<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
C.V. REIT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
REIT, INC. [LOGO]
TO OUR STOCKHOLDERS:
This was an eventful year for your Company. Your Board recognized in late
1996 that its largest borrower, Hilcoast Development Corp., would be completing
its major development activities in the summer of 1998 and that it would be
retiring all of its short term financing, leaving your Company with a large
amount of cash to invest. Your Board concluded that investing in community and
neighborhood shopping centers would provide a conservative portfolio with
reasonably good growth potential, but we would first need to acquire competent
management. From an operational standpoint, we had the challenge of maintaining
our funds from operations while receiving repayment of relatively higher
interest rate loans and reinvesting in low interest rates, high credit rated,
short-term paper. We were successful in accomplishing that goal and therefore
maintaining our dividend.
Most important, we reached an agreement with Louis P. Meshon, Sr.,
President and owner of Montgomery Group Affiliates, to enter into the
transactions described in the enclosed Proxy Statement. Mr. Meshon has more than
25 years experience in managing community and neighborhood shopping centers. It
was his expertise and knowledge, along with his company's successful
performance, professionalism in its operations, and excellent reputation which
resulted in your Board's decision. As a result of the transaction, your Company
will add nine neighborhood shopping centers and an office building to the
properties in which your Company has investments.
Following the closing of the proposed transaction, the Company plans to
follow a policy of acquisitions that have potential growth in cash flows but are
not deemed to endanger the present existing level of dividends. We hope that all
the stockholders will be in favor of the Montgomery Group Affiliates transaction
and be supportive of the new management. We believe that this transaction is a
positive step towards long-term growth in funds from operations per share as
well as enhancing stockholders' value.
You are cordially invited to attend the Special Meeting of Stockholders
scheduled to be held at 10:00 a.m. on December 17, 1997, at 1585 Broadway, New
York, New York, 27th floor. The meeting is for the principal purpose of
approving the transaction and also electing directors. We urge all stockholders
either to attend the meeting or to forward proxies as soon as possible.
We regretfully inform you that Mr. Mac Gache, a member of your Board and
co-founder of its predecessor companies, passed away. Mr. Gache's counsel and
advice to our entities over these past 29 years has been invaluable. Mr. Gache
was a co-founder and co-owner of the Standard Reference Work, publisher of the
Funk & Wagnalls Encyclopedias, along with the late Joseph Laffan Morse, another
co-founder of your Company's predecessor companies.
A. WILENSKY [SIG] S. BRENNER [SIG] H. LEVY [SIG]
<TABLE>
<C> <C> <C>
Chairman President President
Hilcoast Advisory Services, Inc.
</TABLE>
<PAGE> 3
CV REIT, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS IN LIEU OF ANNUAL MEETING
To the Stockholders of CV Reit, Inc.
A special meeting in lieu of an annual meeting of stockholders
of CV Reit, Inc. will be held at 1585 Broadway, New York, New York, 27th floor,
on December 17, 1997, at 10:00 a.m., for the following purposes:
1. To approve a Master Agreement and transfer of
properties and other transactions contemplated by the
Master Agreement;
2. To approve an amendment to the Certificate of
Incorporation of our Company to increase the
authorized capital of our Company from 10 million
shares of Common Stock, par value $.01, to 20 million
shares of Common Stock, par value $.01;
3. To approve an amendment to the Certificate of
Incorporation of our Company to provide for a board
of directors divided into three classes;
4. To approve certain other amendments to the
Certificate of Incorporation of our Company;
5. To approve certain amendments to the By-Laws of our
Company;
6. To approve the Montgomery CV Trust Executive Officer
Stock Option Plan;
7. To elect seven directors nominated by the Board of
Directors of our Company (all of the foregoing
matters being called the "Proposals," all of which
must be approved for any of them to be adopted), or,
in the alternative, if all of the Proposals are not
approved, to elect four directors nominated by the
Board of Directors of our Company;
8. To approve the appointment of independent auditors;
and
9. To transact such other business as may properly be
brought before the meeting.
The Board of Directors has fixed the close of business on
November 6, 1997, as the record date for the determination of stockholders
entitled to notice of, and to vote at the meeting.
By Order of the Board of Directors
By: ORILLA FLOYD
-------------------------------
Orilla Floyd
Secretary
November 11, 1997
If you do not expect to be present at the meeting, please date and sign the
enclosed proxy and return it promptly in the enclosed envelope.
<PAGE> 4
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 17, 1997
CV REIT, INC.
100 Century Boulevard
West Palm Beach, Florida 33417
Telephone No. 561-640-3155
INTRODUCTION
Certain capitalized terms in this Proxy Statement are defined
in the Glossary of Certain Terms following the Summary.
This proxy statement is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of CV Reit, Inc.
(together with the Trust, the Operating Partnership and its and their
subsidiaries, the "Company" except where the context otherwise requires) to be
voted at the special meeting of stockholders in lieu of an annual meeting of the
Company on the proposals referred to in the Notice of Meeting. Shares
represented by duly executed proxies received by the Company will be voted in
accordance with the instructions contained therein and, in the absence of
specific instructions, will be voted for:
o the approval of the Master Agreement and transfers of
properties and other transactions contemplated by the
Master Agreement;
o an amendment to the certificate of incorporation of
the Company to increase the number of authorized
shares of capital stock;
o an amendment to the certificate of incorporation of
the Company to provide for a classified Board of
Directors;
o certain other amendments to the certificate of
incorporation of the Company;
o certain amendments to the by-laws of the Company;
<PAGE> 5
o the Montgomery CV Trust Executive Stock Option Plan;
and
o the election of seven directors nominated by the
Board of Directors (all of the foregoing matters
being sometimes called the "Proposals," all of which
must be approved for any of them to be adopted), or,
in the alternative, if all of the Proposals are not
approved, the election of four directors nominated by
the Board of Directors.
In addition, for:
o the approval of the appointment of independent
auditors for the Company for 1997; and
o in accordance with the judgment of the person or
persons voting the proxies, on any other matter that
may properly be brought before the Special Meeting.
The execution of a proxy will in no way affect a stockholder's
right to attend the special meeting and to vote in person. You may revoke any
proxy executed and returned by you at any time, either by writing the Secretary
of the Company at the address above or by attending the special meeting and
revoking the proxy in person, except as to any matter or matters upon which,
prior to your revocation, a vote has been cast pursuant to your proxy.
This Proxy Statement and the accompanying proxy are being sent
on or about November 11, 1997, to stockholders entitled to vote at the Special
Meeting. The entire cost of soliciting proxies hereunder will be borne by the
Company and will be made through the use of the mails. The Company will, upon
request, reimburse brokerage houses and persons holding Shares in their names or
in the names of their nominees for their reasonable expenses in sending
soliciting material to their principals. The Company may retain a proxy
solicitor to assist in the solicitation of proxies.
The Company has outstanding 7,966,621 Shares of Common Stock
which are entitled to vote at the meeting. Each Share is entitled to one vote.
Only stockholders of record at the close of business on November 6, 1997, will
be entitled to vote at the meeting.
H. Irwin Levy, who has or controls the right to vote
approximately 10.3 percent of the outstanding Shares of the Company's Common
Stock, and Alan J. Evans and Robert J. Cartegena, in their capacities as
trustees of the Evans Family Trust, which has or controls the right to vote
approximately 8.2 percent of the outstanding Shares of the Company's Common
Stock, have agreed to vote their respective Shares in favor of the Proposals.
2
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION...........................................................................1
TABLE OF CONTENTS......................................................................3
SUMMARY................................................................................7
General.......................................................................7
Certain Considerations........................................................7
Accounting Treatment..........................................................7
GLOSSARY OF CERTAIN TERMS..............................................................8
CERTAIN CONSIDERATIONS................................................................10
New Business Plans...........................................................10
New Management -- Change in Control..........................................11
Dividends....................................................................13
Increase in Debt.............................................................14
Pro Forma Decrease in Net Income and Net Income Per Share....................14
Interests of Certain Persons.................................................14
Meshon Interests....................................................14
Levy Interests......................................................16
Indemnification..............................................................16
Lack of Appraisal Rights.....................................................16
Potential Dilution; Registration Rights......................................16
MASTER AGREEMENT......................................................................18
Background and Reasons for Entering into the Master Agreement................18
Reasons for Board of Directors' Recommendation...............................19
Vote Required................................................................21
Transactions Under the Master Agreement......................................22
Terms of the Master Agreement................................................23
Conditions..........................................................24
Listing of Shares...................................................24
Regulatory Requirements.............................................24
Amendments..........................................................25
Drexel Management Agreements........................................25
Broker Agreement....................................................26
Termination.........................................................26
NEW OPERATING STRUCTURE...............................................................27
The Trust....................................................................29
The Operating Partnership....................................................29
</TABLE>
3
<PAGE> 7
<TABLE>
<S> <C>
INFORMATION ABOUT OUR COMPANY.........................................................32
INFORMATION ABOUT OTHER PARTIES TO THE MASTER AGREEMENT...............................33
The Montgomery Parties.......................................................33
Drexel Realty, Inc...........................................................33
Royce Realty, Inc............................................................34
MGA Payroll Company Inc......................................................34
The Levy Parties.............................................................34
PROPERTIES TO BE ACQUIRED.............................................................35
The Montgomery Properties....................................................35
The Levy Properties..........................................................37
Other Information About the Properties to be Acquired........................37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION..................................................................47
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION........................................52
Purpose......................................................................52
Increase in Authorized Shares................................................52
Classified Board.............................................................52
Super Majority Vote..........................................................53
Anti-takeover Effects........................................................53
Vote Required................................................................53
AMENDMENTS TO THE BY-LAWS.............................................................54
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS........................................56
Consequences to Stockholders.................................................56
Consequences to the Company..................................................56
Continued Operation of the Company as a REIT.................................58
Possible Legislative or Other Actions Affecting Tax Considerations...........59
APPROVAL OF THE MONTGOMERY CV TRUST EXECUTIVE
STOCK OPTION PLAN............................................................60
Background...................................................................60
Purpose......................................................................60
Anticipated Grants...........................................................60
Administration...............................................................60
Eligibility..................................................................60
Available Shares.............................................................61
Types of Awards..............................................................61
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
Stock Options................................................................61
Amendments...................................................................62
Miscellaneous................................................................62
U.S. Federal Income Tax Consequences.........................................62
Vote Required................................................................64
MANAGEMENT AND PRINCIPAL STOCKHOLDERS.................................................65
Principal Stockholders.......................................................65
Security Ownership of Management.............................................65
Management of the Company Upon Consummation of the Acquisition of the
Montgomery Properties........................................................67
Directors, Nominees and Executive Officers...................................67
Backgrounds of the Company's Designees.......................................68
Backgrounds of the Montgomery Parties' Designees.............................69
Meetings and Committees......................................................70
Compensation of Directors and Executive Officers.............................71
Board Compensation Report....................................................72
Compensation Committee Interlocks and Insider Participation..................74
Board Compensation...........................................................74
ALTERNATIVE ELECTION OF DIRECTORS.....................................................74
STOCK PERFORMANCE GRAPH...............................................................75
TRANSACTIONS WITH OTHERS..............................................................75
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934.........................................................77
FINANCIAL STATEMENTS OF PROPERTIES TO BE ACQUIRED.....................................78
VOTING PROCEDURES.....................................................................79
SOLICITATION PROCEDURES...............................................................80
OTHER MATTERS.........................................................................81
Approval of Appointment of Auditors..........................................81
General......................................................................81
Stockholders' Proposals......................................................81
INCORPORATION BY REFERENCE OF CERTAIN SUBSEQUENTLY
FILED DOCUMENTS..............................................................82
Estimated Expenses...........................................................82
</TABLE>
5
<PAGE> 9
APPENDICES
A Master Agreement
B Operating Partnership Agreement
C Amended Certificate of Incorporation
D Amended By-Laws
E Montgomery CV Trust Executive Stock Option Plan
F Montgomery Parties Ownership Chart
G Levy Parties Ownership Chart
H Financial Statements of Drexel Realty, Inc., the Montgomery Properties
and the Levy Properties
6
<PAGE> 10
SUMMARY
GENERAL
If you approve the Master Agreement and the transactions
contemplated under that agreement, our Company will acquire interests in up to 9
shopping centers and an office building located in the Middle Atlantic region
and its operations will come under new management. In addition, the Company will
convey substantially all of its assets (or the economic benefit of certain of
its assets), subject to certain liabilities, to the Operating Partnership
(described below) in which the Company will indirectly hold the general partner
interest and approximately 81.3 percent of the limited partner interests. As a
result, your Company will become primarily an equity REIT with an interest in a
real estate management company.
Our Company also will take steps to preserve its ability to
continue to pay a quarterly dividend of at least $.29 per Share, although there
can be no assurance that these steps will be successful.
All of the Proposals must be approved for any of them to be
adopted.
CERTAIN CONSIDERATIONS
In determining whether to approve the Proposals, you should
consider the risks of our Company's new business plan; its new management
structure; its ability to continue to pay any specific level of dividend; the
interest of certain persons in the transactions contemplated under the Master
Agreement; the lack of appraisal rights for dissenting stockholders; and the
potential dilution of the interests of existing stockholders.
You will not be subjected to any Federal income tax as a
result of the approval of these transactions.
ACCOUNTING TREATMENT
We will account for the acquisition transactions contemplated
under the Master Agreement as a purchase for accounting and financial statement
purposes.
7
<PAGE> 11
GLOSSARY OF CERTAIN TERMS
"Amended By-Laws" means the amended and restated by-laws of the Company, a copy
of which is attached to this Proxy Statement as Appendix D.
"Amended Certificate of Incorporation" means the amended and restated
certificate of incorporation of the Company, a copy of which is attached to this
Proxy Statement as Appendix C.
"Closing" means the closing of the transactions contemplated in the Master
Agreement.
"Closing Date" means the date and time of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.01 per Share, of the Company.
"Company" means CV Reit, Inc., a Delaware corporation, together with the Trust,
the Operating Partnership and its and their subsidiaries except where the
context otherwise requires.
"Drexel" means Drexel Realty, Inc., a Pennsylvania corporation.
"Drexel Management Agreement" means that certain Master Exclusive Leasing and
Management and Executive Services Agreement to be entered into between Drexel
and the Trust as of the Closing Date.
"Drexel Plan" means the Drexel Realty, Inc. 1997 Stock Option Plan.
"FFO" for any period means Funds From Operations, which is defined as net income
(computed in accordance with generally accepted accounting principles) as
adjusted in accordance with guidelines of the National Association of Real
Estate Investment Trusts for purposes of determining "funds from operations."
"GLA" means gross leasable area.
"Hilcoast" means Hilcoast Development Corp., a Delaware corporation, and its
Subsidiaries.
"Levy" means H. Irwin Levy.
"Levy Parties" means H. Irwin Levy and siblings of Mr. Levy or their immediate
families or their estates or trusts established for the benefit thereof.
8
<PAGE> 12
"Levy Properties" means the single user retail property located at 555 Scott
Street in Wilkes- Barre, Pennsylvania, and the shopping center known as the
Route 6 Office Max Center located in Dickson City, Pennsylvania.
"Master Agreement" means the Definitive Master Agreement dated as of September
19, 1997, among the Company, the Trust, Mr. Meshon, Drexel, Royce, certain
Montgomery Parties and the Levy Parties, a copy of which is attached to this
Proxy Statement as Appendix A.
"Meshon" means Louis P. Meshon, Sr.
"MGA Payroll" means MGA Payroll Company Inc., a Pennsylvania corporation.
"Montgomery Parties" means Mr. Meshon and certain other persons and entities
which in different combinations, directly or indirectly, own with Mr. Meshon the
Montgomery Properties, and Drexel, Royce and MGA Payroll.
"Montgomery Properties" means Chesterbrook Village Center, Danville Plaza, Mount
Carmel Plaza, Plymouth Plaza, County Line Plaza, Rio Grande Plaza, Whitemarsh
Shopping Center and Woodbourne Square.
"Montgomery Partnerships" means those partnerships which hold title to, or have
an interest under an installment sales contract for, each of the Montgomery
Properties.
"OP Units" means partnership interests in the Operating Partnership.
"Operating Partnership" means Montgomery CV Realty L.P., a Delaware limited
partnership.
"Operating Partnership Agreement" means the amended limited partnership
agreement of the Operating Partnership, a copy of which is attached to this
Proxy Statement as Appendix B.
"Proposals" means the proposals submitted for approval by the stockholders of
the Company in connection with the Master Agreement and the transactions
contemplated therein.
"Royce" means Royce Realty, Inc., a Pennsylvania corporation.
"Shares" means the shares of Common Stock, par value $.01 per Share, of the
Company.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, limited partnership, business trust or other entity of which
securities having the power to elect a majority of that corporation's or other
entity's board of directors (or other governing body) (other than securities
having that power only upon the happening of a contingency that has not
occurred) are held by such Person or one or more of its Subsidiaries.
"Trust" means Montgomery CV Trust, a Delaware business trust, a Subsidiary of
the Company.
9
<PAGE> 13
"Trust Plan" means the Montgomery CV Trust Executive Stock Option Plan, a copy
of which is attached to this Proxy Statement as Appendix E.
CERTAIN CONSIDERATIONS
You should carefully review the considerations discussed below
in deciding how to vote your proxy or to instruct the record holder of your
shares to vote its proxy. Our Proxy Statement contains certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and is intended to be covered by the safe harbors provided by
that Section. You should be aware that all forward-looking statements involve
risks and uncertainties, including those described below and elsewhere in our
Proxy Statement, in our 1996 Annual Report to Stockholders and in our annual and
quarterly reports that are incorporated by reference in our Proxy Statement.
Although we believe that the assumptions underlying these forward-looking
statements are reasonable, any of our assumptions could be inaccurate.
Therefore, we cannot assure you that these forward-looking statements will prove
to be accurate. Moreover, in light of the significant uncertainties inherent in
these forward-looking statements, we cannot assure you that our objectives and
plans will be achieved.
NEW BUSINESS PLANS
If the Proposals are approved and the transactions
contemplated by the Master Agreement are consummated, the Company will become
primarily an equity REIT with an interest in a real estate management company
which will manage the properties in which the Company is acquiring an interest
and certain properties owned by third parties.
While the Master Agreement contemplates the acquisition of
interests in 9 shopping centers and an office building and the conveyance by the
Company to the Operating Partnership of substantially all of its assets (or the
economic benefit of certain of its assets), subject to certain liabilities, the
acquisition of each interest and the conveyance of such assets and liabilities
is subject to certain conditions which, if not satisfied or waived by the
Company by the Closing Date, may cause one or more of such interests not to be
acquired nor any assets and liabilities to be conveyed. The Company has agreed
to consummate the Closing if the conditions to the acquisition of the interests
in at least the following assets are met: Danville Plaza, Mount Carmel Plaza,
County Line Plaza and Rio Grande Plaza, and the interest to be transferred in
Drexel as well as the employment arrangements with Louis P. Meshon, Sr.
In addition, representatives of the Company have received a
number of inquiries about its interest in acquiring interests in properties from
persons who are not parties to the Master Agreement and may receive additional
inquiries prior to the Closing. Preliminary discussions have been or will be
engaged in with certain of these persons, including a review of information
concerning certain of their properties. Under the Operating Partnership
Agreement, additional OP Units may be issued in exchange for interests in these
or other properties after the Closing. However, no agreements in principle or
definitive agreements, arrangements or understandings have been reached with any
of them.
10
<PAGE> 14
NEW MANAGEMENT -- CHANGE IN CONTROL
Following the closing of the transactions contemplated in the
Master Agreement, our Company's Board of Directors will consist of four
individuals designated by our Company and three individuals designated by the
Montgomery Parties. The Company's designees are Stanley Brenner, Allyn L. Levy
and Alan L. Shulman, current directors of our Company, and H. Irwin Levy, a
former Chairman of the Board of Directors of our Company. (Mr. Allyn L. Levy is
no relation to Mr. H. Irwin Levy.) The Montgomery Parties' designees are Louis
P. Meshon, Sr., Stanley S. Cohen and Milton S. Schneider.
The day-to-day operations of our Company and certain of its
existing assets, whether or not transferred to the Operating Partnership or its
Subsidiaries, (other than certain obligations of Hilcoast Development Corp.
(together with any of its Subsidiaries, "Hilcoast") to the Company, the
"Hilcoast Obligations") will continue to be managed by Hilcoast Advisory
Services, Inc., a Subsidiary of Hilcoast, under its existing services agreement,
as hereafter amended, until June 30, 1999. The Hilcoast Obligations will
continue to be managed by the Company. (See "TRANSACTIONS WITH OTHERS.") The
real estate properties in which the Company has an interest will be managed by
Hilcoast.
Louis P. Meshon, Sr. will serve as President and Chief
Executive Officer of the Company and will enter into an employment agreement
under which he will serve as President and Chief Operating Officer of the Trust.
Mr. Meshon will not receive any compensation from CV Reit, Inc. His employment
agreement with the Trust, which is guaranteed by the Operating Partnership, has
an initial five year term which is automatically extended annually unless
terminated by either party at least 90 days prior to the end of any such year.
Under the employment agreement, Mr. Meshon will receive (1) a base salary
starting at $285,000 per year (subject to any future increases determined by the
Trust's Compensation Committee), (2) a performance bonus equal to 5 percent of
the improvement (as defined) for any year, if any, in Funds From Operations of
the Company (or Funds From Operations of the Operating Partnership) over the
average of the prior two years, (3) a discretionary bonus if awarded by the
Trust's Compensation Committee, and (4) a Management and Leasing Termination
Bonus if, upon termination of any existing agreements under which property had
been managed by Drexel within three years after the Closing, Drexel would be
entitled to receive a payment of any fees or commissions to the extent such
payment exceeded a number equal to twice the projected gross annualized revenues
as of the Closing Date that would be payable to Drexel under the terminated
agreements. Mr. Meshon will also be granted options to purchase 150,000 Shares
under the Montgomery CV Trust Executive Stock Option Plan which will vest over a
5 year period if he continues to be employed by the Trust. (See "APPROVAL OF
MONTGOMERY CV TRUST EXECUTIVE STOCK OPTION PLAN.") He will also be entitled to
participate in certain employee benefit plans and programs from time to time in
effect. Mr. Meshon's base salary will be reduced to one half the then applicable
amount and no performance bonus will be payable for the affected period if the
Company fails to pay in any calendar quarter a dividend of at least $0.29 per
Share unless the Board of Directors determines that such failure results from a
breach by the Company of its representations and warranties in the Master
Agreement, a default by Hilcoast in its payment obligations to the
11
<PAGE> 15
Company under the Hilcoast Obligations, or the express terms of a transaction
approved by the Company's Board of Directors.
The reduction in base salary and disqualification for a
performance bonus will terminate when a dividend of at least $0.29 per Share has
been declared and paid for four consecutive quarters. If Mr. Meshon's employment
is terminated by the Company for cause (including death or disability) or by Mr.
Meshon without specified good reason within five years after the Closing, Mr.
Meshon will forfeit a number of the approximately 246,585 OP Units he is to
receive at the Closing in exchange for his interest in Drexel in a declining
amount equal to 100 percent if such termination occurs in the first year and
declining by 20 per cent each year thereafter until the fifth year of his
employment, in which the number forfeited will be 20 percent if such termination
occurs in the fifth year of employment. If Mr. Meshon's employment is terminated
by the Company without cause or by Mr. Meshon with good reason (including
because he is no longer President and Chief Executive Officer of the Trust and
the Company) or following certain changes in control of the Company or the
Operating Partnership not approved in advance by the Board of Directors, he will
become entitled to a payment equal to the greater of (i) the projected
compensation payable to Mr. Meshon for the remainder of the term of the
employment agreement or (ii) 199 percent of his annual salary for the year prior
to such termination; but not in excess of amounts which are deductible under
Section 280G of the Code. Upon termination of his employment for death or
disability, Mr. Meshon, or his estate, will be entitled to a payment equal to
one year's Base Salary.
If the proposed amendment to the certificate of incorporation
of our Company is approved, the Board of Directors of our Company will be
divided into three classes. Three of the directors elected at the Special
Meeting, Messrs. Brenner, Cohen and Allyn L. Levy, will serve until the next
annual meeting of the Company; two of the directors elected at the Special
Meeting, Messrs. Shulman and Schneider, will serve until the annual meeting of
the Company in 1999; and two of the directors elected at the Special Meeting,
Messrs. Meshon and H. Irwin Levy, will serve until the annual meeting of the
Company in 2000, and, in each case, until their respective successors are
elected. Thereafter, directors in each class will serve for three years and
until their respective successors are elected.
H. Irwin Levy has agreed to vote the approximately 10.3
percent of the outstanding Shares of the Company's Common Stock owned or
controlled by him in favor of the Proposals to be voted upon at the meeting.
Alan J. Evans and Robert J. Cartegena, in their capacities as trustees of the
Evans Family Trust, which has or controls the right to vote approximately 8.2
percent of the outstanding Shares of the Company's Common Stock, have also
agreed to vote those Shares in favor of the Proposals to be voted on at the
meeting.
A classified Board of Directors, the super majority vote of
the Board required in certain instances and the severance provisions of Mr.
Meshon's employment agreement may have the effect of impeding efforts of persons
who in the future attempt to change the control of the Company in furtherance of
transactions that may be in the interest of the stockholders of the Company.
(See "CERTAIN CONSIDERATIONS -- Change in Control" and AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION.")
12
<PAGE> 16
DIVIDENDS
The ability of the Company to continue to pay a dividend to
stockholders and the amount of such dividend will be dependent on the future
results of operations of the Trust and the Operating Partnership and, to a
lesser extent, Drexel. While the transactions contemplated by the Master
Agreement include certain provisions which are intended to enhance the
likelihood that the Company will be able to pay a dividend of at least $0.29 per
Share per quarter, no assurance can be given that these provisions will have the
intended effect or that the business of the Trust and the Operating Partnership
will produce sufficient distributions to enable the Company to make such
payments. The proposed amendments to the certificate of incorporation and
by-laws include provisions which will make it the Company's policy to acquire
additional properties and interests in properties only if they are income
producing. This policy can be enforced through the Company's ability to name,
remove and replace the trustees of the Trust, which will be the general partner
of the Operating Partnership. Any proposed acquisition of an additional property
will have to be approved by the Company's acquisitions committee and will
require a resolution by a majority of the Company's entire Board of Directors
that the acquisition will not adversely affect the Company's regular quarterly
dividend of at least $.29 per Share. Further, with certain limited exceptions
(see "AMENDMENTS TO THE BY-LAWS"), if the Company does not declare and pay a
dividend of at least $.29 per Share in any quarter, the compensation of the
Company's chief executive officer will be reduced by 50 percent for that quarter
and for each subsequent quarter until the Company declares and pays at least a
$.29 per Share quarterly dividend for four consecutive quarters.
It is anticipated that Drexel will have adopted a bonus plan
under which employees of Drexel and its affiliates, other than Mr. Meshon, will
be entitled to participate in a bonus pool in an amount up to ten percent of the
same improvement (as defined in Mr. Meshon's employment agreement), if any, in
Funds From Operations which is the base for Mr. Meshon's five percent bonus
under his employment agreement. (See "CERTAIN CONSIDERATIONS -- New Management
- -- Change in Control.") These provisions are intended to encourage the
management of Drexel, the Trust and the Operating Partnership to seek to
increase Funds From Operations available for distributions to the holders of OP
Units, including the Company; however payment of any such bonuses will reduce
the amount of any such increase in Funds From Operations.
Ownership of commercial real estate involves risks arising
from changes in economic conditions generally and in the real estate market
specifically, as well as risks which result from property-specific factors such
as the failure or inability to make needed capital improvements, competition,
reductions in revenue arising from decreased occupancy or reductions in the
level of rents obtainable, and factors which increase the cost of operating,
financing and refinancing properties such as escalating interest rates and wage
rates, increased taxes, fuel costs and other operating expenses and casualties.
All of these kinds of risks can result in reduced net operating revenues
available for distribution and decreased Funds From Operations. The properties
to be acquired will be operated after the Closing by Drexel and the
13
<PAGE> 17
ability of Drexel to manage the properties effectively notwithstanding such
risks and economic conditions will affect the funds available for distribution.
The following table sets forth certain information about the
Company's historical dividends declared for the last 20 quarters (5 years):
<TABLE>
<CAPTION>
DIVIDENDS DECLARED 1997 1996 1995 1994 1993 1992
- ------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
First quarter 0.29 0.27 0.27 0.27 0.25
Second quarter 0.29 0.29 0.27 0.27 0.25
Third quarter 0.29 0.29 0.27 0.27 0.25
Fourth quarter 0.27 0.27 0.25 0.25
---- ---- ---- ---- ---- ----
0.87 1.14 1.08 1.08 1.00 0.25
==== ==== ==== ==== ==== ====
</TABLE>
INCREASE IN DEBT
As a result of the transactions contemplated under the Master
Agreement, the Company's borrowings are expected to increase by approximately
$33.6 million without any increase in stockholders' equity. (See "PROPERTIES TO
BE ACQUIRED -- Other Information About the Properties To Be Acquired.")
PRO FORMA DECREASE IN NET INCOME AND NET INCOME PER SHARE
Also as a result of the transactions contemplated under the
Master Agreement, 1996 depreciation increased on a pro forma basis by
approximately $1.3 million and, as a result, the Company's 1996 net income on a
pro forma basis decreased by approximately $1.1 million from $9.6 million to
approximately $8.5 million, and the Company's 1996 pro forma net income per
Share decreased from $1.20 per Share to $1.06 per Share. (See "UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION.") Additional depreciation
generally does not affect the Company's Funds From Operations.
INTERESTS OF CERTAIN PERSONS
MESHON INTERESTS
If the transactions contemplated by the Master Agreement are
consummated, Mr. Meshon, a nominee for Director, will transfer to the Operating
Partnership and its Subsidiaries his interests in up to eight of the properties
in which interests are to be acquired and in Drexel in exchange for up to
approximately 700,000 OP Units. The percentage interest of Mr. Meshon in
particular properties is set forth in the ownership structure chart captioned
14
<PAGE> 18
"Montgomery Properties," a copy of which is attached to this Proxy Statement as
Appendix F. The exact number of OP Units he will receive will depend on which
properties the Operating Partnership and its Subsidiaries acquire interests in
at the Closing, the amount of certain Closing and post-Closing adjustments, and
other factors. He will also enter into an employment agreement and receive
options to acquire 150,000 Shares of the Company's Common Stock. (See "CERTAIN
CONSIDERATIONS -- New Management -- Change in Control.") In addition, certain of
the Montgomery Parties (including Mr. Meshon) will be entitled to receive one
quarter of the brokerage fee payable under the Broker Agreement (see "THE MASTER
AGREEMENT -- Terms of the Agreement -- Broker Agreement") in an amount up to
approximately $105,000. Prior to the Closing, Drexel's articles of incorporation
will be amended to provide that one of Drexel's purposes shall be to distribute,
at least quarterly, all of its cash on hand less amounts for the payment of
current expenses and for an adequate reserve for future expenses as determined
by its Board of Directors. At the Closing, all of the non-voting stock of Drexel
will be contributed to the Operating Partnership. Since the non-voting stock
owned by the Operating Partnership will account for 95 percent of the
outstanding shares of Drexel's voting and non-voting common stock, and since,
except for voting, the non-voting stock will have rights identical to the voting
stock including, among other things, as to dividends, upon the distribution of
any dividends by Drexel the Operating Partnership shall receive 95 percent of
such dividends. After the Closing, Mr. Meshon and his wife will own 99 percent
of the voting common stock of Drexel, which will have exclusive management
agreements with the owners of each of the properties in which interests are
being transferred to the Operating Partnership or its Subsidiaries. At the
Closing, that voting stock will be contributed to a voting trust. (See
"INFORMATION ABOUT OTHER PARTIES TO THE MASTER AGREEMENT -- Drexel Realty,
Inc.")
Mr. Meshon currently holds indirect ownership interests in at
least three properties which are now, and after the Closing are intended to
continue to be, managed by Drexel which will not be involved in the transactions
contemplated in the Master Agreement. Drexel will continue to receive management
and leasing fees for its services in connection with those properties.
The Company has agreed, if so requested by Mr. Meshon, to
indemnify him and Paul H. Cohen (a general partner in Woodbourne Square) against
liability on their personal guarantees of or other liability for certain loans
secured by properties in which interests are being acquired. At the Closing, the
Company will repay a bank loan made to Mr. Meshon personally and loaned by him
to the owner of County Line Plaza, which will be wholly owned by the Operating
Partnership after the Closing, in the principal amount of $1,000,000, which
amount was used by the owner to pay part of the purchase price for County Line
Plaza. (See "INFORMATION ABOUT OTHER PARTIES TO THE MASTER AGREEMENT -- The
Montgomery Parties.")
15
<PAGE> 19
LEVY INTERESTS
If the transactions contemplated by the Master Agreement are
consummated, H. Irwin Levy, a Company designee for Director, will transfer to
the Operating Partnership and its Subsidiaries his interests in up to two of the
Levy Properties in which interests are to be acquired in exchange for up to
approximately 77,000 OP Units. The remaining interests in the two Levy
Properties are owned by siblings of Mr. Levy or their immediate families or
their estates or trusts established for the benefit of their families. The
percentage interest of Mr. Levy and his family in particular properties is set
forth in the chart captioned "Levy Properties - Ownership Interests" a copy of
which is attached to this Proxy Statement as Appendix G. The aggregate number of
OP Units the Levy Parties as a group will receive is estimated to be
approximately 385,000. The exact number of OP Units Mr. Levy will receive
individually or that the Levy Parties will receive in the aggregate will depend
on which properties the Operating Partnership and its Subsidiaries acquire
interests in at the Closing, the amount of certain Closing and post-Closing
adjustments, and other factors.
INDEMNIFICATION
Each of the parties to the Master Agreement, including Mr.
Meshon, Mr. Levy and the Company, is entitled to indemnification from certain
other parties to that Agreement, including the Company, in the event the
indemnifying party breaches certain of its covenants, representations or
warranties. The Montgomery Parties and the Levy Parties, respectively, also
agree to indemnify the Company for liabilities arising from the operation of the
Montgomery Properties or Levy Properties, as the case may be, prior to the
Closing. As discussed above, the Company has also agreed to indemnify Mr. Meshon
and Paul H. Cohen with respect to liability on certain loans.
LACK OF APPRAISAL RIGHTS
You will not have appraisal rights under Delaware law should
you choose to dissent from any of the proposals referred to in the Notice of
Meeting.
POTENTIAL DILUTION; REGISTRATION RIGHTS
If holders of OP Units elect to redeem OP Units under the
provisions of the Operating Partnership's Partnership Agreement, the Company may
exercise its election to satisfy the Operating Partnership's redemption
obligation by exchanging shares of its Common Stock for the OP Units redeemed in
an amount determined as provided in the Partnership Agreement. (See "NEW
OPERATING STRUCTURE -- The Operating Partnership.") The OP Units for which such
shares are exchanged may, at the time of such redemption, have a fair market
value more or less than the then fair market value of the shares of Common Stock
issued and dilution in the value of outstanding Shares of Common Stock owned by
stockholders could result from the exchange.
16
<PAGE> 20
Under the Partnership Agreement, if the Company wishes to
satisfy with Shares a redemption obligation to a holder of OP Units being
redeemed, the resale of the Shares must be covered by a registration statement
filed with the Securities and Exchange Commission unless the Shares are
otherwise freely tradeable, under then applicable law, without a registration
statement. In addition, the Company has agreed that it will use reasonable
commercial efforts to cause a registration statement covering the resale of all
Shares received in exchange for OP Units redeemed under the Partnership
Agreement to be in effect for the two-year period beginning one year after the
Closing. Similar arrangements could be entered into by our Company in the future
if it acquires interests in additional properties.
17
<PAGE> 21
MASTER AGREEMENT
BACKGROUND AND REASONS FOR ENTERING INTO THE MASTER AGREEMENT
After its qualification as a REIT in 1982 and its sale of
certain real property it owned at that time, the Company's initial operating
strategy consisted of investing in real estate mortgage notes principally in the
form of loans to developers for the purpose of acquiring, developing or
constructing real estate. As a result of economic conditions in the real estate
market and the economy in general, in 1990 the Company decided to limit its new
loan commitments to its existing borrowers. As a result, monies received from
the repayment of existing mortgage notes and the sale of real estate were
generally utilized to reduce the Company's outstanding borrowings or to fund a
limited amount of new mortgage loan commitments. By the beginning of 1994, the
Company had repaid all of its outstanding borrowings (other than its long-term
collateralized mortgage obligations) and had significantly reduced its mortgage
loan commitments.
While the Company has been evaluating alternative real estate
investments, its available funds have been principally reinvested in high
quality short-term corporate or government securities, which generally yield an
average of 5 percent to 6 percent, as compared to an average of approximately 12
percent earned on the mortgage notes which were being repaid. Consequently, the
Company concluded that it was appropriate to seek to acquire a portfolio of
higher yielding real estate investments along with proven and experienced
personnel to manage and enhance such a portfolio.
On December 11, 1995, the Company announced that it had
entered into a Letter of Intent with WCI Communities L.P. ("WCI"), a private
partnership that had recently purchased the Florida-based real estate
development company formerly owned by Westinghouse Corporation. The transaction
contemplated, among other items, that the Company would acquire a general
partnership interest in a newly formed partnership which would own a portfolio
of residential and commercial real estate acceptable to the Company. The parties
were unable to reach agreement on terms for a definitive agreement and on March
26, 1996, the Company announced that negotiations with WCI had been terminated.
The Company then met with representatives of Sierra Financial,
Ltd. ("Sierra"), which owned an interest in several community and neighborhood
shopping centers and mortgages on other centers. Sierra introduced the Company
to the Montgomery Parties, which through Drexel managed one of the Sierra owned
centers along with other neighborhood shopping centers. The Company concluded
that the Montgomery Parties had a property management team capable of expert and
efficient management of community and neighborhood shopping centers, and that
further negotiations were justified. Thereafter, the parties negotiated the
terms of a transaction which contemplated the acquisition of certain properties
owned by Sierra and certain properties managed by the Montgomery Parties and in
which they had equity interests, but not including other neighborhood shopping
centers managed by the Montgomery Parties in which they did not have equity
interests.
18
<PAGE> 22
Because of a death and other illness in the Levy family, two
commercial properties, also in Pennsylvania, which had been managed by the
family, became available for acquisition. As they were of a type and within the
geographic area of properties managed by Drexel, the Company decided that
acquisition of these properties would be compatible with the Montgomery
Properties acquisition.
After a period of due diligence and evaluation, both the
Montgomery Parties and the Company concluded that only three of the Sierra
properties were desirable to be included in the transaction. The parties could
not reach agreement on the values of two of the Sierra properties and therefore
only one of the Sierra properties was to be included in the transaction.
Thereafter Sierra elected to withdraw its one remaining property from the
transaction, leaving the Montgomery Properties and the Levy Properties in the
transactions contemplated under the Master Agreement.
REASONS FOR BOARD OF DIRECTORS' RECOMMENDATION
As of August 31, 1997, the Company's unrestricted cash, cash
equivalents and short-term securities had increased to $13,468,000, with an
average yield of approximately 5.65 percent. Although the Company's Funds From
Operations has increased in recent years, principally due to additional revenues
from income producing properties and expense reductions, such increases have
been limited by the lower yields resulting from mortgage note repayments. If
available funds continue to be reinvested in lower yielding cash equivalents and
short-term securities, the Company's Funds From Operations may begin to decline.
Accordingly, the Board of Directors believes that this is an appropriate time to
consider the transactions contemplated under the Master Agreement.
The Company's Funds From Operations ("FFO") generally consist
of net income (computed in accordance with generally accepted accounting
principles) before recovery of previously recorded losses and depreciation of
real property (including the Company's share of depreciation in connection with
its equity earnings in unconsolidated partnerships). The Company believes that
FFO is an appropriate measure of operating performance because real estate
depreciation charges are not meaningful in evaluating the operating results of
the Company's current properties and certain non-recurring items, such as the
recovery of previously recorded losses, are not relevant to ongoing operations.
However, FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and should not be
considered as an alternative to either net income as a measure of the Company's
operating performance or to cash flows from operating activities as an indicator
of liquidity or cash available to fund all cash flow needs. In addition, since
other REITs may not calculate FFO in the same manner, FFO reported by the
Company may not be comparable to that reported by other REITs.
19
<PAGE> 23
The table below sets forth certain historical information of
the Company's Common Stock during certain periods based on the high and low
prices on the New York Stock Exchange:
Stock Prices Since 1992
<TABLE>
<CAPTION>
Stock Price High Low Stock Price High Low
----------- ---- --- ----------- ---- ---
<S> <C> <C> <C> <C> <C>
1997 1996
First quarter 14 12-3/8 First quarter 11-7/8 10-5/8
Second quarter 12-7/8 11-1/4 Second quarter 11-1/2 10-3/8
Third quarter 14 12-1/2 Third quarter 12-1/8 11
Fourth quarter 13-3/4 11-7/8
1995 1994
First quarter 9-1/2 8-7/8 First quarter 11-1/2 9
Second quarter 9-7/8 8-7/8 Second quarter 10-7/8 9-1/4
Third quarter 9-3/4 8-7/8 Third quarter 9-5/8 8-3/4
Fourth quarter 11-1/4 9-3/8 Fourth quarter 9-5/8 8-3/8
1993 1992
First quarter 11-1/2 7-3/8 First quarter 5-3/4 4-1/2
Second quarter 10-1/4 9-1/2 Second quarter 6-1/4 4-3/4
Third quarter 11 9-5/8 Third quarter 7-1/4 5-1/4
Fourth quarter 9-5/8 9-1/8 Fourth quarter 8-3/8 6-1/2
</TABLE>
The Board of Directors believes that consummation of the transactions
contemplated by the Master Agreement is consistent with its overall strategy of
increasing Funds From Operations and funds available for distribution. This
strategy includes:
o maximization of cash flow through the efficient operation of
the properties in which the Company has an interest, including
active leasing and property management, maintenance of high
occupancy levels, increasing rental rates and controlling
operating and capital costs; and
o acquisition of additional properties which satisfy the
Company's criteria, at favorable prices, including properties
requiring renovation or re-leasing.
The Board of Directors believes that the proposed transactions
will secure for the stockholders an experienced property management team to
provide efficient management of the community and neighborhood shopping center
properties in which interests are to be acquired and to pursue long-term growth
of the Company's assets.
The Company also believes that increasing its portfolio of
properties will allow it greater access to financing sources, including
securitized debt and public capital markets. Upon the consummation of the
transactions contemplated in the Master Agreement, it will be the Company's
policy to acquire additional properties and interests in properties only if they
are income producing. Any proposed acquisition of an additional property will
have to be approved
20
<PAGE> 24
by the Company's acquisitions committee and will require a resolution by a
majority of the Company's entire Board of Directors that the acquisition will
not adversely affect the Company's regular quarterly dividend of at least $.29
per Share. The Company can enforce these policies through its ability, if
necessary, to remove and replace the managing trustees of the Trust, which, as
described below, will hold the general partner interest in the Operating
Partnership. Further, with certain limited exceptions (see "AMENDMENTS TO THE
BY-LAWS"), if the Company does not declare and pay a dividend of at least $.29
per Share in any quarter, the compensation of the Company's chief executive
officer will be reduced by 50 percent for that quarter and for each subsequent
quarter until the Company declares and pays at least a $.29 per Share quarterly
dividend for four consecutive quarters. (See "CERTAIN CONSIDERATIONS - New
Management -- Change in Control.")
In evaluating and negotiating the proposed transactions under
the Master Agreement, the Company conducted extensive due diligence activities
with respect to the properties to be acquired and received detailed
representations and warranties with respect to factual matters, including
financial information, relevant to the value of the properties to be acquired.
The Board of Directors has also received appraisals, title reports, audited
financial statements (with respect to certain significant properties, which are
included with this Proxy Statement), environmental reports and engineering
reports prepared by independent third party professionals with respect to the
various properties in which interests are to be acquired. Under the Master
Agreement, the Company has the right to require the delivery of additional
reports, if necessary, by the Closing Date and title insurance will be obtained.
In addition, management engaged experienced real estate professionals at Ernst &
Young LLP to assist in the due diligence process and review certain factual data
and reports relating to the properties. Ernst & Young LLP has issued a letter to
the Board of Directors describing certain procedures followed in connection with
the due diligence activities of the Company and their conclusions, which support
the Board's analysis of the proposed transaction. Ernst & Young LLP has made no
recommendation or taken any position as to the value of the properties to be
acquired or the fairness of the transactions to our Company or its stockholders.
VOTE REQUIRED
The affirmative vote of a majority of the Shares of Common
Stock outstanding is required to approve the Master Agreement and the transfers
of properties and other transactions contemplated by the Master Agreement.
Approval of the Master Agreement is conditioned on approval of the other
Proposals, all of which must be approved or none of them will be approved.
Abstentions and broker non-votes will be counted for quorum purposes, but are
not considered present or eligible to vote. Consequently, an abstention or a
broker non- vote will be the equivalent of a vote against the adoption of the
Master Agreement.
THE BOARD OF DIRECTORS, FOR THE REASONS DISCUSSED ABOVE,
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MASTER AGREEMENT
AND THE TRANSFER OF PROPERTIES AND OTHER TRANSACTIONS CONTEMPLATED THEREIN.
21
<PAGE> 25
TRANSACTIONS UNDER THE MASTER AGREEMENT
The Master Agreement contemplates a number of related
transactions that are expected to occur simultaneously and are intended to
result in the Company, directly or indirectly, obtaining interests in up to 9
shopping centers and an office building comprising the Montgomery Properties and
the Levy Properties and in Drexel, a property management business. The
properties to be acquired and the Company's interest in Drexel will be owned,
directly or indirectly, by the Operating Partnership, and the Company, through
its wholly owned Subsidiary, the Trust, will own at least an 81.3 percent
interest in the Operating Partnership. (See "NEW OPERATING STRUCTURE.") As part
of the contemplated transactions, the Company will convey substantially all of
its existing properties and assets (or the economic benefit of certain of its
assets), subject to certain liabilities, to the Operating Partnership. As
discussed above, the exact number of properties to be acquired by the Operating
Partnership, and therefore the percentage ownership in the Operating Partnership
represented by the number of OP Units which the Company will receive, will not
be finally determined until Closing when it will be determined as to each
property if the conditions to the acquisition of the interests in such property
to be acquired have been satisfied. These conditions include obtaining any
required consents to the transactions contemplated including consents from
certain lenders and other typical closing conditions.
The number of OP Units to be issued to the Montgomery Parties
and the Levy Parties with respect to each of the interests to be transferred to
each of them, respectively, is set forth in the Master Agreement, but is subject
to adjustment based on expense allocations, closing adjustments and post-closing
adjustments and with respect to factual matters which may occur or be discovered
on or before the Closing Date. For purposes of computing any such adjustments
under the Master Agreement, the OP Units and the Shares are each deemed to have
a value of $11. The number of OP Units to be issued to Mr. Meshon with respect
to the interest in Drexel to be transferred is set forth in the Master
Agreement, but may be reduced in the event the leasing fees received by Drexel
in 1997 are less than the amount of leasing fees received by Drexel in 1996. Any
reduction will be based on changes in Drexel's annualized net operating income.
It is contemplated that simultaneously with the Closing,
Glenmont Associates, LP ("Glenmont"), the owner of the Whitemarsh Shopping
Center, will redeem the partnership interests of certain general and limited
partners for cash pursuant to a Redemption Agreement entered into by the
partners of Glenmont. The Company has agreed to contribute the redemption price
of up to, but not more than, $1,375,000 to Glenmont to fund such redemption.
At the Closing, persons or entities transferring interests in
real property or shares in Drexel will receive OP Units which are subject to
certain restrictions on further transfer. Generally, without the consent of the
Trust, the Montgomery Parties and Levy Parties cannot sell or otherwise dispose
of their OP Units during the one-year period following the Closing. Thereafter,
unless for the benefit of immediate family members or a permitted pledge in
connection with certain loans, transfers of OP Units held by the Montgomery
Parties and Levy Parties are subject to certain restrictions and the consent of
the Trust. (See "THE OPERATING PARTNERSHIP.") The Trust may transfer its OP
Units representing its limited partnership
22
<PAGE> 26
interests at any time, but, if the Trust and its affiliates do not own at least
95 percent of the OP Units, it may not transfer its OP Unit representing its
general partnership interest or withdraw as general partner without the consent
of certain of the limited partners. Mr. Meshon will deliver into escrow for one
year all of the OP Units he personally, directly or indirectly, receives in
exchange for interests in the Montgomery Properties (but not Drexel) and H.
Irwin Levy will deliver into escrow for one year 30 percent of the OP Units he
personally, directly or indirectly, receives in exchange for interests in the
Levy Properties. If the Company is entitled to indemnification from Mr. Meshon
or H. Irwin Levy under the Master Agreement based on a breach of any
representation, warranty or covenant, it may demand payment in OP Units out of
the OP Units being held in escrow.
The OP Units received by Mr. Meshon in exchange for the shares
of Drexel being transferred may be subject to forfeiture in whole or in part
under his employment agreement if his employment terminates prior to five years
after the Closing. (See "CERTAIN CONSIDERATIONS -- New Management -- Change of
Control.")
The Master Agreement provides that the Company will use
reasonable commercial efforts to keep in effect during the two year period
starting one year after the Closing a registration statement covering resales of
any Shares received, at the Company's option, in exchange for OP Units redeemed
by limited partners. In addition, under the Partnership Agreement, the Company
may exercise its rights to exchange Shares for the OP Units of a limited partner
redeeming OP Units only if a registration statement covering the resale of such
Shares is in effect within 60 days after such election, unless the Shares are
otherwise freely tradeable, under then applicable law, without a registration
statement. The Company has also agreed for the benefit of certain limited
partners (which may include Mr. Meshon) who will acquire their OP Units as a
result of the acquisition of the Chesterbrook Village Center that they will have
the benefit of any additional registration rights hereafter added to the
registration rights provisions of the Partnership Agreement and that in certain
cases the Company will add the Shares they obtain and propose to resell upon
redemption of OP Units to any pending registration statement within 48 hours,
and may enter into similar agreements with others.
If the Closing is not effected as of the last day of a fiscal
quarter, the Montgomery Parties and Levy Parties are also required to deliver to
the Operating Partnership at the Closing cash in the amount of the funds from
the operation of the properties transferred for the period from the end of the
prior fiscal quarter through the Closing Date.
TERMS OF THE MASTER AGREEMENT
Even if the conditions to the transfer of all the Montgomery
Properties are not met, the Master Agreement requires the Company to consummate
the transactions as to which the conditions have been met so long as Meshon
enters into the Employment Agreement and the conditions have been met as to at
least acquisition of the interests in the following assets: Danville Plaza,
Mount Carmel Plaza, County Line Plaza, Rio Grande Plaza and the interest to be
transferred in Drexel.
23
<PAGE> 27
CONDITIONS
The Company is not required to consummate any of the
transactions under the Master Agreement unless certain conditions are met or
waived by the Company, including (i) stockholder approval of the Proposals; (ii)
all necessary consents having been obtained; (iii) continued accuracy of
representations and warranties of and compliance with covenants by the other
parties; (iv) the Company having received an agreed upon procedures letter from
Ernst & Young LLP on or before the Closing Date in form satisfactory to the
Company and not having received from BDO Seidman, LLP, its independent certified
public accountants, or Ernst & Young LLP, a letter to the effect that the
Company's projected real estate investment trust taxable income (without regard
to the dividends paid deduction or net operating loss carry forwards) after
giving effect to the transactions to be consummated will exceed, or that its
projected income will not equal or exceed, $1.16 per Share; (v) no events or
state of facts existing or having occurred which in the reasonable opinion of
the Company would cause the consummation of the transactions to cause a risk to
the continued qualification of the Company as a REIT or cause a risk that
Section 721(a) of the Internal Revenue Code will not apply to the contemplated
transactions; (vi) no events having occurred which have a material adverse
effect on the Montgomery Properties, Drexel or the Levy Properties; and (vii)
approval by the New York Stock Exchange of the additional listing application.
(See "MASTER AGREEMENT -- Terms of the Master Agreement -- Listing of Shares.")
The Company is not obligated to consummate the transactions with the Levy
Parties if it does not consummate the transactions with the Montgomery Parties.
The Montgomery Parties and the Levy Parties are each not
required to consummate any of the transactions under the Master Agreement unless
certain conditions are met or waived by Mr. Meshon on behalf of the Montgomery
Parties or Mr. Levy on behalf of the Levy Parties, including (i) stockholder
approval of the Proposals; (ii) all necessary consents having been obtained;
(iii) continued accuracy of representations and warranties of and compliance
with covenants by the other parties; (iv) approval by the New York Stock
Exchange of the additional listing application; and (v) no events having
occurred which have or would be reasonably likely to have a material adverse
effect on the Company or its properties taken as a whole.
LISTING OF SHARES
The Company has applied to The New York Stock Exchange for
additional listing of the Common Stock reserved for issuance pursuant to the
Company's obligations under the Partnership Agreement to provide Shares if it
elects to satisfy a redemption request by delivery of Shares and under the Trust
Plan or the Drexel Plan.
REGULATORY REQUIREMENTS
There are no material federal or state regulatory requirements
that the Company or the other parties to the Master Agreement must comply with
or approvals that must be obtained to consummate the Master Agreement, other
than the furnishing of this Proxy
24
<PAGE> 28
Statement to stockholders of record on the record date and to certain beneficial
owners of Common Stock and obtaining the approval of the New York Stock Exchange
for the listing of the additional Shares.
AMENDMENTS
Amendments to the Master Agreement must be in writing and
signed by the party to be bound by the amendment.
DREXEL MANAGEMENT AGREEMENTS
Upon the consummation of the transactions contemplated in the
Master Agreement, Drexel will enter into (i) a Master Exclusive Leasing and
Management and Executive Services Agreement with the Trust, pursuant to which
Drexel will provide certain property management and executive services to the
Trust, and (ii) management agreements with the property partnerships, pursuant
to which Drexel will become the sole and exclusive agent to perform the leasing,
operation, management, maintenance and supervision services with respect to the
properties owned by the Operating Partnership and any properties that might be
acquired by the Operating Partnership in the future. Drexel will be reimbursed
on a monthly basis for all direct and indirect costs and expenses it incurs in
carrying out its duties under these agreements and will receive customary
management and leasing fees. Each agreement to manage the properties shall
continue until terminated by the owners of the respective properties.
Drexel will also continue to perform management services under
existing management contracts with respect to properties owned by third parties
located in Pennsylvania and New Jersey. It is not contemplated that Drexel will
seek any additional third party management contracts.
Upon the consummation of the transactions contemplated in the
Master Agreement, Drexel will also adopt the Drexel 1997 Stock Option Plan (the
"Drexel Plan"), which, generally, will provide for the issuance to employees of
Drexel and its designated Subsidiaries (which excludes the Company) and all
non-employee directors of Drexel of non-qualified stock options to purchase a
maximum of 400,000 Shares of Common Stock of the Company. The Company
contemplates that such options shall not be exercisable until one year after the
Closing Date. Pursuant to the amendments to the Company's certificate of
incorporation being submitted to stockholders for approval together with the
Master Agreement and the transactions contemplated therein (under which, among
other things, the Company will acquire a 95 percent equity interest in Drexel),
the Company proposes to increase the number of its authorized Shares of Common
Stock, among other reasons, to provide for sufficient Shares to satisfy the
requirements of the Drexel Plan. (See "CERTAIN CONSIDERATIONS -- Interests of
Certain Persons -- Meshon Interests" and "AMENDMENTS TO THE CERTIFICATE OF
INCORPORATION.") Upon the exercise of stock options by participants in the
Drexel Plan, Drexel may purchase Shares from the Company or in the market at a
price equal to the fair market value of the Shares at that time. In the event
that the option exercise
25
<PAGE> 29
price is less than such fair market value, the excess will be reimbursed to
Drexel by the Operating Partnership or the Trust under the Partnership Agreement
and the Master Exclusive Leasing and Management and Executive Services Agreement
and property management agreements contemplated thereunder. (See "NEW OPERATING
STRUCTURE -- The Operating Partnership.") Such reimbursements may reduce the
Operating Partnership's Funds From Operations. If an exemption from registration
is not then available, the Company intends to use reasonable commercial efforts
to register the Shares issuable under the Drexel Plan pursuant to the
registration statement it may be obliged to file for the benefit of holders of
OP Units seeking to redeem their OP Units for Shares and then resell such
Shares. (See "MASTER AGREEMENT -- Transactions Under the Master Agreement.")
BROKER AGREEMENT
The Company, Drexel, Sierra, Sternlieb Properties LLC
("Sternlieb") and Real Mark Advisory Corp. ("RMAC") are parties to a Broker
Agreement dated April 24, 1997 (the "Broker Agreement"), pursuant to which
Sternlieb and RMAC were engaged to act as financial advisor in connection with
the acquisition of real property by the Company of certain listed properties
with respect to which Drexel, Royce, Mr. Meshon or another Montgomery Party, is
a general partner, maintains an ownership interest in or is the property manager
or managing agent. Pursuant to the Broker Agreement, Sternlieb and RMAC will be
entitled to a transaction fee of 1 percent of the gross proceeds (as defined in
the Broker Agreement) of the sale of the Montgomery Properties. Certain of the
Montgomery Parties (including Mr. Meshon) will receive an aggregate of 25
percent of such transaction fee. For purposes of calculating the transaction fee
to be paid, any OP Units to be received as a portion of the purchase price will
be valued at $11 per OP Unit.
TERMINATION
The Company may terminate the Master Agreement in certain
circumstances including, among others, (1) if the Company's stockholders do not
approve the Master Agreement and the transfers of properties and other
transactions contemplated therein, (2) if any representation or warranty by any
of the Montgomery Parties is untrue in any material respect and such breach is
not cured with 15 days of notice to Mr. Meshon, (3) if any of the Montgomery
Parties materially default in performing their obligations under the Master
Agreement and such breach is not cured within 15 days of notice to Mr. Meshon,
(4) if any material part of any Montgomery Property is taken by exercise of the
power of eminent domain prior to the Closing and (5) if title insurance for any
of the Montgomery Properties cannot be obtained. Additionally, the Company can
terminate the Master Agreement if the Closing has not taken place by December
31, 1997, provided the Company is not in default. The Montgomery Parties and the
Levy Parties have certain analogous rights to terminate the Master Agreement,
and the Master Agreement can be terminated by written agreement of the Company
and Mr. Meshon at any time.
26
<PAGE> 30
NEW OPERATING STRUCTURE
The Company's operations, pursuant to the terms of the Master
Agreement, will be conducted through a new operating structure. The Company
essentially will be a holding company with no significant assets other than its
indirect interest in the Operating Partnership; it may hold legal title to
certain assets as to which the economic benefits are assigned to the Operating
Partnership and it will have responsibility for certain retained immaterial
contingent liabilities.
The structure of the transactions is intended to enable those
persons conveying assets to the Operating Partnership to defer certain tax
consequences of the transaction, to qualify the Trust as a qualified REIT
subsidiary under the Internal Revenue Code and a qualified real estate
investment trust subsidiary under the laws of the state in which the majority of
the properties are operated, and to permit the Company, through the Operating
Partnership, to acquire additional properties in the future in a structure that
may enable the transferors of such properties to defer the recognition of
taxable gain.
27
<PAGE> 31
The chart below sets forth the principal entities in the new
operating structure:
[The Company's proxy statement includes a chart setting forth the principal
entities in the new operating structure upon consummation of the transactions
contemplated in the Master Agreement as follows:
CV Reit, Inc. will hold all beneficial interests in the Trust, which will
hold the general partner interest and limited partner interests in the Operating
Partnership. The other holders of limited partner interests in the Operating
Partnership will be the Montgomery Parties, the Levy Parties, Mr. Meshon and Mr.
Levy. The Operating Partnership will hold 100 percent of the non-voting stock
and 1 percent of the voting stock (together comprising 95 percent of the total
equity) in Drexel. Mr. Meshon and his wife will hold 99 percent of the voting
stock (comprising 5 percent of the equity) in Drexel, and the interests in
Drexel of Mr. Meshon and his wife will be held in a voting trust. Drexel will
own 100 percent of the common stock of Royce Realty, Inc. and MGA Payroll
Company Inc. The Operating Partnership will own, indirectly through wholly-owned
subsidiaries, the Montgomery Properties and the Levy Properties as well as the
existing assets of the Company (or the economic benefit thereof).]
28
<PAGE> 32
THE TRUST
Montgomery CV Trust (the "Trust") is a Delaware business trust
of which the Company is the 100 percent beneficial owner. The trustees of the
Trust include a resident trustee and managing trustees. All responsibility for
managing the business and affairs of the Trust is delegated exclusively to the
managing trustees. The resident trustee acts only at the direction of the
managing trustees, who may be replaced at any time, with or without cause, by
the Company. The trustees are exculpated from personal liability arising from
entering into the Master Agreement or from the operation of the business and
affairs of the Trust. Except for the OP Units representing limited partnership
interests issued to the Montgomery Parties and the Levy Parties at the Closing,
the OP Units representing the remaining limited partnership interest and all of
the general partnership interest in the Operating Partnership will be owned by
the Trust. As noted above (see "INTRODUCTION"), except where the context
otherwise requires, references to the Company in this proxy statement include
the Trust, which will serve as general partner of the Operating Partnership.
THE OPERATING PARTNERSHIP
The Company will contribute substantially all of its assets
(or the economic benefit of its assets), subject to certain liabilities, to
Montgomery CV Realty L.P. (the "Operating Partnership"), a Delaware limited
partnership, in exchange for the general partner interest and certain limited
partner interests in the Operating Partnership ("OP Units") to be issued to the
Company's wholly-owned Subsidiary, the Trust. The Trust will serve as the sole
general partner of the Operating Partnership and will own at least approximately
81.3 percent of the outstanding OP Units. The Operating Partnership will also
issue OP Units to other parties to the Master Agreement in exchange for assets,
stock or partnership interests contributed to the Operating Partnership by these
parties. Upon the Closing of the transactions contemplated under the Master
Agreement, the Montgomery Parties will own up to approximately 14.8 percent of
the OP Units and the Levy Parties will own up to approximately 3.9 percent of
the OP Units, subject to adjustment in each case as provided in the Master
Agreement.
Generally, as the sole general partner of the Operating
Partnership, the Trust exclusively will possess all management powers over the
business and affairs of the Operating Partnership and will have full power and
authority to do all things deemed necessary or desirable by it to conduct the
business of the Operating Partnership, including the ability to cause the
Operating Partnership to enter into certain major transactions, such as the
acquisition, disposition, mortgage, pledge, encumbrance, hypothecation, or
exchange of any asset of the Operating Partnership. However, the Operating
Partnership has agreed that it will not sell certain of the properties
contributed to the Operating Partnership until various dates after the Closing
not later than July 31, 2002, and also will not make certain prepayments or
refinancings of certain of the mortgages to which such properties are subject
prior to various dates not later than July 31, 2002, unless certain of the
contributing limited partners consent to such sale, prepayment or refinancing.
29
<PAGE> 33
The holders of the OP Units other than the Trust, as limited
partners in the Operating Partnership, will not have any right to participate in
the management of the Operating Partnership, except that the Trust (in its
capacity as sole general partner) may be required to seek the consent of limited
partners holding a majority of the OP Units (not including OP Units originally
issued to and still held by the Trust) to amend the Operating Partnership
Agreement (the "Partnership Agreement").
In addition, in the case of certain specified amendments of
the Partnership Agreement, the Trust will be required to seek the consent of
each limited partner that is adversely affected by such amendment. The Company
will be required to seek the consent of a majority of the holders of the then
outstanding OP Units (including OP Units held by the Trust) before engaging in
any merger, consolidation, sale of substantially all of its assets, or other
"Termination Transaction," as such term is defined in the Partnership Agreement.
As the sole general partner of the Operating Partnership, the
Trust has the ability to cause the Operating Partnership to issue additional OP
Units, subject to certain restrictions set forth in the Partnership Agreement
and can cause the Operating Partnership to acquire interests in additional
properties including for OP Units without the consent of any other partners.
The Partnership Agreement provides that, if the Operating
Partnership requires additional funds to pursue its investment objectives, the
Trust may fund such investments by (i) causing the Operating Partnership to
issue additional OP Units, (ii) making additional capital contributions to the
Operating Partnership, (iii) causing the Operating Partnership to borrow money,
(iv) making a loan to the Operating Partnership, or (v) causing the Operating
Partnership to sell any of its assets or properties (subject to the limitation
discussed above). Among other purposes, the Trust may make additional capital
contributions to the Partnership for payment to Drexel in connection with the
acquisition of Shares from the Company by Drexel under the Drexel Plan. (See
"MASTER AGREEMENT -- Terms of the Master Agreement -- Drexel Management
Agreements.") However, the Trust does not have the right to require OP Unit
holders to make additional contributions to the Operating Partnership.
The Partnership Agreement provides that if the Company issues
debt securities (other than to allow the Company to pay its regular quarterly
dividend or maintain its REIT qualification), preferred stock, common stock
(except as is needed to allow for the redemption of OP Units for Shares) or
rights, options, warrants or convertible or exchangeable securities containing a
right to purchase debt securities, preferred or common stock of the Company,
then, (i) if debt securities are issued, the Trust must lend to the Operating
Partnership an amount equal to the proceeds from such debt securities on the
same terms and conditions applicable to such debt securities and (ii) if equity
securities (including Shares) are issued, then the Trust must contribute to the
Operating Partnership an amount equal to the proceeds from such securities
including any subsequent conversion thereof (if applicable). If equity
securities on a parity with the Shares are issued, then the Operating
Partnership must provide to the Trust a number of additional OP Units equal to
the number of securities issued multiplied by a factor designed to
30
<PAGE> 34
adjust for transactions in which Shares may be issued, redeemed or exchanged
without a corresponding change in the number of OP Units.
The Partnership Agreement provides that the Trust may not
voluntarily withdraw from the Operating Partnership or transfer or assign its
general partner interest in the Operating Partnership, unless the Trust owns 95
percent of the OP Units or limited partners holding a majority of the OP Units
(other than OP Units originally issued to and still held by the Trust) consent
to such transfer or withdrawal or such transfer is to an entity which is
wholly-owned by the Company. Except as provided in the preceding sentence, in
the event the Trust withdraws as general partner, its general partner interest
will be converted into a limited partner interest.
The Partnership Agreement provides that it is a purpose of the
Operating Partnership that, to the extent consistent with the operation of the
Operating Partnership in a prudent manner, all of the activities of the
Operating Partnership should be conducted with a view to enabling the Operating
Partnership to make distributions to all partners of at least $.29 per OP Unit
per quarter and such additional amount, if any, as is sufficient to enable the
Company to pay a regular quarterly dividend of at least $.29 per Share and any
other dividend required to cause the Company to continue to qualify as a REIT.
Distributions by the Operating Partnership and allocations of Operating
Partnership items will generally be made in proportion to holdings of OP Units.
The Montgomery Parties and the Levy Parties and their assignees will generally
be prohibited from transferring their OP Units without the consent of the Trust
for a period of twelve months commencing with the date of the consummation of
the transactions contemplated under the Master Agreement.
The Partnership Agreement grants OP Unit holders, other than
the Trust, the right to require the Operating Partnership to redeem their OP
Units for cash at any time after the expiration of the twelve month period
following the Closing (unless the Trust otherwise consents to a shorter holding
period of not less than 6 months). However, the Trust will have the right to
assume the obligation of the Operating Partnership with respect to any OP Units
tendered for redemption by any OP Unit holders and to acquire such OP Units in
exchange for cash or Shares of the Company's Common Stock at the option of the
Trust, provided that a registration statement is in effect with respect to any
Common Stock the Trust uses to satisfy its obligation to such OP Unit holders
(unless the Shares of that stock are otherwise freely tradeable, under then
applicable law, without a registration statement). The Partnership Agreement
also provides that if the Trust elects to exchange Common Stock for OP Units
tendered for redemption, then the number of Shares of stock to be issued will
generally be equal to the number of OP Units tendered for redemption.
The Operating Partnership will continue until December 31,
2096, or until sooner dissolved pursuant to terms of the Partnership Agreement.
31
<PAGE> 35
INFORMATION ABOUT OUR COMPANY
The following information concerning the Company is
incorporated by reference in this Proxy Statement:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31 and June 30, 1997; and
3. The Company's Current Report on Form 8-K filed to report an event
of May 6, 1997.
(See "INCORPORATION BY REFERENCE OF CERTAIN SUBSEQUENTLY FILED DOCUMENTS.")
32
<PAGE> 36
INFORMATION ABOUT OTHER PARTIES TO THE MASTER AGREEMENT
THE MONTGOMERY PARTIES
The Montgomery Parties are comprised of Mr. Meshon and certain
other persons and entities which in different combinations, directly and
indirectly, own with Mr. Meshon the Montgomery Properties described herein. (See
"PROPERTIES TO BE ACQUIRED -- The Montgomery Properties.") Except for Danville
Plaza, Mount Carmel Plaza and Rio Grande Plaza (properties valued at
approximately $14.9 million), Mr. Meshon does not own more than 50 percent of
any of the Montgomery Properties or have the power to direct their disposition.
Mr. Meshon holds, as nominee for the Operating Partnership, a
99.9 percent limited partner interest in the limited partnership which owns
County Line Plaza. Mr. Meshon also owns the entity which holds the .01 percent
general partner interest in that limited partnership. Mr. Meshon acquired these
interests in June 1997. As part of the transactions contemplated under the
Master Agreement, Mr. Meshon's general partner and limited partner interests in
the limited partnership which owns County Line Plaza will be transferred to the
Trust and the Operating Partnership, or their designee, without additional
consideration to Mr. Meshon. No OP Units will be conveyed to Mr. Meshon for such
interests.
DREXEL REALTY, INC.
Drexel, a Pennsylvania corporation, was incorporated on
October 11, 1977. Drexel is engaged in the development, brokerage, construction,
leasing and management of real estate. Drexel performs these services for the
Montgomery Properties, as well as for approximately 25 properties located in the
Commonwealth of Pennsylvania and the State of New Jersey which are owned by
third parties. It is not contemplated that Drexel will seek any additional third
party management contracts in the future. Currently, Drexel is owned 100 percent
by Mr. Meshon. Upon the consummation of the transactions described in this Proxy
Statement, Drexel will be owned by the Operating Partnership, which will own 100
percent of the non-voting stock and 1 percent of the voting stock of Drexel, and
by the Louis P. Meshon, Sr. Voting Trust (the "Voting Trust"), which will own 99
percent of the voting stock of Drexel for the benefit of Mr. Meshon and his
wife. Mr. Meshon will be the trustee of the Voting Trust, with authority to
exercise all of the rights under the voting stock of Drexel held in the Voting
Trust. However, Mr. Meshon will be replaced as trustee of the Voting Trust if he
ceases to be President and Chief Executive Officer of the Company or in the
event of his death, incapacity or bankruptcy. In such event, Wilmington Trust
Company of Pennsylvania Inc. will become the successor trustee. The terms of
Drexel's articles of incorporation and the relative rights of its voting and
non-voting stock shall be such that, upon the distribution of any dividends by
Drexel, the Operating Partnership shall receive 95 percent of such dividends.
33
<PAGE> 37
ROYCE REALTY, INC.
Royce Realty, Inc., a Pennsylvania corporation ("Royce"), was
incorporated on March 20, 1978. Royce holds a real estate brokerage license on
behalf of Drexel, and has entered into real estate management agreements, as
nominee for Drexel, with various third parties with respect to property located
in the Commonwealth of Pennsylvania and the State of New Jersey. Currently Royce
is owned 100 percent by Mr. Meshon. As a part of the consummation of the
transactions described in this Proxy Statement, Royce will be owned 100 percent
by Drexel.
MGA PAYROLL COMPANY INC.
MGA Payroll Company Inc., a Pennsylvania corporation ("MGA
Payroll"), was incorporated on March 1, 1995. MGA Payroll employs certain
individuals who are employed at the various shopping centers managed by Drexel,
including the Montgomery Properties and third party owned properties, and at the
offices of Drexel and its affiliates. Currently, MGA Payroll is owned 100
percent by Mr. Meshon. As a part of the consummation of the transactions
described in this Proxy Statement, MGA Payroll will be owned 100 percent by
Drexel.
THE LEVY PARTIES
The Levy Parties are comprised of H. Irwin Levy and siblings
of Mr. Levy or their immediate families or their estates or trusts established
for the benefit thereof. The Levy Parties own the Levy Properties described
herein. (See "PROPERTIES TO BE ACQUIRED -- The Levy Properties.")
34
<PAGE> 38
PROPERTIES TO BE ACQUIRED
The Montgomery Properties consist of seven shopping centers
and one office building including County Line Plaza, which is owned by a limited
partnership in which Mr. Meshon holds a 99.9 percent limited partner interest as
nominee of the Operating Partnership and in which Meshon also owns a 0.1 percent
general partner interest, in each case which were acquired in June 1997, each of
which is to be transferred to the Operating Partnership and the Trust, or their
designee, without additional consideration. Five of the shopping centers and the
office building are located in Pennsylvania, and the remaining shopping centers
are located in New Jersey. The Montgomery Properties contain in the aggregate
587,937 square feet of total GLA, all of which is owned by the Montgomery
Partnerships. As of August 31, 1997, the Montgomery Properties were 98.9 percent
leased.
The Levy Properties consist of one shopping center located in
Dickson City, Pennsylvania and one single user retail property located in
Wilkes-Barre, Pennsylvania. The Levy Properties contain in the aggregate 55,624
square feet of total GLA, all of which is owned by the Levy Parties. As of
August 31, 1997, the Levy Properties were 100 percent leased.
A description of each of the Montgomery Properties and the
Levy Properties is set forth below. Certain historical and other information
concerning the Montgomery Properties and the Levy Properties is set forth in the
accompanying tables.
THE MONTGOMERY PROPERTIES
CHESTERBROOK VILLAGE CENTER. Chesterbrook Village Center is a
community shopping center located in Wayne, Pennsylvania, a suburb of
Philadelphia. Chesterbrook Village Center consists of 122,316 square feet of
GLA. Chesterbrook Shopping Center, a Pennsylvania limited partnership, holds
equitable title to the Chesterbrook Village Center pursuant to an installment
sales agreement with the Chester County Industrial Development Authority. The
major anchor of Chesterbrook Village Center is Genuardi's Supermarket, which
leases 38,502 square feet of GLA. Chesterbrook Village Center consists of 41
stores. As of August 31, 1997, Chesterbrook Village Center was 94.9 percent
leased. The address of Chesterbrook Village Center is 500 Chesterbrook
Boulevard, Wayne, Pennsylvania.
COUNTY LINE SHOPPING CENTER. County Line Shopping Center is a
community shopping center located in Souderton, Pennsylvania, a suburb of
Philadelphia. County Line Shopping Center consists of 160,621 square feet of GLA
and is owned by County Line Realty Plaza Associates, L.P., a Pennsylvania
limited partnership, by which it was acquired in 1997. The major anchors of
County Line Shopping Center are Ames, a department store, which leases 84,935
square feet of GLA; and Clemens Markets, which leases 36,526 square feet of GLA.
County Line Shopping Center consists of 17 stores. As of August 31, 1997, County
Line Shopping Center was 100 percent leased. The address of County Line Shopping
Center is Route 113 and County Line Road, Souderton, Pennsylvania.
35
<PAGE> 39
DANVILLE PLAZA. Danville Plaza is a neighborhood shopping
center located in Danville, Pennsylvania. Danville Plaza was built in 1971.
Danville Plaza consists of 24,052 square feet of GLA and is owned by Danville
Associates, a Pennsylvania limited partnership, by which it was acquired in
1987. Danville Plaza was renovated in 1987. The major anchor at Danville Plaza
is CVS Pharmacy, which leases 14,500 square feet of GLA. Danville Plaza consists
of 5 stores. As of August 31, 1997, Danville Plaza was 100 percent leased. The
address of Danville Plaza is Northumberland and Montour Streets, Danville,
Pennsylvania.
MOUNT CARMEL PLAZA. Mount Carmel Plaza is a neighborhood
shopping center located in Glenside, Pennsylvania, a suburb of Philadelphia.
Mount Carmel Plaza was built in 1988. Mount Carmel Plaza consists of 14,502
square feet of GLA and is owned by CVS Glenside Equities, a Pennsylvania limited
partnership. The major anchor at Mount Carmel Plaza is CVS Pharmacy, which
leases 9,600 square feet of GLA. Mount Carmel Plaza consists of 5 stores. As of
August 31, 1997, Mount Carmel Plaza was 100 percent leased. The address of Mount
Carmel Plaza is 2360 Mt. Carmel Avenue, Glenside, Pennsylvania.
PLYMOUTH PLAZA. Plymouth Plaza is an office building located
in Plymouth Meeting, Pennsylvania, a suburb of Philadelphia, and serves as
headquarters for the Montgomery Parties. Plymouth Plaza was built in 1974 and is
owned by Glenmont-Plymouth, L.P., a Pennsylvania limited partnership, by which
it was acquired in 1994. Plymouth Plaza was completely renovated in 1995.
Plymouth Plaza consists of 30,026 square feet of GLA. The major anchor at
Plymouth Plaza is the Montgomery Group Affiliates, which leases 10,394 square
feet of GLA. Plymouth Plaza consists of 13 office suites. The Glenville Group,
Inc., a corporation controlled by Milton S. Schneider, one of the Montgomery
Parties' director designees, has its headquarters in 2,262 square feet of leased
space in this office building. As of August 31, 1997, Plymouth Plaza was 100
percent leased. The address of Plymouth Plaza is 580 West Germantown Pike,
Plymouth Meeting, Pennsylvania.
RIO GRANDE PLAZA. Rio Grande Plaza is a community shopping
center located in Rio Grande, New Jersey at Interchange 4 of the Garden State
Parkway. Rio Grande Plaza was built in 1991 by, and is owned by, Rio Grande
Associates, a Pennsylvania limited partnership. Rio Grande Plaza consists of
139,026 square feet of GLA. The major anchors of Rio Grande Plaza are J.C.
Penney, which leases 33,308 square feet of GLA; Peebles, which leases 30,000
square feet of GLA; and Sears, which leases 22,037 square feet of GLA. Rio
Grande Plaza consists of 26 stores. As of August 31, 1997, Rio Grande Plaza was
99.2 percent leased, including the J.C. Penney lease, which commenced on
September 27, 1997. The address of Rio Grande Plaza is New Jersey Route 47 and
5th Street, Rio Grande, New Jersey.
WHITEMARSH SHOPPING CENTER. Whitemarsh Shopping Center is a
community shopping center located in Conshohocken, Pennsylvania, a suburb of
Philadelphia. Whitemarsh Shopping Center was built in 1969, and was acquired by
Glenmont Associates, a Pennsylvania limited partnership, in 1993, and completely
renovated in 1996. Whitemarsh Shopping Center consists of 67,418 square feet of
GLA. The major anchor of Whitemarsh Shopping Center is Clemens Market, a
supermarket, which leases 30,600 square feet of GLA.
36
<PAGE> 40
Whitemarsh Shopping Center consists of 14 stores. As of August 31, 1997,
Whitemarsh Shopping Center was 100 percent leased. The address of Whitemarsh
Shopping Center is Ridge and Butler Pikes, Conshohocken, Pennsylvania.
WOODBOURNE SQUARE. Woodbourne Square is a neighborhood
shopping center located in Langhorne, Pennsylvania, a suburb of Philadelphia.
Woodbourne Square was built in 1985. Woodbourne Square consists of 29,976 square
feet of GLA and is owned by Parcel Eleven-C.J.P. Associates, a Pennsylvania
limited partnership. The major anchor of Woodbourne Square is The Rehab Place at
Oxford Valley, a physical rehabilitation facility, which leases 8,325 square
feet of GLA. Woodbourne Square consists of 14 stores. As of August 31, 1997,
Woodbourne Square was 100 percent leased. The address of Woodbourne Square is
Woodbourne Road and Lincoln Highway, Langhorne, Pennsylvania.
THE LEVY PROPERTIES
555 SCOTT STREET. 555 Scott Street is a single user retail
property located in Wilkes-Barre City, Pennsylvania. 555 Scott Street was
acquired in 1977 by certain of the Levy Parties. 555 Scott Street consists of a
8,400 square foot freestanding retail store owned by the Levy Parties. 100
percent of 555 Scott Street is leased by Pet Supplies Plus, a pet food and pet
supplies retailer. As of August 31, 1997, 555 Scott Street was 100 percent
leased. Its address is 555 Scott Street, Wilkes-Barre City, Pennsylvania.
ROUTE 6 OFFICE MAX CENTER. Route 6 Office Max Center is a
community shopping center located in Dickson City, Pennsylvania, a suburb of
Scranton. Route 6 Office Max Center was built in 1972 by the Levy Parties and
was renovated in 1990. Route 6 Office Max Center consists of 47,224 square feet
of GLA, all of which is owned by certain of the Levy Parties. The tenants of
Route 6 Office Max Center are Office Max, an office superstore, which leases
32,824 square feet of GLA; Pet Supplies Plus, a pet food and pet supplies
retailer, which leases 8,500 square feet of GLA; and Peters, a janitorial
supplies retailer, which leases 5,900 square feet of GLA. Route 6 Office Max
Center consists of 3 stores, and as of August 31, 1997 was 100 percent leased.
Its address is Scranton Carbondale Highway, Dickson City, Pennsylvania.
OTHER INFORMATION ABOUT THE PROPERTIES TO BE ACQUIRED
Our Proxy Statement contains certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and is intended to be covered by the safe harbors provided by
that Section. You should be aware that all forward-looking statements involve
risks and uncertainties, including those described below and elsewhere in our
Proxy Statement, in our 1996 Annual Report to Stockholders and in our annual and
quarterly reports that are incorporated by reference in our Proxy Statement.
Although we believe that the assumptions underlying these forward-looking
statements are reasonable, any of our assumptions could be inaccurate.
Therefore, we cannot assure you that these forward-looking statements will prove
to be accurate. Moreover, in light of the
37
<PAGE> 41
significant uncertainties inherent in these forward-looking statements, we
cannot assure you that our objectives and plans will be achieved.
Upon consummation of the transactions contemplated in the
Master Agreement, the Company's indebtedness is expected to aggregate
approximately $68 million, consisting of approximately $33.6 million of
mortgages encumbering the properties anticipated to be acquired, with an
estimated annual debt service requirement of approximately $3.4 million in 1998
and scheduled maturities from 1998 through 2008, and approximately $34 million
of CMO'S, which require self-amortizing principal and interest payments of $5.2
million on an annual basis through March 2007. Management believes that cash
flow generated from the Operating Partnership's 1998 operations and available
cash balances will be sufficient to satisfy debt service obligations, working
capital requirements, capital improvement needs (anticipated to be insignificant
in 1998) and distributions to stockholders in accordance with the Master
Agreement and REIT income tax requirements. However, there can be no assurance
that additional capital will not be needed to satisfy such requirements.
The Company will account for the acquisition under the
purchase method of accounting, with assets acquired and liabilities assumed
recorded at estimated fair values, and the operating results of the acquired
properties included in the Company's consolidated financial statements from the
effective date of acquisition.
Upon consummation of the acquisition, the Company's future
revenues and operating expenses will increase significantly and state and local
taxes may similarly increase. Based on current rent rolls and operating expenses
of the Montgomery Properties and the Levy Properties, rent income and operating
expenses would increase by approximately $7.9 million and $2 million,
respectively. Additional revenues and expenses are also expected from the
operations of Drexel, which currently manages approximately 34 properties,
including those anticipated to be acquired by the Operating Partnership.
Rental charges, additional rental charges (common area
maintenance, insurance and real estate taxes) and expenses associated with the
Montgomery Properties and the Levy Properties are generally competitive with
other similarly situated shopping centers within each of their respective trade
areas.
As of August 31, 1997, the outstanding principal balance of
mortgages encumbering the Montgomery Properties and the Levy Properties, which
are expected to be assumed by the Operating Partnership, aggregated
approximately $33.6 million. Accordingly, upon consummation of the acquisition,
the Company's interest expense for 1998 is expected to increase by approximately
$2.8 million.
The Company's depreciation and amortization expense will also
increase due to the allocation of a significant portion of the purchase price to
depreciable real estate acquired and to the Management Contracts. Based on the
Company's preliminary allocation of the purchase
38
<PAGE> 42
price, depreciation and amortization expense are anticipated to increase by
approximately $1.4 million in 1998.
Under the terms of the Master Agreement, the Company will convey
substantially all of its assets (or the economic benefit of certain of its
assets), subject to certain liabilities, to the Operating Partnership in which
the Company indirectly will own approximately 81.3 percent of the partnership
interests (assuming all of the contemplated transactions are consummated).
Therefore, upon consummation of the acquisition, the Company will record
minority interest expense equal to approximately 18.7 percent of the net income
of the Operating Partnership.
Following the acquisition, the Operating Partnership's operating
funds will be principally generated from rental income from income producing
properties and interest income on mortgage notes. Dividend payments to
stockholders, in accordance with the provisions of the Internal Revenue Code,
limit the Company from utilizing significant amounts of income generated funds
for future property acquisitions. As of August 31, 1997, the Company's
unrestricted cash, cash equivalents and short-term securities amounted to
approximately $13.5 million, with an average yield of 5.65 percent. The Company
expects to generate additional non-income related cash in 1998 from scheduled
principal repayments under certain Hilcoast mortgage notes; however, there is no
assurance that such amounts will be received.
The Company expects to continue its strategy of investing
available funds in high quality short-term corporate and government securities
while it evaluates potential acquisitions of income producing properties. In the
event such properties are acquired, the Company may issue additional OP Units,
pay cash, or a combination thereof.
The following tables set forth additional historical and other
information concerning the Montgomery Properties and the Levy Properties. The
information provided in these tables should be read in conjunction with the
financial statements of Drexel, of the Montgomery Properties and of the Levy
Properties included herein as Appendix H.
39
<PAGE> 43
<TABLE>
<CAPTION>
AVERAGE BASE
YEAR OF LATEST PERCENT OF OCCUPANCY ANNUAL BASE RENTAL/
YEAR OPENED DATE OF RENOVATION OR TOTAL RATE AS OF RENT REVENUE SQ. FT. AS OF
PROPERTY OR ACQUIRED CONSTRUCTION EXPANSION GLA GLA 8/31/97 AS OF 8/31/97 8/31/97
-------- ----------- ------------ -------------- --- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chesterbrook Village Center 1980 1980 1995 122,316 19.01% 94.9% $1,272,000 $10.96
Danville Plaza 1987 1971 1987 24,052 3.74 100.00 200,000 8.32
Mount Carmel Plaza 1992 1988 N/A 14,502 2.25 100.00 196,000 13.52
Plymouth Plaza 1994 1974 1995 30,026 4.67 100.00 570,000 18.98
Rio Grande Plaza 1991 1991 1997 139,026 21.6 99.20 1,301,000 9.43
Whitemarsh Shopping Center 1993 1969 1996 67,418 10.47 100.00 968,000 14.36
Woodbourne Square 1985 1985 N/A 29,976 4.66 100.00 455,000 15.18
County Line Plaza 1997 1970 N/A 160,621 24.96 100.00 758,000 4.72
555 Scott Street 1977 1961 N/A 8,400 1.3 100.00 71,000 8.45
Route 6 Office Max Center 1972 1972 1990 47,224 7.34 100.00 414,000 8.77
-------- ------- ------ ---------- ------
Totals 643,561 100.00% 98.9% $6,205,000 $ 9.75
======== ======= ====== ========== ======
</TABLE>
40
<PAGE> 44
<TABLE>
<CAPTION>
1992 1993 1994
---------------------------- ----------------------------- ---------------------------
OCCUPANCY AVERAGE OCCUPANCY AVERAGE OCCUPANCY AVERAGE
PROPERTY RATE(1) RENTAL/SQ. FT. RATE RENTAL/SQ. FT. RATE RENTAL/SQ. FT.
-------- ---------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Chesterbrook Village Ctr. 85% $ 9.50 85% $ 9.86 83% $10.62
Danville Plaza 90% $ 9.00 90% $ 9.15 83% $9.10
Mount Carmel Plaza 100% $13.00 100% $13.17 100% $13.17
Plymouth Plaza Purchased in 1994.......................................... 100% $17.00
County Line Plaza Purchased in 1997..............................................................................
Rio Grande Plaza 99% $ 8.00 99% $ 8.40 98% $ 8.40
Whitemarsh Shopping Ctr. Purchased 12/93............................................ 94% $ 9.86
Woodbourne Square 100% $14.00 100% $14.00 96% $14.44
555 Scott Street 100% $ 3.57 100% $ 3.57 100% $ 3.57
Route 6 Office Max Ctr. 95% $ 7.00 95% $ 7.00 95% $ 7.00
<CAPTION>
1995 1996
----------------------------- -----------------------------
OCCUPANCY AVERAGE OCCUPANCY AVERAGE
PROPERTY RATE RENTAL/SQ. FT. RATE RENTAL/SQ. FT.
-------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Chesterbrook Village Ctr. 89% $11.41 90% $11.50
Danville Plaza 88% $ 9.29 83% $ 9.15
Mount Carmel Plaza 100% $13.17 100% $13.23
Plymouth Plaza 100% $17.09 100% $18.81
County Line Plaza Purchased in 1997.............................................
Rio Grande Plaza 99% $ 8.26 76% $11.02
Whitemarsh Shopping Ctr. 100% $11.13 100% $11.60
Woodbourne Square 100% $14.54 100% $15.20
555 Scott Street 100% $ 8.50 100% $ 8.50
Route 6 Office Max Ctr. 95% $7.00 100% $ 8.76
</TABLE>
(1) Occupancy rates and average rental per square foot shown are as of
December 31 for each year.
41
<PAGE> 45
The following table sets forth information concerning the 20 largest tenants of
the properties to be acquired, representing approximately 52 percent of the
total annual base rent of these properties.
<TABLE>
<CAPTION>
ANNUAL BASE
RENT AS OF PERCENT OF GLA PERCENT OF
TENANT LOCATION 8/31/97 TOTAL OCCUPIED TOTAL
------ -------- ------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 Clemens Market Whitemarsh Shopping Center 351,900 5.67% 30,600 4.75%
2 Office Max Route 6 Office Max Center 276,918 4.46 32,824 5.10
3 Genuardi's Chesterbrook Village Center 265,584 4.28 38,502 5.98
4 Sears Rio Grande Plaza 253,428 4.08 22,037 3.42
5 J C Penney Rio Grande Plaza 216,492 3.49 33,308 5.18
6 Ames County Line Plaza 199,800 3.22 84,935 13.20
7 Peebles Rio Grande Plaza 187,500 3.02 30,000 4.66
8 Clemens Market County Line Plaza 183,288 2.95 36,526 5.68
9 Montgomery Group Affiliates Plymouth Plaza 176,700 2.85 10,394 1.62
10 CVS Pharmacy Danville Plaza 143,256 2.31 14,500 2.25
11 CVS Pharmacy Mount Carmel Plaza 124,800 2.01 9,600 1.49
12 Rehab Place at Oxford Valley Woodbourne Square 117,048 1.89 8,325 1.29
13 Ralph's Pharmacy Whitemarsh Shopping Center 114,096 1.84 6,132 0.95
14 Jefferson Bank Plymouth Plaza 97,500 1.57 3,000 0.47
15 Wine & Spirit Shoppe Whitemarsh Shopping Center 96,396 1.55 5,509 0.86
16 Plymouth Plaza Rehab Plymouth Plaza 91,128 1.47 5,063 0.79
17 Movie Gallery Whitemarsh Shopping Center 88,740 1.43 4,930 0.77
18 Marcello Ristorante Chesterbrook Village Center 85,452 1.38 5,123 0.80
19 Social Security Office Rio Grande Plaza 84,756 1.37 3,880 0.60
20 Fashion Bug Rio Grande Plaza 76,056 1.23 8,450 1.31%
---------- ----- ------- -----
Totals $3,230,838 52.07% 393,638 61.17%
========== ===== ======= =====
</TABLE>
42
<PAGE> 46
TENANTS LEASING 10 PERCENT OR MORE OF A TRANSFERRED PROPERTY
<TABLE>
<CAPTION>
AGGREGATE GLA
LEASED BY RENTAL PER EXPIRATION
TENANT LOCATION TENANT ANNUM DATE OF LEASE RENEWAL OPTIONS
------ -------- --------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Genuardi's Chesterbrook Village Center 38,502 $265,584 8/10 Four (4) 5 year renewal options
CVS Pharmacy Danville Plaza 14,500 $143,256 5/07 Four (4) 5 year renewal options
CVS Pharmacy Mount Carmel Plaza 9,600 $124,800 12/02 Two (2) 5 year renewal options
China House Mount Carmel Plaza 1,500 $ 19,656 5/05 N/A
Montgomery Group Affiliates Plymouth Plaza 10,394 $176,700 5/04 N/A
Plymouth Plaza Rehab Plymouth Plaza 5,063 $ 91,128 3/99 One (1) 5 year renewal options
J C Penney Rio Grande Plaza 33,308 $216,492 9/12 Six (6) 5 year renewal options
Peebles Rio Grande Plaza 30,000 $187,500 1/12 Four (4) 5 year renewal options
Sears Rio Grande Plaza 22,037 $253,428 9/06 Four (4) 5 year renewal options
Clemens Market Whitemarsh 30,600 $351,900 3/17 Four (4) 5 year renewal options
Rehab Place at Oxford Valley Woodbourne Square 8,325 $117,048 12/00 N/A
Ames County Line Plaza 84,935 $199,800 1/02 Three (3) 5 year renewal options
Clemens Market County Line Plaza 36,526 $183,288 12/07 Four (4) 5 year renewal options
Office Max Route 6 Office Max Center 32,824 $276,918 5/06 Two (2) 5 year renewal options
Peters Route 6 Office Max Center 5,900 $ 56,050 7/01 One (1) 5 year renewal options
Pet Supplies Plus Route 6 Office Max Center 8,500 $ 80,750 6/01 One (1) 5 year renewal options
Pet Supplies Plus 555 Scott Street 8,400 $ 71,400 6/00 One (1) 5 year renewal options
</TABLE>
43
<PAGE> 47
The following table reflects aggregate lease expirations for leases in place as
of August 31, 1997 for each of the ten years beginning with January 1, 1997. The
information assumes that no tenant exercises renewal options and that no lease
is terminated on account of tenant default.
<TABLE>
<CAPTION>
PERCENT OF ANNUALIZED
ANNUALIZED BASE RENT BASE RENT REVENUE
NO. OF LEASES LEASED GLA EXPIRING PERCENT OF GLA REPRESENTED REVENUE UNDER EXPIRING REPRESENTED BY EXPIRING
LEASE EXPIRATION EXPIRING (IN SQ. FT.) BY EXPIRING LEASES LEASES AS OF 8/31/97 LEASES
- ---------------- ------------- ------------------- ------------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1997 3 10,998 2.48% $90,972 1.88%
1998 22 38,986 8.81 495,384 10.24
1999 23 44,207 9.99 656,680 13.57
2000 10 34,038 7.69 419,746 8.67
2001 24 74,708 16.88 1,033,800 21.36
2002 11 121,458 27.44 659,398 13.63
2003 6 13,126 2.97 227,880 4.71
2004 5 22,369 5.05 337,536 6.98
2005 3 12,970 2.93 128,124 2.65
2006 6 69,782 15.76 789,438 16.31
------- ------ ---------- -----
TOTALS 442,642 100.00% $4,838,958 100.00%
======= ====== ========== ======
</TABLE>
44
<PAGE> 48
The following table sets forth certain information regarding the mortgages
currently encumbering the properties to be acquired.
<TABLE>
<CAPTION>
ANNUAL INTEREST PRINCIPAL BALANCE @ ANNUAL DEBT EARLIEST PREPAYMENT
PROPERTY RATE 8/31/97 SERVICE(1) MATURITY DATE DATE
-------- --------------- ------------------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Chesterbrook Village Center 8.50% $4,028,000 $420,000 2/02 ANYTIME (6)
Chesterbrook Village Center 8.50 1,676,000 143,000 2/02 ANYTIME (3)(6)
Danville Plaza 7.625 943,000 126,000 9/08 ANYTIME (3)
Mount Carmel Plaza 7.50 875,000 92,000 4/04 ANYTIME (3)
Plymouth Plaza 8.393 2,380,000 240,000 4/01 ANYTIME (3)(4)
Rio Grande Plaza 8.50 7,952,000 781,000 10/98 ANYTIME (6)
Rio Grande Plaza 8.50 2,000,000 170,000 10/98 ANYTIME (6)
Whitemarsh Shopping Center 8.68 7,237,000 680,000 3/07 ANYTIME (3)(4)
Woodbourne Square 7.75 2,085,000 227,000 10/03 ANYTIME (3)(6)
County Line Plaza 9.00 4,444,000 400,000 6/00 ANYTIME (5)
----------- ----------
TOTALS (2) $33,620,000 $3,279,000
=========== ==========
</TABLE>
- ----------
(1) No payment delinquencies have occurred.
(2) Excludes mortgage on Route 6 Office Max Center which at or prior to the
transfer of the Levy Properties, will be paid in full by the Levy Parties.
Currently, Route 6 Office Max Center has a mortgage with an outstanding
balance of $501,000, and an interest rate of 9.0 percent per annum. The
scheduled maturity date for this mortgage is December 1, 2005.
(3) Prepayment is subject to a prepayment penalty.
(4) Consent of non-managing co-general partner required for prepayment.
(5) A personal bank loan to Mr. Meshon in the amount of $1,000,000 with respect
to County Line Plaza will be repaid on or about Closing.
(6) The Partnership Agreement includes certain restrictions on the reduction of
indebtedness on this property.
45
<PAGE> 49
The following table sets forth certain real estate tax information for the
properties to be acquired.
<TABLE>
<CAPTION>
PROPERTY NAME ASSESSED VALUE TAX RATE (MILLS) ANNUAL REAL ESTATE TAXES
------------- -------------- ---------------- ------------------------
<S> <C> <C> <C>
Chesterbrook Village Center $ 585,000 231.37 $ 133,351
Danville Plaza $ 130,800 129.84 $ 16,983
Mount Carmel Plaza $ 57,400 440.127 $ 25,263
Plymouth Plaza $ 145,800 309 $ 45,052
Rio Grande Plaza $8,190,900 23.88 $ 195,599
Whitemarsh Shopping Center $ 261,500 312.46 $ 81,708
Woodbourne Square $ 145,500 474.8 $ 69,083
County Line Plaza $ 292,280 331.39 $ 96,859
555 Scott Street $ 38,000 333.33 $ 12,667
Route 6 Office Max Center $ 329,500 82.5 $ 27,184
</TABLE>
46
<PAGE> 50
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
The following unaudited pro forma condensed consolidated
financial statements of the Company have been prepared to reflect the
transactions contemplated under the Master Agreement (the "Contemplated
Transactions") and are derived from, and should be read in conjunction with, the
Company's historical financial statements and notes thereto, incorporated by
reference in this Proxy Statement, and the historical financial statements and
notes thereto (included elsewhere in this Proxy Statement) of each of the owners
of the assets (the "Assets") anticipated to be acquired by the Operating
Partnership other than County Line Plaza. The Assets principally consist of: (1)
seven shopping centers and one office building, collectively referred to herein
as the "Montgomery Properties", which are managed by Drexel; (2) two shopping
centers owned and currently managed by the Levy Parties referred to herein as
the "Levy Properties"; and, (3) Drexel, which manages approximately 34
properties, including those anticipated to be acquired by the Operating
Partnership.
The unaudited pro forma condensed consolidated balance sheet
at June 30, 1997 gives effect to the Contemplated Transactions as if they have
occurred on that date. The unaudited pro forma condensed consolidated statements
of income for the six months ended June 30, 1997 and the year ended December 31,
1996 give effect to the Contemplated Transactions as if they had occurred as of
January 1, 1997 and January 1, 1996, respectively. The pro forma adjustments are
based on certain estimates and currently available information. Such adjustments
could change as additional information becomes available, as estimates are
refined or as additional events occur.
The unaudited pro forma financial information does not purport
to be indicative of the results of operations or financial position which would
have actually been reported had the Contemplated Transactions been consummated
on the dates indicated, or which may be reported in the future.
47
<PAGE> 51
CV REIT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Historical
---------------------------------------------
Montgomery
Properties and Levy Pro Forma
CV Reit, Inc. Drexel Properties Adjustment(1) Pro Forma
------------- --------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate mortgage notes $ 83,626 $ -- $ -- $ -- $ 83,626
Real estate, net of accumulated depreciation 9,882 24,309 716 23,831 58,738
Investments in unconsolidated real estate partnerships 3,144 -- -- -- 3,144
Real estate acquired by foreclosure, net 5,451 -- -- -- 5,451
Cash, cash equivalents and short-term investments 12,979 2,042 -- (5,003) 10,018
Receivables, prepaid expenses and other 2,320 2,499 -- (221) 4,598
--------- --------- --------- --------- ---------
$ 117,402 $ 28,850 $ 716 $ 18,607 $ 165,575
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings $ 33,987 $ 28,265 $ 509 $ (509) $ 62,252
Accounts payable, accruals and other liabilities 3,057 1,234 -- (1,007) 3,284
Deferred income taxes 7,041 -- -- -- 7,041
Minority interests in Operating Partnership -- -- -- 19,681 19,681
Stockholders' equity 73,317 (649) 207 442 73,317
--------- --------- --------- --------- ---------
$ 117,402 $ 28,850 $ 716 $ 18,607 $ 165,575
========= ========= ========= ========= =========
</TABLE>
48
<PAGE> 52
CV REIT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
--------------------------------------------------------------------------
Historical
-------------------------------------------
Montgomery
Properties and Levy Pro Forma Pro
CV Reit, Inc. Drexel Properties Adjustments Forma
------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Interest, substantially from mortgage notes $ 5,362 $ 18 $ -- $ -- $ 5,380
Rent, including tenant reimbursements 1,086 3,214 252 (109)(4) 4,443
Management company fees -- 1,733 -- (180)(4) 1,553
----------- ----------- ----------- ----------- -----------
6,448 4,965 252 (289) 11,376
----------- ----------- ----------- ----------- -----------
EXPENSES:
Interest 1,531 1,126 23 (23)(6) 2,657
Operating Expenses
Property 348 1,294 28 (180)(4) 1,490
Management company -- 1,344 -- (109)(4) 1,235
Depreciation and amortization 205 576 19 74 (3) 874
General and administrative 311 -- -- -- 311
----------- ----------- ----------- ----------- -----------
2,395 4,340 70 (238) 6,567
----------- ----------- ----------- ----------- -----------
4,053 625 182 (51) 4,809
Equity in income of real estate partnerships 211 -- -- -- 211
Minority interests in income of
Operating Partnership -- -- -- (939)(5) (939
Reversal of provision for losses, net -- -- -- -- --
Loss on disposal of assets -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Income before income tax benefit 4,264 625 182 (990) 4,081
Income tax benefit -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income $ 4,264 $ 625 $ 182 $ (990) $ 4,081
=========== =========== =========== =========== ===========
Net income per common share $ 0.54 $ 0.51
=========== ===========
Dividends declared per common share $ 0.58 $ 0.58
=========== ===========
Average common
shares outstanding 7,966,621 7,966,621
=========== ===========
<CAPTION>
Year Ended December 31, 1996
---------------------------------------------------------------------------
Historical
-------------------------------------------
Montgomery
Properties and Levy Pro Forma Pro
CV Reit, Inc. Drexel Properties Adjustment Forma
------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Interest, substantially from mortgage notes $ 11,695 $ 18 $ -- $ -- $ 11,713
Rent, including tenant reimbursements 1,056 5,939 464 (215)(4) 7,244
Management company fees -- 3,455 -- (326)(4) 3,129
----------- ----------- ----------- ----------- -----------
12,751 9,412 464 (541) 22,086
----------- ----------- ----------- ----------- -----------
EXPENSES:
Interest 3,232 2,184 50 (50)(6) 5,416
Operating Expenses
Property 360 2,455 89 (326)(4) 2,578
Management company -- 2,757 -- (215)(4) 2,542
Depreciation and amortization 223 1,030 35 272 (3) 1,560
General and administrative 884 -- -- -- 884
----------- ----------- ----------- ----------- -----------
4,699 8,426 174 (319) 12,980
----------- ----------- ----------- ----------- -----------
8,052 986 290 (222) 9,106
Equity in income of real estate partnerships 491 -- -- -- 491
Minority interests in income of
Operating Partnership -- -- -- (1,915)(5) (1,915)
Reversal of provision for losses, net 906 -- -- -- 906
Loss on disposal of assets -- (260) -- -- (260)
----------- ----------- ----------- ----------- -----------
Income before income tax benefit 9,449 726 290 (2,137) 8,328
Income tax benefit (121) -- -- -- (121)
----------- ----------- ----------- ----------- -----------
Net income $ 9,570 $ 726 $ 290 $ (2,137) $ 8,449
=========== =========== =========== =========== ===========
Net income per common share $ 1.20 $ 1.06
=========== ===========
Dividends declared per common share $ 1.14 $ 1.14
=========== ===========
Average common
shares outstanding 7,966,621 7,966,621
=========== ===========
</TABLE>
49
<PAGE> 53
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA BALANCE SHEET:
(1) Reflects adjustments resulting from the allocation of the purchase price
of the Assets on the basis of the estimated fair values of the net assets
acquired. The purchase price is assumed to amount to $51,983,000,
consisting of: (a) issuance of 1,831,000 OP Units to the Montgomery
Parties and the Levy Parties (collectively, "Sellers") at an assumed price
of $11.00 per OP Unit (total value approximately $20,143,000); (b)
assumption of $28,265,000 of mortgage indebtedness; (c) payment of
$1,375,000 in cash at closing, and (d) estimated transaction costs of
$2,200,000. The adjustments to the historical assets and liabilities
follow (in thousands):
<TABLE>
<S> <C> <C>
Increase in real estate $ 23,831
Decrease in cash:
Cash attributable to Sellers $ (1,814)
Payment at closing (1,375)
Remainder of estimated transaction costs (1,814) (5,003)
--------
Decrease in receivables, prepaid expenses and other assets:
Allocation of purchase price of
Drexel to outside
management contracts (the
"Management Contracts") 2,664
Amounts attributable to Sellers (2,499)
Reclassification of deferred transaction
costs at June 30, 1997 (386) (221)
--------
Decrease in mortgage notes payable to
be repaid by the Levy Parties prior to closing 509
Decrease in accounts payable and
accrued expenses attributable to Sellers 1,007
18.7 percent minority interests in the net equity
of the Operating Partnership (19,681)
Elimination of the historical net assets of Sellers (442)
----------
$ 0
==========
</TABLE>
50
<PAGE> 54
(2) Following is a debt maturity schedule of the Montgomery Properties as of
June 30, 1997 (in thousands):
Year Ended June 30:
------------------
1998 $ 9,282
1999 343
2000 372
2001 2,622
2002 5,665
Thereafter 9,981
-------
Totals $28,265
=======
In addition, mortgage indebtedness encumbering County Line Plaza in the
amount of $4.4 million matures in June 2000.
UNAUDITED PRO FORMA STATEMENTS OF INCOME:
(3) Represents additional depreciation and amortization expense resulting
from: (a) allocating a portion (10 percent) of the fair value of the real
estate acquired to land and depreciating the balance (90 percent) on a
straight-line basis over 35 years; plus (b) amortizing the Management
Contracts over 15 years; less (c) eliminating amortization of deferred
costs included in the historical financial statements of the Montgomery
Properties.
(4) Reflects elimination of Drexel's leasing and management fee income from,
and rent expense to, the Montgomery Properties.
(5) Reflects 18.7 percent minority interests in the net income of the
Operating Partnership.
(6) Reflects elimination of interest expense applicable to a mortgage note to
be repaid by the Levy Parties prior to closing.
51
<PAGE> 55
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
PURPOSE
The Company has determined that it is necessary or desirable
in connection with the transactions contemplated under the Master Agreement to
effect certain amendments to the Company's certificate of incorporation (as so
amended, the "Amended Certificate of Incorporation"). These amendments include
(1) increasing the authorized number of shares of capital stock of the Company,
(2) establishing a classified Board of Directors, (3) requiring a so-called
"super majority" vote of the Board to approve certain transactions and (4)
establishing an acquisition committee of the Board. The following is a summary
of these substantive amendments to the certificate of incorporation. A number of
non-substantive amendments of lesser significance are also to be effected. The
summary is qualified in its entirety by the full text of the Amended Certificate
of Incorporation, a copy of which has been filed as Appendix C to this Proxy
Statement.
INCREASE IN AUTHORIZED SHARES
The Amended Certificate of Incorporation increases the number
of authorized shares of capital stock of the Company to 20 million Shares. The
amendment is intended to give the Company a sufficient number of shares of
Common Stock to effect the transactions contemplated under the Master Agreement
including the future issuance of Common Stock, in the Company's discretion, upon
the redemption of OP Units, and also the issuance of Common Stock upon the
exercise of stock options. The additional number of authorized shares is also
intended to give the Company's Board of Directors broad authority and
flexibility in raising capital for the Company and positioning the Company to be
better able to acquire additional assets and expand the Company's business in
the future. The Company has no current plans to issue additional Shares of
Common Stock beyond the number that could be issued under the Master Agreement,
the Partnership Agreement and the Option Plans.
CLASSIFIED BOARD
The Amended Certificate of Incorporation provides for the
creation of a classified Board of Directors of the Company having three classes
as nearly equal in number as practicable. The Board shall initially have seven
members, although the Amended Certificate of Incorporation authorizes the entire
Board of Directors by resolution to increase the size of the Board to a maximum
of 12 members. The seven nominees for the Board to be considered at the special
meeting of Stockholders are to be divided between the three classes such that
two classes will be made up of two directors each and the third class will be
made up of three directors. Directors in the first class shall each serve a
one-year term until the next annual meeting of the Company, directors in the
second class shall each serve a two-year term until the next succeeding annual
meeting in 1999 and directors in the third class shall serve a three-year term
until the third succeeding annual meeting in 2000. Directors elected after the
special meeting of stockholders
52
<PAGE> 56
shall serve three-year terms unless a director is filling a vacancy for a
director with a shorter term. (See "MANAGEMENT AND PRINCIPAL STOCKHOLDERS --
Directors, Nominees and Executive Officers.")
SUPER MAJORITY VOTE
Under the terms of the Amended Certificate of Incorporation,
certain actions of the Company will require the approval of at least three
quarters of the then authorized number of directors of the entire Board of
Directors. These actions include the direct or indirect acquisition of interests
in real property, changes in the real estate acquisition policies of the Company
as set forth in the by-laws of the Company, any decision to reduce the Company's
quarterly dividend below $.29 per Share unless the reduction results from a
material default by Hilcoast in certain of its obligations to the Company, and
any change in the power or authority of the two-person acquisition committee
established under the Company's Amended By-Laws (described below). In addition,
after consummating the transactions contemplated in the Master Agreement, the
Company may not acquire additional interests in real property unless a majority
of the entire Board adopts a resolution stating that the acquisition will not
adversely affect the Company's regular quarterly dividend of at least $.29 per
Share for five years after the acquisition. The Company can enforce these
policies through its ability to name, remove and replace the managing trustees
of the Trust, which, as described herein, will hold the general partner interest
in the Operating Partnership. Each of these super majority vote requirements are
to expire on December 31, 2002. Besides these items, the Board may act by the
vote of a majority of the Directors present at a Board meeting at which at least
a majority of the Directors then in office is present.
ANTI-TAKEOVER EFFECTS
The classified Board of Directors and the super majority vote
of the Board required in certain instances as provided in the Amended
Certificate of Incorporation, as well as the severance provisions of Mr.
Meshon's employment agreement, may have the effect of impeding efforts of
persons who in the future attempt to change the control of the Company in
furtherance of transactions that may be in the interest of the stockholders of
the Company.
VOTE REQUIRED
The affirmative vote of a majority of the Shares of Common
Stock outstanding is required to approve the Amended Certificate of
Incorporation. Adoption of the Amended Certificate of Incorporation is
conditioned on approval of all of the other Proposals. Abstentions and broker
non-votes will be counted for quorum purposes, but are not considered present or
eligible to vote for these purposes. Consequently, an abstention or a broker
non-vote will be the equivalent of a vote against the Proposals.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE APPROVAL OF THE AMENDED CERTIFICATE OF INCORPORATION.
53
<PAGE> 57
AMENDMENTS TO THE BY-LAWS
In addition to changes to its certificate of incorporation set
forth in the Amended Certificate of Incorporation, the Company has determined
that it is necessary or desirable in connection with the transactions
contemplated under the Master Agreement to effect certain amendments to its
by-laws (referred to herein as the "Amended By-Laws"), a copy of which has been
filed as Appendix D to this Proxy Statement. The changes reflected in the
Amended By-Laws are either changes consistent with the revisions reflected in
the Amended Certificate of Incorporation, or are otherwise necessary or
desirable in connection with the Master Agreement.
Consistent with the Amended Certificate of Incorporation,
proposed changes reflected in the Amended By-Laws provide for a classified Board
of Directors and require a super majority vote of the Board to authorize certain
transactions as well as a simple majority vote of the entire Board with respect
to acquisitions of real property. The Amended By-Laws provide that any vacancy
in the office of a director may be filled for the remaining term of the director
being replaced. In addition, the Amended By-Laws require the approval of at
least three quarters of the then authorized number of directors of the entire
Board to create an executive committee or other committees of the Board. As
contemplated in the Amended Certificate of Incorporation, the Amended By-Laws
provide for the creation of an Acquisition Committee (comprised of Messrs. H.
Irwin Levy and Meshon) exclusively charged with reviewing for recommendation to
the Board all proposed acquisitions by the Company, directly or indirectly, of
interests in real property. As with the Amended Certificate of Incorporation,
the provisions of the Amended By-Laws requiring a greater vote of the Board
expire on December 31, 2002. The Amended By-Laws also mandate that any
employment agreement or arrangement between the Company and its Chief Executive
Officer must require a 50 percent reduction in the base salary, deferred
compensation and bonus (if any) for any quarter in which at least a $.29 per
Share quarterly dividend is not paid, with the reduction in compensation to
remain in effect until at least a $.29 per Share dividend shall have been
declared and paid for four consecutive quarters unless the Board of Directors
determines that such failure results from a breach by the Company of its
representations and warranties in the Master Agreement, a default by Hilcoast in
its payment obligations to the Company under the Hilcoast Documents, or the
express terms of a transaction approved by the Company's Board of Directors.
VOTE REQUIRED
Although the current certificate of incorporation and by-laws
of the Company and applicable law would permit the proposed amendments to the
by-laws to be effected without approval of the Stockholders, the incorporation
of the changes reflected in the Amended Certificate of Incorporation, which are
largely reflected in the Amended By-Laws, does require Stockholder approval and
the Company determined it to be desirable also to condition the Amended By-Laws
on Stockholder approval. The vote of the majority of the Shares of Common Stock
present and entitled to vote is required to approve the Amended By-
54
<PAGE> 58
Laws. Abstentions and broker non-votes will be counted for quorum purposes, but
are not considered present or eligible to vote for these purposes.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE APPROVAL OF THE AMENDED BY-LAWS.
55
<PAGE> 59
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
CONSEQUENCES TO STOCKHOLDERS
The Company believes that the transactions contemplated herein
will not be taxable transactions to the stockholders. In particular, the
transfer of the Company's assets to the Operating Partnership will not be
taxable to the stockholders. Nonetheless, stockholders may wish to consult with
their own advisors concerning the implications of the contemplated transactions
under federal, state and local tax laws.
CONSEQUENCES TO THE COMPANY
TRANSFER OF COMPANY'S PROPERTIES. The Company will contribute
its assets to the Operating Partnership in exchange for OP Units. A contribution
to a partnership in exchange for an interest in the partnership is not a taxable
transaction and the Company will recognize no gain or loss as a result of this
transaction. The basis of the OP Units will be the same as its basis in the
assets contributed. The holding period of the OP Units will include the period
the assets contributed were held by the Company, to the extent such assets are
either (i) capital assets or (ii) assets used in the trade or business of the
Company that have been held for longer than one year. To the extent OP Units are
received in exchange for other assets, the holding period of the OP Units will
not include the period such other assets were held by the Company.
TAX ASPECTS OF THE OPERATING PARTNERSHIP. The following
discussion summarizes certain federal income tax considerations applicable
solely to the Company's indirect investment in the Operating Partnership. The
discussion does not cover state or local tax laws or any federal tax law other
than income tax laws.
IN GENERAL. In general, partnerships are "pass-through"
entities which are not subject to federal income tax. Instead, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction, and credit of a partnership and are subject to tax thereon, without
regard to whether the partners receive cash distributions from the partnership.
The Company will include in its REIT taxable income its distributive share of
the income of the Operating Partnership and deduct its distributive share of the
losses of the Operating Partnership.
OPERATING PARTNERSHIP ALLOCATIONS. Although the provisions of
a partnership agreement generally will determine the allocation of income and
losses among partners, such allocations will be disregarded for tax purposes
under Section 704(b) of the Code if they do not have "substantial economic
effect" or otherwise do not comply with the provisions of Section 704(b) of the
Code and Treasury Regulations.
If an allocation is not recognized for federal income tax
purposes, the item subject to the allocation will be reallocated in accordance
with the partners' interests in the
56
<PAGE> 60
partnership, which will be determined by taking into account all of the facts
and circumstances relating to the economic arrangement of the partners in
respect of such item. The allocations of taxable income and loss of the
Operating Partnership are intended to comply with the requirements of Section
704(b) of the Code and Treasury Regulations.
DEPRECIATION DEDUCTIONS AVAILABLE TO THE OPERATING
PARTNERSHIP. Certain assets owned by the Operating Partnership consist of
property contributed to it by its partners. In general, when property is
contributed in a tax-free transaction under Section 721 of the Code, the
transferee-partnership is treated in the same manner as the contributing partner
for purposes of computing depreciation. The effect of this rule is to continue
the historic basis, placed in service dates, and depreciation methods with
respect to property contributed to a partnership. In the case of contributions
of certain partnership interests to the Operating Partnership, new depreciation
periods may have to be commenced.
TAX ALLOCATIONS IN RESPECT OF CONTRIBUTED PROPERTIES. Pursuant
to Section 704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner that takes account of the variation between the basis
of the property and its fair market value at the time of contribution (a "Book-
Tax Difference").
The Treasury Regulations under Section 704(c) permit
partnerships to use any "reasonable method" of accounting for Book-Tax
Differences. The Regulations specifically describe three permissible methods,
one of which is the "traditional method." The Partnership Agreement generally
requires the Operating Partnership to use the "traditional method" to account
for Book-Tax Differences with respect to assets contributed to the Operating
Partnership. This could result in the Company's being allocated lower
depreciation deductions than those available under a different method of
accounting for Book-Tax Differences, which could cause the taxable income of the
Company to be increased and possibly make it more difficult for the Company to
comply with the requirement that a REIT distribute annually at least 95 percent
of its real estate investment trust taxable income. For these purposes, the
Company's real estate investment trust taxable income is computed after giving
effect to the deduction for net operating loss carryovers. The Company has
certain net operating loss carryovers available for this purpose; however, to
the extent that the Company used its net operating loss carryovers and thus
distributed less than 100 percent of its real estate investment trust taxable
income (determined without regard to net operating loss carryovers) for any
year, the Company would be subject to an alternative minimum tax for that year
equal to 2 percent of the net operating loss carryovers used.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's
adjusted tax basis in the Operating Partnership generally (i) will be equal to
the amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's taxable income and (b) its
allocable share of any indebtedness of the Operating Partnership, and (iii) will
be reduced, but not below zero, by
57
<PAGE> 61
its allocable share of (a) the Operating Partnership's loss and (b) the amount
of cash distributed to the Company (including constructive distributions
resulting from a reduction in its share of indebtedness of the Operating
Partnership) and the basis of other property distributed.
To the extent the Company's allocable share of the loss of the
Operating Partnership would reduce the adjusted tax basis of its partnership
interest in the Operating Partnership below zero, the recognition of such loss
will be deferred until such time as the recognition of the loss (or portion
thereof) deferred would not reduce the Company's adjusted tax basis below zero.
To the extent that distributions from the Operating Partnership to the Company
(or constructive distributions arising from any decrease in the Company's share
of the indebtedness of the Operating Partnership) would reduce the Company's
adjusted tax basis below zero, such distributions (including such constructive
distributions) would constitute taxable income to the Company. Such
distributions and constructive distributions normally would be characterized as
long-term capital gain if the Company's interest in the Operating Partnership
has been held for longer than the long term capital gain holding period
(currently one year).
CONTINUED OPERATION OF THE COMPANY AS A REIT
The Company intends to continue to operate as a REIT and
believes that the transactions described herein are consistent with the
satisfaction of the Code's requirements for qualification as a REIT. However, no
assurance can be given that such requirements will continue to be met or that
the Company will be so qualified at any time.
The Company's existing by-laws contain certain restrictions on
concentration of ownership of the outstanding shares of the Company, in order to
facilitate compliance with the requirement of Code section 856 (a)(6) that a
REIT not be "closely held." The transactions contemplated by the Master
Agreement might be viewed as resulting in an increase in the concentration of
ownership of the outstanding shares of the Company. This could result in making
it somewhat more likely that the restrictions in the by-laws would be invoked as
to future transactions, with the effect that certain proposed acquisitions or
transfers of shares could become prohibited. In addition, if the concentration
of share ownership were further increased in the future and if the ownership
restrictions in the by-laws proved to be ineffective in preventing a violation
of section 856(a)(6), the transactions contemplated by the Master Agreement
could increase to some extent the risk that the Company could be disqualified as
a REIT by reason of becoming "closely held".
THE TRUST
The Trust will be a "Qualified REIT Subsidiary" within the
meaning of Code section 856(i); accordingly, the Trust will not be treated as a
separate entity for federal tax purposes and all of the assets, liabilities, and
items of income, deduction, and credit of the Trust will, for federal tax
purposes, be treated as assets, liabilities, and items of income, deduction and
credit of the Company.
58
<PAGE> 62
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSIDERATIONS
The present federal income tax treatment of an investment in
the Company may be modified by legislative, judicial, or administrative action
at any time and any such action may affect investments and commitments
previously made. The rules dealing with federal income taxation are constantly
under legislative and administrative review, resulting in revisions or
regulations and revised interpretations of established concepts as well as
statutory changes. Revisions in Federal tax law and interpretations thereof
could adversely affect the economic or tax consequences of an investment in the
Company.
59
<PAGE> 63
APPROVAL OF THE
MONTGOMERY CV TRUST EXECUTIVE STOCK OPTION PLAN
BACKGROUND
On November 11, 1997, the Managing Trustees of the Trust (the
"Managing Trustees") adopted the Trust Plan, subject to the approval of the
stockholders of the Company. Such approval is required by the rules of the New
York Stock Exchange. The following description of the Trust Plan is a summary
and is qualified in its entirety by reference to the Trust Plan, a copy of which
has been filed as Appendix E to this Proxy Statement.
PURPOSE
The purpose of the Trust Plan is to enhance the profitability
and value of the Trust by enabling the Trust to offer its eligible employees (as
described below) stock options to purchase Common Stock.
ANTICIPATED GRANTS
It is anticipated that a one-time grant of 150,000 options
under the Trust Plan will be made to Mr. Meshon contemporaneously with the
Closing.
ADMINISTRATION
The Trust Plan will, to the extent required by Rule 16b-3
under the Exchange Act ("Rule 16b-3") or Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), be administered by a committee of the
Board of Directors of the Company which is intended to consist of two or more
non-employee directors, each of whom will be, to the extent required by Rule
16b-3 and Section 162(m) of the Code, a non-employee director as defined in Rule
16b-3 and an outside director as defined under Section 162(m) of the Code (the
"Committee"). If no Committee exists which has the authority to administer the
Trust Plan, or if a committee of the Board is not required under Rule 16b-3 and
Section 162(m) of the Code, the functions of the Committee will be exercised by
the Managing Trustees. The Committee has the full authority to grant awards
under the Trust Plan and to determine the persons to whom awards will be
granted, the time or times such awards will be granted, the terms and conditions
of such awards and the amounts of such awards.
ELIGIBILITY
The Chief Executive Officer and other senior executives of the
Trust designated by the Committee to participate in the Trust Plan are eligible
to be granted options under the Trust Plan.
60
<PAGE> 64
AVAILABLE SHARES
A maximum of 150,000 Shares of Common Stock may be issued
under the Trust Plan.
The maximum number of Shares of Common Stock subject to
options which may be granted under the Trust Plan to any employee shall not
exceed 150,000 Shares during any fiscal year of the Company.
The Committee may make appropriate adjustments to the number
of shares available for awards and the terms of outstanding awards under the
Trust Plan to reflect any change in the Company's capital structure or business,
stock dividend, stock split, recapitalization, reorganization, merger,
consolidation or sale of all or substantially all the assets of the Company.
TYPES OF AWARDS
The Trust Plan provides for the grant of incentive stock
options.
STOCK OPTIONS
Under the Trust Plan, the Committee may grant incentive stock
options to purchase shares of the Common Stock. To the extent that any stock
option does not qualify as an incentive stock option (whether because of its
provisions or the time or manner of its exercise or otherwise), such option or
the portion thereof which does not so qualify, shall constitute a separate
nonqualified stock option.
The Committee will, in accordance with the terms of the plan,
determine the number of shares subject to the option, the term of the option
(which will not exceed ten years, provided, however, that the term of an option
granted to a ten percent stockholder of the Company will not exceed five years),
the exercise price per Share of stock subject to the option, and the other
material terms of the option. No option may have an exercise price less than the
fair market value of the Common Stock at the time of grant (or, in the case of
an option granted to a ten percent stockholder of the Company, 110 percent of
fair market value).
Subject to the applicable provisions of the Trust Plan,
options will be exercisable as to one-fifth of the shares of Common Stock
subject to the options granted on each of the first five anniversaries of the
date of grant. The exercisability of options may be accelerated by the
Committee. The option price upon exercise may, to the extent determined by the
Committee at or after the time of grant, be paid by a participant in cash, in
shares of Common Stock owned by the participant for at least 6 months (free and
clear of any liens and encumbrances) or by such other method as is approved by
the Committee.
61
<PAGE> 65
AMENDMENTS
The Trust Plan provides that it may be amended by the Managing
Trustees or the Committee, except that no such amendment, without Company
stockholder approval in accordance with the laws of the State of Delaware, if
and to the extent required by Rule 16b-3 or under Section 162(m) or 422 of the
Code, may increase the aggregate number of shares of Common Stock that may be
issued under the Trust Plan, change the classification of employees eligible to
receive options, decrease the minimum option price of any option, or extend the
maximum option period under the Trust Plan. Notwithstanding the foregoing, in no
event may the Trust Plan be amended without the approval of the stockholders of
the Company in accordance with the applicable laws of the State of Delaware to
increase the aggregate number of shares of Common Stock that may be issued under
the Trust Plan, decrease the minimum option price of any options, or to make any
other amendment that would require stockholder approval under the rules of any
exchange or system on which the Company's securities are listed or traded at the
request of the Company.
MISCELLANEOUS
Subject to the applicable provisions of the option agreement
and the Trust Plan, upon a participant's termination of employment for any
reason, the option in question will vest or be forfeited and shall be
exercisable in accordance with the terms and conditions established by the
Committee at grant or thereafter. Participants required to file reports under
Section 16(a) of the Exchange Act may be limited to certain specific exercise,
election or holding periods with respect to the awards granted to them under the
Trust Plan. Awards will have such terms and will terminate upon such conditions
as may be contained in individual awards. Options granted under the plan are
nontransferable (except by will or the laws of descent and distribution).
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal U.S. federal income
tax consequences with respect to options under the Trust Plan is based on
statutory authority and judicial and administrative interpretations as of the
date of this Proxy Statement, which are subject to change at any time (possibly
with retroactive effect) and may vary in individual circumstances. Therefore,
the following is designed to provide only a general understanding of the federal
tax consequences (foreign, state and local tax consequences are not addressed
below). Each recipient of a grant is urged to consult their own tax advisor as
to the specific tax consequences to such grantee of the grant. This discussion
is limited to the U.S. federal income tax consequences to individuals who are
citizens or residents of the U.S., other than certain individuals who are also
subject to foreign taxes.
Under current federal income tax laws, the grant of an
incentive stock option can be made solely to employees of the Company or any
subsidiary of the Company (as defined in Code Section 424) and generally has no
income tax consequences for the employer.
62
<PAGE> 66
In general, no taxable income results to the optionee upon the grant or exercise
of an incentive stock option. However, the amount by which the fair market value
of the stock acquired pursuant to the incentive stock option exceeds the
exercise price is an adjustment item for purposes of alternative minimum tax. If
no disposition of the shares is made within either two years from the date the
incentive stock option was granted or one year from the date of exercise of the
incentive stock option, any gain or loss realized upon disposition of the shares
will be treated as capital gain or loss to the optionee. The employer will not
be entitled to a tax deduction upon the exercise of an incentive stock option,
nor upon a subsequent disposition of the shares, unless the disposition occurs
prior to the expiration of the foregoing holding periods. In general, if the
optionee does not satisfy these holding period requirements, any gain equal to
the difference between the exercise price and the fair market value of the stock
at exercise (or, if a lesser amount, the amount realized on disposition over the
exercise price) will constitute ordinary income. In the event of such a
disposition before the expiration of the holding period described above, the
Company is generally entitled to a deduction at that time equal to the amount of
ordinary income recognized by the optionee. Any gain in excess of the amount
recognized by the optionee as ordinary income would be taxed to the optionee as
short-term or long-term capital gain (depending on the applicable holding
period).
To the extent that any stock option does not qualify as an
incentive stock option (whether because of its provisions or the time or manner
of its exercise or otherwise), such an option or the portion thereof which does
not so qualify, shall constitute a separate nonqualified stock option. Upon
exercise of a nonqualified stock option, an optionee generally will recognize
ordinary income in an amount equal to the excess of the fair market value of the
stock on the date of exercise over the exercise price. Upon a subsequent sale of
the stock by the optionee, the optionee will recognize short-term or long-term
capital gain or loss, depending upon his or her holding period for the stock.
The employer will generally be allowed a deduction equal to the amount
recognized by the optionee as ordinary income.
In addition: (i) any officers and directors of the Company
subject to Section 16(b) of the Exchange Act may be subject to special tax rules
regarding the income tax consequences concerning their awards; (ii) any
entitlement to a tax deduction on the part of the employer is subject to the
applicable federal tax rules, including, without limitation, Code Section 162(m)
regarding a $1 million limitation on deductible compensation; (iii) in the event
that the exercisability of an award is accelerated because of a change in
control, payments relating to the options, either alone or together with certain
other payments may constitute parachute payments under Section 280G of the Code,
which excess amounts may be subject to excise taxes and be nondeductible by the
Company; and (iv) the exercise of an incentive stock option may have
implications in the computation of alternative minimum taxable income.
In general, Section 162(m) of the Code denies a publicly held
corporation a deduction for federal income tax purposes for compensation in
excess of $1 million per year per person to its chief executive officer and the
four other officers whose compensation is disclosed in its proxy statement,
subject to certain exceptions. Options will generally qualify under one of these
exceptions if they are granted under a plan that states the maximum number
63
<PAGE> 67
of shares with respect to which options may be granted to any employee during a
specified period and the plan under which the options are granted is approved by
stockholders and is administered by a compensation committee comprised of
outside directors. The Trust Plan is intended to satisfy these requirements with
respect to options to the extent required by the applicable provisions of
Section 162(m) of the Code.
The Trust Plan is not subject to any of the requirements of
the Employee Retirement Income Security Act of 1974, as amended. The Trust Plan
is not, nor is it intended to be, qualified under Section 401(a) of the Code.
VOTE REQUIRED
The affirmative vote of at least a majority of the shares of
Common Stock present in person or represented by proxy and entitled to vote on
this matter at the meeting is required to approve the adoption of the Trust
Plan. The approval of the Plan is conditioned on the approval of all of the
other Proposals. All of the Proposals must be approved or none of them will be
approved. Abstentions and broker non-votes will be counted for quorum purposes,
but are not considered present or eligible to vote for these purposes.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE APPROVAL OF THE TRUST PLAN.
64
<PAGE> 68
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
PRINCIPAL STOCKHOLDERS
As of September 1, 1997, the following persons were known by
the Company to own beneficially (as defined under applicable rules of the
Securities and Exchange Commission) more than 5 percent of its outstanding
Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS TITLE OF CLASS OWNERSHIP(1) CLASS
- ---------------- -------------- ------------- -----------
<S> <C> <C> <C>
H. Irwin Levy Common Stock 817,397 (2) 10.3%
100 Century Boulevard
West Palm Beach, FL 33417
Alan J. Evans and Robert J. Common Stock 655,759 (3) 8.2%
Cartagena, Trustees
100 Century Boulevard
West Palm Beach, FL 33417
</TABLE>
- ----------
(1) Unless otherwise indicated, each stockholder listed has the sole power to
vote and direct disposition of the shares of the company shown as
beneficially owned by such stockholder.
(2) Includes 97,292 shares owned by a corporation controlled by Mr. Levy.
Excludes 100,000 shares owned by Mr. Levy's wife. Mr. Levy disclaims
beneficial ownership of the excluded shares.
(3) Shares are owned by a family trust established by Mr. Evans's wife, of
which Messrs. Evans and Cartagena are Trustees.
SECURITY OWNERSHIP OF MANAGEMENT
As of September 1, 1997, all directors and nominees, and all
current directors and executive officers of the Company as a group, beneficially
owned (as defined under the applicable rules of the Securities and Exchange
Commission) shares of the Company as follows:
65
<PAGE> 69
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS TITLE OF CLASS OWNERSHIP(1) OF CLASS
- ---------------- -------------- ------------ --------
<S> <C> <C> <C>
Allyn L. Levy [Current Director Common Stock 20,000 (2) (4)
and Nominee]
100 Century Boulevard
West Palm Beach, FL 33417
Alvin Wilensky [Current director] Common Stock 14,221 (3) (4)
100 Century Boulevard
West Palm Beach, FL 33417
Alan L. Shulman [Current Director Common Stock 10,680 (4)
and Nominee]
100 Century Boulevard
West Palm Beach, FL 33417
Stanley Brenner [Current Director Common Stock 2,500 (4)
and Nominee]
100 Century Boulevard
West Palm Beach, FL 33417
H. Irwin Levy [Nominee] Common Stock 817,397 (5) 10.3%
100 Century Boulevard
West Palm Beach, FL 33417
Louis P. Meshon, Sr. [Nominee] Common Stock 0 N/A
Stanley S. Cohen [Nominee] Common Stock 0 N/A
Milton S. Schneider [Nominee] Common Stock 0 N/A
All Current Directors, Nominees Common Stock 864,798 10.9%
and Executive Officers as a Group
(10 persons)
</TABLE>
- ----------
(1) Unless otherwise indicated, each stockholder listed has the sole power to
vote and direct disposition of the shares of the Company shown as
beneficially owned by such stockholder.
(2) Held by a revocable trust, of which Mr. Levy is the trustee and income
beneficiary.
(3) Includes 5,470 shares jointly owned with Mr. Wilensky's wife. Excludes
3,358 shares solely owned by Mr. Wilensky's wife. Mr. Wilensky disclaims
beneficial ownership of the excluded shares.
(4) Less than 1 percent.
66
<PAGE> 70
(5) Includes 97,292 shares owned by a corporation controlled by Mr. Levy.
Excludes 100,000 shares owned by Mr. Levy's wife. Mr. Levy disclaims
beneficial ownership of the excluded shares.
MANAGEMENT OF THE COMPANY UPON CONSUMMATION OF THE ACQUISITION OF THE MONTGOMERY
PROPERTIES
BOARD OF DIRECTORS. As a condition of the consummation of the
acquisition of the Montgomery Properties, the Montgomery Parties will have the
right, subject to compliance with the Company's organizational documents, to
designate three directors to serve on the Company's seven person Board of
Directors. The Company has agreed to exercise its best efforts to increase the
number of Board members and secure the resignation of one of its Directors as is
necessary to enable the Montgomery designees to be elected to the Board of
Directors. Louis P. Meshon, Sr., Stanley S. Cohen and Milton S. Schneider will
serve as the three designees of the Montgomery Parties on the Board of Directors
of the Company following the Closing. The Company's designees will make up the
other four nominees to serve on the Board after the Closing. The Company's
designees are H. Irwin Levy, Stanley Brenner, Allyn L. Levy and Alan L. Shulman.
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
At the meeting, seven directors are to be elected. The seven
nominees for the Board to be considered at the special meeting of stockholders
are to be divided between the three classes such that two classes will be made
up of two directors each and the third class will be made up of three directors.
Directors in the first class shall each serve a one-year term until the next
annual meeting of the Company, directors in the second class shall each serve a
two-year term until the next succeeding annual meeting and directors in the
third class shall serve a three-year term until the third succeeding annual
meeting in 2000. Messrs. Allyn L. Levy, Brenner and Cohen will serve until the
Annual Meeting in 1998; Messrs. Shulman and Schneider will serve until the
Annual Meeting in 1999; and Messrs. H. Irwin Levy and Meshon will serve until
the Annual Meeting in 2000; in each case until their successors are elected.
Commencing in 1998, each director elected in a class will serve a three year
term. If the Proposals are not approved or the transactions contemplated in the
Master Agreement are not consummated for any reason, the Board has nominated to
serve as Directors Messrs. Brenner, Allyn L. Levy, Shulman and H. Irwin Levy.
(See "ALTERNATIVE ELECTION OF DIRECTORS.")
NOMINEES. It is the intention of the persons named in the
enclosed form of proxy to vote for the election as directors of the nominees
named in the table below which gives their respective ages, and, where
applicable, the year in which each was elected a director the office of the
Company held by the director:
67
<PAGE> 71
<TABLE>
<CAPTION>
NOMINEE'S NAME AGE DIRECTOR SINCE
-------------- --- --------------
<S> <C> <C>
H. Irwin Levy 71 N/A
Stanley Brenner (current director) 71 1988
Allyn L. Levy (current director) 69 1983
Alan L. Shulman (current director) 65 1985
Louis P. Meshon, Sr. 56 N/A
Stanley S. Cohen 58 N/A
Milton S. Schneider 48 N/A
</TABLE>
BACKGROUNDS OF THE COMPANY'S DESIGNEES
MR. H. IRWIN LEVY is presently Chairman of the Board and Chief
Executive officer of Hilcoast Development Corp. ("Hilcoast"), a real estate
developer, which position he has held since August 1992. Since 1995, he has also
served as a director of nStor Technologies, Inc., an American Stock Exchange
listed company. Mr. Levy was Chairman of the Board and Chief Executive officer
of the Company from 1985 to July 1992. He is currently of counsel to the West
Palm Beach law firm of Levy Kneen Mariani Curtin Wiener Kornfeld and del Russo.
MR. STANLEY BRENNER was a partner of Laventhol & Horvath,
certified public accountants, for more than five years until his retirement in
1990. From April 1991 until May 1996, Mr. Brenner served as a consultant to the
Company principally in connection with the Company's loans to Hilcoast
Development Corp. Mr. Brenner became Interim President of the Company in August
1996.
MR. ALLYN L. LEVY served as Chairman and Chief Executive
Officer of Patriot Bancorporation of Boston, Massachusetts, and its predecessor,
Harbor National Bank of Boston, from 1975 until 1986. Since 1986, Mr. Levy has
been a private investor. He is also a director of B. J. Wholesale Club, a New
York Stock Exchange listed company. Mr. Levy is not related to H. Irwin Levy.
MR. ALAN L. SHULMAN is a private investor and was previously a
general partner of Unitel Associates, Ltd., a Florida limited partnership
engaged in the ownership and operation of Holiday Inn motel properties, for more
than twenty years until its dissolution in 1987. He also served as a director of
Island National Bank from its inception in 1989 until April 1997. A company
controlled by Mr. Shulman leases, operates and manages the Company's Days Inn
Motel in West Palm Beach, Florida.
68
<PAGE> 72
BACKGROUNDS OF THE MONTGOMERY PARTIES' DESIGNEES
LOUIS P. MESHON, SR., President of Drexel, co-founded the
company in 1974. Prior to starting Drexel, he was the regional Real Estate
director of Hallmark Card's Mid-Atlantic region from 1966 to 1969 where he was
responsible for site selection and lease negotiations for new locations. He
became a leasing representative at Kravco Co. in the early 1970s. A graduate of
LaSalle University, he has lectured MBA classes at the University of
Pennsylvania on shopping center redevelopment and has conducted various seminars
for the International Council of Shopping Centers (ICSC), where he is an active
member. Mr. Meshon was recently nominated to the Wharton School's Real Estate
Advisory Board.
STANLEY S. COHEN, ESQ., 58, is a partner and a member of the
Executive Committee of the law firm of Fox, Rothschild, O'Brien & Frankel, LLP
in Philadelphia, Pennsylvania, a major regional law firm with offices in
Pennsylvania and New Jersey. Mr. Cohen previously served for 11 years as
Co-Chairman of the firm's Real Estate Department. Mr. Cohen, a Chairman of the
United Way Special Gift Section, served as a past President of Har Zion Temple,
a major Philadelphia area synagogue, and the Auerbach Central Agency for Jewish
Education, a Constituent Agency of the Jewish Federation of Greater
Philadelphia, is a member of the Board of Trustees of the Jewish Federation of
Greater Philadelphia, and is a member of the board of trustees of the Greentree
School, a non-profit school serving severely emotionally disturbed children. Mr.
Cohen presently serves as an appointee of the Majority Leader of the
Pennsylvania State House of Representatives as a delegate to the Pennsylvania
Economic Development Financing Authority, a state Authority created to make
loans to encourage economic development within the Commonwealth of Pennsylvania.
Fox, Rothschild, O'Brien & Frankel, LLP is counsel to the Montgomery Parties.
MILTON S. SCHNEIDER is Chief Executive Officer of The
Glenville Group, Inc., headquartered in Plymouth Meeting, Pennsylvania. The
Glenville Group, Inc. is involved in the development, ownership, and management
of commercial/residential properties, primarily in the Northeastern United
States. Mr. Schneider is Chairman of Togar Property Company, an apartment
development company located in Malvern, Pennsylvania. Togar Property Company
develops luxury garden apartment complexes in the Northeastern United States. In
addition, Mr. Schneider is Vice Chairman of Parkland Management Company, a
financial services company and is Vice Chairman of Horvitz Newspapers, Inc.,
which owns seven newspapers in the State of Washington and Tennessee. He is also
a faculty member of the Institute of Private Investors. From 1972 to 1980 Mr.
Schneider served as a Vice President of the Real Estate Division of W.R. Grace &
Co. and as an officer of its various real estate subsidiaries. His experience at
W.R. Grace & Co. included the development, acquisition, financing, and
management primarily of shopping centers and residential properties. Mr.
Schneider served for three years as the Chairman of the Metropolitan
Philadelphia Advisory Board of the Anti-Defamation League (the "ADL"). Mr.
Schneider is a member of ADL's National Executive Committee, a National
Commissioner and Chairman of the National Development Committee, and a trustee
of the ADL Foundation. Mr. Schneider is also an officer and member of the Board
of Trustees of the Jewish Federation of
69
<PAGE> 73
Greater Philadelphia, Chairman of its Investment Committee, a board member of
its Endowment Corporation and serves on its Executive Committee; a trustee and
member of the Executive Committee of the Shipley School; a founding director of
TownePride Works, Inc., a non-profit organization providing job readiness
training and placement for the transitionally needy homeless in Philadelphia;
and serves on numerous other boards and community committees in the Philadelphia
and New York areas.
Mr. Alvin Wilensky, a current member of the Board of
Directors, is not standing for reelection.
MEETINGS AND COMMITTEES
The Board of Directors of the Company met five times during
the year ended December 31, 1996. All directors attended all meetings except for
Mac Gache, Allyn L. Levy and Mr. Shulman, who were each absent from one meeting.
The Audit Committee, consisting of Messrs. Shulman and
Brenner, did not meet during the past year. The Audit Committee is responsible
for overseeing the financial reporting process and the effectiveness of internal
controls of the Company and for recommendations to the full Board of Directors,
including the designation of independent certified public accountants on an
annual basis.
The Asset Review Committee, consisting of Messrs. Brenner,
Allyn L. Levy and Wilensky, met 3 times during the past year. All members
attended all meetings except Mr. Levy who was absent from one meeting. The Asset
Review Committee's functions include the review of all material loans made by
the Company to third parties and the Company's real estate owned and to make
recommendations to management and the full Board of Directors related to these
assets.
The Investment Committee, consisting of Messrs. Brenner, Allyn
L. Levy and Shulman, did not meet during the past year. The Investment
Committee's functions include the approval of all investments of the Company not
otherwise approved by the full Board of Directors.
The Board of Directors has no standing nomination or
compensation committees or other committees performing similar functions.
EXECUTIVE OFFICERS OF THE COMPANY AND THE OPERATING
PARTNERSHIP IF THE PROPOSALS ARE APPROVED. Upon the consummation of the
acquisition of the Montgomery Properties, Mr. Meshon will become the President
and Chief Executive officer of the Company. Mr. Meshon will no longer be an
officer of Drexel following the acquisition of the Montgomery Properties.
70
<PAGE> 74
CURRENT EXECUTIVE OFFICERS. The following are the current
executive officers of the Company, their respective ages, the year in which each
was first elected an officer and the office of the Company held by each. Each
executive officer will hold office until the next annual meeting of the Board of
Directors following the special meeting or until each of their respective
successors have been duly elected and qualified:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER'S NAME AGE OFFICE OFFICER SINCE
------------------------ --- ------ -------------
<S> <C> <C> <C>
Stanley Brenner 71 President 1996
Elaine Hauff 34 Vice President 1992
Treasurer
Orilla Floyd 63 Secretary 1996
</TABLE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION. If the Master Agreement and the
transactions contemplated thereunder are approved by stockholders, compensation
of executive officers of the Company will be governed by the Company's Board of
Directors pursuant to the Amended Certificate of Incorporation.
The following table sets forth the annual and long-term
compensation for the Company's Chief Executive Officer as well as the total
compensation paid to such individual for the Company's two previous fiscal
years. The only compensation paid by the Company to its executive officers is
base salary and annual bonuses. Alvin Wilensky served as President and Chief
Executive Officer until his retirement on May 31, 1996, on which date Stanley
Brenner assumed the position of Interim President.
Mr. Wilensky was the only officer whose compensation exceeded
$100,000 in 1996.
71
<PAGE> 75
Summary Compensation Table
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION
- --------------------------- -------------------
YEAR SALARY($) BONUS($)(2)
---- --------- ----------
<S> <C> <C> <C>
Stanley Brenner, President 1996 10,000 0
Alvin Wilensky 1996 129,587(1) --
President and Chief 1995 141,500 5,000
Executive Officer 1994 136,000 5,000
</TABLE>
(1) Mr. Wilensky retired as President and Chief Executive Officer effective
May 31, 1996. The Company agreed to pay $155,858 as severance of which
$60,611 was paid to Mr. Wilensky in 1996 and included in salary above.
(2) Paid in March of subsequent year.
BOARD COMPENSATION REPORT
Since the Board does not have a Compensation Committee, the
entire Board has provided the following Compensation Report:
Executive Compensation Policy - The Board's overall
compensation philosophy is to attract and retain quality talent, which is
critical to both the short-term and long-term success of this Company, and to
create a mutuality of interest between executive officers and stockholders
through compensation structures that share the rewards and risks of strategic
decision making.
The Board annually examines market compensation levels and
trends observed in the labor market. Market information is used as a frame of
reference for annual salary adjustments and starting salary offers. The salary
of the Chief Executive Officer and President is determined by the Chairman of
the Board who consults with the entire Board at his discretion. Other executive
salary decisions are determined in an annual review based upon recommendations
of the Company's financial consultants and approved by the Chairman of the
Board. This annual review considers the decision-making responsibilities of each
position and the experience, work performance, and team-building skills of
position incumbents. The Company currently does not have any stock option, SAR,
restricted stock or long-term incentive plans. The Company will implement the
Stock Option Plan for the Trust if it is approved by stockholders. In addition,
Drexel has adopted a bonus plan that provides for certain employees of Drexel to
receive an annual bonus in cash, at the discretion of its board of directors
based on the annual increase in Funds from Operation of the Company as
determined by the Company's independent auditors.
72
<PAGE> 76
Base Compensation - The Board's approach to base compensation
is to offer competitive salaries in accordance with market practices prevalent
in the Company's geographical area. Increases in base compensation of the Chief
Executive Officer are based on the Board's evaluation of the performance of the
Chief Executive Officer with respect to specific matters assigned to him by the
Board, and take into account the performance of the Company, particularly its
funds from operations.
Bonus Compensation - The Board rewards its executive officers
with annual bonuses based on performance on specific projects or transactions,
taking into account the overall performance of the Company. The Chief Executive
Officer's input is considered when establishing bonuses for other executive
officers.
For executive officers other than the Chief Executive Officer,
a balance is made between overall corporate performance and performance of the
specific areas of the Company under a participant's direct control. This balance
supports the accomplishment of overall objectives and rewards individual
contributions and tasks assigned to the Company employees.
Chief Executive Officer Compensation - As indicated in the
discussion above, the Company's total compensation program is partially based
upon the performance of the Company, particularly its funds from operations.
Respectfully submitted,
Alvin Wilensky
Allyn Levy
Alan L. Shulman
Stanley Brenner
73
<PAGE> 77
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no Compensation Committee. The Chief Executive
Officer's salary is determined by the Chairman of the Board, who consults with
the entire Board at his discretion. Mr. Meshon, as Chief Executive Officer of
the Company subsequent to the consummation of the transactions contemplated
herein, will have an employment agreement with the Trust. (See "CERTAIN
CONSIDERATIONS -- New Management -- Change in Control.") Other executive salary
decisions are determined in an annual review based upon recommendations of the
Company's financial consultants and approved by the Chairman of the Board.
During 1996, the Board consisted of Alvin Wilensky, the Company's Chief
Executive Officer until May 31, 1996, three outside directors -- Alan L.
Shulman, Mac Gache and Allyn L. Levy, and Stanley Brenner, who was elected
Interim President effective May 31, 1996.
On November 7, 1988, the Company entered into a lease with
Century Inn Operating Corp., a company controlled by Alan L. Shulman, a director
of the Company, for the operation and management of its Days Inn motel in West
Palm Beach, Florida. The lease, as amended, provides for annual rent through the
expiration of the lease term, on August 31, 1999, equal to a minimum of
$330,000, plus 30 percent of gross room revenues in excess of $1.3 million. The
lease also provides for the Company to be paid 50 percent of certain amounts
received by the lessee from the concessionaire who operates the food and
beverage facilities at the motel. During the year ended December 31, 1996, the
Company recognized rent income of $454,000 under the lease.
BOARD COMPENSATION
Mr. Shulman served as Chairman of the Board until May 31,
1996, at which time Mr. Wilensky was elected Chairman. From January 1, 1996
through May 31, 1996, Mr. Shulman received $5,000 per month and $1,500 for each
Board of Directors meeting attended in connection with his services as Chairman.
Mr. Wilensky receives $2,500 as Chairman for each Board of Directors meeting he
attends. Other outside directors and Mr. Brenner receive $1,500 for each Board
meeting attended and $500 for each committee meeting attended. Each director
also receives quarterly compensation of $600, effective July 1, 1996.
ALTERNATIVE ELECTION OF DIRECTORS
In the event the Proposals are not approved or the
transactions contemplated by the Master Agreement are not consummated for any
reason, the Amended Certificate of Incorporation and Amended By-Laws of the
Company will not be effected. The Company will then continue to have a Board of
Directors consisting of four people with a one year term. In that eventuality,
the Board of Directors has nominated the following four directors, each to serve
as Directors of the Company until the next annual meeting of stockholders and
the election of their respective successors: Stanley Brenner, Allyn L. Levy,
Alan L. Shulman and
74
<PAGE> 78
H. Irwin Levy. (See "MANAGEMENT AND PRINCIPAL STOCKHOLDERS -- Directors,
Nominees and Executive Officers.")
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total
stockholder return (assuming reinvestment of dividends) to the Company's
stockholders during the five year period ended December 31, 1996, as well as an
overall stock market index (S&P 500 index) and the Company's peer group index
(Mortgage REIT Industry Index):
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Years Ended December 31,
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CV Reit, $100.00 $183.57 $256.13 $278.33 $390.81 $525.95
Inc.
S&P 500 $100.00 $107.67 $118.43 $119.97 $164.88 $202.74
Index
Mortgage $100.00 $101.92 $116.75 $ 88.37 $144.42 $217.88
Reit
Index
</TABLE>
Total returns assume $100 invested on December 31, 1991 in the Company's Common
Stock, the S&P 500 Index and the Mortgage REIT Industry Index with reinvestment
of dividends. If the Proposals are approved, the Company will become primarily
an equity REIT with an interest in a real estate management company.
Accordingly, the Mortgage REIT Industry Index may not be used in future years.
TRANSACTIONS WITH OTHERS
During December 1981 and January 1982, the Company sold each
of its recreation facilities at the Century Villages in West Palm Beach,
Deerfield Beach and Boca Raton in separate transactions to different purchasers,
including H. Irwin Levy, for sales prices based upon independent appraisals
provided by Landauer Associates. The Company sold the recreation facilities at
Boca Raton to Mr. Levy for $18 million, subject to a lease which has since been
acquired by a corporation owned by Mr. Levy. (The annual net rental to Mr. Levy
on that lease is $2,162,000.) Mr. Levy paid $410,000 in cash, assumed an
existing first mortgage to an unrelated party in the principal sum of $3,415,000
(which amount has been
75
<PAGE> 79
repaid in full), and issued 4-year and 30-year non-recourse promissory notes to
the Company in the principal amounts of $1,640,000 and $12,535,000,
respectively. The 4-year note was non-interest bearing and has been paid in
full. The 30-year note bears interest at 13.25 percent per annum and, at
December 31, 1996, the outstanding balance on this note was $11.2 million.
During the year ended December 31, 1996, the Company realized $1.5 million in
interest income on this note.
Since 1990, companies owned by H. Irwin Levy and certain
members of his family have leased, managed and operated the recreation
facilities at the Century Villages in West Palm Beach, Deerfield Beach and Boca
Raton, which are collateral for certain notes held by the Company with an
outstanding balance of $42.3 million at December 31, 1996. During 1996, the
Company leased approximately 3,000 square feet of office to those companies on a
month-to-month basis for $2,500 per month, plus an allocation of utility
expenses.
H. Irwin Levy is Chairman of the Board, Chief Executive
Officer and a principal stockholder of Hilcoast, the Company's largest borrower.
At September 30, 1997, amounts due from Hilcoast consisted of mortgage notes
aggregating $37.8 million, which included the following:
RECREATION NOTE
The Recreation Note, in the amount of $25 million as of
September 30, 1997, is collateralized by a first mortgage on certain real estate
within the Century Village at Pembroke Pines, Florida adult condominium project
(the "Pembroke Century Village"), including the recreation facilities at that
project (the "Pembroke Recreation Facilities"). The Recreation Note bears
monthly interest at prime (8.50 percent at September 30, 1997) plus 3 percent,
but in any event not less than 9 percent nor more than 11 percent, and currently
requires monthly interest payments only. Upon the earlier to occur of delivery
of the last condominium apartment at the Pembroke Century Village or July 31,
1998, the Recreation Note is scheduled to be converted to an 11 percent fixed
rate, 25-year, $25 million, self- amortizing loan providing for equal monthly
payments of principal and interest. This note may not be prepaid by Hilcoast
without a prepayment penalty and will be collateralized by a first mortgage on
the Pembroke Recreation Facilities.
LINES OF CREDIT
Lines of credit to Hilcoast consist of revolving construction
loan commitments which as of September 30, 1997, aggregated $9.6 million, of
which $6.7 million was outstanding on that date. The lines of credit are
collateralized by real estate within the Pembroke Century Village; bear
interest, payable monthly, ranging from prime plus 3 percent (but in any event
not less than 9 percent nor more than 11 percent) to prime plus 3 percent with a
minimum of 11 percent; mature through July 1998; provide for unused commitment
fees of .9 percent per annum; and require specific release prices, principally
based on sales of
76
<PAGE> 80
condominium apartments at the Pembroke Century Village, to be applied as
permanent reductions of amounts available under the lines of credit.
OTHER
Other real estate mortgage notes due from Hilcoast amounted to
$6.1 million as of September 30, 1997 and included $5 million payable July 31,
1998, with interest, payable quarterly, at 10 percent, collateralized by the
Pembroke Recreation Facilities. The remaining mortgage note due from Hilcoast
matures in December 1997 and bears interest, payable monthly, at prime plus 3
percent (but in any event not less than 9 percent nor more than 11 percent).
Effective July 31, 1992, the Company and Hilcoast entered into
a consulting and advisory agreement under which Hilcoast provides certain
investment advisory, consulting and administrative services to the Company,
excluding matters related to Hilcoast's loans from the Company. The agreement,
which originally expired in July 31, 1994, has been extended to December 31,
1997, and if the transactions contemplated by the Master Agreement are
consummated, will be further extended to June 30, 1999. (See "CERTAIN
CONSIDERATIONS -- New Management -- Change of Control.") The agreement currently
provides for the payment of $10,000 per month to Hilcoast, plus reimbursement
for reasonable out-of-pocket expenses. The agreement may be terminated by
Hilcoast upon 180 days notice and by the Company upon 30 days notice. Mr. Levy
is a principal stockholder, Chairman of the Board and Chief Executive Officer of
Hilcoast.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's directors and executive
officers, and persons who own more than ten percent of the Company's outstanding
Common Stock, to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common
Stock. Such persons are required by SEC regulation to furnish the Company with
copies of all such reports they file.
To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, the officers, directors and greater than ten
percent beneficial owners of the Company have complied with all applicable
Section 16(a) filing requirements.
77
<PAGE> 81
FINANCIAL STATEMENTS OF PROPERTIES TO BE ACQUIRED
Included in this Proxy Statement as Appendix H are financial
statements for Drexel for the years ended December 31, 1996, 1995 and 1994, for
each of the Montgomery Properties for the year ended December 31, 1996 and for
the Levy Properties for the years ended December 31, 1996, 1995 and 1994. After
reasonable inquiry, we are not aware of any material information relating to any
of these properties that would cause the financial information about these
properties included in our Proxy Statement as Appendix H not to be necessarily
indicative of the future operating results of these properties. In arriving at
this conclusion, we have considered the sources, revenues of these properties,
particularly rental income; competition in the markets where the properties are
located; rents for comparative properties; occupancy rates; and expenses,
including utility rates; ad valorem taxes; maintenance expenses and anticipated
capital improvements.
78
<PAGE> 82
VOTING PROCEDURES
Under Delaware law and the Company's certificate of
incorporation and by-laws, if a quorum is present, directors are elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. A majority of
the outstanding shares entitled to vote, present in person or represented by
proxy, constitutes a quorum. Shares represented by proxies or ballots
withholding votes from one or more directors and any "broker non-votes," if the
broker's proxy is voted for at least one proposal, will be counted only for
purposes of determining a quorum. "Broker non-votes" are instances where a
broker holding Shares of record for a beneficial owner is precluded by rules of
a stock exchange or the National Association of Securities Dealers, Inc. from
voting on a matter. Otherwise, abstentions and "broker non- votes" will not be
counted for or against matters presented for Stockholder consideration. However,
because the proposals to approve the Master Agreement and to amend the
certificate of incorporation require the affirmative vote of holders of a
majority in interest of the outstanding Shares of the Company, and because
abstentions and "broker non-votes" will not be counted as affirmative votes,
they have the same effect as votes against these proposals. Abstentions and
broker non-votes will not be considered present or entitled to vote on the other
Proposals.
The General Corporation Law of the State of Delaware and the
certificate of incorporation of our Company do not provide for cumulative voting
in the election of directors.
A proxy executed and delivered by a stockholder may
subsequently be revoked by written notice of revocation to the Company. A
revocation may be in any written form validly signed by the record holder as
long as it clearly states that such holder's proxy previously given is no longer
effective. TO PREVENT CONFUSION, THE NOTICE OF REVOCATION MUST BE DATED. NOTICES
OF REVOCATION SHOULD BE SENT TO THE COMPANY AT 100 CENTURY BOULEVARD, WEST PALM
BEACH, FLORIDA 33417, ATTENTION: SECRETARY.
If a stockholder signs, dates and delivers a proxy card to the
Company, and thereafter, on one or more occasions dates, signs and delivers a
later-dated proxy card, the latest dated proxy card is controlling as to the
instructions indicated therein and supersedes such Stockholder's prior proxy as
embodied in any previously submitted proxy card.
79
<PAGE> 83
SOLICITATION PROCEDURES
The Company will bear the cost of the special meeting and of
soliciting proxies, including the cost of mailing the proxy material. In
addition to soliciting proxies by mail, directors, officers and regular
employees of the Company (who will not be specifically compensated for such
services) may solicit proxies by telephone or otherwise. The Company will also
request persons, firms and corporations holding Shares in their names or in the
names of nominees, which are beneficially owned by others, to send proxy
materials to and obtain proxies from such beneficial owners. On request, the
Company will reimburse such holders for their reasonable expenses. The Company
may retain the services of a solicitation agent to assist in the solicitation of
proxies.
80
<PAGE> 84
OTHER MATTERS
APPROVAL OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed BDO
Seidman as independent auditors for the Company for the year ending December 31,
1997, subject to the approval of stockholders. BDO Seidman acted as independent
auditors for the Company for the year ended December 31, 1996. A representative
of BDO Seidman is expected to be present at the stockholders' meeting, will have
the opportunity to make a statement if he or she desires to do so, and will be
available to respond to appropriate questions.
GENERAL
The Board of Directors does not know of any matters other than
those that will be presented for consideration at the meeting. However, if other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote thereon in accordance with their judgment.
In the event that any nominee is unable to serve as a director at the date of
the meeting, the enclosed form of proxy will be voted for any nominee who shall
be designated by the Board of Directors to fill such vacancy.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders to be presented at the annual
meeting to be held in 1998 must be received for inclusion in the Company's proxy
statement and form of proxy a reasonable time before the mailing of the Company
proxy statement for that meeting.
81
<PAGE> 85
INCORPORATION BY REFERENCE OF CERTAIN
SUBSEQUENTLY FILED DOCUMENTS
In addition to the documents referred to under "Information
About Our Company," all documents filed by our Company after the date of the
Proxy Statement and before the date of the Special Meeting pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act are incorporated by reference in
this Proxy Statement.
In addition, the 1996 annual report to Stockholders will be
provided to Stockholders for record on the record date to whom the report has
not already been provided.
We will provide you, by first class mail within one business
day of the receipt of your oral or written request, a copy of any document
incorporated by reference in this Proxy Statement (except exhibits to those
documents) without charge if a copy of this Proxy Statement was delivered to
you. You may make your requests to the address or telephone number listed on the
first page of this Proxy Statement.
ESTIMATED EXPENSES
The Company will bear the cost of preparing and mailing the
Notice of Meeting, this Proxy Statement and the enclosed proxy, except that
legal fees and fees of the Company's accountants incurred by the Company in
connection with the preparation of this Proxy Statement will be included in the
costs (50 percent) which (up to a maximum amount of approximately 5 percent of
the value of the OP Units otherwise payable) are allocable to the transferors of
interests in properties at the Closing in reduction of the number of OP Units
issuable.
If a proxy solicitor is engaged, the Company does not
anticipate that it would cost more than approximately $10,000.
West Palm Beach, Florida
November 11, 1997
82
<PAGE> 86
APPENDICES
A MASTER AGREEMENT
B OPERATING PARTNERSHIP AGREEMENT
C AMENDED CERTIFICATE OF INCORPORATION
D AMENDED BY-LAWS
E MONTGOMERY CV TRUST EXECUTIVE STOCK OPTION PLAN
F MONTGOMERY PARTIES OWNERSHIP CHART
G LEVY PARTIES OWNERSHIP CHART
H FINANCIAL STATEMENTS OF DREXEL REALTY, INC., THE MONTGOMERY PROPERTIES
AND THE LEVY PROPERTIES
<PAGE> 87
APPENDIX A
================================================================================
DEFINITIVE MASTER AGREEMENT
DATED AS OF SEPTEMBER ___, 1997
AMONG
CV REIT, INC.
AND MONTGOMERY CV TRUST
AND
DREXEL REALTY, INC., ROYCE REALTY, INC., LOUIS MESHON, SR.,
AND EACH OF THE OTHER MESHON PARTIES NAMED HEREIN,
AND
THE LEVY PARTIES NAMED HEREIN
================================================================================
<PAGE> 88
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. THE TRANSACTIONS..................................................................4
1.1 INTENTIONALLY OMITTED....................................................4
1.2 The Meshon Transactions..................................................4
1.3 Contribution by the Levy Parties.........................................7
1.4 General Provisions.......................................................8
1.5 Contribution by the Company; Operating Partnership Interest..............8
1.6 Drexel Transactions. ...................................................9
1.7 Restructuring of Drexel Prior to the Closing............................10
1.8 Restructuring of the Company; Management................................10
1.9 Adjustments to Base Unit Amount.........................................11
1.10 The Operating Partnership; Total OP Units. ............................13
1.11 Definitive Agreement; Document Custodians...............................14
1.12 Option Plan. .........................................................16
1.13 Documents Needed for Closing............................................17
1.14 Employment Arrangements.................................................17
1.15 INTENTIONALLY OMITTED...................................................17
1.16 INTENTIONALLY OMITTED...................................................17
1.17 Registration Agreement..................................................17
1.18 Operation of the Company Between Signing and Closing....................18
1.19 Operation of Drexel, Royce and Payroll Between Signing and Closing......18
1.20 Operation of the Acquired Partnerships and Subject Properties...........18
1.21 Missing Signatures......................................................18
1.22 Limitation of Personal Liability of Meshon Limited Partners. ...........19
1.23 Financial Condition of Transferred Entities on the Closing Date. .......19
2. CLOSING ADJUSTMENTS..............................................................19
2.1 Allocations and Adjustments at Closing..................................19
3. THE CLOSING......................................................................24
3.1 Closing Date and Place..................................................24
3.2 INTENTIONALLY OMITTED...................................................24
3.3 Meshon Closing Deliveries...............................................24
3.4 Levy Closing Deliveries.................................................26
3.5 Closing Deliveries By Owners Which Are Contributing Real Estate.........27
3.6 Company Closing Deliveries..............................................29
4. CONDITIONS TO CLOSING............................................................30
4.1 Conditions to Obligations of All Parties................................30
4.2 INTENTIONALLY OMITTED...................................................30
4.3 Conditions to Obligations of the Meshon Parties.........................30
4.4 Conditions to Obligations of the Levy Parties...........................31
</TABLE>
<PAGE> 89
<TABLE>
<S> <C>
4.5 Conditions to Obligations of the Company and the Business Trust.........32
4.6 Partial Closing.........................................................34
5. REPRESENTATIONS AND WARRANTIES RELATING TO THE REAL PROPERTY.....................35
5.1 Meshon Properties.......................................................35
5.2 INTENTIONALLY OMITTED...................................................42
5.3 Levy Properties.........................................................42
6. REPRESENTATIONS AND WARRANTIES RELATING TO THE MESHON PARTNERSHIP
INTERESTS........................................................................48
6.1 Organization Chart......................................................48
6.2 Organization and Qualification..........................................48
6.3 Authority...............................................................49
6.4 Ownership Interests of Meshon Parties; Substitution of Partner..........49
6.5 Business Conducted......................................................49
6.6 Financial Statements; Meshon Partnership Budgets........................50
6.7 Liabilities.............................................................50
6.8 Insurance...............................................................50
6.9 Material Events and Changes.............................................51
6.10 No Conflicts or Defaults; No Violations.................................51
6.11 Consents................................................................52
6.12 Debt....................................................................52
6.13 Taxes...................................................................53
6.14 Material Agreements; Management Agreements..............................54
6.15 Environmental Matters...................................................55
6.16 Investment Company......................................................57
6.17 Employees...............................................................57
6.18 Employee Benefits.......................................................57
6.19 Litigation and Claims...................................................58
6.20 Intellectual Property...................................................58
6.21 Questionable Payments...................................................59
6.22 Books and Records; Bank Accounts........................................59
6.23 Fees and Reimbursements.................................................59
6.24 Completeness of Disclosure..............................................59
6.25 Solvency................................................................59
6.26 Absence of Inducement...................................................60
6.27 Proxy Information.......................................................60
6.28 Accredited Investor.....................................................60
6.29 Reorganized Drexel......................................................61
7. REPRESENTATIONS AND WARRANTIES OF THE MESHON PARTIES CONTRIBUTING
MESHON PARTNERSHIP INTERESTS OR MESHON TRANSFERRED PROPERTY......................61
7.1 Good Title. ...........................................................61
7.2 Authority...............................................................61
</TABLE>
<PAGE> 90
<TABLE>
<S> <C>
7.3 Ownership Interests of Meshon Parties; Substitution of Partner..........62
7.4 Allocation of Aggregate Base Unit Amount................................62
7.5 No Conflicts or Defaults; No Violations.................................62
7.6 Consents................................................................62
7.7 Debt....................................................................63
7.8 Taxes...................................................................63
7.9 Completeness of Disclosure..............................................63
7.10 Solvency................................................................63
7.11 Absence of Inducement...................................................63
7.12 Proxy Information.......................................................63
7.13 Accredited Investor.....................................................64
7.14 Meshon Representations and Warranties...................................64
7.15 Glenmont Associates.....................................................64
8. REPRESENTATIONS OF THE MESHON PARTIES WITH RESPECT TO REORGANIZED
DREXEL...........................................................................64
8.1 Organization Chart......................................................64
8.2 Organization of Reorganized Drexel......................................65
8.3 Authority...............................................................65
8.4 Ownership Interests In Reorganized Drexel...............................66
8.5 Business Conducted......................................................66
8.6 Financial Statements....................................................66
8.7 Liabilities.............................................................66
8.8 Insurance...............................................................66
8.9 Material Events and Changes.............................................67
8.10 No Conflicts or Defaults; No Violations.................................67
8.11 Consents................................................................68
8.12 Debt....................................................................68
8.13 Taxes and Other Liabilities.............................................68
8.14 Material Agreements; Management Agreements..............................69
8.15 Investment Company......................................................69
8.16 Employees...............................................................69
8.17 Employee Benefits.......................................................70
8.18 Litigation and Claims...................................................70
8.19 Intellectual Property...................................................71
8.20 Questionable Payments...................................................71
8.21 Books and Records; Bank Accounts........................................71
8.22 Completeness of Disclosure..............................................71
8.23 Solvency................................................................71
8.24 Absence of Inducement...................................................72
8.25 Proxy Information.......................................................72
8.26 Accredited Investor.....................................................72
</TABLE>
<PAGE> 91
<TABLE>
<S> <C>
9. REPRESENTATIONS AND WARRANTIES OF THE LEVY PARTIES...............................73
9.1 Organization Chart......................................................73
9.2 Authority...............................................................73
9.3 Business Conducted......................................................73
9.4 Financial Statements; Levy Party Budgets................................73
9.5 Liabilities.............................................................74
9.6 Insurance...............................................................74
9.7 Material Events and Changes.............................................74
9.8 No Conflicts or Defaults; No Violations.................................75
9.9 Consents................................................................75
9.10 Debt....................................................................75
9.11 Taxes...................................................................76
9.12 Material Agreements; Management Agreements..............................77
9.13 Environmental Matters...................................................78
9.14 Investment Company......................................................80
9.15 Employees...............................................................80
9.16 Employee Benefits.......................................................80
9.17 Litigation and Claims...................................................81
9.18 Questionable Payments...................................................81
9.19 Books and Records; Bank Accounts........................................81
9.20 Completeness of Disclosure..............................................82
9.21 Solvency................................................................82
9.22 Absence of Inducement...................................................82
9.23 Proxy Information.......................................................82
9.24 Accredited Investor.....................................................83
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................83
10.1 Organization of the Company; Authorization; Capitalization..............83
10.2 Company Reports and Financial Statements................................84
10.3 Company REIT Status.....................................................84
10.4 Absence of Inducement...................................................85
10.5 Collateralized Mortgage Obligations; Other Matters......................85
11. ADDITIONAL COVENANTS.............................................................87
11.1 Company Corporate Actions...............................................87
11.2 Financial Statements....................................................88
11.3 Offering to Meshon Parties..............................................90
11.4 Access..................................................................91
11.5 Public Announcements....................................................91
11.6 Indemnification and Insurance...........................................91
11.7 Representations and Warranties; Proxy Information.......................92
11.8 Approvals...............................................................93
11.9 Conduct of Business Prior to the Closing................................93
11.10 Operation of Properties Prior to the Closing............................94
</TABLE>
<PAGE> 92
<TABLE>
<S> <C>
11.11 Fire or Other Casualty..................................................97
11.12 Business Organization...................................................98
11.13 Reservation and Listing of Shares.......................................98
11.14 Consents and Estoppel Certificates......................................99
11.15 Continued Truth of Meshon Tax Representations and Warranties............99
11.16 Absence of Tax Representations..........................................99
11.17 Exculpation of Trustees.................................................99
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; DISPUTE
RESOLUTION.......................................................................99
12.1 Survival................................................................99
12.2 Time Limitations........................................................99
12.3 Indemnification........................................................100
12.4 Indemnification Procedures.............................................101
13. DEFINITIONS.....................................................................103
14. TERMINATION.....................................................................113
14.1 Termination............................................................113
14.2 Effect of Termination..................................................115
15. NOTICES.........................................................................115
16. MISCELLANEOUS...................................................................117
16.1 Governing Law..........................................................117
16.2 Specific Performance...................................................117
16.3 Captions...............................................................117
16.4 No Waiver..............................................................117
16.5 Exclusive Agreement; Amendment.........................................117
16.6 Counterparts...........................................................118
16.7 Severability...........................................................118
</TABLE>
<PAGE> 93
EXHIBITS
A -- Form of Partnership Agreement
B -- Form of Master Leasing, Management and Executive Services Agreement
C -- Form of Escrow Agreement
D -- INTENTIONALLY LEFT BLANK
E -- Form of Amended Certificate of Incorporation
F -- Form of Amended By-Laws
G -- Form of Option Plan
H -- INTENTIONALLY LEFT BLANK
I -- Form of Voting Trust Agreement
J -- Form of Certificate of Incorporation and By-Laws for Reorganized
Drexel
K -- Form of Meshon Employment Agreement with Business Trust
L -- INTENTIONALLY LEFT BLANK
M -- INTENTIONALLY LEFT BLANK
N -- INTENTIONALLY LEFT BLANK
O -- Form of Tenant Estoppel Certificate
P -- Form of Proskauer Rose LLP Opinion
Q -- Form of Fox, Rothschild, O'Brien & Frankel Opinion
R -- INTENTIONALLY LEFT BLANK
S -- Form of Press Release
SCHEDULES
A --- Company Assets
C --- Meshon Partnerships and Properties
D --- Signing and Non-Signing Meshon Principals
E --- Levy Properties
H --- Levy Parties
K --- Managed Properties
N --- Company Consenting Shareholders
<PAGE> 94
Schedule 1.2 Base Unit Amount - Meshon
Schedule 1.2(a) Renaissance Plaza Partnership Interests Being
Transferred
Schedule 1.2(f) Meshon Properties With A Meshon Party as Guarantor of or
Liable for Mortgage Loans
Schedule 1.3 Base Unit Amount - Levy
Schedule 1.5 Uncontributed Assets
Schedule 1.6(a) Base Unit Amount - Drexel
Schedule 1.6(c) Drexel 1996 Leasing Fees
Schedule 1.7(ii) Board of Directors of Reorganized Drexel
Schedule 1.7(iii) Capital Stock of Reorganized Drexel on the Closing Date
Schedule 1.7(iv) Transfer or Certain Reorganized Drexel Employees
Schedule 1.8(b) Proposed Directors of the Company Following the Closing
Schedule 1.9 Professionals Expenses Included in Allocable Expenses
Schedule 1.11(f)(1) Capital Repairs and/or Replacements
Schedule 1.11(f)(2) Reserve on Reserve Properties
Schedule 1.13(b) Levy Required Consents
Schedule 1.23 Rights under Leases and Management Contracts and
Obligations for Tenant Improvements
Schedule 2.1(i) Realty Transfer Taxes
Schedule 2.1(j) Obligations for Tenant Improvements
Schedule 3.3(a) Amount of Title Policy and Personal Property (Leased or
Financed) - Meshon Properties
Schedule 3.4 (a) Amount of Title Policy and Personal Property (Leased or
Financed) - Levy Properties
Schedule 5.1(a) Good and Marketable Fee Title for Each Meshon Property
Schedule 5.1(b) Meshon Ground Lease/Installment Sales Agreement
Schedule 5.1(d) Meshon Leases/Rental Collections/Security Deposits
Schedule 5.1(h) Tenant Concessions Relating to Meshon Leases
Schedule 5.1(l) Meshon Lessor Obligations
Schedule 5.1(m) Leasing Commissions Relating to Meshon Leases
Schedule 5.1(n) Meshon Service Contracts
Schedule 5.1(o) Debt Affecting each Meshon Property
Schedule 5.1(p) List of Rentable Improvements Located on Each Meshon
Property
Schedule 5.1(r) Meshon Personal Property Being Leased or Financed
Schedule 5.1(t) Claims Made Under the Hazard Insurance Policies for Each
Meshon Property
Schedule 5.1(y) Meshon Properties Subject to Tax Certiorari Proceedings
Schedule 5.1(aa) Litigation and Claims - Meshon Properties
Schedule 5.3(a) Good and Marketable fee title for each Levy Property
Schedule 5.3(c) Levy Leases
Schedule 5.3(d) Monthly Rental Collections/Security Deposits for Levy
Leases
Schedule 5.3(g) Tenant Concessions Relating to Levy Leases
vii
<PAGE> 95
Schedule 5.3(h) Levy Lease Defaults/Disputes
Schedule 5.3(j) Tenant Occupancy/Rental Payment Relating to Levy Leases
Schedule 5.3(k) Levy Lessor Obligations
Schedule 5.3(l) Leasing Commissions Relating to Levy Leases
Schedule 5.3(m) Levy Service Contracts
Schedule 5.3(n) Debt Affecting each Levy Property
Schedule 5.3(o) List of Rentable Improvements Located on Each Levy
Property
Schedule 5.3(q) Levy Personal Property Being Leased or Financed
Schedule 5.3(s) Claims Made under the Hazard Insurance Policies for
Each Levy Property
Schedule 5.3(x) Levy Properties Subject to Tax Certiorari Proceedings
Schedule 5.3(z) Litigation and Claims - Levy Properties
Schedule 6.1 Organization Chart - Meshon
Schedule 6.2 Organization and Qualification - Meshon
Schedule 6.3 Authority to Execute Agreement - Meshon
Schedule 6.4 Ownership Interests of Meshon; Substitution or Partner
Schedule 6.5 Business Conducted by Meshon
Schedule 6.6(b) Meshon - Non-Budgeted Capital Expenditures
Schedule 6.8 Insurance - Meshon
Schedule 6.9(a) Material Events and Changes - Meshon
Schedule 6.9(b) Operations and Business - Meshon
Schedule 6.9(c) Losses, Change of Control - Meshon
Schedule 6.10 Conflicts, Defaults, Violations - Meshon
Schedule 6.11 Consents - Meshon
Schedule 6.12 Debt - Meshon Parties
Schedule 6.13(a) Tax IDs - Meshon Parties
Schedule 6.13(b) Tax Code Elections - Meshon Partnerships
Schedule 6.13(e) Transfer of Interests - Meshon Partnerships
Schedule 6.13(f) Qualified Liabilities - Meshon
Schedule 6.14(a) Meshon Material Agreements
Schedule 6.14(b) Meshon Management Agreements
Schedule 6.18 Employee Benefit Plans - Meshon
Schedule 6.19 Litigation and Claims - Meshon
Schedule 6.20 Intellectual Property - Meshon
Schedule 6.28 Accredited Investor - Meshon Parties
Schedule 7.2 Authority to Execute Agreement - Meshon Party
Schedule 7.3 Ownership Interests of Meshon Parties; Substitution of
Partner
Schedule 7.5 Conflicts, Defaults, Violations - Meshon Party
Schedule 7.6 Consents - Meshon Party
Schedule 7.8 Tax IDs - Meshon Party
Schedule 7.13 Accredited Investor - Meshon Party
Schedule 8.2 Organization of Reorganized Drexel, Royce and Payroll
viii
<PAGE> 96
Schedule 8.5 Managed Properties of Drexel, Royce and Payroll
Schedule 8.8 Insurance Policies Covering Drexel, Royce, Payroll and
Reorganized Drexel
Schedule 8.9(b) Material Events and Changes - Drexel, Royce, Payroll and
Reorganized Drexel
Schedule 8.10 Conflicts or Defaults - Drexel, Royce, Payroll and
Reorganized Drexel
Schedule 8.11 Consents - Drexel, Royce, Payroll and Reorganized Drexel
Schedule 8.12 Debt - Drexel, Royce, Payroll and Reorganized Drexel
Schedule 8.14 Material Agreements/Management Agreements - Drexel,
Royce Payroll and Reorganized
Schedule 8.16 Employment Arrangements/Agreements - Drexel, Royce,
Payroll and Reorganized Drexel
Schedule 8.17 Employment Benefits - Drexel, Royce, Payroll and
Reorganized Drexel
Schedule 8.18 Litigation and Claims - Drexel, Royce, Payroll and
Reorganized Drexel
Schedule 8.19 Intellectual Property - Drexel, Royce, Payroll and
Reorganized Drexel
Schedule 9.1 Organization Chart - Levy
Schedule 9.2 Authority - Levy
Schedule 9.3 Business Conducted - Levy
Schedule 9.4(b) Financial Statements; Levy Party Budgets
Schedule 9.6 Insurance - Levy
Schedule 9.7(a) Material Events and Changes - Levy
Schedule 9.7(b) Operations and Business - Levy
Schedule 9.7(c) Losses, Change of Control - Levy
Schedule 9.8 Conflicts, Defaults, Violations - Levy
Schedule 9.9 Consents - Levy
Schedule 9.10 Debt - Levy Parties
Schedule 9.11(a) Tax IDs - Levy Parties
Schedule 9.11(c) Transfer of Interests - Levy
Schedule 9.11(d) Qualified Liabilities - Levy
Schedule 9.12(a) Levy Material Agreements
Schedule 9.12(b) Levy Management Agreements
Schedule 9.16 Employee Benefit Plans - Levy
Schedule 9.17 Litigation and Claims - Levy
Schedule 9.24 Accredited Investor - Levy Parties
Schedule 10.5(a) CV Reit - Collateralized Mortgage Obligations
Schedule 10.5(i) Hilcoast Documents
Schedule 11.1 Proposed Company Directors
Schedule 11.1(b) CV Reit - Transaction Approval Document Delivered Prior
to Shareholders Meeting
ix
<PAGE> 97
Schedule 11.10(e)(3) Repairs and Capital Expenses for Which Owners Are
Responsible
x
<PAGE> 98
DEFINITIVE MASTER AGREEMENT
This DEFINITIVE MASTER AGREEMENT, dated as of September __, 1997, among CV Reit,
Inc., a Delaware corporation (the "Company"), Montgomery CV Trust, a Delaware
business trust (the "Business Trust"), Drexel Realty, Inc., a Pennsylvania
corporation ("Drexel"), Royce Realty, Inc., a Pennsylvania corporation
("Royce"), MGA Payroll Company Inc., a Pennsylvania corporation ("Payroll"),
Louis Meshon, Sr. ("Meshon"), Montgomery D.C., Inc., a Pennsylvania corporation
("Montgomery D.C."), Mitch Leigh ("Leigh"), Danville Associates, a Pennsylvania
limited partnership ("Danville"), Parcel Eleven-C.J.P. Associates, a
Pennsylvania limited partnership ("Parcel Eleven"), Chesterbrook Shopping
Center, a Pennsylvania limited partnership ("Chesterbrook"), CVS Glenside
Equities, a Pennsylvania limited partnership ("Glenside"), Montgomery A.C.,
Inc., a Pennsylvania corporation ("Montgomery A.C."), David J. Lisa ("Lisa"),
Charles T. Morroney ("Morroney"), James Seip ("Seip"), H. Lawrence Wilde
("Wilde"), Whitemont, Inc., a Pennsylvania corporation ("Whitemont"), Whitemont
Associates, L.P., a Pennsylvania limited partnership ("Whitemont Associates"),
Glenmont-Plymouth, L.P., a Pennsylvania limited partnership ("Glenmont"), County
Line Plaza Realty Associates, L.P., a Delaware limited partnership ("County Line
Associates"), County Line Plaza Realty, LLC, a Delaware limited liability
company ("County Line LLC"), (Danville, Parcel Eleven, Chesterbrook, Glenside
and Glenmont being herein collectively referred to as the "Meshon Transferor
Partnerships," Drexel, Royce, Payroll, Meshon, Montgomery D.C., Leigh,
Montgomery A.C., Lisa, Morroney, Seip, Wilde, Whitemont, Whitemont Associates,
Glenmont, County Line Associates, County Line LLC, the Meshon Transferor
Partnerships and the Meshon Transferred Partnerships (as defined below) being
herein collectively referred to as the "Meshon Parties" and Meshon, Leigh, Lisa,
Morroney, Seip and Wilde being sometimes collectively referred to as the
"Signing Meshon Principals"), and Bernard and Elaine Levy, Jennie Levy (both in
her individual capacity and as Executrix of the Estate of Myron Levy), Lillian
Levy (both in her individual capacity and as Executrix of the Estate of Benjamin
Levy), H. Irwin Levy (both in his individual capacity and as Executor of the
Estate of Jeanne Levy, herein "Levy"), and Robert S. and Ceil Levy (Bernard and
Elaine Levy, Jennie Levy, Lillian Levy, H. Irwin Levy, Robert S. and Ceil Levy,
in all of the foregoing capacities, being herein collectively referred to as the
"Levy Parties"). Capitalized terms used in this Agreement and not otherwise
defined shall have the meanings set forth in Section 13.
WHEREAS, some of the parties to this Agreement entered into a Master
Agreement and Plan of Reorganization dated as of April 28, 1997 (the "Master
Agreement"), which is terminated, and wish to enter into a definitive agreement
on a modified basis;
WHEREAS, the Company is a publicly owned corporation, qualified as a
real estate investment trust under the Internal Revenue Code of 1986, as amended
(the "Code"), all of the Common Stock, par value $.01 per share (the "Shares"),
of which is listed on the New York Stock Exchange ("NYSE"), and owns, among
other things, certain real property and interests in real property and other
assets listed on Schedule A (the "Company Assets");
1
<PAGE> 99
WHEREAS, the Meshon Transferor Partnerships and the Meshon Transferred
Partnerships (together with the Meshon Transferor Partnerships, the "Meshon
Partnerships") included in the Meshon Parties are nine privately owned limited
partnerships which own and operate certain real property constituting shopping
centers and an office building listed on Schedule C (all of such shopping
centers and such office building being collectively called the "Meshon
Properties"), and certain other Persons listed on Schedule D who, together with
the other Persons listed on Schedule D who are not signatories to this Agreement
(the "non-signing Meshon Principals"), are all of the direct and indirect owners
of the limited and general partnership interests of the Meshon Partnerships;
WHEREAS, the Levy Parties are individuals and Estates some or all of
which own two parcels of the real property constituting a shopping center and a
retail location listed on Schedule E (the "Levy Properties");
WHEREAS, MCRLP LLC, a Delaware limited liability company, as initial
general partner, and Meshon, as initial limited partner, have formed, and some
of the parties to this Agreement wish to become the partners of a Delaware
limited partnership (the "Operating Partnership"), by entering into an amended
Limited Partnership Agreement in the form of Exhibit A (the "Partnership
Agreement"), and to cause the Business Trust to contribute to the Operating
Partnership, the economic benefits of the Company Assets subject to all of the
Company's liabilities in exchange for the general partnership interest and
certain limited partnership interests in the Operating Partnership (all
partnership interests in the Operating Partnership being herein referred to as
the "OP Units"), such general and limited partnership interests to be held by
the Business Trust, of which the Company holds all beneficial interests and
which is the successor by merger to MCRLP LLC, and to cause the Meshon Parties
to contribute to the Operating Partnership (or its designee) the Meshon
Partnership Interests (defined below) and the Meshon Properties to be
transferred by the Meshon Transferor Partnerships (the "Meshon Transferred
Properties"), and to cause the Levy Parties to contribute to the Operating
Partnership (or its designee) the Levy Properties;
WHEREAS, (i) the Company and the Business Trust each wishes the
Operating Partnership to acquire and certain of the Meshon Parties have agreed
to transfer to the Operating Partnership or its designees fee title to the real
property owned by the Meshon Transferor Partnerships, and (ii) the Company and
the Business Trust each wishes the Operating Partnership to acquire and certain
of the Meshon Parties have agreed to transfer to the Operating Partnership or
its designees the general and limited partnership interests (such partnership
interests being herein collectively referred to as the "Meshon Partnership
Interests") in Rio Grande Associates, a Pennsylvania limited partnership d/b/a
Rio Grande Associates (PA) Limited Partnership ("Rio Grande"), Renaissance Plaza
Associates, L.P., a Pennsylvania limited partnership ("Renaissance Plaza"),
Glenmont Associates Limited Partnership, a Pennsylvania limited partnership
("Glenmont Associates") owned by them (Rio Grande, Renaissance Plaza, Glenmont
Associates, together with County Line Associates and County Line LLC being
herein collectively referred to as the "Meshon Transferred Partnerships");
2
<PAGE> 100
WHEREAS, Meshon holds the sole membership interest in County Line LLC
as general partner of County Line Associates and, pursuant to an Agency
Agreement dated June 26, 1997 between Meshon and the Operating Partnership,
Meshon is the holder, as agent for the exclusive benefit of the Operating
Partnership, of a 99.9% limited partnership interest in County Line Associates
(such membership interest in County Line LLC and limited partnership interest in
County Line Associates being collectively referred to herein as the "County Line
Interests") and, further pursuant to such Agency Agreement, the Operating
Partnership and Meshon wish to cause the conveyance of the County Line Interests
to the Business Trust and the Operating Partnership or its designee;
WHEREAS, Drexel, together with its affiliates Royce and Payroll, is
engaged in the business of managing shopping centers and other real estate
interests, including the Meshon Properties and other shopping centers listed on
Schedule K (the "Managed Properties") which are owned by certain limited
partnerships (the "Third Party Partnerships");
WHEREAS, the Company and the Business Trust each wishes the Operating
Partnership to acquire and the Levy Parties wish to transfer to the Operating
Partnership or its wholly owned Affiliates the Levy Properties owned by the Levy
Parties listed on Schedule H;
WHEREAS, Meshon wishes to reorganize Drexel, Royce and Payroll as
contemplated herein and Meshon and his wife, Patricia Meshon, wish to transfer
all of Reorganized Drexel's Voting Common Stock (other than 995 shares of Voting
Common Stock) to a Voting Trust as contemplated herein and to transfer to the
Operating Partnership 995 shares of Reorganized Drexel's Voting Common Stock and
all of Reorganized Drexel's Non-Voting Common Stock in exchange for OP Units and
to cause Reorganized Drexel to provide certain property management services and
executive employees to the Business Trust pursuant to a Master Leasing,
Management and Executive Services Agreement, dated as of the Closing Date,
between Reorganized Drexel and the Business Trust, in substantially the form of
Exhibit B (the "Master Leasing, Management and Executive Services Agreement");
WHEREAS, the Company and the Business Trust each wishes the Operating
Partnership to acquire all of the Non-Voting Common Stock of Drexel, after it is
reorganized as contemplated hereby;
WHEREAS, the Business Trust wishes to enter into an employment
arrangement with Meshon and Meshon wishes to enter into such arrangement;
WHEREAS, the Company and the parties hereto wish to cause the Company
to amend and restate its Certificate of Incorporation (subject to the approval
of the shareholders of the Company) in substantially the form of Exhibit E and
to amend and restate its Bylaws in substantially the form of Exhibit F;
WHEREAS, the Company wishes to provide management incentives to
directors of the Company and certain officers of Reorganized Drexel and
facilitate the Business Trust's provision
3
<PAGE> 101
of management incentives to certain officers of the Business Trust pursuant to
one or more option plans (subject to approval of the shareholders of the
Company) in substantially the forms of Exhibit G (collectively, the "Option
Plan") and in accordance therewith to enter into or facilitate the Business
Trust's entering into option agreements with such directors or officers in
accordance with the Option Plan;
WHEREAS, promptly following the date hereof and preparation by the
respective parties of necessary financial information required by the Securities
and Exchange Commission (the "SEC"), the Company intends to prepare a proxy
statement to solicit the consent of the existing shareholders of the Company to
the transactions contemplated hereby, and to hold a shareholders meeting to seek
such consent;
WHEREAS, the persons listed on Schedule N have agreed that, at such
shareholders meeting, they will vote all of the shares of the Company's Common
Stock owned by them to consent to the transactions contemplated hereby;
WHEREAS, subject to and promptly following the consent of the
shareholders of the Company to the transactions contemplated hereby, the parties
hereto wish to consummate the transactions contemplated hereby, all upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
1. THE TRANSACTIONS.
1.1 INTENTIONALLY OMITTED
1.2 THE MESHON TRANSACTIONS.
(a) Schedule 1.2 lists the Base Unit Amount (i) of each Meshon
Partnership in which Meshon Partnership Interests are being transferred for all
of the general and limited partnership interests in such Meshon Partnership and
(ii) for title to each Meshon Transferred Property, free and clear of all
Encumbrances, except Permitted Exceptions. At the Closing, Meshon shall cause
the Meshon Partnerships which own Meshon Transferred Properties to transfer, to
the Operating Partnership (or its wholly owned Affiliate) good and marketable
fee title to the Meshon Transferred Properties owned by them free and clear of
all Encumbrances, except Permitted Exceptions, in exchange for the number of OP
Units equal to (A) the Base Unit Amount listed on Schedule 1.2, reduced by (B)
the Applicable Closing Adjustments provided for in Section 1.9 and Section 2. At
the Closing, each Meshon Party which owns any Meshon Partnership Interests which
are to be transferred under this Agreement shall contribute to the Operating
Partnership (or its designated Affiliate) all such Meshon Partnership Interests
owned by it in each Meshon Partnership, free and clear of all Encumbrances,
except Permitted Exceptions, in exchange for a
4
<PAGE> 102
number of OP Units in the Operating Partnership equal to (A) the Base Unit
Amount listed on Schedule 1.2 for the Meshon Partnership in which such Meshon
Party is contributing Meshon Partnership Interests, times (B) a fraction equal
to the percentage interest in the respective Meshon Partnership represented by
such Meshon Partnership Interests (the "Applicable Percentage") in the
respective Meshon Partnership represented by such Meshon Partnership Interest
contributed, reduced by (C) the Applicable Closing Adjustments provided for in
Section 1.9 and Section 2. To the extent limited partnership interests in any
Meshon Partnership are owned at the Closing Date by Persons who are not parties
hereto, their interests will not be acquired. The Meshon Parties transferring
Meshon Partnership Interests in a Meshon Partnership shall cause the Meshon
Property owned by such Meshon Partnership to be free and clear of all
Encumbrances except Permitted Exceptions on the Closing Date. The Operating
Partnership may but shall have no obligation to acquire any Meshon Partnership
Interests in any Meshon Partnership unless the Meshon Parties are transferring
all of the general partnership interests and sufficient limited partnership
interests in such Meshon Partnership that the Operating Partnership will have
complete control over the selection, retention and replacement of the general
partner of such Meshon Partnership and the management of and the right to sell
all real property, or interests therein, owned by such Meshon Partnership,
except that, with respect to Renaissance Plaza, the Company shall acquire only
those Meshon Partnership Interests shown on Schedule 1.2(a).
(b) At the Closing, the Meshon Parties shall cause the Operating
Partnership (or its designee) to be admitted to each Meshon Partnership in which
any Meshon Partnership Interests are transferred at the Closing as the
substitute general partner and, if applicable, cause the Operating Partnership
(or its designated Affiliate) to be admitted as a limited partner of the Meshon
Partnerships in which the Meshon Partnership Interests are contributed, in each
case with the respective Meshon Partnership Interest in such Partnerships as
those of the Meshon Parties making such transfers, and in accordance with the
terms of the partnership agreement of such Meshon Partnership.
(c) All of the parties to this Agreement agree that before and after
the Closing, the Company, the Business Trust, the Operating Partnership,
Reorganized Drexel, Royce and the Levy Parties shall have no liability to any
Person, whether or not a party to this Agreement, arising out of or relating to
the allocation or distribution by Meshon of any Base Unit Amount or OP Units
among the Meshon Parties, which shall be the sole responsibility of Meshon.
Meshon shall indemnify and hold harmless the Company, the Business Trust, the
Operating Partnership, Reorganized Drexel, Royce and the Levy Parties and the
Meshon Partnerships in which the Company, the Business Trust or the Operating
Partnership (or its Affiliate) acquires any general or limited partnership
interests and their respective officers, directors, shareholders, partners and
agents and Affiliates (other than Meshon) from all losses, liabilities, claims,
actions, demands, litigation, damages, costs and expenses (including reasonable
attorneys fees and disbursements) arising out of or relating in any way to such
allocations.
(d) Neither the Company nor the Business Trust shall be obligated to
consummate the transactions with any Meshon Parties unless they consummate at
least the transactions with
5
<PAGE> 103
respect to the following: the Meshon Transferred Properties known as the
"Danville Shopping Center" and "Mount Carmel Plaza Shopping Center"; the County
Line Interests; all of the general and limited partnership interests in Rio
Grande; Reorganized Drexel, and the Meshon Employment Agreement. However, in the
event, on the Closing Date, the conditions to the obligations of the Company or
the Business Trust to close the transactions contemplated hereunder have been
satisfied or waived as to some but not all of the Meshon Partnerships and the
Meshon Partnership Interests and Meshon Properties, the Company or the Business
Trust may, at their option, but shall not be required to, elect to close the
transactions contemplated hereunder with respect to those Meshon Partnerships
(and related Meshon Properties) as to which the conditions have been met, and
the Meshon Parties shall, if the Company or the Business Trust so elect, be
obligated to consummate the Closing to that extent. No such election shall be
deemed a waiver of the rights and/or claims of the Company or the Business
Trust, if any, arising from the breach by any Person of a representation,
warranty or covenant in this Agreement, nor an election of remedies for any
breach of this Agreement, but shall be in addition to any other remedies
available in law or in equity. Notwithstanding anything to the contrary
contained herein, if for any reason on the Closing Date all of the general and
limited partnership interests in Glenmont Associates are not transferred to the
Operating Partnership or its Affiliate or the redemption by Glenmont Associates
contemplated by the Glenmont Redemption Agreement described in Section 7.15 has
not occurred, then none of such partnership interests shall be transferred to
the Operating Partnership or its Affiliate, Glenmont Associates shall not be
included within the meaning of the Meshon Transferred Partnerships for purposes
of this Agreement and no OP Units shall be distributed to any Meshon Party in
connection with Glenmont Associates. If, on the Closing Date, all of the then
outstanding general and limited partnership interests in Glenmont Associates are
acquired by the Operating Partnership or its Affiliate, except for certain
general and/or limited partnership interests which are simultaneously redeemed
as provided in, for the Redemption Price set forth in and pursuant to the terms
of, the Glenmont Redemption Agreement described in Section 7.15, then the
Operating Partnership (or its Affiliate) shall simultaneously make a capital
contribution to Glenmont Associates in cash equal to the amount of the
Redemption Price paid for the partnership interests so redeemed up to, but not
in excess of, $1,375,000 and without any addition amount with respect to the
"Net Closing Adjustments" or "RP Percetage Rent" thereunder. The Meshon Parties
shall not modify, amend or terminate the Glenmont Redemption Agreement after the
date of this Agreement without the prior written consent of the Operating
Partnership, which may be withheld in its sole discretion.
(e) The Pennsylvania and Philadelphia Realty Transfer Taxes (as defined
below), if any, which become payable because of a transfer of any Meshon
Property or deemed transfer upon contribution of any Meshon Partnership
Interests shall be paid as provided in Section 2.1(i).
(f) If Meshon or Paul Cohen is a guarantor of or liable for any
mortgage loan on any Meshon Property listed on Schedule 1.2(f) which is
transferred to the Operating Partnership or which is owned by a Meshon
Partnership of which partnership interests are transferred to the Operating
Partnership at the Closing and such guarantee or liability (and the amount
thereof) is listed on Schedule 1.2(f), the Operating Partnership shall, at
Meshon's request (provided such
6
<PAGE> 104
request is consistent with the Partnership Agreement), agree in indemnity
agreements delivered at the Closing to indemnify and hold Meshon or Paul Cohen,
as the case may be, harmless from liability to repay such mortgage loan.
(g) Fractional OP Units shall not be issued. On the Closing Date (or
any later date on which any additional OP Units are issuable hereunder), a
Meshon Party which would otherwise be entitled to a fractional OP Unit shall
have its Unit Amount (or additional Units) rounded down to the whole number of
OP Units to which it is entitled.
(h) At the Closing, Meshon shall convey his sole membership interest in
County Line LLC to the Business Trust (or its designee) and shall convey his
limited partnership interest in County Line Associates to the Operating
Partnership or its designee;
(i) The OP Units issued to Meshon at the Closing (other than the OP
Units issued in consideration of the contribution of the Drexel Shares) shall be
delivered into escrow to be held for one year in accordance with the terms of
the Escrow Agreement;
1.3 CONTRIBUTION BY THE LEVY PARTIES.
(a) Schedule 1.3 lists the Base Unit Amount for each Levy Property free
and clear of all Encumbrances, except Permitted Exceptions. The Levy Parties
which own a Levy Property shall, on the Closing Date, transfer to the Operating
Partnership (or its designated Affiliate), good and marketable fee title to such
Levy Property, free and clear of all Encumbrances except Permitted Exceptions,
in exchange for a number of OP Units equal to (i) the Base Unit Amount listed on
Schedule 1.3 for such Levy Property, reduced by (ii) the Applicable Closing
Adjustments provided for in Section 1.9 and Section 2.
(b) Neither the Company nor the Business Trust shall be obligated to
consummate the transactions with any Levy Party unless they consummate the
transactions with all the Levy Parties. However, in the event, on the Closing
Date, the conditions to the obligations of the Company or the Business Trust to
close the transactions contemplated hereunder have been satisfied as to some but
not all of the Levy Parties and their respective Levy Property, the Company or
the Business Trust may, at their option, but shall not be required to, elect to
close the transactions contemplated hereunder with respect to those Levy Parties
and the Levy Property as to which the conditions have been met, and the Levy
Parties shall, if the Company or the Business Trust so elects, be obligated to
consummate the Closing to that extent. No such election shall be deemed a waiver
of the rights and/or claims of the Company or the Business Trust, if any,
arising from the breach by any Person of any representation, warranty or
covenant in this Agreement, nor an election of remedies for any breach of this
Agreement, but shall be in addition to any other remedies available in law or in
equity.
(c) Fractional OP Units shall not be issued. On the Closing Date (or
any later date on which any additional OP Units are issuable hereunder), a Levy
Party which would otherwise be entitled to a fractional OP Unit shall have its
Unit Amount (or additional Units) rounded down to
7
<PAGE> 105
the whole number of OP Units to which it is entitled.
(d) The Pennsylvania and Philadelphia Realty Transfer Taxes, if any,
which become payable because of a transfer of any Levy Property shall be paid as
provided in Section 2.1(i).
(e) 30 % of the OP Units issued to H. Irwin Levy at the Closing shall
be delivered into escrow to be held for one year in accordance with the terms of
the Escrow Agreement.
1.4 GENERAL PROVISIONS.
(a) The OP Units issuable at the Closing shall be non-transferable and
subject, in part, to reduction, in each case, in the manner and to the extent
set forth in this Agreement and in the Partnership Agreement.
(b) In the event, during the one year period following the Closing, the
Company, the Business Trust or the Operating Partnership (or its Affiliates)
shall be entitled to indemnification based on a breach of a representation,
warranty or covenant under this Agreement, against any Person whose OP Units are
then being held in escrow under the Escrow Agreement, the Company or the
Business Trust may, in addition to their other remedies under this Agreement,
demand and receive from the Escrow Agent out of escrow a number of OP Units in
payment of all or any portion of such indemnification, as specified by the
Company or the Business Trust. In the event such Person shall in good faith
dispute that the Company, the Business Trust or the Operating Partnership (or
its Affiliate) is entitled to such indemnification, such Person may give a
notice objecting to such demand to the Escrow Agent. If any such disputed claim
for indemnification becomes the subject of litigation, the prevailing party
shall be entitled to legal fees and expenses. For purposes of this Agreement the
value of such OP Units for such purpose shall be deemed to be $11 per OP Unit.
The Company, the Business Trust or the Operating Partnership (or its Affiliate)
shall make any such demand for OP Units pursuant to the procedures set forth in
the Escrow Agreement. Nothing in this paragraph or in the exercise or attempted
exercise of the rights hereunder shall be deemed an election of remedies by the
Company, the Business Trust or the Operating Partnership (or its Affiliate) or
limit their other remedies hereunder, at law or in equity.
1.5 CONTRIBUTION BY THE COMPANY; OPERATING PARTNERSHIP INTEREST. On or
before the Closing Date, the Business Trust shall cause the Company Assets
(other than the Company Assets listed on Schedule 1.5 (the "Uncontributed
Assets")),(except for cash reserves for unassumed liabilities, fixed or
contingent, if any, including without limitation the litigations referred to in
Section 11.6 and any related litigation, and for payment of the Company's
regularly scheduled dividend if declared and unpaid on the Closing Date), and
shall cause the economic benefit of the Uncontributed Assets in each case,
subject to all existing liabilities of the Company (except those encumbering the
Uncontributed Assets), all of which shall be assumed by the Operating
Partnership, to be contributed to the Operating Partnership, and the Company
agrees to convey such Assets to the Operating Partnership at the direction of
the Business Trust, and in consideration for such contribution the Business
Trust shall receive an interest in the Operating
8
<PAGE> 106
Partnership equal to (i) the entire general partnership interest in the
Operating Partnership, with a share of profits, losses and distributions of one
OP Unit and (ii) a number of OP Units as a limited partner equal to the number
of Shares outstanding on the closing date, less one OP Unit. On the date hereof,
the Company owns all of the shares of Recreation Mortgages, Inc. ("RBC"), the
issuer of bonds (the "Bonds") under an Indenture dated as of December 30, 1991,
which Bonds are secured by mortgage obligations held by RBC. To effect the
intent of the first sentence of this paragraph, the parties contemplate that, if
the State of Wisconsin Investment Board, the holder of the Bonds, shall give its
consent, and a satisfactory structure can be effected, all of the equity
interests now owned by the Company (and conveyed by the Company at the direction
of the Business Trust) in a newly formed limited liability company or limited
partnership with which RBC has been merged or combined shall, at the Closing, be
contributed by the Company to the Operating Partnership for no additional
consideration. If such consent is not obtained by the Closing Date, the Business
Trust agrees to pay or to cause RBC to pay to the Operating Partnership an
amount equal to the net cash proceeds of the mortgage obligations (including,
without limitation, any servicing fees), or any other assets or income of RBC,
received by the Company or its Affiliates, net of the required payments on the
Bonds and any liabilities of RBC, as such net proceeds are so received, all as
more fully described in the Partnership Agreement.
1.6 DREXEL TRANSACTIONS.
(a) Meshon shall take all necessary action such that, on the Closing
Date, Meshon shall own all of the issued and outstanding capital stock of
Reorganized Drexel (except for five shares of Voting Common Stock which will be
owned by his wife, Patricia Meshon), which shall consist of 99,500 shares of
Voting Common Stock and 1,890,600 shares of Non-Voting Common Stock. At the
Closing, Meshon shall contribute 995 shares of the Voting Common Stock and all
of the Non-Voting Common Stock of Reorganized Drexel (collectively, the "Drexel
Shares") (which Non-Voting Common Stock as of the Closing Date shall be entitled
to annual dividends at a rate equal to 95% of the projected annual total
dividends of Reorganized Drexel), free and clear of all Encumbrances, to the
Operating Partnership in exchange for a number of OP Units equal to the Base
Unit Amount for Reorganized Drexel as set forth on Schedule 1.6(a), subject to
Section 1.6(c). When contributed to the Operating Partnership at the Closing,
all of such Drexel Shares shall be duly authorized, validly issued, fully paid
and non-assessable. All of the remaining issued capital stock of Reorganized
Drexel shall be owned by Meshon and Patricia Meshon and contributed, on the
Closing Date, to a voting trust pursuant to a Voting Trust Agreement with the
provisions set forth in Exhibit I, in form and substance satisfactory to the
Company, of which Meshon and a bank or trust company satisfactory to the Company
are trustees. Meshon shall, after the Closing, make a timely election under
Section 83(b) of the Code with respect to his OP Units.
(b) It is contemplated that, immediately after the Closing Date,
Reorganized Drexel may be managing, pursuant to Management and Leasing
Agreements, one or more Managed Properties in which neither the Company nor the
Operating Partnership has a direct or indirect interest (a "Third-Party Owned
Property"). To the extent a direct or indirect interest in the Third-
9
<PAGE> 107
Party Owned Property or any owner of an interest in the Third-Party Owned
Property is owned by one or more of the Meshon Parties or any of their
affiliates, each of them shall, before and after the Closing, use his, her or
its best efforts to prevent a termination of any such Management and Leasing
Agreement prior to sale of such Third-Party Owned Property, and for 3 years
after the Closing, Reorganized Drexel shall not terminate any such Agreement
except with the approval of its Board of Directors.
(c) At the Closing, Meshon shall deliver to the Company a certificate
in form and substance satisfactory to the Company setting forth all year-to-date
leasing fees received by Drexel in 1997. In the event that the aggregate amount
of such leasing fees for 1997 are less than the aggregate amount of those
received by Drexel in 1996 and set forth on Schedule 1.6(c), the number of OP
Units payable to Meshon for the Drexel Shares shall be reduced based on the
change in annualized net operating income, times 8, divided by $11.
1.7 RESTRUCTURING OF DREXEL PRIOR TO THE CLOSING. Meshon shall take all
necessary action to cause Reorganized Drexel, on the Closing Date, (i) to have a
Certificate of Incorporation and By-laws in form attached as Exhibit J; (ii) to
have the Board of Directors as set forth on Schedule 1.7(ii), which Schedule
shall provide that the Directors of Reorganized Drexel are different from the
Directors of the Company; (iii) to have outstanding capital stock in the amounts
and issued as provided on Schedule 1.7(iii); (iv) to own all the outstanding
capital stock of Royce and Payroll; and (v) to provide for the transfer or
termination of the employees at certain properties as provided in Schedule
1.7(iv).
1.8 RESTRUCTURING OF THE COMPANY; MANAGEMENT.
(a) Effective upon the Closing, the Certificate of Incorporation of the
Company shall be amended so as to read in its entirety substantially in the form
set forth as Exhibit E (the "Amended Certificate of Incorporation") (subject to
shareholder approval) and as so amended shall, from and after the Closing Date,
be the Certificate of Incorporation of the Company until thereafter further
amended as provided by law. Effective upon the Closing, the By-Laws of the
Company shall be amended so as to read in their entirety substantially in the
form set forth as Exhibit F (the "Amended By-Laws"), and as so amended, from and
after the Closing Date, shall be the By-Laws of the Company until thereafter
further amended as provided by law. The amendments to the Articles of
Incorporation and By-Laws are collectively referred to as the "Charter
Amendments."
(b) The Company shall take such action as may be necessary to cause the
directors of the Company, immediately following the Closing, to consist solely
of the persons indicated on Schedule 1.8(b) (or if any thereof declines to
serve, a substitute approved by Levy and Meshon); provided that the Company
shall be required to include as Directors the persons designated by the Meshon
Parties only if all the transactions with the Meshon Parties contemplated
hereunder shall be consummated on the Closing Date.
(c) Following the Closing, the existing services agreement between the
Company and
10
<PAGE> 108
Hilcoast Development Corp. shall terminate on June 30, 1999 and until such date
shall continue with respect to preparation for release or filing of the periodic
financial statements, accounting and reporting documents sent by the Company to
its shareholders and/or filed with the Securities and Exchange Commission and
the other services currently being performed thereunder, with such changes
therein as the parties thereto shall hereafter agree upon in writing.
1.9 ADJUSTMENTS TO BASE UNIT AMOUNT.
(a) For purposes of this Agreement, the term "Contributing
Party" means each Meshon Party contributing any Meshon Partnership Interest or
Meshon Transferred Property to the Operating Partnership (or its Affiliate) and
each Levy Party contributing any Levy Property to the Operating Partnership (or
its Affiliate); and its "Contribution" means the Partnership Interest or
Property so contributed.
(b) At the Closing, the number of OP Units a Contributing
Party would otherwise be entitled to receive hereunder based on the applicable
Base Unit Amount and Applicable Percentage (if any), and any closing adjustments
under Section 2 (other than Section 2.1(i)) applicable to its Contribution (the
"Original Number"), shall be reduced as provided in this Section:
FIRST, each such Original Number of OP Units shall be reduced
by a pro-rata share of the Overhead Adjustment divided among the
Contributing Parties in proportion to the respective Original Numbers
(as so adjusted, the "Net Original Numbers").
SECOND, each such Net Original Number of OP Units shall be
reduced by a number equal to (i) one-half of the amount of the
Transaction Fee (as defined in the Sternlieb Agreement described below)
payable with respect to the Property or Partnership Interest of which
its Contribution is a part as a brokerage fee pursuant to a letter
agreement dated April 14, 1997 among Sternlieb Properties, L.L.C., Real
Mark Advisory Corp., the Company, Royce, and Sierra Financial Limited,
as amended (the "Sternlieb Agreement"), divided by (ii) $11, times
(iii) such Contributing Party's Applicable Percentage (if it is
contributing less than all of such Property or all of the Partnership
Interests in a Meshon Partnership), if any, in exchange for the
assumption by the Operating Partnership of the obligation of such
Contributing Party to pay its respective portion of such Transaction
Fee; provided, however, that this clause SECOND shall not apply to any
Contributing Party which is a Levy Party, where the transfer of the
Levy Property does not give rise to an obligation to pay the brokerage
fee under the Sternlieb Agreement or a Meshon Party with respect to any
County Line Interests where such transfer does not give rise to an
obligation to pay the brokerage fee under the Sternblieb Agreement.
THIRD, with respect to any Contribution subject to Realty
Transfer Taxes, the Net Original Number shall be further reduced as
provided in Section 2.1(i).
11
<PAGE> 109
FOURTH, such Net Original Number shall be further reduced by a
pro rata share of the Allocable Expense Adjustment divided among the
Contributing Parties in proportion to the respective Original Numbers.
Solely for purposes of the allocations and reductions to be
computed under items First, Second, Third and Fourth above, the number
of OP Units a Contributing Party contributing interests in Glenmont
Associates is deemed to receive (and its applicable percentage) shall
be increased by allocating to each of the Contributing Parties
contributing such interests its pro rata portion of a number equal to
(i) the dollar amount payable to parties whose interests in such Meshon
Partnership are redeemed on the Closing Date, if any, divided by (ii)
$11.
The "Shared Expense Adjustment" shall mean a number of OP
Units equal to the sum of (i) Allocable Expenses divided by $11 (the
"Allocable Expense Adjustment") and (ii) 323,276 (the "Overhead
Adjustment"). "Allocable Expenses" shall mean 50 percent of the actual
fees and expenses of Ernst & Young L.L.P., Roberts & Holland LLP,
Proskauer Rose LLP, Fox Rothschild O'Brien & Frankel, LLP, Richards
Layton & Finger and other local counsel retained by the Company in
connection with the transactions contemplated hereby for work done for
parties hereto or for which the Company may be liable under this
Agreement or the Master Agreement before and after the date of this
Agreement (and including customary post-closing work) in connection
with the drafting and negotiation of this Agreement and the Master
Agreement and the Related Documents and the transactions and documents
contemplated hereunder and the conduct of due diligence as contemplated
by this Agreement and the Master Agreement up to the maximum amount, if
any, set forth on Schedule 1.9 hereto. "Applicable Closing Adjustments"
means the adjustments contemplated by this Section 1.9 and the
adjustments contemplated by Section 2.
The Company shall pay such fees of such firms listed on Schedule 1.9 for the
work described in the definition of Allocable Expenses done for parties to this
Agreement or for which the Company may be liable under the Master Agreement.
(c) In no event shall the aggregate reduction in any Contributing
Party's Original Number of OP Units pursuant to clause First, Second, Third and
Fourth, when added to the aggregate reduction for all other Contributing Parties
contributing an interest in the same Property or Partnership and the costs for
the title reports and survey, appraisals, structural engineering reports and
environmental reports required hereunder and financial statements required
hereunder which would not otherwise have been prepared, in each case, with
respect to such Property or the Property owned by such Partnership, exceed (i)
5% of (ii) the Base Unit Amount for such Property or Partnership, as the case
may be, plus the Mortgage Debt, times (iii) the Applicable Percentage, and
divided by (iv) $11. In the event that any such aggregate reduction exceeds such
5% threshold, the Company shall, to the extent of such excess, bear the cost of
such excess amounts in addition to the expenses already borne by the Company. If
any Contributing Party's adjustment referred to in the previous sentence reaches
such 5% limitation
12
<PAGE> 110
and the Company bears any such excess (the "Company's excess allocation") and
thereafter, the Operating Partnership, in the one year period after the Closing
hereunder, acquires, in exchange for OP Units, any Managed Property from any
Third Party Partnership or any partnership interests in any such Third Party
Partnership in a transaction in which the Person transferring such property or
units agrees to a reduction in the number of OP Units such Person would
otherwise receive (a "third party reduction") to reflect an allocation of some
portion of the expenses included in the Shared Expense Adjustment, then the
Contributing Parties shall be entitled to have their percentage of outstanding
OP Units increased if and to the extent the following is applicable. The third
party reduction shall first be applied to increase the Business Trust's
percentage of outstanding OP Units by the issuance of additional OP Units (with
the concomitant dilution of the value of the then-outstanding OP Units, and
taking such dilution into account in calculating the value of the newly issued
OP Units) to the Business Trust in an amount equal to the Company's excess
allocation. To the extent the aggregate dollar value of all such third party
reductions exceeds the Company's excess allocation pursuant to the first
sentence of this subsection (c), the dollar value of the excess third party
reductions shall be allocated to the Contributing Parties who reached the 5%
limitation pro rata in accordance with their Original Numbers, up to but not in
excess of the amount by which their respective allocations exceeded 4% and shall
be payable by restoring OP Units otherwise reduced at a deemed value of $11 per
OP Unit. The computation of any additional OP Units due under this Section shall
be made by the Company, the Business Trust and the Operating Partnership in good
faith and such determination shall be final.
1.10 THE OPERATING PARTNERSHIP; TOTAL OP UNITS.
(a) Prior to the date hereof, MCRLP LLC, a Delaware limited liability
company of which the Company was the sole member, as general partner, and
together with Meshon as initial limited partner, formed the Operating
Partnership as a Delaware limited partnership by executing a partnership
agreement and filing a Certificate of Limited Partnership in Delaware.
Contemporaneously herewith, MCRLP LLC and the Business Trust effected a merger
agreement, pursuant to which the Business Trust was the surviving entity, and
filed a Certificate of Merger in Delaware, and the Business Trust thereupon
became the substituted sole general partner of the Operating Partnership. At the
Closing, the Business Trust and each of the Meshon Parties and Levy Parties
entitled to receive OP Units will enter into and execute an amended and restated
Partnership Agreement in substantially the form of Exhibit A as limited
partners. The parties acknowledge that, on the date of this Agreement and on the
Closing Date, the sole asset of the Operating Partnership is and will be its
interest in County Line Associates pursuant to that certain Agency Agreement
dated June 26, 1997 between the Operating Partnership and Meshon, and that, on
the date hereof, such asset has no value in excess of (i) the debt secured by
the assets of County Line Associates plus (ii) the Meshon Loan. It is the
intention of the parties that the number of OP Units owned by the Business Trust
and the Meshon Parties entitled to receive OP Units immediately following the
Closing reflect the respective Unit Amounts for the assets being acquired by the
Operating Partnership at the Closing, without regard to any interests in the
Operating Partnership held prior to the Closing.
13
<PAGE> 111
(b) At the Closing, the Operating Partnership shall have no employees
performing executive functions except as agreed by the Business Trust and Meshon
and the officers of Reorganized Drexel shall not be identical to the officers of
the Company or the Business Trust.
(c) Immediately following the Closing, the OP Units issued to the
Meshon Parties, the Levy Parties, the shareholders of Reorganized Drexel and the
Business Trust under this Agreement shall constitute 100% of the partnership
interests in the Operating Partnership.
1.11 DEFINITIVE AGREEMENT; DOCUMENT CUSTODIANS.
(a) This Agreement replaces and supercedes the Master Agreement in its
entirety and all of the rights and obligations of the parties to this Agreement
(among themselves) with respect to the subject matter hereof and thereof shall
be governed solely by this Agreement.
(b) Each person signing below as Document Custodian (each, a "Document
Custodian") hereby certifies, at the time of execution of this Agreement, that
he or she has in his or her possession in a segregated location or file
originals or xerox copies of all documents delivered by such party in connection
with the Due Diligence Period under the Master Agreement and that such Custodian
will retain such documents in such segregated location away from all other
documents from the date hereof until 3 years after the Closing and provide any
Party hereto access thereto and the right to make copies thereof at all
reasonable times. To the extent not previously delivered, each Meshon Party and
Levy Party shall deliver, promptly upon request, at its own cost and expense,
(and promptly update thereafter through the Closing) or make available through
its Document Custodian (i) all of its Organizational Documents and all
Organizational Documents of any Partnership in which it is transferring any
partnership interests hereunder; (ii) audited financial statements (for itself
and any such Partnership and any Property in which it is transferring a direct
or indirect interest hereunder) to the extent required by the SEC for each of
the past three years and any more current unaudited financial statements for
such periods and in such form, with such footnotes and schedules, as shall be
required pursuant to SEC regulations or generally accepted accounting principals
in connection with the preparation by the Company of its proxy statement with
respect to the transactions contemplated hereby, certified by accountants
acceptable to the Company, except that Meshon, Levy and the Levy Parties shall
not be required to deliver personal audited financial statements, (iii) in the
case of Partnerships in which any partnership interest is being transferred or
with respect to Properties in which a direct or indirect interest is being
transferred, all Loan documentation and other purchase orders, capital
commitments, agreements, commitments, obligations and other documents of or
affecting such Partnership or Property. To the extent not previously delivered,
if any, each Meshon Party and Levy Party shall deliver with respect to each
Meshon Property and Levy Property: (1) a current title report and survey, (2) a
structural engineering report in form and substance and from an engineering
consultant satisfactory to the Company dated a date during the Due Diligence
Period under the Master Agreement, (3) an environmental report in form and
substance and from an environmental consulting firm satisfactory to the Company
dated a date during the Due Diligence Period, (4) an appraisal in form and
substance and from an expert real estate appraiser satisfactory to the Company
dated a date during the Due Diligence Period, (5) a
14
<PAGE> 112
Rent Roll, Vacancy Report, Receivables Report, Payables Report, Delinquent and
Prepaid Rent Report; and (6) in each case indicated in clause (1) through (5),
with bring-down title reports and such other such bring-down reports through the
Closing Date reasonably required (if there exists a condition which the Company
believes requires additional investigation), and a letter in form and substance
satisfactory to the Company from the provider of each report indicated in such
clause (and such bring-down report) entitling the Company and the Operating
Partnership to rely thereon as the Company shall request; and (v) with respect
to Royce, Drexel and Payroll, all Organizational Documents, all material
agreements and all documentation relating to employee compensation, including
all benefit arrangements.
(c) Through the Closing Date, at all reasonable times and on reasonable
notice, each of the parties shall cooperate with the other parties and their
representatives and promptly provide all such other information and access to
all such records, employees and agents as any other party shall reasonably
request in connection with its due diligence activities. Each party shall
conduct its due diligence activities in a manner designed to minimize
interference with the business of any other party.
(d) INTENTIONALLY OMITTED
(e) Attached to this agreement are schedules of which the Contributing
Parties have represented are the existing liabilities of each respective
acquired Partnership or Property. Undisclosed liabilities discovered after the
Closing which are subject to the indemnification for breaches of representation
and warranties herein may in the one year immediately after the Closing in
addition to other remedies, be charged back against the OP Units held in escrow.
The charge-back shall be based on a value of the OP Units of $11 per OP Unit.
(f) (i) The capital repairs and/or replacements described in
Schedule 1.11(f)(1) ("Repairs") are required to be made to the respective
Properties identified in Schedule 1.11(f)(1) (each a "Reserve Property").
(ii) Except as provided on Schedule 1.11(f)(2), the
Contributing Parties having direct or indirect interests in the respective
Reserve Properties shall, on the Closing Date, cause to be established with the
Post-Closing Owner of such Reserve Property a cash reserve (a "Reserve") in an
amount sufficient to cause the completion of any Repairs to the related Reserve
Property which have not been completed in the Company's reasonable judgment in
accordance with the Required Standards (as hereinafter defined). The amount of
the Reserve to be established on the Closing Date with respect to each Reserve
Property shall be estimated prior to the Closing Date by a licensed architect
(or, at the Company's option, a licensed general contractor) reasonably
acceptable to the Company and the related Contributing Parties. In the event of
the parties' failure to agree upon such architect (or general contractor) within
fifteen (15) business days prior to the Closing Date, such architect (or general
partner) shall be designated by Ernst & Young.
(iii) The funds constituting the Reserve for a Reserve
Property shall be applied
15
<PAGE> 113
by the Post-Closing Owner of such Reserve Property to pay the costs incurred by
such Post- Closing Owner to cause to be completed the related Repairs as soon as
reasonably practicable following the Closing, with due consideration given to
the nature and scope of such Repairs, in accordance with the following standards
("Required Standards"):
(a) All Repairs shall be made by a licensed general
contractor reasonably acceptable to the Company and, if appropriate in
the reasonable judgment of the Company, under the supervision of a
licensed architect.
(b) All Repairs shall be completed in a good and
workmanlike manner and in accordance with (i) plans and specifications
reasonably approved by the Company, (ii) all applicable Legal
Requirements, and (iii) the terms and conditions of all Existing
Documents relating to such Reserve Property.
(iv) Upon completion of all Repairs with respect to a Reserve
Property in accordance with the Required Standards and the payment of all
amounts due and owing to each Person that supplied materials or labor in
connection with such Repairs, all amounts, if any, remaining in the Reserve for
such Reserve Property shall be returned by the Post-Closing Owner of such
Reserve Property to the respective Contributing Parties that funded such Reserve
(in the same proportions as the Reserve was funded by them).
(g) If the Meshon Parties shall fail to close the transactions
contemplated hereunder for any reason, such parties shall within 5 days
thereafter pay the Company in cash their respective Share of the Allocable
Expenses attributable to the fees and expenses of Roberts & Holland LLP, Ernst &
Young, LLP and Proskauer Rose LLP, Richards, Layton & Finger and any local
counsel engaged by the Company in connection with the transactions contemplated
hereby or by the Master Agreement incurred on or prior to the date of such
failure to close, unless the failure to close is solely because the Company's
shareholders do not approve the transactions contemplated hereby, in which case
the fees of Proskauer Rose LLP, Richards, Layton & Finger and such local counsel
engaged by the Company shall not be included. Solely for purposes of this
Section, the Share of the Meshon Parties shall be 25 percent of the Allocable
Expenses. Nothing in this Paragraph or in the exercise or attempted exercise of
the rights hereunder shall be deemed an election of remedies by the Company or
limit its other remedies hereunder, at law or in equity.
1.12 OPTION PLAN. As part of the proxy statement to be sent to
shareholders seeking approval of the transactions contemplated hereunder, the
Company also shall seek shareholder approval of the Option Plan. Assuming
shareholder approval of the Option Plan pursuant to such proxy statement, at the
Closing the Company or the Business Trust, as the case may be, shall enter into
option agreements with such officers and on such terms as are provided for in
the Option Plan.
16
<PAGE> 114
1.13 DOCUMENTS NEEDED FOR CLOSING.
(a) On or before the Closing Date, the Meshon Parties shall, at their
own expense and without expense to the Company, the Business Trust, the
Operating Partnership or any of their Affiliates, obtain the Surveys, Title
Policies, Tenant Estoppel Certificates, Meshon Consents and Drexel Required
Consents and any other documents, reports or other Required Consents required to
be delivered by them at the Closing.
(b) On or before the Closing Date, the Levy Parties shall, at their own
expense and without expense to the Company, the Business Trust, the Operating
Partnership or any of their Affiliates, obtain the Surveys, Title Policies,
Tenant Estoppel Certificates, Levy Consents and any other documents, reports or
other Required Consents required to be delivered by them at Closing.
1.14 EMPLOYMENT ARRANGEMENTS.
(a) At the Closing, Meshon and the Business Trust shall enter into an
employment agreement in substantially the form attached as Exhibit K ( the
"Meshon Employment Agreement") and the Business Trust shall offer to enter into
an employment agreement with H.
Larry Wilde.
(b) At the Closing, Meshon shall use his best efforts to cause
Reorganized Drexel to have in effect employment arrangements with key Drexel and
Royce employees and Reorganized Drexel shall enter into the Master Leasing,
Management and Executive Services Agreement, among other things, to provide
certain services of certain of such employees to the Business Trust.
(c) On or before the Closing Date, Reorganized Drexel shall adopt an
incentive bonus plan for employees in form mutually acceptable to Meshon and the
Company.
1.15 INTENTIONALLY OMITTED.
1.16 INTENTIONALLY OMITTED.
1.17 REGISTRATION AGREEMENT. For the period beginning one year after
the Closing Date and ending two years thereafter (the "Continuous Registration
Period"), the Company shall use reasonable commercial efforts to file with the
SEC and keep effective a shelf registration statement (a "Registration
Statement") covering resales by the Meshon Parties and the Levy Parties of any
Shares for which any OP Units may be exchanged. Any party wishing to sell any
Shares pursuant to such Registration Statement shall be required first to sign
an indemnification and contribution agreement with the Company with respect to
such party's own information customary in connection with secondary offerings in
form and substance satisfactory to the Company and perform its covenants
thereunder. The Company shall agree to similar indemnification and contribution
arrangements for the benefit of such party with respect to its
17
<PAGE> 115
information. Such obligation shall terminate in the event, under then applicable
law (including without limitation, any rule or regulation), the holders of such
Shares could offer and sell such Shares without such registration, including,
without limitation, if the SEC shall adopt, any rule or regulation providing for
the equivalent of registration of the resale of any such securities without the
requirement of a registration statement. The registration rights provided for in
this Section 1.17 shall be in addition to any applicable registration rights of
holders of OP Units under the Partnership Agreement of the Operating
Partnership.
1.18 OPERATION OF THE COMPANY BETWEEN SIGNING AND CLOSING. From the
date of this Agreement until the Closing, subject to the fiduciary obligations
of its Board of Directors, and except as contemplated by this Agreement, and
except as necessary to avoid risking the continued qualification of the Company
as a real estate investment trust under the Code, the Company shall not acquire
additional real property or leases thereof or other interests therein, directly
or through any interest in another entity, unless (i) Meshon shall agree that
such acquisition is consistent with the business plan for the Company and its
Affiliates following the Closing, and (ii) as a result of such acquisition, the
Company continues to be in compliance with all requirements for maintaining the
Company's qualification as a real estate investment trust under the Code.
1.19 OPERATION OF DREXEL, ROYCE AND PAYROLL BETWEEN SIGNING AND
CLOSING. Other than the reorganization of Drexel, Royce and Payroll contemplated
by this Agreement, until the Closing Drexel, Royce and Payroll shall be operated
only in the ordinary course, consistent with past practice and shall not take or
omit to take any action which would cause any of its representations and
warranties to be untrue at the Closing Date.
1.20 OPERATION OF THE ACQUIRED PARTNERSHIPS AND SUBJECT PROPERTIES.
From the date hereof until the Closing, (i) the Meshon Parties shall cause the
Meshon Partnerships in which any partnership interests are to be acquired
hereunder and the Meshon Properties, and (ii) the Levy Parties shall cause the
Levy Properties, to be operated only in the ordinary course of business
consistent with past practice and shall not take or omit to take any action
which would cause any of its representations and warranties to be untrue at the
Closing Date.
1.21 MISSING SIGNATURES. Anything in this Agreement to the contrary
notwithstanding, if any party named herein (or any Person indicated in the
signature pages as signing for any such party) does not sign and deliver this
Agreement so that such party becomes a party hereto by Tuesday, September 23,
1997, the Property or partnership interest (or portion thereof) to be
transferred by such party (or by a party for which such Person is indicated as a
signatory) shall not be acquired under this Agreement; provided, however, that
the Company and the Business Trust, in their sole discretion without the further
consent of any party, may agree with any party or Person who has signed this
Agreement to acquire from such Person or its Affiliates such portion of such
Property or such partnership interests as such signing Person owns or can cause
to be transferred to the Operating Partnership or its designee for a pro rata
portion of the Base Unit Amount (subject to adjustments as provided herein) on
substantially the same terms as are provided herein MUTATIS MUTANDIS. Upon
delivery, this Agreement shall be
18
<PAGE> 116
binding on the parties signing below even if all parties do not sign.
1.22 LIMITATION OF PERSONAL LIABILITY OF MESHON LIMITED PARTNERS. The
liability of all of the parties to this Agreement for breaches of this
Agreement, including without limitation, breaches of representations and
warranties set forth in this Agreement shall be determined in accordance with
and limited by Section 12. Notwithstanding the previous sentence, any Meshon
Party which is liable for indemnification under this Agreement solely because of
his, her or its status on the Closing Date as a limited partner of a Meshon
Partnership shall in no event be liable for an amount in excess of the value of
the OP Units issued to him, her or it on the Closing Date. The previous sentence
shall in no way limit the liability of Meshon or any other Person with respect
to any such matter.
1.23 FINANCIAL CONDITION OF TRANSFERRED ENTITIES ON THE CLOSING DATE.
The Meshon Parties shall take all action necessary so that, on the Closing Date,
the Meshon Partnerships, Drexel, Royce and Payroll shall each have no assets
except the (i) Meshon Properties (and rights under related Leases and agreements
listed on Schedule 1.23), (ii) the management contracts listed on Schedule 1.23
to this Agreement, and (iii) cash in an amount at least equal to the amounts
required to be funded or escrowed pursuant to any provision of this Agreement;
and no liabilities except (i) the mortgage loans, and related Liens listed on a
Schedule to this Agreement as a Permitted Exception, and (ii) the obligations to
tenants under existing leases with respect to tenant improvements listed on
Schedule 1.23 to this Agreement for which the full amount required to satisfy
the obligation has been escrowed in cash in an escrow in form and substance
satisfactory to the Company.
2. CLOSING ADJUSTMENTS.
2.1 ALLOCATIONS AND ADJUSTMENTS AT CLOSING. The following allocations
and adjustments shall be made as of the Closing Date with respect to each Meshon
Property and Levy Property owned by each Meshon Partnership or by any Levy
Parties, in which any partnership interest is contributed, or which Property is
contributed, to the Operating Partnership (or its respective Affiliate) on the
Closing Date. The Contributing Parties contributing any partnership interests in
any such partnership shall be liable for 100% of such allocations and
adjustments (divided among them pro rata), even if the total partnership
interests transferred are less than 100% of the partnership interests in any
such partnership. However, anything herein to the contrary notwithstanding, in
the event that any allocations or adjustments are in favor of such Contributing
Parties and the total partnership interests transferred are less than 100% of
the partnership interests in any such partnership, then the allocation or
adjustment in favor of such Contributing Parties shall be limited to the same
proportion of the entire allocation or adjustment as the total partnership
interests transferred bear to 100% of the partnership interests in such
partnership (it being intended that the portion of such allocation or adjustment
that is attributable to the partnership interests in such partnership that are
not transferred shall be reserved by such partnership for the benefit of the
owners of such partnership interests that are not transferred). Notwithstanding
the foregoing, the Meshon Parties shall not be responsible for more than 50% of
19
<PAGE> 117
any such allocations or adjustments in favor of the Operating Partnership (or
its Affiliate) with respect to Renaissance Plaza or the Property owned by such
partnership to the extent the economic burden of the liability or event giving
rise to such allocations or adjustment is actually borne by the general and/or
limited partners of Renaissance Plaza whose interests are not owned by the
Meshon Parties and not, directly or indirectly, by the Operating Partnership (or
its Affiliate). The amounts allocated to the Levy or Meshon Parties under this
Section 2.1 shall be applied to increase, in the case of adjustments in favor of
the Levy or Meshon Parties, and to decrease, in the case of adjustments in favor
of the Property Owner, the number of OP Units to be received by the Meshon
Parties or Levy Parties pursuant to Sections 1.2 and 1.3, respectively. Such
adjustments in OP Units shall be made by dividing the net amount of all such
allocations and adjustments attributable to any Contributing Party by $11
(collectively, such Contributing Party's "Closing Adjustment"). Adjustments
described in the following subparagraphs (a) through (j) which are determined
after the Closing Date shall be made from time to time after the Closing Date as
such adjustments are determined; PROVIDED, HOWEVER, that the final adjustments
shall be made on the 30th day after the first anniversary of the Closing Date
and no further adjustments shall be made thereafter.
(a) GENERAL RULE. Real estate taxes (on the basis of the due dates of
the tax bills for the period for which such taxes are assessed) on the Property,
personal property taxes on the Personal Property, minimum water and sewer
rentals, rents, including without limitation, expense pass-throughs, percentage
rents, income from and expenses for electricity and other sums paid by tenants,
licensees and concessionaires and collected by or on behalf of the Owner prior
to the Closing Date under the Leases in effect at the Closing, payments due
under service agreements which are to remain in effect after the Closing,
prepaid license fees and other charges for licenses and permits for each
Property which will remain in effect, after the Closing Date, rentals under any
ground lease, municipal rubbish removal charges, lease rejection awards made in
any bankruptcy proceedings of a tenant, and prepaid insurance premiums for
insurance which will remain in effect, after the Closing Date, if any, shall be
apportioned pro rata between the applicable Levy or Meshon Parties and the
Company or the Operating Partnership (or Affiliate), as applicable, on a per
diem basis as of midnight on the day before the Closing Date, so that the
applicable Levy or Meshon Parties shall bear all expenses with respect to the
Property and benefit, to the extent of their interests, from all receipts with
respect to the Property through the day before the Closing Date. To the extent
that the amounts of the items to be adjusted are not reasonably ascertainable as
of the Closing Date, they shall be adjusted as promptly after the Closing Date
as the amounts thereof are ascertained.
(b) SPECIAL ASSESSMENTS. If, at Closing, the Property or any part
thereof is affected by an assessment which is payable in installments of which
the first installment is then a charge or lien, or has been paid, then all
unpaid installments of such assessments shall be prorated between the parties as
of the Closing Date as follows: the applicable Levy or Meshon Parties shall be
responsible for those installments thereof for years prior to the year in which
the Closing occurs and the owner of the Property immediately following the
Closing Date (the "Post Closing Owner"), shall be responsible for those
installments thereof for years following the year in which the Closing occurs;
the installment due for the year in which the Closing occurs shall be prorated
20
<PAGE> 118
between the parties on a per diem basis. If bills for real estate taxes for the
Property have not been issued as of the Closing Date, and if the amount of real
estate taxes for then current tax fiscal year is not then known, the
apportionment of real estate taxes shall be made at the Closing on the basis of
the prior year's real estate taxes and a post-Closing adjustment shall be made
when the actual amounts are ascertained.
(c) RENT AND OTHER TENANT ARREARAGES. All rents and other sums
collected by the Owner of a Property, as applicable, from tenants under the
Leases, including but not limited to expense pass-throughs for real estate taxes
and common area maintenance expenses, after the Closing Date, up to the
respective amounts currently due the Post Closing Owner, from time to time, will
be retained by the Post Closing Owner, and applied on account of the rents and
other sums due to the Post Closing Owner. At Closing, the applicable Levy or
Meshon Parties shall identify all tenants which are in arrears in the payment of
rent or other sums due under the Leases on the Closing Date. If any tenant shall
pay to the Post Closing Owner, after the Closing Date a sum in excess of all
rents and other sums which have accrued to the Post Closing Owner, and which
excess sum is on account of arrearages which became due prior to the Closing
Date, the Company or the Operating Partnership (or Affiliate), as applicable,
shall allocate to the applicable Levy or Meshon Parties such excess, net of a
proportionate share of the applicable management fee and the reasonable fees and
expenses of attorneys, if any, which shall be deemed to be the cost of
collection, to be applied on account of the arrearages due to the applicable
Levy or Meshon Parties. The applicable Levy or Meshon Parties shall not bring
any suit or other proceeding, on behalf of the applicable Levy or Meshon
Parties, against any tenant currently in occupancy under the Leases after the
Closing Date on account of rental delinquencies. Neither the Company nor the
Operating Partnership (or Affiliate), as applicable, nor the Post Closing Owner
of the related Property assumes any obligation to collect or enforce the payment
of any such moneys which may be owing to the applicable Levy or Meshon Parties.
If the Post Closing Owner of the related Property employs an agent to collect
rent under the Leases after the Closing Date, such agent shall have the right to
deduct and retain from the applicable Levy or Meshon Parties' share of any rent
or other payments received by the Post Closing Owner of the related Property
after the Closing Date a pro rata share of the compensation payable to such
agent by the Post Closing Owner of the related Property based on the relative
amounts recovered by each party.
(d) REFUNDS. Any refunds received by a Post Closing Owner of a Property
under any service agreements on account of payments which are applicable to
periods prior to the Closing Date shall be apportioned by the Post Closing Owner
when received and the portion thereof attributable to periods prior to the
Closing Date shall be allocated to the Property Owner prior to Closing on behalf
of the partners of such Property Owner.
(e) COLLECTIONS FROM TENANTS FOR TAXES. All amounts collected from
tenants pursuant to provisions in the Leases (or in any reciprocal easement
agreements) prior to the Closing Date on account of real estate taxes which have
not been applied to the payment of such real estate taxes shall be paid to the
Post Closing Owner on the Closing Date. The applicable Levy or Meshon Parties
shall be responsible for the collection of all such amounts up to the Closing
Date
21
<PAGE> 119
and the related Post Closing Owner shall be responsible for the collection of
all such amounts from and after the Closing Date.
(f) POST-CLOSING ADJUSTMENTS. If the apportionment of any percentage
rents, "escalation" payments relating to operating expenses, merchant's
association dues or fees for promotion, income and expenses for electricity or
other payments payable to the Post Closing Owner of a Property after the Closing
Date from a tenant under any of the Leases on account of periods prior to the
Closing Date or on account of sums which are attributable to expenses incurred
by the landlord for periods of time prior to the Closing Date, cannot be
precisely determined at the Closing Date, the applicable Levy or Meshon Parties
and the Company or the Operating Partnership (or Affiliate), as applicable,
shall reasonably estimate the apportionment of such sums pro rata between the
Post Closing Owner and the applicable Levy or Meshon Parties on a per diem basis
as of the Closing Date. A post-Closing adjustment shall be made, if necessary,
between the Post Closing Owner and the applicable Levy or Meshon Parties for
such apportioned items when the amounts thereof can be ascertained and any such
adjustment shall be paid or allocated in such a manner as to avoid risking the
tax-free nature of certain of the transactions contemplated hereby.
(g) PERCENTAGE RENT. The apportionment of "percentage rent", and the
amounts due by the Post Closing Owner of a Property to the applicable Levy or
Meshon Parties, respectively, under each of the Leases for "percentage rent",
shall be made or paid with respect to the lease year (as defined in such Lease)
in which the Closing Date falls and the post-Closing adjustment shall be made,
effective as of the Closing, at the time that the accounting for the tenant's
percentage rent obligation for the lease year is determined under the Lease. The
amount to be apportioned shall be the total of the amounts collected by the Post
Closing Owner as percentage rent for such percentage rent lease year. The
applicable Levy or Meshon Parties' portion thereof shall be an amount which
bears the same ratio to the total percentage rent for the applicable percentage
rent lease year as the number of days up to but excluding the Closing Date in
such percentage rent lease year shall bear to the full number of days in such
percentage rent lease year; and the Post Closing Owner shall be entitled to
retain the remaining portion.
(h) UTILITY CHARGES. At Closing, the applicable Levy or Meshon Parties
shall pay all charges for the water, electric, gas and other utility meters
servicing each Property (other than meters measuring exclusively utility
consumption which is to be paid in full by tenants under Leases) apportioned on
the basis of the prior month's readings. When the charges for the month during
which the Closing occurs are ascertained, the parties shall make any necessary
post- Closing adjustments. The apportionment of items of expense and income for
tenant contributions on account of utilities shall be handled in accordance with
subparagraph (f) above.
(i) REALTY TRANSFER TAXES. The Levy Parties or the Meshon Parties, as
applicable, shall pay at Closing all realty transfer documentary fees, stamps
and taxes imposed on any person on the conveyance of the Premises or the
transaction contemplated by this Agreement, except, however, that any
Pennsylvania Realty Transfer Taxes or Philadelphia Realty Transfer Tax
(collectively, "Realty Transfer Taxes") listed on Schedule 2.1(i) attached
hereto which
22
<PAGE> 120
becomes payable because of a transfer of any Meshon Property or Levy Property or
deemed transfer upon contribution of any Meshon Partnership Interests to the
Operating Partnership (or its Affiliate) shall be paid as follows: the Operating
Partnership (or its Affiliate) to which such Property or partnership interest
was transferred shall assume and pay such Realty Transfer Taxes (to the extent
payable), except in the case of Realty Transfer Taxes which are imposed on a
partnership in which interests are transferred, and the number of OP Units to be
issued to such Persons transferring such Property or partnership interest shall
be reduced by a number obtained by dividing (y) 50% of the total Realty Transfer
Taxes so payable upon such transfer by (z) $11. Ordinary charges for recording
instruments shall be paid at Closing by the Meshon Parties or Levy Parties, as
applicable. The applicable Levy or Meshon Parties and the Company or the
Operating Partnership (or Affiliate), as applicable, acknowledge and agree that
the Personal Property to be transferred hereunder is not being sold in the
normal course of the applicable Levy or Meshon Parties' trade or business, and
agree to execute the appropriate exemption certificates for the purpose of
obtaining sales tax exemptions with respect to the transfer of the Personal
Property. The Meshon Parties or Levy Parties, as applicable, shall be obligated
to pay any sales tax which may be payable in connection with the sale of the
Personal Property if such sale is not exempt from taxation; however, at the
request of any Meshon Party or Levy Party transferring Personal Property, the
Operating Partnership (or its Affiliate) to which such Meshon Party or Levy
Party is transferring such Personal Property shall assume and pay any such sales
tax which may be payable in connection with the transfer of such Personal
Property if such transfer is not exempt from taxation (including both sales
taxes imposed on the transferring Meshon Party or Levy Party and sales taxes
imposed on the Operating Partnership (or its Affiliate), as the case may be, and
the number of OP Units to be issued to such Meshon Party or Levy Party shall be
reduced by a number obtained by dividing (y) 100% of the total sales taxes to
which such Person and the Operating Partnership (or its Affiliate), as the case
may be, shall be subject upon such transfer (other than any sales tax paid by
such Meshon Party or Levy Party and not assumed by the Company or the Operating
Partnership (or their Affiliate) or otherwise reimbursed by the Company or the
Operating Partnership (or their Affiliate) to such Meshon Party or Levy Party)
by (z) $11.
(j) TENANT IMPROVEMENT COSTS. The applicable Levy or Meshon Parties
shall pay at or prior to the Closing Date all tenant improvement costs, tenant
allowances and other bona fide third party costs and expenses actually incurred
for Leases entered into on or before the Closing Date. The applicable Levy or
Meshon Parties agree to indemnify, defend and hold the Post Closing Owner, the
Company, the Business Trust and the Operating Partnership (or its Affiliate), as
applicable, harmless from and against any liability associated with such costs.
In the event that, at the time of Closing, the applicable Levy or Meshon Parties
have outstanding obligations which are the responsibility of the applicable Levy
or Meshon Parties but which are not payable at that time because the work
relating thereto has not been completed, the applicable Levy or Meshon Parties
shall, at the Closing, deposit with the Post Closing Owner or the Operating
Partnership (or its Affiliate) an amount equal to the reasonable estimate of the
amount of such outstanding obligations, as listed on Schedule 2.1(j), and such
funds shall be applied to the payment of such outstanding obligations when due.
23
<PAGE> 121
(k) TENANT SECURITY DEPOSITS AND TENANT CONCESSIONS. As of Closing, the
Applicable Levy or Meshon Parties shall have funded in cash all security
deposits paid by, and all Tenant Concessions payable to, tenants of the
respective Meshon or Levy Properties such that such security deposits and Tenant
Concessions shall be held in cash accounts in the name of the respective Post
Closing Owner of a Property after the Closing Date or by the Operating
Partnership (or its Affiliate).
3. THE CLOSING.
3.1 CLOSING DATE AND PLACE.
(a) The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Proskauer Rose LLP, 1585 Broadway,
New York, New York 10036- 8299 at 10:00 a.m. (New York City time) no later than
the fifth Business Day after the day on which the last of the conditions set
forth in Section 4 (other than such conditions which, by their terms, are not
capable of satisfaction until the Closing Date) is satisfied or, where
permissible, is waived, unless another place, date or time is agreed to by the
parties hereto; provided, however, that the Closing Date shall in no event be
later than December 31, 1997 (the "Final Date").
(b) Notwithstanding anything else in this Agreement, the
Closing shall be effective as of the last day of the calendar quarter ending on
or immediately prior to Closing of the transactions contemplated hereunder. In
the event that the date on which the Closing occurs is not the last day of a
calendar quarter, any funds from operations (as determined by the Company's
accountants in accordance with GAAP as applied to real estate investment trusts)
from the operations of the Meshon Properties and Levy Properties transferred
hereunder or owned by a Meshon Partnership in which any partnership interests
are transferred hereunder, for the period from the end of the prior calendar
quarter through the Closing Date shall be deemed earned by and shall be the
property of the Operating Partnership (or its Affiliate), as the case may be,
and shall be deposited into an escrow account to be delivered to the Operating
Partnership (or its Affiliate) at the Closing.
3.2 INTENTIONALLY OMITTED
3.3 MESHON CLOSING DELIVERIES.
(a) MESHON PROPERTIES.
(i) At the Closing, the Meshon Parties shall deliver
to the Company with respect to each Meshon Property a Title Policy in the amount
required for such Property set forth in Schedule 3.3(a) issued by an Acceptable
Title Insurance Company at regular rates, insuring the Post Closing Owner
thereof that title to such Meshon Property is good and marketable and free and
clear of all Liens and other Title Exceptions, except for the Permitted
Exceptions. At Closing, title to the Personal Property related to each Property
shall be subject
24
<PAGE> 122
only to the Permitted Exceptions with respect to such Property, except for the
Personal Property described on Schedule 3.3(a) which is denoted as being leased
or financed.
(ii) At the Closing, the Meshon Parties shall deliver
to the Company, a report from a nationally recognized search firm reasonably
satisfactory to the Company, dated not more than 5 days prior to the Closing, of
the results of current searches of all Uniform Commercial Code financing
statements filed with the Secretary of State and/or county clerk against any of
the Meshon Parties, Royce, Drexel or the Meshon Properties, together with
bankruptcy, tax lien and judgment searches and searches for pending litigation
in all appropriate jurisdictions relating to such parties and properties showing
that, other than the Permitted Exceptions with respect to the Meshon Properties
and Meshon Parties, there are no bankruptcies, actions, claims or liens against
any of the Meshon Parties, Drexel or Royce, or affecting or encumbering or which
might affect or encumber any of the Meshon Properties, or any interest therein,
which will continue after the Closing Date.
(iii) The Meshon Parties shall deliver to the
Company, at or prior to the Closing Date, estoppel certificates signed by (i)
the tenant under each Major Lease affecting a Meshon Property and (ii) the
tenants under Leases affecting at least five percent of the rentable area of the
Improvements affecting each Meshon Property (exclusive of the rentable area
demised under the related Major Leases), (a "Tenant Estoppel Certificate"),
substantially in the form of Exhibit O, dated no earlier than fifteen (15) days
prior to the date of the Closing. The Meshon Parties shall use reasonable and
diligent efforts to obtain Tenant Estoppel Certificates from the tenant under
each Lease affecting each Meshon Property. If, despite such efforts, they are
unable to obtain Tenant Estoppel Certificates from all the tenants at the Meshon
Properties, provided they actually deliver all the Tenant Estoppel Certificates
required to be delivered pursuant to the first sentence of this Section
3.3(a)(iii) the Meshon Parties may deliver at Closing with respect to tenants
from which they did not obtain a Tenant Estoppel Certificate a certificate
signed by the President and Chief Financial Officer of each Meshon Party (or its
general partner) representing to the Company (to the Knowledge of the Meshon
Parties as to actual or potential tenant defaults) the certification of facts
that are to be covered by the Meshon Tenant Estoppel Certificates which have not
been obtained.
(iv) At the Closing, the Meshon Parties shall deliver
estoppel certificates, in form and substance satisfactory to the Company, signed
by lessors under any ground lease under which a Meshon Party is a lessee and an
estoppel certificate from any general or co-general partner of any Meshon
Partnership not transferring such Partner's partnership interest hereunder
(including without limitation the General Partner of Renaissance Plaza other
than Meshon) containing substantially the same statements as are set forth in
Section 7.14.
(v) At the Closing, the Meshon Parties shall deliver
estoppel certificates in form and substance satisfactory to the Company,
obtained from those parties under reciprocal easement agreements affecting a
Meshon Property, if any, for which the Company has requested that the Meshon
Parties request estoppel certificates. The Meshon Parties shall use reasonable
and diligent efforts to obtain such estoppel certificates.
25
<PAGE> 123
(vi) At the Closing, the Meshon Parties shall have
delivered a Survey with respect to each Meshon Property (showing no exceptions
other than any listed on the title reports delivered during the Due Diligence
Period).
(vii) At the Closing, the Meshon Parties shall
deliver all Required Consents relating to such Meshon Parties, and each of them,
including, without limitation, all Meshon Consents and Drexel Required Consents
listed on Schedule 6.11 and Schedule 8.11, respectively.
(viii) At the Closing, the Meshon Parties shall
deliver such other documents as any other party shall reasonably request.
(b) At the Closing, the Meshon Parties shall deliver with
respect to Reorganized Drexel all documents required in Section 8 hereof, the
Drexel Shares and such other documents as are reasonably requested by the other
parties in respect of the Drexel Reorganization.
3.4 LEVY CLOSING DELIVERIES.
(a) LEVY PROPERTIES.
(i) At the Closing, the Levy Parties shall deliver to
the Company with respect to each Levy Property a Title Policy in the amount
required for such Property set forth in Schedule 3.4(a) issued by an Acceptable
Title Insurance Company at regular rates, insuring the Post Closing Owner
thereof that title to such Levy Property is good and marketable and free and
clear of all Liens and other Title Exceptions, except for the Permitted
Exceptions. At Closing, title to the Personal Property related to each Property
shall be subject only to the Permitted Exceptions with respect to such Property,
except for the Personal Property described on Schedule 3.4(a) which is denoted
as being leased or financed.
(ii) At the Closing, the Levy Parties shall deliver
to the Company a report from a nationally recognized search firm, reasonably
satisfactory to the Company, dated not later than 5 days prior to the Closing,
of the results of current searches of all Uniform Commercial Code financing
statements filed with the Secretary of State and/or county clerk against any of
the Levy Parties or the Levy Properties, together with bankruptcy, tax lien and
judgment searches and searches for pending litigation in all appropriate
jurisdictions with respect to such Levy Parties and Levy Properties showing that
other than the Permitted Exceptions with respect to the Levy Properties there
are no bankruptcies, actions, claims or liens against any of the Levy Parties or
affecting or encumbering or which might affect or encumber any of the Levy
Properties or any interest therein, which will continue after the Closing Date.
(iii) The Levy Parties shall deliver to the Company,
at or prior to the Closing Date estoppel certificates signed by (i) the tenant
under each Major Lease affecting a Levy Property and (ii) the tenants under
Leases affecting at least five percent of the
26
<PAGE> 124
rentable area of the Improvements affecting each Levy Property (exclusive of the
rentable area demised under the related Major Leases), a Tenant Estoppel
Certificate dated no earlier than fifteen (15) days prior to Closing. The Levy
Parties shall use reasonable and diligent efforts to obtain Tenant Estoppel
Certificates from the tenant under each Lease affecting each Levy Property. If,
despite such efforts, they are unable to obtain Tenant Estoppel Certificates
from all the tenants at the Levy Properties, provided they actually deliver the
Tenant Estoppel Certificates required to be delivered pursuant to the first
sentence of this Section 3.4(a)(iii), the Levy Parties may deliver at Closing
with respect to tenants from which they did not obtain a Tenant Estoppel
Certificate a certificate signed by the President and Chief Financial Officer of
each Levy Party (or its general partner) representing to the Company (to the
Knowledge of the Levy Parties as to actual or potential tenant defaults) the
certification of facts that are to be covered by the Levy Tenant Estoppel
Certificates which have not been obtained.
(iv) At the Closing, the Levy Parties shall deliver
estoppel certificates, in form and substance satisfactory to the Company, signed
by lessors under any ground lease under which a Levy Party is a lessee.
(v) At the Closing, the Levy Parties shall deliver
estoppel certificates in form and substance satisfactory to the Company,
obtained from those parties under reciprocal easement agreements affecting a
Levy Property, if any, for which the Company has requested that the Levy Parties
request estoppel certificates. The Levy Parties agree to use reasonable and
diligent efforts to obtain such estoppel certificates.
(vi) At the Closing, the Levy Parties shall have
delivered a Survey with respect to each Levy Property (showing no exceptions
other than any listed on the title reports delivered during the Due Diligence
Period).
(vii) At the Closing, the Levy Parties shall deliver
all Required Consents relating to such Levy Parties, and each of them,
including, without limitation, all Levy Required Consents listed on Schedule
1.13(b).
(viii) At the Closing, the Levy Parties shall deliver
such other documents as any other party shall reasonably request.
3.5 CLOSING DELIVERIES BY OWNERS WHICH ARE CONTRIBUTING REAL ESTATE. At
the Closing, each Owner of a Meshon Transferred Property or a Levy Property
shall deliver and furnish to the Operating Partnership, (or its designated
Affiliate) (the "Acquirer") the following with respect to its Property:
(a) A Special Warranty Deed (with covenant against grantor's acts),
duly executed and acknowledged by the Owner, conveying fee simple title to the
Land and Improvements subject only to the Permitted Exceptions. The Special
Warranty Deed shall include the express contractual subordination of Owner to
the rights of Acquirer, if any, as grantee, to enforce any warranties included
in the deed or deeds conveying the Land and Improvements to Acquirer and
27
<PAGE> 125
shall expressly negate any agreement on the part of the Acquirer to have any
personal liability for the payment or performance of the Debt secured by the
Debt Documents encumbering such Property.
(b) (i) From Renaissance only, an Assignment and Assumption
Agreement, including general warranties of title, assigning Renaissance's
interest under the Meshon Ground Lease, and a Conveyance, including general
warranties of title, conveying Renaissance's fee simple title to the
Improvements situated on the Meshon Leased Property, duly executed and
acknowledged by Renaissance, subject only to the Permitted Exceptions. The
Assignment and Assumption Agreement and Conveyance shall each include the
express contractual subordination of Renaissance to the rights of Acquirer, if
any, as grantee, to enforce any warranties included in the instruments conveying
and assigning interests in the Property to Acquirer and shall expressly negate
any agreement on the part of the Acquirer to have any personal liability for the
payment or performance of the Debt secured by the Debt Documents encumbering
such Property.
(ii) From Chesterbrook only, an Assignment and Assumption
Agreement, including general warranties of title, assigning Chesterbrook's
equitable interest under the Meshon Installment Sales Agreement, duly executed
and acknowledged by Chesterbrook, subject only to the Permitted Exceptions. The
Assignment and Assumption Agreement shall include the express contractual
subordination of Chesterbrook to the rights of Acquirer, if any, as grantee, to
enforce any warranties included in the instruments conveying and assigning
interests in the Property to Acquirer and shall expressly negate any agreement
on the part of the Acquirer to have any personal liability for the payment or
performance of the Debt secured by the Debt Documents encumbering such Property.
(c) A Bill of Sale and Assignment for the Personal Property which is
not conveyed by the Special Warranty Deed and Conveyance, duly executed and
acknowledged by Owner. Said bill of sale shall be subject only to the Permitted
Exceptions.
(d) An assignment of the Leases, in form and substance satisfactory to
the Company, duly executed and acknowledged by Owner, and in proper form for
recording, together with a statement of all rents and other charges in arrears
and the period for which such rent and other charges are in arrears.
(e) To the extent not held by the Document Custodian, Owner's duplicate
originals of each of the Leases, the Service Contracts and the Debt Documents,
including, without limitation, all amendments, modifications or renewals of any
thereof; provided, however, if Owner does not have in its possession an original
counterpart of any of said documents, Owner shall deliver to the Document
Custodian a photostatic copy of said document together with a certification by
Owner to the Acquirer that said copy is a true and complete copy of the document
and that Owner has not further modified or amended said document.
28
<PAGE> 126
(f) An assignment, duly executed by Owner, assigning to the Acquirer
all assignable guaranties and warranties, issued in connection with the
construction, improvement, alteration and repair of the buildings and other
improvements constituting the Improvements and the Personal Property owned by
Owner, together with the original of each such guaranty and warranty, if
available.
(g) The original, or copy, of each bill for current real estate taxes
and assessments, personal property taxes, sewer charges, water charges, and
other utilities or other impositions related to the Property.
(h) A letter addressed to the tenant under each of the Leases, advising
such tenant that the Property has been sold to the Acquirer and the name of the
person who will act as Acquirer's management agent for the Property.
(i) Such instruments as are necessary or reasonably required by the
Company or the Title Insurance Company to evidence the authority of Owner and
its signatories to execute the instruments to be executed by Owner in connection
with the transaction contemplated herein, and evidence that the execution of
such instruments is the official act and deed of Owner.
(j) To the extent not held by the Document Custodian, copies of the
books and records maintained in connection with the Property and all original
instruments which are reasonably necessary for the continued operation of the
Property.
(k) An assignment, duly executed by Owner, assigning to the Acquirer
all of Owner's right, title and interest to, and, to the extent not held by the
Document Custodian, possession of, all architectural plans and drawings
including, without limitation, a complete set of "as built" plans and
specifications for the Improvements, engineering plans, drawings and
specifications, site plans, surveys, soil tests, floor plan, landscape plans and
all other plans and drawings for the Improvements; the original or certified
copies of all Certificates of Occupancy for the Improvements and all other
permits, certificates or reservations, if any, allocating utility capacity to
the Property, operating permits and all other permits or certificates issued by
any governmental authority or subdivision thereof relating to the use, occupancy
or operation of the Property.
(l) Possession of the Property subject only to the Leases.
(m) A certificate in form and substance satisfactory to the Company,
dated the Closing Date and duly executed by Owner as required under Treasury
Regulation 1.1445-2(b)(2)(iii).
(n) Such other documents, certificates and items (including, without
limitation, master keys and keys to storage, equipment and utility rooms located
at the Property) as the Company shall reasonably require to effectuate the
intentions hereof.
3.6 COMPANY CLOSING DELIVERIES. At the Closing, the Company shall
deliver such
29
<PAGE> 127
documents and reports filed with the SEC and requested by any party and any
indemnification agreement requested under Section 1.2(f).
4. CONDITIONS TO CLOSING.
4.1 CONDITIONS TO OBLIGATIONS OF ALL PARTIES. The obligations of the
parties to this Agreement to effect the Closing shall be subject to the
satisfaction or waiver at or prior to the Closing of the following conditions:
(a) APPROVAL OF SHAREHOLDERS. The transactions contemplated hereby, the
Charter Amendments and the Option Plan shall have been approved by the requisite
vote of the Company's shareholders under applicable Delaware law, the Company's
Certificate of Incorporation and By-Laws and the rules of The New York Stock
Exchange, Inc.
(b) APPROVAL OF ADDITIONAL LISTING APPLICATION. The NYSE shall have
approved, prior to the Closing, the additional listing application relating to
the Shares issuable under the Option Plan and the Shares for which OP Units may
be exchanged.
(c) NO INJUNCTION. No permanent or preliminary injunction or
restraining order or other order by any court or other Governmental Body of
competent jurisdiction or other legal restraint or prohibition preventing
consummation of the transactions contemplated hereby shall be in effect.
(d) FINAL DATE. The Closing shall have occurred prior to December 31,
1997.
4.2 INTENTIONALLY OMITTED
4.3 CONDITIONS TO OBLIGATIONS OF THE MESHON PARTIES. The obligations of
the Meshon Parties to effect the Closing shall be subject to the satisfaction at
or prior to the Closing of the following conditions (any of which may be waived
by Louis Meshon, Sr. on behalf of all the Meshon Parties in his sole
discretion):
(a) GENERAL CONDITIONS. The conditions set forth in Section 4.1.
(b) REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (i) The representations
and warranties of the Company set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date as though made at such time, except for such changes permitted or
contemplated by the terms of this Agreement and except insofar as any such
representations and warranties refer solely to a particular date or period, in
which case they shall be true and correct in all material respects on the
Closing Date with respect to such date and period, (ii) the Company shall have
performed and complied in all material respects with all obligations, covenants
and agreements contained in Sections 10 and 11 of this Agreement required to be
performed and complied with by it at or prior to the Closing Date, and
30
<PAGE> 128
(iii) the Meshon Parties shall have received certificates, dated the Closing
Date, to that effect signed by the Chairman, President or any Vice President of
the Company.
(c) CHARTER AMENDMENTS. On or before the Closing Date, the Company
shall have filed all documents necessary to effectuate the Charter Amendments.
(d) DIRECTOR RESIGNATIONS AND APPOINTMENTS. The Company shall have
taken all action as is required under applicable law to cause to be elected to
the Board of Directors, effective upon the Closing, the following three
Directors: Louis Meshon, Sr. and Stanley S. Cohen and Milton Schneider, provided
they are willing and able to serve.
(e) INTENTIONALLY OMITTED.
(f) ADOPTION OF OPTION PLAN. As of the Closing Date, the Option Plan
shall be effective.
(g) MESHON EMPLOYMENT AGREEMENT. The Business Trust and Meshon shall
each have executed and delivered the Meshon Employment Agreement.
(h) LEGAL OPINION. The Meshon Parties shall have received an opinion
from Proskauer Rose LLP, counsel to the Company, dated the Closing Date, in
substantially the form of Exhibit P; provided that the Company may deliver an
opinion of Delaware counsel to the Company, as to all matters of Delaware law.
(i) ADDITIONAL DOCUMENTS. The Company shall have delivered or caused to
be delivered to the Meshon Parties all other documents required to be delivered
by the Company to any of the Meshon Parties pursuant to this Agreement.
(j) NO MATERIAL ADVERSE CHANGE. Since the date hereof nothing shall
have occurred which, individually or in the aggregate, has had, or is reasonably
likely to have, a Material Adverse Effect on the Company or its properties,
taken as a whole.
4.4 CONDITIONS TO OBLIGATIONS OF THE LEVY PARTIES. The obligations of
the Levy Parties to effect the Closing shall be subject to the satisfaction at
or prior to the Closing of the following conditions (any of which may be waived
by Levy, as representative of the Levy Parties, on behalf of all the Levy
Parties in his sole discretion):
(a) GENERAL CONDITIONS. The conditions set forth in Section 4.1.
(b) REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (i) The representations
and warranties of the Company set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date as though made at such time, except for such changes permitted or
contemplated by the terms of this Agreement and except insofar as any such
representations and warranties refer solely to a particular date or period, in
31
<PAGE> 129
which case they shall be true and correct in all material respects on the
Closing Date with respect to such date and period, (ii) the Company shall have
performed and complied in all material respects with all obligations, covenants
and agreements contained in Sections 10 and 11 of this Agreement required to be
performed and complied with by it at or prior to the Closing Date, and (iii) the
Levy Parties shall have received certificates, dated the Closing Date, to that
effect signed by the Chairman, President or any Vice President of the Company.
(c) CHARTER AMENDMENTS. On or before the Closing Date, the Company
shall have filed all documents necessary to effectuate the Charter Amendments.
(d) LEGAL OPINION. The Levy Parties shall have received an opinion from
Proskauer Rose LLP, counsel to the Company, dated the Closing Date, in
substantially the form of Exhibit P; provided that the Company may deliver an
opinion of Delaware counsel to the Company as to all matters of Delaware law.
(e) MESHON EMPLOYMENT AGREEMENT. The Business Trust and Meshon shall
each have executed and delivered the Meshon Employment Agreement.
(f) ADDITIONAL DOCUMENTS. The Company shall have delivered or caused to
be delivered to the Levy Parties all other documents required to be delivered by
the Company to any of the Levy Parties pursuant to this Agreement.
(g) NO MATERIAL ADVERSE CHANGE. Since the date hereof nothing shall
have occurred which, individually or in the aggregate, has had, or is reasonably
likely to have, a Material Adverse Effect on the Company or its properties,
taken as a whole.
4.5 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE BUSINESS TRUST.
The obligations of the Company and the Business Trust to effect the Closing with
each of the Meshon Parties (as a group) and the Levy Parties (as a group) shall
be subject to the satisfaction at or prior to the Closing of the following
conditions (any of which may be waived by the Company or the Business Trust, as
the case may be, in whole or in part, in their sole discretion as to closing
with any groups or any parties in any of such groups):
(a) GENERAL CONDITIONS. The conditions set forth in Section 4.1.
(b) MESHON TRANSFERRED PROPERTIES. The Meshon Parties shall have
contributed the Meshon Partnership Interests and the Meshon Transferred
Properties and all of the Non-Voting Common Shares of Reorganized Drexel
contemplated by Section 1.6 (a), including at least those referred to in Section
1.2(d).
(c) RENAISSANCE PARTNER CONSENTS. The consent of all of the general and
limited partners of Renaissance to (i) the transfer of partnership interests in
Renaissance pursuant to this Agreement, (ii) the admission of the Operating
Partnership's designee as substitute general partner and the waiver of any
future transformation of such general partnership interest into a
32
<PAGE> 130
limited partnership interest upon a diminution in Meshon's (or any of his
Affiliates') ownership of the capital stock of Montgomery A.C. below a
controlling interest, and (iii) the Company (or its Affiliate) having the right
to terminate the management agreement between Renaissance and Drexel in the
event of a change in control of Reorganized Drexel, shall have been obtained and
shall be in full force and effect.
(d) APPROVALS AND CONSENTS. All Meshon and Drexel Required Consents and
Levy Required Consents shall have been obtained and shall be in full force and
effect.
(e) REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (i) The representations
and warranties of all parties hereto (other than the Company) in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made at such time, except for
such changes permitted or contemplated by the terms of this Agreement and except
insofar as any such representations and warranties relate solely to a particular
date or period, in which case they shall be true and correct in all material
respects on the Closing Date with respect to such date and period, (ii) each of
the parties, other than the Company, shall have performed and complied in all
material respects with all obligations, covenants and agreements contained in
this Agreement required to be performed and complied with by them at or prior to
the Closing Date, and (iii) the Company shall have received certificates, dated
the Closing Date, to that effect signed by each such party which is an
individual and by the President and chief financial officer of each such party
which is an entity.
(f) PROCEDURES LETTER. On the date of mailing of the Proxy Statement,
on the date of the Special Meeting and on the Closing Date, the Company's
auditors shall have furnished to the Company a letter or letters, dated the
respective date of delivery thereof, in form and substance satisfactory to the
Company.
(g) ADDITIONAL DOCUMENTS. Each of the parties hereto, other than the
Company, shall have delivered or caused to be delivered to the Company all other
documents required to be delivered by it pursuant to this Agreement.
(h) NO MATERIAL ADVERSE CHANGE. Since the date hereof nothing shall
have occurred which, individually or in the aggregate, has had, or is reasonably
likely to have, a Material Adverse Effect on any of the Meshon Partnership
Interests (or the Meshon Property to which they relate) or any of the Meshon
Transferred Properties or any of the Levy Properties or Reorganized Drexel or
any of its Affiliates.
(i) REIT STATUS. No event or state of facts (or omission to take
action) has occurred, exists or is discovered which would cause the consummation
of the transactions contemplated hereby, in the reasonable opinion of the
Company, to cause a risk to the continued qualification of the Company as a real
estate investment trust under the Code or to cause a risk that Section 721(a) of
the Code will not apply to the transactions contemplated herein.
(j) ESCROW AGREEMENT. The Escrow Agreement shall have been entered into
by the
33
<PAGE> 131
parties thereto other than the Company.
(k) MESHON EMPLOYMENT AGREEMENT. Meshon shall have entered into the
Meshon Employment Agreement and no event shall have occurred which would be a
basis for termination thereof.
(l) EXECUTION OF PARTNERSHIP AGREEMENT. Each of the Meshon Parties and
Levy Parties receiving OP Units at the Closing shall have entered into the
Partnership Agreement, effective as of the Closing Date, and such agreement
shall be in full force and effect.
(m) MESHON LEGAL OPINIONS. The Company shall have received (i) an
opinion from Fox, Rothschild, O'Brien & Frankel, LLP counsel to Drexel, Royce
and the Meshon Parties, dated the Closing Date, in substantially the form
attached as Exhibit Q, except that Fox, Rothschild O'Brien & Frankel, LLP may
rely on local counsel reasonably satisfactory to the Company with respect to
non-New Jersey and non-Pennsylvania state law matters, and (ii) an opinion from
Fox, Rothschild, O'Brien & Frankel, LLP as counsel to the Meshon Parties as
contemplated in Section 11.3.
(n) EXECUTION OF MASTER LEASING, MANAGEMENT AND EXECUTIVE SERVICES
AGREEMENT. The Master Leasing, Management and Executive Services Agreement shall
have been entered into by the parties thereto.
(o) FIRPTA CERTIFICATES. Each of the parties hereto, other than the
Company, shall have delivered or caused to be delivered to the Company a
Certificate which states, under penalty of perjury, such party's taxpayer
identification number and office address and that such party is not a foreign
person for federal income tax purposes under section 1445 of the Code.
(p) TAXABLE INCOME PROJECTION. The Company shall not have received a
document from BDO Seidman, LLP to the effect that the Company's projected real
estate investment trust taxable income (determined without regard to the
deduction for dividends paid or net operating loss carryovers, but giving effect
to the transactions contemplated hereby) for 1998 will not equal or exceed $1.16
per Share.
4.6 PARTIAL CLOSING. Anything in this Agreement to the contrary
notwithstanding, (i) the Company may, but shall not be obligated to, consummate
the closing of the Levy Transactions if the Meshon Transactions and the Drexel
Transactions do not close, but (ii) the Company and Meshon Parties shall be
required to consummate the closing of the Meshon Transactions and the Drexel
Transactions whether or not the Levy Transactions close, in each case subject to
the satisfaction or waiver of the conditions to each such party's obligations to
close set forth in this Section 4
34
<PAGE> 132
5. REPRESENTATIONS AND WARRANTIES RELATING TO THE REAL PROPERTY.
Each of the Owners transferring a direct or indirect interest in any
Meshon Property or Levy Property including any Person transferring a general or
limited partnership interest in any Meshon Partnership or County Line Interest
hereby makes the following representations and warranties, as of the date hereof
and as of the Closing Date; provided that, other than Meshon, no Meshon Party
which is the general partner or a co-general partner of a Meshon Partnership
shall be personally liable for any representations set forth below in this
Section 5 except as provided in Section 7.14.
5.1 MESHON PROPERTIES. Each of (i) Meshon, with respect to all of the
Meshon Properties i.e., the nine shopping centers, and (ii) the Meshon
Partnerships, with respect only to the Meshon Property that it owns, hereby make
the representations and warranties set forth below, as of the date hereof.
Representations and warranties qualified as involving the 'knowledge' of a
Meshon Partnership shall be deemed to refer to the knowledge of Meshon, Wilde
and/or any Person which, directly or indirectly, owns a general partnership
interest in such Meshon Partnership.
(a) Each Meshon Partnership has good and marketable fee title
to the Meshon Property identified as being owned by it in Schedule 5.1 (a),
except that (i) Chesterbrook has good and marketable equitable title to the
Chesterbrook Shopping Center ("Chesterbrook Center"), the Meshon Property for
which Chesterbrook is the installment sale purchaser (the "Meshon Equitable
Property"), and (ii) Renaissance Plaza has good and marketable leasehold title
to Renaissance Plaza Shopping Center (the "Meshon Leased Property"), in each
case, free and clear of all Liens and other Title Exceptions, except the
Permitted Exceptions.
(b) Schedule 5.1(b) correctly describes (i) the installment
sales agreement (the "Meshon Installment Sales Agreement") pursuant to which
Chesterbrook holds equitable title to the Meshon Equitable Property from the
Chester County Industrial Development Authority, the monthly installment
payments reserved and being paid thereunder, the expiration date of the Meshon
Installment Sales Agreement, a description of all options to renew or extend the
same, the terms of any such options, and the amount, if any, payable by
Chesterbrook (in addition to the monthly installment payments) to acquire legal
title to the Chesterbrook Center from the Chester County Industrial Development
Authority, and (ii) the ground lease (the "Meshon Ground Lease") pursuant to
which the Meshon Leased Property is leased by Renaissance Plaza from the Casino
Reinvestment Development Authority under a Ground Lease with Renaissance, the
monthly rentals reserved and being paid thereunder, the expiration date of the
Meshon Ground Lease, and a description for all options to renew or extend the
same, and the terms of any such options. The Meshon Ground Lease and the Meshon
Installment Sales Agreement are each in full force and effect.
(c) Each Meshon Partnership's Meshon Property constitutes the
only real property interest owned by such Meshon Partnership.
35
<PAGE> 133
(d) Except (i) pursuant to the respective Leases identified in
Schedule 5.1(d) as affecting the respective Meshon Properties (the "Meshon
Leases"), and (ii) routine concession arrangements ("Routine Concession
Arrangements") permitted by the Meshon Leases, no Person has any possessory
interest in any Meshon Property or any part thereof or any interest therein
(whether pursuant to lease, sublease, rental, license, concession, management or
other agreement written or oral now or hereafter in effect) or any rights to
acquire or to lease (including, without limitation, any renewal, extension or
expansion options) any Meshon Property or any part thereof or otherwise obtain
any interest therein, and except as disclosed in Schedule 5.1(d) with respect to
the County Line Plaza Shopping Center, there exist no outstanding rights of
first refusal, rights of reverter or rights of first offer relating to any
Meshon Property or any part thereof or any interest therein. No Meshon
Partnership has entered into any agreement directly with a party entitled to
possession of a Meshon Property pursuant to a Routine Concession Arrangement.
(e) Schedule 5.1(d) is a true and complete list of all Meshon
Leases, the monthly rentals reserved and being collected thereunder (subject to
possible arrears or defaults), the date upon which collection of monthly rentals
commenced or is scheduled to commence, the amount of all security deposits held
thereunder (subject to possible future application thereof in accordance with
the provisions of the applicable Meshon Lease), the expiration date of each
Meshon Lease and whether there are any options to renew or extend the same or
expand the premises demised thereby and the terms of any such options. Each
Meshon Lease is in full force and effect, and no Meshon Lease has been assigned
except to a lender pursuant to a Permitted Exception as security for a Debt of
the Meshon Partnership that owns the related Meshon Property.
(f) All of the rents under the Meshon Leases will constitute
rents from real property with respect to the Company within the meaning of
Section 856 of the Code.
(g) True, complete and correct copies of all Meshon Leases,
and of all notices (if any) received from tenants thereunder exercising the
right to extend the term of its lease or to lease additional space, have been
delivered to Drexel (as a Document Custodian) and have been initialed on behalf
of the related Meshon Partnership and the Document Custodian (other than such
notices with respect to extension terms that have commenced or additional space
that has been occupied by the related tenant). An abstract of each Meshon Lease
(the "Meshon Abstracts") has been delivered to the Company. Each Meshon Abstract
sets forth true and correct information with respect to the related Meshon Lease
and does not omit any information with respect to such Meshon Lease that could
have a material adverse effect on the landlord's interest in such Meshon Lease,
the premises demised thereby or the related Meshon Property.
(h) The information regarding Tenant Concessions relating to
the Meshon Leases set forth in Schedule 5.1(h) and the documents evidencing such
Tenant Concessions delivered to the Document Custodian are true, accurate and
complete, and have been initialed on behalf of the related Meshon Partnership
and the Document Custodian.
(i) No Meshon Partnership (or other Person acting on its behalf) has
(i) sent
36
<PAGE> 134
to the tenant under any Meshon Lease a notice terminating such Meshon Lease or
claiming that such tenant is in default under such Meshon Lease, or (ii)
received any written notice that any tenant under a Meshon Lease disputes the
computation of any rent, additional rent or other sums payable pursuant to such
Meshon Lease. No Rent under any Meshon Lease has been paid more than thirty (30)
days in advance of its due date, and except as disclosed on Schedule 5.1(d), no
Rent payable under any Meshon Lease is more than thirty (30) days in arrears.
The representations set forth in this paragraph shall be deemed true and correct
in all material respects as long as the Meshon Lease or Meshon Leases, if any,
affecting any Meshon Property with respect to which it is not true and correct,
do not generate in the aggregate five percent (5%) or more of the gross rental
income of such Meshon Property.
(j) No Meshon Partnership (or other Person acting on its
behalf) has received any written notice that any tenant under a Meshon Lease is
claiming any breach by lessor under such Meshon Lease. The representations set
forth in this paragraph shall be deemed true and correct in all material
respects as long as (i) the Meshon Lease or Meshon Leases, if any, affecting any
Meshon Property with respect to which it is not true and correct, do not
generate in the aggregate five percent (5%) or more of the gross rental income
of such Meshon Property, and (ii) the sole remedy available to any such tenant
which successfully proves its claim shall be the termination of its Lease.
(k) Except as disclosed in Schedule 5.1(d), (i) all tenants
under the Meshon Leases have commenced payment of rent under such Leases and
(ii) are in occupancy of the entire premises demised thereby and operating a
business at such premises. The representations set forth in this paragraph shall
be deemed true and correct in all material respects as long as the Meshon Lease
or Meshon Leases, if any, affecting any Meshon Property with respect to which it
is not true and correct, do not generate in the aggregate five percent (5%) or
more of the gross rental income of such Meshon Property.
(l) Except as disclosed in Schedule 5.1(l), all obligations
presently required to have been performed by the lessor ("Meshon Lessor
Obligations") under each Meshon Lease have been fully performed and paid for,
and all payments to be made to any tenant ("Meshon Lessor Payments") presently
due pursuant to a Meshon Lease for tenant fixtures or improvements have been
made. Schedule 5.1(l) further discloses all Meshon Lessor Obligations and Meshon
Lessor Payments for which, under currently effective leases, any Meshon
Partnership will be responsible hereafter. The representations set forth in this
paragraph shall be deemed true and correct in all material respects as long as
(i) the aggregate cost of performance of all unperformed Meshon Lessor
Obligations, if any, and all unpaid Meshon Lessor Payments affecting any Meshon
Property, if any, do not exceed $50,000, (ii) the aggregate cost of performance
of any unperformed Meshon Lessor Obligations and any unpaid Meshon Lessor
Payments affecting any Meshon Property has been reserved in cash (a "Meshon
Lessor Reserve") by the respective Meshon Partnership, and (iii) the Meshon
Lessor Reserve with respect to each Meshon Property is transferred to the Post
Closing Owner or the Operating Partnership or its Affiliate at Closing in
accordance with Sections 2.1(j) and 2.1(k).
37
<PAGE> 135
(m) Set forth on Schedule 5.1(m) is a true, accurate and
complete list of all Leasing Commissions which are or will be due or payable to
any Person with respect to, or on account of, each Meshon Lease or any
extensions or renewals thereof. On the date of Closing, except to the extent new
Meshon Leases are executed between the date hereof and the date of Closing, no
Leasing Commissions will be due or payable to any Person with respect to, or on
account of, any Meshon Lease or any extensions or renewals thereof. Any Leasing
Commission incurred in connection with a Meshon Lease executed between the date
hereof and the date of Closing shall either be payable to Drexel, Royce or a
Person unrelated to the Meshon Parties or the Levy Parties, and any such Leasing
Commission payable to a Person unrelated to the Meshon Parties or the Levy
Parties shall be in an amount that does not exceed prevailing market rates.
(n) Schedule 5.1(n) is a true, correct and complete list of
all Service Contracts (defined below) affecting any Meshon Property pursuant to
which payments in excess of $25,000 per annum are due from the respective Meshon
Partnership. To the knowledge of Meshon and each Meshon Partnership and except
as set forth in Schedule 5.1(n), each Service Contract is in full force and
effect and no default has occurred thereunder. Except for the Service Contracts,
there are no property management agreements or asset management agreements or
any other arrangements (i) under which any Meshon Party (or Affiliate thereof)
is the property manager or asset manager of any Meshon Property, (ii) under
which any Person is the property manager or asset manager of any Meshon Property
or under which any Meshon Partnership pays any management fees or commissions,
or (iii) which relates to any Meshon Partnership providing or receiving
management, administrative or bookkeeping services, of any services that
contribute income to any Meshon Partnership. True, correct and complete copies
of all Service Contracts have been delivered to the Documents Custodian and have
been initialed on behalf of the related Owner and the Document Custodian).
Except as reflected in Schedule 5.1(n), on the date of Closing, there will be no
Service Contract that cannot be canceled at the option of the related Meshon
Partnership without penalty or more than thirty (30) days' prior notice, or
that, upon such cancellation, would create, give rise to, or form the basis of,
a Lien on any Meshon Property or any part thereof or any interest therein.
(o) Schedule 5.1(o) is a true, complete and correct list of
all material Debt Documents with respect to each Debt affecting each Meshon
Property. True, complete and correct copies of all Debt Documents have been
delivered to the Document Custodian and have been initialed on behalf of the
related Meshon Partnership and the Document Custodian. All obligations presently
required to be performed by the related Meshon Partnership under the Debt
Documents have been fully performed, and no amounts presently due and payable
thereunder are unpaid. Neither Meshon nor any Meshon Partnership has received
any written notice of default under any Debt Documents. Schedule 5.1(o) reflects
(as of the date of the Schedule), with respect to each Meshon Property, (i) the
outstanding principal indebtedness secured by the Debt Documents affecting such
Property, (ii) the amount of unpaid interest accrued on such indebtedness
(including the dates of accrual thereof), (iii) the rate at which interest
accrues on such indebtedness, (iv) the periodic installment payments required to
be made with respect to such indebtedness and the dates on which such payments
are required to be paid, (v) the scheduled maturity date of such indebtedness,
(vi) the amount scheduled to be outstanding
38
<PAGE> 136
thereunder on such scheduled maturity date, and (vii) the premium or penalty, if
any, required to be paid in the event of a prepayment of such indebtedness.
(p) Set forth on Schedule 5.1(p) is a true, complete and
correct list of the rentable Improvements located on each Meshon Property, the
square feet of gross building area and rentable building area of such
Improvements, and the number of parking spaces contained in such Property. Each
Meshon Property contains sufficient parking to satisfy all parking requirements
imposed by all related Permitted Exceptions, all related Leases, and all
applicable Legal Requirements (or a variance from the Legal Requirements has
been obtained that permits a lesser number of parking spaces than required by
applicable Legal Requirements, such variance is irrevocable, and such variance
may be transferred by the owner of the Property to any transferee thereof as of
right).
(q) Neither Meshon nor the Meshon Partnerships have any
knowledge that the engineering reports (the "Existing Engineering Reports") with
respect to the Meshon Properties delivered to the Document Custodian (i) contain
any untrue statement of a material fact, or (ii) omit any statement of a
material fact, or (iii) fail to contain any statement necessary to make the
statements therein not misleading, with respect to the installation, operation,
sufficiency under the Leases and adequacy for the present use of each Meshon
Property, of plumbing, electrical, mechanical, heating, ventilating and
air-conditioning and other systems. Except to the extent disclosed in the
Existing Engineering Reports or listed as a Permitted Exception, neither Meshon
nor the Meshon Partnerships have any knowledge that (a) any utilities enter a
Meshon Property other than through adjoining public streets or through valid
easements across adjoining private lands, and (b) any installation, connection
and capital recovery charges in connection with such utilities are not paid in
full. Except to the extent disclosed in the Existing Engineering Reports,
neither Meshon nor the Meshon Partnerships have any knowledge that there exist
any material defects in the structural, plumbing, electrical, mechanical,
heating, ventilating or air-conditioning systems or other systems of the
Improvements on any Meshon Property to the extent that the maintenance, repair
or replacement of such systems are the responsibility of the lessor under the
Meshon Leases (for purposes hereof, a "material defect" shall mean a defect
which would require an expenditure in excess of $25,000 to remedy in a good and
workmanlike manner and in accordance with all applicable Legal Requirements) or
in excess of $50,000 in the aggregate, when added to the cost to so remedy all
other such defects in the same Meshon Property. Without limitation of the
foregoing, it is expressly represented that there is no material defect in or
damage to the roof of the Meshon Property owned by Glenmont Associates
notwithstanding the inclusion of a reference to such a material defect in the
Existing Engineering Report prepared with respect to such Meshon Property, and
such reference in such report was a mischaracterization of an obligation due to
a tenant which, prior to the date hereof but subsequent to the preparation of
such report, was paid.
(r) Title to the Personal Property related to each Meshon
Property is subject only to the Permitted Exceptions with respect to such
Property, except for the Personal Property described on Schedule 5.1(r) which is
denoted as being leased or financed.
39
<PAGE> 137
(s) Each building constituting a portion of the Improvements
on a Meshon Property is covered by a permanent certificate of occupancy
("Certificate of Occupancy") which is presently in full force and effect (other
than portions of Improvements with respect to which a Certificate of Occupancy
is not required by applicable Legal Requirements). Other than in connection with
tenant improvements currently underway, neither Meshon nor the Meshon
Partnerships have any knowledge of any alteration, improvement or change in use
of any Improvement which would require the issuance of a new Certificate of
Occupancy or the amendment of an existing Certificate of Occupancy. All permits
and approvals required pursuant to applicable Legal Requirements for tenant
improvement currently underway have been obtained and are in full force and
effect.
(t) The hazard insurance policies with respect to each Meshon
Property are in amounts not less than the full replacement value of the related
Improvements. All such policies are in compliance with, and fulfill all of the
insurance obligations under, the Existing Documents. No default exists under any
such insurance policy and no circumstances or state of affairs exists which with
notice, lapse of time, or both would result in the existence of a default under
any such insurance policy. Neither Meshon nor any Meshon Partnership has
received notice of cancellation or termination with respect to any such policy.
Except as set forth on Schedule 5.1(t), no claims have been made under any such
insurance policies.
(u) Neither Meshon nor the Meshon Partnerships have any
knowledge of any written notice or written request from the holder of any Debt
Document or any insurance company or Board of Fire Underwriters (or organization
exercising functions similar thereto requesting the performance of any work or
alteration in respect of any Property or any part thereof.
(v) Neither Meshon nor any Meshon Partnership has received any
written notice from any governmental agency of, or has any knowledge of, (i) any
violation by any of the Meshon Properties of any applicable Legal Requirements,
whether or not officially noted or issued, which remains uncured (other than
minor violations that will not have a material, adverse effect on the related
Meshon Partnership or the related Meshon Property), or (ii) any condition
relating to any Meshon Property or any part thereof which would constitute a
violation of any applicable Legal Requirement (other than minor violations that
will not have a material, adverse effect on the related Meshon Partnership or
the related Meshon Property). Neither consummation of the transactions
contemplated by this Agreement, nor the use, operation, management or leasing of
any Meshon Property by the related Meshon Partnership for the uses and in the
manner now prevailing or contemplated at and following the Closing, will affect
the Property's compliance with the Classification. The Classification with
respect to each Meshon Property does not require any variance or conditional
permit to be granted with respect to the current use of such Property (other
than a variance that (i) has been obtained, (ii) is in full force and effect,
(iii) is irrevocable and (iv) may be transferred by the owner of the Property to
any transferee thereof as of right).
(w) Neither Meshon nor any Meshon Partnership has knowledge
that any
40
<PAGE> 138
Meshon Property is the subject of any unrecorded agreement limiting the
development of such Meshon Property beyond the Legal Requirements governing the
Classification of such Property, or any application for the same.
(x) Neither Meshon nor any Meshon Partnership has knowledge
that there is any (i) pending or contemplated annexation or condemnation
proceeding affecting, or which may affect, any Meshon Property or any part
thereof or any interest therein, (ii) proposed or pending proceeding to change
or redefine the Classification of any Meshon Property or any portion of any
Meshon Property, or (iii) proposed change in road patterns or grades which may
adversely affect in any material respect access to any roads providing a means
of ingress to or egress from any Meshon Property. No written notice has been
received by any Meshon Partnership or by Meshon with respect to, and none of the
foregoing has knowledge of, any pending or contemplated change in any Legal
Requirement which may adversely affect the ownership, use, leasing, management
or operation of any Meshon Property, other than potential changes in tax and
similar laws that would potentially affect similar shopping center properties.
(y) With respect to each Meshon Property, the Land and
Improvements are assessed as one (or more) tax lot(s) that is separate and
distinct from the tax lot allocated to any other parcel of land or any other
improvements. No proceeding seeking a reduction in real estate taxes imposed
upon a Meshon Property or the assessed valuation of a Meshon Property or any
portion thereof that has been settled will prejudice the right of the owner of
such Meshon Property to seek a reduction in real estate taxes imposed upon such
Meshon Property or the assessed valuation of such Meshon Property or any portion
thereof in the future. There is no pending or, to the knowledge of Meshon or the
Meshon Partnerships, proposed imposition of any special or other assessments
affecting a Meshon Property or any portion thereof or any penalties or interest
due with respect to real estate taxes assessed against all or any portion of the
Property that are payable by the owner of the Property or could result in a lien
against the Property. True, complete and correct copies of all tax bills with
respect to each Meshon Property payable for the current and three (3) preceding
tax years (or if a Meshon Partnership has owned its Property for fewer than
three (3) years, such fewer number of years) have been delivered to the Document
Custodian and have been initialed on behalf of the related Meshon Partnership
and the Document Custodian. Except as reflected in Schedule 5.1(y), no Meshon
Property is the subject of any pending tax certiorari proceeding.
(z) Each Meshon Partnership has delivered to the Document
Custodian all appraisals and financial studies obtained by such Meshon
Partnership from any source other than a Drexel employee in the past three years
in its custody, possession or control concerning its Meshon Property.
(aa) Except as disclosed in Schedule 5.1(aa), there is no
action, suit, proceeding, claim, order, decree or judgment affecting any Meshon
Partnership or any Meshon Property, or any portion thereof, or relating to or
arising out of the ownership, management, operation, use or occupancy of any
Meshon Property, pending or being prosecuted in any court or by or before any
federal, state, county or municipal department, commission, board, bureau or
41
<PAGE> 139
agency or other governmental instrumentality, nor is any such action, suit,
proceeding claim, order, decree or judgment, to the knowledge of Meshon or
Meshon Partnerships, threatened or being asserted. No Meshon Partnership is a
party to or subject to any judgment, writ, decree, injunction or order enjoining
or restraining it from conducting any business in respect of its Property. There
are no outstanding unpaid judgments against any Meshon Partnerships, except for
the judgments described in Schedule 5.1(aa) which are covered by insurance and
on appeal.
5.2 INTENTIONALLY OMITTED
5.3 LEVY PROPERTIES. Each of (i) Bernard and Elaine Levy, Jennie Levy
(both in her individual capacity and as Executrix of the Estate of Myron Levy),
Lillian Levy (both in her individual capacity and as Executrix of the Estate of
Benjamin Levy), Levy and Robert S. and Ceil Levy (collectively, the "WB Levy
Parties"), with respect to the Wilkes Barre Levy Property, and (ii) Bernard
Levy, Jennie Levy (in her capacity as Executrix of the Estate of Myron Levy),
Lillian Levy (in her capacity as Executrix of the Estate of Benjamin Levy), Levy
and Robert S. Levy (collectively, the "OM Levy Parties"), with respect to the
Office Max Levy Property, jointly and severally, hereby make the representations
and warranties set forth below, as of the date hereof. The WB Levy Parties and
the OM Levy Parties, respectively, are each sometimes referred to as a "Levy
Group". Representations and warranties qualified as involving the 'knowledge' of
a Levy Group shall be deemed to refer to the knowledge of any Levy Party in such
Levy Group.
(a) Each Levy Group has good and marketable fee title to the
Levy Property identified as being owned by it in Schedule 5.3(a), in each case
free and clear of all Liens and other Title Exceptions, except the Permitted
Exceptions.
(b) INTENTIONALLY OMITTED.
(c) Except (i) pursuant to the respective Leases identified in
Schedule 5.3(c) as affecting the respective Levy Properties (the "Levy Leases"),
and (ii) routine concession arrangements ("Routine Concession Arrangements")
permitted by the Levy Leases, no Person has any possessory interest in any Levy
Property or any part thereof or any interest therein (whether pursuant to lease,
sublease, rental, license, concession, management or other agreement written or
oral now or hereafter in effect) or any rights to acquire or to lease
(including, without limitation, any renewal, extension or expansion options) any
Levy Property or any part thereof or otherwise obtain any interest therein, and
there exist no outstanding rights of first refusal, rights of reverter or rights
of first offer relating to any Levy Property or any part thereof or any interest
therein.
(d) Schedule 5.3(d) is a true and complete list of all Levy
Leases, the monthly rentals reserved and being collected thereunder (subject to
possible arrears or defaults), the date upon which collection of monthly rentals
commenced or is scheduled to commence, the amount of all security deposits held
thereunder (subject to possible future application thereof in accordance with
the provisions of the applicable Levy Lease), the expiration date of each Levy
42
<PAGE> 140
Lease and whether there are any options to renew or extend the same or expand
the premises demised thereby and the terms of any such options. Each Levy Lease
is in full force and effect, and no Levy Lease has been assigned except to a
lender pursuant to a Permitted Exception as security for a Debt of the Levy
Group that owns the related Levy Property.
(e) All of the rents under the Levy Leases will constitute
rents from real property with respect to the Company within the meaning of
Section 856 of the Code.
(f) True, complete and correct copies of all Levy Leases, and
of all notices (if any) received from tenants thereunder exercising the right to
extend the term of its lease or to lease additional space, have been delivered
to the Document Custodian and have been initialed on behalf of the related Levy
Group and the Document Custodian (other than such notices with respect to
extension terms that have commenced or additional space that has been occupied
by the related tenant).
(g) The information regarding Tenant Concessions relating to
the Levy Leases set forth in Schedule 5.3(g) and the documents evidencing such
Tenant Concessions delivered to the Document Custodian are true, accurate and
complete, and have been initialed on behalf of the related Levy Group and the
Document Custodian.
(h) No Levy Group (or other Person acting on its behalf) has
(i) sent to the tenant under any Levy Lease a notice terminating such Levy Lease
or claiming that such tenant is in default under such Levy Lease, or (ii)
received any written notice that any tenant under a Levy Lease disputes the
computation of any rent, additional rent or other sums payable pursuant to such
Levy Lease. No Rent under any Levy Lease has been paid more than thirty (30)
days in advance of its due date, and except as disclosed on Schedule 5.3(h), no
Rent payable under any Levy Lease is more than thirty (30) days in arrears. The
representations set forth in this paragraph shall be deemed true and correct in
all material respects as long as the Levy Lease or Levy Leases, if any,
affecting any Levy Property with respect to which it is not true and correct, do
not generate in the aggregate five percent (5%) or more of the gross rental
income of such Levy Property.
(i) No Levy Group (or other Person acting on its behalf) has
received any written notice that any tenant under a Levy Lease is claiming any
breach by lessor under such Levy Lease. The representations set forth in this
paragraph shall be deemed true and correct in all material respects as long as
(i) the Levy Lease or Levy Leases, if any, affecting any Levy Property with
respect to which it is not true and correct, do not generate in the aggregate
five percent (5%) or more of the gross rental income of such Levy Property, and
(ii) the sole remedy available to any such tenant which successfully proves its
claim shall be the termination of its Lease.
(j) Except as disclosed in Schedule 5.3(j), (i) all tenants
under the Levy Leases have commenced payment of rent under such Leases and (ii)
are in occupancy of the entire premises demised thereby and operating a business
at such premises. The representations
43
<PAGE> 141
set forth in this paragraph shall be deemed true and correct in all material
respects as long as the Levy Lease or Levy Leases, if any, affecting any Levy
Property with respect to which it is not true and correct, do not generate in
the aggregate five percent (5%) or more of the gross rental income of such Levy
Property.
(k) Except as disclosed in Schedule 5.3(k), all obligations
presently required to have been performed by the lessor ("Levy Lessor
Obligations") under each Levy Lease have been fully performed and paid for, and
all payments to be made to any tenant ("Levy Lessor Payments") presently due
pursuant to a Levy Lease for tenant fixtures or improvements have been made.
Schedule 5.3(k) further discloses all Levy Lessor Obligations and Levy Lessor
Payments for which, under currently effective leases, any Levy Group will be
responsible hereafter. The representations set forth in this paragraph shall be
deemed true and correct in all material respects as long as (i) the aggregate
cost of performance of all unperformed Levy Lessor Obligations, if any, and all
unpaid Levy Lessor Payments affecting any Levy Property, if any, do not exceed
$50,000, (ii) the aggregate cost of performance of any unperformed Levy Lessor
Obligations and any unpaid Levy Lessor Payments affecting any Levy Property has
been reserved in cash (a "Levy Lessor Reserve") by the respective Levy Group,
and (iii) the Levy Lessor Reserve with respect to each Levy Property is
transferred to the Post Closing Owner or the Operating Partnership or its
Affiliate at Closing in accordance with Sections 2.1(j) and 2.1(k).
(l) Set forth on Schedule 5.3(1) is a true, accurate and
complete list of all Leasing Commissions which are or will be due or payable to
any Person with respect to, or on account of, each Levy Lease or any extensions
or renewals thereof. On the date of Closing, except to the extent new Levy
Leases are executed between the date hereof and the date of Closing, no Leasing
Commissions will be due or payable to any Person with respect to, or on account
of, any Levy Lease or any extensions or renewals thereof. Any Leasing Commission
incurred in connection with a Levy Lease executed between the date hereof and
the date of Closing shall either be payable to Drexel, Royce or a Person
unrelated to the Levy Parties or the Meshon Parties, and any such Leasing
Commission payable to a Person unrelated to the Levy Parties or the Meshon
Parties shall be in an amount that does not exceed prevailing market rates.
(m) Schedule 5.3(m) is a true, correct and complete list of
all Service Contracts (defined below) affecting any Levy Property pursuant to
which payments in excess of $25,000 per annum are due from the respective Levy
Group. To the knowledge of each Levy Group and except as set forth in Schedule
5.3(m), each Service Contract is in full force and effect and no default has
occurred thereunder. Except for the Service Contracts, there are no property
management agreements or asset management agreements or any other arrangements
(i) under which any Levy Party (or Affiliate thereof) is the property manager or
asset manager of any Levy Property, (ii) under which any Person is the property
manager or asset manager of any Levy Property or under which any Levy Group pays
any management fees or commissions, or (iii) which relates to any Levy Group
providing or receiving management, administrative or bookkeeping services, of
any services that contribute income to any Levy Group. True, correct and
complete copies of all Service Contracts have been delivered to the Documents
Custodian and have been initialed on behalf of the related Levy Group and the
Document Custodian).
44
<PAGE> 142
Except as reflected in Schedule 5.3(m), on the date of Closing, there will be no
Service Contract that cannot be canceled at the option of the related Levy Group
without penalty or more than thirty (30) days' prior notice, or that, upon such
cancellation, would create, give rise to, or form the basis of, a Lien on any
Levy Property or any part thereof or any interest therein.
(n) Schedule 5.3(n) is a true, complete and correct list of
all material Debt Documents with respect to each Debt affecting each Levy
Property. True, complete and correct copies of all Debt Documents have been
delivered to the Document Custodian and have been initialed on behalf of the
related Levy Group and the Document Custodian. All obligations presently
required to be performed by the related Levy Group under the Debt Documents have
been fully performed, and no amounts presently due and payable thereunder are
unpaid. Neither Levy nor any Levy Group has received any written notice of
default under any Debt Documents. Schedule 5.3(n) reflects (as of the date of
the Schedule), with respect to each Levy Property, (i) the outstanding principal
indebtedness secured by the Debt Documents affecting such Property, (ii) the
amount of unpaid interest accrued on such indebtedness (including the dates of
accrual thereof), (iii) the rate at which interest accrues on such indebtedness,
(iv) the periodic installment payments required to be made with respect to such
indebtedness and the dates on which such payments are required to be paid, (v)
the scheduled maturity date of such indebtedness, (vi) the amount scheduled to
be outstanding thereunder on such scheduled maturity date, and (vii) the premium
or penalty, if any, required to be paid in the event of a prepayment of such
indebtedness.
(o) Set forth on Schedule 5.3(o) is a true, complete and
correct list of the rentable Improvements located on each Levy Property, the
square feet of gross building area and rentable building area of such
Improvements, and the number of parking spaces contained in such Property. Each
Levy Property contains sufficient parking to satisfy all parking requirements
imposed by all related Permitted Exceptions, all related Leases, and all
applicable Legal Requirements (or a variance from the Legal Requirements has
been obtained that permits a lesser number of parking spaces than required by
applicable Legal Requirements, such variance is irrevocable, and such variance
may be transferred by the owner of the Property to any transferee thereof as of
right).
(p) Neither Levy Group has any knowledge that the engineering
reports (the "Existing Engineering Reports") with respect to its Levy Property
delivered to the Document Custodian (i) contain any untrue statement of a
material fact, or (ii) omit any statement of a material fact, or (iii) fail to
contain any statement necessary to make the statements therein not misleading,
with respect to the installation, operation, sufficiency under the Leases and
adequacy for the present use of each Levy Property, of plumbing, electrical,
mechanical, heating, ventilating and air-conditioning and other systems. Except
to the extent disclosed in the Existing Engineering Reports or listed as a
Permitted Exception, neither Levy Group has any knowledge that (a) any utilities
enter its Levy Property other than through adjoining public streets or through
valid easements across adjoining private lands, and (b) any installation,
connection and capital recovery charges in connection with such utilities are
not paid in full. Except to the extent disclosed in the Existing Engineering
Reports, neither Levy Group has any knowledge that there
45
<PAGE> 143
exist any material defects in the structural, plumbing, electrical, mechanical,
heating, ventilating or air-conditioning systems or other systems of the
Improvements on its Levy Property to the extent that the maintenance, repair or
replacement of such systems are the responsibility of the lessor under the Levy
Leases (for purposes hereof, a "material defect" shall mean a defect which would
require an expenditure in excess of $25,000 to remedy in a good and workmanlike
manner and in accordance with all applicable Legal Requirements) or in excess of
$________ in the aggregate, when added to the cost to so remedy all other such
defects in such Levy Property.
(q) Title to the Personal Property related to each Levy
Property is subject only to the Permitted Exceptions with respect to such
Property, except for the Personal Property described on Schedule 5.3(q) which is
denoted as being leased or financed.
(r) Each building constituting a portion of the Improvements
on a Levy Property is covered by a permanent certificate of occupancy
("Certificate of Occupancy") which is presently in full force and effect (other
than portions of Improvements with respect to which a Certificate of Occupancy
is not required by applicable Legal Requirements). Other than in connection with
tenant improvements currently underway, neither Levy Group has any knowledge of
any alteration, improvement or change in use of any Improvement which would
require the issuance of a new Certificate of Occupancy or the amendment of an
existing Certificate of Occupancy. All permits and approvals required pursuant
to applicable Legal Requirements for tenant improvement currently underway have
been obtained and are in full force and effect.
(s) The hazard insurance policies with respect to each Levy
Property are in amounts not less than the full replacement value of the related
Improvements. All such policies are in compliance with, and fulfill all of the
insurance obligations under, the Existing Documents. No default exists under any
such insurance policy and no circumstances or state of affairs exists which with
notice, lapse of time, or both would result in the existence of a default under
any such insurance policy. Neither Levy Group has received notice of
cancellation or termination with respect to any such policy. Except as set forth
on Schedule 5.3(s), no claims have been made under any such insurance policies.
(t) Neither Levy Group has any knowledge of any written notice
or written request from the holder of any Debt Document or any insurance company
or Board of Fire Underwriters (or organization exercising functions similar
thereto requesting the performance of any work or alteration in respect of any
Property or any part thereof.
(u) Neither Levy Group has received any written notice from
any governmental agency of, or has any knowledge of, (i) any violation by its
Levy Property of any applicable Legal Requirements, whether or not officially
noted or issued, which remains uncured (other than minor violations that will
not have a material, adverse effect on the related Levy Group or the related
Levy Property), or (ii) any condition relating to its Levy Property or any part
thereof which would constitute a violation of any applicable Legal Requirement
(other than minor violations that will not have a material, adverse effect on
the related Levy Group or the
46
<PAGE> 144
related Levy Property). Neither consummation of the transactions contemplated by
this Agreement, nor the use, operation, management or leasing of any Levy
Property by the related Levy Group for the uses and in the manner now prevailing
or contemplated at and following the Closing, will affect the Property's
compliance with the Classification. The Classification with respect to each Levy
Property does not require any variance or conditional permit to be granted with
respect to the current use of such Property (other than a variance that (i) has
been obtained, (ii) is in full force and effect, (iii) is irrevocable and (iv)
may be transferred by the owner of the Property to any transferee thereof as of
right).
(v) Neither Levy Group has knowledge that its Levy Property is
the subject of any unrecorded agreement limiting the development of such Levy
Property beyond the Legal Requirements governing the Classification of such
Property, or any application for the same.
(w) Neither Levy Group has knowledge that there is any (i)
pending or contemplated annexation or condemnation proceeding affecting, or
which may affect, its Levy Property or any part thereof or any interest therein,
(ii) proposed or pending proceeding to change or redefine the Classification of
its Levy Property or any portion of its Levy Property, or (iii) proposed change
in road patterns or grades which may adversely affect in any material respect
access to any roads providing a means of ingress to or egress from its Levy
Property. No written notice has been received by either Levy Group with respect
to, and none of the Levy Parties has knowledge of, any pending or contemplated
change in any Legal Requirement which may adversely affect the ownership, use,
leasing, management or operation of its Levy Property, other than potential
changes in tax and similar laws that would potentially affect similar shopping
center properties.
(x) With respect to each Levy Property, the Land and
Improvements are assessed as one (or more) tax lot(s) that is separate and
distinct from the tax lot allocated to any other parcel of land or any other
improvements. No proceeding seeking a reduction in real estate taxes imposed
upon a Levy Property or the assessed valuation of a Levy Property or any portion
thereof that has been settled will prejudice the right of the owner of such Levy
Property to seek a reduction in real estate taxes imposed upon such Levy
Property or the assessed valuation of such Levy Property or any portion thereof
in the future. There is no pending or, to the knowledge of either Levy Group,
proposed imposition of any special or other assessments affecting its Levy
Property or any portion thereof or any penalties or interest due with respect to
real estate taxes assessed against all or any portion of such Property that are
payable by the owner of such Property or could result in a lien against such
Property. True, complete and correct copies of all tax bills with respect to
each Levy Property payable for the current and three (3) preceding tax years (or
if a Levy Group has owned its Property for fewer than three (3) years, such
fewer number of years) have been delivered to the Document Custodian and have
been initialed on behalf of the related Levy Group and the Document Custodian.
Except as reflected in Schedule 5.3(x), no Levy Property is the subject of any
pending tax certiorari proceeding.
(y) Each Levy Group has delivered to the Document Custodian
all appraisals and financial studies obtained by such Levy Group from any source
in the past three years in its
47
<PAGE> 145
custody, possession or control concerning its Levy Property.
(z) Except as disclosed in Schedule 5.3(z), there is no
action, suit, proceeding, claim, order, decree or judgment affecting any Levy
Group or any Levy Property, or any portion thereof, or relating to or arising
out of the ownership, management, operation, use or occupancy of any Levy
Property, pending or being prosecuted in any court or by or before any federal,
state, county or municipal department, commission, board, bureau or agency or
other governmental instrumentality, nor is any such action, suit, proceeding
claim, order, decree or judgment, to the knowledge of each Levy Group,
threatened or being asserted. Neither Levy Group is a party to or subject to any
judgment, writ, decree, injunction or order enjoining or restraining it from
conducting any business in respect of its Property. There are no outstanding
unpaid judgments against either Levy Group, except for the judgments described
in Schedule 5.3(z) which are covered by insurance and on appeal.
6. REPRESENTATIONS AND WARRANTIES RELATING TO THE MESHON PARTNERSHIP
INTERESTS.
Meshon, Drexel and Royce each jointly and severally, hereby makes the
following representations and warranties, as of the date hereof and as of the
Closing Date, with respect to each Meshon Partnership Interest that is being
contributed to the Operating Partnership (or its Affiliate), each Meshon
Partnership and all Meshon Properties owned by each Meshon Partnership:
6.1 ORGANIZATION CHART. The chart set forth on Schedule 6.1 correctly
sets forth the relationships and ownership interests among the Meshon Parties,
the Meshon Principals, the Meshon Partnerships and the Meshon Properties
(including without limitation, each Meshon Transferred Property). All of the
ownership interests in the entities set forth on that chart correctly reflect
the legal and beneficial ownership of such Persons or properties. The Meshon
Parties own legally and beneficially the respective Meshon Partnership Interests
and Meshon Transferred Properties being transferred to the Company hereunder
free and clear of any Encumbrances except Permitted Exceptions.
6.2 ORGANIZATION AND QUALIFICATION.
(a) Schedule 6.2 correctly sets forth as to each of the Meshon Parties
(which is not an individual) its place of incorporation or formation, principal
place of business, and each jurisdiction in which it is qualified to do
business.
(b) Meshon has delivered to the Company with respect to each of the
Meshon Parties (which is not an individual) true, complete and correct copies of
each of the following documents including all amendments and supplements
thereto: (i) the Certificate of Limited Partnership and partnership agreement
for each such entity which is a limited partnership, (ii) the Articles or
Certificate of Incorporation, By-Laws, shareholders' agreements and voting
trusts, if any, with
48
<PAGE> 146
respect to each such entity which is a corporation, (iii) the Articles of
Organization and Operating Agreement, or similar documents, with respect to each
such entity which is a limited liability company, and (iv) any other similar
documents with respect to any other entity (collectively, such entity's
"Organizational Documents").
(c) Each of the Meshon Parties which is identified in this Agreement as
a limited partnership or a general partnership is a partnership duly organized,
validly existing, and in good standing under the laws of its jurisdiction of
organization; and each Meshon Party which is identified in this Agreement as a
corporation is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of organization; and in each of the
above cases, with all requisite power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and tribunals, to own, lease, license,
and use its properties and assets and to carry on the business in which it is
now engaged. Each of the Meshon Partnerships is duly qualified to transact the
business in which it is engaged and is in good standing as a foreign limited
partnership in every jurisdiction in which its ownership, leasing, licensing, or
use of its property or assets or the conduct of its business makes such
qualification necessary.
6.3 AUTHORITY. The Meshon Parties have all requisite power and
authority to execute, deliver, and perform this Agreement. All necessary
corporate, partnership or other proceedings (including, without limitation, any
shareholder or limited partner consents) of or on behalf of each Meshon Party
have been duly taken to authorize their execution, delivery, and performance of
this Agreement, except for consents listed on Schedule 6.3 which will be
obtained prior to the Closing. This Agreement and the other documents required
to be delivered hereby have been (or when delivered will be) duly authorized,
executed, and delivered by each Meshon Party, and constitute (or when delivered
will constitute) the legal, valid, and binding obligation of each such Meshon
Party, enforceable as to each of them in accordance with their terms, assuming
the due authorization, execution and delivery hereof and thereof by the other
parties hereto and thereto.
6.4 OWNERSHIP INTERESTS OF MESHON PARTIES; SUBSTITUTION OF PARTNER.
Except as set forth on Schedule 6.4 with respect to Renaissance Plaza, the
Meshon Parties are the record and beneficial owners of the Meshon Partnership
Interests in the Meshon Partnerships, free and clear of any Liens and
Encumbrances. There is no agreement, commitment (whether or not legally
binding), plan, or arrangement to issue, and no outstanding option, warrant,
security or other instrument convertible into or exchangeable for or calling for
the issuance of, or other right to obtain, any limited or general partnership
interest or security or other instrument convertible into, exercisable for, or
exchangeable for any limited or general partnership or other equity interest in
any Meshon Partnership. On or before the Closing Date, unless the Company
requests otherwise, each of the Meshon Parties shall have caused the Meshon
Partnerships to take all action required under their respective Organizational
Documents and the law to authorize, approve and effect the substitution and
admission, simultaneously with the Closing, of the Company or the Operating
Partnership (or its designee), as the general or limited partner, as the case
may be, of each Meshon Partnership in which any of them is to acquire a
partnership
49
<PAGE> 147
interest hereunder.
6.5 BUSINESS CONDUCTED. Since formation and through the Closing Date,
the Meshon Partnerships conduct no business and have no assets other than the
Meshon Properties. All of the Meshon Properties directly or indirectly owned or
operated by each of the Meshon Partnerships are listed on Schedule 6.5.
6.6 FINANCIAL STATEMENTS; MESHON PARTNERSHIP BUDGETS.
(a) The Meshon Parties have delivered to the Company with respect to
each of the Meshon Partnerships copies of (i) the audited financial statements
as of December 31, 1996 and (ii) the unaudited financial statements as of June
30, 1997 and, within five days prior to the Closing, will deliver unaudited
financial statements as of and for the period from June 30, 1997 and ending the
month end immediately prior thereto or, if the Closing Date is within the first
10 days of a calendar month, ending the month end within 40 days prior to the
Closing Date (all of such financial statements collectively called the "Meshon
Partnership Financial Statements"). Each of the Meshon Partnership Financial
Statements and the financial statements to be delivered pursuant to Section 11.2
has been (or when so delivered will have been) prepared in accordance with GAAP,
consistently applied, in each case based on the books and records of the
respective entities named therein, and fairly presents (or when delivered will
fairly present) the financial condition, results of operations, funds from
operations, assets, liabilities and partners' equity of such entities for the
period covered thereby and as of its date. The financial and other information
to be delivered pursuant to Section 11.2 will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary, in light of the circumstances in which such statements are made,
to make the statements made therein not misleading; but the Meshon Parties make
no representation with respect to any information delivered by any other party.
(b) Meshon has delivered to the Company actual budgets for each of the
Meshon Partnerships for the fiscal year commencing January 1, 1997 (the "Meshon
Partnership Budgets") showing all anticipated revenue and expense, including,
without limitation, net operating income, capital expenditures, and debt
service. The Meshon Partnership Budgets set forth an estimate of projected
capital expenditures to be incurred by each such Meshon Partnership for such
fiscal year together with budgeted expenditures for partnership administration.
The Meshon Partnership Budgets were prepared in good faith and had a reasonable
basis when made and were based on assumptions that the Meshon Parties believed
to be reasonable when made but no guarantee is given that the results shown in
such budgets will actually be attained. Schedule 6.6(b) is a list of all plans
or commitments (whether or not legally binding) for the Meshon Partnerships for
capital expenditures (including, without limitation, non-recurring maintenance
and repair) at or relating to any of the Meshon Properties of any Meshon
Partnership the cost of which were not included in the Meshon Partnership
Budgets, all of which can and will be funded through common area maintenance
charges which will be received with respect to the respective Meshon Properties.
50
<PAGE> 148
6.7 LIABILITIES. There are no liabilities (contingent or otherwise) of
any of the Meshon Partnerships which are not set forth in the Meshon Partnership
Financial Statements or disclosed in this Agreement or in a Schedule or Exhibit
hereto.
6.8 INSURANCE. Schedule 6.8 lists all of the policies of insurance of
any kind (other than title insurance) covering each of the Meshon Partnerships
and their respective assets and businesses, setting forth the nature of the
insurance, the insurance carrier, the amount of coverage, deductible amounts and
the owner of and expiration date of such policies. Each of the Meshon
Partnerships has such insurance in such amounts and covering such risks as
owners of similar properties or businesses in the vicinity of such Meshon
Partnership and in the same industry customarily carry. All such policies of
insurance are in full force and effect and all premiums due thereon for all
periods through the Closing Date are or will be on the Closing Date fully paid.
None of the Meshon Parties has received any notice of cancellation or
termination with respect to any such policy.
6.9 MATERIAL EVENTS AND CHANGES. Since the dates of their respective
most recent balance sheets:
(a) Except as set forth on Schedule 6.9(a), there has not been a
material adverse change in the condition (financial or otherwise), results of
operations, funds from operations, business, properties (including the Meshon
Properties), assets, nature of assets, or liabilities of any of the Meshon
Partnerships or Meshon Transferred Properties.
(b) Except as set forth on Schedule 6.9(b), the operations and business
of the Meshon Partnerships have been conducted in all material respects only in
the ordinary course and consistent with past practice and the fiduciary duty of
the general partner of such Meshon Partnership, in accordance with the
partnership agreement.
(c) Except as set forth on Schedule 6.9(c), none of the Meshon
Partnerships has:
(i) suffered any loss, damage, destruction or other casualty
to any Meshon Properties or material assets (unless covered by the
insurance policies listed in section 6.8);
(ii) mortgaged, pledged, subjected to or suffered any Lien,
or granted any Lien, in respect of any Meshon Properties, or incurred
any Debt;
(iii) amended its Organizational Documents;
(iv) defaulted under any Material Agreement, license or
permit; or
(v) experienced any change in control which is prohibited by
the terms of any note, bond, mortgage, indenture, lease, license,
franchise, agreement or other instrument or obligation by which it or
any of the Meshon Properties or its assets are affected or
51
<PAGE> 149
bound.
6.10 NO CONFLICTS OR DEFAULTS; NO VIOLATIONS. Neither the execution,
delivery or performance of this Agreement by any of the Meshon Parties nor the
consummation of the transactions contemplated hereby will (with or without the
giving of notice, lapse of time or both): (a) contravene any provisions of any
law, statute, rule or regulation or any order, writ, judgment, injunction or
decree of any court or governmental instrumentality; or (b) except as set forth
on Schedule 6.10, and assuming that each of the consents and approvals set forth
on Schedule 6.11 have been obtained, conflict with or result in any breach of,
or constitute a default under, or result in the creation or imposition of (or
the obligation to create or impose), any Lien upon any of the property or assets
of any of the Meshon Parties or Meshon Partnerships pursuant to the terms of any
note, bond, indenture, mortgage, deed of trust, loan agreement, credit
agreement, lease, franchise, partnership agreement, voting trust or any other
agreement, contract or instrument to which any of the Meshon Parties or Meshon
Partnerships is a party or to which any of their respective properties or assets
is subject (collectively, the "Existing Meshon Agreements"); (c) violate any
provision of their respective Organizational Documents; or (d) give any Person
or group of Persons the right to replace any of them as a direct or indirect
general partner of any Meshon Partnership or any other limited partnership.
6.11 CONSENTS. Except for any consents identified on Schedule 6.11
("Meshon Consents"), no approval or consent of, notice to, or filing or
registration with, or authorization, order, license, certificate, or permit of
or from, any governmental authority or any other notice to or consent of any
third party is required in connection with the execution, delivery and
performance of, the legality, validity, binding effect or enforceability of or
the consummation of the transactions contemplated by this Agreement ("Required
Consents"). Meshon Consents shall include, without limitation, the consent of
the general partner of Renaissance Plaza other than Meshon or his Affiliate to
the right of the Operating Partnership to terminate the management agreement
with respect to the Meshon Property owned by such partnership.
6.12 DEBT. Schedule 6.12 is a complete list of all Debt of each of the
Meshon Parties and Meshon Partnerships or to which any of their respective
properties or other assets is subject. None of the Meshon Partnerships is the
obligor in respect of and no assets of any of the Meshon Partnerships is
security for or subject to any other Debt. Schedule 1.2(f) is a complete list of
all Debt or guarantees of any Debt for which Meshon or Paul Cohen is or could be
liable. The Meshon Parties have delivered to the Company true, complete and
correct copies of all agreements, notes, security documents, guarantees and
other documents relating to any Debt in effect on the date hereof, and each such
document is in full force and effect and has not been further modified, amended
or terminated and no party is in payment default thereunder or any other default
thereunder other than immaterial, non-financial defaults. On the Closing Date,
no Meshon Party will have incurred any Debt for which the Meshon Partnership
Interests, Meshon Transferred Properties, Meshon Partnerships or Meshon
Properties are security. None of the Meshon Parties has, whether as obligor,
general partner of an obligor, guarantor or otherwise, any liability, fixed or
contingent, for the repayment of any Debt other than the Debt listed on Schedule
6.12. Each of the Meshon Parties is in substantial compliance with the terms of
any
52
<PAGE> 150
Debt for which it is liable or to which the Meshon Partnership Interests, Meshon
Transferred Properties or Meshon Properties are subject, no payment defaults
exist thereunder and no notice of default with respect thereto has been received
by any of the Meshon Parties. As used in this Agreement, "Debt" means, with
respect to any Person, all indebtedness of any kind to which any Meshon
Partnership Interests, Meshon Transferred Properties or Meshon Property, as the
case may be, is subject, including, without limitation, (a) all indebtedness for
borrowed money, (b) all indebtedness for the deferred purchase price of property
or services, (c) all obligations evidenced by notes, bonds, debentures or other
similar instruments (other than performance, surety and appeal bonds arising in
the ordinary course of such Person's business), and all indebtedness secured by
mortgage or other Liens against any of such Person's property or other assets,
(d) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person, (e)
all obligations under capital leases (as such term is defined by GAAP), (f) all
reimbursement, payment or similar obligations contingent or otherwise, under
acceptance, letter of credit or similar facilities, (g) any obligations of any
of the foregoing kinds of any other Person which is guaranteed directly or
indirectly by such Person or in effect guaranteed directly or indirectly by such
Person, including, without limitation, through an agreement (i) to pay or
purchase such Debt or to advance or supply funds for the payment or purchase
thereof, (ii) to purchase, sell or lease property or services primarily for the
purpose of enabling the debtor to make payment of such Debt, (iii) to supply
funds to or in any other manner invest in the debtor (including any obligation
to pay for goods or services whether or not received) or (iv) otherwise to
insure a creditor against loss in respect of such Debt, and (h) any Debt of any
type of any other Person secured by any Lien or Encumbrance on any property or
assets of any Meshon Partnership.
6.13 TAXES.
(a) No Meshon Party is a foreign person within the meaning of Section
1445 of the Code. Schedule 6.13(a) sets forth the tax identification number and
office address within the United States for each Meshon Party.
(b) Schedule 6.13(b) sets forth the name of each Meshon Partnership
which has made an election under Section 754 of the Code at any time that any
Meshon Party or any Affiliate managed or operated such Meshon Partnership or
owned any general partnership interest therein or, to the knowledge of the
Meshon Parties, prior to such time.
(c) Each Meshon Partnership is, since its formation has been and at the
Closing will be a partnership for federal income tax purposes qualifying under
Section 7701 of the Code and, does not constitute a publicly traded partnership
within the meaning of Section 7704 of the Code or a taxable mortgage pool within
the meaning of Section 7701(i) of the Code.
(d) Consummation of the transactions contemplated hereby will not cause
the Company or the Operating Partnership (or any Subsidiary or Affiliate of
either) to be or become liable under any principle, theory, or rule of law,
including, without limitation, rules relating to transferee liability or
fraudulent conveyances or transfers, or by contract for any tax liability of
53
<PAGE> 151
any Meshon Party or any Owner, Subsidiary, or Affiliate of any Meshon Party,
regardless of when such tax liability arises or to what period such tax
liability relates, except that this Section 6.13(d) shall not apply to
liabilities, relating to periods commencing after the Closing, of a Meshon Party
which becomes a Subsidiary of the Company or the Operating Partnership.
(e) The adjusted basis for Federal income tax purposes of each material
component of each Meshon Property projected as of December 31, 1997 (including
specifically, but without limitation, a separate statement of the basis of land,
building, and tenant improvements, and of any adjustments under Section 754 of
the Code relating to them), the remaining useful life or applicable recovery
period of any such property, and the adjusted basis for Federal income tax
purposes of each Meshon Partnership Interest being transferred to the Operating
Partnership is set forth on Schedule 6.13(e) hereto.
(f) Except as set forth on Schedule 6.13(f) hereto, all liabilities of
any Meshon Party or of any Meshon Partnership which are being assumed or subject
to which property is being taken will, at the time of the Closing, constitute
"qualified liabilities" within the meaning of Treasury Regulation Section
1.707-5.
(g) No lease affecting any of the Meshon Properties is a lease to which
section 467(b) of the Code applies.
(h) No Meshon Transferred Partnership owns directly or indirectly any
"voting securities" of any "issuer," other than an issuer treated as a
partnership for Federal income tax purposes, as such terms are used in section
856 of the Code.
6.14 MATERIAL AGREEMENTS; MANAGEMENT AGREEMENTS.
(a) Schedule 6.14(a) lists all agreements to which the Meshon Parties
or Meshon Partnerships are parties or the Meshon Partnership Interests or Meshon
Properties are subject and lists all agreements to which the Meshon Partnerships
or any Person or property (including the Meshon Properties) directly or
indirectly owned or controlled by them are parties or to which any of the
respective assets of the Meshon Partnerships or any such Person or properties
are subject (i) that cannot be canceled without penalty within 90 days or (ii)
as to which provision for payments or expenses thereunder are not included in
the Meshon Partnership Budgets or (iii) which are otherwise material to any of
the Meshon Parties, Meshon Partnerships or Meshon Properties (all of such
agreements are listed on Schedule 6.14(a), collectively the "Meshon Material
Agreements"). The Meshon Parties have made available to the Company true,
complete and correct copies of each such Meshon Material Agreement. All of such
agreements are in full force and effect and no party is in payment default or
any other default thereunder except for immaterial defaults.
(b) Schedule 6.14(b) is a list of all existing agreements and
arrangements of every kind relating to the management of any of the Meshon
Properties or under which any Meshon Partnership pays any management fees or
commissions (the "Meshon Management
54
<PAGE> 152
Agreements") and identifies the Meshon Property subject to such agreement. The
Meshon Parties have made available true and complete copies of all such Meshon
Management Agreements to the Company. On the date hereof, each such Meshon
Management Agreement is in full force and effect and no default has occurred
thereunder and after the reorganization of Drexel and the transactions
contemplated by this Agreement, each such Meshon Management Agreement shall
remain in full force and effect in accordance with its terms. Except for the
Meshon Management Agreements, there are no property management agreements or
asset management agreements or any other arrangements (i) under which any Meshon
Party is the property manager or asset manager of any Meshon Property, (ii)
under which any Person is the property manager or asset manager of any Meshon
Property or any Meshon Partnership pays any management fees or commissions or
(iii) which relates to any Meshon Partnership providing or receiving management,
administrative or bookkeeping services, or any services that contribute income
to any Meshon Partnership.
6.15 ENVIRONMENTAL MATTERS.
(a) Definitions: for the purpose of this Agreement, the term
"ENVIRONMENT" shall mean any surface or subsurface physical medium or natural
resource, including, air, land, soil, surface waters, ground waters, stream and
river sediments, biota and any indoor area, surface or physical medium; the term
"ENVIRONMENTAL LAWS" shall mean any federal, state, local or common law, rule,
regulation, ordinance, code, order or judgment (including any judicial or
administrative interpretations, guidances, directives, policy statements or
opinions) relating to the injury to, or the pollution or protection of human
health and safety or the Environment but shall not include the Federal
Occupational Health and Safety Act ("OSHA") or the Americans with Disabilities
Act ("ADA"); the term "ENVIRONMENTAL LIABILITIES" shall mean any claims,
judgments, damages (including punitive damages), losses, penalties, fines,
liabilities, encumbrances, liens, violations, costs and expenses (including
attorneys' and consultants' fees) of investigation, remediation, monitoring or
defense of any matter relating to human health, safety or the Environment of
whatever kind or nature by any party, entity or authority, (i) which are
incurred as a result of (A) the existence of Hazardous Substances in, on, under,
at or emanating from any real property presently or formerly owned, operated or
managed by any of the Meshon Parties, the Meshon Partnership, Drexel or Royce or
any of their subsidiaries, (B) the offsite transportation, treatment, storage or
disposal of Hazardous Substances generated by the Meshon Parties, the Meshon
Partnerships, Drexel or Royce or any of their subsidiaries (C) the violation of
any Environmental Laws or (ii) which arise under the Environmental Laws; the
term "HAZARDOUS SUBSTANCES" shall mean petroleum, petroleum products,
petroleum-derived substances, radioactive materials, hazardous wastes,
polychlorinated biphenyls, lead based paint, radon, urea formaldehyde, asbestos
or any materials containing asbestos, and any materials or substances regulated
or defined as or included in the definition of "hazardous substances,"
"hazardous materials," "hazardous constituents," "toxic substances,"
"pollutants," "contaminants" or any similar denomination intended to classify or
regulate substances by reason of toxicity, carcinogenicity, ignitability,
corrosivity or reactivity under any Environmental Law. All references in this
Section to the Meshon Parties or the Meshon Partnerships shall include any
subsidiaries thereto and any predecessors thereto (to the extent the Meshon
Parties have
55
<PAGE> 153
Knowledge relating to any such predecessors regarding Hazardous Substances), and
any person or entity the liabilities of which, pursuant to the Environmental
Laws, contractually, by common law, by operation of law or otherwise, any of the
Meshon Parties, the Meshon Partnerships, may have succeeded to; "Old
Environmental Reports" shall mean the environmental reports, as of a date prior
to ________, 1997, describing the environmental condition of the Properties,
which have been supplied to the Company by Meshon.
(b) Meshon has no knowledge (A) that the Old Environmental Reports
contain any untrue statement of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or (B) that the Old Environmental Reports
fail to contain any material fact required to accurately describe the
environmental condition of the Meshon Properties with respect to:
(i) all of the current and past operations of the Meshon
Partnerships and the Meshon Properties, including any operations at or
from any real property presently or formerly owned, used, leased,
occupied, managed or operated by any of the Meshon Parties or the
Meshon Partnerships (collectively, the "Real Property"), failing to
comply and at all times having complied with all applicable
Environmental Laws;
(ii) the Meshon Parties, the Meshon Partnerships or to the
knowledge of any Meshon Party, any other person or entity, having
engaged in, authorizing, allowing or suffering any operations or
activities upon any of the Real Property for the purpose of or in any
way involving the handling, manufacture, treatment, processing,
storage, use, generation, release, discharge, spilling, emission,
dumping or disposal of any Hazardous Substances at, on, under or from
the Real Property, except in full compliance with all applicable
Environmental Laws;
(iii) the Assets or the Real Property containing any Hazardous
Substances in, on, over, under or at it, in concentrations which would
presently violate any applicable Environmental Laws or would be
reasonably likely to result in the imposition of liability or
obligations on the present owner, manager, or operator of the Real
Property under any applicable Environmental Laws, including any
liability or obligations for the investigation, corrective action,
remediation or monitoring of Hazardous Substances in, on, over, under
or at the Real Property;
(iv) the Real Property being listed or proposed for listing on
the National Priorities List pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42
U.S.C. ss. 9601 ET SEQ., or any similar inventory of sites requiring
investigation or remediation maintained by any state or locality;
(v) the Meshon Parties receiving any written notice from any
governmental entity or third party of any actual or threatened
Environmental Liabilities with respect to the Real Property, the
Assets, the Meshon Partnerships or the conduct of any of the Meshon
Parties' businesses that are the subject of this Agreement;
56
<PAGE> 154
(vi) the existence of underground storage tanks, asbestos or
asbestos containing materials, polychlorinated biphenyls, urea
formaldehyde, or other Hazardous Substances (other than small
quantities of Hazardous Substances for use in the ordinary course of
the businesses of the Meshon Partnerships and Meshon Parties or tenants
of the Meshon Properties, which are stored and maintained in accordance
and full compliance with all applicable Environmental Laws) in, on,
over, under or at any Real Property;
(vii) the existence of conditions existing at any Real
Property or with respect to the Assets, that require or in the future
will reasonably likely require remedial or corrective action, removal,
monitoring or closure pursuant to the Environmental Laws;
(viii) the failure of the Meshon Partnerships and the Meshon
Parties to have obtained all the permits, licenses, authorizations and
approvals necessary for the conduct of its businesses and for the
operations on, in or at the Real Property, which are required under
applicable Environmental Laws or the noncompliance with the terms and
conditions of all such permits, or the inability of the Operating
Partnership following the consummation of this Agreement and the
transactions contemplated hereby to continue operation of the Real
Property in compliance with Environmental Laws;
(ix) the failure of the Meshon Parties to have provided to the
Company all environmental reports, assessments, audits, studies,
investigations, data, and other written environmental information
obtained since March 15, 1994 in their custody, possession or control
concerning the Meshon Partnerships, the Meshon Properties and the Real
Property;
(x) the nondisclosure by the Meshon Partnerships or the Meshon
Parties to the Company of instances where any Meshon Partnership or
Meshon Party has contractually, by operation of law, by the
Environmental Laws, by common law or otherwise assumed or succeeded to
any Environmental Liabilities of any predecessors or any other person
or entity.
6.16 INVESTMENT COMPANY. None of the Meshon Parties or Meshon
Partnerships is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6.17 EMPLOYEES. The Meshon Partnerships have no current employees and
have never had any employees and none of the Meshon Partnerships is currently or
has ever been a party to or otherwise bound by any collective bargaining
agreement or other employment agreement or arrangement (whether or not legally
binding).
57
<PAGE> 155
6.18 EMPLOYEE BENEFITS.
(a) Except as listed on Schedule 6.18, there are and have been no
"employee benefit plans," within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any other
bonus, profit sharing, compensation, pension, severance, deferred compensation,
fringe benefit, insurance, welfare, medical, post-retirement health or welfare
benefit, medical reimbursement, health, life, stock option, stock purchase,
tuition refund, service award, company car, scholarship, relocation, disability,
accident, sick pay, sick leave, vacation, termination, individual employment,
executive compensation, incentive, bonus, commission, payroll practices,
retention or other plan, agreement, policy, trust fund or arrangement,
maintained, sponsored or contributed to by any of the Meshon Parties or any
entity that would now or in the past be deemed a "single employer" with any of
the Meshon Parties or Meshon Partnerships under Section 414(b), (c), (m) or (o)
of the Code or Section 4001 of ERISA (an "ERISA Affiliate") on behalf of any
employee of any of the Meshon Parties, or Meshon Partnerships (whether current,
former or retired) or their beneficiaries or with respect to which any of the
Meshon Parties, Meshon Partnerships or any ERISA Affiliate has or has had any
obligation on behalf of any such employee or beneficiary. No "prohibited
transaction," as defined in section 406 of ERISA, has occurred with respect to
any such plan, agreement, policy, trust fund, or arrangement that has been so
maintained, sponsored or contributed to (collectively, if any, the "Meshon
Plans"). No Meson Party, Meshon Partnership, or ERISA Affiliate of either has
failed to comply with any health care continuation coverage requirements or
related notice requirements under section 601 ET SEQ. of ERISA and section 4980B
of the Code. There are no pending or ongoing audits, inquiries, or
investigations by any governmental agency with respect to, or pending actions,
claims, or lawsuits which have been asserted against, any of the Meshon Plans or
the assets of any trusts under, or the plan sponsor, plan administrator, or
trustee or other fiduciary of the Meshon Plans (except for routine benefit
claims or routine expenses). All returns, reports, and notices for any Meshon
Plan which are required under the Code, ERISA, or any other applicable law (and
the regulations thereunder) have been timely provided to the applicable
governmental, agencies, employees, participants, or beneficiaries.
6.19 LITIGATION AND CLAIMS. Except as set forth on Schedule 6.19, there
is no litigation, arbitration, claim, governmental or other proceeding (formal
or informal), or investigation pending, or, to the Knowledge of Meshon,
threatened, with respect to any Meshon Parties, Meshon Partnerships, or any of
their respective businesses, properties, or assets, other than relating to
routine landlord-tenant matters, or negligence lawsuits covered by insurance or
vendor claims under $10,000, the effect of which if decided unfavorably to the
Meshon Parties or Meshon Partnerships would have a material adverse effect on
any of the Meshon Parties or Meshon Partnerships. None of the Meshon Parties or
Meshon Partnerships is: (i) in violation of or in default under any order,
judgment or decree, (ii) in violation of any law, rule, or regulation, which
violation would have a material adverse effect upon any of the Meshon Parties,
Meshon Partnerships, or any of their respective businesses, properties or assets
or (iii) required to take any action in order to avoid such violation or
default. The litigation listed on Schedule 6.19 will not prohibit the
consummation of any of the transactions contemplated hereby.
58
<PAGE> 156
6.20 INTELLECTUAL PROPERTY. Except as described on Schedule 6.20,
Drexel, Royce, Payroll and each of the Meshon Partnerships owns, or has the
contractual right to use, and will after the Closing own or have the contractual
right to use data processing and management information systems adequate to
conduct all aspects of their respective businesses. There is no right under any
patent, patent application, trademark, trademark application, trade name,
service mark, copyright, franchise, or other intangible property or asset (all
of the foregoing being hereinafter referred to as "Intangibles") necessary to or
used in the business of the Meshon Partnerships as presently conducted or as any
of them contemplates conducting, except as set forth on Schedule 6.20. None of
the Meshon Partnerships has infringed, is infringing, or has received notice of
infringement asserted with respect to any Intangibles of others. To the
knowledge of the Meshon Parties, Meshon Partnerships, there are no Intangibles
of others which may materially adversely affect the financial condition, results
of operations, business, properties, assets or liabilities of any of the Meshon
Parties or Meshon Partnerships.
6.21 QUESTIONABLE PAYMENTS. None of the Meshon Parties, Meshon
Partnerships nor any director, officer, partner, agent, employee, or other
Person associated with or acting on behalf of any of them has, directly or
indirectly: used any corporate or partnership funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any false or fictitious entry on its
books or records; made any bribe, rebate, payoff, influence payment, kickback,
or other unlawful payment; given any favor or gift which is not deductible for
federal income tax purposes; or made any bribe, kickback, or other payment of a
similar or comparable nature, whether lawful or not, to any Person regardless of
form, whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.
6.22 BOOKS AND RECORDS; BANK ACCOUNTS.
(a) The books and records of Drexel, Royce, Payroll and the Meshon
Partnerships are complete and correct in all material respects, and the books
and records of the general partner of each such partnership contain accurate and
complete records of all material actions taken by the general partners of such
partnership.
(b) Meshon has delivered to the Custodian accurate lists of all of the
bank and brokerage accounts of each of Drexel, Royce, Payroll, and each Meshon
Partnership and the authorized signatories for such accounts.
6.23 FEES AND REIMBURSEMENTS. There exists no basis for any claim
against any of the Meshon Parties or any of their Affiliates in any material
amount relating to any of the fees and reimbursements paid or payable by any of
Drexel, Royce or any Meshon Partnership to any such Meshon Party or Affiliate
thereof and, on the Closing Date, there will be no amounts due
59
<PAGE> 157
from Drexel, Royce or any Meshon Partnership (whether or not yet payable) to any
Meshon Party or any of their Affiliates.
6.24 COMPLETENESS OF DISCLOSURE. No representation or warranty by any
of the Meshon Parties in this Agreement or any Related Document contains, or
when delivered will contain, an untrue statement of a material fact or omits, or
when delivered will omit, to state a material fact required to be stated therein
or necessary, in light of the circumstances in which such statements are made,
to make the statements made therein not misleading.
6.25 SOLVENCY. For purposes of applicable federal and state laws
governing determinations of the insolvency of debtors, or relating to fraudulent
conveyance, or otherwise with respect to creditors' rights, or similar judicial
doctrines: on the Closing Date after giving effect to the transactions
contemplated hereby, (i) the amount of the "present fair saleable value" of the
assets of each of Drexel, Royce, the Meshon Parties and the Meshon Partnerships
will, as of such date, exceed the amount of all "liabilities of such Person,
contingent or otherwise", as of such date, as such quoted terms are determined
in accordance with such laws and doctrines, (ii) the present fair saleable value
of the assets of each of Drexel, Royce, the Meshon Parties and the Meshon
Partnerships will, as of such date, be greater than the amount that will be
required to pay such Person's liability on its debts as such debts become
absolute and matured, (iii) none of Drexel, Royce, the Meshon Parties or the
Meshon Partnerships will have, as of such date, an unreasonably small amount of
capital with which to conduct its business, (iv) each of Drexel, Royce, the
Meshon Parties and the Meshon Partnerships will be able to pay its debts as they
mature and (v)the consideration to be received by each Meshon Party and Meshon
Partnership hereunder for the assets to be sold by such Meshon Party hereunder
is not less than the "present fair saleable value" of such assets. For purposes
of this Section 6.25, "debt" means "liability on a claim", "claim" means any (x)
right to payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, and (y) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed or undisputed,
secured or unsecured.
6.26 ABSENCE OF INDUCEMENT. To the Knowledge of Meshon, in entering
into this Agreement, none of the Meshon Parties has been induced by, or relied
upon, any representations, warranties or statements by the Company or the
Operating Partnership (or its Affiliates) not set forth or referred to in this
Agreement or the Related Documents, whether or not such representations,
warranties or statement have actually been made, in writing or orally, and
Meshon acknowledges that, in entering into this Agreement, the Company has been
induced by and relied upon the representations and warranties of the Meshon
Parties herein or therein set forth.
6.27 PROXY INFORMATION. None of the information supplied or to be
supplied by Meshon, or to the Knowledge of Meshon, by the Meshon Parties or any
of their respective Affiliates, directors, officers, employees, agents or
representatives for inclusion in the Proxy
60
<PAGE> 158
Statement or any other document filed or to be filed with the Commission or any
Governmental Body in connection with the transactions contemplated by this
Agreement will, at the time it is provided, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
6.28 ACCREDITED INVESTOR. Each of the Meshon Parties which is to
acquire OP Units at the Closing (i) will be acquiring the OP Units for the
purpose of investment only and not with a view to distribution thereof in
violation of the Securities Act, (ii) has such knowledge and experience in
financial and business matters that he, she or it is capable of evaluating the
merits and risks of acquiring the OP Units and will be able to bear the economic
risk of such investment, (iii) is an "accredited investor" within the meaning of
Rule 501(a) of Regulation D under the Securities Act, (iv) is a resident of the
State set forth on Schedule 6.28 and is not domiciled in nor a resident of
California (nor is any direct or indirect owner of any such Person domiciled in
or a resident of California), (v) has had access to, or been furnished with, all
information about the OP Units and the transactions contemplated hereby as he,
she or it has deemed necessary and (vi) is not a "benefit plan investor" within
the meaning of 29 C.F.R. Section 2510.3-101.
6.29 REORGANIZED DREXEL. Each of the representations and warranties in
this Agreement with respect to Drexel shall, on the Closing Date, be true
complete and correct with respect to Reorganized Drexel except for the
transactions relating to Reorganized Drexel expressly provided for in this
Agreement.
7. REPRESENTATIONS AND WARRANTIES OF THE MESHON PARTIES CONTRIBUTING
MESHON PARTNERSHIP INTERESTS OR MESHON TRANSFERRED PROPERTY.
Each Meshon Party that is contributing to the Operating Partnership or
its Affiliate any Meshon Partnership Interest or Meshon Transferred Property,
hereby makes the following representations and warranties, and each Meshon Party
which is the general partner or a co-general partner of a Meshon Partnership but
who is not so contributing any Meshon Partnership Interest or Meshon Transferred
Property represents and warrants as set forth in Section 7.14 (a "Meshon
Co-General"), as of the date hereof and as of the Closing Date, solely with
respect to the Meshon Partnership Interest which it is contributing to the
Operating Partnership and the Meshon Partnership to which it is a party;
provided no such Meshon Co-General shall be personally liable for any
representation except as set forth in Section 7.14:
7.1 GOOD TITLE. Such Meshon Party owns legally and beneficially the
respective Meshon Partnership Interests or Meshon Transferred Property it is
transferring to the Operating Partnership (or its designated Affiliate)
hereunder free and clear of any Encumbrances except for Permitted Exceptions.
7.2 AUTHORITY. Such Meshon Party has all requisite power and authority
to execute,
61
<PAGE> 159
deliver, and perform this Agreement. All necessary corporate, partnership or
other proceedings (including, without limitation, any shareholder, co-general
Partner or limited partner consents) of or on behalf of such Meshon Party has
been duly taken to authorize its execution, delivery, and performance of this
Agreement, except for consents listed on Schedule 7.2 which will be obtained
prior to the Closing. This Agreement and the other documents required to be
delivered hereby by such Meshon Party have been (or when delivered will be) duly
authorized, executed, and delivered by such Meshon Party that is a party hereto,
and constitute (or when delivered will constitute) the legal, valid, and binding
obligation of such Meshon Party, enforceable as to such Meshon Party in
accordance with their terms, assuming the due authorization, execution and
delivery hereof and thereof by the other parties hereto and thereto.
7.3 OWNERSHIP INTERESTS OF MESHON PARTIES; SUBSTITUTION OF PARTNER.
Schedule 7.3, correctly lists the Meshon Parties who are the record and
beneficial owners of all of the general and limited partnership interests in the
Meshon Partnerships in which such Meshon Party is a partner, and their
respective interests. To the knowledge of such Meshon Party, there is no
agreement, commitment (whether or not legally binding), plan, or arrangement to
issue, and no outstanding option, warrant, security or other instrument
convertible into or exchangeable for or calling for the issuance of, or other
right to obtain, any limited or general partnership interest or security or
other instrument convertible into, exercisable for, or exchangeable for any
limited or general partnership or other equity interest in any Meshon
Partnership, except for the Glenmont Redemption Agreement. On or before the
Closing Date, each Meshon Party shall have caused the Meshon Partnership in
which such Party is a partner, to the extent of such Party's power to do so, to
take all action required under their respective Organizational Documents and the
law to authorize, approve and effect the substitution and admission,
simultaneously with the Closing, of the Operating Partnership (or its designee),
as a general or limited partner, as the case may be, of such Meshon Partnership,
in substitution for such Meshon party.
7.4 ALLOCATION OF AGGREGATE BASE UNIT AMOUNT. The relative allocations
of the aggregate Base Unit Amount set forth on Schedule 1.2 for all Meshon
Partnerships and Meshon Transferred Properties among the Meshon Partnerships has
been determined by Meshon and the Meshon Parties based on the relative values of
the Meshon Properties.
7.5 NO CONFLICTS OR DEFAULTS; NO VIOLATIONS. Neither the execution,
delivery or performance of this Agreement by such Meshon Party nor the
consummation of the transactions contemplated hereby will (with or without the
giving of notice, lapse of time or both): (a) contravene any provisions of any
law, statute, rule or regulation or any order, writ, judgment, injunction or
decree of any court or governmental instrumentality; or (b) except as set forth
on Schedule 7.5, and assuming that each of the consents and approvals set forth
on Schedule 7.6 have been obtained, conflict with or result in any breach of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose), any Lien upon any of the property or assets of
such Meshon Party, or to its knowledge, the Meshon Partnership pursuant to the
terms of any note, bond, indenture, mortgage, deed of trust, loan agreement,
credit agreement, lease, franchise, partnership agreement, voting trust or any
other agreement, contract or instrument to which such Meshon Party, or to its
knowledge, the Meshon
62
<PAGE> 160
Partnership, is a party or to which any of their respective properties or assets
is subject; (c) violate any provision of their respective Organizational
Documents; or (d) give any Person or group of Persons the right to replace any
of them as a direct or indirect general partner of any Meshon Partnership.
7.6 CONSENTS. Except for any consents identified on Schedule 7.6, no
approval or consent of, notice to, or filing or registration with, or
authorization, order, license, certificate, or permit of or from, any
governmental authority or any other notice to or consent of any third party is
required in connection with (a) the execution, delivery and performance of, (b)
the legality, validity, binding effect or enforceability of or, (c) the
consummation of the transactions with respect to such Meshon Party contemplated
by this Agreement.
7.7 DEBT. Such Meshon Party has not incurred and on or before the
Closing Date, such Meshon Party will not have incurred any Debt for which any
Meshon Partnership Interests or Meshon Properties are security.
7.8 TAXES. Such Meshon Party is not a foreign person within the meaning
of Section 1445 of the Code. Schedule 7.8 correctly sets forth the tax
identification number and principal office or principal residence address within
the United States for such Meshon Party.
7.9 COMPLETENESS OF DISCLOSURE. No representations or warranties made
by such Meshon Party in this Agreement or any Related Document contains, or when
delivered will contain, an untrue statement of a material fact or omits, or when
delivered will omit, to state a material fact required to be stated therein or
necessary, in light of the circumstances in which such statements are made, to
make the statements made therein not misleading.
7.10 SOLVENCY. For purposes of applicable federal and state laws
governing determinations of the insolvency of debtors, or relating to fraudulent
conveyance, or otherwise with respect to creditors' rights, or similar judicial
doctrines: on the Closing Date after giving effect to the transactions
contemplated hereby, (i) the amount of the "present fair saleable value" of the
assets of such Meshon Party will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with such laws and doctrines, (ii) the
present fair saleable value of the assets of such Meshon Party will, as of such
date, be greater than the amount that will be required to pay such Person's
liability on its debts (defined below) as such debts become absolute and
matured, (iii) such Meshon Party will not have, as of such date, an unreasonably
small amount of capital with which to conduct its business, (iv) such Meshon
Party will be able to pay its debts as they mature and (v) the consideration to
be received by such Meshon Party hereunder for the assets to be sold by such
Meshon Party hereunder is not less than the "present fair saleable value" of
such assets. For purposes of this Section 7.9, "debt" means "liability on a
claim", "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured, and (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to
63
<PAGE> 161
judgment, fixed, contingent, matured or unmatured, disputed or undisputed,
secured or unsecured.
7.11 ABSENCE OF INDUCEMENT. In entering into this Agreement, such
Meshon Party has not been induced by, or relied upon, any representations,
warranties or statements by or on behalf of the Company or the Operating
Partnership (or its Affiliate) or any other party hereto not set forth or
referred to in this Agreement whether or not such representations, warranties or
statement have actually been made, in writing or orally, and such Meshon Party
acknowledges that, in entering into this Agreement the Company has been induced
by and relied upon the representations and warranties of such Meshon Party
herein or therein set forth.
7.12 PROXY INFORMATION. None of the information supplied or to be
supplied by such Meshon Party or any of its Affiliates, directors, officers,
employees, agents or representatives for inclusion in the Proxy Statement or any
other disclosure document prepaid in connection with the transactions
contemplated hereby or any other document filed or to be filed with the SEC or
any governmental body in connection with the transactions contemplated by this
Agreement will, at the time it is provided, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
7.13 ACCREDITED INVESTOR. Such Meshon Party which is to acquire OP
Units at the Closing (i) will be acquiring the OP Units for the purpose of
investment only and not with a view to distribution thereof in violation of the
Securities Act, (ii) has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks of
acquiring the OP Units and will be able to bear the economic risk of such
investment, (iii) is an "accredited investor" within the meaning of Rule 501(a)
of Regulation D under the Securities Act, (iv) is a resident of the State set
forth on Schedule 7.13 and is not domiciled in nor a resident of California (nor
is any direct or indirect owner of any such Person domiciled in or a resident of
California), (v) has had access to, or been furnished with, all information
about the OP Units and the transactions contemplated hereby as he, she or it has
deemed necessary and (vi) is not a "benefit plan investor" within the meaning of
29 C.F.R. Section 2510.3-101.
7.14 MESHON REPRESENTATIONS AND WARRANTIES. Any such Meshon Party who
is a general partner or co-general partner of a Meshon Partnership has no actual
knowledge that the representations and warranties made (or to be made) by Meshon
in this Agreement with respect to such Meshon Partnership are (or will be)
untrue as of the date made or as of the Closing Date.
7.15 GLENMONT ASSOCIATES. Certain Meshon Parties have entered into an
agreement (a true and correct copy of which agreement as now in effect has been
delivered to the Company and has not been amended or modified, the "Glenmont
Redemption Agreement") pursuant to which Glenmont Associates has agreed to
redeem the general and limited partnership interests of Glenville Whitemarsh,
Inc. and Glenville Associates-Whitemarsh, L.P. in Glenmont Associates on or
prior to the Closing Date. Upon the consummation of such agreement, on or prior
to the Closing Date, Whitemont and Whitemont Associates shall own 100% percent
of the general and
64
<PAGE> 162
limited partnership interests in Glenmont Associates and, as of the Closing
Date, pursuant hereto, shall transfer all such interests to the Operating
Partnership or its Affiliate.
8. REPRESENTATIONS OF THE MESHON PARTIES WITH RESPECT TO REORGANIZED
DREXEL.
Meshon and Drexel each, jointly and severally, hereby make the
following representations and warranties as of the date hereof and as of the
Closing Date, which shall be applicable to Reorganized Drexel as of the Closing
Date:
8.1 ORGANIZATION CHART. Meshon is the sole shareholder of Drexel, Royce
and Payroll. On the Closing Date Meshon will be the sole Shareholder of
Reorganized Drexel except for five shares of Voting Common Stock which will be
owned by his wife, Patricia Meshon, and deposited in the Voting Trust, and
Meshon and Patricia Meshon will own all the outstanding Capital Stock of
Reorganized Drexel legally and beneficially. Meshon owns legally and
beneficially the shares of Voting Common Stock and the shares of Non-Voting
Common Stock being transferred to the Operating Partnership hereunder free and
clear of any Liens or Encumbrances. All of the capital stock of Royce and
Payroll will, on the Closing Date, be owned legally and beneficially by Drexel.
8.2 ORGANIZATION OF REORGANIZED DREXEL. (a) Each of Drexel, Royce and
Payroll is, and on the Closing Date Reorganized Drexel will be, a corporation
duly organized, validly existing and in good standing under the laws of the
State of Pennsylvania, with full corporate power and authority to own its
properties and to engage in its business as presently conducted or contemplated,
is, or will be prior to Closing, duly qualified and in good standing as a
foreign corporation under the laws of each other jurisdiction in which it is
authorized to do business as set forth on Schedule 8.2 and is not required to
qualify as a foreign corporation in any other jurisdiction. Immediately prior to
the Closing, the authorized capital stock of Reorganized Drexel will consist of
100,000 shares of Voting Common Stock, no par value, of which 99,500 shares will
be outstanding, and 2,000,000 shares of Non-Voting Common Stock, no par value,
of which 1,890,600 shares will be outstanding. Upon transfer by Meshon to the
Operating Partnership at the Closing, the Drexel Shares delivered at the Closing
will be duly, authorized, validly issued, fully paid and non-assessable. On the
Closing Date, all of Reorganized Drexel's outstanding Voting and Non-Voting
Common Stock will have been duly authorized, validly issued and fully paid and
nonassessable. Drexel, Royce, Payroll and, on the Closing Date, Reorganized
Drexel do not and will not own, or have any option, right, agreement or
commitment of any kind to acquire any capital stock or other securities of any
Person or any direct or indirect equity or ownership interest in any other
business except that Reorganized Drexel will own all of the capital stock of
Royce and Payroll. Drexel, Royce and Payroll have, and, prior to the Closing,
Reorganized Drexel will have, delivered to the Operating Partnership a certified
copy of its Certificate of Incorporation and By-Laws, as currently in effect
which shall be in the forms attached as Exhibit J.
8.3 AUTHORITY. Each of Drexel, Royce and Payroll has, and Reorganized
Drexel will
65
<PAGE> 163
have full corporate power and authority to execute and deliver this Agreement
and any other agreements contemplated hereby and to perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action (including, but not limited
to, approval by the Board of Directors and, if necessary, stockholders) of
Drexel, Royce and Payroll and will be so authorized by Reorganized Drexel. This
Agreement constitutes a valid and binding obligation of Drexel, Royce and
Payroll, enforceable against Drexel, Royce, Payroll and, after Drexel is
reorganized, Reorganized Drexel in accordance with its terms. At the Closing,
Reorganized Drexel shall deliver to the Company certified copies of the
resolutions adopted by its, Royce's, Payroll's and Drexel's Board of Directors
(and, if necessary, stockholders), to authorize the execution, delivery and
performance by Drexel, Royce, Payroll and Reorganized Drexel of this Agreement
and any other agreements contemplated hereby to which Drexel, Royce, Payroll or
Reorganized Drexel is a party.
8.4 OWNERSHIP INTERESTS IN REORGANIZED DREXEL. Meshon on the Closing
Date will be the record and beneficial owner of all of the Drexel Shares free
and clear of any Liens and Encumbrances. There is no agreement, commitment
(whether or not legally binding), plan, or arrangement to issue, and no
outstanding option, warrant, security or other instrument convertible into or
exchangeable for or calling for the issuance of, or other right to obtain, any
equity interest or security or other instrument convertible into, exercisable
for, or exchangeable for any equity interest in Drexel, Royce, Payroll or
Reorganized Drexel.
8.5 BUSINESS CONDUCTED. Drexel, Royce and Payroll conduct, and on the
Closing Date Reorganized Drexel will conduct no business other than the
management of the Meshon Properties and the Managed Properties. All of the
properties directly or indirectly managed or operated by Drexel, Royce or
Payroll are listed on Schedule 8.5.
8.6 FINANCIAL STATEMENTS. Meshon has delivered to the Company with
respect to Drexel copies of (i) the audited financial statements as of December
31, 1996 and (ii) the unaudited financial statements as of June 30, 1997, and,
before the Closing Date, Royce and Payroll will deliver to the Company audited
financial statements as of December 31, 1996 and unaudited financial statements
as of June 30, 1997 which will contain balance sheets which indicate that
neither of such entities has any assets or liabilities as of such date, and,
within five days prior to the Closing, each of Drexel, Royce and Payroll will
deliver its unaudited financial statements as of and for the period from June
30, 1997 and ending the month end immediately prior thereto or, if the Closing
Date is within the first 10 days of a calendar month, ending the month end
within 40 days prior to the Closing Date (all of such financial statements
collectively called the "Drexel Financial Statements"). Each of the Drexel
Financial Statements and the financial statements to be delivered pursuant to
Section 11.2 has been (or when so delivered will have been) prepared in
accordance with GAAP consistently applied, in each case based on the books and
records of the respective entities named therein, and fairly presents (or when
delivered will fairly present) the financial condition, results of operations,
assets, liabilities and partners' equity of such entities for the period covered
thereby and as of its date. The financial and other information to be delivered
pursuant to Section 11.2 will not contain an untrue statement of a
66
<PAGE> 164
material fact or omit to state a material fact required to be stated therein or
necessary, in light of the circumstances in which such statements are made, to
make the statements made therein not misleading; but Drexel, Royce and Payroll
make no representation with respect to information delivered by any other party.
8.7 LIABILITIES. There are no liabilities (contingent or otherwise) of
Drexel, Royce, Payroll or, in the case of Reorganized Drexel there will be none,
which are not set forth in the Drexel Financial Statements or disclosed in this
Agreement or in a Schedule or Exhibit hereto.
8.8 INSURANCE. Schedule 8.8 lists all of the policies of insurance of
any kind covering Drexel, Royce, Payroll or, as of the Closing Date, Reorganized
Drexel and their respective assets and businesses, setting forth the nature of
the insurance, the insurance carrier, the amount of coverage, deductible amounts
and the owner of and expiration date of such policies. Drexel and Royce each has
and on the Closing Date Reorganized Drexel will have, such insurance in such
amounts and covering such risks as well-run businesses in the same industry
customarily carry. All such policies of insurance are in full force and effect
and all premiums due thereon for all periods through the Closing Date are or
will be on the Closing Date fully paid. Meshon has not received any notice of
cancellation or termination with respect to any such policy.
8.9 MATERIAL EVENTS AND CHANGES. Since the date of Drexel's, Royce's,
and Payroll's most recent balance sheet:
(a) There has not been a material adverse change in the condition
(financial or otherwise), results of operations, business, properties, assets,
nature of assets, or liabilities of Drexel, Royce or Reorganized Drexel.
(b) Except as set forth on Schedule 8.9(b), Drexel, Royce, Payroll or
Reorganized Drexel has not:
(i) mortgaged, pledged, subjected to or suffered any Lien, or
granted any Lien, in respect of any of its properties, or incurred any
Debt (defined below);
(ii) amended its Organizational Documents;
(iii) defaulted under any Material Agreement (defined below),
license or permit; or
(iv) experienced any change in control which is prohibited by
the terms of any note, bond, mortgage, indenture, lease, license,
franchise, agreement or other instrument or obligation by which it or
any of its properties or assets are affected or bound.
8.10 NO CONFLICTS OR DEFAULTS; NO VIOLATIONS. Neither the execution,
delivery or performance of this Agreement by Drexel, Royce, Payroll or
Reorganized Drexel, nor the consummation of the transactions contemplated hereby
by Drexel, Royce, Payroll or
67
<PAGE> 165
Reorganized Drexel will (with or without the giving of notice, lapse of time or
both): (a) contravene any provisions of any law, statute, rule or regulation or
any order, writ, judgment, injunction or decree of any court or governmental
instrumentality; or (b) except as set forth on Schedule 8.10, and assuming that
each of the consents and approvals set forth on Schedule 8.11 have been
obtained, conflict with or result in any breach of, or constitute a default
under, or result in the creation or imposition of (or the obligation to create
or impose), any Lien upon any of the property or assets of Reorganized Drexel
pursuant to the terms of any note, bond, indenture, mortgage, deed of trust,
loan agreement, credit agreement, lease, franchise, partnership agreement,
voting trust or any other agreement, contract or instrument to which Drexel,
Royce or Reorganized Drexel is or will on the Closing Date be a party or to
which any of their respective properties or assets is subject (collectively,
"Existing Royce Agreements"); or (c) violate any provision of their respective
Organizational Documents.
8.11 CONSENTS. Except for any consents identified on Schedule 8.11
("Drexel Required Consents"), no approval or consent of, notice to, or filing or
registration with, or authorization, order, license, certificate, or permit of
or from, any governmental authority or any other notice to or consent of any
third party is required in connection with the execution, delivery and
performance of, the legality, validity, binding effect or enforceability of or
the consummation of the transactions contemplated by this Agreement ("Required
Consents").
8.12 DEBT. Schedule 8.12 is a complete list of all Debt of Drexel,
Royce, Payroll and Reorganized Drexel for which it or its respective properties
or other assets is subject including, without limitation, amounts owing to
employees in respect of leasing commissions paid or to be paid to Drexel.
Neither Drexel, Royce, Payroll or Reorganized Drexel is the obligor in respect
of and no assets of Drexel, Royce, Payroll or Reorganized Drexel are or on the
Closing Date will be security for or subject to any other such Debt. Meshon has
delivered to the Company true, complete and correct copies of all agreements,
notes, security documents, guarantees and other documents relating to any such
Debt in effect on the date hereof, and each such document is in full force and
effect and has not been further modified, amended or terminated and no party is
in payment default thereunder or any other default thereunder other than
immaterial defaults. On the Closing Date, neither Drexel, Royce, Payroll or
Reorganized Drexel will not have incurred any Debt for which it is liable or its
assets are security. Drexel, Royce, Payroll and Reorganized Drexel each is in
substantial compliance with the terms of any Debt for which it is liable or to
which any of its assets is subject, no payment defaults exist thereunder and no
notice of default with respect thereto has been received by Meshon, Drexel,
Royce, Payroll or Reorganized Drexel.
8.13 TAXES AND OTHER LIABILITIES.
(a) Neither Drexel, Royce, Payroll nor Reorganized Drexel is a foreign
person within the meaning of Section 1445 of the Code.
(b) None of Drexel, Royce, Payroll and Reorganized Drexel nor any of
their respective subsidiaries has any liability of any nature, accrued or
contingent, including without
68
<PAGE> 166
limitation liabilities for federal, state, local, or foreign taxes and
penalties, interest, and additions to tax ("Taxes") and liabilities to customers
or suppliers, other than the following:
(i) Liabilities for which full provision has been made on the
consolidated balance sheet and the notes thereto (the "Last Balance
Sheet") as of [December 31, 1996] (the "Last Balance Sheet Date")
referred to in Section __; and
(ii) Other liabilities arising since the Last Balance Sheet
Date and prior to the Closing Date in the ordinary course of business
(which shall not include liabilities to customers on account of
defective products or services) which are not inconsistent with the
representations and warranties of any Meshon Party or any other
provision of this Agreement.
Without limiting the generality of the foregoing, the amounts set up as
provisions for Taxes on the Last Balance Sheet are sufficient for all accrued
and unpaid Taxes of Drexel, Royce and Payroll and their respective subsidiaries,
whether or not due and payable and whether or not disputed, under tax laws, as
in effect on the Last Balance Sheet Date or now in effect, for the period ended
on such date and for all fiscal periods prior thereto. The execution, delivery,
and performance of this Agreement by Drexel, Royce and Payroll will not cause
any Taxes to be payable or cause any lien, charge, or encumbrance to secure any
Taxes to be created either immediately or upon the nonpayment of any Tax. The
Internal Revenue Service has audited and settled or the statute of limitations
has run upon all federal income tax returns of Drexel, Royce and Payroll and
their respective subsidiaries for all taxable years up to and including the
taxable year ended December 31, 1996. Each of Drexel, Royce and Payroll and
their respective subsidiaries has filed all federal, state, local, and foreign
tax returns required to be filed by it; has delivered to the Company a true and
correct copy of each such return which was filed in the past six years,
initialed by the chief executive officer of Drexel, Royce or Payroll, as the
case may be; has paid (or has established on the Last Balance Sheet a reserve
for) all Taxes, assessments, and other governmental charges payable or
remittable by it or levied upon it or its properties, assets, income, or
franchises which are due and payable; and has delivered to the Company a true
and correct copy, so initialed, of any report as to adjustments received by it
from any taxing authority during the past six years and a statement, so
initialed, as to any litigation, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect with respect to
any such report or the subject matter of such report.
8.14 MATERIAL AGREEMENTS; MANAGEMENT AGREEMENTS. Schedule 8.14 lists
all agreements to which Drexel, Royce, Payroll or Reorganized Drexel is a party
and lists all agreements to which Reorganized Drexel or any Person or property
directly or indirectly owned or controlled by them are parties or to which any
of the respective assets of Drexel, Royce, Payroll or Reorganized Drexel or any
such Person or properties are subject (i) that cannot be canceled without
penalty within 90 days or (ii) that are material to the financial condition,
results of operations, business, properties, liabilities of Drexel, Royce,
Payroll or Reorganized Drexel or (iii) are otherwise material to Drexel, Royce,
Payroll or Reorganized Drexel (all of such agreements listed on Schedule 8.14,
collectively the "Royce Material Agreements"). Meshon has
69
<PAGE> 167
delivered to the Company true, complete and correct copies of each Royce
Material Agreement. All of such agreements are in full force and effect and no
party is in payment default or any other default thereunder except for
immaterial defaults.
8.15 INVESTMENT COMPANY. Neither Drexel, Royce, Payroll nor Reorganized
Drexel is an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
8.16 EMPLOYEES. None of Drexel, Royce, Payroll or Reorganized Drexel is
currently or has ever (i) had any employees except as set forth on Schedule
8.16, (ii) been a party to or otherwise bound by any collective bargaining
agreement (whether or not legally binding), or (iii) except as set forth on
Schedule 8.16, had any employment agreements or arrangements (whether or not
legally binding).
8.17 EMPLOYEE BENEFITS.
(a) Except as set forth on Schedule 8.17, there are and have been no
"employee benefit plans," within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any other
bonus, profit sharing, compensation, pension, severance, deferred compensation,
fringe benefit, insurance, welfare, medical, post-retirement health or welfare
benefit, medical reimbursement, health, life, stock option, stock purchase,
tuition refund, service award, company car, scholarship, relocation, disability,
accident, sick pay, sick leave, vacation, termination, individual employment,
executive compensation, incentive, bonus, commission, payroll practices,
retention or other plan, agreement, policy, trust fund or arrangement,
maintained, sponsored or contributed to by Reorganized Drexel (which, for
purposes of this Section 8.17, shall include Reorganized Drexel, Drexel, Royce,
and Payroll) or any entity that would now or in the past be deemed a "single
employer" with Reorganized Drexel under Section 414(b), (c), (m) or (o) of the
Code or Section 4001 of ERISA (an "ERISA Affiliate") on behalf of any employee
of Reorganized Drexel (whether current, former or retired) or their
beneficiaries or with respect to which Reorganized Drexel or any ERISA Affiliate
has or has had any obligation on behalf of any such employee or beneficiary. No
"prohibited transaction," as defined in Section 406 of ERISA, has occurred with
respect to any such plan, agreement, policy, trust fund, or arrangement that has
been so maintained, sponsored or contributed to (collectively, if any, the
"Drexel Plans"). Neither Reorganized Drexel nor any ERISA Affiliate of
Reorganized Drexel has failed to comply with any health care continuation
coverage requirements or related notice requirements under Section 601 et seq.
of ERISA and Section 4980B of the Code. There are no pending or ongoing audits,
inquiries, or investigations by any governmental agency with respect to, or
pending actions, claims or lawsuits which have been asserted against, any of the
Drexel Plans or the assets of any trusts under, or the plan sponsor, plan
administrator, or trustee or other fiduciary of the Drexel Plans (except for
routine benefit claims or routine expenses). All returns, reports, and notices
for any Meshon Plan which are required under the Code, ERISA, or any other
applicable law (and the regulations thereunder) have been timely provided to the
applicable governmental, agencies, employees, participants, or beneficiaries.
70
<PAGE> 168
(b) None of the ERISA Affiliates, nor Reorganized Drexel or any of
their respective predecessors has ever contributed to or contributes to, or
otherwise participated in or participates in any "multiemployer plan" (within
the meaning of Section 4001(a)(3) of ERISA or Section 414(f) of the Code)
("Multiemployer Plan") or any single employer pension plan (within the meaning
of Section 4001(a)(15) of ERISA) which is subject to Section 4063 and 4064 of
ERISA ("Multiple Employer Plan").
8.18 LITIGATION AND CLAIMS. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending,
or, to the knowledge of Meshon, threatened, with respect to Drexel, Royce,
Payroll or Reorganized Drexel or their respective businesses, properties, or
assets. None of Drexel, Royce, Payroll or Reorganized Drexel is: (i) in
violation of or in default under any order, judgment or decree, (ii) in
violation of any law, rule, or regulation, which violation would have an adverse
effect upon Royce, Drexel or Reorganized Drexel, or their respective businesses,
properties or assets or (iii) required to take any action in order to avoid such
violation or default. The litigation listed on Schedule 5.1(aa) and Schedule
6.19 will not prohibit the consummation of any of the transactions contemplated
hereby.
8.19 INTELLECTUAL PROPERTY. Drexel, Royce, Payroll and Reorganized
Drexel own, or have the contractual right to use, and will after the Closing own
or have the contractual right to use data processing and management information
systems adequate to conduct all aspects of their respective businesses. There is
no right under any patent, patent application, trademark, trademark application,
trade name, service mark, copyright, franchise, or other intangible property or
asset (all of the foregoing being hereinafter referred to as "Intangibles")
necessary to or used in the business of Drexel, Royce, Payroll and Reorganized
Drexel as presently conducted or as any of them contemplates conducting, except
as set forth on Schedule 8.19. None of Drexel, Royce, Payroll or Reorganized
Drexel has infringed, is infringing, or has received notice of infringement
asserted with respect to any Intangibles of others.
8.20 QUESTIONABLE PAYMENTS. None of Drexel, Royce, Payroll or
Reorganized Drexel nor any director, officer, partner, agent, employee, or other
Person associated with or acting on behalf of any of them has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; made any false or fictitious entry on its books or records; made
any bribe, rebate, payoff, influence payment, kickback, or other unlawful
payment; given any favor or gift which is not deductible for federal income tax
purposes; or made any bribe, kickback, or other payment of a similar or
comparable nature, whether lawful or not, to any Person regardless of form,
whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.
71
<PAGE> 169
8.21 BOOKS AND RECORDS; BANK ACCOUNTS. The books and records of Drexel,
Royce, Payroll and Reorganized Drexel are complete and correct in all respects.
8.22 COMPLETENESS OF DISCLOSURE. No representation or warranty by
Meshon or Reorganized Drexel in this Agreement or any Related Document contains,
or when delivered will contain, an untrue statement of a material fact or omits,
or when delivered will omit, to state a material fact required to be stated
therein or necessary, in light of the circumstances in which such statements are
made, to make the statements made therein not misleading.
8.23 SOLVENCY. For purposes of applicable federal and state laws
governing determinations of the insolvency of debtors, or relating to fraudulent
conveyance, or otherwise with respect to creditors' rights, or similar judicial
doctrines: on the Closing Date after giving effect to the transactions
contemplated hereby, (i) the amount of the "present fair saleable value" of the
assets of Reorganized Drexel will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with such laws and doctrines, (ii) the
present fair saleable value of the assets of Reorganized Drexel will, as of such
date, be greater than the amount that will be required to pay its liability on
its debts (defined below) as such debts become absolute and matured, (iii)
Reorganized Drexel will not have, as of such date, an unreasonably small amount
of capital with which to conduct its business, (iv) Reorganized Drexel will be
able to pay its debts as they mature and (v) the consideration to be received by
Reorganized Drexel hereunder for the assets to be sold by Reorganized Drexel
hereunder is not less than the "present fair saleable value" of such assets. For
purposes of this Section 8.23, "debt" means "liability on a claim", "claim"
means any (x) right to payment, whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured, and (y) right to
an equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed or undisputed,
secured or unsecured.
8.24 ABSENCE OF INDUCEMENT. In entering into this Agreement, neither
Meshon nor Drexel has been induced by, or relied upon, any representations,
warranties or statements by the Company not set forth or referred to in this
Agreement or the Related Documents, whether or not such representations,
warranties or statement have actually been made, in writing or orally, and
Meshon and Reorganized Drexel acknowledge that, in entering into this Agreement,
the Company has been induced by and relied upon the representations and
warranties of Meshon and Reorganized Drexel herein or therein set forth.
8.25 PROXY INFORMATION. None of the information supplied or to be
supplied by Meshon or Reorganized Drexel, or any of their respective Affiliates,
directors, officers, employees, agents or representatives for inclusion in the
Proxy Statement or any other document filed or to be filed with the Commission
or any Governmental Body in connection with the transactions contemplated by
this Agreement will, at the time it is provided, be false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order
72
<PAGE> 170
to make the statements therein, in light of the circumstances in which they were
made, not misleading.
8.26 ACCREDITED INVESTOR. Meshon is the only Person which is to acquire
OP Units at the Closing in connection with the transfer of the Drexel Shares and
(i) will be acquiring the OP Units for the purpose of investment only and not
with a view to distribution thereof in violation of the Securities Act, (ii) has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of acquiring the OP Units and will be
able to bear the economic risk of such investment, (iii) is an "accredited
investor" within the meaning of Rule 501(a) of Regulation D under the Securities
Act, (iv) is a resident of Pennsylvania and is not domiciled in nor a resident
of California (nor is any direct or indirect owner of any such Person domiciled
in or a resident of California), (v) has had access to, or been furnished with,
all information about the OP Units and the transactions contemplated hereby as
he has deemed necessary and (vi) is not a "benefit plan investor" within the
meaning of 29 C.F.R. Section 2510.3-101
9. REPRESENTATIONS AND WARRANTIES OF THE LEVY PARTIES.
The Levy Parties each jointly and severally hereby make the following
representations and warranties, as of the date hereof and as of the Closing
Date, with respect to the Levy Properties owned by the Levy Parties:
9.1 ORGANIZATION CHART. The chart set forth on Schedule 9.1 correctly
sets forth the relationships and ownership interests among the Levy Parties and
the Levy Properties. All of the ownership interests of the individuals set forth
on that chart correctly reflect the legal and beneficial ownership of such
Persons or properties. The Levy Parties own legally and beneficially the
respective Levy Properties being transferred to the Company hereunder free and
clear of any Encumbrances except Permitted Exceptions.
9.2 AUTHORITY. The Levy Parties have all requisite power and authority
to execute, deliver, and perform this Agreement. All necessary corporate,
partnership or other proceedings (including, without limitation, any shareholder
or limited partner consents) of or on behalf of each Levy Party has been duly
taken to authorize their execution, delivery, and performance of this Agreement,
except for consents listed on Schedule 9.2 which will be obtained prior to the
Closing. This Agreement and the other documents required to be delivered hereby
have been (or when delivered will be) duly authorized, executed, and delivered
by each Levy Party, and constitute (or when delivered will constitute) the
legal, valid, and binding obligation of each such Levy Party, enforceable as to
each of them in accordance with their terms, assuming the due authorization,
execution and delivery hereof and thereof by the other parties hereto and
thereto.
9.3 BUSINESS CONDUCTED. All of the Levy Properties directly or
indirectly are owned by the Levy Parties listed on Schedule 9.3.
73
<PAGE> 171
9.4 FINANCIAL STATEMENTS; LEVY PARTY BUDGETS.
(a) The Levy Parties have delivered to the Company with respect to each
of the Levy Properties copies of the audited financial statements as of December
31, 1996 and, within five days prior to the Closing, will deliver unaudited
financial statements as of and for the period from December 31, 1996 and ending
the month end immediately prior thereto (all of such financial statements
collectively called the "Levy Partnership Financial Statements"). Each of the
Levy Partnership Financial Statements and the financial statements to be
delivered pursuant to Section 11.2 has been (or when so delivered will have
been) prepared in accordance with GAAP, consistently applied, in each case based
on the books and records of the respective entities named therein, and fairly
presents (or when delivered will fairly present) the financial condition,
results of operations, funds from operations, assets, liabilities and partners'
equity of such entities for the period covered thereby and as of its date. The
financial and other information to be delivered pursuant to Section 11.2 will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary, in light of the circumstances
in which such statements are made, to make the statements made therein not
misleading; but the Levy Parties make no representation with respect to any
information delivered by any other party.
(b) Levy has delivered, or will on the Closing Date deliver, to the
Company actual budgets for each of the Levy Properties for the fiscal year
commencing January 1, 1997 (the "Levy Property Budgets") showing all anticipated
revenue and expense, including, without limitation, net operating income,
capital expenditures, and debt service. The Levy Property Budgets set forth an
estimate of projected capital expenditures to be incurred with respect to each
such Levy Property for such fiscal year together with budgeted expenditures for
partnership administration. The Levy Property Budgets were prepared in good
faith and had a reasonable basis when made and were based on assumptions that
the Levy Parties believed to be reasonable when made but no guarantee is given
that the results shown in such budgets will actually be attained. Schedule
9.4(b) is a list of all plans or commitments (whether or not legally binding)
for the Levy Properties for capital expenditures (including, without limitation,
non-recurring maintenance and repair) at or relating to any of the Levy
Properties the cost of which were not included in the Levy Property Budgets.
9.5 LIABILITIES. There are no liabilities (contingent or otherwise) of
any of the Levy Properties which are not set forth in the Levy Property
Financial Statements or disclosed in this Agreement or in a Schedule or Exhibit
hereto.
9.6 INSURANCE. Schedule 9.6 lists all of the policies of insurance of
any kind (other than title insurance) covering each of the Levy Properties and
their respective assets and businesses, setting forth the nature of the
insurance, the insurance carrier, the amount of coverage, deductible amounts and
the owner of and expiration date of such policies. Each of the Levy Properties
has such insurance in such amounts and covering such risks as owners of similar
properties or businesses in the vicinity of such Levy Properties and in the same
industry customarily carry. All such policies of insurance are in full force and
effect and all premiums
74
<PAGE> 172
due thereon for all periods through the Closing Date are or will be on the
Closing Date fully paid. None of the Levy Parties has received any notice of
cancellation or termination with respect to any such policy.
9.7 MATERIAL EVENTS AND CHANGES. Since the dates of their respective
most recent balance sheets:
(a) Except as set forth on Schedule 9.7(a), there has not been a
material adverse change in the condition (financial or otherwise), results of
operations, funds from operations, business, properties, assets, nature of
assets, or liabilities of any of the Levy Properties.
(b) Except as set forth on Schedule 9.7(b), the operations and business
of the Levy Properties have been conducted in all material respects only in the
ordinary course and consistent with past practice.
(c) Except as set forth on Schedule 9.7(c), none of the Levy Properties
has:
(i) suffered any loss, damage, destruction or other casualty
to any Levy Properties or material assets (unless covered by the
insurance policies listed in section 9.6);
(ii) mortgaged, pledged, subjected to or suffered any Lien, or
granted any Lien, in respect of any Levy Properties, or incurred any
Debt;
(iii) defaulted under any Material Agreement, license or
permit; or
(iv) experienced any change in control which is prohibited by
the terms of any note, bond, mortgage, indenture, lease, license,
franchise, agreement or other instrument or obligation by which it or
any of the Levy Properties or its assets are affected or bound.
9.8 NO CONFLICTS OR DEFAULTS; NO VIOLATIONS. Neither the execution,
delivery or performance of this Agreement by any of the Levy Parties nor the
consummation of the transactions contemplated hereby will (with or without the
giving of notice, lapse of time or both): (a) contravene any provisions of any
law, statute, rule or regulation or any order, writ, judgment, injunction or
decree of any court or governmental instrumentality; or (b) except as set forth
on Schedule 9.8, and assuming that each of the consents and approvals set forth
on Schedule 9.9 have been obtained, conflict with or result in any breach of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose), any Lien upon any of the property or assets of
any of the Levy Parties pursuant to the terms of any note, bond, indenture,
mortgage, deed of trust, loan agreement, credit agreement, lease, franchise,
partnership agreement, voting trust or any other agreement, contract or
instrument to which any of the Levy Parties is a party or to which any of their
respective properties or assets is subject (collectively, the "Existing Levy
Agreements").
75
<PAGE> 173
9.9 CONSENTS. Except for any consents identified on Schedule 9.9 ("Levy
Consents"), no approval or consent of, notice to, or filing or registration
with, or authorization, order, license, certificate, or permit of or from, any
governmental authority or any other notice to or consent of any third party is
required in connection with the execution, delivery and performance of, the
legality, validity, binding effect or enforceability of or the consummation of
the transactions contemplated by this Agreement ("Required Consents").
9.10 DEBT. Schedule 9.10 is a complete list of all Debt of each of the
Levy Parties to which the respective Levy Properties or their assets is subject.
None of the Levy Parties is the obligor in respect of and none of the Levy
Properties is security for or subject to any other Debt. The Levy Parties have
delivered to the Company true, complete and correct copies of all agreements,
notes, security documents, guarantees and other documents relating to any Debt
in effect on the date hereof, and each such document is in full force and effect
and has not been further modified, amended or terminated and no party is in
payment default thereunder or any other default thereunder other than immaterial
defaults. On the Closing Date, no Levy Party will have incurred any Debt for
which the Levy Properties are security. None of the Levy Parties has, whether as
obligor, general partner of an obligor, guarantor or otherwise, any liability,
fixed or contingent, for the repayment of any Debt other than the Debt listed on
Schedule 9.10. Each of the Levy Parties is in substantial compliance with the
terms of any Debt for which it is liable or to which the Levy Properties are
subject, no payment defaults exist thereunder and no notice of default with
respect thereto has been received by any of the Levy Parties. As used in this
Agreement, "Debt" means, with respect to any Person, all indebtedness of any
kind to which any Levy Property is subject, including, without limitation, (a)
all indebtedness for borrowed money, (b) all indebtedness for the deferred
purchase price of property or services, (c) all obligations evidenced by notes,
bonds, debentures or other similar instruments (other than performance, surety
and appeal bonds arising in the ordinary course of such Person's business), and
all indebtedness secured by mortgage or other Liens against any of such Person's
property or other assets, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, (e) all obligations under capital leases (as such term
is defined by GAAP), (f) all reimbursement, payment or similar obligations
contingent or otherwise, under acceptance, letter of credit or similar
facilities, (g) any obligations of any of the foregoing kinds of any other
Person which is guaranteed directly or indirectly by such Person or in effect
guaranteed directly or indirectly by such Person, including, without limitation,
through an agreement (i) to pay or purchase such Debt or to advance or supply
funds for the payment or purchase thereof, (ii) to purchase, sell or lease
property or services primarily for the purpose of enabling the debtor to make
payment of such Debt, (iii) to supply funds to or in any other manner invest in
the debtor (including any obligation to pay for goods or services whether or not
received) or (iv) otherwise to insure a creditor against loss in respect of such
Debt, and (h) any Debt of any type of any other Person secured by any Lien or
Encumbrance on any property or assets of any Levy Party.
9.11 TAXES.
(a) No Levy Party is a foreign person within the meaning of Section
1445 of the
76
<PAGE> 174
Code. Schedule 9.11(a) sets forth the tax identification number and office
address within the United States for each Levy Party.
(b) Consummation of the transactions contemplated hereby will not cause
the Company or the Operating Partnership (or any Subsidiary or Affiliate of
either) to be or become liable under any principle, theory, or rule of law,
including, without limitation, rules relating to transferee liability or
fraudulent conveyances or transfers, or by contract for any tax liability of any
Levy Party or any Owner, Subsidiary, or Affiliate of any Levy Party, regardless
of when such tax liability arises or to what period such tax liability relates,
except that this Section 9.11(b) shall not apply to liabilities, relating to
periods commencing after the Closing, of a Levy Party which becomes a Subsidiary
of the Company or the Operating Partnership.
(c) The adjusted basis for Federal income tax purposes of each material
component of each Levy Property projected as of December 31, 1997 (including
specifically, but without limitation, a separate statement of the basis of land,
building, and tenant improvements, and of any adjustments under Section 754 of
the Code relating to them), and the remaining useful life or applicable recovery
period of any such property is set forth on Schedule 9.11(c) hereto.
(d) Except as set forth on Schedule 9.11(d) hereto, all liabilities of
any Levy Party or of any Levy Property which are being assumed or subject to
which property is being taken will, at the time of the Closing, constitute
"qualified liabilities" within the meaning of Treasury Regulation Section
1.707-5.
(e) No lease affecting any of the Levy Properties is a lease to which
section 467(b) of the Code applies.
(f) No Levy Party owns directly or indirectly any "voting securities"
of any "issuer," other than an issuer treated as a partnership for Federal
income tax purposes, as such terms are used in section 856 of the Code.
9.12 MATERIAL AGREEMENTS; MANAGEMENT AGREEMENTS.
(a) Schedule 9.12(a) lists all agreements to which the Levy Properties
are subject (i) that cannot be canceled without penalty within 90 days or (ii)
as to which provision for payments or expenses thereunder are not included in
the Levy Party Budgets or (iii) which are otherwise material to any of the Levy
Parties or Levy Properties (all of such agreements are listed on Schedule
9.12(a), collectively the "Levy Material Agreements"). The Levy Parties have
made available to the Company true, complete and correct copies of each such
Levy Material Agreement. All of such agreements are in full force and effect and
no party is in payment default or any other default thereunder except for
immaterial defaults.
(b) Schedule 9.12(b) is a list of all existing agreements and
arrangements of every kind relating to the management of any of the Levy
Properties or under which any Levy Party pays any management fees or commissions
in respect of any Levy Property (the "Levy
77
<PAGE> 175
Management Agreements") and identifies the Levy Property subject to such
agreement. The Levy Parties have made available true and complete copies of all
such Levy Management Agreements to the Company. On the date hereof, each such
Levy Management Agreement is in full force and effect and no default has
occurred thereunder and, after the transactions contemplated by this Agreement,
each such Levy Management Agreement shall remain in full force and effect in
accordance with its terms. Except for the Levy Management Agreements, there are
no property management agreements or asset management agreements or any other
arrangements (i) under which any Levy Party is the property manager or asset
manager of any Levy Property, (ii) under which any Person is the property
manager or asset manager of any Levy Property or any Levy Party pays any
management fees or commissions in respect of any Levy Property or (iii) which
relates to any Levy Party providing or receiving management, administrative or
bookkeeping services with respect to any Levy Property, or any services that
contribute income to any Levy Party with respect to any Levy Property.
9.13 ENVIRONMENTAL MATTERS.
(a) Definitions: for the purpose of this Agreement, the term
"ENVIRONMENT" shall mean any surface or subsurface physical medium or natural
resource, including, air, land, soil, surface waters, ground waters, stream and
river sediments, biota and any indoor area, surface or physical medium; the term
"ENVIRONMENTAL LAWS" shall mean any federal, state, local or common law, rule,
regulation, ordinance, code, order or judgment (including any judicial or
administrative interpretations, guidances, directives, policy statements or
opinions) relating to the injury to, or the pollution or protection of human
health and safety or the Environment but shall not include the Federal
Occupational Health and Safety Act ("OSHA") or the Americans with Disabilities
Act ("ADA"); the term "ENVIRONMENTAL LIABILITIES" shall mean any claims,
judgments, damages (including punitive damages), losses, penalties, fines,
liabilities, encumbrances, liens, violations, costs and expenses (including
attorneys' and consultants' fees) of investigation, remediation, monitoring or
defense of any matter relating to human health, safety or the Environment of
whatever kind or nature by any party, entity or authority, (i) which are
incurred as a result of (A) the existence of Hazardous Substances in, on, under,
at or emanating from any real property presently or formerly owned, operated or
managed by any of the Levy Parties, (B) the offsite transportation, treatment,
storage or disposal of Hazardous Substances generated by the Levy Parties, (C)
the violation of any Environmental Laws or (ii) which arise under the
Environmental Laws; the term "HAZARDOUS SUBSTANCES" shall mean petroleum,
petroleum products, petroleum-derived substances, radioactive materials,
hazardous wastes, polychlorinated biphenyls, lead based paint, radon, urea
formaldehyde, asbestos or any materials containing asbestos, and any materials
or substances regulated or defined as or included in the definition of
"hazardous substances," "hazardous materials," "hazardous constituents," "toxic
substances," "pollutants," "contaminants" or any similar denomination intended
to classify or regulate substances by reason of toxicity, carcinogenicity,
ignitability, corrosivity or reactivity under any Environmental Law. All
references in this Section to the Levy Parties shall include any subsidiaries
thereto and any predecessors thereto (to the extent the Levy Parties have
Knowledge relating to any such predecessors regarding Hazardous Substances), and
any person or entity the liabilities of which, pursuant to the Environmental
Laws, contractually, by common
78
<PAGE> 176
law, by operation of law or otherwise, any of the Levy Parties may have
succeeded to; "Old Environmental Reports" shall mean the environmental reports,
as of a date prior to ________, 1997, describing the environmental condition of
the Properties, which have been supplied to the Company by the Levy Parties.
(b) Levy has no knowledge (A) that the Old Environmental Reports
contain any untrue statement of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or (B) that the Old Environmental Reports
fail to contain any material fact required to accurately describe the
environmental condition of the Levy Properties with respect to:
(i) all of the current and past operations of the Levy
Properties, including any operations at or from any real property
presently or formerly owned, used, leased, occupied, managed or
operated by any of the Levy Parties with respect to the Levy Properties
(collectively, the "Real Property"), failing to comply and at all times
having complied with all applicable Environmental Laws;
(ii) the Levy Parties or, to the knowledge of any Levy Party,
any other person or entity, having engaged in, authorizing, allowing or
suffering any operations or activities upon any of the Real Property
for the purpose of or in any way involving the handling, manufacture,
treatment, processing, storage, use, generation, release, discharge,
spilling, emission, dumping or disposal of any Hazardous Substances at,
on, under or from the Real Property, except in full compliance with all
applicable Environmental Laws;
(iii) the Assets or the Real Property containing any Hazardous
Substances in, on, over, under or at it, in concentrations which would
presently violate any applicable Environmental Laws or would be
reasonably likely to result in the imposition of liability or
obligations on the present owner, manager, or operator of the Real
Property under any applicable Environmental Laws, including any
liability or obligations for the investigation, corrective action,
remediation or monitoring of Hazardous Substances in, on, over, under
or at the Real Property;
(iv) the Real Property being listed or proposed for listing on
the National Priorities List pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42
U.S.C. ss. 9601 ET SEQ., or any similar inventory of sites requiring
investigation or remediation maintained by any state or locality;
(v) the Levy Parties receiving any written notice from any
governmental entity or third party of any actual or threatened
Environmental Liabilities with respect to the Real Property, the Assets
or the conduct of any of the Levy Parties' businesses that are the
subject of this Agreement;
(vi) the existence of underground storage tanks, asbestos or
asbestos
79
<PAGE> 177
containing materials, polychlorinated biphenyls, urea formaldehyde, or
other Hazardous Substances (other than small quantities of Hazardous
Substances for use in the ordinary course of the businesses of the Levy
Parties with respect to the Levy Properties or tenants of the Levy
Properties, which are stored and maintained in accordance and full
compliance with all applicable Environmental Laws) in, on, over, under
or at any Real Property;
(vii) the existence of conditions existing at any Real
Property or with respect to the Assets, that require or in the future
will reasonably likely require remedial or corrective action, removal,
monitoring or closure pursuant to the Environmental Laws;
(viii) the failure of the Levy Parties to have obtained all
the permits, licenses, authorizations and approvals necessary for the
conduct of its businesses and for the operations on, in or at the Real
Property, which are required under applicable Environmental Laws or the
noncompliance with the terms and conditions of all such permits, or the
inability of the Operating Partnership following the consummation of
this Agreement and the transactions contemplated hereby to continue
operation of the Real Property in compliance with Environmental Laws;
(ix) the failure of the Levy Parties to have provided to the
Company all environmental reports, assessments, audits, studies,
investigations, data, and other written environmental information
obtained since March 15, 1994 in their custody, possession or control
concerning the Levy Properties and the Real Property;
(x) the nondisclosure by the Levy Parties to the Company of
instances where any Levy Party has contractually, by operation of law,
by the Environmental Laws, by common law or otherwise assumed or
succeeded to any Environmental Liabilities of any predecessors or any
other person or entity.
9.14 INVESTMENT COMPANY. None of the Levy Parties is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
9.15 EMPLOYEES. With respect to the Levy Properties, the Levy Parties
have no current employees and have never had any employees and none is currently
or has ever been a party to or otherwise bound by any collective bargaining
agreement or other employment agreement or arrangement (whether or not legally
binding).
9.16 EMPLOYEE BENEFITS.
(a) Except as listed on Schedule 9.16, there are and have been no
"employee benefit plans," within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any other
bonus, profit sharing, compensation, pension, severance, deferred compensation,
fringe benefit, insurance, welfare, medical, post-retirement
80
<PAGE> 178
health or welfare benefit, medical reimbursement, health, life, stock option,
stock purchase, tuition refund, service award, company car, scholarship,
relocation, disability, accident, sick pay, sick leave, vacation, termination,
individual employment, executive compensation, incentive, bonus, commission,
payroll practices, retention or other plan, agreement, policy, trust fund or
arrangement, maintained, sponsored or contributed to by any of the Levy Parties
or any entity that would now or in the past be deemed a "single employer" with
any of the Levy Parties under Section 414(b), (c), (m) or (o) of the Code or
Section 4001 of ERISA (an "ERISA Affiliate") on behalf of any employee of any of
the Levy Parties (whether current, former or retired) or their beneficiaries or
with respect to which any of the Levy Parties or any ERISA Affiliate has or has
had any obligation on behalf of any such employee or beneficiary. No "prohibited
transaction," as defined in section 406 of ERISA, has occurred with respect to
any such plan, agreement, policy, trust fund, or arrangement that has been so
maintained, sponsored or contributed to, if any (collectively, if any, the "Levy
Plans"). No Levy Party or ERISA Affiliate has failed to comply with any health
care continuation coverage requirements or related notice requirements under
section 601 ET SEQ. of ERISA and section 4980B of the Code. There are no pending
or ongoing audits, inquiries, or investigations by any governmental agency with
respect to, or pending actions, claims, or lawsuits which have been asserted
against, any Levy Plan or the assets of any trusts under, or the plan sponsor,
plan administrator, or trustee or other fiduciary of any Levy Plans (except for
routine benefit claims or routine expenses). All returns, reports, and notices
for any Levy Plan which are required under the Code, ERISA, or any other
applicable law (and the regulations thereunder) have been timely provided to the
applicable governmental, agencies, employees, participants, or beneficiaries.
9.17 LITIGATION AND CLAIMS. Except as set forth on Schedule 9.17, there
is no litigation, arbitration, claim, governmental or other proceeding (formal
or informal), or investigation pending, or, to the Knowledge of Levy,
threatened, with respect to any Levy Parties or any of their respective
businesses, properties or assets, other than relating to routine landlord-
tenant matters, or negligence lawsuits covered by insurance or vendor claims
under $10,000, the effect of which if decided unfavorably to the Levy Parties
would have a material adverse effect on any of the Levy Parties. None of the
Levy Parties is: (i) in violation of or in default under any order, judgment or
decree with respect to the Levy Properties, (ii) in violation of any law, rule,
or regulation, which violation would have a material adverse effect upon any of
the Levy Properties or (iii) required to take any action in order to avoid such
violation or default. The litigation listed on Schedule 9.17 will not prohibit
the consummation of any of the transactions contemplated hereby.
9.18 QUESTIONABLE PAYMENTS. None of the Levy Parties in connection with
the Levy Properties, nor any director, officer, partner, agent, employee, or
other Person associated with or acting on behalf of any of them has, directly or
indirectly: used any corporate or partnership funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any false
81
<PAGE> 179
or fictitious entry on its books or records; made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment; given any favor or gift
which is not deductible for federal income tax purposes; or made any bribe,
kickback, or other payment of a similar or comparable nature, whether lawful or
not, to any Person regardless of form, whether in money, property, or services,
to obtain favorable treatment in securing business or to obtain special
concessions, or to pay for favorable treatment for business secured or for
special concessions already obtained.
9.19 BOOKS AND RECORDS; BANK ACCOUNTS.
(a) The books and records with respect to each of the Levy Properties
are complete and correct in all material respects.
(b) Levy has delivered to the Document Custodian accurate lists of all
of the bank and brokerage accounts with respect to each of the Levy Properties
and the authorized signatories for such accounts.
9.20 COMPLETENESS OF DISCLOSURE. No representation or warranty by any
of the Levy Parties in this Agreement or any Related Document contains, or when
delivered will contain, an untrue statement of a material fact or omits, or when
delivered will omit, to state a material fact required to be stated therein or
necessary, in light of the circumstances in which such statements are made, to
make the statements made therein not misleading.
9.21 SOLVENCY. For purposes of applicable federal and state laws
governing determinations of the insolvency of debtors, or relating to fraudulent
conveyance, or otherwise with respect to creditors' rights, or similar judicial
doctrines: on the Closing Date after giving effect to the transactions
contemplated hereby, (i) the amount of the "present fair saleable value" of the
assets of each of the Levy Properties will, as of such date, exceed the amount
of all "liabilities of such Person, contingent or otherwise", as of such date,
as such quoted terms are determined in accordance with such laws and doctrines,
(ii) the present fair saleable value of the assets of each of the Levy
Properties will, as of such date, be greater than the amount that will be
required to pay all liabilities for debts in connection with each Levy Property
as such debts become absolute and matured, (iii) none of the Levy Parties will
have, as of such date, an unreasonably small amount of capital with which to
conduct the business relating to each Levy Property, (iv) the Levy Parties will
be able to pay the debts relating to the Levy Properties as they mature and (v)
the consideration to be received by each Levy Party hereunder for the assets to
be sold by such Levy Party hereunder is not less than the "present fair saleable
value" of such assets. For purposes of this Section 9.21, "debt" means
"liability on a claim", "claim" means any (x) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured, and (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed or undisputed, secured or unsecured.
82
<PAGE> 180
9.22 ABSENCE OF INDUCEMENT. To the Knowledge of Levy, in entering into
this Agreement, none of the Levy Parties has been induced by, or relied upon,
any representations, warranties or statements by the Company or the Operating
Partnership (or its Affiliates) not set forth or referred to in this Agreement
or the Related Documents, whether or not such representations, warranties or
statement have actually been made, in writing or orally, and Levy acknowledges
that, in entering into this Agreement, the Company has been induced by and
relied upon the representations and warranties of the Levy Parties herein or
therein set forth.
9.23 PROXY INFORMATION. None of the information supplied or to be
supplied by Levy, or to the Knowledge of Levy, by the Levy Parties or any of
their respective Affiliates, directors, officers, employees, agents or
representatives for inclusion in the Proxy Statement or any other document filed
or to be filed with the Commission or any Governmental Body in connection with
the transactions contemplated by this Agreement will, at the time it is
provided, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading.
9.24 ACCREDITED INVESTOR. Each of the Levy Parties which is to acquire
OP Units at the Closing (i) will be acquiring the OP Units for the purpose of
investment only and not with a view to distribution thereof in violation of the
Securities Act, (ii) has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks of
acquiring the OP Units and will be able to bear the economic risk of such
investment, (iii) is an "accredited investor" within the meaning of Rule 501(a)
of Regulation D under the Securities Act, (iv) is a resident of the State set
forth on Schedule 9.24 and is not domiciled in nor a resident of California (nor
is any direct or indirect owner of any such Person domiciled in or a resident of
California), (v) has had access to, or been furnished with, all information
about the OP Units and the transactions contemplated hereby as he, she or it has
deemed necessary and (vi) is not a "benefit plan investor" within the meaning of
29 C.F.R. Section 2510.3-101.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties,
as of the date hereof and as of the Closing Date:
10.1 ORGANIZATION OF THE COMPANY; AUTHORIZATION; CAPITALIZATION.
(a) The Company is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority to execute and deliver this Agreement and any other
agreements contemplated hereby and, subject to obtaining the consent of its
shareholders, to perform its obligations hereunder and thereunder. The
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board
83
<PAGE> 181
of Directors of the Company and by all other necessary action, subject to the
approval of the Company's shareholders and the New York Stock Exchange. This
Agreement constitutes a valid and binding obligation of the Company, enforceable
against it in accordance with its terms. The Company has delivered to the other
parties true and complete copies of its Certificate of Incorporation and
By-Laws, as amended and in effect on the date hereof. At the Closing, the
Company shall deliver to the other parties certified copies of the resolutions
adopted by its Board of Directors and shareholders to authorize the execution,
delivery and performance of this Agreement and any other agreements contemplated
hereby.
(b) The authorized capital stock of the Company consists of 10 million
Shares of Common Stock, par value $.01 per share, of which, as of June 30, 1997,
7,966,621 Shares were issued and outstanding. All outstanding Shares of the
Company have been validly issued, and are fully paid and nonassessable. Except
as provided in this Agreement or reflected in the Company SEC Filings, there are
no outstanding subscriptions, options, rights, warrants, convertible securities
or other agreements or calls, demands or commitments of any kind relating to the
issuance, sale or transfer of the Shares.
10.2 COMPANY REPORTS AND FINANCIAL STATEMENTS. The Company has
heretofore made available to the Contributing Parties true and complete copies
of all reports, registration statements, definitive proxy statements and other
documents (in each case together with all amendments thereto) filed by the
Company with the SEC since January 1, 1994 (such reports, registration
statements, definitive proxy statements and other documents, together with any
amendments thereto, collectively referred to as the "Company SEC Filings"). The
Company SEC Filings constitute all of the documents (other than preliminary
material) that the Company was required to file with the SEC since such date. As
of their respective dates, each of the Company SEC Filings complied in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act and the rules and regulations under each such Act (except to the
extent set forth on the comment letter dated June 30, 1997 received by the
Company from the SEC), and none of the Company SEC Filings contained as of such
date any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (except
that no representation or warranty is made with respect to any information
regarding Drexel, Royce, Reorganized Drexel or any of the Meshon Parties, Levy
Parties or any of their respective Affiliates, directors, officers or employees,
or otherwise relating to the transactions contemplated hereby, included in the
Company SEC Filings which was furnished by any of them expressly for use
therein). When filed with the SEC, the financial statements (the "Company
Financial Statements") included in the Company SEC Filings complied as to form
in all material respects with the applicable rules and regulations of the SEC
and were prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated therein or in the notes or
schedules thereto), and such financial statements fairly present the
consolidated financial position of the Company and its consolidated Subsidiaries
as at the dates thereof and the consolidated results of their operations and
their consolidated cash flows for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal, recurring year-end
audit adjustments. Except as and to the extent reflected or reserved against in
84
<PAGE> 182
the Company Financial Statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996, or as disclosed therein, neither the
Company nor any of the Company's Subsidiaries had, as of such date, any
liability or obligation of any kind required to be reflected on a balance sheet
(including in a footnote) of the Company and its consolidated Subsidiaries
prepared in accordance with the applicable rules and regulations of the SEC
which was material to the business, assets, results of operations or financial
condition of the Company and its Subsidiaries, taken as a whole.
10.3 COMPANY REIT STATUS. Since the election was made by the Company to
be taxed as a real estate investment trust in 1982 through and including the
Closing Date, the Company has satisfied the requirements contained in Section
856 of the Code and the regulations thereunder to be treated as a real estate
investment trust and has made all distributions required by Section 857(a)(1) of
the Code.
10.4 ABSENCE OF INDUCEMENT. In entering into this Agreement the Company
has not been induced by, or relied upon, any representations, warranties or
statements by the other parties hereto not set forth or referred to in this
Agreement or the Related Documents, whether or not such representations,
warranties or statement have actually been made, in writing or orally, and the
Company acknowledges that, in entering into this Agreement, the other parties
hereto have been induced by and relied upon the representations and warranties
of the Company herein or therein set forth.
10.5 COLLATERALIZED MORTGAGE OBLIGATIONS; OTHER MATTERS.
(a) The Company has delivered true and correct copies to Meshon of the
following documents: (i) Indenture dated as of December 30, 1991 between
Recreation Mortgages, Inc. ("Issuer") and Bankers Trust Company ("Trustee")
Collateralized Mortgage Obligations "Century Village Leases" Series 1991-1 due
March 15, 2007 ("CMO"); (ii) Servicing Agreement dated December 3, 1991 between
Company as "Servicer" and Issuer ("Servicing Agreement"); (iii) Undertaking
dated December 30, 1991 among Lehman Commercial Paper, Inc., Company and Issuer
("Undertaking"); and (iv) Private Placement Memorandum dated December 30, 1991
relating to issuance of the CMO. The Agreements listed in Schedule 10.5(a) are
in full force and effect and to the Company's knowledge no party is in payment
default or material other default thereunder. Schedule 10.5(a) lists all
material agreements to which the Company is a party in connection with the CMO.
(b) To the Company's knowledge, as of the date hereof and as of the
Closing Date no recourse may be taken by the Trustee, directly or indirectly,
against the Company as a result of any default by the Issuer under its
obligations with respect to the CMO or the aforesaid Servicing Agreement.
(c) The Company has received no notices of default from the Issuer or
the Trustee under the Servicing Agreement or the Undertaking. On the Closing
Date, the Company will have delivered to Meshon and Levy a copy any annual
statements as to compliance, financial
85
<PAGE> 183
statements and other miscellaneous reports and schedules provided to the Trustee
under the Servicing Agreement.
(d) To the Company's knowledge, the amount on deposit in the
"Distribution Account" and the "Custodial Account" (each defined in the
Servicing Agreement) are sufficient to meet all current obligations due under
the CMO's.
(e) The Company is maintaining all insurance and Fidelity Bonds
required to be maintained under the terms of the Servicing Agreement.
(f) The representations and warranties made by the Company and Issuer
pursuant to the terms of the Undertaking remain true and correct in all material
respects as of the date hereof.
(g) The Company owes no obligations to the Issuer under the terms of a
Tax Indemnity Agreement among Company, the Issuer and the Trustee dated as of
December 30, 1991.
(h) The Company has delivered true and correct copies of the following:
1. Mortgage and Promissory Note from H. Irwin Levy,
dated 12/31/81, relating to the recreation facilities
at Century Village at Boca Raton.
2. Mortgage and Promissory Note from the Benenson
Capital Company, dated 1/15/82, relating to the
recreation facilities at Century Village at West Palm
Beach.
3. Mortgage and Promissory Note from CVRF Deerfield,
Limited, dated 1/15/82, relating to the recreation
facilities in Boca Raton.
4. Title Insurance Policy, issued by Chicago Title
Insurance Company, Policy No. 10220404000142, on the
Administration Building in Century Village at West
Palm Beach, Florida.
5. Mortgage Title Insurance Policy, issued by First
American Title Insurance Company, to CV Reit, Inc.,
Policy No. FAS-20526, relating to CV Reit's mortgages
on property owned by certain subsidiaries of Hilcoast
Development Corp.
6. Form of Long Term Lease between C.V.P. Community
Center, Inc. and a Unit Owner relating to Century
Village at Pembroke Pines, Broward County, Florida.
7. Lease dated November 8, 1988, as amended November 4,
1991 and March 10, 1995 between Cenvill Investors,
Inc., and Century Inn Operating Corp.
86
<PAGE> 184
for Days Inn.
8. Restated Loan Agreement dated as of July 31, 1992 by
and among Cenvill Development Corp., CV Reit, Inc.,
et. al.
9. Amended and Restated Certificate of Limited
Partnership of LG 75 (Warehouse) dated May 20, 1991,
amended March 30, 1992.
10. Amended and Restated Agreement of Partnership of LG
78 (Warehouse) Partnership dated on or about May 31,
1991.
11. Amended and Restated Agreement of Partnership
Interest in LG 76 (Warehouse) dated on or about May
31, 1991.
12. Assignment of General Partnership Interest in LG 76
(Warehouse), a general partnership dated June 11,
1991.
13. Assignment of General and Limited Partnership
Interest in LG 75, a limited partnership dated June
11, 1991.
14. Assignment of General and Limited Partnership
Interest in LG 78, a general partnership dated June
11, 1991.
15. List of Other Assets dated May 31, 1997 provided by
Jack Javien.
(i) The Company shall not incur any additional commitments to Hilcoast,
other than are presently required or in the ordinary course under the terms of
the Agreements now in force with Hilcoast and listed on Schedule 10.5(i)
("Hilcoast Documents") nor shall the Company amend or modify the Hilcoast
Documents prior to the Closing without the consent of Meshon. To the knowledge
of the Company, Hilcoast is not in material default under the terms of the
Hilcoast Documents nor has the Company received any notice from Hilcoast that
the Company is in material default under the Hilcoast Documents.
11. ADDITIONAL COVENANTS.
11.1 COMPANY CORPORATE ACTIONS.
(a) COMPANY SHAREHOLDER MEETING; PROXY STATEMENT. Subject to the
fiduciary duties of the Board of Directors of the Company under applicable law
(as determined by such Board in good faith after consultation with and based
upon advice of counsel), in accordance with the applicable law of the State of
Delaware and its Certificate of Incorporation and By-Laws, and the policies and
regulations of The New York Stock Exchange Inc., the Company shall take all
action necessary to convene a meeting of its shareholders as soon as practicable
after receipt of
87
<PAGE> 185
all necessary information from the other parties hereto to consider and vote to
approve the transactions contemplated hereby requiring shareholder approval.
Subject to the fiduciary duties of the Board of Directors of the Company under
applicable law (as determined by the Board in good faith and after consultation
with and based upon the advice of counsel), (x) the Proxy Statement shall
contain the recommendation of the Company's Board of Directors in favor of
approval of such transactions, and the nomination of the nominees set forth on
Schedule 11.1 for election, subject to consummation of the transactions
contemplated by this Agreement, as Directors of the Company in the classes set
forth on that Schedule (provided, that the Company shall be required to nominate
the Persons designated as Meshon nominees only if all the transactions with the
Meshon Parties contemplated by this Agreement shall be consummated (or waived by
the Company), (y) such Board of Directors shall recommend that the shareholders
of the Company vote to approve such transactions and elect such Directors
subject to consummation of such transactions and (z) the Company shall use
commercially reasonable efforts to solicit from shareholders of the Company
proxies in favor of approval of such transactions and election of such
Directors.
(b) On or prior to the date of the shareholders meeting, the Company
will deliver to Meshon a document signed by each of the persons listed on
Schedule N in which he or she has agreed, for the benefit of the parties hereto,
that at the shareholder's meeting so called he or she will vote all Shares of
the Company's Common Stock he or she owns in favor of the transactions
contemplated hereby.
(c) PROXY STATEMENTS; OTHER FILINGS. (i) As soon as practicable,
subject to New York Stock Exchange approval, the Company shall prepare, and the
Company shall file with the SEC under the Exchange Act, and shall use
commercially reasonable efforts to have cleared by the SEC and promptly
thereafter shall mail to its shareholders, a proxy statement and a form of proxy
with respect to the meeting of the Company's shareholders referred to in
subparagraph (a) above. The term "Proxy Statement" shall mean each such proxy
statement and all related proxy materials including, without limitation, the
notice of meeting, letter to shareholders and form of proxy at the time such
statement and materials initially are mailed to the Company's shareholders, and
all amendments and supplements thereto, if any, similarly filed and mailed. In
connection with the Company's preparation of the Proxy Statement, Royce, Drexel,
the Meshon Parties and the Levy Parties shall provide to the Company a
description of the business of Royce, Drexel, Reorganized Drexel, the Meshon
Parties and the Levy Parties and their respective Affiliates, a description of
the assets which each is transferring or contributing pursuant to this Agreement
(the "Participating Assets"), biographies (which comply with the rules of the
Exchange Act) of those persons who will serve as officers of the Company or the
Operating Partnership or Reorganized Drexel, the financial statements referred
to in Section 11.2 below and such other information with respect to the
applicable Participating Assets, Royce, Drexel, Reorganized Drexel, the Meshon
Parties and the Levy Parties and other Affiliates, officers, directors and
employees as the Company shall reasonably request. As soon as practicable after
the date hereof, the Company, Drexel, Royce and the Meshon Parties and the Levy
Parties shall promptly prepare and file any other filings required to be filed
by any of them under the Exchange Act or any other federal or state law relating
to the transactions contemplated hereby.
88
<PAGE> 186
The Company, Drexel, Royce and the Meshon Parties and the Levy Parties shall use
commercially reasonable efforts to obtain and furnish the information required
to be included in the Proxy Statement and any other filings. The Company shall
use commercially reasonable efforts to respond promptly to any comments made by
the SEC with respect to the Proxy Statement and any preliminary version thereof.
(d) Between the date hereof and the Closing, the Company will not
solicit any Person to make a proposal for the purchase of the Shares of all or
substantially all the assets of the Company or to make a tender offer or offer
to merge with or into the Company. Nothing herein shall prevent the Company and
its officers and Directors, in the exercise of their fiduciary duty, from having
any discussions or negotiations with the proponents of any such transaction
which is unsolicited.
11.2 FINANCIAL STATEMENTS. (a) As soon as practicable, Drexel, Royce,
the Meshon Parties and the Levy Parties shall cause to be prepared and delivered
to the other parties (i) a combined audited statement of income of the
Participating Assets each party is contributing for all required years, for such
periods required by and prepared in accordance with Rule 3-14 of Regulation S-X
promulgated by the SEC, together with the report thereon of BDO Seidman or Grant
Thornton or other certified public accountant satisfactory to BDO Seidman, (ii)
an unaudited combined statement of income of the Participating Assets each party
is contributing for an additional period including the notes thereto, and (iii)
any updates of such financial statements needed to satisfy the requirements of
Rule 3-12 of Regulation S-X of the SEC's rules (or any other applicable rules)
in connection with the mailing of the Proxy Statement and all other financial
statements, footnotes, schedules or other statements required by the SEC or the
New York Stock Exchange in connection with the transactions contemplated hereby.
When these financial statements are delivered, such financial statements shall
be true and correct in all material respects and fairly present the assets,
liabilities and financial condition and the results of operations of the
Participating Assets as at the respective dates thereof and for the periods
therein referred to, all in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, subject, in the
case of unaudited interim financial statements, to normal, recurring year-end
audit adjustments.
(b) The Meshon Parties and the Levy Parties shall each deliver to the
Company (i) an unaudited pro forma combined balance sheet of the Participating
Assets each party is contributing to the Operating Partnership and any other
necessary party for all required dates (which balance sheet assumes that the
transactions contemplated hereby occurred on such dates), (ii) related unaudited
pro forma combined statements of income for the year ended December 31, 1996 and
for all required subsequent periods (which statements assume that the
transactions contemplated occurred on an appropriate date), and (iii) any
updates of such financial statements needed to satisfy the requirements of Rule
3-12 of Regulation S-X of the SEC's rules in connection with the mailing of the
Proxy Statement. When delivered, such financial statements will comply with the
applicable accounting requirements of the Exchange Act (including the rules and
regulations promulgated thereunder). The pro forma adjustments reflected in such
financial statements will have been properly applied to the historical amounts.
89
<PAGE> 187
(c) The Meshon Parties and the Levy Parties shall each deliver to the
Company an adjusted unaudited statement of pro forma funds from operations and
estimated pro forma cash flows from operating activities required to be included
in the proformas required for the Company, the Operating Partnership and any
other necessary party for an appropriate period in form required by SEC rules
(assuming that the transactions contemplated hereby had been consummated as of
such date (such party's "Distribution Pro Forma")). The Distribution Pro Forma
shall be true and correct in all material respects, except that no
representation or warranty is made with respect to the results from operations
from the Company and its properties. Meshon and the other parties shall deliver
to the Company an updated Distribution Pro Forma, prepared on a basis consistent
with the Distribution Pro Forma, that reflects the audited results from
operations of the Participating Assets for the year ended December 31, 1996 or
such other date as shall be required (the "Updated Distribution Pro Forma").
When delivered, the Updated Distribution Pro Forma shall be true and correct in
all material respects and the adjustments reflected in such financial statement
will have been properly applied to historical amounts.
(d) Each of the parties shall timely prepare all such information as
relates to the assets and properties being transferred by such party and the
business heretofore conducted therewith to enable the Company to prepare the
financial statements required in connection with the transactions contemplated
hereby. Prior to the delivery of any financial statements to the SEC pursuant to
this Section, the Company shall deliver to Meshon, on behalf of the other
parties, drafts of such financial statements and shall give the other parties a
reasonable opportunity to comment upon such drafts.
11.3 OFFERING TO MESHON PARTIES. (a) Prior to the date hereof Meshon
has prepared full disclosure information for Meshon Parties signing this
Agreement containing all information requested by them and any other
information, if any, required to be furnished to offerees of the OP Units under
Rule 506 promulgated under the Securities Act. Meshon has delivered to the
Company copies of all such information provided. As promptly as practicable in
connection with the offering of the OP Units pursuant to the transactions
contemplated hereby, Meshon shall, with the consent of the Company, (a) make any
filings required under any blue sky or state securities laws, and (b) following
the actions specified in clause (a), complete the offering of OP Units and in
connection therewith comply with all applicable federal and state securities
laws to ensure that the offer and sale of the OP Units will be exempt from the
registration requirements of such laws. Meshon shall cause its counsel to
deliver to the Company no later than the date the Proxy Statement is to be
mailed an opinion of counsel, in form and substance reasonably satisfactory to
the Company, with respect to the offering of OP Units to the Meshon Parties and
their respective affiliates.
(b) Meshon has offered OP Units only to the Meshon Parties and their
Affiliates, each of which is an accredited investor.
(c) Meshon has received questionnaires from each of such offerees which
include, on behalf of the Company and the Operating Partnership, a written
representation from each such offeree to the effect that such offeree (i) will
be acquiring the OP Units for the purpose of
90
<PAGE> 188
investment only and not with a view to distribution thereof in violation of the
Securities Act, (ii) has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of acquiring the
OP Units and will be able to bear the economic risk of such investment, (iii) is
an "accredited investor" within the meaning of Rule 501(a) of Regulation D under
the Securities Act on the basis set forth in such questionnaire, (iv) is not
domiciled in nor is a resident of California (nor is any direct or indirect
owner of any such member domiciled in or a resident of California), (v) has
reviewed with counsel the disclosure information provided and has had access to,
or been furnished with, all information about the OP Units as he or it has
deemed necessary and (vi) is not a "benefit plan investor" within the meaning of
29 C.F.R. Section 2510.3-101.
(d) Neither the Company, the Operating Partnership, the Meshon Parties,
the Levy Parties nor Reorganized Royce shall make any representations regarding
the offering of the OP Units except as set forth in this Agreement.
11.4 ACCESS. Between the date hereof and the Closing, at all reasonable
times and on reasonable notice, each of the parties shall cooperate with the
other parties and their representatives and promptly provide all such other
information and access to all such records, employees and agents as any other
party shall reasonably request in connection with its due diligence activities.
Each party shall conduct its due diligence activities in a manner designed to
minimize interference with the business of any other party.
11.5 PUBLIC ANNOUNCEMENTS. None of the parties hereto other than the
Company shall (and each such party shall use its reasonable efforts to cause its
Affiliates, directors, trustees, officers, employees, agents and representatives
not to), issue any press release, make any public announcement or furnish any
written statement to its employees or shareholders generally concerning the
transactions contemplated hereby without the consent of the Company (which
consent shall not be unreasonably withheld). On the date hereof, the Company
shall issue the press release attached hereto as Exhibit S.
11.6 INDEMNIFICATION AND INSURANCE.
(a) In the event of any threatened, pending or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any of the present or former officers or directors (the
"Managers") of the Company or Hilcoast Development Corp. or Hilcoast Advisory
Services, Inc. (collectively, "Hilcoast") is, or is threatened to be, made a
party by reason of the fact that he or it is or was a director, officer,
employee or agent of the Company or Hilcoast, or is or was serving at the
request of the Company or Hilcoast as a trustee, director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, whether before or after the Closing, the Company shall defend
against such claim, action, fact, proceeding or investigation and respond
promptly thereto, which obligation of the Company shall include, without
limitation, defense of and indemnification for the claims and proceedings
against H. Irwin Levy (who shall be deemed a Manager and Indemnified Party under
this Section 11.6) in
91
<PAGE> 189
the pending litigation captioned TGI Development, Inc. v. CV REIT, INC. pending
in the Circuit Court for the Fifteenth Judicial Circuit, Palm Beach County,
Florida Civil Division Case No. CL 89-4073 AJ, and any related litigation now or
hereafter pending. It is understood and agreed that the Company shall indemnify
and hold harmless, as and to the full extent permitted by applicable law, each
such Manager against any losses, claims, damages, liabilities, costs, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any such claim, action, suit, proceeding or investigation, and
in the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Closing), (i) the Company shall retain
counsel satisfactory to them and shall pay all fees and expenses of such counsel
for the Managers promptly as statements therefor are received and (ii) the
Company will use its best efforts to assist in the vigorous defense of any such
matter; provided that the Company shall not be liable for any settlement
effected without its prior written consent (which consent shall not be
unreasonably withheld); and provided further that the Company shall have no
obligation hereunder to any Manager when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that indemnification of such Manager in the
manner contemplated hereby is prohibited by applicable law. Any Manager wishing
to claim indemnification under this Section 11.6, upon learning of any such
claim, action, suit, proceeding or investigation, shall notify the Company
thereof.
(b) The Company and the other Parties hereto each acknowledges and
agrees that all rights to indemnification existing in favor of the present or
former trustees, directors, officers, employees, fiduciaries and agents of the
Company or any of its Subsidiaries (collectively, the "Indemnified Parties") as
provided in the Company's Certificate of Incorporation or By-Laws or the
certificate or articles of incorporation, by-laws or similar documents of any of
the Company's Subsidiaries as in effect as of the date hereof with respect to
matters occurring prior to the Closing shall survive the Closing and shall not
be amended in a manner which would have the effect of limiting such
indemnification rights for any period of time. The Company shall cause to be
maintained in effect for not less than five years from the Closing directors'
and officers' liability insurance with a policy limit of not less than
$5,000,000 and, except for the policy limit, containing terms and conditions
which are no less advantageous than the terms and conditions included in the
Company's current directors' and officers' liability policies.
(c) Each of the Managers and the Indemnified Parties shall be deemed
third party beneficiaries of the provisions of this Section.
11.7 REPRESENTATIONS AND WARRANTIES; PROXY INFORMATION.
(a) Between the date of this Agreement and the Closing Date, the
Company shall give prompt notice to Meshon (on behalf of the Meshon Parties),
and Meshon (on his own behalf and also on behalf of each of the Meshon Parties)
shall give prompt notice to the Company, of: (i) the occurrence, or failure to
occur, of any event that would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date of this Agreement to the Closing Date (except for
changes permitted or contemplated by this Agreement), (ii) any failure of the
Meshon Parties, on the one hand, or the
92
<PAGE> 190
Company, on the other hand, to comply with or satisfy, in any material respect,
any covenant, condition or agreement to be complied with by any of them under
this Agreement, (iii) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated hereby or that such transactions
otherwise may violate the rights of or confer remedies upon such third party and
(iv) any notice of, or other communication relating to, any litigation or any
order or judgment entered or rendered therein.
(b) Between the date of the mailing of the Proxy Statement to the
Company's shareholders and the Closing Date, each of the Meshon Parties and Levy
Parties shall immediately notify the Company of any material change in the
information supplied by it or any of their respective Affiliates, directors,
officers, agents or representatives for inclusion in the Proxy Statement. The
parties acknowledge that time is of the essence with respect to this
undertaking.
11.8 APPROVALS. Each of the Meshon Parties and Levy Parties and the
Company shall as promptly as practicable, (a) use commercially reasonable
efforts to obtain all Required Consents to be obtained by each of them, and give
all necessary notices to and make all necessary filings with and applications
and submissions to, any Governmental Body or other Person in connection with the
consummation of the transactions contemplated hereby, and (b) cooperate with the
reasonable requests of any other party in connection with the foregoing.
11.9 CONDUCT OF BUSINESS PRIOR TO THE CLOSING. Between the date of this
Agreement and the Closing Date, the Meshon Parties shall not (and shall not
permit any Meshon Partnership, Drexel, Royce or Reorganized Drexel to), and the
Company shall not except, in the case of any such entity other than the Company,
with the consent of the Company, or in the case of the Company, the Consent of
Meshon (which consent shall not be unreasonably withheld) except as specifically
contemplated by this Agreement:
(1) make any changes or amendment of its Organizational
Documents, except for, in the case of the Company, the Charter
Amendments contemplated by this Agreement;
(2) issue, sell or otherwise dispose of any of its Equity
Securities, or create, sell or otherwise dispose of any options,
rights, conversion rights or other agreements or commitments of any
kind relating to the issuance, sale or disposition of any of its Equity
Securities;
(3) declare or pay any dividends in cash, securities or other
property, make any other distribution with respect to its Equity
Securities or acquire, directly or indirectly, by redemption or
otherwise, any of its Equity Securities, except for, in the case of the
Company, regular quarterly dividends of $0.29 per share payable on the
Shares and, in the case of the Meshon Partnerships, cash distributions
to partners pursuant to the applicable partnership agreement;
93
<PAGE> 191
(4) reclassify, split up or otherwise change any of its Equity
Securities;
(5) be party to any merger, consolidation or other business
combination except, in the case of Drexel as contemplated by this
Agreement;
(6) organize any new Subsidiary or acquire any Equity
Securities of any Person or any equity or ownership interest in any
business, except for the formation of wholly owned Affiliates of the
Company and the Operating Partnership;
(7) borrow any funds or otherwise become subject to, whether
directly or by way of guarantee or otherwise, any indebtedness for
borrowed money or other debt, except for the refinancing of
indebtedness paid at maturity through short-term borrowings which
mature on or before the Closing Date;
(8) prepay any obligation having a maturity of more than 90
days from the date it was issued and incurred;
(9) conduct its business other than in the ordinary course
consistent with past practice;
(10) take any action (or omit to take any action) which would
cause any of its representations or warranties not to be complete and
correct on the Closing Date;
(11) enter into any agreement or commitment that restricts it
from carrying on any business anywhere in the world;
(12) waive any claims or rights of substantial value;
(13) acquire or dispose of any material amounts of property or
assets or any rights therein, except that the Company may sell its
direct and/or indirect interests in, or the assets of, one or more of
its subsidiaries whose principal assets consist of warehouses;
(14) enter into and Lease with respect of any of the Meshon
Properties or Levy Properties the rent under which would not qualify as
Reit income under the Code; or
(15) agree or otherwise commit, whether in writing or
otherwise, to do any of the foregoing.
11.10 OPERATION OF PROPERTIES PRIOR TO THE CLOSING. Each of the Meshon
Parties agrees to cause each Owner of a Meshon Property to perform the following
obligations:
(a) Between the date of this Agreement and the Closing Date, each Owner
shall cause its Property to be operated and managed in the same manner as such
has been operated and
94
<PAGE> 192
managed prior to the date of this Agreement and in accordance with all Legal
Requirements and the requirements of all Existing Documents. Each Owner shall
submit to the Company, at least quarterly and for the partial quarter ending on
the last day of the month prior to the Closing, not later than the earlier of
the Closing and the tenth day preceding the Closing, a cash basis operating
statement for the preceding month and for the year to date showing all receipts
and disbursements. Each Owner shall submit to the Company within ten (10) days
after the end of each calendar quarter (and at least ten (10) days prior to
Closing with respect to the period commencing on the first day of the then
current calendar quarter and ending on the last day of the month preceding the
Closing) each of the following statements and reports with respect to its
Property: (i) a summary rent roll, (ii) a Lease expiration report, (iii) a
vacancy report, (iv) a receivables report, (v) an aged delinquent and prepaid
rent report, and (vi) an accounts payable report, each of which shall be true,
complete and correct.
(b) On or after the date of this Agreement, no Owner shall enter into
any new Lease or tenancy or modify or terminate any existing Lease (except by
reason of a default by the tenant thereunder, and then, only in accordance with
the terms, conditions and provisions of such Lease), except as hereafter
provided.
(c) As to any proposed new Lease to be entered into which (i) demises
7,500 rentable square feet of space or more or (ii) when aggregated with all
other Leases of space in the same Property entered into on or after the date of
this Agreement generates five percent (5%) or more of the total revenues
generated by such Property, the Owner of the related Property shall submit to
the Company its completed standard lease request form (a "Lease Request Form")
prior to negotiating such proposed Lease, and the Company shall have five (5)
business days after receipt of such Lease Request Form during which to object to
or propose modifications to such proposed Lease. The Company's failure to
respond to a Lease Request Form shall be deemed an acceptance of the terms of
such proposed Lease only as such terms are delineated in the completed Lease
Request Form submitted to the Company. Each Owner agrees to obtain the approval
of the Company with respect to any subsequent modifications to the Economic
Terms (as hereinafter defined) of the proposed Lease. The Owner shall have the
right to make customary modifications to its standard lease form so long as such
modifications do not affect the following terms (collectively the "Economic
Terms"): (i) the term (including any renewal or extension terms, and any
cancellation options), (ii) square footage (including any expansion options),
(iii) tenant improvement amounts, (iv) rent (including any free rent or
abatement period), (v) percentage rent or (vi) the obligation to pay a
proportionate share of taxes or common area maintenance.
(d) Owner shall give to the Company prior written notice of the
modification of the Economic Terms of any existing Lease affecting its Property
which (i) demises 7,500 rentable square feet of space or more or (ii) when
aggregated with all other Leases of space in the same Property modified on or
after the date of this Agreement generates five percent (5%) or more of the
total revenues generated by such Property. The Company shall have five (5)
business days after receipt of such notice to object or propose modifications to
the proposed terms. The failure of Company to object to such proposed
modification within such five (5) business day period
95
<PAGE> 193
shall be deemed an acceptance of the terms of such modification to the affected
Lease.
(e) Between the date of this Agreement and the Closing:
(1) Each Owner shall promptly advise the Company in writing if
it obtains notice or Knowledge of any state of facts that would result
in any representation or warranty in this Agreement to be untrue in any
material respect as of the date that the Owner obtains such notice or
Knowledge.
(2) Each Owner shall promptly perform any and all acts, and
shall make any and all payments, necessary to cause the representations
and warranties in this Agreement relating to such Owner or its Property
to be true and correct as of the date made and as of the Closing, as
required herein.
(3) Each Owner shall, at its expense, make all repairs and
replacements, structural and non-structural, which are required with
respect to any portion of its Property to maintain such Property in its
present condition. Each Owner shall also complete, at its expense to
the extent that the expenses may not be passed through to tenants, any
repairs or capital improvements which Owner commences prior to the
Closing, including the repairs or improvements set forth on Schedule
11.10(e)(3), except for repairs for which a Reserve is established
pursuant to this Agreement. Each Owner shall cure, prior to the Closing
or, at the Company's sole option, as soon after the Closing as is
reasonably practical, any violation of any Legal Requirement affecting
its Property which exists prior to the Closing.
(4) Each Owner shall comply with all of the obligations
imposed on it or its Property pursuant to the Existing Documents
relating to its Property. Each Owner shall maintain existing insurance
policies in full force and effect and shall pay all required premiums
and other charges relating thereto.
(5) Each Owner shall immediately notify the Company of any
casualty affecting its Property.
(6) No Owner shall sell or agree to sell any of its properties
or purchase or agree to purchase any additional properties without the
consent of the Company.
(7) From time to time prior to the Closing, each Owner shall
provide to the Company and its attorneys, accountants, architects,
engineers and other representatives, access to its Property and to all
books, records and files relating thereto for the purposes of
inspections, preparation of plans, taking of measurements, making of
surveys, making of appraisals, and generally for the ascertainment of
the economic, physical and other conditions of the Property; and each
Owner shall furnish or cause to be furnished to the Company all plans
and specifications, engineering reports, feasibility studies, operating
statements, governmental permits and approvals, contracts, leases,
surveys, title
96
<PAGE> 194
information, appraisals and other documentation concerning its Property
and in its possession and/or the possession of its managing agent or
agents.
(8) Promptly after receipt thereof by an Owner or its managing
agent, such Owner shall deliver, or cause to be delivered, to the
Company the following relating to or otherwise affecting its Property:
(A) a copy of any notice of default given or received
under any of the Existing Documents or any notices of
termination given for any of the Existing Documents;
(B) a copy of any tax bill, notice or statement of
value, or notice of change in a tax rate;
(C) a copy of any notice of an actual or alleged
violation of any Legal
Requirement; and
(D) a copy of any notice of any condemnation
proceedings.
(9) Unless required by a Legal Requirement, no Owner shall
take any of the following actions with respect to its Property without
the prior written consent of Company:
(A) except as provided in clause (3) of this
sub-section 11.11(e), materially alter the condition thereof
or make any material changes, alterations or capital
improvements thereto;
(B) cancel, or amend and/or modify in any material
respect, any of the Existing Documents (other than a Lease in
the manner provided in this Section 11.11), it being agreed
that any amendment which increases the monetary obligations of
the Owner thereunder, increases the term thereof or which
would limit the right of the Company to terminate such
Existing Document, shall constitute a material amendment
(although the foregoing shall not be deemed to be the only
material amendments);
(C) enter into Service Contracts or other agreements
or arrangements with respect to the use, ownership, operation
or management of its Property, except for those that (i) have
been approved in writing by the Company, (ii) can be
terminated by the Company at Closing without penalty or
premium, or (iii) will not extend beyond the Closing;
(D) enter into any new Debt Document, or any
amendment, modification or termination of any existing Debt
Document, except for those that have been approved in writing
by the Company;
97
<PAGE> 195
(E) cause any Liens to be placed on its Property;
provided that, any materialmen's or mechanic's liens on or
affecting a Property shall not violate this sub-clause if the
Owner causes such Lien to be discharged by payment, bonding or
otherwise prior to the Closing;
11.11 FIRE OR OTHER CASUALTY. In the event that any building on any
Property shall have been materially damaged by fire or other casualty (in a
manner which adversely affects the operation of the Property as a whole or which
could have an adverse economic consequence to the Owner, the Property, the
Operating Partnership or the Company) and not restored as of the Closing Date,
in addition to its other rights hereunder and without affecting the conditions
to the Company's obligations to effect the Closing, the Company shall have the
right to terminate this Agreement as to the affected Property without any cost
or liability to the Company, by written notice to the Owner of such Property
unless the conditions described below are satisfied, in which event the Company
agrees that it shall postpone Closing as to the affected Property to enable its
Owner to repair and restore the damage to the building to at least the condition
existing prior to the casualty. The Company agrees that it shall postpone
Closing (solely with respect to such Property) in the event of a casualty if the
following conditions are satisfied as of the Closing Date: (i) that the Owner
agrees to promptly commence restoration of the Property, (ii) that the Property
will be restored to at least the condition existing prior to the casualty and
that restoration can be completed within one year from the date of the casualty
at a cost not to exceed the insurance proceeds made available for restoration
(unless the Owner elects to fund any deficiency), as determined by a contractor
selected by the Company, (iii) that no tenant under any of the Leases having a
material impact on the Rent Roll has a right to terminate its Lease prior to the
end of the one-year period as a result of such casualty, (iv) Rents or rental
insurance continue to be paid under the Leases to enable the Owner to satisfy
all of its obligations with respect to the Property until the restoration is
complete and (v) the Owner and the Company agree to a mutually satisfactory
amendment to this Agreement to address the amount of, and any adjustments to,
the number of OP Units to be received by the Owner and such other matters as may
be necessary for the parties to address. If such casualty is unknown to the
Company, then the proceeds of the insurance policies attributable to the
Premises or the Personal Property paid by the insurer(s) (including the proceeds
of any self-insurance) and received by the Owner prior to the Closing Date and
not used by the Owner for the repair of the Premises or the Personal Property
(and the Company hereby authorizes the Owner to cause the Owner to use the
proceeds for such purpose) shall be part of the assets of the Owner transferred
to the Company at Closing and, in such event, there shall be no reduction in the
consideration to be received by such Meshon Party or Levy Party by reason of any
such unpaid claim.
11.12 BUSINESS ORGANIZATION. Between the date of this Agreement and the
Closing Date, each of Drexel, Royce, Reorganized Drexel, the Meshon Partnerships
and the Company shall use reasonable commercial efforts to (a) preserve
substantially intact his, her or its business organization and keep available
the services of its present officers and employees (except as otherwise required
or contemplated by this Agreement), and (b) preserve in all material respects
the present business relationships, financing arrangements and goodwill.
98
<PAGE> 196
11.13 RESERVATION AND LISTING OF SHARES. In order to provide for the
possibility that the Company may elect to issue Shares upon any future
redemptions of OP Units, the Company shall take all action necessary to reserve
a sufficient number of Shares for exercise of options granted under the Option
Plan and conversion of the OP Units for Shares in accordance with the terms of
the Partnership Agreement, and shall use reasonable commercial efforts to cause
such reserved Shares to be listed in accordance with the requirements of The New
York Stock Exchange, Inc. (the "New York Stock Exchange").
11.14 CONSENTS AND ESTOPPEL CERTIFICATES.
(a) On or prior to the Closing Date, the Meshon Parties shall
obtain all Required Consents to the transactions with them contemplated by this
Agreement in form and substance satisfactory to the Company.
(b) On or prior to the Closing Date, the Levy Parties shall
obtain all Required Consents to the transactions with them contemplated by the
Agreement in form and substance satisfactory to the Company.
11.15 CONTINUED TRUTH OF MESHON TAX REPRESENTATIONS AND WARRANTIES.
Each Meshon Partnership owning a Meshon Property shall cause the representations
set forth in Section 6.13, to the extent relating to any date after the date
hereof or to a state of facts existing or transaction occurring on any such
date, to be true on such date.
11.16 ABSENCE OF TAX REPRESENTATIONS. Notwithstanding anything to the
contrary contained in this Agreement, the Company and the other parties hereto
each acknowledge and agree that no representation, warranty or covenant is or
has been made, by or on behalf of the Company, the Operating Partnership or any
Affiliate, in connection with this Agreement, for the benefit of any other
Person, with respect to any consequences to any other Person of this Agreement
or the transactions contemplated hereunder under any Federal, State or local tax
laws, rules or regulations.
11.17 EXCULPATION OF TRUSTEES. Notwithstanding anything to the contrary
contained in this Agreement, the managing trustees and resident trustee of the
Business Trust, being all of the trustees of the Business Trust, shall not
individually have any liability for the actions of the Business Trust in
authorizing, executing and delivering this Agreement and any liability arising
therefrom or relating thereto shall be the liability of the Business Trust and
not of its trustees.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; DISPUTE
RESOLUTION.
12.1 SURVIVAL. All representations, warranties, covenants and
agreements contained in this Agreement or any Related Documents or in any
certificate delivered pursuant to this Agreement or any Related Documents shall
survive the Closing, notwithstanding any
99
<PAGE> 197
investigation conducted by or on behalf of any party with respect thereto.
12.2 TIME LIMITATIONS.
(a) The representations and warranties set forth in this
Agreement relating to Leases and Leasing Commissions shall terminate on the date
which is twelve months after the Closing Date (the "Early Termination Date"), to
the extent that the subject matter of any such representation or warranty is
provided for, to the satisfaction of the Company, in an Estoppel Certificate
relating to such Lease or leasing commission signed by a duly authorized party
who would be the Person who would have a claim if the representation were not
true and delivered to the Company pursuant to this Agreement; otherwise such
representation or warranty shall not terminate.
(b) The representations and warranties set forth in this
Agreement relating to the Meshon Parties and Levy Parties, respectively, having
good title to the Meshon Partnership Interests and the Meshon Properties and the
Drexel Shares and the Levy Properties, respectively, which they are contributing
to the Operating Partnership or its Affiliates, or Taxes including Sections
5.1(f), or Liabilities of or relating to any Meshon Partnership or Reorganized
Drexel, shall not terminate.
(c) Except as provided in (a) and (b) above, the
representations and warranties set forth in this Agreement shall terminate on
the date which is eighteen months after the Closing Date (the "Late Termination
Date", and together with the Early Termination Date, the "Termination Date(s)");
except that no representations or warranties shall terminate with respect to any
claim as to which notice is given in writing prior to the respective
representation or warranties Termination Date.
(d) No claim may be asserted after the Closing against any
party to this Agreement for breach of any representations and warranties under
this Agreement or any Related Document unless the claim is asserted on or before
such claim's Termination Date.
12.3 INDEMNIFICATION.
From and after the Closing, Meshon shall, jointly and
severally with the other Meshon Parties, and each other Meshon Party shall
severally with respect to its own representations, indemnify and save the
Company and its Affiliates and the Levy Parties and their respective, directors,
officers, employees, agents and representatives and all of their successors and
assigns (collectively "Company/Levy Claimants" and each individually a
"Company/Levy Claimant") harmless from and defend each of them from and against
any and all demands, claims, actions, liabilities, losses, costs, damages or
expenses whatsoever (including any reasonable attorneys' fees) (collectively,
"LOSSES") asserted against, imposed upon or incurred by any Company/Levy
Claimant resulting from or arising out of (a) any inaccuracy or breach of any
representation or warranty of Meshon or the Meshon Parties contained herein or
in any Related Document; (b) any breach of any covenant or obligation of Meshon
or the Meshon
100
<PAGE> 198
Parties contained herein or in any Related Document or (c) any act or omission
arising out of the operation of the business of the Meshon Partnerships, the
Meshon Properties or Reorganized Drexel or it predecessors on or before the
Closing Date including, without limitation, arising out of or in connection with
the facts or assertions of fact which are the subject of that certain lawsuit
captioned INTERNATIONAL MANAGEMENT CONSULTANTS V. RENAISSANCE PLAZA ASSOCIATES,
case number ______ pending in ______ and any related construction claims or
liens (together with any related lawsuit, the "Pending Lawsuit"). After the
Closing, Meshon shall cooperate and shall use best efforts to cause the other
Meshon Parties and their respective Affiliates to cooperate with the Operating
Partnership and its Affiliates in the defense of and in any proposed settlement
of the Pending Lawsuit, including giving any requested comments. Meshon shall
maintain any existing letter of credit posted by any Meshon Party in connection
with the Pending Lawsuit until the Operating Partnership shall notify Meshon
that the claims in such Pending Lawsuit have been finally resolved and all time
for appeals has passed.
From and after the Closing, the Levy Parties shall jointly and
severally indemnify and save the Company, the Meshon Parties and their
respective, directors, officers, employees, agents and representatives and all
of their successors and assigns (collectively "Company/ Meshon Claimants" and
each individually a "Company/Meshon Claimant") harmless from and defend each of
them from and against all Losses asserted against, imposed upon or incurred by
any Company/Meshon Claimant resulting from or arising out of (a) any inaccuracy
or breach of any representation or warranty of the Levy Parties contained herein
or in any Related Document; (b) any breach of any covenant or obligation of the
Levy Parties contained herein or in any Related Document or (c) any act or
omission arising out of the operation of the business of the Levy Properties on
or before the Closing Date.
From and after the Closing, the Company shall indemnify and
save the Meshon Parties, the Levy Parties and their respective directors,
officers, employees, agents and representatives (collectively "Party Claimants"
and each individually a "Party Claimant") harmless from and defend each of them
from and against any and all Losses asserted against, imposed upon or incurred
by the Party Claimants resulting from or arising out of (a) any inaccuracy or
breach of any representation or warranty of the Company contained herein or in
any Related Document, (b) any breach of any covenant or obligation of Company
contained herein or in any Related Document or (c) a loan in an unpaid principal
amount not in excess of $[1,000,000] with variable interest made by Meshon in
favor of Wilmington Trust Company as payee on the terms set forth in the Debt
Documents listed on Schedule 6.12 and delivered to the Company (the "Meshon
Loan").
12.4 INDEMNIFICATION PROCEDURES.
(a) The rights and obligations of each Person claiming a right
to indemnification hereunder ("INDEMNITEE") from another Person ("INDEMNITOR")
shall be governed by the following rules:
(i) The Indemnitee shall give prompt written notice to the
Indemnitor
101
<PAGE> 199
of any state of facts which Indemnitee determines will give rise to a claim by
the Indemnitee against the Indemnitor based on the indemnity agreements
contained herein, stating the nature and basis of said claims and the amount
thereof, to the extent known. No failure to give such notice shall affect the
indemnification obligations of Indemnitor hereunder, except to the extent such
failure materially prejudices such Indemnitor's ability successfully to defend
the matter giving rise to the indemnification claim.
(ii) In the event any claim, action, suit or
proceeding is brought against the Indemnitee, with respect to which the
Indemnitor may have liability under the indemnity agreements contained herein,
then upon the written acknowledgment by the Indemnitor within thirty days of the
bringing of such claim, action, suit or proceeding that it is undertaking and
will prosecute the defense of the claim under such indemnity agreements and
confirming that the claim is one with respect to which the Indemnitor is
obligated to indemnify and that it will be able to pay the full amount of
potential liability in connection with any such claim, the action, suit or
proceeding (including all proceedings on appeal or for review which counsel for
the Indemnitee shall deem appropriate) may be defended by the Indemnitor,
PROVIDED that the Indemnitee shall provide such reasonable assistance as is
reasonably requested by Indemnitor, at no cost to Indemnitee. The Indemnitee
shall have the right to employ its own counsel in any case, but the fees and
expenses of such counsel shall be at the Indemnitee's own expense unless (a) the
employment of such counsel and the payment of such fees and expenses both shall
have been specifically authorized by the Indemnitor in connection with the
defense of such action, suit or proceeding or (b) the Indemnitee shall have
reasonably concluded and specifically notified the Indemnitor that there may be
specific defenses available to it which are different from or additional to
those available to the Indemnitor, or that such claim, action, suit or
proceeding involves or could have an effect upon any matter beyond the scope of
the indemnity agreements contained herein.
(iii) In addition, in any event specified in clause
(b) of the second sentence of subparagraph (ii) above, the Indemnitor, to the
extent made necessary by such different or additional defenses, shall not have
the right to direct the defense of such claim, action, suit or proceeding on
behalf of the Indemnitee. If Indemnitor and Indemnitee cannot agree on a
mechanism to separate the defense of matters extending beyond the scope of
indemnification, such matters shall be defended on the basis of joint
consultation.
(iv) The Indemnitee shall be kept fully informed by
the Indemnitor of such action, suit or proceeding at all stages thereof, whether
or not it is represented by counsel. The Indemnitor shall, at the Indemnitor's
expense, make available to the Indemnitee and its attorneys and accountants all
books and records of the Indemnitor relating to such claim, action, suit or
proceeding, and the parties hereto agree to render to each other such assistance
as they may reasonably require of each other in order to ensure the proper and
adequate defense of any such claim, action, suit or proceeding.
(b) The Indemnitor shall make no settlement of any claims
which Indemnitor has undertaken to defend, without Indemnitee's consent, unless
the Indemnitor fully indemnifies
102
<PAGE> 200
the Indemnitee for all losses, there is no finding or admission of violation of
law by, or effect on any other claims that may be made against, the Indemnitee
and the relief granted in connection therewith requires no action on the part of
and has no effect on the Indemnitee.
13. DEFINITIONS.
As used in this Agreement, the following terms have the meanings
specified or referred to in this Section 13.
"Acceptable Title Insurance Company" -- means a title insurance company
reasonably satisfactory to the Company.
"Acquirer" -- means the Company or the Operating Partnership or a
limited liability company or other entity wholly owned by the Operating
Partnership which is acquiring Property hereunder including, without limitation,
any such entity which acquires partnership interests in a partnership owning
Property.
"Affiliate" -- has the meaning ascribed to such term in Rule 12b-2
under the Exchange Act and, without limitation, in the case of the Company
includes, without limitation, the Business Trust and the Operating Partnership,
but does not include Meshon.
"Allocable Expenses" -- has the meaning set forth in Section 1.9.
"Amended By-Laws" -- has the meaning set forth in Section 1.7(a).
"Amended Certificate of Incorporation" -- has the meaning set forth in
Section 1.7(a).
"Applicable Percentage" -- has the meaning set forth in Section 1.2 as
to the Meshon Parties.
"Business Day" -- Any day that is not a Saturday or Sunday or a day on
which banks located in the City of New York are authorized or required to be
closed.
"Certificate of Occupancy" -- See Exhibit S.
"Charter Amendments" -- has the meaning set forth in Section 1.8.
"Classification" -- means the Legal Requirements pertaining to the
zoning of a Property.
"Closing" -- has the meaning set forth in Section 3.1.
"Closing Date" -- The date and time of the Closing.
103
<PAGE> 201
"Code" -- The Internal Revenue Code of 1986, as amended.
"Company" -- has the meaning set forth in the Preamble.
"Company Financial Statements" -- has the meaning set forth in Section
10.2.
"Company Properties" -- has the meaning set forth in the Preamble.
"Company SEC Filings" -- has the meaning set forth in Section 10.2.
"Contemplated Transactions" -- The transactions provided for in Section
1 of this Agreement and the transactions contemplated by the Related Documents
and performance of and compliance with all other agreements contained in this
Agreement.
"Contributing Party" -- has the meaning set forth in Section 1.9(a).
"Contribution" -- has the meaning set forth in Section 1.9(a).
"Debt" -- has the meaning set forth in Section 6.12 with respect to the
Meshon Parties and Section 9.10 with respect to the Levy Parties.
"Debt Documents" -- means, collectively, all agreements, notes,
mortgages, deeds of trust, assignments of rents and leases, security agreements,
guarantees, indemnities and other Liens and collateral documents evidencing or
securing any Debt which is secured by or otherwise affects a Property.
"Distribution Pro Forma" -- has the meaning set forth in Section 11.2.
"Document Custodian" -- has the meaning set forth in Section 1.11.
"Drexel Required Consents" -- has the meaning set forth in Section
8.11.
"Drexel Shares" -- has the meaning set forth in Section 1.6.
"Drexel Transactions" -- means the transactions contemplated by Section
1.6.
"Economic Terms" -- has the meaning set forth in Section 11.2.
"Encumbrances" -- means Liens, pledges, security interests,
restrictions, claims, assessments, charges, title exceptions and rights of any
other person of any kind.
"Environment" -- has the meaning set forth in Section 6.15.
"Environmental Laws" -- has the meaning set forth in Section 6.15.
104
<PAGE> 202
"Equity Securities" -- has the meaning set forth in Rule 3a11-1 under
the Exchange Act.
"ERISA" -- means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" -- As applied to any person, means any trade or
business (whether or not incorporated) which is a member of the same controlled
group of corporations or group of trades or businesses under common control as
such person, or is treated as a single employer together with such person under
Section 414 of the Code or Title IV of ERISA.
"Exchange Act" -- means the Securities Exchange Act of 1934, as
amended.
"Existing Documents" -- means, with respect to each Property,
collectively, the Leases, all documents evidencing Tenant Concessions, all
brokerage agreements relating to payment of Leasing Commissions, the Service
Contracts, the Permitted Exceptions, the Plans and Specifications and the Debt
Documents.
"Existing Levy Agreements" -- has the meaning set forth in Section 9.8.
"Existing Meshon Agreements" -- has the meaning set forth in Section
6.10.
"Existing Meshon Engineering Reports" -- has the meaning set forth in
Section 5.1.
"Final Date" -- has the meaning set forth in Section 3.1.
"Funds from Operations" -- means net income (computed in accordance
with generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and amortization,
and after adjustments for unconsolidated partnerships and joint ventures. For
purposes of this Agreement, adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect Funds from Operations on the same
basis.
"GAAP" -- means generally accepted accounting principles.
"Glenmont Redemption Agreement -- means the agreement described in
Section 7.15 in the form delivered to the Operating Partnership on the date
hereof.
"Governmental Body" -- means any domestic or foreign national, state or
municipal or other local government or multi-national body (including, but not
limited to, the European Economic Community), any subdivision, agency,
commission or authority thereof, or any quasi-governmental or private body
exercising any regulatory or taxing authority thereunder.
"Hazardous Substances" -- has the meaning set forth in Section 6.15.
"Hilcoast" -- means the Hilcoast Development Corp. and Hilcoast
Advisory Services, Inc.
105
<PAGE> 203
"Hilcoast Documents" -- has the meaning set forth in Section 10.5.
"Improvements" -- means, collectively, all buildings, structures,
structural appurtenances, fixtures, parking areas, and other improvements of any
kind located or to be located at or on the Land portion of a Property.
"Indemnified Parties" -- has the meaning set forth in Section 11.8.
"Intangibles" -- has the meaning set forth in Section 9.20.
"IRS" -- means the United States Internal Revenue Service.
"Issuer" -- has the meaning set forth in Section 10.5.
"Knowledge" -- means, (a) with respect to any representation relating
to or affecting the Meshon Properties, the actual knowledge of (i) any Meshon
Party or (ii) H. Larry Wilde or (iii) any co-general partner of any Meshon
Partnership and (b) with respect to any representation relating to or affecting
the Levy Parties, the actual knowledge of (i) H. Irwin Levy.
"Land" -- has the meaning set forth in the definition of "Property".
"Last Balance Sheet" -- has the meaning set forth in
Section 8.13(b)(i).
"Leases" -- means, all of the leases, licenses, and occupancy
agreements relating to a Property and all agreements, amendments, modifications,
supplements and guaranties relating thereto.
"Lease Request Form" -- has the meaning set forth in Section 11.12.
"Leasing Commissions" -- means, collectively, all commissions, fees and
other compensation payable to any real estate broker, salesperson, finder or any
other Person in connection with the leasing of space at any Improvements.
"Legal Requirements" -- means, with respect to each Property, all
applicable local, state, or federal laws, municipal ordinances and regulations,
orders, rules and requirements of any federal, state, municipal department or
other governmental authority having jurisdiction against or affecting such
Property or the construction, management, ownership, maintenance, operation,
use, improvement, acquisition or sale thereof (including, without limitation,
applicable zoning, building, health and environmental laws, ordinances,
regulations, orders, rules or requirements).
"Levy Consents" -- has the meaning set forth in Section 9.9.
106
<PAGE> 204
"Levy Management Agreements" -- has the meaning set forth in Section
9.12(b).
"Levy Material Agreements" -- has the meaning set forth in Section
9.12(a).
"Levy Partnership Financial Statements" -- has the meaning set forth in
Section 9.4(a).
"Levy Plans" -- has the meaning set forth in Section 9.16(a).
"Levy Property Budgets" -- has the meaning set forth in Section 9.4(b).
"Levy Transactions " -- means the transactions contemplated by Section
1.3.
"Liens" -- means all general or specific liens, mortgages, security
interests, encumbrances, commitments, claims, charges, covenants, easements,
exceptions or reservations.
"Major Leases " -- means Leases with Major Tenants.
"Major Tenants" -- means, with respect to each Property, the tenants
occupying an entire separate building or in excess of 7,500 rentable square feet
of the Improvements located on such Property.
"Managed Properties" -- means, collectively, the Properties described
in Schedule __.
"Manager" -- has the meaning set forth in Section 11.8.
"Material Adverse Effect" -- any change or effect that is materially
adverse to the business, assets, properties, results of operation, prospects or
financial condition of a Person.
"Meshon Consents" -- has the meaning set forth in Section 6.11.
"Meshon Deferred Commissions" -- means the Leasing Commissions to be
assigned to Meshon.
"Meshon Ground Lease" -- has the meaning set forth in Section 5.1.
"Meshon Leased Property" -- has the meaning set forth in Section 5.1.
"Meshon Leases" -- has the meaning set forth in Section 5.1.
"Meshon Lessor Obligations" -- has the meaning set forth in Section
5.1.
"Meshon Lessor Payments" -- has the meaning set forth in Section 5.1.
"Meshon Lessor Reserve" -- has the meaning set forth in Section 5.1.
108
<PAGE> 205
"Meshon Loan" -- has the meaning set forth in Section 12.3.
"Meshon Management Agreements" -- has the meaning set forth in Section
6.14.
"Meshon Material Agreements" -- has the meaning set forth in Section
6.14.
"Meshon Memorandum" -- has the meaning set forth in Section 11.3.
"Meshon Parties" -- has the meaning set forth in the Preamble.
"Meshon Partnership" -- has the meaning set forth in the Preamble.
"Meshon Partnership Budgets" -- has the meaning set forth in the
Section 6.6.
"Meshon Partnership Financial Statements" -- has the meaning set forth
in Section 6.6.
"Meshon Properties" -- has the meaning set forth in the Preamble.
"Meshon Transactions" -- means the transactions contemplated by Section
1.2.
"Mortgage Debt" -- has the meaning set forth in Section 1.9.
"Multiemployer Plan" -- A "multiemployer plan" as defined in ERISA.
"Non-Signing Meshon Principals" -- has the meaning set forth in the
Preamble.
"Old Environmental Reports" -- has the meaning set forth in Section
6.15.
"OP Units" -- has the meaning set forth in the Preamble.
"Operating Partnership" -- has the meaning set forth in the Preamble.
"Option Plan" -- has the meaning set forth in the Preamble.
"Organizational Documents" -- has the meaning set forth in Section 6.2.
"Original Number" -- has the meaning set forth in Section 1.9.
"Other Parties" -- When used with reference to a party hereto, all of
the other parties hereto.
"Owner" -- means a Meshon Party or Levy Party that will directly or
indirectly convey its Property or a direct or indirect interest therein to the
Company or the Operating Partnership (or its Affiliate), including by conveying
a partnership interest in an Owner.
108
<PAGE> 206
"Participating Assets" -- has the meaning set forth in Section 11.1(c).
"Partnership Agreement" -- The agreement of limited partnership with
respect to the Operating Partnership among Montgomery CV Trust and each of the
Meshon Parties and Levy Parties named therein, the form of which is attached as
Exhibit A hereto.
"Permitted Exceptions" -- means, with respect to the Meshon Transferred
Properties and Meshon Partnerships, the Encumbrances set forth on Schedule 6.12,
and, with respect to the Levy Properties, the Encumbrances set forth on Schedule
5.3(n).
"Person" -- Any individual, corporation, partnership, limited liability
company, joint venture, trust, association, unincorporated organization, other
entity, or Governmental Body.
"Personal Property" -- has the meaning set forth in the definition of
"Property".
"Plan" -- means any bonus, deferred compensation, severance pay,
pension, profit-sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice, written or otherwise, or any
other "employee benefit plan," as defined in Section 3(3) of ERISA, whether
formal or informal.
"Plans and Specifications" -- means plans and specifications with
respect to the design, construction and/or alteration of any Improvements.
"Post Closing Owner" -- has the meaning set forth in Section 2.1.
"Preamble" -- means the "WHEREAS" clauses and other text of this
Agreement preceding Section 1 hereof.
"Property" -- means a fee estate in a certain land parcel or certain
land parcels (the "Land") and a fee estate in the Improvements located thereon.
Each Property more particularly consists of and includes:
(i) all those certain lots or pieces of ground, described by
metes and bounds, constituting the Land, the Improvements thereon, and:
(A) all easements, rights-of-way or use, privileges, licenses,
appurtenances, interests and other rights of the Owner appurtenant to
or benefitting the Land, including, without limitation, any lessee's
interest under any ground leases; (B) all right, title and interest of
the Owner in and to any land lying in the bed of any streets, roads, or
avenues, opened or unopened, existing or proposed, vacated or hereafter
to be vacated, public or private, in front of, behind or adjoining the
Land and also as they extend beyond the Land for ingress and egress to
or from the Land or any part thereof and for the installation,
replacement, maintenance and use of utility facilities; (C) all right,
title and interest of the Owner in and to any award made or to be made
in lieu thereof and in and to any unpaid award for damage to the Land
or any Improvements thereon by reason of change of grade of any street,
road,
109
<PAGE> 207
highway, avenue or alley, or otherwise; (D) all of the Owner's rights
to connect with and to utilize, for service to the Land or any part
thereof, any private or public utility facilities as may now or
hereafter be within or without the boundaries of the Land; (E) the
Owner's interest in the Leases affecting the Land or the Improvements
thereon and any new Leases entered into after the date hereof,
including, without limitation, the Owner's interest in all Rents and
security deposits payable or held thereunder; (F) all licenses,
permits, certificates of occupancy and governmental approvals with
respect to the Land and the Improvements located thereon; (G) all trade
names used in connection with the Land and the Improvements located
thereon; (H) all Plans and Specifications in the possession or within
the control of the Owner; (I) all of the Owner's right, title and
interest in and to all contracts (including, without limitation,
Service Contracts, construction contracts (including any rights of
audit related thereto), electrical supply contracts and the right to
resell electricity as may be provided therein), warranties and
guarantees, if any, with regard to the foregoing and the Personal
Property; (J) any and all manuals, files, logs, records,
correspondence, purchaser prospect lists, tenant lists, tenant prospect
lists and other mailing lists, current sales brochures and material,
current leasing brochures and materials, current advertising materials
and other items in the possession of the Owner, including, without
limitation, soil, environmental inspections, studies and reports,
current market studies, and similar inspections with respect to the
sale, management, leasing, promotion, ownership, maintenance, use,
occupancy and operation of the Land and the Improvements located
thereon; (K) all of the Owner's rights to insurance proceeds by reason
of a loss insured under any insurance policy or insurance policies of
such Owner; (l) all mineral rights, waters, water courses, rights,
liberties, privileges, hereditaments and appurtenances whatsoever
belonging to the Land and owned by the Owner or in any way appertaining
to the Land and the reversions and remainders, rents, issues and
profits thereof; and
(ii) The fixtures, furnishings, equipment and other items of
personal property owned by the Owner and located on or used in
connection with the operation of the Land and the related Improvements
(the "Personal Property"), including, without limitation, the Personal
Property described on a schedule to this Agreement, which Schedule
shall identify the Land on which such Personal Property is located or
in connection with which such Personal Property is used.
"Proxy Statement" -- has the meaning set forth in Section 11.1.
"Real Property" -- has the meaning set forth in Section 6.15 as to the
Meshon Parties.
"Related Documents" -- The Proxy Statement, the Partnership Agreement,
the Master Leasing, Management and Executive Services Agreement, the Company
Assets Management Agreement, the Meshon Employment Agreement and all other
agreements and documents to be delivered hereunder at or before the Closing by
or on behalf of any Party.
"Rents" -- means all rents, additional rents, percentage rents, common
area maintenance
110
<PAGE> 208
charges, escalation payments and other charges payable by the tenant under a
Lease, including, without limitation, tax escalations and wage rate escalations
on the basis of the respective periods for which assessed.
"Reorganized Drexel Financial Statements" -- has the meaning set forth
in Section 8.6.
"Required Consents" -- has the meaning with respect to the Meshon
Parties set forth in Section 6.11, with respect to the Drexel set forth in
Section 8.11 and with respect to the Levy Parties set forth in Section 9.9.
"Restricted Period" -- has the meaning set forth in Section 1.15.
"Royce" -- has the meaning set forth in the Preamble.
"Royce Material Agreement" -- has the meaning set forth in Section
8.14.
"SEC" -- means the Securities and Exchange Commission.
"Securities Act" -- means the Securities Act of 1933, as amended.
"Service Contracts" -- means, collectively, all management,
maintenance, service, supply, utility, cable or construction agreements and
arrangements of every kind relating to a Property or any portion thereof.
"Servicing Agreement" -- has the meaning set forth in Section 10.5(a).
"Shared Expense Adjustment" -- has the meaning set forth in Section
1.9(b).
"Shares" -- means shares of the Common Stock, par value $.01 per share,
of the Company.
"Single Employer" -- has the meaning set forth in Section 414(b), (c),
(m) or (o) of the Code or Section 4001 of ERISA.
"Subsidiary" -- With respect to any Person, any corporation of which
securities having the power to elect a majority of that corporation's board of
directors (or other governing body) (other than securities having that power
only upon the happening of a contingency that has not occurred) are held by such
Person or one or more of its Subsidiaries.
"Survey" -- means a plat of a then current on-the-ground, staked survey
of the Land portion of a Property, together with a metes and bounds description
of the perimeter of the Land set forth thereon, which shall show the scale
thereof, the north direction, the location of all Improvements on the Land, the
location and number of parking spaces, ingress and egress to adjoining streets,
the location of all natural monuments, the location and extent of any easements,
visible evidence of utilities, rights-of-way or roads, opened or proposed, which
are of record or
111
<PAGE> 209
visible on the ground and affect or are adjacent to any portion of the Land, the
location and extent of any overlaps or encroachments upon or by the Land or
Improvements, areas involved in boundary disputes, and such information as is
necessary to cause an Acceptable Title Insurance Company to delete (to the
extent permitted by law) from the Title Policy to be issued with respect to the
Property any exception with regard to discrepancies, conflicts, shortages in
boundary lines, overlaps or encroachments upon or by the Land or Improvements
and which otherwise will be in form and substance reasonably acceptable to the
Company. Such plat of survey also shall indicate whether all or any portion of
the Land is situated in an area designated as flood prone or a special flood
hazard area (I.E., the 100-year flood plain designated-by the Federal Insurance
Administration). The survey shall be made in accordance with the Minimum
Standard Detail Requirements for Land Title Surveys adopted by the American Land
Title Association.
"Tenant Concessions" -- means the amounts which the landlord under a
Lease would have received from the tenant under such Lease if the obligation to
pay such amounts had not been made not payable by reason of any rental
abatements, rental credits, construction credits or any other economic
concession or incentive granted to the tenant under such Lease and any payments
which the landlord under a Lease may be required to make to the tenant under
such Lease.
"Tenant Estoppel Certificate" -- See Exhibit P.
"Termination Date" -- has the meaning set forth in Section 12.2.
"Title Exceptions" -- means the defects in, exceptions to, or
conditions, Liens, or other matters of record relating to title to a Property or
any portion thereof, whether evidenced by written instrument or otherwise
evidenced; any overlapping upon the Land by improvements situated on other
lands; any encroachments upon or by the Land or Improvements; any boundary
disputes regarding the boundaries of the Land; and the terms, provisions and
conditions contained in any instruments evidencing or referring to any such
defects, exceptions, conditions, Liens, overlaps encroachments or boundary
disputes or such other matters.
"Title Policy" -- means, with respect to each Property, a 1970 Form B
ALTA Owner's Title Insurance Policy, as revised in 1984 including an ALTA
Comprehensive Endorsement, to be issued to the Person who will be the Owner of
such Property after the Closing by an Acceptable Title Insurance Company,
containing no exceptions to title other than the Permitted Exceptions with
respect to such Property and deleting any exception with regard to discrepancies
in area or boundaries or other matters which a current and correct survey would
show and with regard to the rights of parties in possession (except with respect
to the rights of the tenants under the Leases affecting such Property as tenants
only). Each Title Policy shall be modified by such other endorsements,
affirmative coverage and other matters as shall be reasonably requested by the
Company, including such endorsements and/or affirmative coverage as may be
necessary to confirm that the knowledge of any Contributing Party shall not be
imputed to the Post Closing Owner, the Company or their Affiliates for purposes
of the coverage provided thereby. The Title
112
<PAGE> 210
Policies for the respective Properties shall be in the respective amounts set
forth in Schedule __. The Company may require that any Title Policy be reinsured
or coinsured in such amounts and with such title insurance companies or
underwriters as the Company may reasonably determine.
"Trustee" -- has the meaning set forth in the Preamble.
"Uncontributed Assets" -- has the meaning set forth in Section 1.5.
"Updated Distribution Pro Forma" -- has the meaning set forth in
Section 11.2.
14. TERMINATION.
14.1 TERMINATION. This Agreement may be terminated before the Closing
occurs, whether before or after approval of the transactions contemplated hereby
by the Company's shareholders, only as follows:
(a) By written agreement of Meshon and the Company at any time.
(b) By the Company:
(i) if the Company's shareholders do not approve the
transactions contemplated hereby;
(ii) if the consummation of the transactions contemplated
hereby by the Company would violate any non-appealable final order,
decree or judgment of any Governmental Body having competent
jurisdiction;
(iii) if any representation or warranty of any of the Meshon
Parties made herein or in any Related Documents is untrue in any
material respect (other than due to a change permitted or contemplated
by this Agreement) and such breach is not cured within 15 days of
notice to Meshon from the Company that such breach exists or has
occurred;
(iv) if any of the Meshon Parties shall have defaulted in any
material respect in the performance of any covenant, agreement or
obligation under this Agreement and such default is not cured within 15
Business Days of notice to Meshon from the Company that such default
exists or has occurred;
(v) if any material part or parts of any Meshon Property shall
be taken by the exercise of the power of eminent domain after the date
hereof and prior to the Closing Date. For the purposes hereof, a
"material part or parts" of a Property shall mean such a part of a
Property as shall (i) give the right to any tenant to terminate its
Lease, or (ii) will materially and adversely affect any required
parking for a Property or any source of ingress to and egress from a
Property for a period which will exceed one month, as
113
<PAGE> 211
determined by the Company, or (iii) otherwise materially and adversely
affects the mechanical, plumbing or other systems of a Property or (iv)
otherwise causes a Property to be out of compliance in all material
respects with laws applicable to a Property; or
(vi) if title to any Meshon Property is not, at Closing,
insurable as contemplated hereby. Notwithstanding this clause, the
applicable Meshon Parties or the Levy Parties shall be obligated to
cure encumbrances which are not Permitted Exceptions if such
encumbrances evidence an obligation which is a fixed and ascertainable
amount and can be cured by the payment of money only; provided,
however, that the applicable Meshon Parties or Levy Parties shall not
be obligated to expend any amount in excess of $500,000 to cure any
such encumbrance (i) of which such Meshon Party or Levy Party did not
have knowledge on the date hereof, and (ii) which was not placed of
record on or after the date of the title report with respect to such
Property delivered to the Company during the Due Diligence Period.
The applicable Meshon Parties or Levy Parties shall have the right to cure any
title defects until the date prior to the Closing Date.
(c) by the Meshon Parties:
(i) if the consummation of the transactions contemplated
hereby by Royce and the Meshon Parties and Reorganized Drexel would
violate any non-appealable final order, decree or judgment of any
Governmental Body having competent jurisdiction;
(ii) if any representation or warranty of the Company made
herein is untrue in any material respect (other than due to a change
permitted or contemplated by the terms of this Agreement) and such
breach is not cured within fifteen days of notice to the Company from
Reorganized Drexel or any of the Meshon Parties that such breach exists
or has occurred;
(iii) if the Company shall have defaulted in any material
respect in the performance of any material obligation under this
Agreement and such breach is not cured within 30 days of notice to the
Company from Royce or any of the Meshon Parties that such default
exists or has occurred.
(d) by the Levy Parties, as to the rights and obligations of the Levy
Parties
(i) if the consummation of the transactions contemplated
hereby by the Levy Parties would violate any non-appealable final
order, decree or judgment of any Governmental Body having competent
jurisdiction;
(ii) if any representation or warranty of the Company made
herein is untrue in any material respect (other than due to a change
permitted or contemplated by the terms of this Agreement) and such
breach is not cured within fifteen days of notice to the
114
<PAGE> 212
Company from the Levy Parties that such breach exists or has occurred;
(iii) if the Company shall have defaulted in any material
respect in the performance of any material obligation under this
Agreement and such breach is not cured within 30 days of notice to the
Company from the Levy Parties that such default exists or has occurred.
(e) On December 31, 1997, unless the Closing shall have theretofore
taken place, by either the Company or Meshon or by Levy, as to the rights and
obligations of the Levy Properties, provided that the terminating party is not
otherwise in default or breach of this Agreement.
14.2 EFFECT OF TERMINATION. In the event that this Agreement is or the
rights and obligations of any Parties hereunder are terminated pursuant to
Section 14.1, this Agreement shall terminate without any liability or further
obligation of any party to another because of such termination (except for the
sharing expenses provided for herein). However, a termination under Section 14.1
shall not relieve a defaulting or breaching party (or any party who has
liability under this Agreement in respect of the actions of a defaulting or
breaching party) from any liability to the other party or parties hereto for or
in respect of such default or breach.
15. NOTICES.
All notices, consents and other communications under this Agreement
shall be in writing and shall be deemed to have been given when (a) delivered by
hand, (b) sent by telecopier (with receipt confirmed), provided that a copy is
simultaneously mailed by certified or registered mail, return receipt requested,
or (c) when received by the addressee, if sent by Express Mail, Federal Express
or other express delivery service (receipt requested), in each case to the
appropriate addresses, and telecopier numbers set forth below (or to such other
addresses, and telecopier numbers as a party may hereafter designate as to
itself by similar notice to the other parties):
(a) If to the Company:
CV Reit, Inc.
100 Century Boulevard
West Palm Beach, Florida 33417
Attention: President
Telecopier No.: (561) 640-3160
115
<PAGE> 213
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 1003-8299
Attention: Klaus Eppler
Telecopier No.: (212) 969-2900
(b) If to the Business Trust:
c/o Bankers Trust (Delaware)
E.A. Delle Donne Corporate Center
Montgomery Building
1011 Century Road, Suite 200
Wilmington, Delaware 19805-1266
Attention: President
Telecopier No.: (302) 636-3222
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 1003-8299
Attention: Klaus Eppler
Telecopier No.: (212) 969-2900
(c) If to any of the Meshon Parties:
c/o Montgomery Realty Co.
580 W. Germantown Pike
Plymouth Meeting, Pennsylvania 19462
Attention: Louis Meshon, Sr.
Telecopier No.: (610) 834-8110
with a copy to:
Fox Rothschild O'Brien & Frankel, LLP
2000 Market Street
Philadelphia, Pennsylvania 19103
Attention: Stanley Cohen
Telecopier No.: (215) 299-2150
116
<PAGE> 214
(d) If to any of the Levy Parties:
c/o H. Irwin Levy
900 North Lake Way
Palm Beach, FL 33480
with a copy to:
c/o H. Irwin Levy
c/o CV Reit, Inc.
100 Century Boulevard
West Palm Beach, FL 33417
Telecopier No.: (516) 640-3160
16. MISCELLANEOUS.
16.1 GOVERNING LAW. This Agreement and (unless otherwise provided) all
amendments hereof and waivers and consents hereunder shall be governed by the
internal laws of the State of New York, without regard to the conflicts of law
principles thereof, except that any action for specific performance with respect
to any Property shall be governed by the internal laws of the State in which the
Property is located.
16.2 SPECIFIC PERFORMANCE. The parties acknowledge that the subject
matter of this Agreement is unique and that no adequate remedy of law would be
available for breach of this Agreement. Accordingly, each party agrees that the
other parties will be entitled to an appropriate decree of specific performance
or other equitable remedies to enforce this Agreement (without any bond or other
security being required) and each party waives the defense in any action or
proceeding brought to enforce this Agreement that there exists an adequate
remedy at law.
16.3 CAPTIONS. The captions or headings of the Articles and Sections of
this Agreement are for convenience only, and shall not control or affect the
meaning or construction of any of the terms or provisions of this Agreement.
References in this Agreement to Sections are references to Sections of this
Agreement, unless expressly stated to the contrary. References in this Agreement
to Exhibits and Schedules are, unless expressly stated to the contrary,
references to Exhibits and Schedules to this Agreement, each of which shall be
deemed as fully a part of this Agreement as set forth herein in full.
16.4 NO WAIVER. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
117
<PAGE> 215
16.5 EXCLUSIVE AGREEMENT; AMENDMENT. This Agreement supersedes all
prior agreements among the parties with respect to its subject matter, and is
intended (with the documents referred to herein) as a complete and exclusive
statement of the terms of the agreement among the parties with respect thereto
and cannot be changed or terminated except by a written instrument executed by
the party or parties against whom enforcement thereof is sought. This Agreement
shall bind and inure to the benefit of the parties hereto and their respective
heirs, executors, personal representatives, successors and assigns.
16.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
16.7 SEVERABILITY. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any Person or circumstance, it shall
nevertheless remain applicable to all other Persons and circumstances.
118
<PAGE> 216
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement as of the date first above written.
CV REIT, INC.
By: HILCOAST ADVISORY SERVICES,
INC. , authorized Agent
By: _________________________________
Name: H. Irwin Levy
Title: President
MONTGOMERY CV TRUST
By: _________________________________
Name:
Title:
MESHON PARTIES:
____________________________________
LOUIS P. MESHON, SR.
DREXEL REALTY, INC.
By: _________________________________
Name:
Title:
<PAGE> 217
ROYCE REALTY, INC.
By: _________________________________
Name:
Title:
MGA PAYROLL COMPANY INC.
By: _________________________________
Name: Louis P. Meshon, Sr.
Title: President
- ------------------------------------
MITCH LEIGH
MONTGOMERY D.C., INC.
By: _________________________________
Name: Louis P. Meshon, Sr.
Title: President
DANVILLE ASSOCIATES
BY: MONTGOMERY D.C., INC.,
GENERAL PARTNER
By: _________________________________
Name: Louis P. Meshon, Sr.
Title: President
PARCEL ELEVEN-C.J.P. ASSOCIATES
By:__________________________________
LOUIS P. MESHON, SR.
GENERAL PARTNER
and
<PAGE> 218
By:__________________________________
PAUL H. COHEN
GENERAL PARTNER
CHESTERBROOK SHOPPING CENTER
BY: PARCEL 4 CHESTERBROOK CORP.,
GENERAL PARTNER
By: _________________________________
Name: Richard J. Fox
Title:
and
By:__________________________________
LOUIS P. MESHON, SR.
GENERAL PARTNER
and
By:__________________________________
PAUL H. COHEN
GENERAL PARTNER
CVS GLENSIDE EQUITIES
BY: RETAIL PHARMACY PROPERTIES III, INC.,
GENERAL PARTNER
By: _________________________________
Name: Louis P. Meshon, Sr.
Title: President
MONTGOMERY A.C., INC.
By: _________________________________
Name: Louis P. Meshon, Sr.
Title: President
<PAGE> 219
____________________________________
LOUIS P. MESHON, SR.
____________________________________
DAVID J. LISA
____________________________________
CHARLES T. MORRONEY
____________________________________
JAMES SEIP
____________________________________
H. LAWRENCE WILDE
WHITEMONT, INC.
By: _________________________________
Name: Louis P. Meshon, Sr.
Title:
WHITEMONT ASSOCIATES, L.P.
BY: WHITEMONT, INC.,
GENERAL PARTNER
By: _________________________________
Name: Louis P. Meshon, Sr.
Title:
<PAGE> 220
GLENMONT-PLYMOUTH, L.P.
BY: PLYMONT, INC.,
GENERAL PARTNER
By: _________________________________
Name: Louis P. Meshon, Sr.
Title: President
and
BY: GLENVILLE PLYMOUTH, INC.,
by consent attached
COUNTY LINE PLAZA
REALTY ASSOCIATES, L.P.
BY: COUNTY LINE PLAZA REALTY, LLC,
GENERAL PARTNER
By:__________________________________
Name: LOUIS P. MESHON, SR.
Title: PRESIDENT
COUNTY LINE PLAZA REALTY LLC
By:__________________________________
Name: LOUIS P. MESHON, SR.
Title: PRESIDENT
<PAGE> 221
LEVY PARTIES:
____________________________________________
H. IRWIN LEVY, Individually and in the
capacity as Executor of the Estate of Jeanne
Levy
____________________________________________
BERNARD LEVY, By H. Irwin Levy, Attorney
in Fact Under Power of Attorney
Dated April 23, 1997
____________________________________________
ELAINE LEVY, By H. Irwin Levy, Attorney in
Fact Under Power of Attorney
Dated April 23, 1997
____________________________________________
JENNIE LEVY, Individually and as Trustee
under the Myron Levy Family Trust,
By H. Irwin Levy, Attorney in Fact Under
Power of Attorney Dated April 17, 1997
____________________________________________
LILIAN LEVY, Individually and in the
capacity as Executrix of the Estate of
Benjamin Levy,
By H. Irwin Levy, Attorney in Fact Under
Power of Attorney Dated April 23, 1997
____________________________________________
ROBERT S. LEVY,
By H. Irwin Levy, Attorney in Fact Under
Power of Attorney Dated April 21, 1997
<PAGE> 222
____________________________________________
CEIL LEVY
By H. Irwin Levy, Attorney in Fact Under
Power of Attorney Dated April 16, 1997
<PAGE> 223
DOCUMENT CUSTODIANS:
The undersigned hereby agree as set forth in Section 1.11(b) of this Agreement:
____________________________________________
LOUIS P. MESHON, SR.
<PAGE> 224
Roberts & Holland LLP Draft No. 14A
October 30, 1997
APPENDIX B
================================================================================
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MONTGOMERY CV REALTY L.P.
December 31, 1997
================================================================================
<PAGE> 225
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINED TERMS.................................. 1
ARTICLE 2. ORGANIZATIONAL MATTERS......................... 15
2.1 Continuation................................... 15
2.2 Name........................................... 15
2.3 Registered Office and Agent; Principal Office.. 16
2.4 Power of Attorney.............................. 16
2.5 Term........................................... 17
ARTICLE 3 PURPOSE........................................ 18
3.1 Purpose and Business........................... 18
3.2 Powers......................................... 18
ARTICLE 4 CAPITAL CONTRIBUTIONS.......................... 19
4.1 Capital Contributions of the Partners.......... 19
4.2 Additional Funds............................... 22
4.3 Issuance of Additional Partnership Interest;
Admission of Additional Limited Partners....... 24
4.4 Intentionally Omitted.......................... 25
4.5 Repurchase of Shares; Excess Shares............ 25
4.6 No Third Party Beneficiary..................... 25
4.7 No Interest; No Return......................... 25
4.8 No Preemptive Rights........................... 25
ARTICLE 5 DISTRIBUTIONS.................................. 26
5.1 Regular Distributions.......................... 26
5.2 Qualification as a REIT........................ 26
5.3 Withholding.................................... 26
5.4 Additional Partnership Interest s............... 27
5.5 Distributions Upon Liquidation................. 27
ARTICLE 6 ALLOCATIONS.................................... 27
-1-
<PAGE> 226
PAGE
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS............ 27
7.1 Management....................................... 27
7.2 Certificate of Limited Partnership............... 32
7.3 Reimbursement of the General Partner and
the Company...................................... 32
7.4 Outside Activities of the General Partner........ 33
7.5 Contracts with Affiliates........................ 33
7.6 Indemnification.................................. 34
7.7 Liability of the General Partner................. 36
7.8 Other Matters Concerning the General Partner..... 37
7.9 Title to Partnership Assets...................... 38
7.10 Reliance by Third Parties........................ 39
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS....... 39
8.1 Limitation of Liability.......................... 39
8.2 Management of Business........................... 40
8.3 Outside Activities of Limited Partners........... 40
8.4 Return of Capital................................ 40
8.5 Rights of Limited Partners Relating to the
Partnership...................................... 41
8.6 Redemption Rights................................ 42
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING, AND REPORTS.......... 47
9.1 Records and Accounting........................... 47
9.2 Fiscal Year...................................... 47
9.3 Reports.......................................... 47
ARTICLE 10 TAX MATTERS...................................... 48
Preparation of Tax Returns.................................. 48
Tax Elections............................................... 48
Tax Matters Partner......................................... 48
Withholding................................................. 50
-2-
<PAGE> 227
PAGE
ARTICLE 11 TRANSFERS AND WITHDRAWALS................................... 52
Transfer.................................................... 52
Transfer of the General Partner's and the
Trust's Partnership Interests............................... 52
Limited Partners' Rights to Transfer........................ 53
Substituted Limited Partners................................ 56
Assignees................................................... 56
General Provisions.......................................... 57
ARTICLE 12 ADMISSION OF PARTNERS....................................... 58
Admission of Successor General Partner...................... 58
Admission of Additional Limited Partners.................... 58
Amendment of Agreement and Certificate of
Limited Partnership......................................... 59
ARTICLE 13 DISSOLUTION, LIQUIDATION, AND TERMINATION................... 59
Dissolution................................................. 59
Winding Up.................................................. 60
No Obligation to Contribute Deficit......................... 62
Rights of Limited Partners.................................. 62
Notice of Dissolution....................................... 62
Termination of Partnership and Cancellation
of Certificate of Limited Partnership....................... 63
Reasonable Time for Winding-Up.............................. 63
Waiver of Partition......................................... 63
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT;
ACTION BY LIMITED PARTNERS.................................. 63
Amendments.................................................. 63
Action by Limited Partners.................................. 65
ARTICLE 15 GENERAL PROVISIONS.......................................... 66
Addresses and Notice........................................ 66
Titles and Captions......................................... 66
Pronouns and Plurals........................................ 66
Further Action.............................................. 66
Binding Effect.............................................. 66
Creditors................................................... 66
-3-
<PAGE> 228
PAGE
Waiver...................................................... 66
Counterparts................................................ 66
Applicable Law.............................................. 67
Invalidity of Provisions.................................... 67
Entire Agreement............................................ 67
EXHIBIT A PARTNERS' CONTRIBUTIONS AND PARTNERSHIP INTERESTS
EXHIBIT B ALLOCATIONS OF PARTNERSHIP ITEMS
EXHIBIT C DESCRIPTION OF FLORIDA LAND
EXHIBIT D FORM OF NOTICE OF REDEMPTION
EXHIBIT E PROPERTIES TO WHICH SECTION 7.1A(3) IS APPLICABLE
EXHIBIT F FORM OF LETTER
-4-
<PAGE> 229
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MONTGOMERY CV REALTY L.P.
This Amended and Restated Agreement of Limited Partnership of
Montgomery CV Realty L.P., dated as of December 31, 1997, is entered into by and
among Montgomery CV Trust (the "Trust"), a Delaware business trust, and the
other parties whose names are set forth on Exhibit A attached hereto.
WHEREAS Montgomery CV Realty L.P. was formed pursuant to the
Revised Uniform Limited Partnership Act of the State of Delaware by filing, on
May 29, 1997, a certificate of limited partnership with the Secretary of State
of the State of Delaware and entering into the Agreement of Limited Partnership
of the Partnership (the "Original Agreement"); and
WHEREAS MCRLP LLC was the original general partner of the
Partnership, MCRLP LLC's entire interest in the Partnership has heretofore been
transferred to the Trust, with the effect that MCRLP LLC has withdrawn from the
Partnership and the Trust is now the sole general partner of the Partnership,
and Louis P. Meshon, Sr. (the "Original Limited Partner" or "Meshon") is
currently the sole limited partner of the Partnership;
WHEREAS the Trust and the Limited Partners desire to continue
the Partnership and to amend and to restate the Original Agreement as set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and other valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties do hereby agree that the Original
Agreement is hereby restated in its entirety as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be applied for all purposes of
this Agreement, unless otherwise clearly indicated to the contrary:
"Act" means the Delaware Revised Uniform Limited
Partnership Act.
-1-
<PAGE> 230
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 4.3 and who is shown as
such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means with respect to any
Partner, the negative balance, if any, in such Partner's Capital Account as of
the end of any relevant fiscal year, determined after giving effect to the
following adjustments:
(a) credit to such Capital Account any portion of
such negative balance which such Partner (i) is treated as obligated to restore
to the Partnership pursuant to the provisions of section 1.704-1(b)(2)(ii)(C) of
the Regulations, or (ii) is deemed to be obligated to restore to the Partnership
pursuant to the penultimate sentences of sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items
described in sections 1.704-1(b)(2)(ii)(D)(4), (5), and (6) of
the Regulations.
"Adjustment Factor" means 1.0; provided that, in the event
that the Company (i) declares or pays a dividend on its outstanding Shares in
Shares or makes a distribution to all holders of its outstanding Shares in
Shares, (ii) subdivides or splits its outstanding Shares, or (iii) combines its
outstanding Shares into a smaller number of Shares, the Adjustment Factor shall
be adjusted by multiplying the Adjustment Factor by a fraction, the numerator of
which shall be the number of Shares issued and outstanding on the record date
for such dividend, distribution, subdivision, or combination (assuming for such
purposes that such dividend, distribution, subdivision, or combination has
occurred as of such time) and the denominator of which shall be the actual
number of Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, subdivision, or
combination. Any adjustment to the Adjustment Factor shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for the event giving rise thereto; it being intended that (x)
adjustments to the Adjustment Factor are to be made in order to avoid unintended
dilution or anti-dilution as a result of transactions in which Shares are
issued, redeemed, or exchanged without corresponding issuance, redemption, or
exchange of OP Units and (y) if a Specified Redemption Date shall fall between
the record date and the effective date of any event of the type described above,
the Adjustment Factor applicable to such redemption shall be adjusted to take
into account such event.
"Affiliate" means, (a) with respect to any individual Person,
any member of the Immediate Family of such Person or a trust established for the
benefit of such member, or (b) with
-2-
<PAGE> 231
respect to any Entity, any Person which, directly or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, such Entity.
"Agreement" means this Amended and Restated Agreement of
Limited Partnership, as originally executed and as amended, modified,
supplemented or restated from time to time, as the context requires.
"Assignee" means a Person to whom one or more OP Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"Available Cash" means, with respect to any applicable period
of measurement, the excess, if any, during such period of:
(a) the gross cash receipts of the Partnership from
all sources whatsoever, including, without limitation, the following:
(i) all rents, revenues, income, and
proceeds derived by the Partnership from its operations, including,
without limitation, distributions received by the Partnership from any
Entity in which the Partnership has an interest;
(ii) all proceeds and revenues received by
the Partnership on account of any sales of property of the Partnership
or as a refinancing of or payments of principal, interest, costs, fees,
penalties, or otherwise on account of any borrowings or loans made by
the Partnership or financings or refinancings of any property of the
Partnership;
(iii) the amount of any insurance proceeds
and condemnation awards received by the Partnership;
(iv) all capital contributions or loans
received by the Partnership from its Partners;
(v) all cash amounts previously reserved by
the Partnership, to the extent such amounts are no longer needed for
the specific purposes for which such amounts were reserved; and
(vi) the proceeds of liquidation of the
Partnership's property in accordance with this Agreement, over (b) the
sum of:
-3-
<PAGE> 232
(i) all operating costs and expenses,
including costs relating to tenant improvements, brokerage expenses,
taxes, and other expenses of the Properties of the Partnership and
capital expenditures made during such period (without deduction,
however, for any capital expenditures, charges for Depreciation, or
other expenses not paid in cash or expenditures from reserves described
in (viii), below);
(ii) all costs and expenses expended or paid
during such period in connection with the sale or other disposition, or
financing or refinancing, of property of the Partnership or the
recovery of insurance or condemnation proceeds;
(iii) all fees, if any, provided for under
this Agreement; all debt service, including principal
(iv) and interest, paid during such period on
all indebtedness (including under any line of credit) of the
Partnership;
(v) all capital contributions, advances,
reimbursements, or similar payments made to any Person in which the
Partnership has an interest;
(vi) all loans made by the Partnership in
accordance with the terms of this Agreement;
(vii) all reimbursements to the General
Partner or its Affiliates during such period; and
(viii) any new reserves or increases in
reserves reasonably determined by the General Partner to be necessary
for working capital, acquisitions, capital improvements, payments of
periodic expenditures, debt service, or other purposes for the
Partnership or any Person in which the Partnership has an interest.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
"Capital Account" means with respect to any Partner, the
Capital Account maintained for such Partner in accordance with section
1.704-1(b) of the Regulations and the following provisions:
a. to each Partner's Capital Account there
shall be credited (i) such Partner's Capital Contributions, (ii) such Partner's
distributive share of Net Income and any items in the
-4-
<PAGE> 233
nature of income or gain which are specially allocated to such Partner pursuant
to Paragraphs 1 and 2 of Exhibit B, and (iii) the amount of any Partnership
liabilities assumed by such Partner or which are secured by any asset
distributed to such Partner;
b. to each Partner's Capital Account there
shall be debited (i) the amount of cash and the Gross Asset Value of any
property distributed to such Partner pursuant to any provision of this
Agreement, (ii) such Partner's distributive share of Net Losses and any items in
the nature of expenses or losses which are specially allocated to such Partner
pursuant to Paragraphs 1 and 2 of Exhibit B, and (iii) the amount of any
liabilities of such Partner assumed by the Partnership or which are secured by
any asset contributed by such Partner to the Partnership; and
c. in the event all or a portion of a
Partnership Interest is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent it relates to the transferred Partnership Interest.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with sections
1.704-1(b) and 1.704-2 of the Regulations, and shall be interpreted and applied
in a manner consistent with such Regulations. In the event the General Partner
shall reasonably determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed assets or which are assumed by the Partnership, the
General Partner or any Limited Partner) are computed in order to comply with
such Regulations, the General Partner may make such modification; provided that
it does not have an adverse effect on the amounts distributable to any Partner
pursuant to Article 13 upon the dissolution of the Partnership. Pursuant to
Regulations section 1.704-1(b)(2)(iv)(F) and (H) and after giving effect to
Sections 2.1 and 4.1F, but before giving effect to the remainder of Article 4,
the balance in the Capital Account of each of the Trust and the Original Limited
Partner shall equal zero.
"Capital Contribution" means, with respect to any Partner, any
cash, cash equivalents, or the Gross Asset Value of property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Article 4.
"Cash Amount" means an amount of cash equal to the Value on
the Specified Redemption Date of the Shares Amount.
"Certificate" means the Certificate of Limited
Partnership of the Partnership filed in the office of the
-5-
<PAGE> 234
Delaware Secretary of State, as amended or restated from time to time in
accordance with the terms hereof and the Act.
"Certificate of Incorporation" means the Certificate of
Incorporation (or other instrument serving a similar function) of the Company,
as amended and restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Company" means CV Reit, Inc., a Delaware corporation.
"Contributed Property" means each property or other asset, in
such form as may be permitted by the Act, contributed or deemed contributed to
the Partnership by any Partner (including any deemed contributions to the
Partnership on termination and reconstitution thereof pursuant to Regulations
promulgated under section 708 of the Code).
"Depreciation" means, with respect to any asset of the
Partnership for any fiscal year or other period, the depreciation, depletion,
amortization, or other cost recovery deduction, as the case may be, allowed or
allowable for Federal income tax purposes in respect of such asset for such
fiscal year or other period; provided, however, that except as otherwise
provided in the Regulations, if there is a difference between the Gross Asset
Value (including the Gross Asset Value, as increased pursuant to paragraph 1 of
the definition of Gross Asset Value) and the adjusted tax basis of such asset at
the beginning of such fiscal year or other period, Depreciation for such asset
shall be an amount that bears the same ratio to the beginning Gross Asset Value
of such asset as the Federal income tax depreciation, depletion, amortization,
or other cost recovery deduction for such fiscal year or other period bears to
the beginning adjusted tax basis of such asset; provided, further, that if the
Federal income tax depreciation, depletion, amortization, or other cost recovery
deduction for such asset for such fiscal year or other period is zero,
Depreciation of such asset shall be determined with reference to the beginning
Gross Asset Value of such asset using any reasonable method selected by the
General Partner.
"Employment Agreement" means the Employment Agreement of even
date herewith between the Trust and Meshon.
-6-
<PAGE> 235
"Entity" means any general partnership, limited partnership,
corporation, joint venture, trust, business trust, real estate investment trust,
limited liability company, cooperative, or association.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time (or any corresponding provisions of
succeeding laws).
"Escrow Agreement" means the Escrow Agreement among _______,
executed as of the date hereof.
"Florida Land" means the real property described in Exhibit C.
To the extent that neither ownership of the long term recreation notes
collateralized by first mortgages on the recreation facilities at the Century
Village Communities in West Palm Beach, Deerfield Beach, and Boca Raton,
Florida, nor the interest of the Trust or its Affiliates in a limited liability
company or other Entity owning such notes is transferred to the Partnership,
"Florida Land" shall also include such notes (and the outstanding Collateralized
Mortgage Obligations collateralized by such notes shall be considered debt
attributable to such notes).
"GAAP" means United States generally accepted accounting
principles, as in effect from time to time.
"General Partner" means the general partner of the
Partnership from time to time.
"General Partner Interest" means a Partnership Interest held
by the General Partner, in its capacity as general partner. A General Partner
Interest may be expressed as a number of OP Units.
"Gross Asset Value" means, with respect to any asset of the
Partnership, such asset's adjusted basis for Federal income tax purposes, except
as follows:
1. the initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the gross fair market value
of such asset, without reduction for liabilities, as determined by the
contributing Partner and the Partnership on the date of contribution thereof
and, in the case of the Initial Contributed Property, as reflected on Exhibit A;
2. if the General Partner reasonably determines
that an adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners, the Gross Asset Values of all Partnership assets
shall be adjusted in accordance with sections 1.704-1(b)(2)(iv)(F) and (G) of
the Regulations to equal their respective gross fair market values, without
-7-
<PAGE> 236
reduction for liabilities, as reasonably determined by the General Partner, as
of the following times:
a. a Capital Contribution (other than a de
minimis Capital Contribution) to the Partnership by a new or existing Partner as
consideration for a Partnership Interest; or
b. the distribution by the Partnership to a
Partner of more than a de minimis amount of Partnership assets as consideration
for the repurchase of a Partnership Interest; or
c. the liquidation of the Partnership within
the meaning of section 1.704-1(b)(2)(ii)(G) of the Regulations;
3. the Gross Asset Values of Partnership assets
distributed to any Partner shall be the gross fair market values of such assets
without reduction for liabilities, as reasonably determined by the General
Partner as of the date of distribution; and
4. the Gross Asset Values of Partnership assets shall
be increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to sections 734(b) or 743(b) of the Code, but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to section 1.704-1(b)(2)(iv)(M) of the Regulations (as set
forth in Exhibit B); provided, however, that Gross Asset Values shall not be
adjusted pursuant to this paragraph (4) to the extent that the General Partner
reasonably determines that an adjustment pursuant to paragraph (2) above is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this paragraph (4).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. In the event that Meshon is subject to a reduction in
OP Units under section 8 of the Employment Agreement (but only if Meshon shall
have made an election under section 83(b) of the Code with respect to the
issuance to him of OP Units in exchange for shares in Drexel, Royce, or
Reorganized Drexel (each as defined in the Master Agreement)), the Capital
Account of Meshon and the Gross Asset Value of such shares shall be reduced to
reflect such reduction in OP Units conformably with the principles of Section
4.1C and 4.1D and the principles used to prepare Exhibit A.
"Immediate Family" means, with respect to any individual, such
individual's spouse, parents, parents-in-law, descendants, nephews, nieces,
brothers, sisters, brothers-in-law, sisters-in-law, stepchildren, sons-in-law,
and daughters-in-law or any trust solely for the benefit of any of the foregoing
-8-
<PAGE> 237
family members whose sole beneficiaries include the foregoing family members.
"Incapacity" or "Incapacitated" means, (i) as to any
individual Partner, death, total physical disability, or entry of an order,
judgment, or decree by a court of competent jurisdiction adjudicating such
Partner incompetent to manage such Partner's person or estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization, or other
relief under any bankruptcy, insolvency, or other similar law now or hereafter
in effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency, or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b), above; (e) the
Partner seeks, consents to, or acquiesces in the appointment of a trustee,
receiver, or liquidator for the Partner or for all or any substantial part of
the Partner's properties; (f) any proceeding seeking liquidation,
reorganization, or other relief of or against such Partner under any bankruptcy,
insolvency, or other similar law now or hereafter in effect has not been
dismissed within one hundred twenty (120) days after the commencement thereof;
(g) the appointment without the Partner's consent or acquiescence of a trustee,
receiver, or liquidator has not been vacated or stayed within ninety (90) days
of such appointment; or (h) an appointment referred to in clause (g) which has
been stayed is not vacated within ninety (90) days after the expiration of any
such stay.
"Indemnitee" means (i) any Person made a party to a proceeding
by reason of (A) such Person's status as (1) the General Partner or an Affiliate
thereof, (2) a director, trustee, or officer of the Partnership or the General
Partner (or an Affiliate thereof), or (3) in the case of a director, trustee, or
officer of any other Entity, each Person serving in such capacity at the request
of the Partnership or the General Partner, or (B) such Person's liabilities,
pursuant to a loan guarantee or
-9-
<PAGE> 238
otherwise, for any indebtedness of the Partnership or any Subsidiary of the
Partnership (including, without limitation, any indebtedness which the
Partnership or any Subsidiary of the Partnership has assumed or taken assets
subject to); and (ii) such other Persons (including Affiliates of the General
Partner or the Partnership) as the General Partner may designate from time to
time (whether before or after the event giving rise to potential liability), in
its sole and absolute discretion.
"Initial Contributed Property" means the property contributed
to the Partnership pursuant to the terms of the Master Agreement.
"Lien" means any lien, security interest, mortgage, deed of
trust, charge, claim, encumbrance, pledge, option, or right of first offer or
first refusal and any other right or interest of others of any kind or nature,
actual or contingent, or other encumbrance of any nature whatsoever.
"Limited Partner" means the Trust and any other Person named
as a Limited Partner in Exhibit A or any Substituted Limited Partner or
Additional Limited Partner, in such Person's capacity as a limited partner of
the Partnership. For purposes of any vote of the Limited Partners in connection
with any merger, consolidation, or conversion involving the Partnership (except
as provided in the definition of "Qualifying Limited Partner Interest"), the
Limited Partners shall be treated as a single class or group.
"Limited Partner Interest" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Partners and includes any and all benefits to which
the holder of such a Partnership Interest may be entitled, as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Limited Partner Interest may be expressed as
a number of OP Units.
"Liquidating Event" has the meaning set forth in
Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.
"Lock-Up Period" means a period of 12 months commencing
on the date hereof.
"Master Agreement" means the Definitive Master Agreement dated
as of September __, 1997, among the Company, the Trust, Drexel Realty, Inc., and
certain other Persons, as amended.
-10-
<PAGE> 239
"Net Income" or "Net Loss" means, for each fiscal year or
other applicable period, an amount equal to the Partnership's taxable income or
loss for such year or period as determined for Federal income tax purposes by
the General Partner, determined in accordance with section 703(a) of the Code
(for this purpose, all items of income, gain, loss or deduction required to be
stated separately pursuant to section 703(a) of the Code shall be included in
taxable income or loss), adjusted as follows: (a) by including as an item of
gross income any tax-exempt income received by the Partnership and not otherwise
taken into account in computing Net Income or Net Loss; (b) by treating as a
deductible expense any expenditure of the Partnership described in section
705(a)(2)(B) of the Code (or which is treated as a section 705(a)(2)(B)
expenditure pursuant to section 1.704-1(b)(2)(iv)(I) of the Regulations) and not
otherwise taken into account in computing Net Income or Net Loss, including
amounts paid or incurred to organize the Partnership (unless an election is made
pursuant to section 709(b) of the Code) or to promote the sale of interests in
the Partnership and by treating deductions for any losses incurred in connection
with the sale or exchange of Partnership property disallowed pursuant to
sections 267(a)(1) or 707(b) of the Code as expenditures described in section
705(a)(2)(B) of the Code; (c) by taking into account Depreciation in lieu of
depreciation, depletion, amortization, and other cost recovery deductions taken
into account in computing taxable income or loss; (d) by computing gain or loss
resulting from any disposition of Partnership property with respect to which
gain or loss is recognized for Federal income tax purposes by reference to the
Gross Asset Value of such property rather than its adjusted tax basis; (e) in
the event of an adjustment of the Gross Asset Value of any Partnership asset
which requires that the Capital Accounts of the Partnership be adjusted pursuant
to sections 1.704-1(b)(2)(iv)(e), (f), and (g) of the Regulations, by taking
into account the amount of such adjustment as if such adjustment represented
additional Net Income or Net Loss pursuant to Exhibit B; and (f) by not taking
into account in computing Net Income or Net Loss items separately allocated to
the Partners pursuant to Paragraphs 1 and 2 of Exhibit B and Sections 4.1 and
7.3B.
"Nonrecourse Deductions" has the meaning set forth in
sections 1.704-2(b)(1) and 1.704-2(c) of the Regulations.
"Nonrecourse Liabilities" has the meaning set forth in
section 1.704-2(b)(3) of the Regulations.
"OP Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2, and
4.3. The number of OP Units outstanding and the Percentage Interests in the
Partnership represented by such OP Units are set forth in Exhibit A, as such
Exhibit may be amended from time to time. The ownership of OP Units shall be
evidenced
-11-
<PAGE> 240
by such form of certificate for units as the General Partner adopts from time to
time. The General Partner may reflect on any such certificate any transfer or
other restriction, forfeitability risk, or similar matter that pertains to the
OP Units evidenced thereby.
"Partner" means a General Partner or a Limited Partner,
and "Partners" means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in
Regulations section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable
year shall be determined in accordance with the rules of Regulations section
1.704-2(i)(2).
"Partnership" means Montgomery CV Realty L.P.
"Partnership Interest" means an ownership interest in the
Partnership representing a Capital Contribution by a Limited Partner, the
General Partner, or the predecessor in interest of a Partner or of an Assignee
and includes any and all benefits to which the holder of such a Partnership
Interest may be entitled as provided and limited in this Agreement, including
specifically, but without limitation, Section 11.5, together with all
obligations of such Person to comply with the terms and provisions of this
Agreement. A Partnership Interest may be expressed as a number of OP Units.
"Partnership Minimum Gain" has the meaning set forth in
Regulations section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in a Partnership Minimum Gain, for a
Partnership taxable year shall be determined in accordance with the rules of
Regulations section 1.704-2(d).
"Partnership Record Date" means the record date established by
the General Partner for the distribution of Available Cash pursuant to Section
5.1.
"Partnership Year" means the fiscal year of the
Partnership, as set forth in Section 9.2.
-12-
<PAGE> 241
"Percentage Interest" means, as to a Partner or Assignee, the
fractional part of the Partnership Interests owned by such Partner or Assignee
and determined from time to time by dividing the number of OP Units owned by
such Partner or Assignee at any such time by the total number of OP Units
outstanding at such time.
"Permitted Partners" has the meaning set forth in
subparagraph 1(b) of Exhibit B.
"Permitted Transferee" means any person to whom OP Units are
permitted to be Transferred in accordance with Section 11.3 (determined without
regard to Section 11.3E(3)(iii)).
"Person" means an individual or Entity.
"Qualifying Limited Partner Interest" at any time means (a) if
5% or more of the OP Units at that time are not then held by the Trust or its
Affiliates, a majority of the OP Units of the Limited Partners (not including OP
Units originally issued to the Trust and then held by the Trust or its
Affiliates, but specifically including OP Units originally issued to other
Limited Partners and subsequently acquired by the Trust or its Affiliates
pursuant to Section 8.6 or otherwise) and (b) otherwise, the OP Units then held
by the Trust and its Affiliates.
"Quarter" means each of the three month periods ending on
March 31, June 30, September 30, and December 31.
"Regulations" means the final, temporary, or proposed Income
Tax Regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
"REIT" means a real estate investment trust as defined in
section 856 of the Code.
"REIT Requirements" has the meaning set forth in
Section 5.2.
"Restricted Partner" has the meaning set forth in
Section 1(b) of Exhibit B.
"Section," "Article," or "Exhibit," when used without
reference to the Code, ERISA, the Act, the Regulations, regulations of the
Department of Labor, or other statute or document means a section or article of
or exhibit to, as the case may be, this Agreement.
"Share" means a share of Common Stock of the Company,
par value $0.01 per share.
-13-
<PAGE> 242
"Shares Amount" means a number of Shares equal to the product
of the number of OP Units offered for redemption by a Redeeming Partner times
the Adjustment Factor; provided that, in the event the Company issues to all
holders of Shares rights, options, warrants, or convertible or exchangeable
securities entitling such holders to subscribe for or to purchase Shares
(collectively, the "rights"), then, for purposes of computing the Cash Amount
and the Shares Amount, but only if the Redeeming Partner shall tender to the
Trust the consideration needed pursuant to such rights, options, warrants, or
securities to subscribe for or to purchase Shares, the Shares Amount shall also
include the number of Shares that a holder of Shares (in an amount equal to the
product of the number of OP Units offered for redemption times the Adjustment
Factor) would be entitled to receive upon exercise of such rights, options,
warrants, or securities. In the case of a change in identity, form, or place of
organization of the Company, the "Shares Amount" shall mean a number of shares,
certificates of beneficial interest, or other securities of the successor to the
Company in connection with such change equal to the product of the number of OP
Units offered for redemption by a Redeeming Partner times the Adjustment Factor
times the number (or fractional number) of such shares, certificates of
beneficial interest, or other securities issued in exchange for one Share in
connection with such change (and such shares, certificates of beneficial
interest, or other securities shall be considered "Shares" for purposes hereof).
"Specified Redemption Date" means the tenth business day after
receipt by the General Partner of a Notice of Redemption.
"Stock Option Plans" means any plan adopted from time to time
by the General Partner, the Partnership, or any of their respective Affiliates
(including, without limitation, Reorganized Drexel (as defined in the Master
Agreement)) pursuant to which Shares are issued, or options to acquire Shares
are granted, to employees or trustees of the General Partner, employees of the
Partnership, or employees of their respective Affiliates in consideration for
services or future services.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, or other Entity of which a majority of (i) the voting
power of the voting equity securities; or (ii) the outstanding equity interests,
is owned, directly or indirectly (including, without limitation, through one or
more other Subsidiaries), by such Person.
"Substituted Limited Partner" means a Person who is admitted
as a limited partner to the Partnership pursuant to Section 11.4.
"Tax Items" has the meaning set forth in Exhibit B.
-14-
<PAGE> 243
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership.
"Transfer," as a noun, means any sale, assignment, conveyance,
pledge, hypothecation, gift, encumbrance, or other transfer and, as a verb,
means to sell, assign, convey, pledge, hypothecate, give, encumber, or otherwise
transfer.
"Value" of a Share on a Specified Redemption Date means the
closing trading price of such Share on the New York Stock Exchange for the date
on which the Notice of Redemption is received by the General Partner (or, if
such date is not a trading day, on the next succeeding trading day).
Certain additional terms and phrases have the meanings set
forth in Exhibit B.
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 CONTINUATION. The Partners hereby agree to continue the
Partnership under and pursuant to the Act. Except as expressly provided herein
to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Trust has heretofore been admitted to the Partnership as the General
Partner. The Limited Partners are hereby admitted to the Partnership as limited
partners. The Trust agrees that it shall be entitled to a return of MCRLP LLC's
capital contribution, if any, and not to any other distribution from the
Partnership in respect of MCRLP LLC's capital contribution. The Original Limited
Partner shall be entitled to a return of his capital contributions heretofore
made.
2.2 NAME. The name of the Partnership shall continue to be
Montgomery CV Realty L.P. The Partnership's business may be conducted under any
other name or names deemed advisable by the General Partner, including the name
of the General Partner or any Affiliate thereof. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The General Partner in its sole and
absolute discretion may, upon 5 days prior written notice to the Limited
Partners, change the name of the Partnership.
-15-
<PAGE> 244
2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE. The address
of the registered office of the Partnership in the State of Delaware and the
name and address of the registered agent for service of process on the
Partnership in the State of Delaware is The Corporation Trust Company, 1029
Orange Street, Wilmington, DE 19801 or such other address and/or registered
agent as the General Partner may from time to time designate. The principal
office of the Partnership shall be 580 West Germantown Pike, Plymouth Meeting,
PA 19462, or such other place as the General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
2.4 POWER OF ATTORNEY.
A. Each Limited Partner and each Assignee hereby
constitutes and appoints the General Partner, any Liquidator, and authorized
officers and attorneys-in-fact of each, and each of those acting singly, in each
case with full power of substitution, as its true and lawful agent and
attorney-in-fact, with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver,
file, and record in the appropriate public offices (a) all certificates,
documents, and other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidator deems appropriate or necessary to form, qualify, or
continue the existence or qualification of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have limited
liability) in the State of Delaware and in all other jurisdictions in which the
Partnership may or plans to conduct business or own property, including, without
limitation, any documents necessary or advisable to convey any Contributed
Property to the Partnership; (b) all instruments that the General Partner deems
appropriate or necessary to reflect any amendment, change, modification, or
restatement of this Agreement in accordance with its terms; (c) all conveyances
and other instruments or documents that the General Partner or the Liquidator
deems appropriate or necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation; (d) all instruments relating to the
admission, withdrawal, removal, or substitution of any Partner pursuant to, or
other events described in, Article 11, 12, or 13 or the Capital Contribution of
any Partner; and (e) all certificates, documents, and other instruments relating
to the determination of the rights, preferences, and privileges of any
Partnership Interest; and
-16-
<PAGE> 245
(2) execute, swear to, seal, acknowledge,
and file all ballots, consents, approvals, waivers, certificates, and other
instruments appropriate or necessary, in the sole and absolute discretion of the
General Partner or any Liquidator, to make, evidence, give, confirm, or ratify
any vote, consent, approval, agreement, or other action which is made or given
by the Partners hereunder or is consistent with the terms of this agreement or
appropriate or necessary, in the sole discretion of the General Partner or any
Liquidator, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in recognition
of the fact that each of the Partners will be relying upon the power of the
General Partner and any Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the Transfer of all or any portion of such Limited Partner's or
Assignee's OP Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns, and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate, or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney, and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
2.5 TERM. The term of the Partnership commenced on the date
the Certificate was filed and shall continue until December 31, 2096, unless the
Partnership is dissolved sooner pursuant to the provisions of Article 13 or as
otherwise provided by law.
-17-
<PAGE> 246
ARTICLE 3
PURPOSE
3.1 PURPOSE AND BUSINESS. The purpose and nature of the
business to be conducted by the Partnership is to conduct any business that may
be lawfully conducted by a limited partnership formed pursuant to the Act
including, without limitation, to engage in the following activities: to
acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease,
transfer, encumber, convey, exchange, and otherwise dispose of or deal with real
and personal property of all kinds; to undertake such other activities as may be
necessary, advisable, desirable, incidental, or convenient to the business of
the Partnership; and to engage in such other ancillary activities as shall be
necessary or desirable to effectuate the foregoing purposes; all with a view to
enabling the Partnership, consistent with operation of the Partnership in a
prudent manner, to make pro rata distributions to all the Partners of at least
29(cent) per OP Unit per quarter (or such greater amount as may be required to
enable the Trust to make distributions to the Company sufficient to enable the
Company to pay a regular quarterly dividend of at least 29(cent) per share and
any other dividend required to cause the Company to continue to qualify as a
REIT to which the provisions of part II of subchapter M of chapter 1 of the Code
apply), it being understood that no guarantee can be given that this purpose can
be achieved. (In the event that an event described in clauses (i), (ii), or
(iii) of the definition of "Adjustment Factor" occurs with respect to the
Shares, the figure of 29(cent) contained in this Section 3.1 and in Sections
4.2B, 4.3A, and 7.8F shall be adjusted and shall be deemed to refer to the per
share equivalent of a distribution by the Company of the same total amount as
would have been distributed had no such event occurred and had 29(cent) per
share been distributed.) The Partnership shall have all powers necessary,
advisable, desirable, incidental, or convenient to accomplish the purposes
enumerated. In connection with the foregoing, but subject to all of the terms,
covenants, conditions, and limitations contained in this Agreement and any other
agreement entered into by the Partnership, the Partnership shall have full power
and authority to enter into, perform, and carry out contracts of any kind, to
borrow money and to issue evidences of indebtedness, whether or not secured by
mortgage, trust deed, pledge, or other Lien, and, directly or indirectly, to
acquire and construct additional properties necessary or useful in connection
with its business.
3.2 POWERS. The Partnership is empowered to do any
and all acts and things necessary, appropriate, proper,
advisable, incidental to, or convenient for the furtherance and
accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership (including
-18-
<PAGE> 247
specifically, but without limitation, to exercise all of the powers set out in
Section 7.1); provided, that the Partnership shall, at the request of the Trust,
refrain from taking any action which, in the Trust's good faith belief, (i)
could adversely affect the ability of the Company to continue to qualify as a
REIT to which the provisions of part II of subchapter M of chapter 1 of the Code
apply (and as a "corporation subject to a tax imposed by subchapter M," within
the meaning of section 11(c) of the Code) or to pay the regular quarterly
dividend described in Section 3.1; (ii) could subject the Company to any
additional taxes or other liability under the Code, including specifically, but
without limitation, under sections 30, 42, 45A, 49, 50, 55, 453, 453A, 531, 541,
857, 1294, or 4981 of the Code; or (iii) could violate any law or regulation of
any governmental body or agency having jurisdiction over the Trust, its
Affiliates, or their respective securities or properties.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS.
A. At the time of the execution of this
Agreement, the Partners shall make the Capital Contributions contemplated by the
Master Agreement and shall be issued OP Units in exchange therefor, all as set
forth in Exhibit A (as such Exhibit A may hereafter be amended or corrected by
the General Partner to reflect the provisions hereof). To the extent the
Partnership acquires any property by the merger of any other Person into the
Partnership, Persons who receive Partnership Interests in exchange for their
interests in the Person merging into the Partnership shall become Partners and
shall be deemed to have made Capital Contributions as provided in the applicable
merger agreement and as set forth in Exhibit A, as amended to reflect such
deemed Capital Contributions. Each Partner shall own OP Units in the amounts set
forth for such Partner in Exhibit A and shall have a Percentage Interest in the
Partnership set forth in Exhibit A (but such OP Units and Percentage Interests
may be further adjusted pursuant to Sections 4.1C and 4.1D). The number of OP
Units held by the General Partner, in its capacity as general partner, shall be
deemed to be the General Partner Interest. The number of OP Units issued to each
Partner and the Capital Account of certain Partners shall be further adjusted in
the circumstances provided in Section 4.1C and 4.1D (and the Gross Asset Value
of property contributed by any Partner whose Capital Account is so adjusted
shall be correspondingly adjusted). No Person holding additional OP Units issued
pursuant to Section 4.1C shall be entitled to any distributions with respect to
such OP Units by reason of distributions made by the
-19-
<PAGE> 248
Partnership prior to the issuance of such additional OP Units and no Partner
whose number of OP Units is reduced pursuant to Section 4.1C and 4.1D shall be
required solely by reason thereof to return to the Partnership any distributions
received prior to such reduction (but such Person may otherwise have liability
to the Partnership or to other Persons under the Master Agreement). If, as a
result of the making of any such distributions prior to any such issuance or
reduction, the Capital Accounts of the Partners shall be disproportionate to
their Percentage Interests following such issuance or reduction, gross income or
gross deductions of the Partnership shall be allocated to eliminate the
disproportion so resulting.
B. The Trust shall contribute (or shall cause
the Company and its qualified REIT subsidiaries to contribute) to the
Partnership the net cash flow of the Company and such qualified REIT
subsidiaries (including net sales and refinancing proceeds) attributable to
ownership of the Florida Land (after payment of any expenditures of the Company
and such qualified REIT subsidiaries with respect to the Florida Land,
including, without limitation, management fees and principal and interest on any
debt of the Company and such qualified REIT subsidiaries attributable to the
Florida Land) and shall follow (and shall cause the Company and its qualified
REIT subsidiaries to follow) the directions of the Partnership with respect to
the management, ownership, leasing, development, financing, and sale of the
Florida Land. Such contribution shall be made promptly upon the realization of
such amounts. No additional OP Units shall be issued to the Trust, the Company,
or such qualified REIT subsidiaries in connection with such contribution.
Although, notwithstanding Section 4.1A and unless the Trust shall otherwise
determine, title to the Florida Land and all interests therein shall remain
vested in the Company or such qualified REIT subsidiaries and shall not be, and
shall not be deemed to have been, granted, assigned, transferred, or otherwise
conveyed to or vested in the Partnership, this Agreement, including without
limitation the determination of Capital Contributions, Available Cash, and Net
Income and Net Loss, shall be applied as though the Florida Land had been
contributed to the Partnership by the Trust on the date hereof, subject to any
debt of the Company and such qualified REIT subsidiaries attributable to the
Florida Land. The intent of this provision and of Section 7.3B is that the
Partnership (and not the Trust, the Company, or such qualified REIT
subsidiaries) shall have the economic benefits and burdens that the Partnership
would have had if it did own the Florida Land, subject to any debt of the
Company and such qualified REIT subsidiaries attributable to the Florida Land,
with the effect that the income, loss, cash flow, and cash expenditures
attributable to the Florida Land shall be treated as income, loss, cash flow,
and cash expenditures of the Partnership and not of the Trust, the Company, or
such qualified REIT subsidiaries (and, to the extent they are for any reason not
so treated, the
-20-
<PAGE> 249
principles of the antepenultimate sentence of Section 7.3B shall apply). The
Trust may at any time transfer (or cause to be transferred) all or any portion
of the Florida Land, or all or any portion of the ownership interests in an
Entity owning the Florida Land, to the Partnership and, to the extent of such
transfer, this Section 4.1B and Section 7.3B, to the extent relating to the
Florida Land, shall cease to apply. No additional OP Units shall be issued to
the Trust, the Company, or its qualified REIT subsidiaries in connection with
such a transfer.
C. Sections 1.6C, 1.9, and 2.1 of the Master
Agreement provide that the number of OP Units to be issued to the Meshon Parties
and the Levy Parties (each as defined in the Master Agreement) may, in certain
circumstances, be adjusted. Such sections 1.6C, 1.9, and 2.1 are hereby
incorporated herein, to the extent relating to OP Units to be issued to the
Meshon Parties and the Levy Parties, but not otherwise reflected on Exhibit A.
Any OP Units issued pursuant to the preceding sentences of this Section 4.1C
shall be deemed for purposes of Section 8.6 to have been issued on the date
hereof. To the extent ascertainable on the date hereof, the amounts reflected on
Exhibit A shall give effect to the provisions of this Section 4.1C and, to the
extent ascertained hereafter, any adjustments to such amounts shall be reflected
on an amended or corrected Exhibit A prepared by the General Partner pursuant to
Section 4.1A.
D. (1) [INTENTIONALLY OMITTED.]
(2) In the event of any inaccuracy in or breach
of any representation or warranty made in the Master Agreement by any Limited
Partner (or predecessor in interest of a Limited Partner or Assignee) other than
the Trust and if the Company or the Trust exercises its rights under section
1.4(b) of the Master Agreement, but subject to the provisions of section 12.2 of
the Master Agreement (relating to time limitations on representations and
warranties), the number of OP Units held by such Limited Partner (or the
successor in interest of such Limited Partner) shall be reduced. If such
inaccuracy or breach related to matters entering into the calculation of net
operating income of any real property, interests in which were directly or
indirectly contributed to the Partnership by such Limited Partner (or
predecessor in interest of a Limited Partner or Assignee), the number of OP
Units shall be reduced by 1 for each $1.16 per annum by which the net operating
income attributable to the interest so contributed was overstated. If such
inaccuracy or breach related to any other matter, the number of OP Units shall
be reduced by 1 for each $11 by which the Partnership is damaged by reason of
such inaccuracy or breach. Certain OP Units may be held in escrow pursuant to
the Escrow Agreement to enforce the rights and obligations of the parties under
this Section 4.1D(2) (but,
-21-
<PAGE> 250
consistently with the penultimate sentence of Section 4.1A, the rights of any
Person to distributions with respect to such OP Units shall not be reduced until
such number of OP Units is actually reduced and such distributions shall be paid
to such Person and shall not be held under the Escrow Agreement). The provisions
of this Section 4.1D(2) shall not preclude the exercise of any other remedy
otherwise available to any party for any inaccuracy in or breach of any
representation or warranty made in the Master Agreement or other breach hereof
or of the Master Agreement by any other party.
E. The Partners shall have no obligation to
make any additional Capital Contributions or loans to the Partnership.
F. The Partnership and Meshon are parties to an
Agency Agreement pursuant to which they have acknowledged that the limited
partnership interests in County Line Plaza Realty Associates, L.P. were being
held by Meshon solely as an agent for the Partnership and the Partnership has
instructed Meshon to convey such interests to the Partnership.
G. The General Partner shall give notice to any
Partner or Assignee affected thereby (and to the escrow agent under the Escrow
Agreement) at the time of making any adjustment under Section 4.1C or 4.1D.
4.2 ADDITIONAL FUNDS.
A. The sums of money required to finance the
business and affairs of the Partnership shall be derived from the initial
Capital Contributions made to the Partnership by the Partners as set forth in
Section 4.1 and from funds generated from the operation and business of the
Partnership including, without limitation, distributions directly or indirectly
received by the Partnership from any Entity. The General Partner may, in its
sole and absolute discretion, in such amounts and at such times as it solely
shall determine to be necessary or appropriate, (i) cause the Partnership to
issue additional Partnership Interests and admit additional limited partners to
the Partnership in accordance with Section 4.3; (ii) make additional Capital
Contributions to the Partnership (subject to the provisions of Section 4.2B);
(iii) in the event additional financing is needed from sources other than as set
forth in the preceding sentence for any reason, cause the Partnership to borrow
money, enter into loan arrangements, issue debt securities, obtain letters of
credit, or otherwise borrow money on a secured or unsecured basis; (iv) make a
loan or loans to the Partnership (subject to Section 4.2B); or (v) except as
provided in Section 7.1A(3), sell any assets or properties of the Partnership.
In no event shall the Limited Partners be required to make any additional
Capital Contributions or any loan to, or
-22-
<PAGE> 251
otherwise provide any financial accommodation for the benefit of,
the Partnership.
B. If the Company shall issue any debt
securities (otherwise than to enable the Company to pay its regular quarterly
dividend of 29(cent) per share and any other dividend required to cause the
Company to continue to qualify as a REIT to which the provisions of part II of
subchapter M of chapter 1 of the Code apply), preferred stock, or common stock
(including additional Shares (otherwise than (i) in connection with payment of
the Shares Amount or (ii) in connection with the conversion or exchange of
securities of the Company solely in conversion or exchange for other securities
of the Company)) or rights, options, warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase any of the
foregoing (collectively, "Securities"), the Trust shall (i) in the case of debt
securities, lend to the Partnership an amount equal to the proceeds of or
consideration received for such Securities on the same terms and conditions,
including interest rate and repayment schedule, as shall be applicable with
respect to or incurred in connection with the issuance of such Securities and
the proceeds of, or consideration received from, any subsequent exercise,
exchange, or conversion thereof (if applicable); (ii) in the case of equity
Securities senior or junior to the Shares as to dividends and distributions on
liquidation, contribute to the Partnership an amount equal to the proceeds of or
consideration (including any property or other non-cash assets) received for
such Securities and the proceeds of, or consideration received from, any
subsequent exercise, exchange, or conversion thereof (if applicable), and
receive from the Partnership interests in the Partnership in consideration
therefor with the same terms and conditions, including dividend, dividend
priority, and liquidation preference, as are applicable to such Securities; and
(iii) in the case of Shares or other equity Securities on a parity with the
Shares as to dividends and distributions on liquidation (including, without
limitation, Shares or other Securities issued upon exercise of options issued
under the Stock Option Plans), contribute to the Partnership an amount equal to
the proceeds of or consideration (including any property or other non-cash
assets) received for such Securities and the proceeds of, or consideration
received from, any subsequent exercise, exchange, or conversion thereof (if
applicable), and receive from the Partnership a number of additional OP Units in
consideration therefor equal to the product of (x) the number of Shares or other
equity Securities on a parity with Shares (appropriately adjusted if such parity
is not share-for-share) issued by the Company, multiplied by (y) a fraction the
numerator of which is one and the denominator of which is the Adjustment Factor
in effect on the date of such contribution.
-23-
<PAGE> 252
4.3 ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS;
ADMISSION OF ADDITIONAL LIMITED PARTNERS.
A. In addition to any Partnership Interests
issuable by the Partnership pursuant to Section 4.2, the General Partner (with
the consent of the Trust, if the Trust is not the General Partner) is authorized
to cause the Partnership to issue additional Partnership Interests (or options
therefor) in the form of OP Units or other Partnership Interests junior to the
OP Units to any Persons at any time or from time to time, for consideration not
less than the fair market value thereof (or the fair market value as of the date
an option is granted) (as such fair market value is determined in the good faith
discretion of the General Partner's directors or trustees), and on such terms
and conditions, as the General Partner shall establish in each case in its sole
and absolute discretion, without any approval being required from any Limited
Partner (other than the Trust, if the Trust is not the General Partner) or any
other Person; provided, however, that (i) such issuance does not effect a
material adverse impact (as such material adverse impact is determined in the
good faith discretion of the General Partner's Board of Directors) on (A) the
existing Limited Partners' right to exercise their rights under Section 8.6, (B)
the economic effect upon the Limited Partners of the allocations set forth in
Exhibit B (other than due to the issuance of OP Units or other interests in the
Partnership as set forth in this Section 4.3 or Section 4.2B), or (C) the
ability of the Company to pay the regular quarterly dividend of at least
29(cent) per share described in Section 3.1; (ii) such issuance does not cause
the Partnership to become, with respect to any employee benefit plan subject to
title I of ERISA or section 4975 of the Code, a "party in interest" (as defined
in section 3(14) of ERISA) or a "disqualified person" (as defined in section
4975(e) of the Code); and (iii) such issuance would not cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to section 2510.3-101 of the regulations of the United States
Department of Labor. Subject to the limitations set forth in the preceding
sentence and in Articles 11 and 12, the General Partner may take such steps as
it, in its reasonable discretion, deems necessary or appropriate to admit any
Person as a Limited Partner of the Partnership, including, without limitation,
amending the Certificate, Exhibit A, or any other provision of this Agreement
(except as provided in Section 14.1C)
-24-
<PAGE> 253
B. [INTENTIONALLY OMITTED.]
4.4 INTENTIONALLY OMITTED.
4.5 REPURCHASE OF SHARES; EXCESS SHARES.
A. In the event that the Trust or any Affiliate
thereof shall elect to purchase from the Company's shareholders Shares for the
purpose of delivering such Shares to satisfy an obligation under any dividend
reinvestment program adopted by the Trust or any Affiliate thereof, any employee
stock purchase plan adopted by the Trust or any Affiliate thereof, or any other
obligation or arrangement undertaken by the Trust or any Affiliate thereof in
the future, the purchase price paid by the Trust or any Affiliate thereof for
such Shares and any other expenses incurred by the Trust or any Affiliate
thereof in connection with such purchase shall be considered expenses of the
Partnership and shall be reimbursed to the Trust or such Affiliate, subject to
the condition that: (i) if such Shares subsequently are to be sold by the Trust
or any Affiliate thereof, as provided in Section 4.2B, the Trust shall pay to
the Partnership an amount equal to any proceeds received by the Trust or such
Affiliate for such Shares (provided that an exchange of Shares for OP Units
pursuant to Section 8.6 would not be considered a sale for such purposes); and
(ii) if such Shares are not re-transferred by the Trust or any Affiliate thereof
within 30 days after the purchase thereof, the General Partner shall cause the
Partnership to cancel a number of OP Units held by the Trust, as a Limited
Partner, equal to the product of (x) the number of such Shares and (y) a
fraction, the numerator of which is one and the denominator of which is the
Adjustment Factor in effect on the date of such contribution.
B. [INTENTIONALLY OMITTED.]
4.6 NO THIRD PARTY BENEFICIARY. No creditor or other third
party having dealings with the Partnership shall have the right to enforce the
right or obligation of any Partner to make Capital Contributions or loans or to
pursue any other right or remedy hereunder or at law or in equity, it being
understood and agreed that the provisions of this Agreement shall be solely for
the benefit of, and may be enforced solely by, the parties hereto and their
respective successors and assigns.
4.7 NO INTEREST; NO RETURN. No Partner shall be entitled to
interest on its Capital Contribution or on such Partner's Capital Account.
Except as provided herein or by law, no Partner shall have any right to demand
or receive the return of its Capital Contribution from the Partnership.
4.8 NO PREEMPTIVE RIGHTS. Subject to any preemptive
rights that may be granted pursuant to Section 4.3, no Person
-25-
<PAGE> 254
shall have any preemptive or other similar right with respect to (i) additional
Capital Contributions or loans to the Partnership or (ii) issuance or sale of
any OP Units or other Partnership Interests.
ARTICLE 5
DISTRIBUTIONS
5.1 REGULAR DISTRIBUTIONS. Except for distributions pursuant
to Section 13.2 in connection with the dissolution and liquidation of the
Partnership, and subject to the provisions of Sections 5.3, 5.4, and 5.5, the
General Partner shall cause the Partnership to distribute, from time to time as
determined by the General Partner, but in any event not less frequently than
quarterly, all Available Cash, to the Partners, in accordance with each
Partner's respective Percentage Interest; provided, however, that in no event
may a Partner receive a distribution of Available Cash with respect to an OP
Unit if such Partner is entitled to receive a distribution out of such Available
Cash with respect to a Share for which such OP Unit has been exchanged.
5.2 QUALIFICATION AS A REIT. The Trust may (and, if the Trust
is at any time not the general partner of the Partnership, the general partner
of the Partnership shall use its best efforts, if so requested by the Trust, to)
cause the Partnership (including, without limitation, by causing any Entity in
which the Partnership holds an interest to make distributions to the
Partnership) to distribute sufficient amounts under this Article 5 to enable the
Trust to make distributions to the Company sufficient to enable the Company to
pay shareholder dividends that will (i) satisfy the requirements for qualifying
as a REIT under the Code and Regulations ("REIT Requirements"), and (ii) avoid
any Federal income or excise tax liability of the Company (provided, however,
that a general partner of the Partnership shall not be bound to comply with this
covenant to the extent such distributions would violate applicable Delaware
law).
5.3 WITHHOLDING. With respect to any withholding tax or other
similar tax liability or obligation to which the Partnership may be subject as a
result of any act or status of any Partner or to which the Partnership becomes
subject with respect to any OP Unit, the Partnership shall have the right to
withhold amounts of Available Cash distributable to such Partner or with respect
to such OP Units, to the extent of the amount of such withholding tax or other
similar tax liability or obligation pursuant to the provisions contained in
Section 10.4.
-26-
<PAGE> 255
5.4 ADDITIONAL PARTNERSHIP INTERESTS. If the Partnership
issues Partnership Interests in accordance with Section 4.2 or 4.3, the
distribution priorities set forth in Section 5.1 shall be amended, as necessary,
to reflect the distribution priority of such Partnership Interests and
corresponding amendments shall be made to the provisions of Exhibit B.
5.5 DISTRIBUTIONS UPON LIQUIDATION. Proceeds from a
Terminating Capital Transaction and any other cash received or reductions in
reserves made after commencement of the liquidation of the Partnership shall be
distributed to the Partners in accordance with Section 13.2.
ARTICLE 6
ALLOCATIONS
The Net Income, Net Loss, and other items of the Partnership
shall be allocated pursuant to the provisions of Sections 4.1 and 7.3B and
Exhibit B.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
7.1 MANAGEMENT.
A. Except as otherwise expressly provided in
this Agreement, all management powers over the business and affairs of the
Partnership are and shall be exclusively vested in the General Partner, and no
Limited Partner shall have any right to participate in or exercise control or
management power over the business and affairs of the Partnership. The General
Partner may not be removed by the Limited Partners with or without cause. In
addition to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the General Partner
under any other provision of this Agreement, the General Partner shall have full
power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof, and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) (a) the making of any expenditures, the
lending or borrowing of money, including, without limitation, making prepayments
on loans and borrowing money to permit the Partnership to make distributions to
its Partners in such amounts as will enable the Trust to make distributions to
the Company sufficient to permit the Company (so long as the Company
-27-
<PAGE> 256
qualifies as a REIT) to avoid the payment of any Federal income tax (including,
for this purpose, any excise tax pursuant to section 4981 of the Code) and to
make distributions to its shareholders in amounts sufficient to permit the
Company to maintain REIT status, (b) the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, (c) the issuance of
evidences of indebtedness (including the securing of the same by deed, mortgage,
deed of trust, or other lien or encumbrance on the Partnership's assets), (d)
the incurring of any obligations it deems necessary for the conduct of the
activities of the Partnership, and (e) the execution and delivery, on the
Partnership's behalf, of evidences of indebtedness and documents granting
security for the payment thereof (with or without warrant of attorney to confess
judgment against the Partnership upon default) and, without limiting the
generality of the foregoing, the granting of a warrant of attorney to confess
judgment against the Partnership;
(2) the making of tax, regulatory, and other
filings, or rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage,
pledge, encumbrance, hypothecation, or exchange of any assets of the Partnership
(including the exercise or grant of any conversion, option, privilege, or
subscription right or other right available in connection with any assets at any
time held by the Partnership) or the merger or other combination or conversion
of the Partnership with or into another entity; provided that (a) no disposition
of an interest in a property listed on Exhibit E (whether by disposition of such
property or by disposition of the Partnership's interest in an Entity owning
such property) may be made, prior to the date listed with respect to such
property on Exhibit E, without the consent of each individual listed with
respect to such property on Exhibit E, (b) (x) prior to August 1, 2000, except
with the consent or at the request of Meshon and Paul Cohen, in the case of the
Woodbourne Square Shopping Center shopping center, (y) prior to August 1, 1998,
except with the consent or at the request of Meshon, in the case of the Rio
Grande Plaza shopping center, or (z) prior to July 31, 2002, except with the
consent or at the request of Meshon, Paul Cohen, and Richard Fox, in the case of
the Chesterbrook Shopping Center Plaza shopping center, or, notwithstanding
clauses (x), (y), and (z), except as required under the Master Agreement, the
Partnership shall take no action (other than making capital improvements to the
property involved, causing a sale not otherwise prohibited hereunder of the
property involved or the Partnership's interest therein, making the principal
amortization payments scheduled under the respective loan documents in effect on
the date hereof, or issuing additional Partnership Interests under Section 4.3)
which, of itself, would cause a reduction in
-28-
<PAGE> 257
the share of Meshon, Paul Cohen, or Richard Fox of the liabilities to which the
Rio Grande Plaza, Woodbourne Square Shopping Center, and Chesterbrook Shopping
Center Plaza shopping centers are subject, if such reduction would, of itself,
cause a realization or recognition of income to Meshon, Paul Cohen, or Richard
Fox; provided that the consent of any individual described in this Section
7.1A(3) shall not be required after such individual's death;
(4) the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose consistent with
the terms of this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the Trust or its
Affiliates, the Partnership, or any of the Partnership's Subsidiaries, the
lending of funds to other Persons (including, without limitation, the
Subsidiaries of the Partnership and/or the Trust or its Affiliates), and the
repayment of obligations of the Partnership and its Subsidiaries and any other
Person in which it has an equity investment, and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, expansion,
development, construction, leasing, landscaping, repair, alteration, demolition,
or improvement of any real property or improvements owned by the Partnership or
any Subsidiary of the Partnership;
(6) the negotiation, execution, and
performance of any contracts, conveyances, or other instruments that the General
Partner considers necessary, advisable, desirable, incidental, or convenient to
the conduct of the Partnership's operations or the implementation of the General
Partner's powers under this Agreement, including contracting with contractors,
developers, consultants, accountants, legal counsel, other professional
advisors, and other agents and the payment of their expenses and compensation
out of the Partnership's assets;
(7) the distribution of Partnership cash or
other Partnership assets in accordance with this Agreement;
(8) the holding, managing, investing, and
reinvesting cash and other assets of the Partnership;
(9) the collection and receipt of revenues
and income of the Partnership;
(10) the establishment of one or more
divisions of the Partnership, the selection and dismissal of employees of the
Partnership (including, without limitation, employees who may be designated as
officers having titles such as "president," "vice president," "secretary" and
"treasurer" of the
-29-
<PAGE> 258
Partnership), and agents, outside attorneys, accountants, consultants and
contractors of the Partnership, and the determination of their compensation and
other terms of employment or engagement;
(11) the maintenance of such insurance for
the benefit of the Partnership and the Partners as it deems necessary or
appropriate;
(12) the formation of, or acquisition of an
interest in, and the contribution of property to, any further limited or general
partnerships, limited liability companies, joint ventures, or other
relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity investment from time
to time);
(13) the control of any matters affecting
the rights and obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of dispute resolution,
or abandonment of any claim, cause of action, liability, debt or damages, due or
owing to or from the Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitration, or other forms of dispute
resolution, and the representation of the Partnership in all suits or legal
proceedings, administrative proceedings, arbitrations, or other forms of dispute
resolution, the incurring of legal expenses, and the indemnification of any
Person against liabilities and contingencies to the extent permitted by law;
(14) the undertaking of any action in
connection with the Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without limitation, the
contribution or loan of funds by the Partnership to such Persons);
(15) the determination of the fair market
value of any Partnership property distributed in kind using such method of
valuation as the General Partner may adopt;
(16) the exercise, directly or indirectly,
through any attorney-in-fact acting under a general or limited power of
attorney, of any right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(17) the exercise of any of the powers of
the General Partner enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person in which the
Partnership has a direct or indirect interest, or jointly with any such
Subsidiary or other Person;
-30-
<PAGE> 259
(18) the exercise of any of the powers of
the General Partner enumerated in this Agreement on behalf of any Person in
which the Partnership does not have an interest pursuant to contractual or other
arrangements with such Person;
(19) the issuance of additional OP Units as
contemplated by the Master Agreement and/or in connection with Capital
Contributions by Additional Limited Partners and addi tional Capital
Contributions by Partners pursuant to Article 4;
(20) the opening of bank accounts on behalf
of, and in the name of, the Partnership and its Subsidiaries; and
(21) the making, execution, and delivery of
any and all deeds, leases, notes, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases, or legal instruments or agreements in writing necessary,
advisable, desirable, incidental, or convenient in the judgment of the General
Partner, for the accomplishment of any of the foregoing.
B. Each of the Limited Partners agrees that the
General Partner is authorized to execute, deliver, and perform the
above-mentioned acts, agreements, and transactions on behalf of the Partnership
without any further act, approval, or vote of the Partners, notwithstanding any
other provision of this Agreement to the fullest extent permitted under the Act
or other applicable law, rule, or regulation. The execution, delivery, or
performance by the General Partner or the Partnership of any agreement
authorized or permitted under this Agreement shall not constitute a breach by
the General Partner of any duty that the General Partner may owe the Partnership
or the Limited Partners or any other Persons under this Agreement or of any duty
stated or implied by law or equity.
C. At all times from and after the date hereof, the
General Partner may cause the Partnership to establish and maintain at any and
all times working capital accounts and other cash or similar balances in such
amount as the General Partner, in its sole and absolute discretion, deems
appropriate and reasonable from time to time.
D. In exercising its authority under this Agreement,
the General Partner may, but (except as provided in Sections 3.2, 7.1A(3), and
10.2) shall be under no obligation to, take into account the tax consequences to
any Partner of any action taken by it. The General Partner and the Partnership
shall not have liability to a Limited Partner under any circumstances as a
result of an income tax liability incurred by such Limited Partner as a result
of an action (or inaction) by
-31-
<PAGE> 260
the General Partner taken pursuant to its authority under and in accordance with
this Agreement.
7.2 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner
shall use all reasonable efforts to cause to be filed such certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification, and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all of the things to maintain the Partnership as a
limited partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other state, or the
District of Columbia, in which the Partnership may elect to do business or own
property. Subject to the terms of Section 8.5A(3), the General Partner shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner.
7.3 REIMBURSEMENT OF THE GENERAL PARTNER.
A. Except as provided in this Section 7.3 and
elsewhere in this Agreement (including the provisions of Articles 5 and 6
regarding distributions, payments, and allocations to which it may be entitled),
the General Partner shall not be compensated for its services as general partner
of the Partnership.
B. On such monthly or other basis as the General
Partner may determine in its sole and absolute discretion, the Partnership shall
pay for the account of the General Partner or reimburse the General Partner for
(and, on a monthly basis or such other basis as the General Partner and the
Trust shall agree, the Partnership shall, if the Trust is not the General
Partner, pay for the account of the Trust or reimburse the Trust for) the
following "Reimbursable Amounts": all expenses that it (or any of its
Affiliates) incurs relating to the ownership and operation of, or for the
benefit of, the Partnership; all of its (and its Affiliates') payroll and fringe
benefit expense, professional fees (including, without limitation, legal, audit,
advisory, directors', and management, executive service, and similar fees),
corporate insurance expense (including, without limitation, directors' and
officers' insurance), public company expenses, office expenses, Delaware
franchise taxes (other than taxes attributable, under the rules of Treasury
Regulation section 1.704-1(b)(2)(iv)(N), to periods ending on or before the date
hereof and regardless of whether or not included in the
-32-
<PAGE> 261
Company's liability for deferred income taxes on the date hereof), Pennsylvania
capital stock, loans, and corporate net income taxes (other than taxes
attributable, under the rules of Treasury Regulation section
1.704-1(b)(2)(iv)(N), to periods ending on or before the date hereof and
regardless of whether or not included in the Company's liability for deferred
income taxes on the date hereof), and other expenses of a similar nature; and,
so long as it (or any of its Affiliates) owns the Florida Land, any net negative
cash flow (taking into account any expenditures of the Company or its qualified
REIT subsidiaries with respect to the Florida Land, including, without
limitation, management fees and payment of principal and interest on debt
attributable to the Florida Land) attributable to the Florida Land. To the
extent of Reimbursable Amounts not otherwise treated as expenses of the
Partnership, gross income of the Partnership for the year of reimbursement or
payment for a Partner's account shall be allocated to the Partner receiving such
reimbursement and such reimbursement or payment for a Partner's account shall
constitute a distribution from the Partnership to such Partner. To the extent of
Reimbursable Amounts that are otherwise treated as expenses of the Partnership,
payment of such amounts by the Partner receiving reimbursement shall be treated
as a loan by such Partner to the Partnership and such reimbursement shall be
treated as repayment of such loan. Any reimbursement or payment for a Partner's
account pursuant to this Section 7.3B shall be in addition to any reimbursement
made as a result of indemnification pursuant to Section 7.6.
7.4 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER. The General
Partner or any of its Subsidiaries, other than the Partnership and any
Subsidiaries of the Partnership, may not, directly or indirectly enter into or
conduct any business not connected with the ownership, acquisition, development,
and disposition of Partnership Interests and (subject to Sections 4.1B and 7.3B)
the Florida Land and the management of the business of the Partnership and the
management of (subject to Sections 4.1B and 7.3B) the Florida Land, and such
activities as are incidental thereto, except that the General Partner may
acquire, hold, develop, operate, and dispose of properties which cannot be
acquired by the Partnership or which the owner thereof is, for tax or other
reasons, unwilling to transfer to the Partnership. If such properties are
acquired by the General Partner, there shall be a proper allocation of expenses
between the General Partner and the Partnership. The General Partner directly or
indirectly may acquire Limited Partner Interests and shall be entitled to
exercise all rights of a Limited Partner relating to such Limited Partner
Interests.
7.5 CONTRACTS WITH AFFILIATES.
A. The Partnership may lend or contribute funds
or other assets to its Subsidiaries or other Persons in which it
-33-
<PAGE> 262
has an equity investment and such Persons may borrow funds from the Partnership,
on terms and conditions established in the sole and absolute discretion of the
General Partner. The foregoing authority shall not create any right or benefit
in favor of any Subsidiary or any other Person.
B. Except as provided in Section 7.4, the
Partnership may Transfer assets to joint ventures, other partnerships,
corporations, or other business entities in which it is or thereby becomes a
participant upon such terms and subject to such conditions consistent with this
Agreement and applicable law as the General Partner, in its sole and absolute
discretion, believes are advisable and in the best interests of the Partnership.
C. Except as expressly permitted by this
Agreement or otherwise contemplated by the Master Agreement, neither the General
Partner nor any of its Affiliates (or any officers or directors of either) shall
sell, Transfer, or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
determined by the General Partner in good faith to be fair and reasonable.
D. The General Partner, in its sole and
absolute discretion and without the approval of the Limited Partners, may
propose and adopt, on behalf of the Partnership, employee benefit plans, stock
option plans, and similar plans funded by the Partnership for the benefit of
employees of the General Partner, the Trust, the Partnership, Subsidiaries of
the Partnership, or any Affiliate of any of them in respect of services
performed, directly or indirectly, for the benefit of the Partnership, the
General Partner, or any Subsidiaries of the Partnership.
7.6 INDEMNIFICATION.
A. To the fullest extent permitted by Delaware
law, the Partnership shall indemnify each Indemnitee from and against any and
all losses, claims, damages, liabilities, joint, several, or joint and several,
expenses (including, without limitation, reasonable attorneys' fees and other
legal fees and expenses), judgments, fines, settlements, and other amounts
arising from any and all claims, demands, actions, suits, or proceedings, civil,
criminal, administrative, or investigative, that relate to the operations of the
Partnership or the Trust or its Affiliates as set forth in this Agreement, in
which such Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, except to the extent it is finally determined by a court of
competent jurisdiction, from which no further appeal may be taken, that such
Indemnitee's action constituted intentional acts or omissions constituting gross
negligence, willful misconduct, or fraud. Without limitation and as provided
-34-
<PAGE> 263
in section 1.2(f) of the Master Agreement, the foregoing indemnity shall extend
to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise for
any indebtedness of the Partnership or any Subsidiary of the Partnership
(including, without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken subject to), and the General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements consistent with the provisions of
this Section 7.6 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. Any indemnification pursuant to this
Section 7.6 shall be made only out of the assets of the Partnership, and neither
the General Partner nor any Limited Partner shall have any obligation to
contribute to the capital of the Partnership, or otherwise provide funds, to
enable the Partnership to fund its obligations under this Section 7.6.
B. Reasonable expenses (including reasonable legal
fees) incurred by an Indemnitee who is a party to a proceeding shall be paid or
reimbursed by the Partnership in advance of the final disposition of the
proceeding.
C. The indemnification provided by this Section 7.6
shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, pursuant to any vote of the
Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement to which such Indemnitee is a party.
D. The Partnership may, but shall not be obligated
to, purchase and maintain insurance (including so-called "D&O insurance"), on
behalf of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power or obligation to
indemnify such Person against such liability under the provisions of this
Agreement.
E. For purposes of this Section 7.6, the Partnership
shall be deemed to have requested an Indemnitee to serve as fiduciary of an
employee benefit plan whenever the performance by such Indemnitee of its duties
to the Partnership also imposes duties on, or otherwise involves services by,
such Indemnitee to the plan or participants or beneficiaries of the plan; excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 7.6; and actions taken or omitted by the Indemnitee with respect to an
employee benefit plan in the performance of its duties for a purpose reasonably
believed by it to be in the interest of the participant and
-35-
<PAGE> 264
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the
Partners to personal liability by reason of the indemnification provisions set
forth in this Agreement.
G. An Indemnitee shall not be denied indemnification
in whole or in part under this Section 7.6 because the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.6 are for the
benefit of the Indemnitees and their heirs, successors, assigns, and
administrators and shall not be deemed to create any rights for the benefit of
any other Persons. Any amendment, modification, or repeal of this Section 7.6 or
any provision hereof shall be prospective only and shall not in any way affect
the Partnership's liability to any Indemnitee under this Section 7.6, as in
effect immediately prior to such amendment, modification, or repeal with respect
to claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification, or repeal, regardless of when such claims
may arise or be asserted.
7.7 LIABILITY OF THE GENERAL PARTNER.
A. Notwithstanding anything to the contrary set forth
in this Agreement, the General Partner and its officers and directors shall not
be liable for monetary damages to the Partnership, any Partners, or any
Assignees for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if the General Partner acted in good faith
and without gross negligence or malfeasance; provided, however, the foregoing
shall not be deemed to exculpate the General Partner from any liability the
General Partner may have under the Master Agreement.
B. The Limited Partners expressly acknowledge that
the General Partner is acting on behalf of the Partnership and the partners of
the Partnership collectively, that the General Partner, subject to the
provisions of Section 7.1D, is under no obligation to consider the separate
interest of the Limited Partners in deciding whether to cause the Partnership to
take (or decline to take) any actions, and that the General Partner shall not be
liable for monetary damages for losses sustained, liabilities incurred, or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner has acted in good faith and without gross
negligence or malfeasance. With respect to any indebtedness of the Partnership
which any Limited Partner may have guaranteed,
-36-
<PAGE> 265
the General Partner shall have no duty to keep such indebtedness
outstanding.
C. Subject to its obligations and duties as General
Partner set forth in Section 7.1A, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agent. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by the General Partner in good faith.
D. Any amendment, modification, or repeal of this
Section 7.7 or any provision hereof shall be prospective only and shall not in
any way affect the limitations on the General Partner's and its officers' and
directors' liability to the Partnership and the Limited Partners under this
Section 7.7 as in effect immediately prior to such amendment, modification, or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification, or repeal, regardless
of when such claims may arise or be asserted.
7.8 OTHER MATTERS CONCERNING THE GENERAL PARTNER.
A. The General Partner may rely and shall be
protected in acting, or refraining from acting, upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture, or other paper or document believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties.
B. The General Partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers,
architects, engineers, environmental consultants, and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion or advice of such Persons as to matters which such General
Partner reasonably believes to be within such Person's professional or expert
competence shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion or advice.
C. The General Partner shall have the right, in
respect of any of its powers or obligations hereunder, to act through any of its
duly authorized officers and duly appointed attorneys-in-fact. Each such
attorney shall, to the extent provided by the General Partner in the power of
attorney, have full power and authority to do and perform all and every act and
duty which is permitted or required to be done by the General Partner hereunder.
-37-
<PAGE> 266
D. Notwithstanding any other provisions of this
Agreement or the Act, any action of the General Partner on behalf of the
Partnership or any decision of the General Partner to refrain from acting on
behalf of the Partnership, undertaken in the good faith belief that such action
or omission is necessary or advisable in order (i) to protect the ability of the
Company to continue to qualify as a REIT to which the provisions of part II of
subchapter M of chapter 1 of the Code apply (and as a "corporation subject to a
tax imposed by subchapter M," within the meaning of section 11(c) of the Code)
or the ability of the Trust to make distributions to the Company sufficient to
enable the Company to pay the regular quarterly dividend described in Section
3.1; or (ii) to avoid the Company's incurring any taxes or other liability under
the Code, including specifically, but without limitation, under sections 30, 42,
45A, 49, 50, 55, 453, 453A, 531, 541, 857, 1294, or 4981 of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
E. If the Trust is at any time not the General
Partner, the General Partner shall not cause the Partnership to enter into any
transaction of the kind described in clause (i) of Article 5, Section E of the
Certificate of Incorporation unless the Trust shall have consented thereto.
F. During the period from the date hereof through the
fifth anniversary hereof, in the event that the Trust does not make
distributions to the Company sufficient to enable the Company to pay a regular
quarterly dividend of at least 29(cent) per share for any quarter, the
compensation payable to the individual who is in fact fulfilling the duties of
chief executive officer of the Partnership, regardless of whether such person is
employed by the Partnership, the Trust, or any Affiliate or Subsidiary of either
of them, shall be reduced in the manner described in the Employment Agreement,
and such reduction shall remain in effect until the Trust has made distributions
to the Company sufficient to enable the Company to pay a regular quarterly
dividend of at least 29(cent) per share for at least four consecutive quarters.
7.9 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets,
whether real, personal, or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner, or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership asset for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General
-38-
<PAGE> 267
Partner for the use and benefit of the Partnership in accordance with the
provisions of this Agreement; provided, that the General Partner shall use
reasonable efforts to cause beneficial and record title to such assets to be
vested in the Partnership as soon as reasonably practicable. All Partnership
assets shall be recorded as the property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held. The Florida Land is not a Partnership asset for purposes of this
Section 7.9.
7.10 RELIANCE BY THIRD PARTIES. Notwithstanding anything to
the contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority,
without consent or approval of any other Partner or Person, to encumber, sell,
or otherwise use in any manner any and all assets of the Partnership and to
enter into any contracts on behalf of the Partnership, and take any and all
actions on behalf of the Partnership, and such Person shall be entitled to deal
with the General Partner as if the General Partner were the Partnership's sole
party in interest, both legally and beneficially. Each Limited Partner hereby
waives any and all defenses or other remedies which may be available against
such Person to contest, negate, or disaffirm any action of the General Partner
in connection with any such dealing. In no event shall any Person dealing with
the General Partner or its representatives be obligated to ascertain that the
terms of this Agreement have been complied with or to inquire into the necessity
or expedience of any act or action of the General Partner or its
representatives. Each and every certificate, document, or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document, or instrument, this Agreement was in
full force and effect; (ii) the Person executing and delivering such
certificate, document, or instrument was duly authorized and empowered to do so
for and on behalf of the Partnership; and (iii) such certificate, document, or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
8.1 LIMITATION OF LIABILITY. The Limited Partners shall have
no liability under this Agreement except as expressly provided in this
Agreement, including Section 10.4, or under the Act.
-39-
<PAGE> 268
8.2 MANAGEMENT OF BUSINESS. No Limited Partner or Assignee
(other than the General Partner, any of its Affiliates or any officer, director,
employee, agent, or trustee of the General Partner, the Partnership, or any of
their Affiliates, in their capacity as such) shall take part in the operation,
management, or control (within the meaning of the Act) of the Partnership's
business, transact any business in the Partnership's name, or have the power to
sign documents for or otherwise bind the Partnership. The transaction of any
such business by the General Partner, any of its Affiliates or any officer,
director, employee, partner, agent, or trustee of the General Partner, the
Partnership, or any of their Affiliates, in their capacity as such, shall not
affect, impair, or eliminate the limitations on the liability of the Limited
Partners (including the Trust as such) or Assignees under this Agreement.
8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS. Subject to any
agreements entered into pursuant to Section 7.5 hereof and any other agreements
entered into by a Limited Partner or its Affiliates with the Partnership or any
of its Subsidiaries, any Limited Partner (other than the Trust) and any officer,
director, employee, agent, trustee, Affiliate, or shareholder of any Limited
Partner (other than the Trust) shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities that are in direct
competition with the Partnership or that are enhanced by the activities of the
Partnership. Neither the Partnership nor any Partners shall have any rights by
virtue of this Agreement in any business ventures of any Limited Partner or
Assignee. None of the Limited Partners nor any other Person shall have any
rights by virtue of this Agreement or the Partnership relationship established
hereby in any business ventures of any other Person and such Person shall have
no obligation pursuant to this Agreement to offer any interest in any such
business ventures to the Partnership, any Limited Partner, or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
8.4 RETURN OF CAPITAL. Except pursuant to Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except to
the extent provided by Exhibit B (or Sections 4.1 or 7.3B) or as otherwise
expressly provided in this Agreement, no Limited Partner or Assignee shall have
priority over any other Limited Partner or Assignee, either as to the return of
Capital Contributions or as to profits, losses, or distributions.
-40-
<PAGE> 269
8.5 RIGHTS OF LIMITED PARTNERS RELATING
TO THE PARTNERSHIP.
A. In addition to the other rights provided by
this Agreement or by the Act, and except as limited by Section 8.5B hereof, each
Limited Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon written
demand with a statement of the purpose of such demand and at such Limited
Partner's own reasonable expense (including such copying and administrative
charges as the General Partner may establish from time to time):
(1) to obtain a copy of the
Partnership's Federal, state, and local income tax returns for each Partnership
Year;
(2) to obtain a current list of the name
and last known mailing address of each Partner;
(3) to obtain a copy of this Agreement
and the Certificate and all amendments and/or restatements thereto, together
with executed copies of all powers of attorney pursuant to which this Agreement,
the Certificate and all amendments and/or restatements thereto have been
executed; and
(4) to obtain true and full information
regarding the amount of cash and a description and statement of any other
property or services contributed by each Partner and which each Partner has
agreed to contribute in the future, and the date on which each became a Partner.
B. The Trust shall provide to each Limited
Partner, without cost, copies of the Company's annual and quarterly reports
filed with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
C. Notwithstanding any other provision of this
Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information, the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business; or (ii) the Partnership is required by law or by agreements
with an unaffiliated third party to keep confidential. To the extent permitted
by law, the General Partner shall keep confidential from the Limited Partners
any information that the Trust determines, in its sole and absolute discretion,
to be in the nature of trade secrets or other
-41-
<PAGE> 270
confidential information of the Trust (or any of its Affiliates) or to
constitute material non-public information of or relating to the Trust (or any
of its Affiliates) the disclosure of which is not in the best interests of the
Trust (or any of its Affiliates) or its (or their) business or could involve a
violation of law.
8.6 REDEMPTION RIGHTS.
A. GENERAL.
(i) Subject to Section 8.6C, below, on or
after the date one year (or in the case of an OP Unit acquired pursuant to
Section 4.2 or 4.3, one year or such other period as may be agreed between the
General Partner and the holder of such OP Unit) after the issuance of an OP Unit
to a Limited Partner pursuant to Article 4 (or upon the earlier death of such
Limited Partner), the holder of such OP Unit (if other than the General Partner
or any Subsidiary of the General Partner) shall have the right (the "Redemption
Right") to require the Partnership to redeem such OP Unit on a Specified
Redemption Date and at a redemption price equal to and in the form of the Cash
Amount to be paid by the Partnership. Any such Redemption Right shall be
exercised pursuant to a Notice of Redemption (in the form of Exhibit D hereto,
as such form may be amended by the General Partner, in its reasonable
discretion, from time to time, upon no less than 30 days' notice to the Limited
Partners) delivered to the Partnership (with a copy simultaneously to the Trust)
by the Limited Partner who is exercising the Redemption Right (the "Redeeming
Partner"). A Limited Partner may not exercise the Redemption Right for fewer
than 1,000 OP Units or, if such Redeeming Partner holds fewer than 1,000 OP
Units, for fewer than all of the OP Units held by such Redeeming Partner. At any
particular time during the period ending on the fifth anniversary hereof, this
Section 8.6 shall not apply to a number of OP Units issued to Meshon in exchange
for certain of his shares in Drexel, Royce, or Reorganized Drexel (each as
defined in the Master Agreement) pursuant to section 1.6 of the Master Agreement
equal to the OP Units still subject to possible return under section 8 of the
Employment Agreement. In the sole discretion of the General Partner at the
request of any Limited Partner, the General Partner may substitute "six months"
(or some period of time greater than six months, but less than one year) for
"one year" in applying the first sentence of this Section 8.6A(i) to such
Limited Partner and, in connection with the exercise of such discretion, the
General Partner may require that the Redeeming Partner provide a letter to the
Partnership and the General Partner in substantially the form of Exhibit F
hereto.
(ii) The Redeeming Partner shall have no
right with respect to any OP Units so redeemed to receive any distributions paid
after the Specified Redemption Date.
-42-
<PAGE> 271
(iii) The Assignee of any Limited Partner
may exercise the rights of such Limited Partner pursuant to this Section 8.6 and
such Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such Limited
Partner's Assignee. In connection with any exercise of such rights by such
Assignee on behalf of such Limited Partner, the Cash Amount shall be paid by the
Partnership directly to such Assignee and not to such Limited Partner.
B. TRUST ASSUMPTION OF RIGHT.
(i) If a Limited Partner has delivered a
Notice of Redemption, the Trust may, within 5 business days after receipt of
such Notice, in its sole and absolute discretion (subject to any limitations on
ownership and transfer of Shares set forth in the Company's Certificate of
Incorporation), elect to assume directly and satisfy a Redemption Right by
paying to the Redeeming Partner either the Cash Amount or, but only if the
Company has (or, at the request of the Redeeming Partner, consents and within 60
days after such election causes to be) in effect a registration statement (the
"Registration Statement") covering the immediate resale of all the Shares to be
issued to the Redeeming Partner pursuant to such election (or, under
then-applicable law, the Shares upon issuance would be freely tradeable without
such a registration statement's being in effect), the Shares Amount, as the
Trust determines in its sole and absolute discretion on the Specified Redemption
Date, whereupon the Trust shall acquire the OP Units offered for redemption by
the Redeeming Partner and shall be treated for all purposes of this Agreement as
the owner of such OP Units. If it shall be necessary under the preceding
sentence for a Registration Statement to be caused to be in effect, the Trust
will use commercially reasonable efforts to cause such Registration Statement to
be filed within the 60-day period there described and to become effective as
soon as reasonably practicable. Unless the Trust, in its sole and absolute
discretion, shall exercise its right to assume directly and satisfy the
Redemption Right, the Trust shall not have any obligation to the Redeeming
Partner or to the Partnership with respect to the Redeeming Partner's exercise
of the Redemption Right. In the event the Trust shall exercise its right to
satisfy the Redemption Right in the manner described in the first sentence of
this Section 8.6B and shall fully perform its obligations in connection
therewith, the Partnership shall have no right or obligation to pay any amount
to the Redeeming Partner with respect to such Redeeming Partner's exercise of
the Redemption Right, and each of the Redeeming Partner, the Partnership, and
the Trust shall, for Federal income tax purposes, treat the transaction between
the Trust and the Redeeming Partner as a sale of the Redeeming Partner's OP
Units to the Trust. Nothing contained in this Section 8.6B shall imply
-43-
<PAGE> 272
any right of the Trust to require any Limited Partner to exercise the Redemption
Right afforded to such Limited Partner pursuant to Section 8.6A.
(ii) In the event that the Trust determines
to pay the Redeeming Partner the Redemption Amount in the form of Shares, the
total number of Shares to be paid to the Redeeming Partner in exchange for the
Redeeming Partner's OP Units shall be the applicable Shares Amount. In the event
this amount is not a whole number of Shares, the Redeeming Partner shall be paid
(i) that number of Shares which equals the nearest whole number less than such
amount plus (ii) an amount of cash which the Trust determines, in its reasonable
discretion, to represent the fair value of the remaining fractional Share which
would otherwise be payable to the Redeeming Partner.
(iii) Each Redeeming Partner agrees to
provide in a timely fashion such information and to execute such documents as
the Trust and its Affiliates may reasonably require in connection with the
issuance of Shares upon exercise of the Redemption Right and the registration of
the resale of such Shares, including, without limitation, an agreement pursuant
to which the Redeeming Partner agrees to indemnify and to hold harmless the
Trust, the Partnership, the Company, the Affiliates of any of them, and the
respective officers, directors, general partners, and agents of the Trust, the
Partnership, the Company, and such Affiliates with respect to any information
provided by the Redeeming Partner for inclusion in the Registration Statement
and the Trust agrees to indemnify and to hold harmless the Redeeming Partner
with respect to information provided by the Company in the Registration
Statement.
(iv) So long as the Redeeming Partner
confirms in writing that the Redeeming Partner continues to intend in good faith
to sell all of its Shares received under this Section 8.6 under such
Registration Statement, the Company shall use its best efforts to keep the
Registration Statement effective for up to one year after the effective date
thereof, but only if the Redeeming Partner agrees not to make any offers or
sales of any Shares under any such Registration Statement if the Redeeming
Partner has received a notice from the Trust to the effect that, for a stated
period (not in excess of 60 days), it would not for any reason (including,
without limitation, by reason of the Trust's or any of its Affiliate's having a
good business reason not to disclose publicly certain information which may be
material) be in the best interests of the Trust or any of its Affiliates for
offers or sales to be effected under such Registration Statement. The Trust
shall not give any Redeeming Partner such a notice more than once in any
12-month period.
-44-
<PAGE> 273
(v) If a Limited Partner is considering
exercising its Redemption Right with respect to its OP Units and desires that
the Shares it receives from the Trust in exchange for the redeemed OP Units, if
any, be the subject to an effective Registration Statement at the time of
receipt, it may, at its sole option, follow the procedure set forth in this
clause (v). The Limited Partner shall give the Trust and the Company written
notice referring to this clause and stating that it is considering exercising
its Redemption Right (a "Pre-Redemption Notice"). Upon receipt of the
Pre-Redemption Notice, if the Trust determines that it wishes to elect to assume
the redemption obligation from the Partnership and wishes to give the Redeeming
Partner Shares and the Company consents to such election, the Company shall file
a Registration Statement with respect to the resale of all such Shares as soon
as practicable and use its commercially reasonable efforts to cause such
Registration Statement to become effective as soon as possible and within not
more than 60 days. The Trust shall notify the Limited Partner as soon as the
Registration Statement has become effective. The other provisions of this
Section 8.6 shall apply with respect to such Registration Statement and with
respect to any Redemption Notice given by such Limited Partner. Neither the
giving of the Pre-Redemption Notice nor the filing of the Registration Statement
(nor its becoming effective) shall obligate the Limited Partner to give a Notice
of Redemption nor, if a Notice of Redemption is subsequently given, obligate the
Trust to assume the redemption obligation and/or elect to give the Redeeming
Partner Shares in exchange for its OP Units. If the Limited Partner which gave
the Pre-Redemption Notice does not give the Partnership a Redemption Notice with
respect to its OP Units within 180 days after the effective date of such
Registration Statement, neither the Partnership, the Company, nor the Trust
shall have any obligation to continue to maintain the effectiveness of such
Registration Statement and the Limited Partner which gave the Pre-Redemption
Notice shall be liable for the costs of the Partnership, the Trust, and the
Company in filing the Registration Statement (including without limitation,
legal fees and disbursements and any filing fees). No Limited Partner may give
more than one Pre-Redemption Notice (unless the General Partner shall otherwise
consent).
C. EXCEPTIONS TO EXERCISE OF REDEMPTION RIGHT.
Notwithstanding the provisions of Sections 8.6A and 8.6B, a Partner shall not be
entitled to exercise the Redemption Right pursuant to Section 8.6A if (but only
as long as), in the written opinion of counsel to the Trust, the delivery of
Shares to such Partner on the Specified Redemption Date (i) would be prohibited
under the Certificate of Incorporation, (ii) would cause a violation of the REIT
Requirements, or (iii) would be prohibited (after giving effect to any
applicable exemptions) under applicable Federal or state securities laws or
regulations (in
-45-
<PAGE> 274
each case regardless of whether the Trust would in fact assume and satisfy the
Redemption Right).
D. NO LIENS ON PARTNERSHIP UNITS DELIVERED FOR
REDEMPTION. Each Limited Partner covenants and agrees with the Partnership and
the Trust that the Redeeming Partner shall transfer good title to all OP Units
delivered for redemption to the Partnership or the Trust, as the case may be,
free and clear of all Liens (as defined in Exhibit D), and, notwithstanding
anything contained herein to the contrary, neither the Trust nor the Partnership
shall be under any obligation to acquire OP Units which are or may be subject to
any Liens. Each Limited Partner further agrees that, in the event any state or
local property transfer tax is imposed on the Limited Partner (or jointly on the
Limited Partner and the transferee) as a result of the transfer of its OP Units
to the Partnership or the Trust, such Limited Partner shall assume and pay such
transfer tax.
E. ADDITIONAL PARTNERSHIP INTERESTS. In the event
that the Partnership issues OP Units to any Additional Limited Partner pursuant
to Article 4, the General Partner shall make such amendments to this Section 8.6
as it determines are necessary to reflect the issuance of such OP Units
(including setting forth any restrictions on the exercise of the Redemption
Right with respect to OP Units described in this Section 8.6E).
F. SUCCESSOR TO TRUST. If the Trust shall cease to
serve as General Partner, all of the Trust's rights under this Section 8.6 shall
vest in the Trust's successor as General Partner, if such successor is an
Affiliate of the Trust (or would have been an Affiliate of the Trust had the
Trust continued to exist), and otherwise in such Affiliate of the Trust (or such
Person that would have been an Affiliate of the Trust, had the Trust continued
to exist) as the Trust may designate (or, if the Trust has not made any such
designation, as any Person with authority to act on behalf of the Trust in
connection with the winding up of its affairs or otherwise may designate).
-46-
<PAGE> 275
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
9.1 RECORDS AND ACCOUNTING. The General Partner shall keep or
cause to be kept at the principal office of the Partnership those records and
documents required to be maintained by the Act and other books and records
deemed by the General Partner to be appropriate with respect to the
Partnership's business, including, without limitation, all books and records
necessary to comply with applicable REIT Requirements and to provide to the
Limited Partners any information, lists, and copies of documents required to be
provided pursuant to Sections 8.5A and 9.3. Any records maintained by or on
behalf of the Partnership in the regular course of its business may be kept on
or be in the form of any information storage device or system, provided that the
records so maintained are convertible into clearly legible written form within a
reasonable period of time. The books of the Partnership shall be maintained, for
financial reporting purposes, on an accrual basis in accordance with GAAP, and,
for tax purposes, on an accrual basis, or such other bases as the General
Partner determines to be necessary or appropriate.
9.2 FISCAL YEAR. The fiscal year of the Partnership shall be
the calendar year.
9.3 REPORTS.
A. As soon as practicable, but in no event later than
105 days after the close of each Partnership Year, the General Partner shall
cause to be mailed to each Limited Partner as of the close of the Partnership
Year, an annual report containing financial statements of the Partnership, or of
the Company if such statements are prepared solely on a consolidated basis with
the Company, for such Partnership Year, presented in accordance with GAAP, such
statements to be audited by a nationally recognized firm of independent public
accountant selected by the General Partner in its sole discretion.
B. As soon as practicable, but in no event later than
45 days after the close of each calendar quarter (except the last calendar
quarter of each calendar year), the General Partner shall cause to be mailed to
each Limited Partner a report containing unaudited financial statements as of
the last day of the calendar quarter of the Partnership, or of the Company, if
such statements are prepared solely on a consolidated basis with the Company,
and such other information as may be required by applicable law or regulation,
or as the General Partner determines to be appropriate.
-47-
<PAGE> 276
ARTICLE 10
TAX MATTERS
10.1 PREPARATION OF TAX RETURNS. The General Partner shall
arrange for the preparation and timely filing of all returns of Partnership
income, gains, deductions, losses and other items required of the Partnership
for Federal and state income tax purposes and shall use reasonable efforts to
furnish, within ninety (90) days of the close of each taxable year, the tax
information reasonably required by Limited Partners for Federal and state income
tax reporting purposes. At the time of any sale or refinancing of any property
listed on Exhibit E, the General Partner shall give notice thereof to each
individual listed with respect to such property on Exhibit E.
10.2 TAX ELECTIONS. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code. Except as provided in Section
7.8D, the General Partner shall select the "traditional method" of making
allocations pursuant to Regulations section 1.704-3 with respect to all
Contributed Property (either without any curative allocations or with curative
allocations to a contributing Partner solely of gain from sale of the property
contributed). By executing this Agreement, each Partner hereby agrees to report
income, gain, loss, and deduction on such Partner's Federal income tax return in
a manner that is consistent with the use of the method so selected. The General
Partner shall have the right to seek to revoke any tax election it makes,
including, without limitation, the election under section 754 of the Code, upon
the General Partner's determination, in its sole and absolute discretion, that
it could have caused the Partnership to refrain from making such election in the
first instance.
10.3 TAX MATTERS PARTNER.
A. The Trust (or, if, for Federal income tax
purposes, the Trust's General Partner Interest is treated as an asset of some
other Person, such other Person) shall serve as the "tax matters partner" of the
Partnership for Federal income tax purposes for any taxable year of the
Partnership for which it is eligible to serve as such (regardless of whether the
Trust is at the time of serving as such the General Partner). The General
Partner from time to time shall serve as the tax matters partner for any other
taxable year of the Partnership (regardless of whether the General Partner was a
partner in the Partnership at any time during such year). All Partners and
Assignees shall, at the request of a tax matters partner described in the
preceding sentence, take such actions as are necessary, appropriate, or
convenient to effect the designation of such tax matters partner
-48-
<PAGE> 277
pursuant to section 301.6231(a)(7)-1 of the Regulations. Pursuant to Section
6230(e) of the Code, upon receipt of notice from the Internal Revenue Service of
the beginning of an administrative proceeding with respect to the Partnership,
the tax matters partner shall furnish the Internal Revenue Service with the
name, address, taxpayer identification number, and profit interest of each of
the Limited Partners and the Assignees; provided, that such information is
provided to the tax matters partner by the Limited Partners and the Assignees.
B. The tax matters partner is authorized, but
not required:
(1) to enter into any settlement with
the Internal Revenue Service with respect to any administrative or judicial
proceedings for the adjustment of Partnership items required to be taken into
account by a Partner for income tax purposes (such administrative proceedings
being referred to as a "tax audit" and such judicial proceedings being referred
to as "judicial review"), and in the settlement agreement the tax matters
partner may expressly state that such agreement shall bind all Partners, except
that such settlement agreement shall not bind any Partner (i) who (within the
time prescribed pursuant to the Code and Regulations) files a statement with the
Internal Revenue Service providing that the tax matters partner shall not have
the authority to enter into a settlement agreement on behalf of such Partner; or
(ii) who is a "notice partner" (as defined in section 6231(a)(8) of the Code) or
a member of a "notice group" (as defined in section 6223(b)(2) of the Code);
(2) in the event that a notice of a
final administrative adjustment at the Partnership level of any item required to
be taken into account by a Partner for tax purposes (a "final adjustment") is
mailed to the tax matters partner, to seek judicial review of such final
adjustment, including the filing of a petition for readjustment with the Tax
Court or the filing of a complaint for refund with the United States Claims
Court or the District Court of the United States for the district in which the
Partnership's principal place of business is located;
(3) to intervene in any action brought
by any other Partner for judicial review of a final adjustment;
(4) to file a request for an
administrative adjustment with the Internal Revenue Service and, if any part of
such request is not allowed by the Internal Revenue Service, to file an
appropriate pleading (petition or complaint) for judicial review with respect to
such request;
(5) to enter into an agreement with the
Internal Revenue Service to extend the period for assessing any
-49-
<PAGE> 278
tax which is attributable to any item required to be taken account of by a
Partner for tax purposes, or an item affected by such item; and
(6) to take any other action on behalf
of the Partners or the Partnership in connection with any tax audit or judicial
review proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax matters
partner in connection with any such proceeding, except to the extent required by
law, is a matter in the sole and absolute discretion of the tax matters partner
and the provisions relating to indemnification of the General Partner set forth
in Section 7.6 shall also be fully applicable to the tax matters partner in its
capacity as such. Notwithstanding the foregoing provisions of this Section
10.3B, no tax matters partner described in the second sentence of Section 10.3A
may, without the prior written consent of the Trust (which may be withheld in
the Trust's sole discretion), bind the Trust, any of its Affiliates, or any
qualified REIT subsidiary, partnership, limited liability company, or other
Entity through which the Trust or any of its Affiliates was a partner in the
Partnership to any settlement agreement under section 6224 of the Code, file a
petition for readjustment of partnership items in any court other than the Tax
Court, or extend the period for assessing tax under section 6229 of the Code
with respect to the Trust, any of its Affiliates, or any qualified REIT
subsidiary, partnership, limited liability company, or other Entity through
which the Trust or any of its Affiliates was a partner in the Partnership. The
tax matters partner shall comply with the responsibilities imposed on it by
section 301.6223(g)-1T of the Regulations.
C. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging one or more law or
accounting firms to assist the tax matters partner in discharging its duties
hereunder, so long as the compensation paid by the Partnership for such services
is reasonable.
10.4 WITHHOLDING. Each Limited Partner hereby authorizes the
Partnership to withhold from, or pay on behalf of or with respect to, such
Limited Partner any amount of Federal, state, local, or foreign taxes that the
General Partner determines that the Partnership is required by law to withhold
or pay with respect to any amount distributable or allocable to such Limited
Partner pursuant to this Agreement, including, without limitation, any taxes
required to be withheld or paid by the Partnership pursuant to sections 1441,
1442, 1445, or 1446 of the
-50-
<PAGE> 279
Code. Any amount so paid on behalf of or with respect to a Limited Partner shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within fifteen (15) days after notice from the
General Partner that such payment must be made unless (i) the Partnership
withholds such payment from a distribution which would otherwise be made to the
Limited Partner; or (ii) the General Partner determines, in its sole and
absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i)
or (ii) shall be treated as having been distributed to such Limited Partner.
Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's Partnership Interest
to secure such Limited Partner's obligation to pay to the Partnership any
amounts required to be paid pursuant to this Section 10.4. In the event that a
Limited Partner fails to pay when due any amounts owed to the Partnership
pursuant to this Section 10.4, the General Partner may, in its sole and absolute
discretion, elect to make the payment to the Partnership on behalf of such
defaulting Limited Partner, and in such event shall be deemed to have loaned
such amount to such defaulting Limited Partner and shall succeed to all rights
and remedies of the Partnership as against such defaulting Limited Partner.
Without limitation, in such event, the General Partner shall have the right to
receive distributions that would otherwise be distributable to such defaulting
Limited Partner until such time as such loan, together with all interest
thereon, has been paid in full, and any such distributions so received by the
General Partner shall be treated as having been distributed to the defaulting
Limited Partner and immediately paid by the defaulting Limited Partner to the
General Partner in repayment of such loan. Any amount payable by a Limited
Partner hereunder shall bear interest at the highest base or prime rate of
interest published from time to time by any of Citibank, N.A., Chase Manhattan
Bank, and Morgan Guaranty Trust Company of New York, plus four (4) percentage
points, but in no event higher than the maximum lawful rate of interest on such
obligation, such interest to accrue from the date such amount is due (I.E.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall take such actions as the Partnership or the General Partner shall
request in order to perfect or enforce the security interest created hereunder.
-51-
<PAGE> 280
ARTICLE 11
TRANSFERS AND WITHDRAWALS
11.1 TRANSFER.
A. The term "Transfer," when used in this Article 11
with respect to an OP Unit, shall be deemed to refer to a transaction by which
the General Partner purports to assign all or any part of its General Partner
Interest to another Person or by which a Limited Partner purports to assign all
or any part of its Limited Partner Interest to another Person. The term
"Transfer" when used in this Article 11 does not include any exchange of OP
Units for Shares pursuant to Section 8.6.
B. No Partnership Interest shall be Transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article 11. Any Transfer or purported Transfer of a Partnership Interest
not made in accordance with this Article 11 shall be null and void.
11.2 TRANSFER OF THE GENERAL PARTNER'S AND
THE TRUST'S PARTNERSHIP INTERESTS.
A. The General Partner may not Transfer its General
Partnership Interest or withdraw as General Partner, but such Transfer or
withdrawal shall be permitted (1) if Limited Partners holding a Qualifying
Limited Partner Interest consent to such Transfer or withdrawal or (2) in the
case of a Transfer of all or a portion of the General Partner Interest to the
Company or to an entity which is, directly or indirectly, wholly-owned by the
Company (including a qualified REIT subsidiary under section 856(i) of the
Code). In the case of any Transfer permitted by this Section 11.2A, the
transferee may be admitted as a General Partner with the consent of the
transferor, but without any requirement that any Limited Partner consent
thereto, all as provided in Section 12.1.
B. In the event the General Partner withdraws as
General Partner, except in accordance with clause (A), above, the General
Partner's General Partner Interest shall immediately be converted into a Limited
Partner Interest.
C. The Trust may Transfer any of its Limited Partner
Interest.
D. Except in the case of a change in identity, form,
or place of organization of the Company, however, effected, the Company shall
not engage in any merger (including a triangular merger), consolidation, or
other combination with or into another person, sale of all or substantially all
of its
-52-
<PAGE> 281
assets, or reclassification, recapitalization, or change of outstanding Shares
(other than a change in par value, or from par value to no par value, or as a
result of a subdivision or combination as described in the definition of
"Adjustment Factor") ("Termination Transaction"), unless the Termination
Transaction has been approved by the consent of Partners holding a majority or
more of the then outstanding OP Units (including any OP Units held by the
General Partner) and in connection with the Termination Transaction all Limited
Partners either will receive or will have the right to elect to receive, for
each OP Unit, an amount of cash, securities, or other property equal to the
product of the Adjustment Factor and the greatest amount of cash, securities, or
other property paid to a holder of Shares in consideration of one Share at any
time during the period from and after the date on which the Termination
Transaction is consummated; provided that, if, in connection with the
Termination Transaction, a purchase, tender, or exchange offer shall have been
made to and accepted by the holders or more than 50% of the outstanding Shares,
each holder of OP Units shall receive or shall have the right to elect to
receive the greatest amount of cash, securities, or other property which such
holder would have received had it exercised the Redemption Right and received
Shares in exchange for its OP Units immediately prior to the expiration of such
purchase, tender, or exchange offer and had thereupon accepted such purchase,
tender, or exchange offer. Any Termination Transaction permitted under this
Section 11.2D shall be permitted notwithstanding the provisions of Section 7.4
or any other provision of this Article 11.
11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER.
A. (1) Subject to the provisions of Sections 11.3C,
11.3D, 11.3E, and 11.4, a Limited Partner (other than the Trust) may, without
the consent of the General Partner:
(a) Transfer such Limited Partner's OP Units
to any other Limited Partner, to a member of the family (as defined in section
267(c)(4) of the Code) of such transferring Limited Partner, or to a trust all
of the beneficiaries of which are members of the family of such transferring
Limited Partner, or pursuant to Section 8.6; and
(b) pledge such Limited Partner's OP Units
to any financial institution as collateral for any loan with respect to which
such Limited Partner is personally liable.
(2) Subject to the provisions of Sections
11.3C, 11.3D, 11.3E, and 11.4, a Limited Partner may Transfer any of such
Limited Partner's OP Units, otherwise than in accordance with clause (1), above,
only with the prior written consent of the General Partner.
-53-
<PAGE> 282
B. If a Limited Partner is subject to Incapacity, the
executor, administrator, trustee, committee, guardian, conservator, or receiver
of such Limited Partner's estate shall have all of the rights of a Limited
Partner, but not more rights than those enjoyed by other Limited Partners, for
the purpose of settling or managing the estate and such power as the
Incapacitated Limited Partner possessed to Transfer all or any part of the
Incapacitated Limited Partner's interest in the Partnership. The Incapacity of a
Limited Partner, in and of itself, shall not dissolve or terminate the
Partnership.
C. The General Partner may prohibit any Transfer by a
Limited Partner of its OP Units if, in the opinion of legal counsel to the
Partnership, such Transfer would require filing of a registration statement
under the Securities Act of 1933, as amended, or would otherwise violate any
Federal or state securities laws or regulations applicable to the Partnership or
the OP Units. The General Partner may require (but shall not be obligated to
accept) an opinion of legal counsel to the Limited Partner, in form and
substance acceptable to the General Partner, to the effect that such filing
would not be required and that such laws and regulations would not be violated.
D. No Transfer by a Limited Partner of its OP Units
may be made to any Person if: (i) in the opinion of legal counsel for the
Partnership, it would result in the Partnership's being treated as an
association or a publicly traded partnership taxable as a corporation; (ii) such
Transfer would cause the Partnership to become, with respect to any employee
benefit plan subject to Title I of ERISA other than a plan maintained by the
Trust or any Affiliate thereof, a "party-in-interest" (as defined in section
3(14) of ERISA) or, with respect to any "plan" (as defined in section 4975(e)(1)
of the Code) other than a plan maintained by the Trust or any Affiliate thereof,
a "disqualified person" (as defined in section 4975(e)(2) of the Code); (iii)
such Transfer would, in the opinion of legal counsel for the Partnership, cause
any portion of the assets of the Partnership to constitute assets of any
employee benefit plan pursuant to Department of Labor Regulations section
2510.3-101; (iv) such Transfer would subject the Trust, any of its Affiliates,
or the Partnership to be regulated under the Investment Company Act of 1940, the
Investment Advisors Act of 1940, or the Employee Retirement Income Security Act
of 1974, each as amended; (v) except with the consent of the General Partner,
such Transfer is a sale or exchange, and such sale or exchange would, when
aggregated with all other sales and exchanges during the 12-month period ending
on the date of the proposed Transfer, result in 50% or more of the interests in
Partnership capital and profits being sold or exchanged; (vi) it would cause the
Partnership to be considered for purposes of the Investment Company Act of 1940
to have more than 99 partners; (vii) except with the consent of the Trust, it
would cause the Partnership to be considered for
-54-
<PAGE> 283
purposes of section 1.7704-1(h)(1)(ii) of the Regulations to have more than 100
partners at any time during any taxable year; or (viii) in the opinion of legal
counsel to the Trust, it could adversely affect the ability of the Company to
continue to qualify as a REIT to which the provisions of part II of subchapter M
of chapter 1 of the Code apply (and as a "corporation subject to a tax imposed
by subchapter M," within the meaning of section 11(c) of the Code), subject the
Company to additional taxes or other liability under the Code, or violate any
law or regulation of any governmental body or agency having jurisdiction over
the Trust, its Affiliates, the Partnership, or their respective securities or
properties.
E. The following additional provisions shall
apply:
1. Without the prior written consent of the
Trust, a Limited Partner or Assignee which is a Meshon Party or a Levy Party or
which is an Assignee of an interest of a Meshon Party or a Levy Party may not,
during the Lock-Up Period as to such Limited Partner or Assignee, directly or
indirectly, Transfer or offer to sell, sell, grant any option for the sale of,
or otherwise dispose of any OP Units or any Share issuable upon exchange of the
OP Units in accordance with Section 8.6.
2. Any sale or transfer of any OP Units in
violation of this Section 11.3E will be null and void and will confer on the
transferee no rights hereunder. It is impossible to measure the damages that
will accrue to the Trust and its Affiliates and the Partnership by reason of a
failure of a Limited Partner to comply with the provisions of this Section
11.3E. Therefore, if the Trust or the Partnership shall institute any action or
proceeding to enforce the provisions hereof against a Limited Partner, such
Limited Partner agrees that the Trust or the Partnership shall be entitled to
injunctive relief and waives, and shall not allege, any claim or defense to such
action or proceeding, including, without limitation, any claim or defense that
the Trust or the Partnership has an adequate remedy at law.
3. Section 11.3A and this Section 11.3E
shall not prohibit a Limited Partner from taking the following actions, to the
extent otherwise permitted under this Agreement: (i) exercising any options to
purchase Shares issued to such Limited Partner under a Stock Option Plan, (ii)
in connection with an exercise permitted by the preceding clause (i), delivering
to the Company Shares in payment of the exercise price of such options or the
withholding taxes payable in connection with such exercise, or (iii)
transferring OP Units or Shares to a Permitted Transferee of such Limited
Partner, provided that such transferee agrees in writing to the transfer
restrictions contained in this Agreement (including this Section 11.3E).
-55-
<PAGE> 284
11.4 SUBSTITUTED LIMITED PARTNERS.
A. Subject in each case to Section 11.4D: (1) the
Trust shall have the right to add or substitute a transferee which receives OP
Units pursuant to Section 11.2C as a Limited Partner and (2) each Limited
Partner shall have the right to substitute a Permitted Transferee which receives
OP Units pursuant to Section 11.3A(1) as a Limited Partner in such Limited
Partner's place.
B. The General Partner shall have the right to
consent to the admission of a transferee who receives OP Units pursuant to
Section 11.3A(2), which consent may be given or withheld by the General Partner
in its sole and absolute discretion. The General Partner's failure or refusal to
permit such transferee to become a Substituted Limited Partner shall not give
rise to any cause of action against the Partnership or any Partner.
C. A transferee who has been admitted as a
Substituted Limited Partner in accordance with this Article 11 shall have all
the rights and powers and be subject to all the restrictions and liabilities of
a Limited Partner under this Agreement.
D. No Permitted Transferee will be admitted as a
Substituted Limited Partner unless (i) such transferee has furnished to the
General Partner (a) evidence of acceptance in form satisfactory to the General
Partner of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4, and (b) such other
documents or instruments as may be required in the reasonable discretion of the
General Partner in order to effect such Person's admission as a Substituted
Limited Partner and (ii) in the case of a transferee who receives OP Units in
accordance with Section 11.3A(2), the General Partner has consented to such
admission in accordance with Section 11.4B. Upon the admission of a Substituted
Limited Partner, the General Partner shall reflect the name, address, number of
OP Units, and Percentage Interest of such Substituted Limited Partner on the
records of the Partnership and eliminate or adjust, if necessary, the name,
address, and interest of the predecessor of such Substituted Limited Partner.
11.5 ASSIGNEES. If, in any case described in Section 11.4B,
the General Partner, in its sole and absolute discretion, does not consent to
the admission of any transferee as a Substituted Limited Partner, such
transferee shall be considered an Assignee for purposes of this Agreement. An
Assignee shall be deemed to have had assigned to it and shall be entitled to
receive distributions from the Partnership and the share of Net Income, Net
Losses, and any other items, gain, loss deduction,
-56-
<PAGE> 285
and credit of the Partnership attributable to the OP Units assigned to such
transferee and, as to the OP Units which were transferred to such Person in a
manner permitted under this Agreement, shall have the rights and obligations set
forth in Section 8.6 as though a Limited Partner, but shall not be deemed to be
a holder of OP Units for any other purpose under this Agreement, and shall not
be entitled to vote such OP Units in any matter presented to the Limited
Partners for a vote (such OP Units being deemed, to the extent permitted by law,
to have been voted on such matter in the same proportion as all other OP Units
held by Limited Partners are voted). In the event any such transferee desires to
make a further assignment of any such OP Units, such transferee shall be subject
to all of the provisions of this Article 11 to the same extent and in the same
manner as any Limited Partner desiring to make an assignment of OP Units.
11.6 GENERAL PROVISIONS.
A. No Limited Partner may withdraw from the
Partnership otherwise than as a result of a permitted Transfer of all of such
Limited Partner's OP Units in accordance with this Article 11 or pursuant to an
exchange of all of its OP Units pursuant to Section 8.6.
B. Any Limited Partner who shall Transfer all of
its OP Units in a Transfer permitted pursuant to this Article 11 shall cease to
be a Limited Partner upon the admission of all Assignees of such OP Units as
Substituted Limited Partners. Similarly, any Limited Partner who shall Transfer
all of its OP Units pursuant to an exchange of all of its OP Units pursuant to
Section 8.6 shall cease to be a Limited Partner.
C. Except with the consent of the General
Partner, transfers pursuant to this Article 11 (other than Transfers pursuant to
Section 8.6B) may be made only as of the first day of each calendar month.
D. If any Partnership Interest is transferred or
assigned during the Partnership's fiscal year in compliance with the provisions
of this Article 11 or exchanged pursuant to Section 8.6 on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof, and all other items attributable to such interest for such Partnership
Year shall be divided and allocated between the transferor Partner and the
transferee Partner by taking into account their varying interests during the
Partnership Year in accordance with section 706(d) of the Code, using such
method as the General Partner shall determine in its sole discretion. Solely for
purposes of making such allocations, each of such items for the calendar month
in which the Transfer or assignment occurs shall be allocated to the transferee
Partner, and none of such items for the calendar month in which an exchange
occurs shall be
-57-
<PAGE> 286
allocated to the exchanging Partner, provided, however, that the General Partner
may adopt such other conventions relating to allocations in connection with
transfers, assignments, or exchanges as it determines are necessary or
appropriate. All distributions of Available Cash attributable to such OP Units
with respect to which the Partnership Record Date is before the date of such
transfer, assignment, or exchange shall be made to the transferor Partner or the
exchanging Partner, as the case may be, and in the case of a Transfer or
assignment other than an exchange, all distributions of Available Cash
thereafter attributable to such OP Units shall be made to the transferee
Partner.
E. Ownership of an OP Unit shall be determined
by the identity of the registered holder thereof on the books of the
Partnership. Transfer of an OP Unit can be made only in conformity with all
provisions of this Agreement and upon compliance with the further requirement
that such transfer can be made only upon presentation of the certificate
evidencing such OP Unit, accompanied by satisfactory and duly executed
instruments of transfer.
ARTICLE 12
ADMISSION OF PARTNERS
12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER. A successor to
all of the General Partner Interest pursuant to Section 11 hereof who is
proposed to be admitted as a successor General Partner shall be admitted to the
Partnership as the General Partner, effective upon such transfer, and such
admission shall occur, and for all purposes shall be deemed to have occurred,
immediately prior to the time the assignor ceases to be a general partner of the
Partnership. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner's executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership Year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6D.
12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS.
A. After the admission to the Partnership of the
Limited Partners on the date hereof, a Person who makes a Capital Contribution
to the Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited
-58-
<PAGE> 287
Partner only upon furnishing to the General Partner (i) evidence of acceptance
in form satisfactory to the General Partner of all of the terms and conditions
of this Agreement, including, without limitation, the power of attorney granted
in Section 2.4, and (ii) such other documents or instruments as may be required
in the discretion of the General Partner in order to effect such Person's
admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this
Section 12.2, no Person shall be admitted as an Additional Limited Partner
without the consent of the General Partner, which consent may be given or
withheld in the General Partner's sole and absolute discretion. The admission of
any Person as an Additional Limited Partner shall become effective on the date
upon which the name of such Person is recorded on the books and records of the
Partnership, following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to
the Partnership on any day other than the first day of a Partnership Year, then
Net Income, Net Losses, each item thereof, and all other items allocable among
Partners and Assignees for such Partnership Year shall be allocated among such
Additional Limited Partner and all other Partners and Assignees by taking into
account their varying interests during the Partnership Year in accordance with
section 706(d) of the Code, using such method as the General Partner shall
determine in its sole discretion. All distributions of Available Cash with
respect to which the Partnership Record Date is before the date of such
admission shall be made solely to Partners and Assignees, other than the
Additional Limited Partner, and all distributions of Available Cash thereafter
shall be made to all of the Partners and Assignees, including such Additional
Limited Partner.
12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP. For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement and, if required by law, shall prepare
and file an amendment to the Certificate and may for this purpose exercise the
power of attorney granted pursuant to Section 2.4 hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION, AND TERMINATION
13.1 DISSOLUTION. The Partnership shall not be dissolved by
the admission of Substituted Limited Partners or Additional Limited Partners or
by the admission of a successor General Partner in accordance with the terms of
this Agreement.
-59-
<PAGE> 288
In the event of the withdrawal of the General Partner, any successor General
Partner shall continue the business of the Partnership. The Partnership shall
dissolve, and its affairs shall be wound up, only upon the first to occur of any
of the following ("Liquidating Events"):
A. the expiration of its term as provided in
Section 2.5;
B. an event of withdrawal of the General Partner, as
defined in the Act (other than an event of bankruptcy), unless, at the time,
there is at least one other General Partner, who is hereby permitted to carry on
the business of the Partnership, and such General Partner does so (in accordance
with Section 12.1 or otherwise) or, within 90 days after such event of
withdrawal a majority in interest of the remaining Partners agree in writing to
continue the business of the Partnership and to the appointment, effective as of
the date of withdrawal, of a successor General Partner;
C. an election to dissolve the Partnership made by
the General Partner;
D. entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
E. the sale of all or substantially all of the assets
and properties of the Partnership;
F. a final and non-appealable judgment is entered by
a court of competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the General Partner, in each case under
any Federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner.
13.2 WINDING UP.
A. Upon the occurrence of a Liquidating Event
that results in the dissolution of the Partnership, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or, in the event there is no remaining General Partner, any
Person elected by
-60-
<PAGE> 289
Limited Partners holding at least a majority of the Limited Partnership
Interests (the General Partner or such other Person being referred to herein as
the "Liquidator"), shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of beneficial interest or other securities of the Trust or an
Affiliate thereof) shall be applied and distributed in the following order:
(1) First, to the payment and discharge (or
making reasonable provision for paying) of all of the Partnership's debts and
liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of
all of the Partnership's debts and liabilities to the Partners; and
(3) The balance, if any, to the General
Partner and Limited Partners to the extent of and in accordance with the
positive balances in their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section
13.2A which require liquidation of the assets of the Partnership, but subject to
the order of priorities set forth therein, if prior to or upon dissolution of
the Partnership the Liquidator determines that an immediate sale of part or all
of the Partnership's assets would be impractical or would cause undue loss to
the Partners, the Liquidator may, in its sole and absolute discretion, defer for
a reasonable time the liquidation of any asset except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2A, undivided interests in such
Partnership assets as the Liquidator deems not suitable for liquidation. Any
such distributions in kind shall be made only if, in the good faith judgment of
the Liquidator, such distributions in kind are in the best interests of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed
-61-
<PAGE> 290
in kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro
rata portion of the distributions that would otherwise be made to the General
Partner and Limited Partners pursuant to this Article 13 may be:
(1) distributed to a trust established for
the benefit of the General Partner and Limited Partners for the purposes of
liquidating Partnership assets, collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or obligations of the
Partnership or the General Partner arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the General
Partner and Limited Partners from time to time, in the reasonable discretion of
the Liquidator, in the same proportions as the amount distributed to such trust
by the Partnership would otherwise have been distributed to the General Partner
and Limited Partners pursuant to this Agreement; or
(2) withheld or escrowed to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld or escrowed amounts shall be
distributed to the General Partner and Limited Partners in the manner and order
of priority set forth in Section 13.2A as soon as practicable.
13.3 NO OBLIGATION TO CONTRIBUTE DEFICIT. If any Partner has a
deficit balance in such Partner's Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall have no
obligation to make any contribution to the capital of the Partnership with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Partnership or to any other Person for any purpose whatsoever.
13.4 RIGHTS OF LIMITED PARTNERS. Except as otherwise provided
in this Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of its Capital Contributions and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as otherwise provided in this Agreement, no Limited Partner shall have
priority over any other Partner as to the return of its Capital Contributions,
distributions, or allocations.
13.5 NOTICE OF DISSOLUTION. In the event a Liquidating
Event occurs or an event occurs that would, but for the
provisions of an election, objection, consent, or agreement by
one or more Partners pursuant to Section 13.1, result in a
-62-
<PAGE> 291
dissolution of the Partnership, the General Partner shall, within thirty (30)
days thereafter, provide written notice thereof to each of the Partners.
13.6 TERMINATION OF PARTNERSHIP AND CANCELLATION OF
CERTIFICATE OF LIMITED PARTNERSHIP. Upon the completion of the liquidation of
the Partnership's assets, as provided in Section 13.2, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions other than
the state of Delaware shall be canceled and such other actions as may be
necessary to terminate the Partnership shall be taken.
13.7 REASONABLE TIME FOR WINDING-UP. A reasonable time shall
be allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 in order
to minimize any losses otherwise attendant upon such winding-up, and the
provisions of this Agreement shall remain in effect among the Partners during
the period of liquidation.
13.8 WAIVER OF PARTITION. Each Partner hereby waives
any right to partition of the Partnership property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT;
ACTION BY LIMITED PARTNERS
14.1 AMENDMENTS.
A. Amendments to this Agreement may be proposed
by the General Partner or by any Limited Partner or Limited Partners holding in
the aggregate 25% or more of the Partnership Interests. Following such proposal,
the General Partner shall submit any proposed amendment to the Limited Partners.
The General Partner shall seek the written vote of the Partners on the proposed
amendment or shall call a meeting on 15 days' notice to vote thereon and to
transact any other business that it may deem appropriate. For purposes of
obtaining a written vote, the General Partner may require a response within a
reasonable specified time, but not less than fifteen (15) days, and failure to
respond in such time period shall constitute a vote which is consistent with the
General Partner's recommendation with respect to the proposal. Except as
provided in Section 14.1B, 14.1C, or 14.1D, a proposed amendment shall be
adopted and be effective as an amendment hereto if it is approved by the General
Partner and it receives the consent of Limited Partners holding a Qualifying
Limited Partner Interest.
-63-
<PAGE> 292
B. Notwithstanding Section 14.1A, the General
Partner shall have the power, without the consent of the Limited Partners, to
amend this Agreement (other than Sections 4.3, 7.4, 7.5, 11.2, and 14.2) to the
extent expressly set forth herein (including, without limitation, in Section
8.6E) or as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General
Partner or surrender any right or power granted to the General Partner or any
Affiliate of the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution,
termination, or withdrawal of Partners in accordance with this Agreement;
(3) to set forth the designations, rights,
powers, duties, and preferences of the holders of any additional Partnership
Interests issued pursuant to Section 4.3 hereof;
(4) to reflect a change that is of an
inconsequential nature and does not adversely affect the Limited Partners in any
material respect; to cure any ambiguity, correct, or supplement in an
inconsequential manner any provision in this Agreement not inconsistent with law
or with other provisions; or to make other changes with respect to matters
arising under this Agreement that will not be inconsistent with law or with the
provisions of this Agreement; and
(5) to satisfy any requirements, conditions,
or guidelines contained in any order, directive, opinion, ruling, or regulation
of a Federal or state agency or contained in Federal or state law. The General
Partner shall provide notice to the Limited Partners when any action under this
Section 14.1B is taken.
C. Notwithstanding Section 14.1A and 14.1B, this
Agreement shall not be amended without the consent of each Partner adversely
affected if such amendment would (i) convert a Limited Partner's interest in the
Partnership into a general partnership interest; (ii) modify the limited
liability of a Limited Partner in a manner adverse to such Limited Partner;
(iii) alter rights of the Partner to receive distributions pursuant to Article 5
or Article 13 or the allocations specified in Article 6 (except as permitted
pursuant to Article 4 and Sections 5.4 and 14.1B(3)); (iv) cause the termination
of the Partnership prior to the time set forth in Sections 2.5 and 13.1; or (v)
amend Sections 5.4 or 7.1A(3) or this Section 14.1C (or, in the case of an
amendment pursuant to Section 14.1B, amend
-64-
<PAGE> 293
Sections 4.1B, 8.5A, 8.6, or 9.3, the final sentence of Section 10.3B, or,
except as provided in Article 4, Exhibit A).
14.2 ACTION BY LIMITED PARTNERS.
A. Meetings of the Partners may be called by the
General Partner and shall be called upon the receipt by the General Partner of a
written request by Limited Partners holding 25 percent or more of the
Partnership Interests. The request shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever the
vote or consent of the Limited Partners is permitted or required under this
Agreement, such vote or consent may be given at a meeting of the Partners by the
holders of such percentage of the Percentage Interests or OP Units as is
expressly required by this Agreement or may be given in accordance with the
procedure prescribed in Section 14.1A or in accordance with the procedure
prescribed in Section 14.2B.
B. Any vote or consent of the Limited Partners
permitted or required under this Agreement and action required or permitted to
be taken at a meeting of the Partners may be taken without a meeting if written
consent(s) setting forth the action so taken is signed by the holders of such
percentage of the Percentage Interests or the OP Units as is expressly required
by this Agreement. Such consent may be in one instrument or in several
instruments. Such consent shall be filed with the records of the Partnership.
C. Each Limited Partner may authorize any Person or
Persons to act for such Limited Partner by proxy on all matters in which a
Limited Partner is entitled to participate, including waiving notice of any
meeting, or voting or participating at a meeting. Every proxy must be signed by
the Limited Partner or such Limited Partner's attorney-in-fact. No proxy shall
be valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Limited
Partner executing such proxy.
D. Each meeting of the Partners shall be conducted by
the General Partner or such other Person as the General Partner may appoint
pursuant to such rules for the conduct of the meeting as the General Partner or
such other Person deems appropriate.
-65-
<PAGE> 294
ARTICLE 15
GENERAL PROVISIONS
15.1 ADDRESSES AND NOTICE. Any notice, demand, request, or
report required or permitted to be given or made to a Partner or Assignee under
this Agreement shall be in writing and shall be deemed given or made when
delivered in person or when sent by first class United States mail or by other
means of written communication to the Partner or Assignee at the address set
forth in Exhibit A or such other address of which the Partner shall notify the
General Partner in writing.
15.2 TITLES AND CAPTIONS. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend, or describe the
scope or intent of any provisions hereof.
15.3 PRONOUNS AND PLURALS. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
15.4 FURTHER ACTION. The parties shall execute and deliver all
documents, provide all information, and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this Agreement.
15.5 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives, and permitted assigns. Any
reference to the "Company" herein shall also be deemed to include any successor
thereto in connection with a change in identity, form, or place of organization
of the Company.
15.6 CREDITORS. Other than as expressly set forth herein with
respect to the Indemnitees, none of the provisions of this Agreement shall be
for the benefit of, or shall be enforceable by, any creditor of the Partnership.
15.7 WAIVER. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement, or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement, or
condition.
15.8 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which together shall constitute one
-66-
<PAGE> 295
agreement binding on all of the parties hereto, notwithstanding that all such
parties are not signatories to the original or the same counterpart. Each party
shall become bound by this Agreement immediately upon affixing its signature
hereto.
15.9 APPLICABLE LAW. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware,
without regard to the principles of conflicts of laws thereof.
INVALIDITY OF PROVISIONS. If any provision of this Agreement
is or becomes invalid, illegal, or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein shall
not be affected thereby.
ENTIRE AGREEMENT. This Agreement contains the entire
understanding and agreement among the Partners with respect to the subject
matter hereof and supersedes any other prior written or oral understandings or
agreements among them with respect thereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
MONTGOMERY CV TRUST
By:______________________________
Title:
ORIGINAL LIMITED PARTNER:
_________________________________
LOUIS MESHON, SR.
LIMITED PARTNERS:
[To Come]
The Company is executing this Agreement
solely to indicate its acceptance of
the matters set out in Sections 8.6B(iv)
-67-
<PAGE> 296
and 11.2D:
CV REIT, INC.
By:__________________________________
Title:_______________________________
-68-
<PAGE> 297
EXHIBIT A
PARTNERS' CONTRIBUTIONS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Name and Address Cash Gross Asset Value of Total Net OP Percentage
of Partner Contributions Contributed Property Liabilities(1) Contribution(2) Units Interest
- ---------------- ------------- -------------------- ----------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
GENERAL PARTNER
Montgomery CV Trust [$ 11] 1
580 West Germantown Pike
Plymouth Meeting, PA 19462
LIMITED PARTNERS
Montgomery CV Trust [$87,632,820] 7,966,620
580 West Germantown Pike
Plymouth Meeting, PA 19462
[Other Limited Partners To Come](3)
</TABLE>
- --------
1 In order to give proper effect to Section 4.1G, all assets, including
partnership interests, should be valued "gross" and all liabilities
should be separately listed hereon.
2 Total Net Contributions will be stated as proportionate to OP Units.
The Trust will contribute, or cause to be contributed by the Company
and its qualified REIT subsidiaries, all its existing tangible and
intangible assets, including goodwill and going concern value, except
for (1) stock and beneficial interests in qualified REIT subsidiaries,
including the Trust, and (2) except as provided in Section 4.1B, the
Florida Land (which may include certain long-term recreation notes and
which will be subject to the provisions hereof specifically relating
thereto). The foregoing contributions will be subject to and the
Partnership will assume all of the Company's (and its qualified REIT
subsidiaries') liabilities (other than liabilities encumbering the
assets not contributed); the liabilities will not, however, include the
REIT's liability for deferred income taxes. No cash will be retained at
the Company level, except for certain exceptions provided in the Master
Agreement and, possibly, cash needed to pay dividends of the Company
declared (or relating to the current quarter), but not yet paid, on the
closing date. The Trust's net contribution, to which liabilities will
be added back and from which cash contributed will be subtracted to
determine the Gross Asset Value of the Trust's contribution of property
other than cash, will be set at fair market value, which the Trust may
determine to be not higher than the highest of and not lower than the
lowest of (1) $87,632,831, (2) the Company's net GAAP book value on the
date of signing of the Master Agreement, (3) the Company's net GAAP
book value on the date of closing, (4) the product of 7,966,621
multiplied by the Company's share price (the "Company's market
capitalization") on the date of signing of the Master Agreement, and
(5) the Company's market capitalization on the date of closing, in each
case appropriately adjusted for payment of transaction costs and
retention of cash by the Company (and, if and as the Trust in its sole
discretion shall so determine, for deferred income taxes).
3 At closing, when Exhibit A is completed, we should know who each non-CV
limited partner will be and, in accordance with the formulas in the
Master Agreement, but subject to Section 4.1B, 4.1C, and 4.1D, how many
OP Units will be issued to each such limited partner.
-69-
<PAGE> 298
EXHIBIT B
ALLOCATIONS OF PARTNERSHIP ITEMS
1. Allocation of Net Income and Net Loss.
(a) NET INCOME. Except as otherwise provided in Sections 4.1 and 7.3B
and this Exhibit B, Net Income (or items thereof) for any fiscal year or other
applicable period shall be allocated to the Partners in accordance with their
respective Percentage Interests.
(b) NET LOSS. Except as otherwise provided in Section 4.1 and this
Exhibit B, Net Loss (or items thereof) of the Partnership for each fiscal year
or other applicable period shall be allocated to the Partners in accordance with
the Partners' respective Percentage Interests. Notwithstanding the preceding
sentence, to the extent any Net Loss (or items thereof) allocated to a Partner
under this subparagraph (b) would cause such Partner (hereinafter, a "Restricted
Partner") to have an Adjusted Capital Account Deficit, or increase the amount of
an existing Adjusted Capital Account Deficit, as of the end of the fiscal year
or other applicable period to which such Net Loss relates, such Net Loss shall
not be allocated to such Restricted Partner and instead shall be allocated to
the other Partner(s) (hereinafter, the "Permitted Partners") pro rata in
accordance with each Permitted Partner's Percentage Interest.
(c) TERMINATING CAPITAL TRANSACTION; LIQUIDATION. Allocations of Net
Income or Net Loss (or items thereof) in connection with a Terminating Capital
Transaction or Liquidation (as defined in Treasury Regulation section
1.704-1(b)(2)(ii)(G)) of the Partnership shall be made so that, to the extent
possible, the Partners' respective Capital Account balances are proportionate to
their Percentage Interests. In the event that the Capital Account balance of
more than one Partner is disproportionate to such Partner's Percentage Interest,
the largest such relative disproportion shall be cured first, until it is equal,
on a relative basis, to the next largest such disproportion, and so on, to the
extent Net Income or Net Loss (or items thereof) are available. Notwithstanding
the preceding sentence, to the extent any Net Loss (or items thereof) would be
allocated to a Restricted Partner under this subparagraph (c), such Net Loss
shall not be allocated to such Restricted Partner and instead shall be allocated
to the Permitted Partners pro rata in accordance with each Permitted Partner's
Percentage Interest.
(d) RULES OF CONSTRUCTION.
(1) CAPITAL ACCOUNT INCREASES. For purposes of
making allocations pursuant to subparagraph 1(c) of
this Exhibit B, a Partner's Capital Account balance
-70-
<PAGE> 299
shall be deemed to be increased by such Partner's share of any
Partnership Minimum Gain and Partner Minimum Gain remaining at the
close of the fiscal period in respect of which such allocations are
being made.
(2) CHANGE IN PERCENTAGE INTERESTS. In the event any Partner's
Percentage Interest changes during a fiscal year for any reason (except
by reason of Section 4.1E), including without limitation, the Transfer
of any interest in the Partnership, the tax allocations contained in
this Exhibit B shall be applied as necessary to reflect the varying
interests of the Partners during such year. In the event any Partner's
Percentage Interest changes by reason of Section 4.1E, the principles
of subparagraph 1(c) of this Exhibit B shall be applied.
2. Special Allocations.
Notwithstanding any provisions of paragraph 1 of this Exhibit B, the
following special allocations shall be made.
(a) MINIMUM GAIN CHARGEBACK (NONRECOURSE LIABILITIES). Except as
otherwise provided in section 1.704-2(f) of the Regulations, if there is a net
decrease in Partnership Minimum Gain for any Partnership fiscal year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain to the extent
required by Regulations section 1.704-2(f). The items to be so allocated shall
be determined in accordance with sections 1.704-2(f) and (i) of the Regulations.
This subparagraph 2(a) is intended to comply with the minimum gain chargeback
requirement in said section of the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this subparagraph 2(a) shall be
made in proportion to the respective amounts required to be allocated to each
Partner pursuant hereto.
(b) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
section 1.704-2(i)(4) of the Regulations, if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with section 1.704- 2(i)(5)
of the Regulations, shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
that Partner's share of the net decrease in the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt to the extent and in the manner
required by section 1.704-2(i) of the Regulations. The items to be so allocated
shall be determined in accordance with sections
-71-
<PAGE> 300
1.704-2(i)(4) and (j)(2) of the Regulations. This subparagraph 2(b) is intended
to comply with the minimum gain chargeback requirement with respect to Partner
Nonrecourse Debt contained in said section of the Regulations and shall be
interpreted consistently therewith. Allocations pursuant to this subparagraph
2(b) shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant hereto.
(c) QUALIFIED INCOME OFFSET. In the event a Partner unexpectedly
receives any adjustments, allocations, or distributions described in section
1.704-1(b)(2)(ii)(D)(4), (5), or (6) of the Regulations, and such Partner has an
Adjusted Capital Account Deficit, items of Partnership income (including gross
income) and gain shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly
as possible as required by the Regulations. This subparagraph 2(c) is intended
to constitute a "qualified income offset" under section 1.704-1(b)(2)(ii)(D) of
the Regulations and shall be interpreted consistently therewith.
(d) OTHER CHARGEBACK OF IMPERMISSIBLE NEGATIVE CAPITAL ACCOUNT. To the
extent any Partner has an Adjusted Capital Account Deficit at the end of any
Partnership fiscal year, each such Partner shall be specially allocated items of
Partnership income (including gross income) and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
paragraph 2(d) shall be made if and only to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other allocations provided
for in this Exhibit B have been tentatively made as if this paragraph 2(d) were
not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any
fiscal year or other applicable period shall be allocated to the
Partners in accordance with their respective Percentage
Interests.
(f) PARTNER NONRECOURSE DEDUCTIONS. Partner Nonrecourse Deductions for
any fiscal year or other applicable period with respect to a Partner Nonrecourse
Debt shall be specially allocated to the Partner that bears the economic risk of
loss for such Partner Nonrecourse Debt (as determined under sections
1.704-2(b)(4) and 1.704-2(i)(1) of the Regulations).
(g) INTENT OF ALLOCATIONS. The parties intend that the allocation
provisions of this Exhibit B shall result in final Capital Account balances of
the Partners that are in proportion to the Partners' respective Percentage
Interests, so that when liquidating distributions are made in accordance with
such final Capital Account balances under Section 13.2A(3), such distributions
will be made in proportion to the Partners'
-72-
<PAGE> 301
respective Percentage Interests. To the extent that such final Capital Account
balances would not so reflect the provisions of this Exhibit B, income and loss
of the Partnership for the current year and future years, as computed for book
purposes, shall be allocated among the Partners so as to result in final Capital
Account balances reflecting the provisions of this Exhibit B. This subparagraph
shall control notwithstanding any reallocation of income, loss, or items
thereof, as computed for book purposes, by the Internal Revenue Service or any
other taxing authority.
(h) SECTION 754 ADJUSTMENT. To the extent an adjustment to the adjusted
tax basis of any asset of the Partnership pursuant to section 734(b) of the Code
or section 743(b) of the Code is required, pursuant to section
1.704-1(b)(2)(iv)(M) of the Regulations, to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated among the Partners in a manner consistent with the manner in
which each of their respective Capital Accounts are required to be adjusted
pursuant to such section of the Regulations.
3. Tax Allocations.
(a) ITEMS OF INCOME OR LOSS. Except as is otherwise provided in this
Exhibit B or in the Code and Regulations, an allocation of Partnership Net
Income or Net Loss to a Partner shall be treated as an allocation to such
Partner of the same share of each item of income, gain, loss, deduction, and
item of tax-exempt income or Code section 705(a)(2)(B) expenditure (or item
treated as such expenditure pursuant to Regulations section
1.704-1(b)(2)(iv)(I)) ("Tax Items") that is taken into account in computing Net
Income or Net Loss. Tax Items with respect to Partnership property that is
subject to Code section 704(c) and/or Regulations section 1.704-1(b)(2)(iv)(F)
shall be allocated in accordance with Code section 704(c) and Regulations
section 1.704-3.
(b) SECTION 1245/1250 RECAPTURE. To the extent not otherwise required
by the Code or Regulations, if any portion of gain from the sale of Partnership
assets is treated as gain which is ordinary income by virtue of the application
of Code section 1250 ("Affected Gain"), then such Affected Gain shall be
allocated among the Partners in the same proportion that the depreciation and
amortization deductions giving rise to the Affected Gain were allocated. This
subparagraph 3(b) shall not alter the amount of Net Income (or items thereof)
allocated among the Partners, but merely the character of such Net Income (or
items thereof). For purposes hereof, in order to determine the proportionate
allocations of depreciation and amortization
-73-
<PAGE> 302
deductions for each fiscal year or other applicable period, such deductions
shall be deemed allocated on the same basis as Net Income and Net Loss for such
respective period. Items governed by section 1.1245-1(e) of the Regulations
shall be allocated in accordance with that section.
(c) EXCESS NONRECOURSE LIABILITY SAFE HARBOR. Pursuant to Regulations
section 1.752-3(a)(3), solely for purposes of determining each Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
(as defined in Regulations section 1.752-3(a)(3)), the Partners' respective
interests in Partnership profits shall be determined in accordance with each
Partner's Percentage Interest; provided, however, that each Partner who has
contributed an asset to the Partnership shall be allocated, to the extent
possible, a share of "excess nonrecourse liabilities" of the Partnership which
results in such Partner's being allocated nonrecourse liabilities in an amount
which is at least equal to the amount of income that would otherwise be realized
by such Partner pursuant to section 731 of the Code in connection with the
contribution of such asset to the Partnership or with any reduction in "section
704(c) minimum gain" with respect thereto prior to the end of the taxable year
of the contribution (the "Liability Shortfall"). In the event there is an
insufficient amount of nonrecourse liabilities to allocate to each Partner an
amount of nonrecourse liabilities equal to the Liability Shortfall, then an
amount of nonrecourse liabilities in proportion to, and to the extent of, the
Liability Shortfall shall be allocated to each Partner.
(d) REFERENCES TO REGULATIONS. Any reference in this Exhibit B or the
Agreement to a provision of proposed and/or temporary Regulations shall, in the
event such provision is modified or renumbered, be deemed to refer to the
successor provision as so modified or renumbered, but only to the extent such
successor provision applies to the Partnership under the effective date rules
applicable to such successor provision.
(e) SUCCESSOR PARTNERS. For purposes of this Exhibit B, a transferee of
a Partnership Interest shall be deemed to have been allocated the Net Income,
Net Loss, and other items of Partnership income, gain, loss, deduction, and
credit allocable to the transferred Partnership Interest that previously have
been allocated to the transferor Partner pursuant to this Agreement.
-74-
<PAGE> 303
EXHIBIT C
DESCRIPTION OF FLORIDA LAND(4)
- ----------------------
4 Will include Motel, Administration Building, Griffin Road,
Miramar, Century Plaza, President's Land Trust, Okeechobee
Road sliver, and the Westward gas station.
-75-
<PAGE> 304
EXHIBIT D
FORM OF NOTICE OF REDEMPTION
To:
Montgomery CV Realty L.P.
580 West Germantown Pike
Plymouth Meeting, PA, 19462
1. The undersigned (the "Redeeming Partner") hereby elects to redeem ______ OP
Units, pursuant to Section 8.6 of that certain Amended and Restated Agreement of
Limited Partnership of Montgomery CV Realty L.P., dated ________, 1997, and
entered into by and among ________ (the "Trust"), a Delaware business trust, and
certain other parties set forth on Exhibit A thereto (the "Partnership
Agreement"). Capitalized terms used in this Notice of Redemption and not
otherwise defined shall have the meanings given to such terms in the Partnership
Agreement.
2. The Redeeming Partner, intending that the Trust, its Affiliates, and
Montgomery CV Realty L.P. (the "Partnership") rely on the representations and
warranties in this Notice of Redemption, hereby represents and warrants as
follows:
(i) The Redeeming Partner is the registered holder of ______ OP Units evidenced
by Certificate number(s) _______ enclosed with this Notice of Redemption (the
"Certificate"); (ii) the Redeeming Partner is the sole legal and beneficial
owner (with any exceptions noted below) to the OP Units evidenced by the
Certificate, free and clear of all liens, claims, encumbrances, restrictions,
agreements or rights of third parties of any kind whatsoever ("Liens"); (iii)
the Redeeming Partner has full power and authority to execute this Certificate
and redeem the OP Units to which it relates and this Certificate is enforceable
against the Redeeming Partner in accordance with its terms.
[State exceptions to full legal and beneficial ownership of the OP Units by the
Redeeming Partner, free and clear of Liens, if any:
________________________________________________________________________________
________________________________________________________________________________
_____________________________________________________________________]
3. The Redeeming Partner understands that, upon receipt of this Notice by the
Partnership, the Trust may, in its sole and absolute discretion, elect (the
"Payment Election") to assume directly and satisfy the Redemption Right being
exercised herewith either by paying to the Redeeming Partner the Cash Amount or,
with certain qualifications more fully detailed in the Partnership Agreement,
issuing to the Redeeming Partner the Shares Amount.
-76-
<PAGE> 305
4. In order for the Trust to make an informed decision regarding the Payment
Election, the Redeeming Partner hereby confirms, acknowledges, represents, and
warrants that assuming the Redeeming Partner were to receive Shares in lieu of
the Cash Amount:
(i) the Redeeming Partner understands that, subject to certain
registration rights in the Partnership Agreement, offer and sale of the Shares
are restricted under the Federal securities laws;
(ii) the Redeeming Partner will not offer, sell, or otherwise transfer
the Shares without registration under the Securities Act or an exemption
therefrom and compliance with and any applicable state securities laws;
(iii) the Redeeming Partner is not domiciled in nor a resident of
California (nor is any direct or indirect owner of the Redeeming Partner
domiciled in or a resident of California);
(iv) the Redeeming Partner is not a "benefit plan investor" within the
meaning of 29 C.F.R. Section 2510.3-101;
(v) the Redeeming Partner is able to bear the economic risk attendant
with the ownership of the Shares;
(vi) the Redeeming Partner agrees that the following legend or a
substantially similar legend may be placed on the certificates representing the
Shares and a stop transfer order may be placed with respect thereto:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND CAN NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT WHICH, IN THE OPINION OF COUNSEL FOR THE
HOLDER, IS AVAILABLE, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO
COUNSEL FOR THIS CORPORATION.";
(vii) No provision of the Redeeming Partner's certificate of
incorporation or by-laws, or of any agreement, instrument, or understanding to
which the Redeeming Partner is a party or by which it is bound, has been or
would be violated by the execution and delivery of this Notice of Redemption or
the transactions contemplated hereby, and all requisite corporate and other
authorizations for such execution, delivery, performance, and satisfaction of
this Notice of Redemption or the transactions contemplated hereby shall have
been, at or prior to the delivery of this Notice of Redemption, duly obtained;
(viii) If the Trust shall transfer Shares to the Redeeming Partner in
satisfaction of the Redemption Right and the Redeeming Partner shall be entitled
to include such Shares under a Registration Statement of the Company, the
Redeeming Partner:
[check whichever is applicable]
___ Does
___ Does Not
-77-
<PAGE> 306
intend to offer and to sell the Shares received under such Registration
Statement and will provide such infomation and sign such documents as the
Company shall reasonably request with respect to inclusion of the sale of such
Shares in such Registration Statement.
4. If the Trust elects to satisfy the Redemption Rights which are the subject of
this Notice of Redemption by paying to the Redeeming Partner the Shares Amount,
please issue a certificate or certificates representing the Shares Amount such
Redeeming Partner is entitled receive in the name of the Redeeming Partner.
5. Please issue a new certificate of OP Unit ownership evidencing the number of
OP Units owned by the Redeeming Partner subsequent to the redemption which is
the subject of this Notice of Redemption
6. The Redeeming Partner hereby agrees to indemnify and save the Trust and its
Affiliates harmless from and defend it from and against any and all demands,
claims, actions, liabilities, losses, costs, damages or expenses whatsoever
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation
commenced or threatened or any claim whatsoever) arising out of or based upon
any inaccuracy or breach of any representation or warranty of the Redeeming
Partner contained in this Notice of Redemption.
Dated: ______________
For Corporate, Partnership, Limited For Individual Investors:
Liability Company, Trust, Employee
Benefit Plan or Other Entity Redeeming
Partner:
_________________________________ ___________________________________
(Print Name of Entity) (Signature)
By: ____________________________ Print Name: ______________________
(Signature)
Print Name: ____________________
Title: _________________________
-78-
<PAGE> 307
EXHIBIT E
PROPERTIES TO WHICH
SECTION 7.1A(3)(A) IS APPLICABLE
PROPERTY INDIVIDUALS DATE
- --------------------- ----------------------- -----------------------
Chesterbrook Shopping Paul Cohen July 31, 2002
Center Richard Fox
Louis P. Meshon, Sr.
Woodbourne Square Paul Cohen August 1, 2000
Shopping Center Louis P. Meshon, Sr.
Rio Grande Shopping Louis P. Meshon, Sr. January 1, 2000
Center
The rights under Section 7.1A(3) and the final sentence of Section 10.1 granted
to the persons listed on this Exhibit E shall terminate as to any such person
when such person no longer owns, directly or indirectly (giving effect to the
principles of section 267(c)(1) of the Code), any interest in the Partnership.
-79-
<PAGE> 308
EXHIBIT F
FORM OF LETTER
Montgomery CV Realty L.P.
580 West Germantown Pike
Plymouth Meeting, PA 19462
Montgomery CV Trust
580 West Germantown Pike
Plymouth Meeting, PA 19462
Gentlemen:
This letter is being issued pursuant to Section 8.6A(i) of the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") of Montgomery CV Realty L.P. (the "Partnership"), dated December 31,
1997, under which the General Partner of the Partnership has consented to
reduce, from one year to ___ months, the period of time following which I, as a
holder of OP Units, may elect to exercise the Redemption right provided under
Section 8.6A of the Partnership Agreement, on condition that I provide to the
Partnership, the General Partner, the Trust, and their respective Affiliates
certain representations and indemnities relating to such consent. (Unless
otherwise indicated, all capitalized terms used herein shall have the same
meaning as contained in the Partnership Agreement.)
Accordingly, I hereby acknowledge that my exercise of the
Redemption Right pursuant to Section 8.6A of the Partnership Agreement is being
undertaken with full knowledge and understanding of the income tax consequences
of such exercise and that no representations or warranties have been or are
being made to me with respect to my ability to maintain my tax basis in the
property contributed by me to the Partnership or to avoid the recognition of
gain and the incurrence of tax liability in connection with the structure or
completion of any of the transactions contemplated by the Partnership Agreement
(including but not limited to the granting by the General Partner of the consent
referred to in the preceding paragraph). I hereby agree that neither the
Partnership, the General Partner, the Trust, nor any of their respective
Affiliates (including the Company), nor any of their respective general
partners, limited partners, members, trustees, officers, directors, or employees
shall have any liability or obligations in connection with any such occurrences
and I hereby agree to protect, defend, indemnify, and hold harmless each of such
Persons from and against any and all claims, demands, losses, expenses, and
other damages (including
-80-
<PAGE> 309
without limitation taxes, fines and penalties, legal fees, and expenses)
incurred by them, or any of them, as a result of any such liability or
obligation or otherwise arising out of the reduction of such time period or such
exercise.
Very truly yours,
-81-
<PAGE> 310
APPENDIX C
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CV REIT, INC.
CV Reit, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. On [______ __,] 1997, the Board of Directors of the
Corporation, at a regular meeting, adopted a resolution setting forth a proposed
Amended and Restated Certificate of Incorporation, declaring such Amended and
Restated Certificate of Incorporation to be advisable and resolving that it be
considered and voted upon at the next annual meeting of the stockholders of the
Corporation.
2. Pursuant to the resolution of its Board of Directors, the
annual meeting of the stockholders of the Corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, on [______ __,] 1997, at which meeting the necessary number
of shares as required by statute were voted in favor of the Amended and Restated
Certificate of Incorporation.
<PAGE> 311
3. Said Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
4. The Amended and Restated Certificate of Incorporation as
now in full force and effect shall hereafter read as follows:
2
<PAGE> 312
ARTICLE 1
The name of the corporation shall be CV Reit, Inc.
ARTICLE 2
The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware
19805, and the name of the Corporation's registered agent at the foregoing
address is Corporation Service Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act
or activity for which corporation may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE 4
A. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 20,000,000 shares of common
stock having a par value of $.01 per share.
B. The holders of shares of Capital Stock of the Corporation
shall not be entitled as a matter of right to subscribe for or purchase any part
of any new or additional issue of any stock or other securities of the
Corporation.
C. The holders of shares of common stock shall be entitled to
one vote for each share of such stock held of record by said holder.
ARTICLE 5
A. Except as otherwise provided in the Certificate of
Incorporation or by-laws of the Corporation, the Board of Directors of the
Corporation shall have the power to adopt, amend or repeal the by-laws of the
Corporation by a vote of a majority of the directors then in office. Those
stockholders of the Corporation entitled to vote shall also have the power to
adopt, amend or repeal by-laws of the Corporation by a vote of a majority of the
votes cast by the holders of shares entitled to vote thereon at a meeting of
stockholders duly held. Any by-laws adopted by the stockholders may be amended
or repealed by the Board of Directors unless the
<PAGE> 313
by-laws or provision thereof specifically states that it shall not be amended or
repealed by the Board of Directors, in which case such by-laws or provision
shall only be amended or repealed by a vote of a majority of the votes cast by
the holders of shares entitled to vote thereon at a meeting of stockholders duly
held.
B. Election of the directors of the Corporation need not be by
written ballot unless the by-laws of the Corporation so provide.
C. The entire Board of Directors of the Corporation shall
consist of such number of persons not greater than 12 nor less than 7 as shall,
from time to time, be determined by the affirmative vote of a majority of the
entire Board, and shall initially be 7 persons. The Board shall be divided into
three classes, which are hereby designated Class I, Class II and Class III. Each
class shall be as nearly equal in number as practicable, as shall be determined
by the Board of Directors at the time of any change in the number constituting
the entire Board, provided that initially Class I and Class II each shall
consist of 2 persons and Class III shall consist of 3 persons, and provided,
further, that no change in the number constituting the entire Board shall effect
the removal of a director before the end of such director's term of office. The
term of office of the initial Class I directors shall expire at the next annual
meeting of stockholders; that of the initial Class II directors at the second
succeeding annual meeting of stockholders; and that of the initial Class III
directors at the third succeeding annual meeting of stockholders. At each annual
meeting after the initial election of directors to the three classes, directors
to replace those whose terms expire at any annual meeting shall be elected to
hold office until the third succeeding annual meeting and until a successor has
been elected and qualified. The election, resignation, removal and replacement
of directors shall be effected in accordance with the by-laws of the
Corporation.
D. The by-laws of the Corporation may require the affirmative
vote of greater than a majority of the directors then in office to amend or
repeal certain by-laws or authorize certain transactions or other matters
relating to the business, property and affairs of the Corporation as provided in
the by-laws. A by-law requiring that certain action be taken only by vote of
more than a majority of directors then in office may be amended or repealed only
by the affirmative vote of a number of directors sufficient to have taken such
action or such greater number of directors as may be provided in such by-law.
E. For the period commencing on the filing of this Amended and
Restated Certificate of Incorporation with the Secretary of State of Delaware
and ending on December 31, 2002, the following actions may be taken by the
Corporation only with the affirmative vote of at least three quarters of the
entire Board of Directors:
(i) acquisition or agreement to acquire, directly or
indirectly, including without limitation, through one or more subsidiaries or
interests in other entities or acquisition of
2
<PAGE> 314
any mortgages or securities, any interest in real property;
(ii) any change in the real estate acquisition policy set
forth in the by-laws of the Corporation;
(iii) any decision to reduce the rate of the Corporation's
quarterly dividend below $0.29 (twenty nine cents) per share, unless such
reduction is the direct result of a material default under the debt obligations
set forth on Schedule A hereto, which remains uncured for 30 days after the
Corporation shall give Hilcoast Development Corp. notice of such default, which
the Board of Directors, by a majority vote of the entire Board, determines in
good faith has substantially adversely affected the ability of the Corporation
to pay such quarterly dividend, for the period the Board of Directors shall so
determine such adverse affect shall continue; or
(iv) any change in the power or authority of the Acquisition
Committee of the Board of Directors established under the by-laws or in the
membership thereof.
F. For the period commencing on the filing of this Amended and
Restated Certificate of Incorporation with the Secretary of State of Delaware
and ending on December 31, 2002, the Corporation shall not acquire or agree to
acquire, directly or indirectly, including without limitation, through one or
more subsidiaries or interests in other entities or acquisition of any mortgages
or securities, any interest in real property unless the Board of Directors shall
have adopted a resolution by affirmative vote of at least a majority of the
entire Board stating that the Board of Directors, after due investigation, does
not believe that the acquisition would adversely affect or cause a decrease in
the amount of the regular quarterly dividend of the Corporation below $0.29
(twenty nine cents) per share in the five year period immediately following the
date of such acquisition.
G. If the Corporation shall, at any time or from time to time,
(i) declare a dividend payable in shares of its capital stock, (ii) subdivide
the outstanding shares of its capital stock, (iii) combine the outstanding
shares of its capital stock into a smaller number of shares, or (iv) issue any
shares in a reclassification of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation), all references to a regular
quarterly dividend in the amount of $0.29 per share in this Article 5 shall be
deemed equitably modified to a regular quarterly dividend of such amount as
would cause the holder of one share of common stock immediately prior to such
event to have the right to receive immediately after such event a regular
quarterly dividend in the amount of $0.29 in respect of such holder's then
holding of capital stock.
ARTICLE 6
3
<PAGE> 315
A. To the fullest extent that the General Corporation Law of
the State of Delaware as it exists on the date hereof or as it may hereafter be
amended permits the limitation or elimination of the liability of directors, no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. No
amendment to this Certificate of Incorporation, directly or indirectly by
merger, consolidation or otherwise, having the effect of amending, altering,
changing or repealing any of the provisions of this Paragraph A shall apply to
or have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal, unless such amendment shall have
the effect of further limiting or eliminating such liability.
B.1. The Corporation shall, to the fullest extent permitted by
applicable law as then in effect, indemnify any person (the "indemnitee") who
was or is involved in any manner (including, without limitation, as a party or a
witness) or was or is threatened to be made so involved in any threatened,
pending or completed investigation, claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative (including, without limitation,
any action, suit or proceeding by or in the right of the Corporation to procure
a judgment in its favor) (a "proceeding") by reason of the fact that such person
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation, or
of a partnership, joint venture, trust or other enterprise (including, without
limitation, service with respect to any employee benefit plan), whether the
basis of any such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving as a director or
officer, against all expenses, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) actually and reasonably incurred
by him in connection with such proceeding. Such indemnification shall continue
as to a person who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs and legal representatives. The right to
indemnification conferred in this Article 6 shall include the right to receive
payment in advance of any expenses incurred by the indemnitee in connection with
such proceeding, consistent with applicable law as then in effect, and shall be
a contract right. The Corporation may, by action of its Board of Directors,
provide indemnification for employees, agents, attorneys and representatives of
the Corporation with up to the same scope and extent as hereinabove provided for
officers and directors. No amendment to this Certificate of Incorporation having
the effect of amending, altering, changing or repealing any of the provisions of
the sections of this Paragraph B shall remove, abridge or adversely affect any
right to indemnification or other benefits under the sections of this Paragraph
B with respect to any acts or omissions occurring prior to such amendment or
repeal.
2. The right of indemnification, including the right to
receive payment in advance of expenses, conferred in this Article 6 shall not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled under any provision of the Certificate of Incorporation,
by-laws or agreement or otherwise.
4
<PAGE> 316
3. In any action or proceeding relating to the right to
indemnification conferred in this Article 6, the Corporation shall have the
burden of proof that the indemnitee has not met any standard of conduct or
belief which may be required by applicable law to be applied in connection with
a determination of whether the indemnitee is entitled to indemnity, or otherwise
is not entitled to indemnity, and neither a failure to make such a determination
nor an adverse determination of entitlement to indemnity shall be a defense of
the Corporation in such an action or proceeding or create any presumption that
the indemnitee has not met any such standard of conduct or belief or is
otherwise not entitled to indemnity. If successful in whole or in part in such
an action or proceeding, the indemnitee shall be entitled to be indemnified by
the Corporation for the expenses actually and reasonably incurred by him in
connection with such action or proceeding.
C. No amendment to this Certificate of Incorporation, directly
or indirectly by merger, consolidation or otherwise, shall amend, alter, change
or repeal any of the provisions of this Article 6, unless the amendment
effecting such amendment, alteration, change or repeal shall receive the
affirmative vote of the holders of at least 80% of the outstanding shares of
stock of the Corporation entitled to vote in elections of directors, provided
that this Paragraph C shall not apply to any such amendment if such amendment is
submitted to the stockholders for adoption with the unanimous recommendation of
the entire Board of Directors.
ARTICLE 7
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directors. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
5
<PAGE> 317
ARTICLE 8
Any restrictions on transfer of the shares of stock of the
Corporation shall be as provided in the by-laws of the Corporation.
ARTICLE 9
The Corporation reserves the right to amend, alter or repeal
any provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by statute, and all rights of stockholders herein are
subject to this reservation.
6
<PAGE> 318
IN WITNESS WHEREOF, we have signed this Amended and Restated
Certificate of Incorporation and caused the Corporate Seal of the Corporation to
be hereunto affixed this__________day of _________, 1997.
CV REIT, INC.
(corporate seal)
By
------------------------------
President
ATTEST:
-------------------------
Secretary
7
<PAGE> 319
SCHEDULE A
1. Consolidated Term Note dated July 31, 1992 in the original principal
amount of $35,672,941.33 made by [insert signatories -- 3 subsidiaries
of Cenvill Development]
2. Consolidated Construction Note dated July 31, 1992 in the original
principal amount of $6,500,000 made by [insert signatory]
3. Supplemental Note dated July 31, 1992 in the original principal amount
of $1,000,000 made by [insert signatory]
4. Letter of Credit Note dated July 31, 1992 in the original principal
amount of $1,000,000 made by [insert signatory]
5. Promissory Note dated September 30, 1993 in the original principal
amount of $3,000,000 made by [_____] Communities, Inc.
6. Promissory Note dated March 31, 1995 in the original principal amount
of $5,000,000 made by C.V.P. Community Center, Inc.
7. Promissory Note dated August 8, 1992 in the original principal amount
of $2,100,000 made by VLX Properties, Inc.
<PAGE> 320
APPENDIX D
CV REIT, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE 1
STOCKHOLDERS
SECTION 1. Annual Meetings. An annual meeting of stockholders
to elect directors of CV Reit, Inc. (hereinafter the "Corporation") and transact
such other business as may properly be presented to the meeting shall be held at
such other date, time and place within or without the State of Delaware as may
be fixed by the Board of Directors.
SECTION 2. Special Meetings. A special meeting of stockholders
may be called at any time by the Board of Directors, its Chairman or the
President and shall be called by any of them or by the Secretary upon receipt of
a written request to do so specifying the matter or matters, appropriate for
action at such a meeting, proposed to be presented at the meeting and signed by
holders of record for forty percent (40%) of the shares of stock that would be
entitled to be voted on such matter or matters if the meeting were held on the
day such request is received and the record date for such meeting were the close
of business on the preceding day.
SECTION 3. Place of Meetings. All meetings of the stockholders
of the Corporation shall be held at such place, within or without the State of
Delaware, as may be designated by the body or person calling such meeting and as
shall be stated in the notice of such meeting.
<PAGE> 321
SECTION 4. Notice of Meeting. For each meeting of stockholders
written notice shall be given stating the place, date and hour and, in the case
of a special meeting, the purpose or purposes for which the meeting is called
and, if the list of stockholders required by Section 10 of this Article 1 is not
to be at such place at least 10 days prior to the meeting, the place where such
list will be. Except as otherwise provided by Delaware law, the written notice
of any meeting shall be given not less than 10 or more than 60 days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the stockholder at such stockholder's address
as it appears on the records of the Corporation.
SECTION 5. Quorum. Except as otherwise required by law or the
Certificate of Incorporation, the holders of record of a majority of the shares
of stock entitled to be voted present in person or by proxy at a meeting shall
constitute a quorum for the transaction of business at the meeting, but in the
absence of a quorum the holders of record present in person or by proxy at such
meeting may vote to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum is obtained. At any such
adjourned session of the meeting at which there shall be present in person or by
proxy the holders of record of the requisite number of shares, any business may
be transacted that might have been transacted at the meeting as originally
called.
SECTION 6. Chairman and Secretary at Meeting. At each meeting
of stockholders the Chairman of the Board of Directors, or in the Chairman's
absence, the President, or in the President's absence, a Vice-President, or in
the absence of all such officers, a
2
<PAGE> 322
person chosen by plurality vote, shall preside as chairman of the meeting. The
Secretary or in the Secretary's absence a person designated by the chairman of
the meeting shall act as secretary of the meeting.
SECTION 7. Voting; Proxies. Except as otherwise provided by
law or the Certificate of Incorporation, and subject to the provisions of
Section 11 of this Article 1:
(a) Each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of common
stock held by and registered in the name of such stockholder
on the books of the Corporation.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another
person or persons to act for him or her by proxy, but no such
proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors,
properly presented to any meeting shall be decided by a
majority of the votes cast on the matter.
(e) Election of directors shall be by ballot. Other
votes shall be by ballot only when so directed by the chairman
of the meeting.
SECTION 8. Adjourned Meetings. A meeting of stockholders may
be adjourned to another time or place. Unless the Board of Directors fixes a new
record date, stockholders of record for an adjourned meeting shall be as
originally determined for the meeting from which the
3
<PAGE> 323
adjournment was taken. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote. At the adjourned meeting any business may be transacted that might have
been transacted at the meeting as originally called.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Any
action that may be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of such
action shall be given promptly to each stockholder that would have been entitled
to vote thereon at a meeting of stockholders and that did not consent thereto in
writing.
SECTION 10. List of Stockholders Entitled to Vote. At least 10
days before every meeting of stockholders a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder, shall be prepared and shall be open to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. Such list shall be produced
4
<PAGE> 324
and kept at the time and place of the meeting during the whole time thereof and
may be inspected by any stockholder who is present.
SECTION 11. Fixing of Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date which shall not be more than 60 days before the date of
such meeting, nor more than 60 days prior to any other action, except that, in
the case of determining stockholders entitled to express consent to corporate
action in writing without a meeting, such record date shall not be more than 10
days after the date on which the resolution setting such record date is adopted
by the Board of Directors. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
the record date for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto.
5
<PAGE> 325
ARTICLE 2
DIRECTORS
SECTION 1. Number; Term of Office; Qualifications. The
business, property and affairs of the Corporation shall be managed by or under
the direction of a Board of Directors. The entire Board of Directors of the
Corporation shall consist of such number of persons not greater than 12 nor less
than 7 as shall, from time to time, be determined by the affirmative vote of a
majority of the entire Board, and shall initially be 7 persons. The Board shall
be divided into three classes, which are hereby designated Class I, Class II and
Class III. Each class shall be as nearly equal in number as practicable, as
shall be determined by the Board of Directors at the time of any change in the
number constituting the entire Board, provided that initially Class I and Class
II each shall consist of 2 persons and Class III shall consist of 3 persons, and
provided, further, that no change in the number constituting the entire Board
shall effect the removal of a director before the end of such director's term of
office. The term of office of the initial Class I directors shall expire at the
next annual meeting of stockholders; that of the initial Class II directors at
the second succeeding annual meeting of stockholders; and that of the initial
Class III directors at the third succeeding annual meeting of stockholders. At
each annual meeting after the initial election of directors to the three
classes, directors to replace those whose terms expire at any annual meeting
shall be elected to hold office until the third succeeding annual meeting. Each
director shall be elected by the holders of shares entitled to vote thereon at
the annual meeting of stockholders, to serve (subject to the provisions of this
Article 2) until the third succeeding annual meeting and until a successor has
been elected and qualified.
SECTION 2. Resignation. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the President or the
6
<PAGE> 326
Secretary of the Corporation. Any such resignation shall take effect at the time
specified therein or, if no time be specified, upon receipt thereof by the Board
of Directors or one of the above-named officers; and, unless specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 3. Removal. Except as otherwise provided by law, any
one or more directors may be removed, but only for cause, by the vote of the
holders of a majority of the issued and outstanding shares of stock of the
Corporation entitled to vote for the election of directors at a special meeting
of the stockholders called for such purpose.
SECTION 4. Vacancies. Any vacancy in the office of any
director through death, resignation, removal, disqualification or other cause,
and any directorships resulting from any increase in the number of directors,
may be filled at any time by a majority of the directors then in office (even
though less than a quorum remains) or by the stockholders. When one or more
directors shall resign from the Board effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective. Subject to the
provisions of this Article 2, the person or persons chosen to fill any vacancy
in the office of any director or to fill any newly-created directorship shall
hold office until the next election of the class for which such person or
persons shall have been chosen and until a successor has been elected and
qualified.
SECTION 5. Regular and Annual Meetings; Notice. Regular
meetings of the Board of Directors shall be held at such time and at such place,
within or without the State of
7
<PAGE> 327
Delaware, as the Board of Directors may from time to time prescribe. No notice
need be given of any regular meeting, and notice, if given, need not specify the
purposes thereof. A meeting of the Board of Directors may be held without notice
immediately after an annual meeting of stockholders at the same place as that at
which such meeting was held.
SECTION 6. Special Meetings; Notice. A special meeting of the
Board of Directors may be called at any time by the Board of Directors, its
Chairman, the President or any person acting in the place of the President and
shall be called by any one of them or by the Secretary upon receipt of a written
request to do so specifying the matter or matters, appropriate for action at
such a meeting, proposed to be presented at the meeting and signed by at least
two directors. Any such meeting shall be held at such time and at such place,
within or without the State of Delaware, as shall be determined by the body or
person calling such meeting. Notice of such meeting stating the time and place
thereof shall be given (a) by deposit of the notice in the United States mail,
first class, postage prepaid, at least five days before the day fixed for the
meeting addressed to each director at the director's address as it appears on
the Corporation's records or at such other address as the director may have
furnished the Corporation for that purpose, or (b) by delivery of the notice
similarly addressed for dispatch by fax, telegraph, cable or radio or by
delivery of the notice by telephone or in person, in each case at least 48 hours
before the time fixed for the meeting.
SECTION 7. Presiding Officer and Secretary at Meetings. Each
meeting of the Board of Directors shall be presided over by the Chairman of the
Board of Directors or, in the Chairman's absence, by the President or, if
neither is present, by such member of the Board of
8
<PAGE> 328
Directors as shall be chosen by the meeting. The Secretary or, in the
Secretary's absence, an Assistant Secretary, shall act as secretary of the
meeting or, if no such officer is present, a secretary of the meeting shall be
designated by the person presiding over the meeting.
SECTION 8. Quorum. A majority of the Directors at the time in
office shall constitute a quorum for the transaction of business, but in the
absence of a quorum a majority of those present (or if only one present, then
that one) may adjourn the meeting, without notice other than announcement at the
meeting, until such time as a quorum is present. Except as otherwise required by
the Certificate of Incorporation or the By-Laws, the vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 9. Matters Requiring Supermajority Vote. Through and
including December 31, 2002, the affirmative vote of seventy-five percent (75%)
of the entire Board of Directors present at a meeting shall be required to
approve any of the following:
(a) the acquisition or agreement to acquire, directly or
indirectly, including without limitation, through one or more subsidiaries or
interests in other entities or acquisition of any mortgages or securities, any
interest in real property;
(b) any change in the real estate acquisition policy set forth
in Section 15 of this Article 2 of these By-Laws;
(c) any decision to reduce the rate of the Corporation's
quarterly dividend below $0.29 (twenty nine cents) per share, unless such
reduction is the direct result of a material default under the debt obligations
set forth on Schedule A to the Corporation's Amended and Restated
9
<PAGE> 329
Certificate of Incorporation, which remains uncured for 30 days after the
Corporation shall give Hilcoast Development Corp. notice of such default, which
the Board of Directors, by a majority vote of the entire Board, determines in
good faith has substantially adversely affected the ability of the Corporation
to pay such quarterly dividend, for the period the Board of Directors shall so
determine such adverse affect shall continue;
(d) changes in the nature of the Acquisition Committee of the
Board of Directors established under these By-Laws or in the membership thereof;
or
(e) any amendments to the provisions of Sections 9, 10, 11 or
14 of this Article 2, Section 6 or Article 3, or Article 7 of these By-Laws.
SECTION 10. Acquisition of Real Property. Through and
including December 31, 2002, the Corporation shall not acquire or agree to
acquire, directly or indirectly, including without limitation, through one or
more subsidiaries or interests in other entities or acquisition of any mortgages
or securities, any interest in real property unless the Board of Directors shall
have adopted a resolution by affirmative vote of at least a majority of the
entire Board stating that the Board of Directors, after due investigation, does
not believe that the acquisition would adversely affect or cause a decrease in
the amount of the regular quarterly dividend of the Corporation below $0.29
(twenty nine cents) per share in the five year period immediately following the
date of such acquisition.
SECTION 11. Subdivision, Combination or Reclassification of
Capital Stock. For the purposes of Sections 9(c) and 10 of this Article 2 and
Section 6 of Article 3 of these By-Laws, if the Corporation shall, at any time
or from time to time, (i) declare a dividend payable in
10
<PAGE> 330
shares of its capital stock, (ii) subdivide the outstanding shares of its
capital stock, (iii) combine the outstanding shares of its capital stock into a
smaller number of shares, or (iv) issue any shares in a reclassification of its
capital stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing corporation),
all references to a regular quarterly dividend in the amount of $0.29 per share
in this Article 2 shall be deemed equitably modified to a regular quarterly
dividend of such amount as would cause the holder of one share of common stock
immediately prior to such event to have the right to receive immediately after
such event a regular quarterly dividend in the amount of $0.29 in respect of
such holder's then holding of capital stock.
SECTION 12. Meeting by Telephone. Members of the Board of
Directors or of any committee thereof may participate in meetings of the Board
of Directors or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 13. Action Without Meeting. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting of the Board of Directors or of any committee
thereof if all members of the Board of Directors or of such committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or of such committee.
11
<PAGE> 331
SECTION 14. Executive and Other Committees. The Board of
Directors may, by resolution passed by a majority of (or, if on or before
December 31, 2002, by 75% of) the entire Board of Directors, designate an
Executive Committee and one or more other committees, each such committee to
consist of one or more directors as the Board of Directors may from time to time
determine. Members of any such committee shall serve at the pleasure of the
Board. Any such committee, to the extent provided in such resolution or
resolutions (but subject to Section 15 of this Article 2), shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, including the power
to authorize the seal of the Corporation to be affixed to all papers that may
require it; but no such committee shall have such power or authority in
reference to amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, creating a committee or appointing members to or
removing members from a committee, or amending the By-Laws; and unless the
resolution shall expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. In the
absence or disqualification of a member of a committee, the Board of Directors,
by affirmative vote of the same majority necessary to create such committee, may
appoint another member of the Board of Directors to act at one or more meetings
in place of any such absent or disqualified member or to be a member of such
committee in place of the absent or disqualified member. Each such committee
other than the Executive Committee shall have such name as may be determined
from time to time by the
12
<PAGE> 332
Board of Directors. Members of committees designated by the Board of Directors
in accordance with this section shall receive such fees or expenses, if any, as
shall be fixed by the Board of Directors.
SECTION 15. Acquisition Committee. Until December 31, 2002, in
addition to any committees established under Section 14 of this Article 2, there
shall be a committee of the Board of Directors called the Acquisition Committee
which exclusively shall be charged with reviewing for recommendation to the
Board of Directors or rejection all proposed acquisitions by the Corporation of
or agreements to acquire, directly or indirectly, including without limitation,
through one or more subsidiaries or interests in other entities or acquisition
of any mortgages or securities, any interest in real property. It shall be the
policy of the Corporation to acquire real estate and interests in real estate
only if they are income producing. The Acquisition Committee shall review
proposed acquisitions in furtherance of this policy as well as to evaluate the
risks and potential rewards of each proposed acquisition. The Acquisition
Committee shall consist of two members of the Board of Directors, who shall act
by unanimous vote, and who shall initially be H. Irwin Levy and Louis P. Meshon,
Sr. Until December 31, 2002, members of the Acquisition Committee may only be
removed and a replacement appointed by the affirmative vote of 75% of the entire
Board.
SECTION 16. Compensation. No director shall receive any stated
salary for his or her services as a director or as a member of a committee but
shall receive such compensation, if any, as may from time to time be fixed by
the Board of Directors for attendance at each meeting of the Board of Directors
or of a committee or for service as a director. Directors may
13
<PAGE> 333
also be reimbursed for their expenses in attending any meeting. However, any
director who serves the Corporation in any capacity other than as a member of
the Board of Directors or of a committee may receive compensation therefor.
ARTICLE 3
OFFICERS
SECTION 1. Election; Qualification. The officers of the
Corporation shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Directors. The Board of
Directors may elect a Chairman of the Board of Directors, a Controller, one or
more Assistant Secretaries, one or more Assistant Treasurers, one or more
Assistant Controllers and such other officers as it may from time to time
determine. The Chairman of the Board of Directors, if any, and the President
shall be elected from among the directors. Two or more offices may be held by
the same person.
SECTION 2. Term of Office. Each officer shall hold office from
the time of his or her election and qualification to the time at which his or
her successor is elected and qualified, unless sooner the officer shall die or
resign or be removed as hereinafter provided.
SECTION 3. Resignation. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if no time be
specified, upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
14
<PAGE> 334
SECTION 4. Removal. Any officer may be removed at any time,
with or without cause, by the vote of a majority of the Directors in office at
the time.
SECTION 5. Vacancies. Any vacancy however caused in any office
of the Corporation may be filled by the Board of Directors.
SECTION 6. Compensation. The compensation of each officer
shall be such as the Board of Directors may from time to time determine;
provided however, that during the period ending on December 31, 2002, the
Corporation shall not enter into any employment agreement or arrangement with
the chief executive officer or the chief financial officer of the Corporation or
permit any affiliate of the Corporation to enter into any employment agreement
or arrangement with the Corporation's chief executive officer or chief financial
officer or agree to make or reimburse any portion of the compensation of any
such officer by any other person, which does not contain a provision pursuant to
which the amount of base salary, deferred compensation and bonus (and any other
elements of compensation as the Board of Directors shall determine, if any) to
which each such officer shall otherwise be entitled shall be reduced to fifty
percent of such amount in respect of any quarter in respect of which a dividend
of at least $0.29 (twenty nine cents) per share is not declared and paid, and
for each subsequent quarter until after a dividend of at least such $0.29 per
share shall have been declared and paid for four consecutive quarters; further
provided, however, that no such reduction in the amount of such compensation
shall be required in respect of any quarter in respect of which the dividend is
less than such $0.29 per share as the direct result of a material default under
the debt obligations set forth on Schedule A to the Corporation's Amended and
Restated Certificate of Incorporation, which remains
15
<PAGE> 335
uncured for 30 days after the Corporation shall give Hilcoast Development Corp.
notice of such default, which the Board of Directors, by a majority vote of the
entire Board, determines in good faith has substantially adversely affected the
ability of the Corporation to pay such quarterly dividend, for the period the
Board of Directors shall so determine such adverse affect shall continue.
SECTION 7. Chairman of the Board of Directors. The Chairman of
the Board of Directors, if such office be occupied, shall have such powers and
duties as the By-Laws or the Board of Directors may from time to time prescribe.
SECTION 8. President. The President shall be the chief
executive officer of the Corporation and shall have general charge of the
business and affairs of the Corporation, subject however to the right of the
Board of Directors to confer specified powers on officers and subject generally
to the direction of the Board of Directors and the Executive Committee, if any.
SECTION 9. Vice President. Each Vice President shall have such
powers and duties as generally pertain to the office of Vice President and as
the Board of Directors or the President may from time to time prescribe. During
the President's absence or inability to act, the Vice President, or if there
shall be more than one Vice President, then that one designated by the Board of
Directors, shall exercise the powers and shall perform the duties of the
President, subject to the direction of the Board of Directors and the Executive
Committee, if any.
SECTION 10. Secretary. The Secretary shall keep the minutes of
all meetings of stockholders and of the Board of Directors. The Secretary shall
be custodian of the corporate
16
<PAGE> 336
seal and shall affix it or cause it to be affixed to such instruments as require
such seal and attest the same and shall exercise the powers and shall perform
the duties incident to the office of Secretary, subject to the direction of the
Board of Directors and the Executive Committee, if any.
SECTION 11. Treasurer. The Treasurer shall have care of all
funds and securities of the Corporation and shall exercise the powers and shall
perform the duties incident to the office of Treasurer, subject to the direction
of the Board of Directors and the Executive Committee, if any.
SECTION 12. Other Officers. Each other officer of the
Corporation shall exercise the powers and shall perform the duties incident to
his or her office, subject to the direction of the Board of Directors and the
Executive Committee, if any.
ARTICLE 4
CAPITAL STOCK
SECTION 1. Stock Certificates. The interest of each holder of
stock of the Corporation shall be evidenced by a certificate or certificates in
such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by or in the name of the Corporation by the Chairman
of the Board of Directors or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Any of or all the signatures on the certificate may be a facsimile. If any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, such
17
<PAGE> 337
certificate nonetheless may be issued by the Corporation with the same effect as
if such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 2. Transfer of Stock.
(a) Subject to subsection (b) of this Section 2, upon
surrender to any transfer agent of the Corporation of a certificate for shares
of the Corporation, duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
(b) If at any time the Board of Directors shall in good faith
be of the opinion that direct or indirect ownership of shares of any stock of
the Corporation has or may become concentrated to an extent which would cause
the Corporation to fail to qualify or be disqualified as a real estate
investment trust by virtue of Sections 856(a)(5) or (6) of the Internal Revenue
Code of 1954 (the "Code"), or similar provisions of successor statutes,
pertaining to the qualification of the Corporation as a real estate investment
trust, the Board of Directors shall have the power (i) by lot or other means
deemed equitable by them to call for purchase from any stockholder of the
Corporation such number of shares sufficient in the opinion of the Board of
Directors to maintain or bring the direct or indirect ownership of shares of
stock of the Corporation into conformity with the requirements of said Sections
856(a)(5) and (6) pertaining to the Corporation, and (ii) to refuse to register
the transfer of shares of stock to any person whose acquisition of such shares
would, in the opinion of the Board of Directors, result in the Corporation being
unable to conform to the requirements of said Sections 856(a)(5) and (6). The
purchase price for the shares of stock purchased pursuant hereto shall be equal
to the fair value of
18
<PAGE> 338
such shares as determined in good faith by the Board of Directors; provided that
the purchase price shall equal the closing price on the principal stock exchange
on which the stock is listed or if not listed, then the latest bid quotation for
such stock as of the close of business on the date fixed by the Board of
Directors for such purchase or, if no quotation for the stock is available, as
determined in good faith by the Board of Directors. From and after the date
fixed for purchase by the Board of Directors, the holder of any shares so
called for purchase shall cease to be entitled to distributions, voting rights
and other benefits with respect to such shares, excepting only the right to
payment of the purchase price fixed as aforesaid. In order to assure further
that ownership of the shares of stock does not become so concentrated, any
transfer of shares that would prevent the Corporation from continuing to be
qualified as a real estate investment trust by virtue of the application of
Section 856(a)(5) or (6) of the Code shall be void AB INITIO and the intended
transferee of such shares shall be deemed never to have had an interest therein.
If the foregoing provision is determined to be void or invalid by virtue of any
legal decision, statute, rule or regulation, then the transferee of such shares
shall be deemed to have acted as agent on behalf of the Corporation in acquiring
such shares and to hold such shares on behalf of the Corporation. For purposes
of determining whether the Corporation is in compliance with Section 856(a)(6),
Section 542(a)(2) and Section 544 of the Code, or similar provisions of
successor statutes, shall be applied. The stockholders of the Corporation shall
upon demand disclose to the Board of Directors in writing such information with
respect to their direct and indirect ownership of the stock of the Corporation
as the Board of Directors deems necessary to determine whether the Corporation
satisfies the provisions of Section 856(a)(5) and (6) of the Code and
regulations thereunder as the same shall be from time to time amended. This
Section 2
19
<PAGE> 339
of Article 4 may not be amended except by the affirmative vote of the holders of
a majority of the outstanding shares of the Corporation.
SECTION 3. Holders of Record. Prior to due presentment for
registration of transfer the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
SECTION 4. Lost, Stolen, Destroyed or Mutilated Certificates.
The Corporation may issue a new certificate of stock to replace a certificate
theretofore issued by it alleged to have been lost, destroyed or mutilated, if
the owner or the owner's legal representative (i) presents evidence,
satisfactory to the Board, of such loss, destruction or mutilation, (ii) gives a
bond of indemnity in such form and in such amount as the Board may direct and
(iii) satisfies such other terms and conditions as the Board of Directors may
from time to time prescribe; provided, however, that a new certificate may be
issued without requiring a bond when, in the judgment of the Board, it is proper
to do so.
ARTICLE 5
MISCELLANEOUS
SECTION 1. Waiver of Notice. Whenever notice is required by
the Certificate of Incorporation, the By-Laws or any provision of the General
Corporation law of the State of Delaware, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time required for
such notice, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person
20
<PAGE> 340
attends a meeting for the express purpose of objecting, and does object, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice.
SECTION 2. Fiscal Year. The fiscal year of the Corporation
shall start on such date as the Board of Directors shall from time to time
prescribe.
SECTION 3. Corporate Seal. The Corporate seal shall be in such
form as the Board of Directors may from time to time prescribe, and the same may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
ARTICLE 6
AMENDMENT OF BY-LAWS
SECTION 1. Amendment. Except as otherwise provided in the
Certificate of Incorporation of the Corporation or these By-Laws, the Board of
Directors of the Corporation shall have the power to adopt, amend or repeal the
By-Laws of the Corporation by a vote of a majority of the directors then in
office. Those stockholders of the Corporation entitled to vote shall also have
the power to adopt, amend or repeal By-Laws of the Corporation by a vote of a
majority of the votes cast by the holders of shares entitled to vote thereon at
a meeting of stockholders duly held. Any By-Laws adopted by the stockholders may
be amended or repealed by the Board of Directors unless the By-Laws or provision
thereof specifically states that it shall not be amended or repealed by the
Board of Directors, in which case such By-Laws or provision
21
<PAGE> 341
shall only be amended or repealed by a vote of a majority of the votes cast by
the holders of shares entitled to vote thereon at a meeting of stockholders duly
held.
ARTICLE 7
INDEMNIFICATION
SECTION 1. Actions, Suits or Proceedings Other than by or in
the Right of the Corporation. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving or
has agreed to serve at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against expenses, including, without limitation, expenses of
investigations, judicial or administrative proceedings or appeals, amounts paid
in settlement by or on behalf of such person, attorneys' fees and disbursements
and any expenses of establishing a right to indemnification under this Article 7
(the "Expenses"), judgments, fines and penalties actually and reasonably
incurred by such person or on his or her behalf in connection with such action,
suit or proceeding and any appeal therefrom, if such person acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself,
22
<PAGE> 342
create a presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 2. Actions or Suits by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that such person is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving or
has agreed to serve at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against Expenses, judgments, fines and penalties
actually and reasonably incurred by such person or on his or her behalf in
connection with the defense or settlement of such action or suit by any appeal
therefrom, if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
Corporation unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of such liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such costs, charges and expenses, which the Court of Chancery of
Delaware or
23
<PAGE> 343
such other court shall deem proper.
SECTION 3. Indemnification for Expenses of Successful Party.
Notwithstanding the other provisions of this Article 7, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in defense of any action, suit or proceeding referred
to in Sections 1 and 2 of this Article 7, or in the defense of any claim, issue
or matter therein, such person shall be indemnified against all Expenses
actually and reasonably incurred by such person or on his or her behalf in
connection therewith.
SECTION 4. Determination of Right of Indemnification. Any
indemnification under Sections 1 and 2 of this Article 7 (unless ordered by a
court) shall be paid by the Corporation unless a determination is made (1) by
the Board by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or by a committee of such directors
designated by a majority vote of such directors, even if less than a quorum, or
(2) if such a quorum is not obtainable, or even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel, in a written
opinion, or (3) by the stockholders, that indemnification of the director,
officer, employee or agent is not proper in the circumstances because such
person has not met the applicable standard of conduct set forth in Sections 1
and 2 of this Article 7.
SECTION 5. Advances of Expenses. Expenses incurred by a person
referred to in Sections 1 and 2 of this Article 7 in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in advance
at the written request of a director, officer, employee
24
<PAGE> 344
or agent, if such person shall undertake to repay such amount to the extent that
it is ultimately determined that such person was not entitled to such
indemnification; provided, however, such an undertaking shall not be secured and
shall be accepted without reference to such person's financial ability to make
such repayment and shall not be claimable against such person's spouse or
children. The Board may, in the manner set forth above in Section 4, and upon
approval of such director, officer, employee or agent of the Corporation,
authorize the Corporation's counsel, to represent such person, in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
SECTION 6. Procedure for Indemnification. Any indemnification
under Sections 1, 2 and 3, or advance of Expenses under Section 5 of this
Article 7, shall be made promptly, and in any event within 45 days, upon the
written request of the director, officer, employee or agent. The right to
indemnification or advances as granted by this Article 7 shall be enforceable by
the director, officer, employee or agent in any court of competent jurisdiction,
if the Corporation denies such request, in whole or in part, or if no
disposition thereof is made within 45 days. Such person's Expenses incurred in
connection with successfully establishing such right to indemnification, in
whole or in part, in any such action shall also be indemnified by the
Corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of Expenses under Section 5 of this
Article 7 where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
Sections 1 or 2 of this Article 7, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board, independent legal counsel and its stockholders) to have made a
determination prior to the
25
<PAGE> 345
commencement of such action that indemnification of the claimant is proper in
the circumstances because such person has met the applicable standard of conduct
set forth in Sections 1 and 2 of this Article 7, nor the fact that there has
been an actual determination by the Corporation (including its Board,
independent legal counsel, and its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
SECTION 7. Other Rights; Continuation of Right to
Indemnification. The indemnification provided by this Article 7 shall not be
deemed exclusive of any other rights to which a person seeking indemnification
may be entitled under any law (common or statutory), agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
office or while employed by or acting as agent for the Corporation, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person.
SECTION 8. Insurance. The Corporation shall purchase and
maintain insurance on behalf of any person who is or was or has agreed to become
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against or incurred by such person or on his or
her behalf in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this
26
<PAGE> 346
Article 7, provided that such insurance is available on acceptable terms, which
determination shall be made by a vote of a majority of the entire Board.
SECTION 9. Savings Clause. If this Article 7 or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director,
officer, employee and agent of the Corporation as to Expenses, judgments, fines
and penalties with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Article 7 that shall not have been invalidated and to the full extent
permitted by applicable law.
27
<PAGE> 347
APPENDIX E
MONTGOMERY CV TRUST
EXECUTIVE OFFICER STOCK OPTION PLAN
<PAGE> 348
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
I. PURPOSE..................................................................1
II. DEFINITIONS..............................................................1
III. ADMINISTRATION...........................................................3
IV. SHARE AND OTHER LIMITATIONS..............................................5
V. ELIGIBILITY..............................................................7
VI. STOCK OPTION GRANTS......................................................7
VII. NONTRANSFERABILITY OF OPTIONS............................................9
VIII. EFFECT OF TERMINATION OF EMPLOYMENT......................................9
IX. RIGHTS AS A STOCKHOLDER..................................................9
X. TERMINATION, AMENDMENT AND MODIFICATION.................................10
XI. UNFUNDED PLAN...........................................................10
XII. GENERAL PROVISIONS......................................................11
XIII. EFFECTIVE DATE OF PLAN..................................................13
XIV. TERM OF THIS PLAN.......................................................13
</TABLE>
-i-
<PAGE> 349
MONTGOMERY CV TRUST
EXECUTIVE OFFICER STOCK OPTION PLAN
I. PURPOSE
The purpose of this Executive Officer Stock Option Plan (the
"Plan") is to enhance the profitability and value of Montgomery CV Trust (the
"Company") by enabling the Company to attract, retain and motivate its Eligible
Employees (as defined herein) by granting to the Eligible Employee options to
purchase Common Stock (as defined herein).
II. DEFINITIONS
For purposes of this Plan, the following terms will have the
following meanings:
2.1. "Code" shall mean the Internal Revenue Code of 1986, as
amended (or any successor statute).
2.2. "Committee" shall mean, to the extent required by Rule
16b-3 or Section 162(m) of the Code, a committee of the Board of Directors of CV
Reit, Inc. (the "Board"), appointed from time to time by the Board, which
Committee shall be intended to consist of two or more directors who are
non-employee directors as defined in Rule 16b-3 and outside directors as defined
under Section 162(m) of the Code. If for any reason the appointed Committee does
not meet the requirements of Rule 16b-3 or Section 162(m) of the Code, such
noncompliance with the requirements of Rule 16b-3 or Section 162(m) of the Code
shall not affect the validity of the grants, interpretations or other actions of
the Committee. If and to the extent that no Committee exists which has the
authority to administer this Plan or a Committee of the Board is not required by
Rule 16b-3 and Section 162(m) of the Code, the functions of the Committee shall
be exercised by the Managing Trustees.
2.3. "Common Stock" shall mean the common stock of CV Reit,
Inc., par value $.01 per share.
2.4. "Company" shall mean Montgomery CV Trust, a Delaware
business trust, a "Qualified REIT Subsidiary" of CV Reit, Inc. within the
meaning of Code Section 856(i).
2.5. "Eligible Employees" shall mean the employees of the
Company who are eligible to be granted Options pursuant to Article V herein.
2.6. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
<PAGE> 350
2.7. "Fair Market Value" shall mean, for purposes of this
Plan, unless otherwise required by any applicable provision of the Code or any
regulations issued thereunder, as of any date, the last sales price reported for
the Common Stock on the applicable date: (i) as reported by the principal
national securities exchange in the United States on which it is then traded, or
(ii) if not traded on any such national securities exchange, as quoted on an
automated quotation system sponsored by the National Association of Securities
Dealers. If the Common Stock is not readily tradable on a national securities
exchange or any system sponsored by the National Association of Securities
Dealers, its Fair Market Value shall be set in good faith by the Committee on
the advice of a registered investment adviser (as defined under the Investment
Advisers Act of 1940). For purposes of the grant of any Stock Option, the
applicable date shall be the date for which the last sales price is available at
the time of grant.
2.8. "Incentive Stock Option" shall mean any Stock Option
awarded under this Plan intended to be and designated as an "Incentive Stock
Option" within the meaning of Section 422 of the Code.
2.9. "Non-Qualified Stock Option" shall mean any Stock Option
awarded under this Plan that is not an Incentive Stock Option.
2.10. "Option" or "Stock Option" shall mean the right to
purchase the number of shares of Common Stock granted in the Option agreement at
a prescribed purchase price according to the terms specified in this Plan and
the Option agreement.
2.11. "Participant" shall mean an Eligible Employee who is
granted an Option under this Plan, which Option has not expired.
2.12. "Rule 16b-3" shall mean Rule 16b-3 under Section 16(b)
of the Exchange Act as then in effect or any successor provisions.
2.13. "Section 162(m) of the Code" shall mean Section 162(m)
of the Internal Revenue Code of 1986, as amended.
2.14. "Subsidiary" shall mean, other than the Company: (i) any
corporation (other than CV Reit, Inc. or the Company) in an unbroken chain of
corporations beginning with the Company which (other than the last corporation)
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain,
(ii) any corporation or trade or business (including, without limitation, a
partnership or limited liability company) which is controlled fifty (50%) or
more (whether by ownership of stock, assets or an equivalent ownership interest)
by CV Reit, Inc., the Company or a Subsidiary, or (iii) any other entity, in
which the Company or any Subsidiary has an equity or other ownership interest as
determined by the Committee in its sole discretion.
2
<PAGE> 351
2.15. "Ten Percent Stockholder" shall mean a person owning
stock possessing more than 10% of the total combined voting power of all classes
of stock of CV Reit, Inc. or any "parent" or "subsidiary" corporation within the
meaning of Section 422 of the Code.
2.16. "Termination of Employment" shall mean: (i) a
termination of service (for reasons other than a military or personal leave of
absence granted by CV Reit, Inc., the Company or a Subsidiary) of a Participant
from CV Reit, Inc., the Company and all Subsidiaries; or (ii) when an entity
which is employing a Participant ceases to be a Subsidiary, unless the
Participant thereupon becomes employed by CV Reit, Inc., the Company or another
Subsidiary.
2.17. "Transfer" or "Transferred" shall mean to anticipate,
alienate, attach, sell, assign, pledge, encumber, charge or otherwise transfer.
III. ADMINISTRATION
3.1. THE COMMITTEE. This Plan shall be administered and
interpreted by the Committee.
3.2. STOCK OPTION GRANTS. The Committee shall have full
authority to grant, pursuant to the terms of this Plan (including Article VI
hereof), Stock Options to Eligible Employees. In particular, the Committee shall
have the authority:
(a) to select the Eligible Employee to whom
Stock Options may from time to time be granted hereunder;
(b) to determine, in accordance with the terms of
this Plan, the number of shares of Common Stock to be
covered by each Option granted to an Eligible Employee
hereunder;
(c) to determine the terms and conditions,
not inconsistent with the terms of this Plan, of any Option
granted hereunder to an Eligible Employee (including, but not
limited to, the exercise or purchase price (if any), any
restriction or limitation, any vesting schedule or
acceleration thereof or any forfeiture restrictions or waiver
thereof, regarding any Stock Option, and the shares of Common
Stock relating thereto, based on such factors, if any, as the
Committee shall determine, in its sole discretion);
(d) to determine whether and under what circumstances
a Stock Option may be settled in cash and/or Common Stock
under Section 6.2(c).
(e) to determine whether, to what extent and under
what circumstances to provide loans (which may be on a
recourse basis and shall bear interest at the rate the
Committee shall provide) to Eligible Employees in order to
exercise Options under this Plan;
3
<PAGE> 352
(f) to determine whether to require Eligible
Employees, as a condition of the granting of any Option, to
not sell or otherwise dispose of shares acquired pursuant to
the exercise of the Option for a period of time as determined
by the Committee, in its sole discretion, following the date
of the acquisition of such Option; and
(g) to modify, extend or renew an Option, subject to
Section 6.2(g) herein, provided, however, that if an Option is
modified, extended or renewed and thereby deemed to be the
issuance of a new Option under the Code or the applicable
accounting rules, the exercise price of an Option may continue
to be the original exercise price even if less than the Fair
Market Value of the Common Stock at the time of such
modification, extension or renewal.
3.3. GUIDELINES. Subject to Article X hereof, the Committee
shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing this Plan and perform all acts, including the
delegation of its administrative responsibilities, as it shall, from time to
time, deem advisable; to construe and interpret the terms and provisions of this
Plan and any Option issued under this Plan (and any agreements relating
thereto); and to otherwise supervise the administration of this Plan. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any agreement relating thereto in the manner
and to the extent it shall deem necessary to carry this Plan into effect, but
only to the extent any such action would be permitted under the applicable
provisions of both Rule 16b-3 and Section 162(m) of the Code.
3.4. DECISIONS FINAL. Any decision, interpretation or other
action made or taken in good faith by or at the direction of the Company, the
Managing Trustees of the Company or the Committee (or any of its members)
arising out of or in connection with this Plan shall be within the absolute
discretion of the Company, the Managing Trustees of the Company or the
Committee, as the case may be, and shall be final, binding and conclusive on CV
Reit, Inc., the Company, Subsidiaries and all employees and Participants and
their respective heirs, executors, administrators, successors and assigns.
3.5. RELIANCE ON COUNSEL. The Company, the Managing Trustees
of the Company and the Committee may consult with legal counsel, who may be
counsel for CV Reit, Inc. and/or the Company or other counsel, with respect to
its obligations or duties hereunder, or with respect to any action or proceeding
or any question of law, and shall not be liable with respect to any action taken
or omitted by it in good faith pursuant to the advice of such counsel.
3.6. PROCEDURES. If the Committee is appointed, the Board
shall designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of CV Reit, Inc., at such
times and places as the Committee shall deem advisable. A majority of the
Committee members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or determination
reduced to writing and signed by all the Committee members in accordance with
4
<PAGE> 353
the By-Laws of CV Reit, Inc. shall be fully as effective as if it had been made
by a vote at a meeting duly called and held. The Committee may keep minutes of
its meetings and may make such rules and regulations for the conduct of its
business as it shall deem advisable.
3.7. DESIGNATION OF CONSULTANTS/LIABILITY.
(a) The Committee may designate employees of the
Company and professional advisors to assist the Committee in the
administration of this Plan and may grant authority to employees to
execute agreements or other documents on behalf of the Committee.
(b) The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration
of this Plan and may rely upon any opinion received from any such
counsel or consultant and any computation received from any such
consultant or agent. Expenses incurred by the Committee or the Board in
the engagement of any such counsel, consultant or agent shall be paid
by the Company. The Committee, its members and any person designated
pursuant to Section 3.7(a) shall not be liable for any action or
determination made in good faith with respect to this Plan. To the
maximum extent permitted by applicable law, no officer or former
officer or Managing Trustee of the Company or former trustee or member
or former member of the Committee or of the Board shall be liable for
any action or determination made in good faith with respect to this
Plan or any Option granted under it. To the maximum extent permitted by
applicable law and to the extent not covered by insurance, each such
officer, former officer, Managing Trustee of the Company or former
trustee or member or former member of the Committee or of the Board
shall be indemnified and held harmless by the Company against any cost
or expense (including reasonable fees of counsel reasonably acceptable
to the Company) or liability (including any sum paid in settlement of a
claim with the approval of the Company), and advanced amounts necessary
to pay the foregoing at the earliest time and to the fullest extent
permitted, arising out of any act or omission to act in connection with
this Plan, except to the extent arising out of such officer's, former
officer's, trustee's, former trustee's, member's or former member's own
fraud or bad faith. Such indemnification shall be in addition to any
rights of indemnification the officers, trustee's, directors or members
or former officers, trustees, directors or members may have under
applicable law or under the Certificate of Incorporation or By-Laws of
CV Reit, Inc. or the Declaration of Trust of the Company.
Notwithstanding anything else herein, this indemnification will not
apply to the actions or determinations made by an individual with
regard to Options granted to him or her under this Plan.
IV. SHARE AND OTHER LIMITATIONS
4.1. GENERAL LIMITATION. The aggregate number of shares of
Common Stock which may be issued under this Plan shall not exceed 150,000 shares
which may be either
5
<PAGE> 354
authorized and unissued Common Stock or Common Stock held in or acquired for the
treasury of CV Reit, Inc. or Common Stock held by the Company.
4.2. INDIVIDUAL PARTICIPANT LIMITATION. The maximum number of
shares of Common Stock subject to any Option which may be granted under this
Plan during any fiscal year of the Company to each Eligible Employee shall be
150,000 shares.
4.3. CHANGES.
(a) The existence of this Plan and the Options
granted hereunder shall not affect in any way any rights or powers of
CV Reit, Inc., the Board or the stockholders of CV Reit, Inc. to make
or authorize any adjustment, recapitalization, reorganization or other
change in CV Reit, Inc.'s, capital structure or its business, any
merger or consolidation of CV Reit, Inc., the Company, or Subsidiaries,
any issue of bonds, debentures, preferred or prior preference stock
ahead of or affecting Common Stock, the authorization or issuance of
additional shares of Common Stock, the dissolution or liquidation of CV
Reit, Inc., the Company or Subsidiaries, any sale or transfer of all or
part of its assets or business or any other corporate act or
proceeding.
(b) In the event of any change in the capital
structure or business of CV Reit, Inc. by reason of any stock dividend
or extraordinary dividend, stock split or reverse stock split,
recapitalization, reorganization, merger, consolidation, or exchange of
shares, distribution with respect to its outstanding Common Stock or
capital stock other than Common Stock, reclassification of its capital
stock, any sale or transfer of all or part of CV Reit, Inc.'s assets or
business, or any similar change affecting CV Reit, Inc.'s capital
structure or business and the Committee determines an adjustment is
appropriate under this Plan, then the number and kind of shares or
other property (including cash) to be issued upon exercise of an
outstanding Option granted under this Plan and the purchase or exercise
price thereof shall be appropriately adjusted consistent with such
change in such manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or
available for, Participants under this Plan or as otherwise necessary
to reflect the change, and any such adjustment determined by the
Committee in good faith shall be binding and conclusive on CV Reit,
Inc., the Company, Subsidiaries and all Participants and employees and
their respective heirs, executors, administrators, successors and
assigns.
(c) Fractional shares of Common Stock resulting from
any adjustment in Options pursuant to Section 4.3(a) or (b) shall be
aggregated until, and eliminated at, the time of exercise by
rounding-down for fractions less than one-half and rounding-up for
fractions equal to or greater than one-half. No cash settlements shall
be made with respect to fractional shares eliminated by rounding.
Notice of any adjustment shall be given by the Committee to each
Participant whose Option has been adjusted and such adjustment (whether
or not such notice is given) shall be effective and binding for all
purposes of this Plan.
6
<PAGE> 355
(d) In the event of a merger or consolidation in
which CV Reit, Inc. is not the surviving entity or in the event of any
transaction that results in the acquisition of all or substantially all
of CV Reit, Inc.'s outstanding Common Stock by a single person or
entity or by a group of persons and/or entities acting in concert, or
in the event of the sale or transfer of all or substantially all of CV
Reit, Inc.'s assets (all of the foregoing being referred to as
"Acquisition Events"), then the Committee may, in its sole discretion,
terminate all outstanding Options of Eligible Employees, effective as
of the date of the Acquisition Event, by delivering notice of
termination to each such Participant at least 30 days prior to the date
of consummation of the Acquisition Event; provided, that during the
period from the date on which such notice of termination is delivered
to the consummation of the Acquisition Event, each such Participant
shall have the right to exercise in full all of his or her Options that
are then outstanding (whether vested or not vested) but contingent on
the occurrence of the Acquisition Event, and, provided that, if the
Acquisition Event does not take place within a specified period after
giving such notice for any reason whatsoever, the notice and exercise
shall be null and void. If an Acquisition Event occurs, to the extent
the Committee does not terminate the outstanding Options pursuant to
this Section 4.3(d), then the provisions of Section 4.3(b) shall apply.
4.4. PURCHASE PRICE. Notwithstanding any provision of this
Plan to the contrary, if authorized but previously unissued shares of Common
Stock are issued under this Plan, such shares shall not be issued for a
consideration which is less than as permitted under applicable law.
V. ELIGIBILITY
The Chief Executive Officer of the Company and such other
senior executives of the Company as determined by the Committee are eligible to
be granted Options under this Plan.
VI. STOCK OPTION GRANTS
6.1. GRANT. The Committee shall have the authority to grant to
any Eligible Employee one or more Incentive Stock Options. To the extent an
Option does not qualify as an Incentive Stock Option (whether because of its
provisions or the time or manner of its exercise or otherwise), such Option or
the portion thereof which does not qualify, shall constitute a Non-Qualified
Stock Option.
6.2. OPTION AGREEMENT. Options shall be evidenced by Option
agreements in such form as the Committee shall approve from time to time.
(a) EXERCISE PRICE. The Option price per
share purchasable under an Incentive Stock Option shall be
determined by the Committee at the time of grant but
7
<PAGE> 356
shall not be less than 100% of the Fair Market Value of a
share of Common Stock at the time of grant; provided, however,
if an Incentive Stock Option is granted to a Ten Percent
Stockholder, the purchase price shall be no less than 110% of
the Fair Market Value of the Common Stock.
(b) PERIOD OF EXERCISABILITY FOR OPTIONS TO
PURCHASE SHARES. The term of each Stock Option shall be fixed
by the Committee, but no Stock Option shall be exercisable
more than ten (10) years after the date the option is granted,
provided, however, the term of an Incentive Stock Option
granted to a Ten Percent Stockholder may not exceed five (5)
years.
(c) METHOD OF EXERCISE. The Option is
exercisable in installments as provided below, which shall be
cumulative. To the extent that the Option has become
exercisable with respect to a number of shares granted as
provided below, the Option may thereafter be exercised, in
whole or in part, at any time or from time to time prior to
the expiration of the Option as provided herein in accordance
with this Plan, including without limitation, the filing of
such written form of exercise notice, if any, as may be
promulgated by the Committee. If and to the extent determined
by the Committee in its sole discretion at or after grant,
payment in full or in part may also be made in the form of
Common Stock withheld from the shares to be received on the
exercise of a Stock Option hereunder or Common Stock owned by
the Participant for at least six (6) months (and for which the
Participant has good title free and clear of any liens and
encumbrances and has represented that he or she has owned the
shares of Common Stock for at least six (6) months) based on
the Fair Market Value of the Common Stock on the payment date,
as determined by the Committee. No shares of Common Stock will
be issued until payment therefor, as provided herein, has been
made or provided for.
(d) VESTING. Subject to the terms and
conditions and within the limitations of this Plan, Options
shall become exercisable as to one-fifth of the shares of
Common Stock subject to the Options granted on each of the
first five (5) anniversaries of the date of grant.
(e) INCENTIVE STOCK OPTION LIMITATIONS. To
the extent that the aggregate Fair Market Value (determined as
of the time of grant) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first
time by an Eligible Employee during any calendar year under
this Plan and/or any other stock option plan of CV Reit, Inc.
or any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) exceeds $100,000, such
Options shall be treated as Options which are not Incentive
Stock Options.
(f) BUY OUT AND SETTLEMENT PROVISIONS. The
Committee may at any time on behalf of the Company offer to
buy out an Option previously granted (with no obligation on
the Participant to accept the offer), based on such terms and
conditions as
8
<PAGE> 357
the Committee shall establish and communicate to the
Participant at the time that such offer is made.
(g) FORM, MODIFICATION, EXTENSION AND
RENEWAL OF OPTIONS. Subject to the terms and conditions and
within the limitations of this Plan, an Option shall be
evidenced by such form of agreement or grant as is approved by
the Committee, and the Committee may modify, extend or renew
outstanding Options granted under this Plan (provided that the
rights of a Participant are not reduced without his or her
consent), or accept the surrender of outstanding Options (up
to the extent not theretofore exercised) and authorize the
granting of new Options in substitution therefor (to the
extent not theretofore exercised).
(h) OTHER TERMS AND CONDITIONS. Options may
contain such other provisions, which shall not be inconsistent
with any of the foregoing terms of this Plan, as the Committee
shall deem appropriate.
VII. NONTRANSFERABILITY OF OPTIONS
No Stock Option shall be Transferred by the Participant
otherwise than by will or by the laws of descent and distribution. All Stock
Options shall be exercisable, during the Participant's lifetime, only by the
Participant. No Option shall, except as otherwise specifically provided by law
or herein, be Transferred in any manner, and any attempt to Transfer any such
Option shall be void, and no such Option shall in any manner be used for the
payment of, subject to, or otherwise encumbered by or hypothecated for the
debts, contracts, liabilities, engagements or torts of any person who shall be
entitled to such Option, nor shall it be subject to attachment or legal process
for or against such person.
VIII. EFFECT OF TERMINATION OF EMPLOYMENT
Subject to the applicable provisions of the Option agreement
and this Plan, upon a Participant's Termination of Employment for any reason the
Option in question will vest or be forfeited and shall be exercisable in
accordance with the terms and conditions established by the Committee at grant
or thereafter.
IX. RIGHTS AS A STOCKHOLDER
A Participant (or a permitted transferee of an Option) shall
have no rights as a stockholder with respect to any shares of Common Stock
covered by such Participant's Option until such Participant (or permitted
transferee) shall have become the holder of record of such shares, and no
adjustments shall be made for dividends in cash or other property or
distributions
9
<PAGE> 358
or other rights in respect to any such shares, except as otherwise specifically
provided in this Plan.
X. TERMINATION, AMENDMENT AND MODIFICATION
Notwithstanding any other provision of this Plan, the Managing
Trustees of the Company or the Committee may at any time, and from time to time,
amend, in whole or in part, any or all of the provisions of this Plan (including
any amendment deemed necessary to ensure that CV Reit, Inc. and/or the Company
may comply with any regulatory requirement referred to in this Article X), or
suspend or terminate it entirely, retroactively or otherwise; provided, however,
that, unless otherwise required by law or specifically provided herein, the
rights of a Participant with respect to Options granted prior to such amendment,
suspension or termination, may not be impaired without the consent of such
Participant and, provided further, without the approval of the stockholders of
CV Reit, Inc. in accordance with the laws of the State of Delaware, if and to
the extent required by the applicable provisions of Rule 16b-3 or Section 162(m)
of the Code, or with respect to Incentive Stock Options, Section 422 of the
Code, no amendment may be made which would (i) increase the aggregate number of
shares of Common Stock that may be issued under this Plan; (ii) change the
classification of employees eligible to receive Options under this Plan; (iii)
decrease the minimum option price of any Stock Option; or (iv) extend the
maximum Option term. In no event may this Plan be amended without the approval
of the stockholders of CV Reit, Inc. in accordance with the applicable laws of
the State of Delaware to increase the aggregate number of shares of Common Stock
that may be issued under this Plan (subject to Section 4.3), decrease the
minimum option price of any Stock Option, or to make any other amendment that
would require stockholder approval under the rules of any exchange or system on
which CV Reit, Inc.'s securities are listed or traded at the request of CV Reit,
Inc.
The Committee may amend the terms of any Option theretofore
granted, prospectively or retroactively, but, subject to Article IV or as
otherwise specifically provided herein, no such amendment or other action by the
Committee shall impair the rights of any Participant without the Participant's
consent.
XI. UNFUNDED PLAN
This Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments as to which a Participant
has a fixed and vested interest but which are not yet made to a Participant by
the Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
10
<PAGE> 359
XII. GENERAL PROVISIONS
12.1 LEGEND. The Committee may require each person receiving
shares pursuant to an the exercise of an Option under this Plan to represent to
and agree in writing that the Participant is acquiring the shares without a view
to distribution thereof. In addition to any legend required by this Plan, the
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under
this Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed or any national securities association
system upon whose system the Common Stock is then quoted, any applicable Federal
or state securities law, and any applicable corporate law, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
12.2. OTHER PLANS. Nothing contained in this Plan shall
prevent the Managing Trustees of the Company from adopting other or additional
compensation arrangements and such arrangements may be either generally
applicable or applicable only in specific cases.
12.3. NO RIGHT TO EMPLOYMENT. Neither this Plan nor the grant
of any Option hereunder shall give any Participant or other employee any right
with respect to continuance of employment by CV Reit, Inc., the Company or any
Subsidiary, nor shall they be a limitation in any way on the right of CV Reit,
Inc., the Company or any Subsidiary by which an employee is employed or retained
to terminate his or her employment at any time.
12.4. WITHHOLDING OF TAXES. The Company shall have the right
to deduct from any payment to be made to a Participant, or to otherwise require,
prior to the issuance or delivery of any shares of Common Stock or the payment
of any cash hereunder, payment by the Participant of, any Federal, state or
local taxes required by law to be withheld.
The Committee shall permit any such withholding obligation
with regard to any Eligible Employee to be satisfied by reducing the number of
shares of Common Stock otherwise deliverable or by delivering shares of Common
Stock already owned. Any fraction of a share of Common Stock required to satisfy
such tax obligations shall be disregarded and the amount due shall be paid
instead in cash by the Participant.
12.5. LISTING AND OTHER CONDITIONS.
(a) As long as the Common Stock is listed on a
national securities exchange or system sponsored by a national
securities association, the issue of any shares of Common Stock
pursuant to an Option shall be conditioned upon such shares being
listed on such exchange or system. The Company shall have no obligation
to deliver such shares unless and until such shares are so listed;
provided, however, that any delay in the delivery of such shares shall
be based solely on a reasonable business decision and the
11
<PAGE> 360
right to exercise any Option with respect to such shares shall be
suspended until such listing has been effected.
(b) If at any time counsel to CV Reit, Inc. shall be
of the opinion that any sale or delivery of shares of Common Stock
pursuant to the exercise of an Option is or may in the circumstances be
unlawful or result in the imposition of excise taxes on CV Reit, Inc.
or the Company under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make
such sale or delivery, or to make any application or to effect or to
maintain any qualification or registration under the Securities Act of
1933, as amended, or otherwise with respect to shares of Common Stock
or Options, and the right to exercise any Option shall be suspended
until, in the opinion of said counsel, such sale or delivery shall be
lawful or will not result in the imposition of excise taxes on CV Reit,
Inc. or the Company.
(c) Upon termination of any period of suspension
under this Section 12.5, any Option affected by such suspension which
shall not then have expired or terminated shall be reinstated as to all
shares available before such suspension and as to shares which would
otherwise have become available during the period of such suspension,
but no such suspension shall extend the term of any Option.
12.6. GOVERNING LAW. This Plan shall be governed and construed
in accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
12.7. CONSTRUCTION. Wherever any words are used herein in the
singular form, they shall be construed as though they were also used in the
plural form in all cases where that would so apply. To the extent applicable,
this Plan shall be limited, construed and interpreted in a manner so as to
comply with Section 162(m) of the Code and the applicable requirements of Rule
16b-3; however, noncompliance with Section 162(m) of the Code and Rule 16b-3
shall have no impact on the effectiveness of an award under this Plan.
12.8. OTHER BENEFITS. No Option payment under this Plan shall
be deemed compensation for purposes of computing benefits under any retirement
plan of CV Reit, Inc., the Company or their subsidiaries nor affect any benefits
under any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of compensation.
12.9. COSTS. The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock pursuant to
any Options hereunder.
12.10. NO RIGHT TO SAME BENEFITS. The provisions of Options
need not be the same with respect to each Participant, and such Options granted
to individual Participants need not be the same in subsequent years.
12
<PAGE> 361
12.11. DEATH/DISABILITY. The Committee may in its discretion
require the transferee of a Participant's Option to supply the Company with
written notice of the Participant's death or disability and to supply the
Company with a copy of the will (in the case of the Participant's death) or such
other evidence as the Committee deems necessary to establish the validity of the
Transfer of an Option. The Committee may also require that the transferee agree
in writing to be bound by all of the terms and conditions of this Plan.
12.12. SECTION 16(b) OF THE EXCHANGE ACT. All elections and
transactions under this Plan by persons subject to Section 16 of the Exchange
Act involving shares of Common Stock are intended to comply with any applicable
exemptive condition under Rule 16b-3. The Committee may establish and adopt
written administrative guidelines, designed to facilitate compliance with
Section 16(b) of the Exchange Act, as it may deem necessary or proper for the
administration and operation of this Plan thereunder.
12.13. SEVERABILITY OF PROVISIONS. If any provision of this
Plan shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provisions had not been included.
XIII. EFFECTIVE DATE OF PLAN
This Montgomery CV Trust Executive Officer Stock Option Plan
shall become effective upon adoption by the Managing Trustees of the Company and
approval of this Plan by the stockholders of CV Reit, Inc. in accordance with
the requirements of the laws of the State of Delaware (the "Effective Date").
XIV. TERM OF THIS PLAN
No Option shall be granted pursuant to this Plan on or after
the fifth anniversary of the Effective Date, but Options granted prior to such
fifth anniversary may extend may extend beyond that date.
13
<PAGE> 362
MONTGOMERY CV TRUST
OPTION AGREEMENT
PURSUANT TO THE
EXECUTIVE OFFICER STOCK OPTION PLAN
AGREEMENT, dated ________________ by and between Montgomery CV
Trust (the "Company") and Louis P. Meshon, Sr. (the "Participant").
PRELIMINARY STATEMENT
The Committee, pursuant to the terms of the Montgomery CV
Trust Executive Officer Stock Option Plan (the "Plan"), annexed hereto as
Exhibit 1, has authorized this grant of an Incentive Stock Option (the "Option")
to purchase the number of shares of CV Reit, Inc.'s common stock, par value $.01
per share (the "Common Stock") set forth below to the Participant, as an
Eligible Employee (as defined in the Plan).
The terms of the grant are as follows:
1. TAX MATTERS. The Option granted hereby is intended to
qualify as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). Notwithstanding the foregoing, the Option
will not qualify as an Incentive Stock Option, among other events, (i) if the
Participant disposes of the Common Stock acquired pursuant to the Option at any
time during the two (2) year period following the date of grant or the one (1)
year period following the date on which the Option is exercised, (ii) if the
Participant is not employed by CV Reit, Inc., the Company or a "subsidiary"
within the meaning of Section 422 of the Code at all times during the period
beginning on the date of the grant and ending on the day three (3) months before
the date of exercise of the Option, or (iii) to the extent the aggregate fair
market value (determined as of the time the Option is granted) of the stock
subject to "incentive stock options" which become exercisable for the first time
in any calendar year exceeds $100,000.
2. GRANT OF OPTION. Subject in all respects to the Plan and
the terms and conditions set forth herein, including, without limitation, the
provisions requiring stockholder approval, the Participant is hereby granted an
Option to purchase from the Company up to 150,000 shares of Common Stock at a
price per share of $_________ (the "Option Price").
3. EXERCISABILITY. The Option is exercisable in installments
as provided below, which shall be cumulative. To the extent that the Option has
become exercisable with respect to a number of shares granted as provided below,
the Option may thereafter be exercised by the Participant, in whole or in part,
at any time or from time to time prior to the expiration of the Option as
provided herein in accordance with the Plan, including without limitation, the
filing of such written form of exercise notice, if any, as may be promulgated by
the Committee.
<PAGE> 363
The following table indicates each date (the "Vesting Date")
on or after which the Participant shall be entitled to exercise the Option with
respect to the number of shares granted as indicated beside that date; provided
that the Participant has not incurred a Termination of Employment, prior to such
Vesting Date.
VESTING DATE NUMBER OF SHARES
------------ ----------------
,1998 30,000
,1999 30,000
,2000 30,000
,2001 30,000
,2002 30,000
There shall be no proportionate or partial vesting in the
periods between the Vesting Dates specified above and all vesting shall occur
only on the aforementioned Vesting Dates. Except as otherwise provided herein,
no vesting shall occur after the Participant has incurred a Termination of
Employment and all unvested Options shall be forfeited at such time.
4. TERMINATION. In the event of the Participant's Termination
of Employment, the Option, to the extent then vested, shall expire on the
earlier of (i) the tenth anniversary of this grant, or (ii) one (1) year after
such termination. In no event shall the Option be exercisable more than ten (10)
years after its date of grant.
5. RESTRICTION ON TRANSFER OF OPTION. The Option granted
hereby is not transferable otherwise than by will or under the applicable laws
of descent and distribution and during the Participant's lifetime may be
exercised only by the Participant or his guardian or legal representative. In
addition, the Option shall not be assigned, negotiated, pledged or hypothecated
in any way (whether by operation of law or otherwise), and the Option shall not
be subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, negotiate, pledge or hypothecate the Option, or in the event
of any levy upon the Option by reason of any execution, attachment or similar
process contrary to the provisions hereof, the Option shall immediately become
null and void.
6. SECURITIES REPRESENTATIONS. This Agreement is being made by
the Company in reliance upon the following express representations and
warranties of the Participant. The Participant acknowledges, represents and
warrants that:
A. the Participant has been advised that he may be an
"affiliate" within the meaning of Rule 144 under the Securities Act of 1933 (the
"Act") and in this connection the Company is relying in part on his
representations set forth in this Section;
B. the shares of Common Stock acquired under this Agreement
must be held indefinitely unless an exemption from any applicable resale
restrictions is available or CV
2
<PAGE> 364
Reit, Inc. files an additional registration statement (or a "re-offer
prospectus") with regard to such shares and CV Reit, Inc. is under no obligation
to register the shares (or to file a "re-offer prospectus");
C. the Participant understands that the exemption from
registration under Rule 144 will not be available unless (i) a public trading
market then exists for the Common Stock, (ii) adequate information concerning CV
Reit, Inc. is then available to the public, and (iii) other terms and conditions
of Rule 144, including, without limitation, the holding period commencing on the
date the restrictions lapse, are complied with and that any sale of the shares
may be made only in limited amounts in accordance with such terms and
conditions;
D. the shares are being acquired for his own account and
not with a view to, or for sale in connection with, the distribution thereof,
nor with any present intention of distributing or selling any such shares; and
E. in the event that the Participant is permitted to sell,
transfer, pledge, hypothecate, assign or otherwise dispose of the shares, the
Participant may only do so pursuant to a registration statement under the Act
and qualification under applicable state securities laws or pursuant to an
opinion of counsel satisfactory to CV Reit, Inc. that such registration is not
required, and that the transaction (if it involves a sale in the
over-the-counter market or on a securities exchange) complies with the
provisions of Rule 144 under the Act. A stop-transfer order will be placed on
the books of CV Reit, Inc. respecting the certificates evidencing the shares,
and such certificates shall bear, until such time as the shares evidenced by
such certificates shall have been registered under the Act or shall have been
transferred in accordance with an opinion of counsel for CV Reit, Inc. that such
registration is not required, the legends required pursuant to applicable law.
7. RIGHTS AS A STOCKHOLDER. The Participant shall have no
rights as a stockholder with respect to any shares of Common Stock covered by
the Option until he shall have become the holder of record of the shares, and no
adjustments shall be made for dividends in cash or other property, distributions
or other rights in respect of any such shares, except as otherwise specifically
provided for in the Plan.
8. PROVISIONS OF PLAN CONTROL. This grant is subject to all
the terms, conditions and provisions of the Plan and to such rules, regulations
and interpretations relating to the Plan as may be adopted by the Committee and
as may be in effect from time to time. Any capitalized term used but not defined
herein shall have the meaning ascribed to such term in the Plan. The annexed
copy of the Plan is incorporated herein by reference. If and to the extent that
this grant conflicts or is inconsistent with the terms, conditions and
provisions of the Plan, the Plan shall control, and this grant shall be deemed
to be modified accordingly.
9. NOTICES. Any notice or communication given hereunder shall
be in writing and shall be deemed to have been duly given when delivered in
person or, in the case of notice to the Company, by facsimile to the facsimile
number set forth below, or when dispatched by telecopy, or one business day
after having been dispatched by a nationally recognized courier service or three
3
<PAGE> 365
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, to the appropriate party at the
address (or, in the case of notice to the Company, facsimile number) set forth
below (or such other address as the party shall from time to time specify):
If to the Company, to:
Montgomery CV Trust
[ ]
If to the Participant, to:
the address indicated on the signature page
at the end of this grant.
10. NO OBLIGATION TO CONTINUE EMPLOYMENT. This Agreement does
not guarantee that the Company or its affiliates will employ the Participant for
any specific time period, nor does it modify in any respect their right to
terminate or modify the Participant's employment or compensation.
MONTGOMERY CV TRUST
By:
-----------------------------------
Name:
Title:
Accepted:
- -----------------------------------
LOUIS P. MESHON, SR.
Address:
4
<PAGE> 366
APPENDIX F
Appendix F to the Company's proxy statement is an ownership structure chart
captioned "Montgomery Properties" setting forth the percentage interest of Mr.
Meshon and the Montgomery Parties in the Montgomery Properties. The chart
indicates that Rio Grande Plaza is owned by Rio Grande Associates, that
Montgomery D.C. Inc. holds a 1 percent general partner interest in Rio Grande
Associates, and that limited partner interests in Rio Grande Associates are held
by the following persons in the following percentages: Mr. Meshon (49%), Mitch
Leigh (50%). The chart indicates that Danville Plaza is owned by Danville
Associates, that Montgomery D.C. Inc. holds a 2 percent general partner
interest in Danville Associates, and that a 98 percent limited partner interest
in Danville Associates is held by Mr. Meshon. The chart indicates that
Woodbourne Square is owned by Parcel Eleven - C.J.P. Associates, that the
general partners of Parcel Eleven - C.J.P. Associates are Mr. Meshon and Paul
H. Cohen and that both Mr. Meshon and Paul H. Cohen hold 50 percent limited
partner interests. The chart indicates that Chesterbrook Village Center is
owned by Chesterbrook Shopping Center, that Mr. Meshon and Paul H. Cohen hold 1
percent general partner interests in Chesterbrook Shopping Center and Parcel 4
Chesterbrook Corp. holds a 2 percent general partner interest, that class A
limited partner interests in Chesterbrook Shopping Center are held by the
following persons in the following percentages: Richard J. Fox (18.73%),
Geraldine Fox (11.24%), James Hovey (3.75%), Paul H. Cohen and Carol A. Cohen
as joint tenants with right of survivorship (16.86%), and Mr. Meshon and his
wife as joint tenants with right of survivorship (16.86%); and that class B
limited partner interests in Chesterbrook Shopping Center are held by the
following persons in the following percentages: Suzanne G. Schmerling (3.57%),
Marc Miller (3.57%), Lester Rosskam, residuary T/U/D dated February 31, 1973,
David and Irene Rosskam and Robert Nathan, trustees (3.57%), Waldemar A.
Nielsen (3.57%) and Richard J. Fox (14.28%). The chart indicates that Mount
Carmel Plaza is owned by CVS Glenside Equities, that Retail Pharmacy Properties
III, Inc. (owned 100% by Mr. Meshon) holds a 1 percent general partner interest
in CVS Glenside Equities and that limited partner interests in CVS Glenside
Equities are held by the following persons in the following percentages: Mr.
Meshon (51%), Peter J. Quinn (8%), H. Larry Wilde (10%), James Seip (5%), Louis
P. Meshon, Jr. (5%) and David J. Lisa (20%). The chart indicates that
Whitemarsh Shopping Center is owned by Glenmont Associates Limited Partnership,
that Whitemont, Inc. (owned 50% by Mr. Meshon and 50% by Charles T. Morroney)
and Glenville White Marsh Inc. (owned 100% by a Schneider family entity) each
hold .5% general partner interest in Glenmont Associates Limited Partnership,
and that limited partner interests in Glenmont Associates Limited Partnership
are held by the following entities in the following percentages: Whitemont
Associates L.P. (24.5%)(of which Whitemont, Inc. is the 1 percent general
partner and Mr. Meshon and Mr. Morroney are the 49.5 percent limited partners),
and Glenville Associates - Whitemarsh, L.P. (74.5%)(of which Glenville White
Marsh Inc. is the general partner). The chart indicates that Plymouth Plaza is
owned by Glenmont - Plymouth, LP, that Plymont, Inc. (100% owned by Mr. Meshon)
and Glenville Plymouth, Inc. (owned 100% by a Schneider family entity) each hold
.5 percent general partner interests in Glenmont - Plymouth, LP, and that
limited partner interests in Glenmont - Plymouth, LP are held by the following
entities in the following percentages: Plymont Associates, LP (49.5%)(of
which Plymont, Inc. is the 1 percent general partner and Mr. Meshon is the 99
percent limited partner) and Glenville Associates - Plymouth, LP (49.5%)(of
which Glenville Plymouth, Inc. is the general partner and Milton S. Schneider,
Pam H. Schneider and Mitchell Goldberg are the limited partners). Last, the
chart indicates that County Line Plaza is owned by County Line Plaza
Realty Associates, LP (and refers to an Agency Agreement dated June 26, 1997),
that County Line Plaza Realty LLC (owned 100% by Mr. Meshon) holds a 0.1
percent general partner interest in County Line Plaza Realty Associates, LP
and that Mr. Meshon holds a 99.9 percent limited partner interests in County
Line Plaza Realty Associates, LP.
<PAGE> 367
APPENDIX G
SCHEDULE H
LEVY PROPERTY OWNERSHIP STRUCTURE
I. DICKSON CITY
TITLE OWNERS: Bernard Levy
Myron Levy
Benjamin Levy
H. Irwin Levy
Robert Levy
PRESENT OWNERSHIP: Bernard Levy (20%)
Jennie Levy, Executrix of the Estate of MYRON LEVY (20%)
Lillian Levy, Executrix of the Estate of BENJAMIN LEVY
(20%)
Irwin Levy (20%)
Robert Levy (20%)
II. 555 SCOTT STREET
WILKES-BARRE CITY
TITLE OWNERS: Bernard Levy and Elaine Levy, his wife
Myron and Jennie Levy
Benjamin and Lillian Levy
H. Irwin and Jeanne Levy
Robert S. and Ceil Levy
PRESENT OWNERSHIP: Bernard and Elaine Levy (20%)
Jennie Levy, Trustee under the Myron
Levy Family Trust, under Trust
Agreement dated July 22, 1991 (20%)
Lillian Levy, Individually and as
Executrix of the Estate of BENJAMIN
LEVY (20%)
H. Irwin Levy, Individually and as Executor
of the Estate of JEANNE LEVY (20%)
Robert and Ceil Levy (20%)
<PAGE> 368
APPENDIX H
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DREXEL REALTY, INC.
T/A MONTGOMERY GROUP AFFILIATES
DECEMBER 31, 1996, 1995 AND 1994
<PAGE> 369
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEETS 4
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS 5
STATEMENTS OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
<PAGE> 370
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
Drexel Realty, Inc. T/A Montgomery Group Affiliates
We have audited the accompanying balance sheets of Drexel Realty, Inc.
T/A Montgomery Group Affiliates as of December 31, 1996, 1995 and 1994, and the
related statements of operations and retained earnings, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Drexel Realty, Inc.
T/A Montgomery Group Affiliates as of December 31, 1996, 1995 and 1994, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- --------------------------------
Philadelphia, Pennsylvania
July 18, 1997
<PAGE> 371
Drexel Realty, Inc.
T/A Montgomery Group Affiliates
BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 408,994 $ 99,714 $ 98,290
Accounts receivable 187,334 162,620 241,505
Advances 47,894 37,202 66,338
Due from officer - stockholder 25,000 - -
----------- ----------- -----------
Total current assets 669,222 299,536 406,133
----------- ----------- -----------
EQUIPMENT - AT COST
Automobiles 47,915 47,915 -
Office furniture and equipment 403,515 394,805 358,703
----------- ----------- -----------
451,430 442,720 358,703
Less accumulated depreciation 265,228 211,794 167,438
----------- ----------- -----------
186,202 230,926 191,265
----------- ----------- -----------
OTHER ASSETS 26,047 26,047 31,222
----------- ----------- -----------
$ 881,471 $ 556,509 $ 628,620
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 12,453 $ 11,415 $ -
Accounts payable and accrued expenses 17,576 53,538 10,452
Due to officer - stockholder - 164,654 109,482
----------- ----------- -----------
Total current liabilities 30,029 229,607 119,934
----------- ----------- -----------
LONG-TERM DEBT, less current maturities 13,586 26,039 -
----------- ----------- -----------
COMMITMENTS - - -
STOCKHOLDER'S EQUITY
Common stock - authorized, issued and outstanding, 500
shares of $0.01 par value 5 5 5
Additional paid-in capital 955 955 955
----------- ----------- -----------
960 960 960
Retained earnings 836,896 299,903 507,726
----------- ----------- -----------
837,856 300,863 508,686
----------- ----------- -----------
$ 881,471 $ 556,509 $ 628,620
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 372
Drexel Realty, Inc.
T/A Montgomery Group Affiliates
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Rental commissions $ 1,979,274 $ 1,596,079 $ 1,471,141
Management fees 64,999 63,683 62,559
Merchant association administration fees 10,550 12,700 16,950
Leasing fees 1,191,663 492,082 577,374
Development fees 110,087 379,141 367,184
Other income 22,678 8,444 6,090
----------- ----------- -----------
3,379,251 2,552,129 2,501,298
----------- ----------- -----------
Expenses
Payroll 1,881,919 1,855,294 1,425,225
Accounting and legal 26,011 59,761 44,317
Advertising and promotion 7,659 4,913 14,110
Automobile expenses 59,428 48,855 46,321
Contributions 3,620 3,600 100
Depreciation 53,434 44,356 31,978
Dues and subscriptions 4,402 4,918 2,035
Employee benefits 84,935 81,620 68,807
Entertainment and travel 48,538 58,577 43,950
Fees and convention 115,295 60,648 40,684
Insurance 23,293 20,362 20,205
Interest 31,612 3,779 187
Office expenses 39,887 66,242 63,822
Payroll taxes 140,670 130,357 99,019
Postage 18,488 19,577 16,647
Rent 215,209 201,524 188,268
Repairs and maintenance 3,092 5,003 9,295
Taxes and licenses 9,642 13,591 4,840
Telephone 51,707 51,319 54,415
Temporary help and agency fees 2,979 5,688 16,554
Seminars 4,875 2,437 1,342
Miscellaneous 15,563 17,531 15,755
----------- ----------- -----------
2,842,258 2,759,952 2,207,876
----------- ----------- -----------
NET INCOME (LOSS) 536,993 (207,823) 293,422
Retained earnings at beginning of year 299,903 507,726 214,304
----------- ----------- -----------
Retained earnings at end of year $ 836,896 $ 299,903 $ 507,726
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 373
Drexel Realty, Inc.
T/A Montgomery Group Affiliates
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 536,993 $(207,823) $ 293,422
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 53,434 44,356 31,978
(Increase) decrease in accounts receivable (24,714) 78,885 (136,607)
(Increase) decrease in advances (10,692) 29,136 194,409
Decrease (increase) in other assets -- 5,175 (25,550)
(Decrease) increase in accounts payable and
accrued expenses (35,962) 43,086 9,611
--------- --------- ---------
Net cash provided by (used in) operating
activities 519,059 (7,185) 367,263
--------- --------- ---------
Cash flows from investing activities
Purchase of equipment (8,710) (84,017) (144,501)
--------- --------- ---------
Net cash used in investing activities (8,710) (84,017) (144,501)
--------- --------- ---------
Cash flows from financing activities
Repayment of line of credit -- -- (70,000)
Net (decrease) increase in amounts due to/from officer -
stockholder (189,654) 55,172 (82,424)
Proceeds from note payable - bank -- 47,915 --
Principal payments on note payable - bank (11,415) (10,461) --
--------- --------- ---------
Net cash (used in) provided by financing
activities (201,069) 92,626 (152,424)
--------- --------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 309,280 1,424 70,338
Cash and cash equivalents at beginning of year 99,714 98,290 27,952
--------- --------- ---------
Cash and cash equivalents at end of year $ 408,994 $ 99,714 $ 98,290
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 31,612 $ 3,779 $ 187
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 374
Drexel Realty, Inc.
T/A Montgomery Group Affiliates
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Drexel Realty, Inc. T/A Montgomery Group Affiliates (the Company) receives
rental commissions, leasing fees, development fees and other fees for its
efforts provided to affiliated and third-party companies in the mid-Atlantic
region.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows.
1. BASIS OF ACCOUNTING
The financial statements of the Company are prepared on the accrual basis of
accounting.
2. CASH AND CASH EQUIVALENTS
The Company considers all demand and money market accounts and certificates
of deposit with an original maturity of three months or less to be cash and
cash equivalents.
The Company maintains its cash balances in several financial institutions
located in the Philadelphia, Pennsylvania metropolitan area, which at times
may exceed federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.
3. ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is maintained. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
4. EQUIPMENT
Equipment is recorded at the lower of cost, less accumulated depreciation,
or net realizable value. Depreciation is computed on a straight-line basis
over the estimated useful lives of the assets. The Company uses estimated
useful lives for the equipment varying between five and seven years.
Expenditures for ordinary maintenance and repairs are expensed to operations
as incurred, and significant renovations and improvements that improve
and/or extend the useful life of the asset are capitalized over their
estimated useful life.
(Continued)
7
<PAGE> 375
Drexel Realty, Inc.
T/A Montgomery Group Affiliates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. LONG-LIVED ASSETS
The Company adopted, effective January 1, 1996, Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
impact on the Company's financial position or results of operations.
6. INCOME TAXES
Pursuant to an election under Subchapter "S" of the Internal Revenue Code,
the Company is not taxed for federal tax purposes as a corporation. Income
taxes or credits resulting form earnings are payable by or accrue to the
benefit of the stockholders; accordingly, no provision has been made for
federal income taxes in the financial statements. State taxes, when
applicable, are provided for at the statutory rates currently in effect.
NOTE B - RELATED PARTY TRANSACTIONS
The Company collects rental commissions and management fees equal to a
certain percentage of gross receipts, as defined, for property management
services. During 1996, 1995 and 1994, the Company recognized $512,334,
$482,831 and $368,415, respectively, in rental commissions and management
fees from affiliated partnerships. The Company receives merchant association
administration fees for its efforts in providing promotional activities to
certain shopping centers. Merchant association administration fees earned in
1996, 1995 and 1994 from affiliated partnerships amounted to $7,700, $6,300
and $6,200, respectively. The Company receives leasing fees for its efforts
in leasing space. Leasing fees earned in 1996, 1995 and 1994 from affiliated
partnerships amounted to $76,193, $26,242 and $20,100, respectively. The
Company also receives development fees for its services in connection with
the development and expansion of certain real estate projects. Development
fees collected from affiliated partnerships amounted to $17,754, $230,441
and $357,184 in 1996, 1995 and 1994, respectively.
Amounts due to and from officer - stockholder bear 10% interest and have no
specific due dates (see note C for guarantee by stockholder). Advances
include amounts due from related entities. These advances are non-interest
bearing and have no specific due dates.
See note E for additional related party transactions.
8
<PAGE> 376
Drexel Realty, Inc.
T/A Montgomery Group Affiliates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE C - LINE OF CREDIT
The Company has a $300,000 line of credit with a bank. Interest is payable
at the bank's prime rate (8.25% at December 31, 1996) and the line of credit
is guaranteed by the stockholder. The full amount of the line was available
at December 31, 1996.
NOTE D - LONG-TERM DEBT
During 1995, the Company borrowed $47,915 under a 48-month automobile loan.
Installments of $1,187, including interest, are due monthly. The loan bears
interest at 8.75% and matures in December 1998.
NOTE E - COMMITMENTS
1. OFFICE LEASE
On February 25, 1994, the Company entered into a 10-year office lease
agreement with an affiliated partnership commencing June 1994. Total rent
paid under this lease for 1996, 1995 and 1994 was approximately $177,000,
$162,000 and $118,000, respectively. In addition to minimum rent, the
Company is obligated to pay certain operating costs. Such costs approximate
$38,000 and are included in rent expense.
The following is a summary of approximate future minimum rental commitments
under this lease:
YEAR ENDING DECEMBER 31,
1997 $ 179,000
1998 179,000
1999 182,000
2000 187,000
2001 193,000
Thereafter 490,000
-----------
$ 1,410,000
===========
The Company previously entered into a lease agreement for office space which
expired in August 1995. The Company subleased this space commencing
September 1994. Monthly rent under the sublease approximated $6,700,
including certain operating costs. Total rental income under the sublease
amounted to approximately $-0-, $54,000 and $27,000 for 1996, 1995 and 1994,
respectively, which is included as a reduction of rent expense.
(Continued)
9
<PAGE> 377
Drexel Realty, Inc.
T/A Montgomery Group Affiliates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE E - COMMITMENTS - Continued
2. AUTOMOBILE LEASES
The Company has four vehicle leases with various terms. Total rent expense
charged to operations under these leases for 1996, 1995 and 1994 was
$65,721, $48,855 and $46,320, respectively. The following is a summary of
approximate future minimum rental commitments under vehicle leases that have
remaining noncancellable lease terms in excess of one year:
YEAR ENDING DECEMBER 31,
1997 $ 7,000
1998 6,000
----------
$ 13,000
==========
10
<PAGE> 378
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CVS GLENSIDE EQUITIES, L.P.
DECEMBER 31, 1996
<PAGE> 379
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF INCOME AND PARTNERSHIP CAPITAL 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
SUPPLEMENTAL INFORMATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 12
<PAGE> 380
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
CVS Glenside Equities, L.P.
We have audited the accompanying balance sheet of CVS Glenside
Equities, L.P. as of December 31, 1996, and the related statements of income and
partnership capital, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CVS Glenside
Equities, L.P. as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
We have also audited Schedule III for the year ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton, LLP
- -------------------------------
Philadelphia, Pennsylvania
May 23, 1997
<PAGE> 381
CVS Glenside Equities, L.P.
BALANCE SHEET
December 31, 1996
ASSETS
RENTAL PROPERTY - AT COST
Building $1,072,040
Less accumulated depreciation 125,155
----------
946,885
Land 115,000
----------
1,061,885
----------
CASH AND CASH EQUIVALENTS
Operating 6,321
Tenant security deposits 7,000
----------
13,321
----------
ACCOUNTS RECEIVABLE
Tenant 6,249
Deferred rent 49,232
----------
55,481
----------
PREPAID EXPENSES 9,553
DEFERRED COSTS, net of accumulated amortization 48,416
OTHER ASSETS 1,278
----------
$1,189,934
==========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES
Mortgage payable $ 891,507
Accounts payable and accrued expenses 5,572
Tenant security deposits 12,150
----------
909,229
PARTNERSHIP CAPITAL 280,705
----------
$1,189,934
==========
The accompanying notes are an integral part of this statement.
4
<PAGE> 382
CVS Glenside Equities, L.P.
STATEMENT OF INCOME AND PARTNERSHIP CAPITAL
Year ended December 31, 1996
Revenue
Rent $ 203,016
Common area maintenance reimbursement 32,833
Real estate tax reimbursement 24,566
Interest income 413
Miscellaneous 3,010
---------
263,838
---------
Expenses
Contracted labor 3,019
Repairs and maintenance 23,933
Utilities 3,668
Management fee 12,402
Interest 67,700
Professional fees 1,031
General and administrative 2,052
Insurance 4,214
Real estate taxes 23,778
Depreciation of rental property 30,700
Amortization of deferred costs 4,834
---------
177,331
---------
NET INCOME 86,507
Partnership capital at beginning of year 282,458
Distributions to partners (88,260)
---------
Partnership capital at end of year $ 280,705
=========
The accompanying notes are an integral part of this statement
5
<PAGE> 383
CVS Glenside Equities, L.P.
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
Cash flows from operating activities
Net income $ 86,507
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation of rental property 30,700
Amortization of deferred costs 4,834
Changes in assets and liabilities
Increase in tenant accounts receivable and deferred rent (15,374)
Increase in prepaid expenses (607)
Decrease in accounts payable and accrued expenses (151)
Increase in tenant security deposits 500
---------
Net cash provided by operating activities 106,409
---------
Cash flows from financing activities
Principal payments on mortgage payable (23,986)
Distributions to partners (88,260)
Net cash used in financing activities (112,246)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,837)
Cash and cash equivalents at beginning of year 19,158
---------
Cash and cash equivalents at end of year $ 13,321
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 67,850
=========
The accompanying notes are an integral part of this statement.
6
<PAGE> 384
CVS Glenside Equities, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CVS Glenside Equities, L.P. (the Partnership) is a Pennsylvania limited
partnership. The Partnership owns and leases a commercial shopping center
in Montgomery County, Pennsylvania.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
A summary of the Partnership's significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows.
1. BASIS OF ACCOUNTING
The financial statements of the Partnership are prepared on the accrual
basis of accounting.
2. RENTAL INCOME AND TENANT REIMBURSEMENTS
Fixed minimum rents are recognized on a straight-line basis over the life
of the lease. Tenant reimbursements are recorded and accrued at year-end
for financial statement reporting purposes.
3. CASH AND CASH EQUIVALENTS
The Partnership considers all demand and money market accounts and
certificates of deposit with an original maturity of three months or less
to be cash and cash equivalents.
4. ACCOUNTS RECEIVABLE
The Partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is maintained. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
5. RENTAL PROPERTY
Rental property is recorded at the lower of cost, less accumulated
depreciation, or net realizable value. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. The
Partnership uses a 35-year estimated life for the building. Expenditures
for ordinary maintenance and repairs are expensed to operations as
incurred, and significant renovations and improvements that improve and/or
extend the useful life of the asset are capitalized over their estimated
useful life.
(Continued)
7
<PAGE> 385
CVS Glenside Equities, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. DEFERRED COSTS
Costs incurred in connection with obtaining financing have been capitalized
and are being amortized by the straight-line method over the life of the
loan.
7. LONG-LIVED ASSETS
The Partnership adopted, effective January 1, 1996, Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
impact on the Partnership's financial position or results of operations.
8. INCOME TAXES
Income taxes or credits on earnings or losses accrue to the partners
personally and are not reflected in the financial statements.
9. CREDIT RISK
Management of the Partnership performs ongoing credit evaluations of its
tenants and requires certain tenants to provide security deposits. Tenants
operate in different retail industries. For the year ended December 31,
1996, rent revenue from two tenants represented approximately 66% and 11%,
respectively, of total rent revenue.
NOTE B - DEFERRED COSTS
Deferred costs at December 31, 1996 are as follows:
Financing costs $51,410
Leasing costs 6,875
-------
58,285
Less accumulated amortization 9,869
-------
$48,416
=======
8
<PAGE> 386
CVS Glenside Equities, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - MORTGAGE PAYABLE
The Partnership has a mortgage loan with Great Northern Insured Annuity
Corporation. Monthly payments of principal and interest of $7,653 are due
each month until maturity on May 1, 2014 based on a 20-year amortization
schedule. The mortgage loan bears interest at a fixed rate of 7.5% until
April 30, 1999; on May 1, 1999 and each year thereafter until maturity, the
interest rate shall be adjusted to the Moody's "A" Corporate Bond Index
Daily Rate, quoted by Moody's Investor's Service, plus 0.125% per annum.
The mortgage is collateralized by real and personal property owned and used
in connection with the operation of the property, the assignment of all
leases covering the property, and the personal guarantee of one of the
partners.
The carrying value of the mortgage payable approximates fair market value.
The following is a summary of estimated maturities for the next five years
and thereafter:
YEAR ENDING DECEMBER 31,
1997 $ 26,000
1998 28,000
1999 30,000
2000 32,000
2001 35,000
Thereafter 741,000
--------
$892,000
========
NOTE D - RELATED PARTY TRANSACTIONS
The Partnership pays management fees equal to 5% of all collections from
tenants to a company affiliated by common ownership and management, in
accordance with a leasing and management agreement with the Partnership.
Total management fees amounted to $12,402 for 1996.
In the event of the termination of the leasing and management agreement,
the Partnership is liable to the affiliate for liquidated damages based
upon a percentage, varying between 3% and 5%, of the future minimum rentals
for leases existing at or within three months after the termination date
and negotiated by the affiliate.
9
<PAGE> 387
CVS Glenside Equities, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE E - MINIMUM FUTURE RENTALS DUE
The Partnership leases space in a shopping center for varying terms, for
which it receives minimum annual rents. Approximate minimum future rentals
at December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31,
1997 $ 193,100
1998 178,000
1999 169,600
2000 165,500
2001 166,500
Thereafter 227,000
-----------
$ 1,099,700
===========
10
<PAGE> 388
SUPPLEMENTAL INFORMATION
<PAGE> 389
CVS Glenside Equities, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Gross amount
capitalized subsequent at which carried at
Initial cost to acquisition close of period
------------------------ ------------------------- -------------------------------------
Building and Building and Building and
Description Encumbrance Land improvements Land improvements Land improvements Total
----------- ----------- ---------- ------------ ---------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping center,
Montgomery County,
Pennsylvania $ 891,507 $ 115,000 $ 1,041,840 $ - $ 30,200 $ 115,000 $ 1,072,040 $ 1,187,040
========== ========== ========== =============== ========== ========== ========== ==========
<CAPTION>
Life on which
Accumulation Date of Date depreciation is
depreciation construction acquired computed
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
Shopping center,
Montgomery County,
Pennsylvania $ 125,155 N/A 12/2/92 Various
==========
</TABLE>
(Continued)
12
<PAGE> 390
CVS Glenside Equities, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
The change in real estate for the year ended December 31, 1996 is as
follows:
Balance at beginning of year $ 1,187,040
Improvements -
-----------
Balance at end of year $ 1,187,040
===========
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1996 was $1,187,040.
The change in accumulated depreciation for the year ended December 31, 1996
is as follows:
Balance at beginning of year $ 94,455
Depreciation for year 30,700
------------
Balance at end of year $ 125,155
============
13
<PAGE> 391
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
GLENMONT ASSOCIATES, L.P.
DECEMBER 31, 1996
<PAGE> 392
C O N T E N T S
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF INCOME AND PARTNERSHIP CAPITAL 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
SUPPLEMENTAL INFORMATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 11
<PAGE> 393
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Glenmont Associates, L.P.
We have audited the accompanying balance sheet of Glenmont Associates,
L.P. as of December 31, 1996, and the related statements of income and
partnership capital, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Glenmont Associates,
L.P. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
We have also audited Schedule III for the year ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
[sig]
Philadelphia, Pennsylvania
June 16, 1997
<PAGE> 394
Glenmont Associates, L.P.
BALANCE SHEET
December 31, 1996
ASSETS
RENTAL PROPERTY AND EQUIPMENT - AT COST
Building $3,770,161
Building improvements 1,460,020
Tenant improvements 242,584
Land improvements 423,556
Equipment 350,348
----------
6,246,669
Less accumulated depreciation 395,876
----------
5,850,793
Land 418,907
----------
6,269,700
CASH AND CASH EQUIVALENTS
Operating 78,105
Tenant security deposits 36,984
----------
115,089
----------
ACCOUNTS RECEIVABLE
Tenant 30,851
Deferred rent 147,712
----------
178,563
----------
PREPAID EXPENSES 27,629
OTHER ASSETS 11,697
----------
$6,602,678
==========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES
Mortgage payable $5,208,874
Accounts payable and accrued expenses 427,127
Tenant security deposits 36,984
----------
5,672,985
PARTNERSHIP CAPITAL 929,693
----------
$6,602,678
==========
The accompanying notes are an integral part of this statement.
4
<PAGE> 395
Glenmont Associates, L.P.
STATEMENT OF INCOME AND PARTNERSHIP CAPITAL
Year ended December 31, 1996
Revenue
Rent $622,942
Percentage rent 29,108
Common area maintenance reimbursement 38,188
Termination fees 52,000
Real estate tax reimbursement 76,488
Utilities reimbursement 89,140
Interest 2,831
Miscellaneous 672
--------
911,369
--------
Expenses
Repairs and maintenance 83,030
Utilities 87,195
Management fee 41,900
Interest 345,353
Professional fees 45,417
General and administrative 34,303
Insurance 5,892
Real estate taxes 69,900
Depreciation of rental property and equipment 172,815
Amortization of organization costs 5,973
--------
891,778
--------
NET INCOME 19,591
Partnership capital at beginning of year 910,102
--------
Partnership capital at end of year $929,693
========
The accompanying notes are an integral part of this statement.
5
<PAGE> 396
Glenmont Associates, L.P.
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 19,591
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of rental property and equipment 172,815
Amortization of organization costs 5,973
Changes in assets and liabilities
Increase in tenant accounts receivable (63,128)
Increase in prepaid expenses (4,460)
Decrease in accounts payable and accrued expenses (1,842)
Increase in tenant security deposits 2,583
-----------
Net cash provided by operating activities 131,532
-----------
Cash flows from investing activities
Additions to rental property and equipment (1,440,980)
-----------
Net cash used in investing activities (1,440,980)
-----------
Cash flows from financing activities
Borrowings on mortgage payable 1,344,628
-----------
Net cash provided by financing activities 1,344,628
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 35,180
Cash and cash equivalents at beginning of year 79,909
-----------
Cash and cash equivalents at end of year $ 115,089
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 453,240
===========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 397
Glenmont Associates, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Glenmont Associates, L.P. (the Partnership) is a Pennsylvania limited
partnership. The Partnership owns and leases a commercial shopping center
in Montgomery County, Pennsylvania.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
A summary of the Partnership's significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows.
1. BASIS OF ACCOUNTING
The financial statements of the Partnership are prepared on the accrual
basis of accounting.
2. RENTAL INCOME AND TENANT REIMBURSEMENTS
Fixed minimum rents are recognized on a straight-line basis over the life
of the lease. Tenant reimbursements are recorded and accrued at year-end
for financial statement reporting purposes.
3. CASH AND CASH EQUIVALENTS
The Partnership considers all demand and money market accounts and
certificates of deposit with an original maturity of three months or less
to be cash and cash equivalents.
4. ACCOUNTS RECEIVABLE
The Partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is maintained. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
5. RENTAL PROPERTY AND EQUIPMENT
Rental property is recorded at the lower of cost, less accumulated
depreciation, or net realizable value. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. The
Partnership uses a 35-year estimated life for the building, building
improvements, and land improvements, the life of tenant leases for tenant
improvements, and a seven-year estimated life for equipment. Expenditures
for ordinary maintenance and repairs are expensed to operations as
incurred, and significant renovations and improvements that improve and/or
extend the useful life of the asset are capitalized over their estimated
useful life.
(Continued)
7
<PAGE> 398
Glenmont Associates, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. LONG-LIVED ASSETS
The Partnership adopted, effective January 1, 1996, Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
impact on the Partnership's financial position or results of operations.
7. INCOME TAXES
Income taxes or credits on earnings or losses accrue to the partners
personally and are not reflected in the financial statements.
8. CREDIT RISK
Management of the Partnership performs ongoing credit evaluations of its
tenants and requires certain tenants to provide security deposits. Tenants
operate in different retail industries. For the year ended December 31,
1996, rent revenue from three tenants represented approximately 17%, 15%
and 12%, respectively, of total rent revenue.
The Partnership maintains cash balances at a financial institution in
Pennsylvania. These amounts are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1996, uninsured cash balances
approximated $43,000.
NOTE B - MORTGAGE PAYABLE
The Partnership has a mortgage construction loan with Summit Bank under
which the Partnership may borrow up to $5,460,000. The mortgage bears
interest at the prime rate plus 1.25% (9% at December 31, 1996); the
outstanding mortgage principal balance plus all outstanding and unpaid
interest was due December 23, 1996; an extension was provided until the
refinancing in April 1997 (note E).
The mortgage is collateralized by all real and personal property owned and
used in connection with the operation of the property, the assignment of all
leases covering the property and the unconditional guarantees of two of the
partners in the Partnership and Whitemont Associates, L.P., an affiliated
partnership with common ownership and management.
The carrying value of the mortgage payable approximates fair market value.
8
<PAGE> 399
Glenmont Associates, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - RELATED PARTY TRANSACTIONS
The Partnership pays management and leasing fees based upon collections
from tenants to a company affiliated by common ownership and management, in
accordance with a leasing and management agreement with the Partnership.
Total management and leasing fees amounted to $41,900 and $14,815,
respectively, for 1996.
In the event of the termination of the leasing and management agreement,
the Partnership is liable to the affiliate for liquidated damages based
upon a percentage, varying between 3% and 5%, of the future minimum rentals
for leases existing at or within three months after the termination date
and negotiated by the affiliate.
NOTE D - MINIMUM FUTURE RENTALS DUE
The Partnership leases space in a shopping center for varying terms, for
which it receives minimum annual rents. Approximate minimum future rentals
at December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31,
1997 $ 856,000
1998 957,000
1999 885,000
2000 833,000
2001 606,000
Thereafter 6,286,000
-----------
$10,423,000
===========
NOTE E - SUBSEQUENT EVENT
During April 1997, the Partnership entered into a $7,250,000 mortgage note
with Merrill Lynch Credit Corporation to refinance existing debt and to
finance future construction at the shopping center. The mortgage note is
payable in 120 consecutive monthly installments of $56,674, including
interest at 8.68% per annum; a final installment of the entire outstanding
principal balance and accrued interest thereon is due in May 2007. The
mortgage note is secured by all real and personal property owned and used in
connection with the operation of the property and the assignment of all
rents, leases and security deposits covering the property.
9
<PAGE> 400
SUPPLEMENTAL INFORMATION
<PAGE> 401
Glenmont Associates, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Gross amount
capitalized subsequent at which carried at
Initial cost to acquisition close of period
--------------------------- -------------------------- --------------------------
Building and Building and Building and
Description Encumbrance Land improvements Land improvements Land improvements
- ----------- ----------- ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping center,
Montgomery
County, Pennsylvania $5,208,874 $ 418,907 $3,770,161 $ -- $2,126,160 $ 418,907 $5,896,321
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
Life on which
Accumulation Date of Date depreciation is
Description Total depreciation construction acquired computed
- ----------- ----------- ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C> <C>
Shopping center,
Montgomery
County, Pennsylvania $ 6,315,228 $395,876 Various 12/23/93 Various
=========== =======
</TABLE>
(Continued)
11
<PAGE> 402
Glenmont Associates, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
The change in real estate for the year ended December 31, 1996 is as
follows:
Balance at beginning of year $4,253,979
Improvements 2,061,249
----------
Balance at end of year $6,315,228
==========
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1996 was $6,315,228.
The change in accumulated depreciation for the year ended December 31, 1996
is as follows:
Balance at beginning of year $223,061
Depreciation for year 172,815
--------
Balance at end of year $395,876
========
12
<PAGE> 403
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
RIO GRANDE ASSOCIATES
DECEMBER 31, 1996
<PAGE> 404
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF OPERATIONS AND PARTNERSHIP DEFICIENCY 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
SUPPLEMENTAL INFORMATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 12
<PAGE> 405
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Rio Grande Associates
We have audited the accompanying balance sheet of Rio Grande Associates
as of December 31, 1996, and the related statements of operations and
partnership deficiency, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Rio Grande
Associates as of December 31, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
We have also audited Schedule III for the year ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
- -----------------------------------
Philadelphia, Pennsylvania
June 10, 1997
<PAGE> 406
Rio Grande Associates
BALANCE SHEET
December 31, 1996
ASSETS
RENTAL PROPERTY AND EQUIPMENT - AT COST
Building $ 6,170,288
Building improvements 198,914
Tenant improvements 887,538
Equipment 123,104
Land improvements 1,178,877
-----------
8,558,721
Less accumulated depreciation and amortization 1,385,155
-----------
7,173,566
Land 494,656
-----------
7,668,222
-----------
CASH AND CASH EQUIVALENTS
Operating 24,825
Tenant security deposits 20,520
-----------
45,345
-----------
ACCOUNTS RECEIVABLE
Tenant 109,666
Deferred rent 220,137
-----------
329,803
-----------
PREPAID EXPENSES 869
DEFERRED COSTS, net of accumulated amortization 117,316
-----------
$ 8,161,555
===========
LIABILITIES AND PARTNERSHIP DEFICIENCY
LIABILITIES
Mortgages payable $ 8,997,167
-----------
Accounts payable and accrued expenses
Trade 17,075
Interest 198,630
Affiliates 1,790
-----------
217,495
Tenant security deposits 20,520
-----------
9,235,182
PARTNERSHIP DEFICIENCY (1,073,627)
-----------
$ 8,161,555
===========
The accompanying notes are an integral part of this statement.
4
<PAGE> 407
Rio Grande Associates
STATEMENT OF OPERATIONS AND PARTNERSHIP DEFICIENCY
Year ended December 31, 1996
Revenue
Rent $ 1,021,464
Common area maintenance reimbursement 108,374
Real estate tax reimbursement 123,104
Utilities reimbursement 637
Water and sewer reimbursement 17,205
Insurance reimbursement 3,574
Merchants association income 1,432
Interest income 1,601
Miscellaneous 3,452
-----------
1,280,843
-----------
Expenses
Advertising 5,146
Trash and snow removal 32,660
Repairs and maintenance 27,446
Utilities 60,674
Management fee 72,922
Interest 748,926
Professional fees 58,542
General and administrative 5,661
Insurance 14,184
Real estate taxes 187,643
Salaries and wages 55,037
Payroll taxes and benefits 12,756
Miscellaneous 688
Landscaping 11,855
Financing fees 83,427
Loss on disposal of asset 260,341
Depreciation of rental property and equipment 271,401
Amortization of deferred costs 4,876
-----------
1,914,185
-----------
NET LOSS (633,342)
Partnership deficiency at beginning of year (440,285)
-----------
Partnership deficiency at end of year $(1,073,627)
===========
The accompanying notes are an integral part of this statement.
5
<PAGE> 408
Rio Grande Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
Cash flows from operating activities
Net loss $ (633,342)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation of rental property and equipment 271,401
Amortization of deferred costs 4,876
Loss on disposal of building 260,341
Changes in assets and liabilities
Increase in tenant accounts receivable and deferred rent (88,682)
Increase in prepaid expenses (17)
Increase in accounts payable and accrued expenses 14,857
Decrease in tenant security deposits (2,192)
-----------
Net cash used in operating activities (172,758)
-----------
Cash flows from investing activities
Additions to rental property and equipment (707,276)
Increase in deferred costs (122,155)
-----------
Net cash used in investing activities (829,431)
-----------
Cash flows from financing activities
Proceeds from notes payable 9,914,167
Payments on notes payable (9,001,699)
Net cash provided by financing activities 912,468
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (89,721)
Cash and cash equivalents at beginning of year 135,066
-----------
Cash and cash equivalents at end of year $ 45,345
===========
Supplemental disclosure information
Cash paid during the year for interest $ 783,685
===========
The accompanying notes are an integral part of this statement.
6
<PAGE> 409
Rio Grande Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rio Grande Associates (the Partnership) is a Pennsylvania general
partnership. The Partnership owns and leases a commercial shopping center in
Wildwood, New Jersey.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
A summary of the Partnership's significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows.
1. BASIS OF ACCOUNTING
The financial statements of the Partnership are prepared on the accrual
basis of accounting.
2. RENTAL INCOME AND TENANT REIMBURSEMENTS
Fixed minimum rents are recognized on a straight-line basis over the life of
the lease. Tenant reimbursements are recorded and accrued at year-end for
financial statement reporting purposes.
3. CASH AND CASH EQUIVALENTS
The Partnership considers all demand and money market accounts and
certificates of deposit with an original maturity of three months or less
to be cash and cash equivalents.
4. ACCOUNTS RECEIVABLE
The Partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is maintained. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
5. RENTAL PROPERTY AND EQUIPMENT
Rental property is recorded at the lower of cost, less accumulated
depreciation, or net realizable value. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. The
Partnership uses a 35-year estimated life for the building, building
improvements, and land improvements, the life of the lease for tenant
improvements, and a seven-year estimated life for equipment. Expenditures
for ordinary maintenance and repairs are expensed to operations as incurred,
and significant renovations and improvements that improve and/or extend the
useful life of the asset are capitalized over their estimated useful life.
(Continued)
7
<PAGE> 410
Rio Grande Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. DEFERRED COSTS
Costs incurred in connection with obtaining financing and securing tenants
have been capitalized and are being amortized by the straight-line method
over the life of the loan and tenant leases, respectively.
7. INCOME TAXES
Income taxes or credits on earnings or losses accrue to the partners
personally and are not reflected in the financial statements.
8. LONG-LIVED ASSETS
The Partnership adopted, effective January 1, 1996, Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
impact on the Partnership's financial position or results of operations.
9. CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables arise from
the tenants occupying space in the shopping center. At December 31, 1996,
one former tenant accounted for 94% of tenant accounts receivable (note G).
10. CREDIT RISK
Management of the Partnership performs ongoing credit evaluations of its
tenants and requires certain tenants to provide security deposits. Tenants
operate in different retail industries. For the year ended December 31,
1996, rent revenue from two tenants represented approximately 21% and 12%,
respectively, of total rent revenue.
NOTE B - DEFERRED COSTS
Deferred costs at December 31, 1996 are as follows:
Financing costs $ 28,493
Leasing costs 93,699
-----------
122,192
Less accumulated amortization 4,876
-----------
$ 117,316
===========
8
<PAGE> 411
Rio Grande Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - MORTGAGES PAYABLE
The Partnership has a $8,000,000 mortgage note bearing interest at the prime
rate (8.25% at December 31, 1996). Interest is payable monthly. Principal
payments are payable beginning January 1997 at approximately $6,900 for the
next 12 months. Principal payments increase to approximately $7,600 for the
period January 1998 until the maturity date of October 25, 1998, at which
time a balloon payment is due for the amount outstanding. In addition, the
note contains an option to extend the note three additional years provided
that certain requirements are met.
The Partnership has a $2,000,000 construction note available bearing
interest at the prime rate (8.25% at December 31, 1996). As of December 31,
1996, the Partnership has extended $997,167. Advances are made based upon
the Partnership supplying the lender with certain construction information
and are contingent upon the lender's approval. Interest is payable monthly.
The note matures on October 25, 1998, at which time the full principal
balance is due. In addition, the note contains an option to extend the
maturity date for three years provided that conditional provisions are met.
The note is collateralized by all real and personal property related to the
shopping center, including improvements, as well as all monies, rights to
monies, claims and causes of actions and rights of enforcement with respect
to the leases, agreements of sale and proceeds, licenses, permits and
agreements, and general Construction Contracts which are subject to the
Assignments, and Surety Agreements (note D).
The carrying values of the mortgages payable approximate fair market value.
Cash paid for interest for 1996 amounted to $766,040, of which $17,355 was
capitalized.
The current maturities of debt are as follows:
1997 $ 83,000
1998 8,916,167
------------
$ 8,999,167
============
NOTE D - RELATED PARTY TRANSACTIONS
The Partnership pays management fees equal to 6% of all collections from
tenants to a company affiliated by common ownership and management under a
leasing and management agreement effective through September 2006. Total
management fees amounted to $72,922 for 1996.
In the event of the termination of the leasing and management agreement, the
Partnership is liable to the affiliate for liquidated damages based upon a
percentage, varying between 3% and 5%, of the future minimum rentals for
leases existing at or within three months after the termination date and
negotiated by the affiliate.
(Continued)
9
<PAGE> 412
Rio Grande Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE D - RELATED PARTY TRANSACTIONS - Continued
A limited partner has guaranteed all of the debt of the Company.
The Partnership has accrued interest payable to a partner of approximately
$135,000 at December 31, 1996.
NOTE E - MINIMUM FUTURE RENTALS DUE
The Partnership leases space in a shopping center for varying terms, for
which it receives minimum annual rents. Approximate minimum future rentals
at December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31,
1997 $ 1,059,000
1998 975,000
1999 936,000
2000 940,000
2001 858,000
Thereafter 4,003,000
-----------
$ 8,771,000
===========
NOTE F - COMMITMENTS
As of December 31, 1996, the Partnership had remaining commitments of
approximately $1,150,000 on a construction contract.
NOTE G - SUBSEQUENT EVENTS
A former tenant filed for liquidation bankruptcy. As part of this filing,
the Partnership entered a post-petition claim for revenues earned and
expense reimbursement subsequent to the filing date, as well as a rejection
damage claim. The Partnership has accrued for income earned as of December
31, 1996, which is anticipated to be fully collectible. In addition, the
Partnership may receive additional funds as a result of the settlement of
the rejection damage claim. All damages received, net of taxes, have been
pledged as a reduction of the principal balance of the construction note
(note C).
10
<PAGE> 413
SUPPLEMENTAL INFORMATION
<PAGE> 414
Rio Grande Associates
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Gross amount
capitalized subsequent at which carried at
Initial cost to acquisition close of period
------------------------ ------------------------- -------------------------------------
Building and Building and Building and
Description Encumbrance Land improvements Land improvements Land improvements Total
----------- ----------- ----------- ------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping center,
Wildwood,
New Jersey $ 8,997,167 $ 304,656 $ - $ 190,000 $ 8,435,617 $ 494,656 $ 8,435,617 $ 8,930,273
=========== =========== ============ ============ ============ =========== ============ ===========
<CAPTION>
Life on which
Accumulation Date of Date depreciation is
depreciation construction acquired computed
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
Shopping center,
Wildwood,
New Jersey $ 1,385,155 Various 1988 Various
===========
</TABLE>
(Continued)
12
<PAGE> 415
Rio Grande Associates
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
The change in real estate for the year ended December 31, 1996 is as follows:
Balance at beginning of year $ 8,526,728
Improvements 707,276
Cost of real estate disposed of (303,731)
-----------
Balance at end of year $ 8,930,273
===========
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1996 was $8,930,273.
The change in accumulated depreciation for the year ended December 31, 1996
is as follows:
Balance at beginning of year $ 1,157,144
Depreciation for year 271,401
Reduction for disposals (43,390)
-----------
Balance at end of year $ 1,385,155
===========
13
<PAGE> 416
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
GLENMONT-PLYMOUTH, L.P.
DECEMBER 31, 1996
<PAGE> 417
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF INCOME AND PARTNERSHIP CAPITAL 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
SUPPLEMENTAL INFORMATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 12
<PAGE> 418
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Glenmont-Plymouth, L.P.
We have audited the accompanying balance sheet of Glenmont-Plymouth,
L.P. as of December 31, 1996, and the related statements of income and
partnership capital, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Glenmont-Plymouth,
L.P. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
We have also audited Schedule III for the year ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
- --------------------------------
Philadelphia, Pennsylvania
June 2, 1997
<PAGE> 419
Glenmont-Plymouth, L.P.
BALANCE SHEET
December 31, 1996
ASSETS
RENTAL PROPERTY AND EQUIPMENT - AT COST
Building $1,481,929
Building improvements 535,748
Tenant improvements 274,096
Machinery and equipment 45,460
Land improvements 113,661
----------
2,450,894
Less accumulated depreciation 251,229
----------
2,199,665
Land 183,160
----------
2,382,825
----------
CASH AND CASH EQUIVALENTS
Operating 23,057
Tenant security deposits 27,674
----------
50,731
----------
OTHER ASSETS 3,250
DEFERRED RENT RECEIVABLE 44,926
PREPAID EXPENSES 20,491
DEFERRED COSTS, net of accumulated amortization 19,912
----------
$2,522,135
==========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES
Mortgage payable $1,897,396
Accounts payable and accrued expenses 16,501
Tenant security deposits 27,674
----------
1,941,571
PARTNERSHIP CAPITAL 580,564
----------
$2,522,135
==========
The accompanying notes are an integral part of this statement
4
<PAGE> 420
Glenmont-Plymouth, L.P.
STATEMENT OF INCOME AND PARTNERSHIP CAPITAL
Year ended December 31, 1996
Revenue
Rent $ 598,305
Common area maintenance reimbursement 38,996
Utilities reimbursement 72,973
Interest 1,692
Gain on sale of assets 5,356
---------
717,322
---------
Expenses
Repairs and maintenance 83,109
Utilities 80,567
Management fee 30,155
Interest 165,016
Professional fees 6,554
General and administrative 25,475
Insurance 5,890
Real estate taxes 52,242
Depreciation of rental property and equipment 114,536
Amortization of deferred costs 6,302
---------
569,846
---------
NET INCOME 147,476
Partnership capital at beginning of year 751,269
Distributions to partners (318,181)
---------
Partnership capital at end of year $ 580,564
=========
The accompanying notes are an integral part of this statement.
5
<PAGE> 421
Glenmont-Plymouth, L.P.
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
Cash flows from operating activities
Net income $ 147,476
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation of rental property and equipment 114,536
Amortization of deferred costs 6,302
Gain on sale of assets (5,356)
Changes in assets and liabilities
Increase in deferred rent receivable (10,976)
Increase in prepaid expenses (234)
Decrease in accounts payable and accrued expenses (9,323)
Decrease in tenant security deposits (1,911)
---------
Net cash provided by operating activities 240,514
---------
Cash flows from investing activities
Additions to rental property and equipment (28,850)
Proceeds from sale of tenant improvements 103,068
---------
Net cash provided by investing activities 74,218
---------
Cash flows from financing activities
Principal payments on mortgage payable (25,011)
Distributions to partners (318,181)
---------
Net cash used in financing activities (343,192)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (28,460)
Cash and cash equivalents at beginning of year 79,191
---------
Cash and cash equivalents at end of year $ 50,731
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 165,203
=========
The accompanying notes are an integral part of this statement.
6
<PAGE> 422
Glenmont-Plymouth, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Glenmont-Plymouth, L.P. (the Partnership) is a Pennsylvania limited
partnership. The Partnership owns and leases an office building in Plymouth
Meeting, Pennsylvania.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
A summary of the Partnership's significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows.
1. BASIS OF ACCOUNTING
The financial statements of the Partnership are prepared on the accrual
basis of accounting.
2. RENTAL INCOME AND TENANT REIMBURSEMENTS
Fixed minimum rents are recognized on a straight-line basis over the life
of the lease. Tenant reimbursements are recorded and accrued at year-end
for financial statement reporting purposes.
3. CASH AND CASH EQUIVALENTS
The Partnership considers all demand and money market accounts and
certificates of deposit with an original maturity of three months or less
to be cash and cash equivalents.
4. ACCOUNTS RECEIVABLE
The Partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is maintained. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
5. RENTAL PROPERTY AND EQUIPMENT
Rental property is recorded at the lower of cost, less accumulated
depreciation, or net realizable value. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. The
Partnership uses a 35-year estimated life for the building, building
improvements, and land improvements, the life of tenant leases for tenant
improvements, and a seven-year estimated life for machinery and equipment.
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred, and significant renovations and improvements that
improve and/or extend the useful life of the asset are capitalized over
their estimated useful life.
(Continued)
7
<PAGE> 423
Glenmont-Plymouth, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. DEFERRED COSTS
Costs incurred in connection with obtaining financing have been capitalized
and are being amortized by the straight-line method over the life of the
loan.
7. LONG-LIVED ASSETS
The Partnership adopted, effective January 1, 1996, Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
impact on the Partnership's financial position or results of operations.
8. INCOME TAXES
Income taxes or credits on earnings or losses accrue to the partners
personally and are not reflected in the financial statements.
9. CREDIT RISK
Management of the Partnership performs ongoing credit evaluations of its
tenants and requires certain tenants to provide security deposits. Tenants
operate in different retail industries. For the year ended December 31,
1996, rent revenue from three tenants represented approximately 31%, 15%
and 14%, respectively, of total rent revenue.
NOTE B - DEFERRED COSTS
Deferred costs at December 31, 1996 are as follows:
Financing costs $ 33,615
Less accumulated amortization 13,703
------------
$ 19,912
============
NOTE C - MORTGAGE PAYABLE
The Partnership has a mortgage loan with CoreStates Bank, N.A. The mortgage
note is payable in monthly principal payments that vary between $2,128 and
$2,975 until February 1, 2001, plus interest at 8.5% per annum; a final
installment of the entire outstanding principal balance and accrued interest
thereon is due on March 1, 2001.
(Continued)
8
<PAGE> 424
Glenmont-Plymouth, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - MORTGAGE PAYABLE - Continued
The mortgage is collateralized by a first mortgage on the Plymouth Plaza
office building and the assignment of all leases covering the property.
The carrying value of the mortgage approximates fair market value.
The following is a summary of estimated maturities for the next five years:
YEAR ENDING DECEMBER 31,
1997 $ 27,000
1998 30,000
1999 32,000
2000 35,000
2001 1,773,396
-----------
$ 1,897,396
===========
NOTE D - RELATED PARTY TRANSACTIONS
The Partnership pays management and leasing fees based upon collections
from tenants to a company affiliated by common ownership and management, in
accordance with a leasing and management agreement with the Partnership.
Total management and leasing fees amounted to $30,155 and $8,852,
respectively, for 1996.
In the event of the termination of the leasing and management agreement,
the Partnership is liable to the affiliate for liquidated damages based
upon a percentage, varying between 3% and 5%, of the future minimum rentals
for leases existing at or within three months after the termination date
and negotiated by the affiliate.
NOTE E - MINIMUM FUTURE RENTALS DUE
The Partnership leases space in an office building for varying terms, for
which it receives minimum annual rents. Approximate minimum future rentals
at December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31,
1997 $ 397,000
1998 393,000
1999 263,000
2000 173,000
2001 155,000
Thereafter 629,000
-----------
$ 2,010,000
===========
9
<PAGE> 425
Glenmont-Plymouth, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE F - SUBSEQUENT EVENT
On April 1, 1997, the Partnership borrowed $500,000 under a second mortgage
and security agreement with CoreStates Bank, N.A. The second mortgage note
is payable in 46 monthly installments of $4,005, including interest at 7.99%
per annum; a final installment of the entire outstanding principal balance
and accrued interest thereon is due on April 1, 2001. The note is secured by
a second mortgage on the Plymouth Plaza office building and the assignment
of all leases covering the property.
10
<PAGE> 426
SUPPLEMENTAL INFORMATION
<PAGE> 427
Glenmont-Plymouth, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Gross amount
capitalized subsequent at which carried at
Initial cost to acquisition close of period
------------------------ ------------------------- -------------------------------------
Building and Building and Building and
Description Encumbrance Land improvements Land improvements Land improvements Total
----------- ----------- ---------- ------------ ---------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office building,
Plymouth Meeting,
Pennsylvania $ 1,897,396 $ 183,160 $ 1,481,929 $ - $ 923,505 $ 183,160 $ 2,405,434 $ 2,588,594
=========== =========== =========== ============ =========== =========== =========== ==========
<CAPTION>
Life on which
Accumulation Date of Date depreciation is
depreciation construction acquired computed
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
Office building,
Plymouth Meeting,
Pennsylvania $ 251,229 N/A 10/1/94 Various
==========
</TABLE>
(Continued)
12
<PAGE> 428
Glenmont-Plymouth, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
The change in real estate for the year ended December 31, 1996 is as
follows:
Balance at beginning of year $ 2,662,812
Improvements 28,850
Cost of real estate disposed of (103,068)
-----------
Balance at end of year $ 2,588,594
===========
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1996 was $2,588,594.
The change in accumulated depreciation for the year ended December 31, 1996
is as follows:
Balance at beginning of year $ 167,190
Depreciation for year 114,536
Reduction for disposals (30,497)
-----------
Balance at end of year $ 251,229
===========
13
<PAGE> 429
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DANVILLE ASSOCIATES
DECEMBER 31, 1996
<PAGE> 430
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF INCOME AND PARTNERSHIP CAPITAL 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
SUPPLEMENTAL INFORMATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 12
<PAGE> 431
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Danville Associates
We have audited the accompanying balance sheet of Danville Associates
as of December 31, 1996, and the related statements of income and partnership
capital, and cash flows for the year then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Danville Associates
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
We have also audited Schedule III for the year ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
- ---------------------------------
Philadelphia, Pennsylvania
May 23, 1997
<PAGE> 432
Danville Associates
BALANCE SHEET
December 31, 1996
ASSETS
RENTAL PROPERTY - AT COST
Building $ 833,528
Building improvements 25,650
Land improvements 2,100
----------
861,278
Less accumulated depreciation 240,021
----------
621,257
Land 110,810
----------
732,067
----------
CASH AND CASH EQUIVALENTS
Operating 21,390
Tenant security deposits 5,925
----------
27,315
----------
OTHER ASSETS 2,000
DUE FROM RELATED PARTIES 50,000
ACCOUNTS RECEIVABLE
Tenant 23,353
Deferred rent 185,897
----------
209,250
----------
PREPAID EXPENSES 5,833
DEFERRED COSTS, net of accumulated amortization 39,437
----------
$1,065,902
==========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES
Mortgage payable $ 978,398
Accounts payable and accrued expenses 6,217
Tenant security deposits 5,925
----------
990,540
PARTNERSHIP CAPITAL 75,362
----------
$1,065,902
==========
The accompanying notes are an integral part of this statement.
4
<PAGE> 433
Danville Associates
STATEMENT OF INCOME AND PARTNERSHIP CAPITAL
Year ended December 31, 1996
Revenue
Rent $ 200,245
Interest income 845
Real estate tax reimbursement 14,085
Common area maintenance income 31,427
Miscellaneous 448
---------
247,050
---------
Expenses
Insurance 3,590
Professional fees 4,086
Interest 76,362
Repairs 22,892
Taxes 16,570
Utilities 1,300
Salaries and wages 521
Management fee 13,520
General and administrative 10,228
Depreciation of rental property 25,154
Amortization of deferred costs 3,393
---------
177,616
---------
NET INCOME 69,434
Partnership capital at beginning of year 5,928
Partners' contributions 7,362
Distributions to partners (7,362)
---------
Partnership capital at end of year $ 75,362
=========
The accompanying notes are an integral part of this statement.
5
<PAGE> 434
Danville Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
Cash flows from operating activities
Net income $ 69,434
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation of rental property 25,154
Amortization of deferred costs 3,393
Changes in assets and liabilities
Increase in accounts receivable and deferred rent (17,246)
Increase in prepaid expenses (266)
Decrease in accounts payable and accrued expenses (3,282)
Decrease in tenant security deposits (2,440)
--------
Net cash provided by operating activities 74,747
--------
Cash flows from investing activities
Due from related parties (50,000)
---------
Net cash used in investing activities (50,000)
--------
Cash flows from financing activities
Repayments of mortgage (49,635)
Partners' contributions 7,362
Distributions to partners (7,362)
--------
Net cash used in financing activities (49,635)
--------
NET DECREASE IN CASH AND CASH EQUIVALENTS (24,888)
Cash and cash equivalents at beginning of year 52,203
--------
Cash and cash equivalents at end of year $ 27,315
========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 76,677
========
The accompanying notes are an integral part of this statement.
6
<PAGE> 435
Danville Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Danville Associates (the Partnership) is a Pennsylvania general partnership.
The Partnership owns and leases a commercial shopping center in Montour
County, Pennsylvania.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
A summary of the Partnership's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. BASIS OF ACCOUNTING
The financial statements of the Partnership are prepared on the accrual
basis of accounting.
2. RENTAL INCOME AND TENANT REIMBURSEMENTS
Fixed minimum rents are recognized on a straight-line basis over the life of
the lease. Tenant reimbursements are recorded and accrued at year-end for
financial statement reporting purposes.
3. CASH AND CASH EQUIVALENTS
The Partnership considers all demand and money market accounts and
certificates of deposit with an original maturity of three months or less to
be cash and cash equivalents.
4. ACCOUNTS RECEIVABLE
The Partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is maintained. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
5. RENTAL PROPERTY
Rental property is recorded at the lower of cost, less accumulated
depreciation, or net realizable value. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. The
Partnership uses a 35-year estimated life for the building, building
improvements and land improvements. Expenditures for ordinary maintenance
and repairs are expensed to operations as incurred, and significant
renovations and improvements that improve and/or extend the useful life of
the asset are capitalized over their estimated useful life.
(Continued)
7
<PAGE> 436
Danville Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. DEFERRED COSTS
Costs incurred in connection with obtaining financing have been capitalized
and are being amortized by the straight-line method over the life of the
loan.
7. LONG-LIVED ASSETS
The Partnership adopted, effective January 1, 1996, Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
impact on the Partnership's financial position or results of operations.
8. INCOME TAXES
Income taxes or credits on earnings or losses accrue to the partners
personally and are not reflected in the financial statements.
9 CREDIT RISK
Management of the Partnership performs ongoing credit evaluations of its
tenants and requires certain tenants to provide security deposits. Tenants
operate in different retail industries. For the year ended December 31,
1996, rent revenue from one tenant represented approximately 10% of total
rent revenue.
NOTE B - DEFERRED COSTS
Deferred costs at December 31, 1996 are as follows:
Financing costs $ 47,495
Less accumulated amortization 8,058
------------
$ 39,437
============
NOTE C - MORTGAGE PAYABLE
The Partnership has a mortgage loan with Great Northern Insured Annuity
Corporation. Monthly payments of principal and interest of $10,526 are due
each month until maturity on September 1, 2008 based on a 14-year
amortization schedule. The mortgage loan bears interest at a fixed rate of
7.625% until August 31, 1999; on September 1, 1999 and each year thereafter
until maturity, the interest rate shall be adjusted to the Moody's "A"
Corporate Bond Index Daily Rate, quoted by Moody's Investor's Service, plus
0.125% per annum.
(Continued)
8
<PAGE> 437
Danville Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - MORTGAGE PAYABLE - Continued
The mortgage is collateralized by all real and personal property owned and
used in connection with the operation of the property and the assignment of
all leases covering the property. The mortgage is also secured by an
unconditional guaranty executed by the limited partner holding the largest
partnership interest in the amount of $271,250.
The carrying value of the mortgage payable approximates fair market value.
The following is a summary of maturities for the next five years and
thereafter:
YEAR ENDING DECEMBER 31,
1997 $ 53,000
1998 58,000
1999 62,000
2000 67,000
2001 73,000
Thereafter 665,000
-----------
$ 978,000
===========
NOTE D - RELATED PARTY TRANSACTIONS
The Partnership pays management fees equal to 6% of all collections from
tenants to a company affiliated by common ownership and management, in
accordance with a leasing and management agreement with the Partnership.
Total management fees amounted to $13,520 for 1996.
In the event of the termination of the leasing and management agreement, the
Partnership is liable to the affiliate for liquidated damages based upon a
percentage, varying between 3% and 5%, of the future minimum rentals for
leases existing at or within three months after the termination date and
negotiated by the affiliate.
The Partnership is due $50,000 from related parties, through common
ownership, in connection with the purchase of limited partnership interests
of a previous partner common to the Partnership and said related parties.
The amount is deemed fully collectible by the Partnership.
9
<PAGE> 438
Danville Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE E - MINIMUM FUTURE RENTALS DUE
The Partnership leases space in a shopping center for varying terms, for
which it receives minimum annual rents. Approximate minimum future rentals
at December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31,
1997 $ 184,000
1998 164,000
1999 163,000
2000 151,000
2001 143,000
Thereafter 883,000
-----------
$ 1,688,000
===========
10
<PAGE> 439
SUPPLEMENTAL INFORMATION
<PAGE> 440
Danville Associates
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Gross amount
capitalized subsequent at which carried at
Initial cost to acquisition close of period
------------------------ ------------------------- -------------------------------------
Building and Building and Building and
Description Encumbrance Land improvements Land improvements Land improvements Total
----------- ----------- ---------- ------------ ---------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping center,
Montour County,
Pennsylvania $ 978,398 $ 100,000 $ 290,000 $ 10,810 $ 571,278 $ 110,810 $ 861,278 $ 972,088
=========== =========== =========== ============ =========== =========== =========== ==========
<CAPTION>
Life on which
Accumulation Date of Date depreciation is
depreciation construction acquired computed
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
Shopping center,
Montour County,
Pennsylvania $ 240,021 Various 6/1/86 Various
==========
</TABLE>
(Continued)
12
<PAGE> 441
Danville Associates
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
The change in real estate for the year ended December 31, 1996 is as
follows:
Balance at beginning of year $ 972,088
Improvements -
-----------
Balance at end of year $ 972,088
===========
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1996 was $972,088.
The change in accumulated depreciation for the year ended December 31, 1996
is as follows:
Balance at beginning of year $ 214,867
Depreciation for year 25,154
-----------
Balance at end of year $ 240,021
===========
13
<PAGE> 442
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PARCEL ELEVEN - C.J.P. ASSOCIATES
DECEMBER 31, 1996
<PAGE> 443
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF INCOME AND PARTNERSHIP DEFICIENCY 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
SUPPLEMENTAL INFORMATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 12
<PAGE> 444
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Parcel Eleven - C.J.P. Associates
We have audited the accompanying balance sheet of Parcel Eleven -
C.J.P. Associates as of December 31, 1996, and the related statements of income
and partnership deficiency, and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Parcel Eleven -
C.J.P. Associates as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
We have also audited Schedule III for the year ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
- ---------------------------------
Philadelphia, Pennsylvania
June 17, 1997
<PAGE> 445
Parcel Eleven - C.J.P. Associates
BALANCE SHEET
December 31, 1996
ASSETS
RENTAL PROPERTY - AT COST
Building $ 1,454,337
Tenant improvements 190,276
-----------
1,644,613
Less accumulated depreciation 606,137
-----------
1,038,476
Land 407,376
-----------
1,445,852
-----------
CASH AND CASH EQUIVALENTS
Operating 45,840
Tenant security deposits 32,938
-----------
78,778
-----------
ACCOUNTS RECEIVABLE
Tenant 5,422
Deferred rent 60,494
-----------
65,916
-----------
PREPAID EXPENSES 26,443
DEFERRED COSTS, net of accumulated amortization 55,223
-----------
$ 1,672,212
===========
LIABILITIES AND PARTNERSHIP DEFICIENCY
LIABILITIES
Mortgage payable $ 2,127,154
Accounts payable and accrued expenses 43,693
Tenant security deposits 29,840
-----------
2,200,687
PARTNERSHIP DEFICIENCY (528,475)
-----------
$ 1,672,212
===========
The accompanying notes are an integral part of this statement.
4
<PAGE> 446
Parcel Eleven - C.J.P. Associates
STATEMENT OF INCOME AND PARTNERSHIP DEFICIENCY
Year ended December 31, 1996
Revenue
Rent $ 403,441
Common area maintenance reimbursement 44,129
Real estate tax reimbursement 60,534
Utilities reimbursement 104,753
Interest income 307
Miscellaneous 1,900
---------
615,064
---------
Expenses
Contracted labor 3,931
Repairs and maintenance 17,903
Utilities 86,517
Management fee 30,947
Interest 166,987
Professional fees 2,033
General and administrative 10,722
Insurance 4,590
Real estate taxes 68,841
Depreciation of rental property 62,039
Amortization of deferred costs 8,422
Miscellaneous 1,291
---------
464,223
---------
NET INCOME 150,841
Partnership deficiency at beginning of year (488,316)
Distributions to partners (191,000)
---------
Partnership deficiency at end of year $(528,475)
=========
The accompanying notes are an integral part of this statement.
5
<PAGE> 447
Parcel Eleven - C.J.P. Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
Cash flows from operating activities
Net income $ 150,841
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation of rental property 62,039
Amortization of deferred costs 8,422
Changes in assets and liabilities
Decrease in tenant accounts receivable and deferred rent 5,649
Increase in prepaid expenses (1,535)
Increase in accounts payable and accrued expenses 19,991
Decrease in tenant security deposits (2,917)
---------
Net cash provided by operating activities 242,490
---------
Cash flows from investing activities
Additions to rental property (15,000)
---------
Net cash used in investing activities (15,000)
---------
Cash flows from financing activities
Principal payments on mortgage payable (59,215)
Distributions to partners (191,000)
---------
Net cash used in financing activities (250,215)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (22,725)
Cash and cash equivalents at beginning of year 101,503
---------
Cash and cash equivalents at end of year $ 78,778
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 167,370
=========
The accompanying notes are an integral part of this statement.
6
<PAGE> 448
Parcel Eleven - C.J.P. Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Parcel Eleven - C.J.P. Associates (the Partnership) is a Pennsylvania
general partnership. The Partnership owns and leases a commercial shopping
center in Bucks County, Pennsylvania.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
A summary of the Partnership's significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows.
1. BASIS OF ACCOUNTING
The financial statements of the Partnership are prepared on the accrual
basis of accounting.
2. RENTAL INCOME AND TENANT REIMBURSEMENTS
Fixed minimum rents are recognized on a straight-line basis over the life
of the lease. Tenant reimbursements are recorded and accrued at year-end
for financial statement reporting purposes.
3. CASH AND CASH EQUIVALENTS
The Partnership considers all demand and money market accounts and
certificates of deposit with an original maturity of three months or less
to be cash and cash equivalents.
4. ACCOUNTS RECEIVABLE
The Partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is maintained. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
5. RENTAL PROPERTY
Rental property is recorded at the lower of cost, less accumulated
depreciation, or net realizable value. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. The
Partnership uses a 35-year estimated life for the building and the life of
tenant leases for tenant improvements. Expenditures for ordinary
maintenance and repairs are expensed to operations as incurred, and
significant renovations and improvements that improve and/or extend the
useful life of the asset are capitalized over their estimated useful life.
(Continued)
7
<PAGE> 449
Parcel Eleven - C.J.P. Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. DEFERRED COSTS
Costs incurred in connection with obtaining financing have been capitalized
and are being amortized by the straight-line method over the life of the
loan.
7. LONG-LIVED ASSETS
The Partnership adopted, effective January 1, 1996, Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
impact on the Partnership's financial position or results of operations.
8. INCOME TAXES
Income taxes or credits on earnings or losses accrue to the partners
personally and are not reflected in the financial statements.
9. CREDIT RISK
Management of the Partnership performs ongoing credit evaluations of its
tenants and requires certain tenants to provide security deposits. Tenants
operate in different retail industries. For the year ended December 31,
1996, rent revenue from three tenants represented approximately 27%, 11%
and 10%, respectively, of total rent revenue.
NOTE B - DEFERRED COSTS
Deferred costs at December 31, 1996 are as follows:
Financing costs $ 81,587
Leasing costs 788
------------
82,375
Less accumulated amortization 27,152
------------
$ 55,223
============
8
<PAGE> 450
Parcel Eleven - C.J.P. Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - MORTGAGE PAYABLE
The Partnership has a mortgage loan with Great Northern Insured Annuity
Corporation. Monthly payments of principal and interest of $18,882 are due
each month until maturity on October 1, 2003 based on a 20-year amortization
schedule. The mortgage loan bears interest at a fixed rate of 7.75%.
The mortgage is collateralized by all real and personal property owned and
used in connection with the operation of the property, the assignment of all
leases covering the property, and the limited personal guarantees of two of
the partners.
The carrying value of the mortgage payable approximates fair market value.
The following is a summary of estimated maturities for the next five years
and thereafter:
YEAR ENDING DECEMBER 31,
1997 $ 64,000
1998 69,000
1999 75,000
2000 81,000
2001 87,000
Thereafter 1,751,000
------------
$ 2,127,000
============
NOTE D - RELATED PARTY TRANSACTIONS
The Partnership pays management fees equal to 5% of all collections from
tenants to a company affiliated by common ownership and management, in
accordance with a leasing and management agreement with the Partnership.
Total management fees amounted to $30,947 for 1996.
In the event of the termination of the leasing and management agreement,
the Partnership is liable to the affiliate for liquidated damages based
upon a percentage, varying between 3% and 5%, of the future minimum rentals
for leases existing at or within three months after the termination date
and negotiated by the affiliate.
9
<PAGE> 451
Parcel Eleven - C.J.P. Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE E - MINIMUM FUTURE RENTALS DUE
The Partnership leases space in a shopping center for varying terms, for
which it receives minimum annual rents. Approximate minimum future rentals
at December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31,
1997 $ 443,000
1998 338,000
1999 195,000
2000 156,000
2001 31,000
Thereafter 194,000
-----------
$ 1,357,000
===========
10
<PAGE> 452
SUPPLEMENTAL INFORMATION
<PAGE> 453
Parcel Eleven - C.J.P. Associates
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Gross amount
capitalized subsequent at which carried at
Initial cost to acquisition close of period
------------------------ ------------------------- -------------------------------------
Building and Building and Building and
Description Encumbrance Land improvements Land improvements Land improvements Total
----------- ----------- ---------- ------------ ---------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping center,
Bucks County,
Pennsylvania $ 2,127,154 $ 407,376 $ 1,440,968 $ - $ 203,645 $ 407,376 $ 1,664,613 $ 2,051,989
=========== =========== =========== ============ =========== =========== =========== ==========
<CAPTION>
Life on which
Accumulation Date of Date depreciation is
depreciation construction acquired computed
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
Shopping center,
Bucks County,
Pennsylvania $ 606,137 Various 5/1/85 Various
==========
</TABLE>
(Continued)
12
<PAGE> 454
Parcel Eleven - C.J.P. Associates
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
The change in real estate for the year ended December 31, 1996 is as
follows:
Balance at beginning of year $ 2,036,989
Improvements 15,000
-----------
Balance at end of year $ 2,051,989
==========
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1996 was $2,051,989.
The change in accumulated depreciation for the year ended December 31, 1996
is as follows:
Balance at beginning of year $ 544,098
Depreciation for year 62,039
-----------
Balance at end of year $ 606,137
===========
13
<PAGE> 455
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CHESTERBROOK SHOPPING CENTER
DECEMBER 31, 1996
<PAGE> 456
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF INCOME AND PARTNERSHIP DEFICIENCY 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
SUPPLEMENTAL INFORMATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 12
<PAGE> 457
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Chesterbrook Shopping Center
We have audited the accompanying balance sheet of Chesterbrook Shopping
Center as of December 31, 1996, and the related statements of income and
partnership deficiency, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Chesterbrook
Shopping Center as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
We have also audited Schedule III for the year ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
- ------------------------------------------
Philadelphia, Pennsylvania
June 2, 1997 (except for note C, as to
which the date is September 1, 1997)
<PAGE> 458
Chesterbrook Shopping Center
BALANCE SHEET
December 31, 1996
ASSETS
RENTAL PROPERTY AND EQUIPMENT - AT COST
Building and tenant improvements $ 6,241,279
Equipment 456,851
-----------
6,698,130
Less accumulated depreciation 2,470,735
-----------
4,227,395
Land 797,246
-----------
5,024,641
-----------
CASH AND CASH EQUIVALENTS
Operating 245,451
Tenant security deposits 78,869
-----------
324,320
-----------
ACCOUNTS RECEIVABLE
Tenant 123,915
Deferred rent 210,569
-----------
334,484
-----------
PREPAID EXPENSES 64,134
DEFERRED COSTS, net of accumulated amortization 104,837
-----------
$ 5,852,416
===========
LIABILITIES AND PARTNERSHIP DEFICIENCY
LIABILITIES
Mortgages payable $ 5,868,834
Accounts payable and accrued expenses 71,328
Tenant security deposits 72,870
-----------
6,013,032
PARTNERSHIP DEFICIENCY (160,616)
-----------
$ 5,852,416
===========
The accompanying notes are an integral part of this statement.
4
<PAGE> 459
Chesterbrook Shopping Center
STATEMENT OF INCOME AND PARTNERSHIP DEFICIENCY
Year ended December 31, 1996
Revenue
Rent $ 1,207,313
Electric income 408,457
Common area maintenance 310,387
Interest 9,976
Other 60,692
-----------
1,996,825
-----------
Expenses
Repairs and maintenance 266,254
Utilities 407,869
Real estate taxes 19,693
Insurance 20,022
Management fees 98,962
Interest 498,445
Professional fees 16,327
General and administrative 54,633
Depreciation of rental property and equipment 245,852
Amortization of deferred costs 20,623
-----------
1,648,680
-----------
NET INCOME 348,145
Partnership deficiency at beginning of year (258,761)
Distributions to partners (250,000)
-----------
Partnership deficiency at end of year $ (160,616)
===========
The accompanying notes are an integral part of this statement.
5
<PAGE> 460
Chesterbrook Shopping Center
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
Cash flows from operating activities
Net income $ 348,145
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation of rental property and equipment 245,852
Amortization of deferred costs 20,623
Changes in assets and liabilities
Increase in tenant accounts receivable and deferred rent (86,534)
Increase in prepaid expenses (58,088)
Increase in accounts payable and accrued expenses 5,444
Increase in tenant security deposits 12,937
---------
Net cash provided by operating activities 488,379
---------
Cash flows from investing activities
Additions to rental property and equipment (47,830)
---------
Net cash used in investing activities (47,830)
---------
Cash flows from financing activities
Principal payments on mortgages payable (119,061)
Distributions to partners (250,000)
---------
Net cash used in financing activities (369,061)
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 71,488
Cash and cash equivalents at beginning of year 252,832
---------
Cash and cash equivalents at end of year $ 324,320
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 498,445
=========
The accompanying notes are an integral part of this statement.
6
<PAGE> 461
Chesterbrook Shopping Center
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Chesterbrook Shopping Center (the Partnership) is a Delaware limited
partnership which owns and leases a shopping center on commercial ground in
Chester County, Pennsylvania.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
A summary of the Partnership's significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows.
1. BASIS OF ACCOUNTING
The financial statements of the Partnership are prepared on the accrual
basis of accounting.
2. RENTAL INCOME AND TENANT REIMBURSEMENTS
Fixed minimum rents are recognized on a straight-line basis over the life of
the lease. Tenant reimbursements are recorded and accrued at year-end for
financial statement reporting purposes.
3. CASH AND CASH EQUIVALENTS
The Partnership considers all demand and money market accounts and
certificates of deposit with an original maturity of three months or less
to be cash and cash equivalents.
The Partnership's policy is to invest cash in excess of operating
requirements in income-producing investments. Cash is temporarily invested
in money market accounts stated at cost, which approximates market.
4. ACCOUNTS RECEIVABLE
The Partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is maintained. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
(Continued)
7
<PAGE> 462
Chesterbrook Shopping Center
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. RENTAL PROPERTY AND EQUIPMENT
Rental property is recorded at the lower of cost, less accumulated
depreciation, or net realizable value. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. The
Partnership uses a 35-year estimated life for the building, life of tenant
leases for tenant improvements, and a seven-year estimated life for
equipment. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred, and significant renovations and improvements that
improve and/or extend the useful life of the asset are capitalized over
their estimated useful life.
6. DEFERRED COSTS
Costs incurred in connection with obtaining financing have been capitalized
and are being amortized by the straight-line method over the life of the
related loan.
7. LONG-LIVED ASSETS
The Partnership adopted, effective January 1, 1996, Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
impact on the Partnership's financial position or results of operations.
8. INCOME TAXES
Income taxes or credits on earnings or losses accrue to the partners
personally and are not reflected in the financial statements.
9. CREDIT RISK
Management of the Partnership performs ongoing credit evaluations of its
tenants and requires certain tenants to provide security deposits. Tenants
operate in different retail industries. For the year ended December 31,
1996, rent revenue from one tenant represented approximately 22% of total
rent revenue.
The Partnership maintains cash balances at several financial institutions in
Pennsylvania. These amounts are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1996, uninsured cash balances
approximated $220,000.
8
<PAGE> 463
Chesterbrook Shopping Center
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE B - DEFERRED COSTS
Deferred costs at December 31, 1996 are as follows:
Financing costs $ 192,960
Less accumulated amortization 88,123
-----------
$ 104,837
===========
NOTE C - MORTGAGES PAYABLE
Mortgages payable at December 31, 1996 consist of the following:
First mortgage $ 4,142,610
Second mortgage 1,726,224
-----------
$ 5,868,834
===========
The first mortgage note is payable in monthly installments of $43,359,
including interest at 8.5% per annum.
On February 1, 1997, the Partnership entered into a second amendment to the
first mortgage note. Under the amendment, monthly installments of principal
and interest of $35,000 are due until January 1, 2002; the entire
outstanding principal balance and any accrued interest thereon are due on
February 1, 2002.
In August 1994, the bank agreed to loan the Partnership an additional
$2,300,000, bearing interest at 7.75% per annum, for the renovation of
existing space, construction of relocated space for existing tenants, and
the expansion and renovations of its anchor tenant. Through December 31,
1996, the Partnership has received approximately $1,857,000 under the loan.
Commencing on August 1, 1995, the loan is payable in monthly installments of
principal and interest of $17,373. The final payment is due February 1,
2002.
On September 1, 1997, the second mortgage note was amended to provide a
fixed interest rate of 8.5%; under this amendment, the entire outstanding
principal balance along with all accrued interest is due and payable on
February 1, 2002.
The loans are collateralized by the Partnership.
The carrying values of the mortgages payable approximate fair market value.
Cash paid for interest for 1996 amounted to $498,445, of which $137 was
capitalized.
(Continued)
9
<PAGE> 464
Chesterbrook Shopping Center
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - MORTGAGES PAYABLE - Continued
The approximate principal maturities of mortgage notes payable are as
follows:
YEAR ENDING DECEMBER 31,
1997 $ 262,000
1998 285,000
1999 309,000
2000 335,000
2001 367,000
Thereafter 4,310,834
-----------
$ 5,868,834
===========
NOTE D - RELATED PARTY TRANSACTIONS
The Partnership pays management fees equal to 6% of rental and electric
income, as defined, to two companies that are affiliated by common ownership
and management. Management fees amounted to $98,962 for 1996.
NOTE E - MINIMUM FUTURE RENTALS DUE
The Partnership leases space in a commercial shopping center for varying
terms, for which it receives minimum annual rentals. Certain tenants are
also obligated to pay as additional rent a percentage of sales in excess of
a fixed amount. Approximate minimum future rentals at December 31, 1996 are
as follows:
YEAR ENDING DECEMBER 31,
1997 $ 1,205,000
1998 1,049,000
1999 932,000
2000 889,000
2001 802,000
Thereafter 3,331,000
-----------
$ 8,208,000
===========
10
<PAGE> 465
SUPPLEMENTAL INFORMATION
<PAGE> 466
Chesterbrook Shopping Center
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Gross amount
capitalized subsequent at which carried at
Initial cost to acquisition close of period
------------------------ ------------------------- -------------------------------------
Building and Building and Building and
Description Encumbrance Land improvements Land improvements Land improvements Total
----------- ----------- ---------- ------------ ---------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping center,
Chester County,
Pennsylvania $ 5,868,834 $ 776,000 $ - $ 21,246 $ 6,241,279 $ 797,246 $ 6,241,279 $ 7,038,525
=========== =========== =========== ============ =========== =========== =========== ==========
<CAPTION>
Life on which
Accumulation Date of Date depreciation is
depreciation construction acquired computed
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
Shopping center,
Chester County,
Pennsylvania $ 2,470,735 Various 1979 Various
==========
</TABLE>
(Continued)
12
<PAGE> 467
Chesterbrook Shopping Center
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
The change in real estate for the year ended December 31, 1996 is as
follows:
Balance at beginning of year $ 6,990,695
Improvements 47,830
-----------
Balance at end of year $ 7,038,525
==========
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1996 was $7,038,525.
The change in accumulated depreciation for the year ended December 31, 1996
is as follows:
Balance at beginning of year $ 2,224,883
Depreciation for year 245,852
-----------
Balance at end of year $ 2,470,735
===========
13
<PAGE> 468
BENJAMIN LEVY ET AL
SCHEDULES OF ASSETS AND LIABILITIES AND
INCOME AND EXPENSES OF
DICKSON CITY AND WILKES-BARRE, PENNSYLVANIA
PROPERTIES
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 469
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 2
SCHEDULE OF ASSETS AND LIABILITIES 3
SCHEDULE OF INCOME AND EXPENSES 4
NOTES TO SCHEDULES 5 - 7
--------------------
<PAGE> 470
[Logo]
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Benjamin Levy Et Al:
We have audited the accompanying schedules of assets and liabilities
and income and expenses of Benjamin Levy Et Al's (the "Company") Dickson City
and Wilkes-Barre, Pennsylvania properties as of and for the years ended December
31, 1996, 1995 and 1994. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the schedules of assets and liabilities and
income and expenses of the Company's Dickson City and Wilkes-Barre, Pennsylvania
properties are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the schedules. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall schedule
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the schedules of assets and liabilities and income and
expenses referred to above present fairly, in all material respects, the assets
and liabilities and income and expenses of Benjamin Levy Et Al's Dickson City
and Wilkes-Barre, Pennsylvania properties as of and for the years ended December
31, 1996, 1995 and 1994 in conformity with generally accepted accounting
principles.
Parente, Randolph, Orlando, Carey and Associates [Sig]
Scranton, Pennsylvania
August 22, 1997
2
<PAGE> 471
BENJAMIN LEVY ET AL
SCHEDULE OF ASSETS AND LIABILITIES OF THE
DICKSON CITY AND WILKES-BARRE, PENNSYLVANIA PROPERTIES
DECEMBER 31, 1996, 1995 AND 1994
------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ---------------------- ---------------------
Dickson Wilkes- Dickson Wilkes- Dickson Wilkes-
City Barre City Barre City Barre
Property Property Property Property Property Property
--------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Buildings $ 296,427 $ 169,255 $ 296,427 $ 169,255 $ 296,427 $ 169,255
Improvements 1,122,927 44,784 1,093,449 44,784 1,093,449 44,784
----------- ---------- ---------- --------- ---------- ----------
Total building and
improvements 1,419,354 214,039 1,389,876 214,039 1,389,876 214,039
Less accumulated depreciation 764,266 142,263 734,046 137,046 707,028 132,159
----------- ---------- ---------- --------- ---------- ----------
TOTAL $ 655,088 $ 71,776 $ 655,830 $ 76,828 $ 682,848 $ 81,880
=========== ========== ========= ========= ========== ==========
LIABILITIES AND PROPERTY EQUITY
MORTGAGES PAYABLE $ 524,552 $ 13,196 $ 561,799 $ 29,537 $ 593,042 $ 44,550
PROPERTY EQUITY 130,536 58,580 94,031 47,291 89,806 37,330
----------- ---------- ---------- --------- ---------- ---------
TOTAL $ 655,088 $ 71,776 $ 655,830 $ 76,828 $ 682,848 $ 81,880
=========== ========== ========= ========= ========== =========
</TABLE>
See Notes To Schedules
3
<PAGE> 472
BENJAMIN LEVY ET AL
SCHEDULE OF INCOME AND EXPENSES OF THE
DICKSON CITY AND WILKES-BARRE, PENNSYLVANIA PROPERTIES
DECEMBER 31, 1996, 1995 AND 1994
------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ---------------------- ---------------------
Dickson Wilkes- Dickson Wilkes- Dickson Wilkes-
City Barre City Barre City Barre
Property Property Property Property Property Property
--------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
RENTAL INCOME $ 391,911 $ 72,329 $ 367,395 $ 42,550 $ 365,550 $ 30,000
--------- ---------- ---------- --------- ---------- ---------
EXPENSES:
Interest 47,953 1,884 54,783 3,211 45,217 4,430
Depreciation 30,180 5,052 27,018 5,052 28,980 5,052
Maintenance and repairs 30,104 3,391 9,721 8,518 19,947
Real estate taxes 27,941 26,650 11,762 25,358 11,762
Insurance 9,090 2,524 4,147 929 3,919 848
Utilities 8,085 4,109 8,969
Snow Removal 7,140 4,610 7,059
Other 336 100 37 125
--------- --------- ---------- --------- ---------- ---------
Total Expenses $ 160,829 12,851 $ 131,138 $ 29,509 $ 139,574 $ 22,092
--------- --------- ---------- --------- ---------- ---------
EXCESS INCOME OVER EXPENSES $ 231,082 $ 59,478 $ 131,138 $ 13,041 $ 225,976 $ 7,908
========= ========= ========== ========= ========= =========
</TABLE>
See Notes To Schedules
4
<PAGE> 473
BENJAMIN LEVY ET AL
NOTES TO SCHEDULES
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Benjamin Levy Et Al (the "Company") is a commercial real estate rental
partnership. The accompanying financial statements include the assets,
liabilities, income and expenses relating only to the Company's Dickson
City and Wilkes-Barre, Pennsylvania properties (the "Properties").
NATURE OF OPERATIONS
The Company has entered into long-term lease agreements with each of
its tenants on the Properties which are summarized as follows:
DICKSON CITY
OFFICE MAX - original lease dated May 13, 1991 (as amended on April
8, 1996) provides for original term through January 2007 with
options for two additional periods of five years each. Tenant pays
minimum rent (as defined) plus percentage rent (as defined) plus
its proportionate share of insurance, taxes and common area costs.
PET SUPPLIES PLUS - lease dated April 15, 1996 provides for
original term of five years with an option to extend for another
five years. Tenant pays fixed rental of $80,750 per year during
original lease term plus its proportionate share of insurance,
taxes and common area costs.
KEEP IT CLEAN - lease dated May 16, 1996 provides for original term
of five years with an option to extend for another five years.
Tenant pays fixed rental of $56,050 per year during original lease
term plus its proportionate share of insurance, taxes and common
area costs.
WILKES-BARRE
PET SUPPLIES PLUS - lease dated June 9, 1995 provides for original
term of five years with an option to extend for another five years.
Tenant pays fixed rental of $71,400 per year during original lease
term plus taxes, insurance, utilities and maintenance.
5
<PAGE> 474
BENJAMIN LEVY ET AL
NOTES TO SCHEDULES
- --------------------------------------------------------------------------------
The scheduled minimum rents on the Properties, excluding options, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DICKSON WILKES-
DECEMBER 31 CITY BARRE
----------- -------- -------
<S> <C> <C>
1997 $413,718 $ 71,400
1998 413,718 71,400
1999 413,718 71,400
2000 413,718 71,400
2001 355,109 35,700
Thereafter 1,337,969 -
</TABLE>
BUILDINGS AND IMPROVEMENTS AND DEPRECIATION
Buildings and improvements are stated at cost. All significant
improvements are capitalized while routine maintenance and repairs are
expensed as incurred.
Depreciation is computed using straight-line and accelerated methods
over estimated useful lives which range from seven to forty years.
INCOME TAXES
The accompanying schedule of income and expenses of the Properties
includes no provision for income taxes since any such taxes are the
personal responsibility of the Company's partners.
2. MORTGAGES PAYABLE
Mortgages payable consist of the following at December 31, 1996, 1995 and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
==== ==== ====
<S> <C> <C> <C>
DICKSON CITY - mortgage payable in
monthly payments of $7,100 including interest at 9%,
maturing December 2005
$524,552 $561,799 $593,042
======== ======== ========
WILKES-BARRE - mortgage payable in
monthly payments of $1,519 including interest at
8.5%, maturing September 1997
$ 13,196 $ 29,537 $ 44,550
========= ========= =========
</TABLE>
6
<PAGE> 475
BENJAMIN LEVY ET AL
NOTES TO SCHEDULES
- --------------------------------------------------------------------------------
The scheduled principal payments on the Dickson City property are as
follows:
YEAR ENDING
DECEMBER 31 AMOUNT
----------- -------
1997 $ 39,597
1998 43,312
1999 47,375
2000 51,819
2001 56,680
Thereafter 285,769
--------
Total $524,552
========
3. RELATED PARTY TRANSACTIONS
WILKES-BARRE -Rental income in 1994 and 1995 includes $30,000 and $18,750,
respectively, from BLS Associates, a related party.
DICKSON CITY - Rental income includes $58,000 in 1994 and 1995 from
BLS Associates.
7
<PAGE> 476
APPENDIX I
CARD
PROXY
CV REIT, INC.
The undersigned hereby appoints Stanley Brenner AND Alan L. Shulman, and each of
them, the attorneys and proxies of the undersigned, with power of substitution,
to vote on behalf of the undersigned all the shares of stock of CV REIT, INC.
which the undersigned is entitled to vote at the Special Meeting in Lieu of an
Annual Meeting of Stockholders of CV REIT, INC. to be held on December 17,
1997, at 10:00 a.m. and at all adjournments thereof, hereby revoking any proxy
heretofore given with respect to such stock, and the undersigned authorizes and
instructs said proxies to vote as specified on the reverse side hereof.
1. Election of directors
[ ] FOR the election of the nominees listed below (except as marked to
the contrary below):
[ ] WITHHOLD AUTHORITY to vote for all the nominees listed below
including those who would be elected under the alternative.
Allyn L. Levy (1 year term) Louis P. Meshon (3 year term)
Alan L. Shulman (2 year term) Stanley S. Cohen (1 year term)
Stanley Brenner (1 year term) Milton S. Schneider (2 year term)
H. Irwin Levy (3 year term)
(If Proposals 1 through 7 are not approved by the Stockholders, then in the
alternative the nominees listed below will be elected for a 1 year term
each.
Allyn L. Levy, Alan L. Shulman, Stanley Brenner and H. Irwin Levy)
<PAGE> 477
- -------------------------------------------------------------------------------
2. The Master Agreement and transfers of properties and other transactions
contemplated by the Master Agreement.
FOR AGAINST ABSTAIN
--- --- ---
3. Amendment to the Certificate of Incorporation to increase the number of
authorized shares of the authorized capital stock of the Company.
FOR AGAINST ABSTAIN
--- --- ---
4. Amendment to the Certificate of Incorporation to provide for a classified
Board of Directors.
FOR AGAINST ABSTAIN
--- --- ---
5. Other Amendments to the Certificate of Incorporation
FOR AGAINST ABSTAIN
--- --- ---
6. Amendments to the By-Laws
FOR AGAINST ABSTAIN
--- --- ---
7. The Montgomery CV Trust Executive Stock Option Plan
FOR AGAINST ABSTAIN
--- --- ---
8. Approve the appointment of BDO Seidman as independent auditors for the
Company for fiscal 1997.
FOR AGAINST ABSTAIN
--- --- ---
In their discretion, upon such other business as may be properly brought
before the meeting.
(Please date and sign on the other side)
<PAGE> 478
If this Proxy is properly executed and returned, the shares represented
hereby will be voted. If not otherwise specified, this Proxy will be voted FOR
the persons nominated as directors, and FOR proposals number 2, 3, 4, 5, 6, 7
and 8.
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR BELOW.
DATED:____________, 1997
__________________________
___________________________
(Signature of Stockholder(s))
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
BACK
