAGE>
promptly notify Lender of any action, proceeding or investigation of the nature
described in Section 3(h) above of which it acquires notice.
(t) Hazardous Materials and Environmental Indemnity. Borrower shall
-----------------------------------------------
not cause or permit the violation of any law relating to industrial hygiene or
environmental conditions in connection with the Property, including soil and
ground water conditions; or use, generate, manufacture, store or dispose of any
Hazardous Materials on, under or about the Property, except in accordance with
all applicable laws. The term "Property" shall include the groundwater in or
under the Property. Borrower shall not install underground storage tanks on the
Land. Borrower shall indemnify and hold Lender harmless from any loss,
liability, cost, expense and/or claim (including without limitation the cost of
any fines, remedial action, damage to the environment and cleanup and the fees
of attorneys and other experts) arising from (i) the use, Release or disposal of
any Hazardous Materials on, under or about the Property or the transport of any
Hazardous Materials to or from the Property; and (ii) the violation of any law
relating to industrial hygiene or environmental conditions in connection with
the Property, including soil and ground water conditions; and (iii) the breach
of any of the representations, warranties and covenants of Borrower with respect
to Hazardous Materials set forth in this Agreement or any other Loan Documents.
(u) Insurance. Borrower shall, or shall cause the Tenants to, pay all
---------
premiums on all insurance policies required from time to time under this
Agreement, and thirty (30) days prior to expiration of any such policies,
Borrower shall, or shall cause the Tenants to, furnish to Lender with premiums
prepaid, additional and renewal policies (or binders to be followed by policies
in due course) in form, and with companies, coverage, deductibles and amounts
satisfactory to Lender. In the event of failure by Borrower to provide such
insurance, Lender may place insurance and treat the amounts expended therefor as
Advances.
(v) Notice of Breach. Borrower shall promptly give to Lender notice
----------------
of the occurrence of any event which does or would with the passage of time or
the giving of notice, or both, constitute a default under this Agreement, any of
the other Loan Documents, or have any adverse effect on any security for the
Loan or on Borrower's ability to perform its obligations hereunder.
(w) Approvals, Consents, Authorizations and Restrictions and
--------------------------------------------------------
Licenses. Subject to Section 6 (x) below, Borrower will keep, or cause the
- --------
Tenants to keep, in full force and effect during the Loan term: (i) all permits,
approvals, consents and other authorizations necessary under the Restrictions to
enable business to be conducted on the Property in accordance with the Leases
and in the manner contemplated by this Agreement and the other Loan Documents;
and (ii) all Licenses.
(x) Maximum Allocated Loan Value of Non-Compliant Properties. During
--------------------------------------------------------
the term of the Loan, the maximum aggregate Allocated Loan Value of all Non-
Compliant Properties shall not at any one time exceed $10,000,000.00. Borrower
expressly acknowledges and agrees that the existence of any condition at any
Property, or the occurrence of any act or omission by Borrower or any Tenant
that renders a Property a Non-Compliant Property, shall in no way constitute any
acquiescence or approval by Lender of, or operate to place on Lender any
liability or responsibility for, any such condition, occurrence, act or
omission, and Borrower agrees that it shall: (i) at all times use commercially
reasonable efforts to cure or cause to be cured the existence of any condition
at any Property, or the occurrence of any act or omission by Borrower or any
Tenant, that renders a Property a Non-Compliant Property; and (ii) indemnify and
hold Lender harmless from any action proceeding,
-17-
<PAGE>
claim, cost, expense and other liability of whatever form and nature arising
from or by reason of the fact that a Property is a Non-Compliant Property.
(y) Tenant's Exercise of Right to Purchase. In the event a Tenant
--------------------------------------
exercises its right to purchase a Property, pursuant to the terms of its Lease,
Borrower, upon receiving notice from such Tenant of its election, agrees to
give immediate written notification to Lender. All proceeds to be paid to
Borrower from the purchase and sale of the Property ("Sale Proceeds") shall be
paid to Lender. Borrower shall then have the option to either (i) substitute
the Property in accordance with Section 5 herein, in which event Lender shall
remit the Sale Proceeds to Borrower, or (ii) apply the Sale Proceeds to the
Indebtedness in an amount equal to the Allocated Loan Value for such Property
(such payment shall be subject to the prepayment premium, as set forth in the
Note), with any excess Sale Proceeds remitted to Borrower.
7. Defaults by Borrower. An "Event of Default" shall be deemed to have
--------------------
occurred under this Agreement as and when an "Event of Default shall have
occurred under the Deeds of Trust.
8. Remedies. (a) Upon the occurrence of any Event of Default, in
--------
addition to those remedies provided in the Deeds of Trust, Lender shall be
entitled to declare all sums evidenced by the Note and secured by the other Loan
Documents to be immediately due and payable and to enforce all of its rights and
remedies contained in this Agreement, the Deeds of Trust and other Loan
Documents, or otherwise provided by law or equity. Each right and remedy
provided in this Agreement or the other Loan Documents is distinct and
cumulative to all other rights or remedies under this Agreement and the other
Loan Documents, or afforded by law or equity, and may be exercised concurrently,
independently, or successively, in any order whatsoever.
(b) Power of Attorney. Borrower hereby constitutes and appoints
-----------------
Lender its true and lawful attorney in fact with the power and authority,
including full power of substitution, to, in its sole discretion to: (i)
prosecute and defend all actions and proceedings in connection with the
Property; and (ii) execute, acknowledge and deliver all instruments and
documents in the name of Borrower as Lender deems proper which may be necessary
or desirable, and to do any and every act with respect to the Property which
Borrower might do on its own behalf. This power of attorney is a power coupled
with an interest and cannot be revoked. Lender agrees that it shall not exercise
its rights under this Section 8 (b) unless and until an Event of Default has
occurred.
(c) Disclaimer. No advance of Loan funds by Lender will cure any
----------
default of Borrower unless Lender agrees otherwise in writing. Whether or not
Lender elects to employ any or all of the remedies available to it, Lender shall
not be liable for payment of any expenses incurred in connection with the
exercise of any remedy available to Lender or for the performance or non-
performance of any obligation of Borrower.
9. Miscellaneous Provisions.
------------------------
(a) Notice. Any notice given hereunder shall be given in the manner
------
prescribed in the Deeds of Trust.
(b) No Assignment. Borrower shall not assign any of its rights under
-------------
this Agreement without the prior written consent of Lender (which consent shall
not be
-18-
<PAGE>
unreasonably withheld, conditioned or delayed) and any purported assignment in
violation of this Section without such prior written consent shall be void.
Without limiting the generality of the foregoing provisions of this Section 9
(b), it is expressly agreed that any sale, assignment, pledge, encumbrance or
transfer that does not require Lender's consent pursuant to Section 6 (f) (ii)
shall not be deemed an assignment of Borrower's rights under this Agreement.
(c) Time. Time is of the essence hereunder.
----
(d) Headings. The captions and headings of various sections of this
--------
Agreement are for convenience only and are not to be considered as defining and
limiting in any way the scope or intent of the provisions hereof.
(e) Successors. This Agreement shall be binding upon and shall inure
----------
to the benefit of all successors and permitted assigns of the parties.
(f) No Partnership; Indemnity. Lender shall not be deemed to be a
-------------------------
partner or joint venturer with Borrower in connection with the Loan or any
action taken under this Agreement and Borrower shall indemnify, hold Lender
harmless and defend Lender from and against any and all loss, cost, damage,
expense or liability, including reasonable attorneys' fees, arising out of or
resulting from such a construction of the parties and their relationship or
resulting from any actual or alleged defect in the construction of the
Improvements. None of the rights granted to Lender under the Loan Documents
shall be deemed to diminish or substitute for Borrower's management powers and
responsibilities with respect to the Property, and the existence of, and/or
Lender's exercise of such rights shall not constitute participation in
management by Lender. This provisions of this Section shall survive payment of
the Loan.
(g) Effectiveness. This Agreement shall continue in full force and
-------------
effect so long as Borrower remains obligated to Lender under the Loan.
(h) No Waiver. No failure on Lender's part at any time to require the
---------
performance by Borrower of any term of this Agreement shall in any way affect
Lender's rights to subsequently enforce such term, nor shall any omission on
Lender's part to notify Borrower of any event which with notice or the passage
of time or both would constitute an Event of Default be construed as a waiver of
such Event of Default or any right or remedy of Lender, nor shall any waiver by
Lender of any term hereof be taken or held to be a waiver of any other term
hereof.
(i) Governing Law. This Agreement shall be interpreted and enforced
-------------
under the laws of the State of Michigan.
(j) Waiver of Right to Trial by Jury. To facilitate each party's
--------------------------------
desire to resolve disputes in an efficient and economical manner, each party to
this Agreement hereby expressly waives any right to trial by jury of any claim,
demand, action or cause of action (i) arising under this Agreement or any other
Loan Documents, or (ii) in any way connected with or related or incidental to
the dealings of the parties hereto or any of them with respect to this Agreement
or any other Loan Documents, or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether arising in
contract or tort or otherwise. Each party hereby agrees and consents that any
such claim, demand, action or cause of action shall be decided by court trial
without a jury, and that any party to this Agreement may file an original
counterpart or a
-19-
<PAGE>
copy of this Section with any court as written evidence of the consent of the
parties hereto to the waiver of their right to trial by jury.
(k) Complete Agreement. The parties hereto hereby represent and
------------------
acknowledge that the Loan Documents are fully integrated and contain the
complete understanding and agreements of the parties with respect to the Loan
and all matters relative thereto and accurately reflect the intentions of the
parties. All prior agreements, negotiations, drafts and other extrinsic
communications relating thereto have been incorporated into or are superseded by
the terms of the Loan Documents and have no further significance or evidentiary
effect.
(l) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which together shall constitute one and the same
instrument.
(m) Lender's Advances. All expenditures by Lender permitted under
-----------------
this Agreement and any other Loan Documents shall be deemed to be an advance
under the Loan from the date made. In the event the total advances under the
Loan exceed the maximum amount of the Loan, Borrower and Lender acknowledge and
authorize that such excess amount shall be deemed an additional loan to
Borrower, payable within five (5) days of Lender's demand for payment, secured
by the Deeds of Trust and bearing interest at the Default Rate.
(n) Attorneys' Fees. In the event that an attorney be employed or
---------------
expenses be incurred to compel payment of the Loan or any portion thereof or in
connection with any default hereunder or under any other Loan Documents whether
or not any action or proceeding is commenced by Lender, Borrower promises to pay
all such expenses and reasonable attorneys' fees, including but not limited to,
reasonable attorneys' fees incurred in any bankruptcy (including, without
limitation, an action for relief from the automatic stay of any bankruptcy
proceeding) or judicial or non-judicial foreclosure proceedings.
(o) Severability. In the event any one or more of the provisions
------------
contained in this Agreement, or in any of the other Loan Documents shall for any
reason be held to be invalid, illegal or unenforceable in any respect by a court
of competent jurisdiction, such invalidity, illegality or unenforceability shall
at the option of Lender, not affect any other provision of this Agreement, or
any such other Loan Documents, and this Agreement and any such other Loan
Documents shall be construed as if such invalid, illegal or unenforceable
provision had never been contained therein.
(p) Set-Off. Without limitation of any other right or remedy of
-------
Lender hereunder or provided by law, any indebtedness now or hereafter owing to
Lender by Borrower (including, without limitation, any amounts on deposit in any
demand, time, savings, or like account maintained by Borrower with Lender) may
be offset and applied by Lender hereunder, or under the Note, the Deeds of Trust
or the other Loan Documents.
(q) No Violation. Notwithstanding anything in this Agreement or to
------------
the contrary, Lender will not be required to make any advance or perform any
other act under this Agreement if as a result thereof, Lender will violate any
law, statute, ordinance, rule, regulation or judicial decision applicable
thereto.
(r) Stated Value of Properties. Borrower hereby acknowledges and
--------------------------
agrees that the stated values of each Property on Schedule A are agreed upon
values for said Properties for purposes of determining the documentary stamp
tax, intangible tax and title
-20-
<PAGE>
insurance premiums as between the various states wherein the Properties are
located, as applicable, and such stated values shall in no way impair, affect,
prejudice, or otherwise constitute a waiver or defense to the rights of Lender
under the Note, the Deeds of Trust, or any other Loan Documents relating to
Borrower's obligations to repay the Loan or perform any obligations under the
Loan Documents or otherwise with respect to the Loan secured thereby. Further,
Borrower absolutely, unconditionally and irrevocably waives any and all right to
assert any setoff, counterclaim or cross claim based in whole or in part upon
the allocation of stated values as set forth in Schedule A with respect to the
obligation of the Borrower to pay the Indebtedness and perform all non monetary
obligations in accordance with the Note, the Deeds of Trust and the Loan
Documents in any action or proceeding brought by the Lender to collect the
Indebtedness, or any portion thereof, or to enforce by foreclosure, and realize
upon the liens and security interests.
(s) Non-Recourse. Subject to the qualifications below, Lender shall
------------
not seek to enforce the liability and obligation of Capital Automotive L.P. (the
"Partnership") to perform and observe the obligations contained in this
Agreement, the Note, the Deeds of Trust or the other Loan Documents by any
legal, equitable or other action or proceeding wherein a deficiency judgment or
order shall be sought against the Partnership or its general or limited
partners, members, shareholders, trustees, employees or agents (collectively,
the "Constituents"), provided that nothing herein set forth shall preclude or
limit the right of Lender to bring a foreclosure action or other proceedings to
enforce the Partnership's obligations under this Agreement, the Note, Loan
Agreement, the Deeds of Trust and the other Loan Documents against the
Properties (as such term is defined in the Loan Agreement), the Rents (as such
term is defined in the Deeds of Trust), or any other collateral which secures
the Loan (as such term is defined in the Loan Agreement) pursuant to the Other
Security Documents (collectively, the "Collateral"), but any judgment in any
such action or proceeding shall be enforceable only against Partnership's
interest (or that of the Constituents) in the Collateral. The provisions of this
Paragraph shall not, however:
(i) impair the right of Lender to name the Partnership (or any
Constituent if required by law) as a party defendant in any action or suit for
foreclosure and sale under the Deeds of Trust;
(ii) impair the right of Lender to obtain the appointment of a
receiver; or
(iii) constitute a waiver of the right of Lender to enforce the
liability and obligation of the Partnership, by money judgment or otherwise, to
the extent of any loss, damage, cost, expense, liability, claim or other
obligation incurred by Lender (including attorneys' fees and costs reasonably
incurred) arising out of or in connection with the following:
(A) fraud or intentional material misrepresentation by the
Partnership or any of the Constituents in connection with the Loan;
(B) the misapplication or conversion by the Partnership or
any Constituent of:
(1) any insurance proceeds paid by reason of any loss,
damage or destruction to any Property,
(2) any awards or other amounts received in
-21-
<PAGE>
connection with the condemnation of all or a portion of any Property, or
(3) any Rents paid more than one month in advance; and
(C) any security deposits (including letters of credit)
collected with respect to any Property which are not delivered to Lender upon a
foreclosure of such Property or other action in lieu thereof, except to the
extent any such security deposits were applied in accordance with the terms and
conditions of any of the Leases (as such term is defined in the Deeds of Trust).
-22-
<PAGE>
THUS DONE AND PASSED, in multiple originals in my office in the District of
----------------
Columbia, on the day, month, and year herein first above written, in the
- --------
presence of the undersigned competent witnesses, who hereunto sign their names
with the said appearers, and me, Notary, after reading of the whole.
[Remainder of Page Intentionally Left Blank]
[Signatures to Follow on Succeeding Page]
-23-
<PAGE>
Borrower:
Witness:
CAPITAL AUTOMOTIVE L.P.,
a Delaware limited partnership
By: Capital Automotive REIT, a Maryland real
estate investment trust, its General
Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- -------------------------------- ----------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
-------------------- ----------------------
Its: Vice President and Treasurer
-----------------------------
/s/ Daniel C. Scheflen
- --------------------------------
Print Name: Daniel C. Scheflen
--------------------
CAR ALEXANDER L.P.,
a Delaware limited partnership
By: Car I Alexander, Inc., a Delaware
corporation, its General Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- -------------------------------- ---------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
-------------------- ----------------------
Its: Vice President and Treasurer
----------------------------
/s/ Daniel C. Scheflen
- --------------------------------
Print Name: Daniel C. Scheflen
--------------------
CAR HDV L.L.C., a Delaware limited
liability company
By: Capital Automotive L.P.,
a Delaware limited partnership, its
Managing Member
By: Capital Automotive REIT, a Maryland
real estate investment trust, its
General Partner
-24-
<PAGE>
/s/ Abraham Paul By: /s/ Peter C. Staaf
- ------------------------------ ---------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
------------------ ----------------------
Its: Vice President and Treasurer
-----------------------------
/s/ Daniel C. Scheflen
- ------------------------------
Print Name: Daniel C. Scheflen
------------------
CAR-FENS, L.L.C., a Delaware limited
liability company
By: Capital Automotive L.P.,
a Delaware limited partnership, its
Managing Member
By: Capital Automotive REIT, a
Maryland real estate investment
trust, its General Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- ------------------------------ ----------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
------------------ ----------------------
Its: Vice President and Treasurer
-----------------------------
/s/ Daniel C. Scheflen
- ------------------------------
Print Name: Daniel C. Scheflen
------------------
-25-
<PAGE>
CAR CZ L.L.C., a Delaware limited
liability company
By: Capital Automotive L.P.,
a Delaware limited partnership, its
Managing Member
By: Capital Automotive REIT, a
Maryland real estate investment
trust, its General Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- ------------------------------- --------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
------------------- --------------------
Its: Vice President and Treasurer
----------------------------
/s/ Daniel C. Scheflen
- -------------------------------
Print Name: Daniel C. Scheflen
-------------------
CAR MOT L.L.C., a Delaware limited
liability company
By: Capital Automotive L.P.,
a Delaware limited partnership, its
Managing Member
By: Capital Automotive REIT, a
Maryland real estate investment
trust, its General Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- ------------------------------- ---------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
------------------- ---------------------
Its: Vice President and Treasurer
----------------------------
/s/ Daniel C. Scheflen
- -------------------------------
Print Name: Daniel C. Scheflen
-------------------
CAR MOT II, L.L.C., a Delaware limited
liability company
By: Capital Automotive L.P.,
-26-
<PAGE>
a Delaware limited partnership, its
Managing Member
By: Capital Automotive REIT, a Maryland
real estate investment trust, its
General Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- ------------------------------ ----------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
------------------ ----------------------
Its: Vice President and Treasurer
----------------------------------
/s/ Daniel C. Scheflen
- -------------------------------
Print Name: Daniel C. Scheflen
-------------------
CAR AUF L.L.C., a Delaware limited
liability company
By: Capital Automotive L.P.,
a Delaware limited partnership, its
Managing Member
By: Capital Automotive REIT, a Maryland
real estate investment trust, its
General Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- ------------------------------ --------------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
------------------ --------------------------
Its: Vice President and Treasurer
-----------------------------------
/s/ Daniel C. Scheflen
- -------------------------------
Print Name: Daniel C. Scheflen
-------------------
-27-
<PAGE>
CAR I JACKSON L.P., a Delaware limited
partnership
By: CAR JACKSON L.L.C., a Delaware
limited liability company, its
General Partner
By: Capital Automotive L.P.,
Delaware limited partnership, its
Managing Member
By: Capital Automotive REIT, a
Maryland real estate
investment trust, its General
Partner
/s/ Abraham Paul /s/ Peter C. Staaf
- -------------------------- ---------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
----------------------
Its: Vice President and Treasurer
-----------------------------
/s/ Daniel C. Scheflen CAR MUL L.L.C., a Delaware limited
- ------------------------------ liability company
Print Name: Daniel C. Scheflen
------------------ By: Capital Automotive L.P., a
Delaware limited partnership,
its Managing Member
By: Capital Automotive REIT,
a Maryland real estate
investment trust, its
General Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- -------------------------------- ----------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
--------------------- ----------------------
Its: Vice President and Treasurer
-----------------------------
/s/ Daniel C. Scheflen
- --------------------------------
Print Name: Daniel C. Scheflen
------------------
-28-
<PAGE>
2298 CRAIN HIGHWAY L.L.C., a Maryland
limited liability company
By: Capital Automotive L.P., a
Delaware limited partnership,
its Managing Member
By: Capital Automotive REIT, a
Maryland real estate
investment trust, its
General Partner
/s/ Abraham Paul By: /s/ Peter C. Staaf
- -------------------------------- ------------------------------------
Print Name: Abraham Paul Print Name: Peter C. Staaf
------------ ------------------------
Its: Vice President and Treasurer
-------------------------------
/s/ Daniel C. Scheflen
- --------------------------------
Print Name: Daniel C. Scheflen
--------------------
Lender:
FORD MOTOR CREDIT COMPANY, a Delaware
corporation
/s/ Abraham Paul By: /s/ William J. Beck IV
- -------------------------------- --------------------------------------
Print Name: Abraham Paul Print Name: William J. Beck IV
-------------------- --------------------------
Its: National Account Manager
---------------------------------
/s/ Daniel C. Scheflen
- --------------------------------
Print Name: Daniel C. Scheflen
------------------
/s/ Margaret S. Kimbrough
---------------------------------
Notary Public
-29-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,734
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,350
<PP&E> 646,803
<DEPRECIATION> 13,837
<TOTAL-ASSETS> 649,050
<CURRENT-LIABILITIES> 68,675
<BONDS> 0
0
0
<COMMON> 248
<OTHER-SE> 310,431
<TOTAL-LIABILITY-AND-EQUITY> 649,050
<SALES> 0
<TOTAL-REVENUES> 30,686
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> 9,354
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,354
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43
</TABLE>
