<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] 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 sec. 240.14a-11(c) or sec. 240.14a-12
Filing by:
CORNERSTONE PROPERTIES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
CORNERSTONE PROPERTIES INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, with no par value per share, of Cornerstone Properties Inc.
("Common Stock")
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
48,856,742 shares of Common Stock (outstanding as of September 22, 1997)
- --------------------------------------------------------------------------------
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):
The per unit price of each share of Common Stock is $17.4375 (the average
of the high and low prices per share of Common Stock on August 18, 1997).
The filing fee of $221,140 has been calculated in accordance with Rule
0-11 under the Exchange Act and is equal to 1/50 of 1% of the sum of (i)
the product of $17.4375 (the average of the high and low prices per share
of Common Stock on August 18, 1997) and 34,187,500 (the number of shares
to be issued by Cornerstone), (ii) $259,548,000 (the amount of cash to be
paid by Cornerstone) and (iii) $250,000,000 (the principal amount of
promissory notes to be issued by Cornerstone).
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$1,105,692,531
- --------------------------------------------------------------------------------
5) Total fee paid:
$221,140 (Fee paid by wire transfer on August 22, 1997. The CIK number
for fees is 0000702301.)
- --------------------------------------------------------------------------------
[X] 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
CORNERSTONE PROPERTIES INC.
126 EAST 56TH STREET
NEW YORK, NY 10022
Dear Cornerstone Stockholder, September 23, 1997
You are cordially invited to attend the Special Meeting of Stockholders of
Cornerstone Properties Inc. ("Cornerstone") to be held on October 27, 1997 at
The St. Regis Hotel, 2 East 55th Street, New York, NY, commencing at 2:00 P.M.
(the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon two
proposals related to the Stock Purchase Agreement, dated as of August 18, 1997
(the "Stock Purchase Agreement"), between Cornerstone and Dutch Institutional
Holding Company, Inc. ("DIHC") and the Loan Purchase Agreement, dated as of
August 18, 1997 (the "Loan Purchase Agreement") between Cornerstone and
Stichting Pensioenfonds Voor de Gezondheid, Geestelijke en Maatschappelijke
Belangen ("PGGM"), which provide for the acquisition of interests in nine
properties and one parcel of undeveloped land (the "Additional Properties") and
certain secured and unsecured loans by Cornerstone from PGGM and DIHC (the
"Property Acquisition"). You will also be asked to vote upon proposals to amend
the Restated Articles of Incorporation of Cornerstone (the "Cornerstone
Articles") to increase the authorized number of shares of Common Stock from
100,000,000 to 250,000,000 and to clarify the mechanics of settling trades on
the New York Stock Exchange.
The Property Acquisition will be effected by Cornerstone purchasing certain
direct and indirect subsidiaries of DIHC that own the Additional Properties
together with certain loans to such subsidiaries held by PGGM. Upon consummation
of the Property Acquisition, PGGM and DIHC (which is a wholly-owned subsidiary
of PGGM) will receive up to 34,187,500 shares of Cornerstone common stock,
$259,548,000 in cash and promissory notes for $250,000,000. Approximately 41% of
the shares of Cornerstone expected to be outstanding after the Property
Acquisition would be issued to PGGM and DIHC. The Stock Purchase Agreement and
the Loan Purchase Agreement also require that the Cornerstone Articles be
amended to include new provisions that are designed to cause Cornerstone to
become a "domestically-controlled REIT" under United States tax laws.
The Proxy Statement that accompanies this letter contains information about
Cornerstone and the properties being acquired and describes in detail the
Property Acquisition and the proposed amendments to the Cornerstone Articles.
Attached to the Proxy Statement is a copy of the Stock Purchase Agreement and
the Loan Purchase Agreement. Please review them carefully.
THE BOARD OF DIRECTORS OF CORNERSTONE HAS DETERMINED THAT THE PROPERTY
ACQUISITION IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF
CORNERSTONE, HAS UNANIMOUSLY APPROVED THE STOCK PURCHASE AGREEMENT, THE LOAN
PURCHASE AGREEMENT AND THE PROPERTY ACQUISITION AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE PROPERTY ACQUISITION AND THE AMENDMENTS TO THE
CORNERSTONE ARTICLES.
Because of the significance of the Property Acquisition and the items to be
voted on, your participation in the Special Meeting, in person or by proxy, is
especially important. I hope you will be able to attend the Special Meeting.
However, if you are unable to attend in person, we urge you to mark, sign and
return the enclosed proxy card promptly in the enclosed postage-paid envelope to
ensure that your shares of Cornerstone common stock will be represented at the
Special Meeting. If you do attend, you will be entitled to vote your shares in
person.
If you have any questions regarding the proposed transaction, please call
Georgeson and Company Inc., our proxy solicitation and information agent, at
(800) 223-2064.
Thank you, and I look forward to seeing you at the Special Meeting.
Sincerely,
/s/ JOHN S. MOODY
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
<PAGE> 3
CORNERSTONE PROPERTIES INC.
126 EAST 56TH STREET
NEW YORK, NY 10022
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 27, 1997
To the Stockholders of
Cornerstone Properties Inc.:
A Special Meeting of Stockholders of Cornerstone Properties Inc., a Nevada
corporation ("Cornerstone"), will be held on October 27, 1997 at 2:00 P.M., at
The St. Regis Hotel, 2 East 55th Street, New York, NY (the "Special Meeting"),
for the following purposes:
1. To consider and vote upon a proposal to purchase interests in nine
additional properties and one parcel of undeveloped land and certain
secured and unsecured loans (the "Property Acquisition") in exchange for up
to 34,187,500 shares of common stock, with no par value ("Common Stock"),
of Cornerstone, $259,548,000 in cash and promissory notes for $250,000,000
pursuant to the Stock Purchase Agreement, dated as of August 18, 1997 (the
"Stock Purchase Agreement"), between Cornerstone and Dutch Institutional
Holding Company, Inc. ("DIHC") and the Loan Purchase Agreement, dated as of
August 18, 1997 (the "Loan Purchase Agreement") between Cornerstone and
Stichting Pensioenfonds Voor de Gezondheid, Geestelijke en Maatschappelijke
Belangen ("PGGM"). Based on the number of shares of Cornerstone outstanding
on the date hereof, approximately 41% of the Common Stock expected to be
outstanding after the Property Acquisition would be issued to PGGM and DIHC
(which is a wholly-owned subsidiary of PGGM).
2. To consider and vote upon a proposal to amend the Restated Articles
of Incorporation of Cornerstone (the "Cornerstone Articles") to include new
provisions that are designed to cause Cornerstone to become a "domestically
controlled REIT" under United States tax laws (the "Acquisition
Amendment").
3. To consider and vote upon a proposal to amend the Cornerstone
Articles to increase the number of authorized shares of Common Stock from
100,000,000 to 250,000,000 shares (the "Authorized Shares Amendment").
4. To consider and vote upon a proposal to amend the Cornerstone
Articles to include a provision clarifying the mechanics of settling trades
on the New York Stock Exchange (the "NYSE Amendment").
5. To consider and transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof,
including, without limitation, a motion to adjourn the Special Meeting to
another time and/or place for the purpose of soliciting additional proxies
in order to approve the Property Acquisition and/or the amendments to the
Cornerstone Articles.
Holders of record of Common Stock at the close of business on September 22,
1997 (the "Record Date") will be entitled to vote at the Special Meeting or any
adjournments or postponements thereof. On the Record Date, there were 48,856,742
shares of Common Stock outstanding, each of which is entitled to one vote with
respect to each matter to be voted on at the Special Meeting. Cornerstone's
transfer books will not be closed.
THE BOARD OF DIRECTORS OF CORNERSTONE HAS DETERMINED THAT THE PROPERTY
ACQUISITION IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF
CORNERSTONE, HAS UNANIMOUSLY APPROVED THE STOCK PURCHASE AGREEMENT, THE LOAN
PURCHASE AGREEMENT AND THE PROPERTY ACQUISITION AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE PROPERTY ACQUISITION AND THE AMENDMENTS TO THE
CORNERSTONE ARTICLES.
<PAGE> 4
The affirmative vote of a majority of the votes cast is required to approve
the Property Acquisition, provided, that the total vote cast represents over 50%
in interest of the outstanding shares of Common Stock on the Record Date. The
affirmative vote of a majority of the outstanding shares of Common Stock is
required to approve the Acquisition Amendment, the Authorized Shares Amendment
and the NYSE Amendment. The Acquisition Amendment and the Authorized Shares
Amendment are being proposed in connection with the Property Acquisition and
approval of the Acquisition Amendment is a condition precedent to closing the
Property Acquisition. In the event the Property Acquisition is not approved, the
Acquisition Amendment and the Authorized Shares Amendment will be withdrawn from
consideration and shall not be separately approved.
Detailed information concerning the Property Acquisition, the Stock
Purchase Agreement, the Loan Purchase Agreement, the Acquisition Amendment, the
Authorized Shares Amendment and the NYSE Amendment is contained in the attached
Proxy Statement, which you are urged to read carefully.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
A STOCKHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY TIME BEFORE IT IS
EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF
CORNERSTONE, BY SUBSEQUENTLY FILING ANOTHER PROXY OR BY ATTENDING THE SPECIAL
MEETING AND VOTING IN PERSON.
By Order of the Board of Directors,
/s/ THOMAS P. LOFTUS
Vice President and Secretary
New York, New York
September 23, 1997
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
THE REQUIRED VOTE OF THE CORNERSTONE STOCKHOLDERS WITH RESPECT TO THE APPROVAL
OF THE ACQUISITION AMENDMENT, THE AUTHORIZED SHARES AMENDMENT AND THE NYSE
AMENDMENT ARE BASED UPON BOTH THE TOTAL NUMBER OF OUTSTANDING SHARES OF
CORNERSTONE COMMON STOCK AND UPON THE NUMBER OF SHARES THAT ARE ACTUALLY VOTED.
ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE
SPECIAL MEETING OR THE ABSTENTION FROM VOTING BY A STOCKHOLDER WILL HAVE THE
SAME EFFECT AS A VOTE "AGAINST" APPROVAL OF THE PROPERTY ACQUISITION, THE
ACQUISITION AMENDMENT, THE AUTHORIZED SHARES AMENDMENT AND THE NYSE AMENDMENT.
STOCKHOLDER APPROVAL OF THE ACQUISITION AMENDMENT IS ONE OF THE CONDITIONS TO
CLOSING THE PROPERTY ACQUISITION.
<PAGE> 5
CORNERSTONE PROPERTIES INC.
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is being furnished to the holders of outstanding
shares of common stock, of no par value ("Common Stock"), of Cornerstone
Properties Inc., a Nevada corporation ("Cornerstone"), in connection with the
solicitation of proxies by the Board of Directors of Cornerstone (the
"Cornerstone Board") for use at the Special Meeting of stockholders of
Cornerstone (the "Special Meeting") to be held on October 27, 1997, at The St.
Regis Hotel, 2 East 55th Street, New York, NY, commencing at 2:00 P.M. local
time, and at any adjournment or postponement thereof.
The purpose of the Special Meeting is to consider and vote upon two
proposals related to the Stock Purchase Agreement, dated as of August 18, 1997
(the "Stock Purchase Agreement"), between Cornerstone and Dutch Institutional
Holding Company, Inc. ("DIHC"), and the Loan Purchase Agreement, dated as of
August 18, 1997 (the "Loan Purchase Agreement") between Cornerstone and
Stichting Pensioenfonds Voor de Gezondheid, Geestelijke en Maatschappelijke
Belangen ("PGGM"). You will also be asked to vote upon proposals to amend the
Restated Articles of Incorporation of Cornerstone (the "Cornerstone Articles")
to increase the authorized number of shares of Common Stock from 100,000,000 to
250,000,000 and to clarify the mechanics of settling trades on the New York
Stock Exchange (the "NYSE").
The Stock Purchase Agreement and the Loan Purchase Agreement provide for
the acquisition of a portfolio of nine properties and one parcel of undeveloped
land (the "Additional Properties") by Cornerstone from PGGM and DIHC (the
"Property Acquisition"). The Property Acquisition will be effected by
Cornerstone purchasing all of the outstanding stock of certain direct and
indirect subsidiaries of DIHC that own interests in the Additional Properties
together with certain loans to such subsidiaries held by PGGM. DIHC is a
wholly-owned subsidiary of PGGM. Upon consummation of the Property Acquisition,
PGGM and DIHC will receive up to 34,187,500 shares of Common Stock, $259,548,000
in cash, and promissory notes for $250,000,000. The Stock Purchase Agreement and
the Loan Purchase Agreement also require that the Cornerstone Articles be
amended to include new provisions that are designed to cause Cornerstone to
become a "domestically controlled REIT" under United States tax laws. The Stock
Purchase Agreement and the Loan Purchase Agreement are attached to this Proxy
Statement as ANNEX I and ANNEX II, respectively. For a description of the Stock
Purchase Agreement and the Loan Purchase Agreement, see "Proposal A: The
Property Acquisition."
Based on the closing price of Cornerstone Common Stock on the NYSE of
$19.50 on September 17, 1997, if the Property Acquisition is approved and
consummated, the total market value of Cornerstone would be approximately $1.7
billion. Based on the number of shares of Cornerstone outstanding on that date,
approximately 41% of the shares of Cornerstone expected to be outstanding after
the Property Acquisition would be issued to PGGM and DIHC.
This Proxy Statement and the accompanying proxy cards are first being
mailed to Cornerstone stockholders on or about September 23, 1997.
The Date of this Proxy Statement is September 23, 1997.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
ACQUISITION............................ 3
SUMMARY.................................. 6
RISK FACTORS............................. 19
Substantial Concentration of Ownership
of Common Stock...................... 19
Transfer and Ownership Limitations..... 19
Risks Involved in Property Ownership
Through Partnerships and Joint
Ventures............................. 19
Integration of Operations;
Nonrealization of Synergies.......... 20
Registration Rights.................... 20
Fixed Stock Consideration for the
Property Acquisition Despite
Potential Changes in Stock Prices.... 20
Real Estate Investment Risks........... 20
Forward-Looking Statements May Prove
Inaccurate........................... 21
THE SPECIAL MEETING...................... 22
Date, Times and Places................. 22
Matters to Be Considered at the Special
Meeting.............................. 22
Record Date, Stock Entitled to Vote;
Quorum............................... 22
Votes Required......................... 22
Voting of Proxies...................... 23
Revocability of Proxies................ 23
Solicitation of Proxies................ 23
PROPOSAL A:
THE PROPERTY ACQUISITION................. 24
Additional Properties Being Acquired... 24
Consideration for the Property
Acquisition.......................... 24
Background to the Property
Acquisition.......................... 24
Reasons for the Property Acquisition... 25
Board Recommendation................... 26
Fairness Opinion....................... 27
Share Ownership of Management and
Certain Stockholders; Interests in
the Property Acquisition............. 27
Accounting Treatment................... 27
PGGM and DIHC.......................... 28
Form of the Property Acquisition....... 28
Right to Sell Dearborn Land............ 28
Consents............................... 29
CERTAIN PROVISIONS OF THE STOCK PURCHASE
AGREEMENT.............................. 29
General................................ 29
Conditions to the Consummation of the
Property Acquisition................. 29
Termination............................ 30
No Solicitation........................ 31
Conduct of Business Pending the
Property Acquisition................. 31
Amendment and Waiver................... 32
Expenses............................... 33
Representations and Warranties......... 33
Standstill Agreement................... 33
Indemnification........................ 33
Tax Matters............................ 34
CERTAIN PROVISIONS OF THE LOAN PURCHASE
AGREEMENT.............................. 35
General................................ 35
Conditions to the Consummation of the
Loan Purchase........................ 35
<CAPTION>
PAGE
-------
<S> <C>
Termination............................ 36
Conduct of Business Pending the Loan
Purchase............................. 36
Amendment and Waiver................... 37
Expenses............................... 38
Representations and Warranties......... 38
Standstill Agreement................... 38
Indemnification........................ 38
CERTAIN PROVISIONS OF THE REGISTRATION
RIGHTS AND VOTING AGREEMENT............ 40
Restrictions on Transfer Generally;
Rule 144.............................
Registration Rights.................... 40
Board Representations.................. 41
Transfer Restrictions; Standstill
Provisions........................... 41
Other Agreements....................... 42
PROPOSAL B:
ACQUISITION AMENDMENT.................... 44
Acquisition Amendment.................. 44
Limitations on the Acquisition
Amendment............................ 45
Board Recommendation................... 45
PROPOSAL C: AUTHORIZED SHARES
AMENDMENT.............................. 46
PROPOSAL D: SETTLEMENT OF TRADES ON THE
NYSE................................... 47
CORNERSTONE PROPERTIES INC............... 48
SELECTED FINANCIAL AND OPERATING DATA.... 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................. 52
PROPERTIES............................... 54
Tenants................................ 56
Lease Expirations...................... 59
Mortgage Indebtedness and Credit
Facility............................. 60
Description of Additional Properties
and Market Data...................... 61
Description of Current Properties and
Market Data.......................... 78
DIRECTORS AND OFFICERS OF CORNERSTONE
FOLLOWING THE PROPERTY ACQUISITION..... 92
EXPERTS.................................. 92
WHERE YOU CAN FIND MORE INFORMATION...... 93
GLOSSARY................................. 95
INDEX TO PRO FORMA FINANCIAL STATEMENTS
AND NOTES
ANNEX I -- Stock Purchase Agreement
ANNEX II -- Loan Purchase Agreement
ANNEX III -- Registration Rights and
Voting Agreement
ANNEX IV -- Proposed New Article Nine to
the Restated Articles of
Incorporation of Cornerstone
ANNEX V -- Fairness Opinion of Lazard
Freres & Co. LLC
</TABLE>
2
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE PROPERTY ACQUISITION
Q: WHY IS CORNERSTONE PROPOSING TO ACQUIRE THE PROPERTIES? HOW WILL I BENEFIT?
A: The Property Acquisition is an accretive transaction that should solidify
Cornerstone's status as the market's leading Class A office REIT, and is
consistent with Cornerstone's objective of growing its earnings and asset
base by acquiring high-profile Class A office properties in major real estate
markets in the United States. The Additional Properties fit in well with
Cornerstone's existing portfolio and business strategy. It is unusual to find
a group of high-profile Class A office properties such as the Additional
Properties held by a single owner, and therefore the Property Acquisition
represents an attractive opportunity for Cornerstone to acquire several
high-profile Class A assets at attractive yields, in improving markets, in a
single transaction.
From a financial perspective, the Property Acquisition:
- should be accretive to Cornerstone's earnings and funds from operations
(FFO),
- enables Cornerstone to effectively invest $200 million of the proceeds
raised in its recent public offering,
- should improve operating margins by almost doubling the size of
Cornerstone's asset base while reducing the projected increases in corporate
overhead on a percentage basis, and
- should improve Cornerstone's internal cash flow growth since the internal
growth rate of cash flow for the Additional Properties is higher than the
growth rate for Cornerstone's existing portfolio.
Strategically, the Property Acquisition also enables Cornerstone to achieve
critical mass in Boston, where it had previously owned only 125 Summer
Street, while further diversifying its asset base to include major holdings
in Washington, D.C., Atlanta and Charlotte.
THE CORNERSTONE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPERTY
ACQUISITION AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSALS.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible so that your shares may
be represented at your stockholders' meeting. If you sign and send in your
proxy and do not indicate how you want to vote, your proxy will be counted as
a vote (i) in favor of the Property Acquisition and the issuance of Common
Stock to PGGM and DIHC, (ii) in favor of an amendment to Cornerstone's
Articles to add new transfer restrictions designed to encourage Cornerstone
to become a "domestically controlled REIT" for purposes of U.S. tax laws,
(iii) in favor of an amendment to Cornerstone's Articles to increase the
number of authorized shares of common stock and (iv) in favor of an amendment
to the Cornerstone Articles to clarify the mechanics of settling trades on
the NYSE. If you do not return your proxy or if you do not vote or if you
abstain at the meeting, it may have the effect of a vote against the
proposals.
The Special Meeting will take place on October 27, 1997. You may attend the
stockholders' meeting and vote your shares in person, rather than signing and
mailing your proxy card. In addition, you may revoke your proxy at any time
up to and including the day of the Special Meeting by following the
directions on page 23 and either change your vote or attend your
stockholders' meeting and vote in person.
3
<PAGE> 8
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote by returning the proxy instructions accompanying this Proxy Statement.
Without instructions, your shares will not be voted. PLEASE REMEMBER THAT THE
REQUIRED VOTE OF STOCKHOLDERS IS BASED ON BOTH THE TOTAL NUMBER OF
OUTSTANDING SHARES AND UPON THE NUMBER OF SHARES WHICH ARE ACTUALLY VOTED.
ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE
SPECIAL MEETING OF THE CORNERSTONE STOCKHOLDERS OR THE ABSTENTION FROM VOTING
BY A STOCKHOLDER MAY HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE PROPOSALS.
IN ORDER FOR THE PROPERTY ACQUISITION TO BE COMPLETED, THE ACQUISITION
AMENDMENT MUST ALSO BE APPROVED. THE ACQUISITION AMENDMENT IS BEING PROPOSED
IN CONNECTION WITH THE PROPERTY ACQUISITION AND IS A CONDITION PRECEDENT TO
ITS CLOSING. IN THE EVENT THE PROPERTY ACQUISITION IS NOT APPROVED, THE
ACQUISITION AMENDMENT AND THE AUTHORIZED SHARES AMENDMENT WILL BE WITHDRAWN
FROM CONSIDERATION AND SHALL NOT BE SEPARATELY APPROVED.
Q: AS A CORNERSTONE STOCKHOLDER, HOW WILL THE PROPERTY ACQUISITION AFFECT ME?
A: Following the Property Acquisition, shares of Cornerstone Common Stock that
were outstanding prior to the Property Acquisition will remain outstanding.
As a result, stockholders who own Common Stock prior to the Property
Acquisition will own approximately 60% of the Common Stock of Cornerstone
following the Property Acquisition. PGGM and DIHC will own approximately 41%
of the outstanding shares of Common Stock following the Property Acquisition.
Q: HOW WILL CORNERSTONE BE OPERATED AFTER THE PROPERTY ACQUISITION?
A: Cornerstone will continue to be a Nevada corporation and equity real estate
investment trust, owning a substantially larger and more diversified number
of properties. The Purchase Agreement provides that the new Board of
Directors of Cornerstone will consist of 12 members, made up of the existing
members of the Cornerstone Board plus two additional members selected by
PGGM.
Q: WHAT HAPPENS TO MY FUTURE DISTRIBUTIONS?
A: Because Cornerstone pays out a high percentage of its earnings each year,
there is no change to projected near term distributions. Distributions are
expected to be higher over time as a result of earnings growth associated
with the Additional Properties.
Q: WHEN DO YOU EXPECT THE PROPERTY ACQUISITION TO BE COMPLETED?
A: We are working toward completing the acquisition as quickly as possible. We
expect the Property Acquisition to be completed shortly after the Special
Meeting.
4
<PAGE> 9
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the Property Acquisition you should contact:
CORNERSTONE PROPERTIES INC.
Tower 56
126 East 56th Street
New York, New York 10022
Attention: Kevin P. Mahoney, Vice President and Treasurer
or
Thomas P. Loftus,
Vice President and Controller
Phone Number: (212) 605-7100
web site: http://www.cstoneprop.com
If you would like additional copies of the Proxy Statement,
you should contact:
GEORGESON AND COMPANY INC.
88 Pine Street
Wall Street Plaza
New York, New York 10005
Toll Free Number: 1-800-223-2064
web site: http://www.georgeson.com
5
<PAGE> 10
SUMMARY
This summary highlights selected information from this document and does
not contain all the information that is important to you. To understand the
Property Acquisition fully and for a more complete description of the legal
terms of the Property Acquisition, you should read carefully this entire
document and the documents to which we have referred you.
CORNERSTONE PROPERTIES INC.
Cornerstone is a self-advised equity real estate investment trust ("REIT")
which owns, through subsidiaries, interests in eight Class A office properties
comprising nearly five million rentable square feet (collectively, the "Current
Properties", and each individually, a "Property"). The Current Properties are
located in seven major metropolitan areas throughout the United States: Boston,
suburban Chicago, Denver, Minneapolis, New York City, Pittsburgh and Seattle.
All of the Current Properties were built in the mid- to late-1980s, except the
Pittsburgh property, which was substantially renovated in 1988. Cornerstone's
strategy is to own Class A office properties in prime central business district
("CBD") locations and major suburban office markets in U.S. metropolitan areas.
Class A office properties are generally considered to be those that have the
most favorable locations and physical attributes, attract premium rents and
experience the highest tenant retention rates within their markets. As of June
30, 1997, the Current Properties were approximately 97% leased to 411 tenants.
ADDITIONAL PROPERTIES BEING ACQUIRED
Cornerstone has signed the Stock Purchase Agreement and the Loan Purchase
Agreement to acquire interests in nine additional Class A office properties
comprising nearly 4.5 million rentable square feet (collectively, the
"Additional Properties", and each individually, a "Property") in Alexandria,
Virginia (3 properties), Atlanta (2 properties), Boston (2 properties),
Charlotte and Washington, D.C., as well as an undeveloped parcel of land in
Chicago.
CONSIDERATION FOR THE PROPERTY ACQUISITION
Upon consummation of the Property Acquisition, PGGM and DIHC will receive
up to 34,187,500 shares of Common Stock, $259,548,000 in cash and promissory
notes for $250,000,000. Based on the number of shares of Cornerstone outstanding
on that date, approximately 41% of the shares of Cornerstone expected to be
outstanding after the Property Acquisition would be issued to PGGM and DIHC.
Cornerstone expects to finance the cash portion of the consideration for
the Property Acquisition and an estimated $8.0 million in closing costs with
$200.0 million of available cash and $67.5 million from its committed credit
facility with Bankers Trust Company and The Chase Manhattan Bank. See "The
Properties -- Mortgage Indebtedness and Credit Facility".
REASONS FOR THE PROPERTY ACQUISITION
The Board of Directors and management of Cornerstone believe that the
Property Acquisition is an effective investment of the approximately $200
million of proceeds raised in its recent U.S. public offering, should solidify
Cornerstone's status as the market's leading Class A office REIT, and is
consistent with Cornerstone's objective of growing its earnings and asset base
by acquiring high-profile Class A office properties in major real estate markets
nationwide.
Additional benefits of the Property Acquisition are expected to include:
(i) accretive effects to Cornerstone's earnings and funds from operations (FFO);
(ii) strong expansion of existing presence in Boston; (iii) establishment of
initial market presence in Atlanta, Charlotte and Washington, D.C.; (iv)
significant improvement in overall rent roll and a leveling of Cornerstone's
lease expiration schedule; and (v) improvement of operating margins by almost
doubling the size of Cornerstone's asset base while reducing the projected
increases in corporate overhead on a percentage basis.
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<PAGE> 11
DESCRIPTION OF THE ADDITIONAL PROPERTIES
Set forth below is a brief description of each of the Additional Properties
being acquired. As of June 30, 1997, the Additional Properties were
approximately 96% leased to 268 tenants. Additional specific information
regarding each of the Additional Properties is set forth below under
"Properties."
191 PEACHTREE STREET, Atlanta, Georgia
191 Peachtree Street is a 50-story multi-tenant Class A office building
containing 1,221,000 square feet of office, retail and storage area. 191
Peachtree Street is located in the heart of Atlanta's CBD, also referred to as
"Downtown". Peachtree Street is the major thoroughfare through the center of the
CBD. The Property was completed in 1991 and designed by John Burgee and Philip
Johnson. Attached to the building is a 16-story parking deck with 1,386 spaces.
As of June 30, 1997, 191 Peachtree Street was 95% leased to 37 tenants.
MARKET SQUARE, Washington, D.C.
Market Square is a Class A office building located at 701 and 801
Pennsylvania Avenue in Washington, D.C., midway between the White House and the
Capitol building. The project consists of two buildings which are mirror images
of each other. Each building contains eight floors of office space, a plaza and
a concourse level, plus four floors of condominium residential units. The
condominium units are owned separately and are not part of the proposed
transaction. The total area of the Market Square property including the plaza
and concourse levels and excluding the residential component is 689,000 square
feet. Of this total area, 621,000 square feet is office space, 58,000 square
feet is retail and concourse space, and 10,000 square feet is storage space. The
complex also houses a four-level below grade parking garage which contains
approximately 777 spaces. Designed by Hartman Cox, the project won a competition
to become the backdrop for the U.S. Navy Memorial Plaza. As of June 30, 1997,
Market Square was 91% leased to 46 tenants.
500 BOYLSTON STREET, Boston, Massachusetts
500 Boylston Street is a 25-story, Class A office building located in the
Back Bay submarket of Boston and containing a net rentable area of 715,000
square feet. The building shares a full city block with 222 Berkeley Street, and
was designed by the team of John Burgee Architects and Philip Johnson. 500
Boylston is comprised of 642,000 square feet of office area on floors three
through twenty-five, 65,000 square feet of retail area on floors one and two,
and 8,000 square feet of storage space. 500 Boylston Street and 222 Berkeley
Street share a parking garage for 1000 cars which is located on three levels
below grade. The 500 Boylston Street site contains approximately 137,000 square
feet of land area, or 3.15 acres, with approximately 500 feet of frontage on
Boylston Street. As of June 30, 1997, 500 Boylston Street was 100% leased to 16
tenants.
222 BERKELEY STREET, Boston, Massachusetts
222 Berkeley Street is a 22-story, Class A office building located in the
Back Bay submarket of Boston containing 531,000 square feet of net rentable
area. Designed by Robert A.M. Stern Architects, the building is clad in brick
and uses natural and cast stone for trim and detailing. The retail area of
46,000 square feet is located on the first and second floors. 500 Boylston and
222 Berkeley share a parking garage for 1000 cars which is located on three
levels below grade. Completed in 1991, 222 Berkeley Street was designed as the
second phase of the full block development and is physically attached to 500
Boylston Street. The two buildings have interconnecting retail areas, and a
garage. A reciprocal easement agreement has been established to permit the
operation of these shared facilities. As of June 30, 1997, 222 Berkeley Street
was 100% leased to 31 tenants.
CHARLOTTE PLAZA, Charlotte, North Carolina
Charlotte Plaza is a 27-story, Class A office building with a total net
rentable area of 613,000 square feet located in the CBD of Charlotte, known as
"Uptown". Designed by Jarvis Putty Jarvis and completed in 1982, the average
floor plate contains approximately 23,000 square feet. Amenities to the building
include an eight level, 863 space parking garage and direct access to
Charlotte's Overstreet Mall System. The Overstreet is an elevated walkway system
that connects various office and retail sites, with direct access considered to
be a competitive advantage. An additional benefit for the office tenants is the
Tower Club located on the 27th floor.
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<PAGE> 12
The Tower Club is a members only restaurant and lounge which has become popular
with the local business community. As of June 30, 1997, Charlotte Plaza was 98%
leased to 42 tenants.
200 GALLERIA, Atlanta, Georgia
200 Galleria is part of a four office building complex, containing a total
of over 1.5 million square feet of space located in northwest Atlanta, sometimes
referred to as the Cumberland or Galleria area. Completed in 1985, 200 Galleria
is a 20-story office building constructed of reinforced concrete, with a
polished rose granite facade and reflective glass curtain-wall. 200 Galleria is
connected to a seven-level, 2,551-car parking garage which serves both the 200
and 300 Galleria buildings. Two three-story atrium lobbies are located on either
side of the building's core, which contains 433,000 rentable square feet of
space with approximately 23,000 square feet per typical floor. As of June 30,
1997, 200 Galleria was 94% leased to 60 tenants.
11 CANAL CENTER, 99 CANAL CENTER and TRANSPOTOMAC PLAZA 5, Alexandria, Virginia
11 Canal Center, 99 Canal Center, and TransPotomac Plaza 5 are three
buildings located in the waterfront office district of Alexandria, Virginia,
with excellent views of the Potomac River and the Washington, D.C. city skyline.
The three buildings are located within two adjacent office complexes.
The four-story building at 11 Canal Center contains 70,000 net rentable
square feet and the six-story building at 99 Canal Center contains 138,000
square feet. These buildings are part of a four building complex on a ten acre
irregularly shaped site. The buildings have access to an underground parking
facility that is shared with the other buildings of the Canal Center Complex. At
the Canal Center's Garage, 187 spaces are allocated to 11 Canal Center and 370
spaces are allocated to 99 Canal Center. As of June 30, 1997, 11 Canal Center
was 96% leased to 6 tenants and 99 Canal Center was 98% leased to 18 tenants.
TransPotomac Plaza 5 is a ten story, triangular office building with 96,000
net rentable square feet. It was constructed in 1983 of red face brick veneer.
Underground parking is allocated between the five-building, 3 acre complex with
TransPotomac Plaza 5 receiving an allocation of 222 spaces. As of June 30, 1997,
TransPotomac Plaza 5 was 93% leased to 12 tenants.
DEARBORN LAND, Chicago, Illinois
Under the terms of the Stock Purchase Agreement, Cornerstone would acquire
a rectangular-shaped parcel containing 66,768 square feet, or 1.533 acres,
situated at the northwest corner of State and Adams Streets in Chicago (the
"Dearborn Land"). It is well located within the Chicago CBD, and has physical
attributes, zoning classification, and accessibility conducive to office or
commercial development.
There are no building improvements on the Dearborn Land. The Dearborn Land
was formerly improved with a department store that was razed. The subterranean
levels are still in place, but would be demolished at the time of any new
construction.
PGGM AND DIHC
Cornerstone is acquiring the Additional Properties from Stichting
Pensioenfonds Voor de Gezondheid, Geestelijke en Maatschappelijke Belangen and
Dutch Institutional Holding Company, Inc. PGGM is the second largest pension
fund in the Netherlands, and one of the twenty-five largest in the world, with
an investment portfolio of approximately $36 billion. PGGM invests for the
benefit of health care industry workers including nurses and medical technicians
but excluding self-employed doctors.
Dutch Institutional Holding Company, Inc. was formed by PGGM in 1980 and
acts as its wholly-owned U.S. real estate investment subsidiary. DIHC is
responsible for the acquisition, ownership, management and disposition of real
estate investments in the United States.
THE SPECIAL MEETING
The Special Meeting will be held at The St. Regis Hotel, 2 East 55th
Street, New York, NY, at 2:00 P.M. on October 27, 1997.
At the Special Meeting, stockholders of Cornerstone will be asked to
consider and vote upon (A) a proposal to approve the terms of the Property
Acquisition, including the issuance to PGGM and DIHC of Common Stock
representing approximately 41% of the shares of Cornerstone expected to be
outstanding after the Property Acquisition; (B) a proposal to amend the
Cornerstone Articles to include new provisions which
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<PAGE> 13
are designed to cause Cornerstone to become a "domestically controlled REIT"
under United States tax law; (C) a proposal to amend the Cornerstone Articles to
increase the number of authorized shares of Common Stock from 100,000,000 to
250,000,000; (D) a proposal to amend the Cornerstone Articles to clarify the
mechanics of settling trades on the NYSE; and (E) such other matters as may
properly come before the Special Meeting.
RECOMMENDATION TO STOCKHOLDERS
THE CORNERSTONE BOARD BELIEVES THE PROPERTY ACQUISITION IS FAIR TO YOU AND
IN YOUR BEST INTEREST AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE PROPERTY ACQUISITION AND "FOR" THE AMENDMENTS TO THE CORNERSTONE
ARTICLES.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
The Cornerstone Board has fixed the close of business on September 22, 1997
as the record date for the Special Meeting (the "Record Date"). Only holders of
record of shares of Common Stock on the Record Date are entitled to notice of,
and to vote at, the Special Meeting. On the Record Date, there were 48,856,742
shares of Cornerstone Common Stock outstanding and entitled to vote at the
Special Meeting.
Each holder of record of Common Stock on the Record Date is entitled to
cast one vote per share. The presence, in person or by proxy, of holders of 20%
of the outstanding shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Special Meeting.
VOTES REQUIRED
The affirmative vote of a majority of the votes cast is required to approve
the Property Acquisition, provided, that the total vote cast represents over 50%
in interest of the outstanding shares of Common Stock on the Record Date. The
affirmative vote of a majority of the outstanding shares of Common Stock is
required to approve the Acquisition Amendment and the NYSE Amendment. The
Acquisition Amendment is being proposed in connection with the Property
Acquisition and approval of the Acquisition Amendment is a condition precedent
to its closing. In the event the Property Acquisition is not approved, the
Acquisition Amendment will be withdrawn from consideration and shall not be
separately approved.
UNDER NEVADA LAW, THE ACQUISITION AMENDMENT WILL NOT BE BINDING ON
STOCKHOLDERS WHO DO NOT VOTE IN FAVOR OF THE ACQUISITION AMENDMENT. AS A RESULT,
STOCKHOLDERS WHO VOTE AGAINST THE ACQUISITION AMENDMENT, AS WELL AS ABSTENTIONS
AND BROKER NON-VOTES, WILL NOT BE BOUND BY THE ACQUISITION AMENDMENT.
Under Nevada law, stockholders are not entitled to appraisal rights or
preemptive rights in connection with the Property Acquisition.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
As of the Record Date, all executive officers and directors of Cornerstone
owned beneficially in the aggregate approximately 0.6% of the outstanding Common
Stock. In addition, Cornerstone has received or expects to receive voting
agreements from each of The New York State Teachers' Retirement System
("NYSTRS"), the entity holding shares on behalf of Rodamco N.V. ("Rodamco") and
Hines Interests Limited Partnership ("Hines"), to vote in favor of the Property
Acquisition and the Acquisition Amendment. These stockholders held an aggregate
of 24% of the outstanding Common Stock as of the Record Date.
STOCK PURCHASE AGREEMENT; LOAN PURCHASE AGREEMENT; REGISTRATION RIGHTS AND
VOTING AGREEMENT
The Stock Purchase Agreement and the Loan Purchase Agreement are attached
as Annex I and Annex II to this Proxy Statement, respectively. In addition, a
Registration Rights and Voting Agreement (the "Registration Rights and Voting
Agreement"), which will be entered into by Cornerstone, PGGM and DIHC at the
time of the closing of the Property Acquisition is attached as Annex III to this
Proxy Statement. We encourage you to read the Stock Purchase Agreement, the Loan
Purchase Agreement and the Registration Rights and Voting Agreement. They are
the legal documents governing the Property Acquisition and certain aspects of
PGGM's and DIHC's relationship with Cornerstone following the Property
Acquisition.
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<PAGE> 14
FAIRNESS OPINION OF THE FINANCIAL ADVISOR
In deciding to approve the Property Acquisition, the Cornerstone Board
considered the opinion of its advisor, Lazard Freres & Co. LLC ("Lazard
Freres"), as to the fairness of the Property Acquisition to Cornerstone from a
financial point of view. The opinion is attached as Annex V to this Proxy
Statement. WE ENCOURAGE YOU TO READ THIS OPINION CAREFULLY.
ADDITIONAL SIGNIFICANT TERMS OF THE REGISTRATION RIGHTS AND VOTING AGREEMENT
Limitation of Overall Leverage: Cornerstone will agree to maintain a
leverage ratio (debt to total market capitalization) not to exceed 45% as long
as PGGM, DIHC and their respective affiliates own at least 2.5% of the Common
Stock. However, Cornerstone shall always have the right to refinance existing
debt regardless of its leverage ratio.
Limitations on Future Offerings of Cornerstone Common Stock: No more than
15% of any future public offerings of Common Stock may be made to non-U.S.
investors as long as PGGM, DIHC and their respective affiliates own at least
2.5% of the Common Stock. In addition, Cornerstone will agree not to issue any
additional Common Stock at a price below $16.00 per share for a period of six
months after the closing of the Property Acquisition.
Restrictions on Transfer and Acquisition by PGGM and DIHC: PGGM and DIHC
have agreed that, with certain exceptions, until the earlier to occur of the
third anniversary of the closing date of the Property Acquisition and the date
on which they cease to hold at least 25% of the issued and outstanding shares of
Common Stock, (i) PGGM, DIHC and their respective affiliates will not transfer
or sell any Common Stock to persons or entities who would own 10% of the Common
Stock following the transaction, and (ii) PGGM, DIHC and their respective
affiliates will not increase their ownership of Common Stock or take certain
other actions which may result in their acquiring greater control over the
affairs of Cornerstone.
PGGM, DIHC and their respective affiliates will also be subject to certain
limitations on resale imposed by Rule 144 under the Securities Act.
Registration Rights: PGGM, DIHC and their respective affiliates will have
the right to require Cornerstone to register their shares of Common Stock for
public sale on demand on up to eight occasions, subject to certain customary
limitations. PGGM and DIHC will also have the right, within 20 days of the
closing of the Property Acquisition, to request Cornerstone to register all of
the shares they receive in the Property Acquisition on a registration statement
which contemplates delayed or continuous offerings of the Common Stock. In
addition, in certain circumstances PGGM, DIHC and their respective affiliates
will have the right to sell their shares on other occasions when Cornerstone
files registration statements which contemplate the public sale of Common Stock.
Board Representation: PGGM will be entitled to two representatives on the
Cornerstone Board of Directors as long as PGGM, DIHC and their respective
affiliates own at least 5% of the issued and outstanding Common Stock.
RIGHT TO SELL DEARBORN LAND; OTHER CONTINGENCIES
DIHC has the right but not the obligation to sell the Dearborn Land parcel
in Chicago prior to closing the Property Acquisition. In the event of such a
sale, the purchase price would be reduced by making a $10,000,000 adjustment in
the principal amount of the promissory notes to be issued by Cornerstone.
Cornerstone may also acquire less than all of the Additional Properties upon
closing of the Property Acquisition in certain other circumstances, and in any
such cases appropriate adjustments to the purchase price will be made to account
for the excluded Properties.
CONDITIONS TO THE PROPERTY ACQUISITION
Cornerstone will complete the Property Acquisition only if several
conditions are satisfied or (in some cases) waived. The conditions include:
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<PAGE> 15
- stockholders of Cornerstone voting to approve the Property Acquisition
and the Acquisition Amendment;
- the absence of any material adverse change with respect to Cornerstone,
PGGM, DIHC or the Additional Properties;
- representations and warranties of Cornerstone, PGGM and DIHC under the
Stock Purchase Agreement and Loan Purchase Agreement being true and
correct at the time of the closing;
- the absence of legal restraints or prohibitions which prevent, or which
Cornerstone, PGGM or DIHC believe are likely to prevent, the consummation
of the Property Acquisition or which could have a Material Adverse Effect
(as defined below) on DIHC, the Additional Properties, the loans being
acquired from PGGM, or the subsidiaries of PGGM which own the Additional
Properties; and
- counsel to Cornerstone delivering an opinion reasonably satisfactory to
PGGM and DIHC regarding Cornerstone's status as a REIT and certain other
customary legal matters.
TERMINATION OF THE STOCK PURCHASE AGREEMENT
The Board of Directors of Cornerstone can agree with the Board of Directors
of either DIHC or PGGM to terminate the Stock Purchase Agreement and the Loan
Purchase Agreement, respectively, at any time without completing the Property
Acquisition. Either Cornerstone, PGGM or DIHC can each unilaterally terminate
the Stock Purchase Agreement or the Loan Purchase Agreement to which they are
party if:
- the other party materially breaches any of its representations,
warranties, covenants or obligations under the Stock Purchase Agreement
or the Loan Purchase Agreement, respectively, or if a material
representation or warranty becomes untrue in any material respect, and
cannot be rectified on or prior to December 31, 1997;
- a governmental authority or other legal action prohibits the consummation
of the Property Acquisition or requires action as a condition to the
consummation of the Property Acquisition which would result in a Material
Adverse Effect to DIHC, Cornerstone, the Additional Properties or the
loans which are being purchased from PGGM; or
- the stockholders of Cornerstone do not approve the Property Acquisition
(as defined below) and the Acquisition Amendment (as defined below) on or
before December 31, 1997.
In addition, PGGM and DIHC have the right to terminate the Stock Purchase
Agreement and the Loan Purchase Agreement in the event there is a change in
control (as defined below) of Cornerstone.
AMENDMENT TO ENCOURAGE "DOMESTICALLY CONTROLLED REIT" STATUS
In connection with the Property Acquisition, Cornerstone is proposing to
amend the Cornerstone Articles to include certain new provisions designed to
cause Cornerstone to become a "domestically controlled REIT" under United States
tax laws (the "Acquisition Amendment"). The approval of the Acquisition
Amendment is a condition precedent to the closing of the Property Acquisition.
In the event the Property Acquisition is not approved, the Acquisition Amendment
will be withdrawn from consideration and will not be separately approved.
UNDER NEVADA LAW, THE ACQUISITION AMENDMENT WILL NOT BE BINDING ON
STOCKHOLDERS WHO DO NOT VOTE IN FAVOR OF THE ACQUISITION AMENDMENT. AS A RESULT,
STOCKHOLDERS WHO VOTE AGAINST THE ACQUISITION AMENDMENT, AS WELL AS ABSTENTIONS
AND BROKER NON-VOTES, WILL NOT BE BOUND BY THE ACQUISITION AMENDMENT.
The complete text of the Acquisition Amendment is attached to this Proxy
Statement as Annex IV. We encourage you to read the Acquisition Amendment
carefully. It is the legal text which will govern the rights of stockholders who
vote in favor of the Acquisition Amendment if approved.
THE BOARD OF DIRECTORS OF CORNERSTONE HAS UNANIMOUSLY APPROVED THE
ACQUISITION AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO
APPROVE THE ACQUISITION AMENDMENT.
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INCREASE IN AUTHORIZED COMMON STOCK
In connection with the Property Acquisition, Cornerstone is proposing to
amend the Cornerstone Articles to increase the authorized number of shares of
Common Stock from 100,000,000 to 250,000,000 (the "Authorized Shares
Amendment"). While approval of the Authorized Shares Amendment is not necessary
to complete the Property Acquisition, management and the Cornerstone Board
believe the amendment is appropriate in order to give Cornerstone added
flexibility in the event the Property Acquisition is approved. If the Property
Acquisition is not approved, the Authorized Shares Amendment will be withdrawn
from consideration and shall not be separately approved.
THE BOARD OF DIRECTORS OF CORNERSTONE HAS UNANIMOUSLY APPROVED THE
AUTHORIZED SHARES AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO
APPROVE THE AUTHORIZED SHARES AMENDMENT.
AMENDMENT TO CLARIFY SETTLEMENT OF TRADES ON THE NYSE
Cornerstone has been requested by the NYSE to amend the Cornerstone
Articles to clarify that the provisions of the Cornerstone Articles will not
interfere with the settlement of trades on the NYSE. See "Proposal D: Settlement
of Trades on the NYSE." The provision is commonly requested to be included by
REITs which trade on the NYSE and which have provisions similar to Cornerstone's
6% Limit (as defined below).
THE BOARD OF DIRECTORS OF CORNERSTONE HAS UNANIMOUSLY APPROVED THE NYSE
AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE NYSE
AMENDMENT. The approval of the NYSE Amendment is not a condition to the closing
of the Property Acquisition.
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<PAGE> 17
PROPERTIES
The following table summarizes certain information as of June 30, 1997 with
respect to the Additional Properties and the Current Properties.
TABLE OF PROPERTIES
<TABLE>
<CAPTION>
REMAINING
AVERAGE
COMPANY'S TOTAL NUMBER LEASE
YEAR PERCENTAGE RENTABLE OCCUPANCY OF TERM
PROPERTY NAME AND LOCATION CONSTRUCTED INTEREST SQUARE FEET RATE TENANTS (IN YEARS) LARGEST TENANTS
- ------------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONAL PROPERTIES
191 Peachtree Street(1)
Atlanta, Georgia............ 1991 80% 1,221,000 95% 37 8.7 Wachovia Bank
King & Spalding
Powell, Goldstein,
Frazer & Murphy
Market Square(2) Washington,
D.C......................... 1990 60 689,000 91 46 7.7 Fulbright & Jaworski
Edison Electric
Institute
Reid & Priest
Shearman & Sterling
500 Boylston Street(3) Boston,
Massachusetts............... 1988 91.5 715,000 100 16 6.8 Massachusetts Financial
Services
The New England
Towers, Perrin, Forster
& Crosby, Inc.
222 Berkeley Street(3) Boston,
Massachusetts............... 1991 91.5 531,000 100 31 7.0 Houghton Mifflin
Saga International
Holidays
Oracle Corporation
Charlotte Plaza Charlotte,
North Carolina.............. 1982 100 613,000 98 42 5.4 First Union
Aetna/Travelers
Parker, Poe, Adams &
Bernstein
200 Galleria Atlanta,
Georgia..................... 1985 100 433,000 94 60 3.7 Liberty Mutual Group
11 Canal Center Alexandria,
Virginia.................... 1986 100 70,000 96 6 7.5 Robbins Gioia
Veda Inc.
99 Canal Center Alexandria,
Virginia.................... 1986 100 138,000 98 18 4.0 Lowe, Price,
LeBlanc & Becker
Howard, Needles,
Tannen & Bergendoff
National District
Attorney's Association
TransPotomac Plaza 5
Alexandria, Virginia........ 1983 100 96,000 93 12 3.5 Cities In Schools
The Onyx Group
Larson & Taylor
Total/Weighted Average All
Additional Properties....... 4,506,000 96% 268 6.8
</TABLE>
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<PAGE> 18
<TABLE>
<CAPTION>
REMAINING
YEAR AVERAGE
CONSTRUCTED/ COMPANY'S TOTAL NUMBER LEASE
YEAR PERCENTAGE RENTABLE OCCUPANCY OF TERM
PROPERTY NAME AND LOCATION ACQUIRED INTEREST SQUARE FEET RATE TENANTS (IN YEARS) LARGEST TENANTS
- ------------------------------ ------------ ---------- ----------- --------- ------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT PROPERTIES
One Norwest Center Denver,
Colorado.................... 1983 100% 1,188,000 98% 44 9.6 Norwest Bank Denver N.A.
Newmont Gold Company
Teletech, Inc.
Norwest Center(4) Minneapolis,
Minnesota................... 1988 50 1,118,000 100 36 12.8 Norwest Corporation
Faegre & Benson
KPMG Peat Marwick
Washington Mutual Tower(5)(6)
Seattle, Washington......... 1988 50 1,155,000 98 126 4.8 Perkins Coie
Washington Mutual
125 Summer Street Boston,
Massachusetts............... 1989/1995 100 464,000 90 29 3.3 Deloitte & Touche
BTM Capital Corp.(7)
Tower 56(8) New York, New
York........................ 1983/1996 100 162,000 95 45 3.3 ICC Associates, L.P.
United Bank of Kuwait
One Lincoln Centre Oakbrook
Terrace, Illinois........... 1986/1996 100 297,000 94 42 2.7 Superior Bank FSB
Microsoft Corporation
Frick Building(9) Pittsburgh,
Pennsylvania................ 1902/1996 100 341,000 87 70 3.7 Meyer, Darragh,
Buckler, Bebenek & Eck;
Sable, Makroff & Gudsky
527 Madison Avenue(10) New
York, New York.............. 1986/1997 100 216,000 96 19 5.4 The Sumitomo Trust &
--------- --- --- ---- Banking Co., Ltd.
W.P. Stewart Co., Inc.
Total/Weighted Average All
Current Properties.......... 4,941,000 97% 411 7.4
Total/Weighted Average, All --------- --- --- ----
Properties (following
Property Acquisition)....... 9,447,000 96% 679 7.1
========= === === ====
</TABLE>
- ---------------
(1) While Cornerstone's stated interest in the partnership which owns 191
Peachtree Street will be 80% following the consummation of the Property
Acquisition, its economic interest will be significantly larger since it
will acquire the first mortgage note in the amount of $145 million on the
property which earns interest at 9.375% and receive a priority distribution
on its acquired capital base. During 1996, the partners in the transaction,
CH Associates, Ltd, received a $250,000 priority distribution, which they
will receive under the partnership agreement through February 29, 2000, with
Cornerstone's predecessor receiving the remainder.
(2) While Cornerstone's stated interest in the partnerships which own Market
Square will be 60% following the consummation of the Property Acquisition,
its economic interest will be significantly larger since it will acquire the
first mortgage note in the amount of $181 million on the property which
earns interest at 9.75% and receive a priority distribution on its acquired
capital base. During 1996, Cornerstone's predecessor received 100% of the
cash flow from the property.
(3) Distributions of cash flow and sales and refinancing proceeds will be in
accordance with the partnership ownership interests of 91.5% to Cornerstone
and 8.5% to Hines. The stated ownership interests of Hines and Cornerstone
were agreed upon in August 1997.
(4) While Cornerstone's stated interest in the partnership which owns Norwest
Center is 50%, its economic interest in the Property is significantly larger
due to priority distributions it receives on its invested capital base. For
the twelve months ended December 31, 1996, Cornerstone's share of earnings
and cash distributions from the partnership which owns Norwest Center was
78.2%. See "Properties -- Description of Properties and Market
Data -- Norwest Center."
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<PAGE> 19
(5) Includes the Galland and Seneca Buildings. See "Properties -- Description
of Properties and Market Data -- Washington Mutual Tower."
(6) While Cornerstone's stated interest in the partnership which owns
Washington Mutual Tower is 50%, its economic interest in the Property is
significantly larger due to priority distributions it receives on its
invested capital base. For the twelve months ended December 31, 1996,
Cornerstone received 100% of the cash distributions from the partnership
which owns Washington Mutual Tower. See "Properties -- Description of
Properties and Market Data -- Washington Mutual Tower."
(7) BTM Capital Corporation is a wholly-owned subsidiary of the Bank of
Tokyo -- Mitsubishi.
(8) Cornerstone's headquarters are located at Tower 56. See
"Properties -- Description of Properties and Market Data -- New York City
Properties -- Advisory Services Obligations -- Tower 56" for additional
information regarding Cornerstone's economic interest in Tower 56 upon a
sale of the Property.
(9) The Property was substantially renovated in 1988.
(10) The Property was acquired by Cornerstone in February 1997.
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<PAGE> 20
SUMMARY SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical consolidated financial
data and selected unaudited pro forma consolidated financial data for the
periods and as of the dates indicated for Cornerstone.
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and the
related notes thereto of Cornerstone included in the documents described under
"Available Information." The following data should also be read in conjunction
with unaudited pro forma condensed financial statements and accompanying notes,
the historical Financial Statements and notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The selected consolidated operating and balance sheet data as of and for
the years ended December 31, 1994 through 1996 have been derived from
Cornerstone's audited financial statements. The selected financial data at June
30, 1997 and for the six months ended June 30, 1997 and 1996 is derived from
unaudited financial statements. The unaudited financial information includes all
adjustments consisting of only normal recurring adjustments that management
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results of Cornerstone for
the six months ended June 30, 1997 are not necessarily indicative of results
expected for the entire year ended December 31, 1997.
The unaudited selected pro forma operating data is presented as if the
Property Acquisition, Cornerstone's offering of Common Stock in April 1997, the
sale and conversion of Cornerstone's 8% Preferred Stock and the 8% Preferred
Stock, Series A, Cornerstone's repayment of a $32.5 million term loan from
Deutsche Bank and the acquisitions of two properties in New York City, the
property in Oakbrook Terrace, Illinois and the property in Pittsburgh had
occurred as of January 1, 1996. The selected unaudited pro forma balance sheet
data is presented as if the Property Acquisition and the sale and conversion of
Cornerstone's 8% Preferred Stock and the 8% Preferred Stock, Series A, had
occurred at June 30, 1997. The pro forma amounts are not necessarily indicative
of results of operations or the consolidated financial position that would have
resulted had the Property Acquisition and the other aforementioned transactions
been consummated at the dates indicated.
16
<PAGE> 21
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
HISTORICAL YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------
PRO FORMA PRO FORMA HISTORICAL
(UNAUDITED) (UNAUDITED) (UNAUDITED) ------------------------------
1997 1997 1996 1996 1996 1995 1994
----------- -------- -------- ----------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Office and parking rentals............. $ 107,952 $ 68,691 $ 52,913 $ 207,951 $111,494 $ 88,548 $ 83,557
Equity in earnings..................... 2,816 -- -- 6,832 -- -- --
Interest and other income.............. 18,117 4,564 2,849 37,941 5,414 3,839 2,017
---------- -------- -------- --------- -------- -------- --------
Total Revenues................... 128,885 73,255 55,762 252,724 116,908 92,387 85,574
---------- -------- -------- --------- -------- -------- --------
Expenses:
Building operating expenses............ 43,124 26,653 20,764 84,046 44,188 31,530 29,991
Interest expense....................... 25,785 14,748 15,870 52,601 31,345 29,467 30,792
Depreciation and amortization.......... 19,825 14,097 12,114 39,000 24,801 23,877 23,432
General and administrative............. 3,468 3,218 2,936 6,812 6,312 5,553 3,869
Unrealized (gain) loss on interest rate
swap................................. (99) (99) (5,465) (4,278) (4,278) 7,672 --
---------- -------- -------- --------- -------- -------- --------
Total expenses....................... 92,103 58,617 46,219 178,181 102,368 98,099 88,084
---------- -------- -------- --------- -------- -------- --------
Income (loss) from operations............ 36,782 14,638 9,543 74,543 14,540 (5,712) (2,510)
Minority interest........................ 1,994 994 686 3,505 1,519 3,417 3,899
---------- -------- -------- --------- -------- -------- --------
Income (loss) before extraordinary
items.................................. 34,788 13,644 8,857 71,038 13,021 (9,129) (6,409)
Extraordinary loss(1).................... (54) (54) -- (3,925) (3,925) (4,445) (581)
---------- -------- -------- --------- -------- -------- --------
Net income (loss)........................ $ 34,734 $ 13,590 $ 8,857 $ 67,113 $ 9,096 $(13,574) $ (6,990)
========== ======== ======== ========= ======== ======== ========
Net income (loss) (per share).......... $ 0.40 $ 0.19 $ 0.35 $ 0.77 $ 0.19 $ (0.94) $ (0.53)
========== ======== ======== ========= ======== ======== ========
Distributions to stockholders (per
share)............................... -- $ 0.60 $ 0.60 -- $ 1.20 $ 1.16 $ 1.16
========== ======== ======== ========= ======== ======== ========
BALANCE SHEET DATA:
Real estate investments before
accumulated depreciation............... $1,968,081 $873,211 $718,781 -- $799,662 $706,988 $577,134
Total assets............................. 1,868,429 972,941 615,300 -- 766,180 586,089 477,996
Long-term debt........................... 617,103 367,103 400,515 -- 400,142 369,600 130,500
Credit facility debt..................... 67,548 -- -- -- -- -- 236,467
Total liabilities...................... 762,746 445,198 440,733 -- 442,375 403,927 400,712
Minority interest........................ 13,430 (17,510) (16,786) -- (17,478) (7,194) (6,642)
Redeemable preferred stock............... -- 162,515 -- -- 162,743 -- --
Preferred stock.......................... 50,000 50,000 50,000 -- 50,000 50,000 --
Common stockholders' equity.............. 1,042,253 332,738 191,353 -- 128,540 139,356 83,926
OTHER DATA:
Funds from operations(2)................. 58,707 27,173 16,086 116,258 34,718 21,424 15,562
Capital expenditures..................... -- 5,140 2,771 -- 6,100 712 1,790
Preferred stock dividends(3)............. 1,750 8,410 1,750 3,500 5,153 1,449 --
Common stock distributions............... -- 18,653 -- -- 24,551 18,485 15,359
Cash flow provided by (used in):
Operations............................. -- 26,978 14,605 -- 34,522 20,036 28,968
Investing.............................. -- (72,224) (3,101) -- (57,259) (135,527) (1,762)
Financing.............................. -- 153,017 13,612 -- 129,800 110,725 (33,141)
Total rentable square footage of
properties(4).......................... 9,447 4,941 4,087 9,447 4,725 4,087 3,461
Average occupancy........................ 96% 97% -- 96% 97% 98% 98%
Weighted average number of shares of
Common Stock outstanding............... 82,692 27,237 20,309 82,182 20,411 15,910 13,241
</TABLE>
- ---------------
(1) Reflects the costs associated with the extinguishment of long-term debt.
(2) Cornerstone calculates Funds From Operations ("FFO") based upon guidance
from NAREIT. FFO is defined as net income, excluding gains or losses from
debt restructuring and sales of property, plus real estate depreciation and
amortization, and after adjustments for unconsolidated joint ventures.
17
<PAGE> 22
Cornerstone makes two adjustments to FFO which are not contemplated by
NAREIT in its definition. The first adjustment is for the principal payments
of the rent notes receivable from Hines which were put in place to
compensate Cornerstone for its share of cash flow from the partnership which
owned One Norwest Center during the period when Cornerstone owned 90% of the
partnership but received 100% of the cash flow. The notes were kept in place
at the time of the acquisition of Hines' 10% partnership interest to
compensate Cornerstone for the future value of the cash flow which
Cornerstone would have received had the partnership remained in place. These
notes will be fully repaid as of December 31, 1998.
The second adjustment is made for the differential between the real estate
tax expense at Norwest Center and the accrual of the recovery of such taxes
due to the one year time lag between the assessment of such taxes and actual
payment. Cornerstone believes that, since the building is 100% leased, these
funds will be collected under any circumstance as a pass-through to the
tenants. Based on this fact, Cornerstone eliminates the timing effects of
these tax increases in its calculation of FFO. The effect of the adjustment
in 1996 and 1995 is substantial due to a 29.4% and 13.8% increase in real
estate taxes, respectively.
The table below sets forth the adjustments which were made to the net income
(loss) of Cornerstone for the last three years and Pro Forma 1996 and 1997
in the calculation of FFO (in thousands).
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS
------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
----------------------------- YEAR ENDED DECEMBER 31,
HISTORICAL ----------------------------------------
PRO FORMA (UNAUDITED) PRO FORMA HISTORICAL
(UNAUDITED) ----------------- (UNAUDITED) ----------------------------
1997 1997 1996 1996 1996 1995 1994
--------- ------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)................................ $34,734 $13,590 $ 8,857 $ 67,113 $ 9,096 $(13,574) $(6,990)
NAREIT Adjustments:
Depreciation and amortization.................. 19,536 13,808 11,801 38,515 24,316 22,572 22,321
Net (gain) loss on swap transactions........... (99) (99) (5,465) (4,278) (4,278) 7,672 --
Extraordinary losses........................... 54 54 -- 3,925 3,925 4,445 581
Unconsolidated joint venture depreciation...... 4,975 -- -- 9,950 -- -- --
Minority interest adjustments.................. (1,050) (737) (1,021) (2,637) (2,011) (1,617) (1,358)
Other Adjustments:
Amortization on rent notes..................... 557 557 502 1,242 1,242 1,119 1,008
Real estate tax adjustment..................... -- -- 1,412 2,428 2,428 807 --
------- ------- ------- ------- -------- ------- --------
Funds from Operations............................ 58,707 27,173 16,086 116,258 34,718 21,424 15,562
======= ======= ======= ======= ======== ======= ========
Preferred Dividends.............................. (1,750) (8,410) (1,750) (3,500) (5,153) (1,449) --
======= ======= ======= ======= ======== ======= ========
Funds from Operations Available for Common
Shares......................................... $56,957 $18,763 $14,336 $112,758 $29,565 $ 19,975 $15,562
======= ======= ======= ======= ======== ======= ========
</TABLE>
Although Cornerstone believes that this table is a full and fair
presentation of Cornerstone's FFO, similarly captioned items may be defined
differently by other REITs, in which case direct comparisons may not be
possible.
Industry analysts generally consider FFO to be an appropriate measure of
performance of any equity REIT such as Cornerstone, and Cornerstone believes
that FFO is helpful to investors as a measure of the performance of an
equity REIT. FFO does not represent cash generated from operating activities
in accordance with GAAP and, therefore, should not be considered a
substitute for net income as a measure of performance or cash flow from
operations as a measure of liquidity calculated in accordance with GAAP.
(3) Includes preferred stock dividends accrued but not declared. Pro forma
amounts reflect the conversion of the 8% Preferred Stock and 8% Preferred
Stock, Series A, of Cornerstone.
(4) At December 31, 1995, Cornerstone held the mortgage note on Tower 56, and
the square footage of Tower 56 is included as of that date.
18
<PAGE> 23
RISK FACTORS
Stockholders of Cornerstone should consider the following matters in
considering whether to vote in favor of the Property Acquisition and the
associated issuance of Common Stock to PGGM and DIHC. These matters should be
considered in conjunction with the other information included and incorporated
by reference in this Proxy Statement.
SUBSTANTIAL CONCENTRATION OF OWNERSHIP OF COMMON STOCK
PGGM and DIHC will receive up to 34,187,500 shares of Common Stock in
connection with the Property Acquisition, or 41% of the Common Stock expected to
be outstanding following the Property Acquisition. In addition, based on their
ownership of capital stock as of June 30, 1997, NYSTRS, Rodamco and Deutsche
Bank together would own approximately 17% of the Common Stock expected to be
outstanding following the Property Acquisition (on a fully diluted basis)
through their ownership of Common Stock and convertible preferred stock of
Cornerstone. Following the Property Acquisition, PGGM will also be entitled to
elect two directors to the Cornerstone Board, each of NYSTRS and Rodamco will be
entitled to elect and will have elected one director to the Cornerstone Board,
and two persons affiliated with Deutsche Bank will be directors. These
stockholders are, and following the Property Acquisition will be, the largest
stockholders of Cornerstone, and due to certain limitations which Cornerstone
has adopted to preserve its status as a REIT, no other stockholder is permitted
to own, directly or indirectly, more than 6% of the capital stock of
Cornerstone, subject to certain exceptions set forth in the Cornerstone Articles
or to approval by the Board. This concentration of ownership could potentially
be disadvantageous to other stockholders' interests.
TRANSFER AND OWNERSHIP LIMITATIONS
For the purpose of preserving the Company's REIT qualification, the
Cornerstone Articles provide that no holder is permitted to own, either actually
or constructively under the applicable attribution rules of the Code, more than
6% of the value of the aggregate outstanding shares of all classes of stock of
Cornerstone (the "6% Limit"). In addition, if adopted in connection with the
Property Acquisition, the Acquisition Amendment would create additional
restrictions on transfer designed to encourage Common Stock to remain in the
hands of "U.S. Persons" (as defined below) in order for Cornerstone to be
considered a domestically controlled REIT for purposes of U.S. tax law. The
Cornerstone Board may waive the 6% Limit and/or the provisions of the
Acquisition Amendment with respect to a particular stockholder if it determines
in good faith that the proposed ownership by such stockholder would not
jeopardize the Company's status as a REIT and the Cornerstone Board otherwise
decides such action would be in the best interests of the Company. The
Cornerstone Board will waive the 6% Limit with respect to PGGM and DIHC in
connection with the Property Acquisition, and has previously waived the 6% Limit
with respect to Deutsche Bank, to permit its purchase of the 7% Cumulative
Convertible Preferred Stock ("7% Preferred Stock"), with respect to Rodamco and
with respect to NYSTRS. The 6% Limit and the limits on transfer contained in the
Acquisition Amendment may preserve the concentration of ownership for longer
periods of time than might be true without such limits, and therefore be
potentially disadvantageous to other stockholders' interests.
RISKS INVOLVED IN PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES
Interests in four of the Additional Properties would be held by Cornerstone
through partnerships in which other entities own an interest. Partnership
investments may, under certain circumstances, involve risks not otherwise
present in property ownership, including the possibility that Cornerstone's
partners might become bankrupt, that such partners or co-venturers might at any
time have economic or other business interests or goals which are inconsistent
with the business interests or goals of Cornerstone, and that such partners may
be in a position to take action contrary to Cornerstone's instructions or
requests or contrary to Cornerstone's policies or objectives, including
Cornerstone's policy with respect to maintaining its qualification as a REIT.
Cornerstone will, however, seek to maintain sufficient control of such
partnerships to permit Cornerstone's business objectives to be achieved. In
addition, certain provisions of the partnership agreements, including rights of
first refusal and other restrictions on the transferability of Cornerstone's
partnership interests, may limit the liquidity of Cornerstone's partnership
investments and thereby reduce the rate of return that may be
19
<PAGE> 24
realized by Cornerstone with respect to such investments. There is no limitation
under Cornerstone's organizational documents as to the amount of available funds
that may be invested in partnerships or joint ventures.
INTEGRATION OF OPERATIONS; NONREALIZATION OF SYNERGIES
The Property Acquisition involves the integration of two portfolios of
Properties that have previously operated independently. No assurance can be
given that Cornerstone will be able to integrate the Additional Properties into
its operations without encountering difficulties or that the benefits expected
from such integration will be realized. In addition, there can be no assurance
that Cornerstone will realize anticipated operating synergies from the Property
Acquisition.
REGISTRATION RIGHTS
Cornerstone will grant registration rights to PGGM and DIHC, and certain of
their respective transferees at the time of the closing the Property
Acquisition. Such rights to register shares of Common Stock and to sell them in
the public market could have a material adverse effect on both the market price
for the Common Stock and Cornerstone's ability to raise additional equity
capital in the future. See "Certain Provisions of the Registration Rights and
Voting Agreement -- Registration Rights."
FIXED STOCK CONSIDERATION FOR THE PROPERTY ACQUISITION DESPITE POTENTIAL CHANGES
IN STOCK PRICES
PGGM and DIHC will receive up to 34,187,500 shares of Common Stock (the
"Stock Consideration") in connection with the Property Acquisition. The Stock
Consideration is fixed and will not be adjusted in the event of any increases or
decreases in the price of the Common Stock, though it may be adjusted in the
event certain permitted contingencies occur, such as the failure to obtain
required consents prior to the closing of the Property Acquisition. The price of
Common Stock at the time of the consummation of the Property Acquisition may
vary from its price at the date of this Proxy Statement and at the date of the
Special Meeting to be held on October 27, 1997. Such variations may be the
result of changes in the business, operations or prospects of Cornerstone,
market assessments of the likelihood that the Property Acquisition will be
consummated, the timing thereof and the prospects of the Property Acquisition
and post-Property Acquisition operations, general market and economic conditions
and other factors. Because the consummation of the Property Acquisition will
occur at a date later than the Special Meeting, there can be no assurance that
the prices of Common Stock on the date of the Special Meeting will be indicative
of its price at the time of the consummation of the Property Acquisition. The
Stock Purchase Agreement and the Loan Purchase Agreement provide that the
Property Acquisition will be closed as soon as practicable following the Special
Meeting and the satisfaction or waiver of the other conditions set forth in the
Stock Purchase Agreement and the Loan Purchase Agreement. Stockholders of
Cornerstone are urged to obtain current market quotations for the Common Stock.
REAL ESTATE INVESTMENT RISKS
General
Real property investments are subject to numerous risks. The yields
available from an equity investment in real estate depend on the amount of
income generated and costs incurred by the related properties. If properties in
which Cornerstone invests do not generate sufficient income to meet costs,
including debt service and capital expenditures, Cornerstone's results of
operations and ability to make distributions to its stockholders will be
adversely affected. Revenues and values of Cornerstone's properties may be
adversely affected by a number of factors, including the national economic
climate, the local economic climate, local real estate conditions (such as an
oversupply of space or a reduction in demand for real estate in an area), the
attractiveness of the properties to tenants, competition from other available
space, the ability of Cornerstone to provide adequate maintenance and insurance
and to cover other operating costs, government regulations and changes in real
estate, zoning or tax laws, interest rate levels, the availability of financing
and potential liabilities under environmental and other laws. In addition,
certain significant expenditures associated with
20
<PAGE> 25
each Property (such as debt service, real estate taxes and maintenance costs)
are generally not reduced when circumstances cause a reduction in rental income
from the investment. Should such events occur, Cornerstone's results of
operations and ability to make distributions to stockholders could be adversely
affected.
Market Illiquidity
Equity real estate investments, especially assets of relatively large size,
are often illiquid. Such illiquidity will tend to limit the ability of
Cornerstone to vary its portfolio promptly in response to changes in economic or
other conditions.
------------------------
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Cornerstone has made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Cornerstone. Also, when
words such as "believes," "expects," "anticipates" or similar expressions are
used, forward-looking statements are being made. Stockholders should note that
many factors, some of which are discussed elsewhere in this document and in the
documents which we incorporate by reference, could affect the future financial
results of Cornerstone and could cause those results to differ materially from
those expressed in our forward-looking statements contained or incorporated by
reference in this document. These factors include (i) operating, legal and
regulatory risks; (ii) economic, political and competitive forces affecting
Cornerstone's real estate interests; and (iii) the risk that Cornerstone's
analyses of these risks and forces could be incorrect and/or that the strategies
developed to address them could be unsuccessful.
21
<PAGE> 26
THE SPECIAL MEETING
This Proxy Statement is furnished in connection with the solicitation of
proxies from holders of Cornerstone Common Stock by the Cornerstone Board for
use at the Special Meeting. This Proxy Statement and accompanying form of proxy
are first being mailed to the stockholders of Cornerstone on or about September
23, 1997.
Date, Times and Places
The Special Meeting will be held at The St. Regis Hotel, 2 East 55th
Street, New York, NY, at 2:00 P.M. on October 27, 1997.
Matters to Be Considered at the Special Meeting
At the Special Meeting, stockholders of Cornerstone will be asked to
consider and vote upon (A) a proposal to approve the terms of the Property
Acquisition, including the issuance to PGGM and DIHC of Common Stock
representing approximately 41% of the shares of Cornerstone expected to be
outstanding after the Property Acquisition; (B) a proposal to amend the
Cornerstone Articles to include new provisions which are designed to cause
Cornerstone to become a "domestically controlled REIT" under United States tax
law; (C) a proposal to amend the Cornerstone Articles to increase the authorized
number of shares of Common Stock from 100,000,000 to 250,000,000; (D) a proposal
to amend the Cornerstone Articles to clarify the mechanics of settling trades on
the NYSE; and (E) such other matters as may properly come before the Special
Meeting.
THE CORNERSTONE BOARD BELIEVES THE PROPERTY ACQUISITION IS FAIR TO YOU AND
IN YOUR BEST INTEREST AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE PROPERTY ACQUISITION AND "FOR" THE AMENDMENTS TO THE CORNERSTONE
ARTICLES.
Record Date; Stock Entitled to Vote; Quorum
The Cornerstone Board has fixed the close of business on September 22, 1997
as the Record Date for the Special Meeting. Only holders of record of shares of
Common Stock on the Record Date are entitled to notice of and to vote at the
Special Meeting. On the Record Date, there were 48,856,742 shares of Common
Stock outstanding and entitled to vote at the Special Meeting, held by
approximately 20,000 stockholders of record.
Each holder of record of Common Stock on the Record Date is entitled to
cast one vote per share. The presence, in person or by proxy, of holders of 20%
of the outstanding shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Special Meeting.
Votes Required
The affirmative vote of a majority of the votes cast is required to approve
the Property Acquisition, provided that the total vote cast represents over 50%
in interest of the outstanding shares of Common Stock on the Record Date. The
affirmative vote of a majority of the outstanding shares of Common Stock is
required to approve the Acquisition Amendment, the Authorized Shares Amendment
and the NYSE Amendment. The Acquisition Amendment and the Authorized Shares
Amendment are being proposed in connection with the Property Acquisition and
stockholder approval of the Acquisition Amendment is a condition precedent to
closing the Property Acquisition. In the event the Property Acquisition is not
approved, the Acquisition Amendment and the Authorized Shares Amendment will be
withdrawn from consideration and shall not be separately approved.
UNDER NEVADA LAW, THE ACQUISITION AMENDMENT WILL NOT BE BINDING ON
STOCKHOLDERS WHO DO NOT VOTE IN FAVOR OF THE ACQUISITION AMENDMENT. AS A RESULT,
STOCKHOLDERS WHO VOTE AGAINST THE ACQUISITION AMENDMENT, AS WELL AS ABSTENTIONS
AND BROKER NON-VOTES, WILL NOT BE BOUND BY THE ACQUISITION AMENDMENT.
Under Nevada law, stockholders are not entitled to appraisal rights or
preemptive rights in connection with the Property Acquisition.
22
<PAGE> 27
As of the Record Date, all executive officers and directors of Cornerstone
owned beneficially in the aggregate approximately 0.6% of the outstanding Common
Stock. In addition, Cornerstone has received or expects to receive voting
agreements from each of NYSTRS, Rodamco and Hines, to vote in favor of the
Property Acquisition and the Acquisition Amendment. These stockholders held an
aggregate of approximately 24% of the outstanding Common Stock as of the Record
Date.
Voting of Proxies
Shares represented by all properly executed proxies for Common Stock
received in time for the Special Meeting will be voted at the Special Meeting in
the manner specified by the holders thereof. Proxies which do not contain voting
instructions will be voted FOR approval of the respective proposals at the
Special Meeting.
It is not expected that any matters other than those referred to herein
will be brought before the Special Meeting. If, however, other matters are
properly presented, the persons named as proxies will vote in accordance with
their judgment with respect to such matters.
ABSTENTIONS AND BROKER NON-VOTES WILL BE INCLUDED IN THE CALCULATION OF THE
NUMBER OF SHARES REPRESENTED AT THE SPECIAL MEETING FOR PURPOSES OF DETERMINING
WHETHER A QUORUM HAS BEEN ACHIEVED AND WHETHER THE TOTAL VOTE CAST (AND, IN THE
CASE OF THE ACQUISITION AMENDMENT, THE AUTHORIZED SHARES AMENDMENT AND THE NYSE
AMENDMENT, THE TOTAL VOTE IN FAVOR OF THE PROPOSAL) REPRESENTS OVER 50% IN
INTEREST OF THE OUTSTANDING SHARES OF COMMON STOCK ON THE RECORD DATE. NEITHER
ABSTENTIONS NOR BROKER NON-VOTES ARE COUNTED IN DETERMINING WHETHER A MATTER HAS
BEEN APPROVED. THEREFORE, SINCE APPROVAL OF THE ACQUISITION AMENDMENT, THE
AUTHORIZED SHARES AMENDMENT AND THE NYSE AMENDMENT REQUIRES THAT A MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK VOTE IN FAVOR OF THE PROPOSALS,
ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
SUCH PROPOSALS.
Revocability of Proxies
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person.
A Cornerstone stockholder may revoke a proxy at any time prior to its
exercise by delivering to the Secretary of Cornerstone a duly executed proxy or
revocation of proxy bearing a later date or by voting in person at the Special
Meeting. Attendance at the Special Meeting will not of itself constitute
revocation of a proxy.
Solicitation of Proxies
Cornerstone will bear the cost of the solicitation of proxies from its
stockholders, including the cost of printing this Proxy Statement and the
applicable fees associated with the filing of this Proxy Statement with the
Commission. In addition to solicitation by mail, the directors, officers and
employees of Cornerstone may solicit proxies from stockholders of such company
by telephone or telegram or in person. Arrangements will also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and Cornerstone will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
Georgeson and Company Inc. ("Georgeson") will assist in the solicitation of
proxies in the United States by Cornerstone. Cornerstone will pay Georgeson a
fee of $10,000, plus reimbursement of certain out-of-pocket expenses, and has
agreed to indemnify Georgeson against losses arising out of Georgeson's
soliciting services on behalf of Cornerstone. Deutsche Immobilien
Anlagegesellschaft mbH ("DIA") will assist in the solicitation of proxies in
Germany by Cornerstone. Cornerstone will pay DIA a fee of $10,000, plus
reimbursement of certain out-of-pocket expenses, and has agreed to indemnify DIA
against losses arising out of DIA's soliciting services on behalf of
Cornerstone.
23
<PAGE> 28
PROPOSAL A: THE PROPERTY ACQUISITION
Cornerstone is furnishing this Proxy Statement to holders of Common Stock
in connection with the respective proposals to be voted upon at the Special
Meeting pursuant to the terms of the Stock Purchase Agreement and the Loan
Purchase Agreement. The Stock Purchase Agreement and the Loan Purchase Agreement
provide for the Property Acquisition to be effected by Cornerstone purchasing
all of the outstanding stock of certain subsidiaries of DIHC which own the
Additional Properties, together with certain secured and unsecured loans to the
direct and indirect subsidiaries which own the Additional Properties held by
PGGM.
The discussion in this Proxy Statement of the Property Acquisition and the
principal terms of the Stock Purchase Agreement, the Loan Purchase Agreement and
the Registration Rights and Voting Agreement is subject to, and qualified in its
entirety by, reference to the Stock Purchase Agreement, the Loan Purchase
Agreement and the Registration Rights and Voting Agreement, copies of which are
attached to this Proxy Statement as Annex I, Annex II and Annex III,
respectively, and are incorporated herein by reference.
ADDITIONAL PROPERTIES BEING ACQUIRED
Cornerstone has signed the Stock Purchase Agreement and the Loan Purchase
Agreement to acquire interests in nine additional Class A office properties
comprising nearly 4.5 million rentable square feet in Alexandria, Virginia (3
properties), Atlanta (2 properties), Boston (2 properties), Charlotte and
Washington, D.C., as well as an undeveloped parcel of land in Chicago.
CONSIDERATION FOR THE PROPERTY ACQUISITION
Upon consummation of the Property Acquisition, PGGM and DIHC will receive
up to 34,187,500 shares of Common Stock, $259,548,000 in cash and promissory
notes for $250,000,000. Based on the number of shares of Cornerstone outstanding
on that date, approximately 41% of the shares of Cornerstone expected to be
outstanding after the Property Acquisition would be issued to PGGM and DIHC.
Cornerstone expects to finance the cash portion of the consideration for
the Property Acquisition and an estimated $8.0 million in closing costs with
$200.0 million of available cash and $67.5 million from its committed credit
facility with Bankers Trust Company and The Chase Manhattan Bank. See "The
Properties -- Mortgage Indebtedness and Credit Facility".
BACKGROUND TO THE PROPERTY ACQUISITION
After evaluation of its options with regard to its real estate portfolio of
Class A office properties in the United States, PGGM made a decision to
securitize the portfolio through the exchange of its assets for common stock in
a publicly traded real estate investment trust. In April 1997, DIHC initiated a
solicitation process in which several other real estate investment trusts
besides Cornerstone participated.
Below is the background describing the series of events which led to the
decision of Cornerstone and PGGM and DIHC to enter into the Property
Acquisition.
On April 17, 1997, senior management of Cornerstone met with senior PGGM
and DIHC management. The purpose of the meeting was to introduce senior PGGM
management to Cornerstone and to narrow the field of prospective purchasers of
the Additional Properties.
On April 24, 1997, Cornerstone sent a letter to Robert Sorrentino, Chief
Financial Officer of DIHC, and Michael Perkins, Vice President of Investments of
DIHC, elaborating certain issues raised during the April 17th meeting and
discussing certain positive attributes of Cornerstone.
On April 29, 1997, Mr. Sorrentino of DIHC prepared a letter providing
summary portfolio financial information on the Additional Properties. The letter
asked that interested parties give an indication of valuation methodology,
certain consolidated financial projections, breakdown of consideration (cash,
stock and notes), timetable and due diligence issues which would apply to any
bid for the Additional Properties.
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On May 8, 1997, John Moody of Cornerstone met with Mr. Sorrentino and Mr.
Perkins of DIHC to discuss additional points regarding the proposed Property
Acquisition.
On May 12, 1997, Cornerstone responded to DIHC with the information
requested in the letter of April 29, making their first formal proposal in
writing to acquire the Additional Properties.
On May 13, 1997, management of Cornerstone wrote to the Cornerstone Board
to inform them that Cornerstone had been invited to make a proposal for the
acquisition of the Additional Properties. The Cornerstone Board was also
provided with preliminary information regarding the Additional Properties.
On May 19, 1997, the Cornerstone Board met telephonically to discuss the
Property Acquisition and authorized Cornerstone management to continue
discussions with DIHC.
On May 22, 1997, Cornerstone made a formal proposal in person to senior
management of PGGM and DIHC. All other bidders were asked to make similar
presentations during this time frame.
On June 2, 1997, at a meeting of the Cornerstone Board, a presentation was
made discussing the proposal to DIHC. The Cornerstone Board once again
authorized Cornerstone management to continue discussions regarding the
transaction.
On June 13, 1997, in a formal meeting between the management of Cornerstone
and DIHC, the principal remaining issues were resolved and the principal deal
points, including the number of shares of Common Stock to be issued and the
interest rates on the secured purchase money notes to be issued by Cornerstone,
were settled. The closing price of the Common Stock on the NYSE was $15.25 on
June 13.
On June 18, 1997, Cornerstone management sent a formal letter to DIHC
memorializing certain terms of the Property Acquisition.
On July 1, 1997, Cornerstone began a formal due diligence process on the
Additional Properties and DIHC began a formal due diligence process regarding
Cornerstone.
On July 15, 1997, a Confidentiality Letter and Non Binding Letter of Intent
were signed by Cornerstone and DIHC, subject to due diligence and formal board
approval. Each party had the unilateral right to withdraw from the deal at their
own discretion.
On August 13, 1997, the Cornerstone Board met and approved the terms and
conditions of the proposed Property Acquisition.
On August 15, 1997, the DIHC Board approved the Stock Purchase Agreement
and PGGM approved the Loan Purchase Agreement.
On August 18, 1997, each of Cornerstone, PGGM and DIHC signed the
definitive agreements relating to the Property Acquisition.
REASONS FOR THE PROPERTY ACQUISITION
The Board of Directors and management of Cornerstone believe that the
Property Acquisition is an effective investment of $200 million of the proceeds
raised in its recent U.S. public offering that should solidify Cornerstone's
status as the market's leading Class A office REIT, and is consistent with
Cornerstone's objective of growing its earnings and asset base by acquiring
high-profile Class A office properties in major real estate markets nationwide.
Additional benefits of the Property Acquisition are expected to include:
- accretive effects to Cornerstone's earnings and funds from operations
(FFO);
- strong expansion of Cornerstone's existing presence in Boston;
- significant improvement in the overall rent roll and a leveling of
Cornerstone's lease expiration schedule; and
- improvement of operating margins by almost doubling the size of
Cornerstone's asset base while reducing the projected increases in corporate
overhead on a percentage basis.
The Property Acquisition allows Cornerstone to invest $200 million in
proceeds raised in its recent initial U.S. public offering and to enter three
new markets (Atlanta, Charlotte and Washington D.C.) with high
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profile assets in each market. The market presence of 191 Peachtree Street,
Charlotte Plaza and Market Square gives Cornerstone a high quality introduction
to each of these office markets.
With the acquisition of 500 Boylston Street and 222 Berkeley Street,
Cornerstone will expand its market presence in Boston to the Back Bay market.
These two assets will complement Cornerstone's investment in 125 Summer Street,
while giving Cornerstone a total of over 1.7 million square feet of prime office
space in Boston.
Finally, the suburban investments in the Galleria section of Atlanta and in
Alexandria, Virginia in suburban Washington, D.C. are top quality, Class A
buildings, in markets which have the 24-hour characteristics of large scale,
retail, residential and office development in a concentrated area.
The properties to be acquired provide a high quality rent roll which
complements the credit quality and expiration schedule of the existing
portfolio. On a combined basis over the 5-year period 1998-2002, there is no
year where full service leases representing less than 7.25% of straight line
rents or more than 8.83% of full service straight line rents expire. This level
expiration schedule limits Cornerstone's exposure to the leasing markets in any
one year, thus allowing for steady cash flow growth. On average, the 1,671,000
square feet of office space expiring at the Additional Properties between 1997
and 2002 is leased at $25.77 per square foot, compared to current market rents
averaging $34.09.
The placement of over $500 million of additional equity and the acquisition
of over $550 million of unencumbered assets give Cornerstone increased financial
flexibility which should allow it to grow without having to place additional
common equity other than for paying down debt. Upon closing the Property
Acquisition, Cornerstone intends to begin discussions to increase its line of
credit capacity.
BOARD RECOMMENDATION
THE CORNERSTONE BOARD BELIEVES THAT THE PROPERTY ACQUISITION IS FAIR TO,
AND IN THE BEST INTERESTS OF, CORNERSTONE AND THE STOCKHOLDERS OF CORNERSTONE.
THE CORNERSTONE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
CORNERSTONE VOTE FOR APPROVAL OF THE PROPERTY ACQUISITION AND THE AMENDMENTS TO
THE CORNERSTONE ARTICLES.
In reaching its conclusion to approve the Stock Purchase Agreement and the
Loan Purchase Agreement and the transactions contemplated thereby, the
Cornerstone Board consulted with Cornerstone's management, as well as its legal
counsel and its financial advisors, and considered a number of factors,
including the following:
(i) The structure of the Property Acquisition and the terms and
conditions of the Stock Purchase Agreement, the Loan Purchase Agreement and
the Registration Rights and Voting Agreement, including the fact that the
Property Acquisition would be accretive for Cornerstone.
(ii) The complementary nature of the Current Properties and the
Additional Properties.
(iii) The presentation of Lazard Freres & Co. LLC, Cornerstone's
advisors, including its oral opinion that, as of the date of the
Cornerstone Board meeting, the consideration for the Property Acquisition
was fair from a financial point of view to Cornerstone.
(iv) The expectation that the Property Acquisition would result in a
reduction of general and administrative costs as a percentage of revenues
and as a percentage of assets.
The foregoing discussion of information and factors considered and given
weight by the Cornerstone Board is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
terms of the Property Acquisition, the Cornerstone Board did not find it
practicable to, and did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching their determinations. In
addition, individual members of the Cornerstone Board may have given different
weights to different factors.
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FAIRNESS OPINION
Pursuant to a letter agreement dated as of July 15, 1997 (the "Lazard
Freres Agreement"), Cornerstone retained Lazard Freres & Co. LLC ("Lazard
Freres") to render a fairness opinion regarding the Property Acquisition. Lazard
Freres is an internationally recognized investment banking firm which is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and other corporate transactions.
In connection with its review of the Property Acquisition, at the August
13, 1997 meeting at which the Cornerstone Board approved and adopted the
Purchase Agreement, Lazard Freres delivered an oral opinion to the Cornerstone
Board that the consideration for the Property Acquisition was fair from a
financial point of view to Cornerstone. Lazard Freres delivered a written
opinion dated as of August 18, 1997 (the "Fairness Opinion") to Cornerstone's
Board of Directors confirming that, as of such date, the consideration being
paid in the Property Acquisition was fair from a financial point of view to
Cornerstone. The full text of the Fairness Opinion, which sets forth the
assumptions made, matters considered and qualifications and limitations on the
review undertaken, is attached as Annex V to this Proxy Statement and is
incorporated herein by reference. The description of such opinion set forth
herein is qualified in its entirety by reference to Annex V. Holders of Common
Stock are urged to read the Fairness Opinion in its entirety in connection with
their consideration of the proposed Property Acquisition. Lazard Freres'
fairness opinion should not be construed by the holders of shares of Common
Stock as a recommendation as to how they should vote at the Special Meeting.
Cornerstone has agreed to pay Lazard Freres a fee of $1.5 million for
rendering its fairness opinion of which $500,000 has already been paid and $1.0
million is due upon closing of the Property Acquisition. Cornerstone has also
agreed to reimburse Lazard Freres for its reasonable out-of-pocket expenses
(including reasonable fees and expenses of its legal counsel) and will indemnify
Lazard Freres and certain related parties against certain liabilities, including
certain liabilities arising under the federal securities laws.
Lazard Freres is not acting as financial advisor to Cornerstone in
connection with the Property Acquisition, but has in the past provided
investment banking and financial advisory services to Cornerstone and has
received fees for rendering such services. PGGM has invested in certain Lazard
Freres real estate funds.
In addition, by letter agreement dated July 30, 1997, Cornerstone engaged
Merrill Lynch, Pierce, Fenner & Smith Incorporated to render financial advisory
services in connection with the Property Acquisition.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS; INTERESTS IN THE
PROPERTY ACQUISITION
As of the Record Date, all executive officers and directors of Cornerstone
owned beneficially in the aggregate approximately 0.6% of the outstanding Common
Stock. In addition, Cornerstone has received voting agreements from NYSTRS,
Rodamco and Hines to vote in favor of the Property Acquisition and the
Acquisition Amendment. These stockholders held an aggregate of 24% of the Common
Stock as of the Record Date.
Upon completion of the Property Acquisition, Hines will be a partner and/or
manager in properties comprising 5,534,000 of the 9,447,000 square feet
Cornerstone will own. Michael J.G. Topham, a director of Cornerstone, is an
Executive Vice President of Hines.
Hines is a partner in the partnerships which own 500 Boylston Street and
222 Berkeley Street and is the manager, or a partner in the entity which
manages, three of the Additional Properties. In connection with the Property
Acquisition, the partnership agreements relating to 500 Boylston Street and 222
Berkeley Street were renegotiated, with Hines receiving a significant increase
in its participation in the current cash flows from those Properties than had
previously been the case. In addition, Cornerstone has agreed that, in the event
the Property Acquisition is not consummated, Cornerstone will reimburse Hines
for all legal fees and expenses incurred by Hines in connection with the
renegotiation of these partnership agreements.
ACCOUNTING TREATMENT
The Property Acquisition will be accounted for by Cornerstone as a purchase
of assets. The investments in the 191 Peachtree Street and Market Square
partnerships will be accounted for using the equity method.
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PGGM AND DIHC
PGGM
PGGM is the second largest pension fund in The Netherlands and one of the
twenty-five largest in the world, with an investment portfolio of approximately
$36 billion as of December 31, 1996. For over 25 years, PGGM has been investing
the pension funds of private health, mental health and social service employees
and retirees from the Netherlands. Today, PGGM invests the funds of over one
million participants, representing approximately 7% of the country's population.
PGGM has been investing in real estate in The Netherlands since 1970. As
part of its global real estate diversification strategy, it entered the European
and U.S. markets in 1975 and 1979, respectively. Today, PGGM's worldwide real
estate holdings total approximately $4.7 billion. Of the approximately $1.4
billion invested in the United States, a substantial portion is invested through
DIHC in the Class A office properties to be acquired by Cornerstone.
As a pension fund, PGGM has a long-term investment philosophy with regard
to real estate. PGGM has always invested in the highest quality assets in the
sectors in which it invests as exemplified by the acquisition properties in the
office sector and its investment in the high-quality retail REIT, Corporate
Property Investors.
DIHC
DIHC was formed by PGGM in 1980 to acquire, develop, own, manage and
dispose of direct real estate investments in the United States. In the
mid-1990's, PGGM adopted a global real estate strategy to shift from direct to
indirect investments. Over the past several years, DIHC has sold several of its
properties. The decision to exchange a majority of the remaining DIHC assets for
cash, debt, and common shares of Cornerstone is consistent with PGGM's U.S. real
estate strategy.
FORM OF THE PROPERTY ACQUISITION
The Additional Properties will be acquired by the acquisition of the
wholly-owned subsidiaries of DIHC which hold (directly or indirectly) (i) the
fee title to each wholly-owned Property (11 Canal Center, 99 Canal Center,
TransPotomac Plaza 5, Charlotte Plaza, 200 Galleria and the Dearborn Land) and
(ii) the partnership interests in Market Square, 191 Peachtree Street, 500
Boylston Street and 222 Berkeley Street. The Stock Purchase Agreement provides
that DIHC's interest in the Additional Property known as Market Square, located
in Washington, D.C., will be acquired in a series of transactions occurring on
or following the closing under the Stock Purchase Agreement. Upon the closing
under the Stock Purchase Agreement, however, Cornerstone will acquire the $181
million mortgage loan on the Market Square property together with a $39.9
million loan to Market Square Development Investors, the partnership through
which a DIHC subsidiary owns its interest in Market Square. As a result, as of
the closing under the Stock Purchase Agreement, Cornerstone expects to receive
all cash flow from the Market Square property which would be payable to DIHC or
its subsidiaries under the existing structure.
Cornerstone expects to finance the cash portion of the consideration for
the Property Acquisition and an estimated $8.0 million in closing costs with
$200.0 million of available cash and $67.5 million from its committed Credit
Facility with Bankers Trust Company and The Chase Manhattan Bank. See "Mortgage
Indebtedness and Credit Facility".
RIGHT TO SELL DEARBORN LAND
DIHC has the right but not the obligation to sell the Dearborn Land parcel
in Chicago prior to closing the Property Acquisition. In the event of such a
sale, the purchase price would be reduced by making a $10,000,000 adjustment in
the principal amount of the promissory notes to be issued by Cornerstone.
Cornerstone may also acquire less than all of the Additional Properties upon
closing of the Property Acquisition in certain other circumstances, and in any
such cases appropriate adjustments to the purchase price will be made to account
for the excluded Properties.
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CONSENTS
No consent is required from any federal or state governmental authority in
order to complete the Property Acquisition.
The consent of the third-party partners in the partnerships which own 500
Boylston Street and 222 Berkeley Street may be required in order for Cornerstone
to acquire the stock of DIHC's subsidiaries which hold the interests in the
partnerships which own those Additional Properties. Cornerstone expects that any
required consent will be obtained prior to the closing of the Property
Acquisition. However, if such consent is not obtained, 500 Boylston Street and
222 Berkeley Street will be removed from the Property Acquisition and the
purchase price for the Additional Properties will be appropriately reduced.
CERTAIN PROVISIONS OF THE STOCK PURCHASE AGREEMENT
General
The Cornerstone Board has approved the Stock Purchase Agreement, which
provides for the acquisition of interests in the Additional Properties, to be
effected by having Cornerstone purchase all of the outstanding common stock of
certain subsidiaries of DIHC (the "DIHC Subsidiaries"), which own directly or
indirectly fee simple title to, or interests in partnerships which own fee
simple title to, the Additional Properties. This section of the Proxy Statement
describes certain aspects of the proposed Property Acquisition, including
certain provisions of the Stock Purchase Agreement. The description of the Stock
Purchase Agreement contained in this Proxy Statement does not purport to be
complete and is qualified in its entirety by reference to the Stock Purchase
Agreement, a copy of which is attached hereto as Annex I and which is
incorporated herein by reference. All stockholders of Cornerstone are urged to
read carefully the Stock Purchase Agreement.
Conditions to the Consummation of the Property Acquisition
Each party's obligation to effect the Property Acquisition is conditioned
upon the closing of the Loan Purchase Agreement and is subject to the
satisfaction or waiver on or prior to the Closing Date of various other
conditions which include, in addition to other customary closing conditions, the
following:
(i) the stockholders of Cornerstone having approved the issuance of
additional shares of Common Stock to DIHC and the Acquisition Amendment;
(ii) Cornerstone, PGGM and DIHC having obtained all consents and
waivers from third parties necessary in connection with the consummation of
the Property Acquisition, other than such consent or waivers, which, if not
obtained, would not result in a Material Adverse Effect to either
Cornerstone or DIHC or their respective properties;
(iii) no action having been commenced by or before any government
authority against either DIHC or Cornerstone seeking to restrain or
materially and adversely alter the Property Acquisition which either
Cornerstone believes, in its sole and absolute discretion, or PGGM or DIHC
determines, in good faith, is likely to render it impossible or unlawful to
consummate the Property Acquisition or, with respect to Cornerstone's
obligation to close only, which could have a Material Adverse Effect on
DIHC or any of the Additional Properties;
(iv) DIHC having received an opinion of counsel to Cornerstone,
reasonably satisfactory to DIHC that, commencing with its taxable year
ending December 31, 1993, Cornerstone has been organized and operated in
conformity with the requirements for qualification as a REIT under the
Code;
(v) DIHC and Cornerstone each having received a legal opinion from
counsel to the other party as to its authority to execute and deliver the
Stock Purchase Agreement and to consummate the Property Acquisition, as
well as certain other customary legal matters;
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(vi) the representations and warranties of the other party to the
Stock Purchase Agreement set forth in the Stock Purchase Agreement being
true and correct in all material respects as of the closing as though made
on and as of the closing (except to the extent such representations and
warranties expressly relate to another date) and the covenants having been
complied with in all material respects; in the event any breaches of such
representations, warranties and covenants are, in the aggregate, reasonably
expected to have, with respect to DIHC, a Material Adverse Effect on
Cornerstone or the collateral which is to secure the purchase money notes
issued by Cornerstone, or with respect to Cornerstone, a Material Adverse
Effect on DIHC or the Additional Properties;
(vii) all conditions to the closing of the Loan Purchase Agreement
having been satisfied;
(viii) with respect to DIHC's obligation to close, there shall have
been, since the date of the Stock Purchase Agreement, no change in the
business or prospects of Cornerstone which has had or would be reasonably
likely to have a Material Adverse Effect on Cornerstone or adversely affect
any of DIHC's collateral for the promissory notes issued by Cornerstone in
any material respect;
(ix) with respect to Cornerstone's obligation to close, there shall
have been, since the date of the Stock Purchase Agreement, no change in the
business or prospects of DIHC which has had or would be reasonably likely
to have a Material Adverse Effect on DIHC or any of the Additional
Properties; and
(x) the Registration Rights and Voting Agreement having been duly
executed and delivered by the parties thereto.
The term "Material Adverse Effect" as used in the Stock Purchase Agreement
means any change or effect that is or is reasonably likely to have a materially
adverse effect on a party's business, operations, assets, properties,
individually or in the aggregate. For purposes of clause (iii) above, DIHC and
Cornerstone have agreed that claims, actions or suits by certain third parties
challenging or contesting the transfer by DIHC of its interests in certain DIHC
Subsidiaries pursuant to the Stock Purchase Agreement will not constitute a
Material Adverse Effect unless such claim, action or suit results in an
injunction or similar form of equitable relief or arises out of facts or
circumstances not disclosed to Cornerstone prior to its entering into the Stock
Purchase Agreement.
Termination
The Stock Purchase Agreement may be terminated at any time prior to the
Closing:
(i) by mutual written consent duly authorized by the respective boards
of directors of Cornerstone and DIHC;
(ii) by either Cornerstone, on the one hand, or DIHC, on the other
hand, if the other party has breached any material representation,
warranty, covenant or other agreements contained in the Stock Purchase
Agreement, or if a material representation or warranty becomes untrue in
any material respect such that the conditions to such party's obligation to
close as described above would be incapable of being satisfied on or prior
to December 31, 1997;
(iii) by Cornerstone or DIHC, if any judgment, injunction, order,
decree or action or by any governmental authority preventing the
consummation of the Property Acquisition or requiring actions as a
condition precedent to the consummation of the Property Acquisition which
would result in a Material Adverse Effect to Cornerstone or, with respect
to Cornerstone's right to terminate, a Material Adverse Effect on DIHC or
the Additional Properties, shall have become final and non-appealable;
(iv) by either Cornerstone or DIHC, if Cornerstone's stockholders have
not approved the issuance of additional shares of Common Stock to DIHC and
the Acquisition Amendment on or before December 31, 1997;
(v) by DIHC upon a Change of Control of Cornerstone; or
(vi) by either Cornerstone or DIHC, if the Loan Purchase Agreement is
terminated.
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The term "Change of Control" as used in the Stock Purchase Agreement and
the Loan Purchase Agreement means any of the following occurrences: (a)
securities of Cornerstone representing 30% or more of the combined voting power
of Cornerstone's then outstanding voting securities being acquired pursuant to a
tender offer or an exchange offer; (b) a merger or consolidation being
consummated in which Cornerstone is a constituent corporation and which results
in less than 50% of the outstanding voting securities of the surviving or
resulting entity being owned by the former stockholders of Cornerstone; or (c)
any person becoming the beneficial owner, directly or indirectly, of securities
of Cornerstone representing 30% or more of the combined voting power of
Cornerstone's then outstanding securities; provided, that, a "Change of Control"
shall in no event refer to any of the foregoing if, as a result thereof, control
of Cornerstone is held by a person or entity which is an affiliate of
Cornerstone as of August 18, 1997.
No Solicitation
The Stock Purchase Agreement provides that (i) DIHC will not, directly or
indirectly through any officer, trust, manager, employee, agent, investment
banker, financial advisor, attorney, accountant, broker or other representative,
initiate, solicit or effect the sale or listing for sale of any of the
Additional Properties (other than the Dearborn Land) or any of its direct or
indirect interests in the DIHC Subsidiaries, and (ii) the Seller will not, and
will not permit the DIHC Subsidiaries to, effect any change in their respective
capital structures or initiate, solicit or effect any merger, consolidation,
share exchange, business combination, or similar transaction with any person
other than Cornerstone.
Conduct of Business Pending the Property Acquisition
Pursuant to the Stock Purchase Agreement, Cornerstone and DIHC have both
agreed to conduct their respective businesses in the ordinary course of business
in a manner consistent with past practice and use their respective commercially
reasonable efforts to preserve intact their respective goodwill. In addition,
Cornerstone has agreed that, among other things and subject to certain
exceptions, it will not:
(i) except for (x) its regular quarterly dividends not in excess of
$0.30 per share of issued and outstanding common stock or (y) its regular
annual dividends not in excess or $1.155 per share of issued and
outstanding preferred stock, declare, set aside or pay any dividends on, or
make any other distribution in respect of, its outstanding shares of
capital stock;
(ii) except as contemplated in the Stock Purchase Agreement, amend the
articles or certificate of incorporation, charter, bylaws, partnership
agreement or other comparable charter or organizational documents of
Cornerstone or any subsidiary of Cornerstone;
(iii) merge or consolidate with any person;
(iv) except for Cornerstone's Dividend Reinvestment Share Purchase
Plan and the exercise of share options or issuance of shares pursuant to
stock rights, options, restricted share or performance share awards or
warrants outstanding on the date of the Stock Purchase Agreement, issue,
deliver or sell, or grant any option or other right in respect of, any
shares of Common Stock, any other voting securities of Cornerstone or any
Cornerstone subsidiary or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities (except to Cornerstone or a Cornerstone subsidiary),
except the foregoing shall not prohibit the issuance of Common Stock in
connection with the conversion of any currently outstanding convertible
preferred stock or notes or in connection with the granting of any employee
or director stock options or restricted shares to any employee or director
of Cornerstone in an amount not to exceed $10 million;
(v) in any transaction or series of related transactions involving
capital, securities or other assets or indebtedness of Cornerstone, a
Cornerstone subsidiary, or any combination thereof in excess of
$10,000,000: (i) acquire by merging or consolidating with, or by purchasing
all or a substantial portion of the equity securities or all or
substantially all of the assets of, or by any other manner, any business or
any corporation, partnership, limited liability company, joint venture,
association, real estate investment trust, business trust or other business
organization or division thereof or interest therein; (ii) subject to any
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encumbrance, or sell, lease or otherwise dispose of any of the Current
Properties or any material assets or assign or encumber the right to
receive income, dividends, distributions and the like; or (iii) incur any
indebtedness, issue or refinance any indebtedness or make any loans,
advances or capital contributions to, or investments in, any other person
or entity, excluding (a) Cornerstone's proposed $200 million line of credit
with Bankers Trust Company and The Chase Manhattan Bank and (b) financial
transactions undertaken by Cornerstone or subsidiaries of Cornerstone in
accordance with their respective ordinary cash management practices such as
investments or deposits in commercial paper, obligations of the United
States of America or its agencies or instrumentalities, certificates of
deposit, time deposits, repurchase agreements and similar financial
arrangements;
(vi) adopt any new employee benefit plan, incentive plan, severance
plan, stock option or similar plan, grant new stock appreciation rights or
amend any existing plan or rights, except such changes as are required by
law or which are not more favorable to participants than provisions
presently in effect; and
(vii) enter into or amend or otherwise modify any agreement or
arrangement with persons that are Affiliates or, as of the date hereof, are
executive officers, trust managers or directors of Cornerstone or any
subsidiary of Cornerstone.
In addition, DIHC has agreed that, among other things and subject to
certain exceptions, it will not:
(i) cause or permit any default to occur by DIHC or any DIHC
Subsidiary under any indebtedness of any of the DIHC Subsidiaries or
secured by the Additional Properties or cause or permit any increase in the
outstanding aggregate principal balance thereof or incur any indebtedness
or make any loans, advances or capital contributions in or to any other
Person, other than an existing loan from a DIHC Subsidiary to another DIHC
Subsidiary through which DIHC owns its interest in the partnership which
owns fee simple title to Market Square the principal balance of which may
be increased by up to $3,000,000, excluding accrued and compounded
interest;
(ii) initiate, solicit or effect any merger, consolidation, share
exchange, business combination or similar transaction with any person other
than Cornerstone or the subsidiaries of Cornerstone except that, with the
prior written consent of Cornerstone which will not be unreasonably
withheld, DIHC may undertake internal restructuring transactions with
respect to the DIHC Subsidiaries;
(iii) amend the articles or certificate of incorporation, charter,
bylaws, partnership agreement or other comparable charter or organizational
documents of DIHC or any DIHC Subsidiary;
(iv) cause or permit any default to occur by DIHC or any DIHC
Subsidiary under certain identified administrative, consulting, management
and similar agreements and DIHC shall, and shall cause DIHC Subsidiaries
to, perform their obligations under such agreements and shall not, and
shall not permit any DIHC Subsidiary to modify, amend or terminate any such
administrative or similar agreements; and
(v) DIHC will not permit any DIHC Subsidiary (other than joint
ventures) to enter into any material contract or grant concessions
regarding certain material contracts or enter into, modify, amend, renew or
terminate certain material leases.
Amendment and Waiver
The Stock Purchase Agreement may be amended by an instrument in writing
signed on behalf of each party.
At any time prior to the closing date, either party may, in an instrument
in writing signed by the party or parties to be bound thereby, (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties
contained in the Stock Purchase Agreement or in any document delivered pursuant
to the Stock Purchase Agreement, and (c) waive compliance with any of the
agreements or conditions contained in the Stock Purchase Agreement.
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Expenses
All reasonable out-of-pocket expenses (including, without limitation, all
fees and expenses of counsel, accountants, investment bankers, experts and
consultants) incurred in connection with the Stock Purchase Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses; provided, however, that Cornerstone is required to pay all real
property transfer gains, sales, use, transfer, mortgage recording, intangible,
value added, stock transfer and stamp taxes and similar taxes (the "Transfer
Taxes") payable in connection with the Property Acquisition (excluding state and
federal income taxes) other than any Transfer Tax due in connection with the
transfer of the Market Square building in Washington, D.C. which will be shared
equally by the parties.
Representations and Warranties
The Stock Purchase Agreement contains customary representations and
warranties relating to, among other things: (i) the corporate organization and
qualification of each party and their respective subsidiaries; (ii) the articles
of incorporation and bylaws of each party and its subsidiaries having been made
available; (iii) the capitalization of each party and its subsidiaries; (iv) the
corporate power and authority of each party; (v) the absence of conflict with
(a) each party's articles of incorporation and bylaws, (b) applicable law or (c)
certain agreements; (vi) compliance with applicable laws; (vii) the timely
filing of documents filed by Cornerstone with the Commission and the accuracy of
information contained therein; (viii) absence of material changes or events with
respect to Cornerstone; (ix) absence of litigation; (x) matters relating to
employee benefit plans with respect to Cornerstone; (xi) matters relating to
material contracts; (xii) environmental matters; (xiii) filing of tax returns
and payment of taxes; (xiv) matters relating to environmental permits and other
licenses and authorizations; (xv) agreements between Cornerstone or its
subsidiaries and any officer, director or affiliate thereof; (xvi) engagement
and payment of fees of brokers; (xvii) required stockholder votes with respect
to Cornerstone; and (xviii) certain other matters relating to the Additional
Properties and the Current Properties.
Standstill Agreement
In the event the Property Acquisition is not consummated, Cornerstone and
DIHC agree that, for a period of 24 months after the date of the Stock Purchase
Agreement, unless specifically invited in writing by the other party's Board of
Directors, neither Cornerstone nor DIHC (nor any of their respective
affiliates), will in any manner, directly or indirectly, (a) effect or seek,
offer or propose (whether publicly or otherwise) to effect, or cause or
participate in, (i) the acquisition of the other party's securities (or
beneficial ownership thereof) or assets, (ii) any tender or exchange offer,
merger or other business combination involving the other party, (iii) any
recapitalization, restructuring, liquidation, dissolution or other extraordinary
transaction with respect to the other party or (iv) any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the Commission) or
consents to vote any of the other party's voting securities; (b) form, join or
in any way participate in a "group" (as defined under the Exchange Act) or
otherwise act, alone or in concert with others, to seek to control or influence
the other party's management, Board of Directors or policies; or (c) enter into
any discussion or arrangement with any third party with respect to any of the
foregoing. Notwithstanding the foregoing, in the event either of Cornerstone or
DIHC willfully and intentionally breach any of their respective obligations
under the Stock Purchase Agreement with the result that a closing thereunder
does not occur, the non-defaulting party shall not be bound by such standstill
agreement.
Indemnification.
The Stock Purchase Agreement provides that each of Cornerstone and DIHC
will indemnify, defend and hold harmless, to the fullest extent permitted by
law, the other party and the respective affiliates, officers, directors or
employees, agents, successors and assigns of the other party against all losses,
claims, damages, liabilities, costs and expenses, interest, awards, judgments
and penalties (including, without limitation, attorneys' and consultants' fees
and expenses) actually suffered or incurred, arising out of or resulting from,
among other things, (i) the breach of any representation or warranty contained
in the Stock Purchase Agreement, and (ii) the breach of any covenant or
agreement contained in the Stock Purchase Agreement. In
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addition, Cornerstone has agreed to indemnify DIHC for claims (if any) asserted
by certain third parties alleging breaches of the terms of certain partnership
agreements arising out of the Property Acquisition.
In the event of any loss incurred by DIHC or any affiliate thereof, for
purposes of determining the amount DIHC is entitled to recover under the Stock
Purchase Agreement on account of such loss, DIHC's loss shall be "grossed up" to
an amount equal to the quotient of (i) the amount of such loss divided by (ii) a
fraction the numerator of which is the aggregate number of issued and
outstanding shares of capital stock of Cornerstone and owned by persons other
than DIHC and PGGM as of the date on which any payment is made by Cornerstone on
account of such loss and the denominator of which is the aggregate amount of
issued and outstanding capital stock of Cornerstone as of such date.
With respect to any claim for the breach of representations and warranties
under the Stock Purchase Agreement, no claim may be made with respect to any
individual item of loss unless the aggregate of all losses sought for breaches
of representations or warranties under the Stock Purchase Agreement plus any
losses sought under the Loan Purchase Agreement for breaches of representations
or warranties shall exceed $10,000,000, except in the event of a wilful and
intentional breach. In the event the indemnified party is entitled to seek
recovery for breaches of representations or warranties under the Stock Purchase
Agreement, the indemnity shall be for the full extent of all the losses to the
indemnified party resulting from such breach exceeding and excluding the first
$10,000,000 under the Stock Purchase Agreement and the Loan Purchase Agreement
aggregated. Notwithstanding the foregoing, the aggregate liability for losses
for breaches of representations and warranties under the Stock Purchase
Agreement and the Loan Purchase Agreement for which either party is liable is
limited to an aggregate amount of $100,000,000, except in the event of wilful
and intentional breach.
Tax Matters.
The Stock Purchase Agreement provides that in addition to the general
indemnification obligations imposed thereunder, DIHC will indemnify Cornerstone
for federal and state income or franchise taxes imposed on DIHC or any of the
DIHC Subsidiaries for taxable periods ending on or before the closing date and
for any adverse consequences arising from the failure of DIHC to pay such taxes
relating to the election under section 338(h)(10) of the Code. Cornerstone will
generally indemnify DIHC for any taxes imposed on the DIHC Subsidiaries for
taxable periods ending after the closing date.
The Stock Purchase Agreement also allocates responsibility among the
parties for (i) filing tax returns and paying taxes relating to such returns,
(ii) handling audits and contests relating to taxes, and (iii) exchanging
information with respect to tax matters. Finally, the Stock Purchase Agreement
provides that Cornerstone and DIHC will join in making an election under section
338(h)(10) of the Code with respect to the purchase and sale of the DIHC
Subsidiaries.
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CERTAIN PROVISIONS OF THE LOAN PURCHASE AGREEMENT
General
The Cornerstone Board has approved the Loan Purchase Agreement, which
provides for the sale of certain secured and unsecured mortgage loans
("Purchased Loans") associated with the Additional Properties from PGGM to
Cornerstone (the "Loan Purchase"), to be effected by the assignment of the
Purchased Loans from PGGM to Cornerstone and the assumption by Cornerstone of
certain liabilities relating to the Purchased Loans. This section of the Proxy
Statement describes certain aspects of the Loan Purchase Agreement. The
description of the Loan Purchase Agreement contained in this Proxy Statement
does not purport to be complete and is qualified in its entirety by reference to
the Loan Purchase Agreement, a copy of which is attached hereto as Annex II and
which is incorporated herein by reference. All stockholders of Cornerstone are
urged to read carefully the Loan Purchase Agreement.
Conditions to the Consummation of the Loan Purchase
Each party's obligation to effect the Loan Purchase is subject to the
satisfaction or waiver on or prior to the closing date of various conditions
which include, in addition to other customary closing conditions, the following:
(i) the stockholders of Cornerstone having approved the issuance of
additional shares of Common Stock to PGGM and the Acquisition Amendment;
(ii) Cornerstone and PGGM having obtained all consents and waivers
from third parties necessary in connection with the consummation of the
Loan Purchase, other than such consent or waivers, which, if not obtained,
would not result in either a Material Adverse Effect to Cornerstone, PGGM
or any one or more of the Purchased Loans;
(iii) no action having been commenced by or before any government
authority against either PGGM or Cornerstone seeking to restrain or
materially and adversely alter the Loan Purchase which either Cornerstone
believes, in its sole and absolute discretion, or PGGM determines, in good
faith, is likely to render it impossible or unlawful to consummate the Loan
Purchase or, with respect to Cornerstone's obligation to close only, which
could have a Material Adverse Effect on PGGM or any one or more of the
Purchased Loans;
(iv) PGGM having received an opinion of counsel to Cornerstone,
reasonably satisfactory to PGGM that, commencing with its taxable year
ending December 31, 1993, Cornerstone has been organized and operated in
conformity with the requirements for qualification as a REIT under the
Code;
(v) PGGM and Cornerstone each having received a legal opinion from
counsel to the other party as to its authority to execute and deliver the
Loan Purchase Agreement and to consummate the Loan Purchase, as well as
certain other customary legal matters;
(vi) the representations and warranties of the other party set forth
in the Loan Purchase Agreement being true and correct in all material
respects as of the closing as though made on and as of the closing (except
to the extent such representations and warranties expressly relate to
another date) and the covenants having been complied with in all material
respects, in the event any breaches of such representations, warranties and
covenants are, in the aggregate, reasonably expected to have, with respect
to PGGM, a Material Adverse Effect on Cornerstone or the collateral which
is to secure the purchase money notes issued by Cornerstone, or with
respect to Cornerstone, a Material Adverse Effect on PGGM or any one or
more of the Purchased Loans;
(vii) all the conditions to the Stock Purchase Agreement having been
satisfied;
(viii) with respect to PGGM's obligation to close, there shall have
been, since the date of the Loan Purchase Agreement, no change in the
business or prospects of Cornerstone which has had or would be reasonably
likely to have a Material Adverse Effect on Cornerstone or adversely affect
any of PGGM's collateral for the purchase money notes issued by Cornerstone
in any material respect;
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(ix) with respect to Cornerstone's obligation to close, there shall
have been, since the date of the Loan Purchase Agreement, no change in the
business or prospects of PGGM which has had or would be reasonably likely
to have a Material Adverse Effect on PGGM or any of the Purchased Loans;
and
(x) the Registration Rights and Voting Agreement having been duly
executed and delivered by the parties thereto.
The term "Material Adverse Effect" as used in the Loan Purchase Agreement
means any change or effect that is or is reasonably likely to have a materially
adverse effect on a party's business, operations, assets properties,
individually or in the aggregate.
Termination
The Loan Purchase Agreement may be terminated at any time prior to the
Closing:
(i) by mutual written consent duly authorized by the respective boards
of directors of Cornerstone and PGGM;
(ii) by Cornerstone, if PGGM has breached any material representation,
warranty, covenant or other agreement contained in the Loan Purchase
Agreement, or if any material representation or warranty becomes untrue in
any material respect, if such breach or change is reasonably expected to,
or has, a Material Adverse Effect on PGGM or the Purchased Loans such that
the condition described in (vi) above would be incapable of being satisfied
on or prior to December 31, 1997;
(iii) by PGGM, if Cornerstone has breached any material
representation, warranty, covenant or other agreements contained in the
Loan Purchase Agreement, or if any material representation or warranty
becomes untrue in any material respect, if such breach or change is
reasonably expected to, or has, a Material Adverse Effect on the Purchaser
or impairs in any material respect the collateral for the purchase money
notes issued by Cornerstone such that the condition to the consummation of
the Loan Purchase described in (vi) above would be incapable of being
satisfied on or prior to December 31, 1997;
(iv) by Cornerstone, if any judgment, injunction, order, decree or
action by any governmental authority preventing the consummation of the
Loan Purchase or requiring actions as a condition precedent to the
consummation of the Loan Purchase would result in a Material Adverse Effect
on PGGM, Cornerstone or the Purchased Loans shall have become final and
non-appealable;
(v) by PGGM, if any judgment, injunction, order, decree or action by
any governmental authority preventing the consummation of the Loan Purchase
or requiring actions as a condition precedent to the consummation of the
Loan Purchase would result in an Material Adverse Effect to Cornerstone or
the impairment in any material respect of any of the collateral for the
purchase money notes issued by Cornerstone shall have become final and
non-appealable;
(vi) by either Cornerstone or PGGM, if Cornerstone's stockholders have
not approved the issuance of additional shares of Cornerstone Common Stock
to PGGM and the Acquisition Amendment on or before December 31, 1997; or
(vii) by PGGM upon a Change of Control (as defined above) of
Cornerstone.
Conduct of Business Pending the Loan Purchase
Pursuant to the Loan Purchase Agreement, Cornerstone has agreed to conduct
its business in the ordinary course of business in a manner consistent with past
practice and to use its reasonable best efforts to preserve intact its goodwill.
In addition, Cornerstone has agreed that, among other things and subject to
certain exceptions, neither it nor any of its subsidiaries will, without the
prior written consent of PGGM:
(i) except for (x) its regular quarterly dividends not in excess of
$0.30 per share of issued and outstanding common stock or (y) its regular
annual dividends not in excess of $1.155 per share of issued and
outstanding preferred stock, declare, set aside or pay any dividends on, or
make any other distribution in respect of, its outstanding shares of
capital stock;
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(ii) except as contemplated hereby, amend the articles or certificate
of incorporation, charter, bylaws, partnership agreement or other
comparable charter or organizational documents of Cornerstone or any
subsidiary of Cornerstone;
(iii) merge or consolidate with any person;
(iv) except for Cornerstone's Dividend Reinvestment Share Purchase
Plan and the exercise of share options or issuance of shares pursuant to
stock rights, options, restricted share or performance share awards or
warrants outstanding on the date of the Loan Purchase Agreement, issue,
deliver or sell, or grant any option or other right in respect of, any
shares of common stock, any other voting securities of Cornerstone or any
subsidiary of Cornerstone or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities
or convertible securities (except to Cornerstone or a subsidiary of
Cornerstone) except the foregoing shall not prohibit the issuance of Common
Stock in connection with the conversion of any currently outstanding
convertible preferred stock or notes or in connection with the granting of
any employee or director stock options or restricted shares to any employee
or director in an amount not to exceed $10 million;
(v) in any transaction or series of related transactions involving
capital, securities or other assets or indebtedness of Cornerstone, a
Subsidiary of Cornerstone, or any combination thereof in excess of
$10,000,000: (i) acquire or agree to acquire by merging or consolidating
with, or by purchasing all or substantial portion of the equity securities
or all or substantially all of the assets of, or by any other manner, any
business or any corporation, partnership, limited liability company, joint
venture, association, real estate investment trust, business trust or other
business organization or division thereof or interest therein; (ii) subject
to any encumbrance, or sell, lease or otherwise dispose of any of the
Current Properties or any material assets or assign or encumber the right
to receive income, dividends, distributions and the like; or (iii) incur
any indebtedness, issue or refinance any indebtedness or make any loans,
advances or capital contributions to, or investments in, any other person
or entity; excluding (a) Cornerstone's proposed $200 million line of credit
with Bankers Trust Company and The Chase Manhattan Bank and (b) financial
transactions undertaken by Cornerstone or subsidiaries of Cornerstone in
accordance with their respective ordinary cash management practices such as
investments or deposits in commercial paper, obligations of the United
States of America or its agencies or instrumentalities, certificates of
deposit, time deposits, repurchase agreements and similar financial
arrangements;
(vi) adopt any new employee benefit plan, incentive plan, severance
plan, stock option or similar plan, grant new stock appreciation rights or
amend any existing plan or rights, except such changes as are required by
law or which are not more favorable to participants than provisions
presently in effect; and
(vii) enter into or amend or otherwise modify any agreement or
arrangement with persons that are Affiliates or, as of the date hereof, are
executive officers, trust managers or directors of Cornerstone or any
subsidiary of Cornerstone.
Pursuant to the Loan Agreement, PGGM has agreed, without the prior written
consent of Cornerstone, not to be unreasonably withheld, not to (i) modify or
amend any term or provision of any of the documents evidencing the Purchased
Loans, (ii) waive any right of the "lender" thereunder, or (iii) grant any
consent or approval required from the "lender" thereunder.
Amendment and Waiver
The Loan Purchase Agreement may be amended by an instrument in writing
signed on behalf of each party.
At any time prior to the closing date, either party may, in an instrument
in writing signed by the party or parties to be bound thereby, (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties
contained in the Loan Purchase Agreement or in any document delivered pursuant
to the Loan Purchase Agreement, and (c) waive compliance with any of the
agreements or conditions contained in the Loan Purchase Agreement.
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Expenses
All out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants)
incurred in connection with the Loan Purchase Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses.
Representations and Warranties
The Loan Purchase Agreement contains customary representations and
warranties relating to, among other things: (i) the corporate organization and
qualification of each party and their subsidiaries; (ii) the articles of
incorporation and bylaws of Cornerstone and its subsidiaries having been made
available; (iii) the capitalization of Cornerstone and its subsidiaries; (iv)
the corporate power and authority of each party; (v) the absence of conflict
with (a) each party's articles of incorporation and bylaws, (b) applicable law
or (c) certain agreements; (vi) compliance with applicable laws; (vii) the
timely filing of documents filed by Cornerstone with the Commission and the
accuracy of information contained therein; (viii) absence of material changes or
events with respect to Cornerstone; (ix) absence of litigation; (x) matters
relating to employee benefit plans of Cornerstone; (xi) matters relating to
material contracts of Cornerstone; (xii) environmental matters regarding the
Current Properties; (xiii) filing of tax returns and payment of taxes by
Cornerstone and its subsidiaries; (xiv) matters relating to environmental
permits and other licenses and authorizations regarding the Current Properties;
(xv) agreements between Cornerstone or its subsidiaries and any officer,
director or affiliate thereof; (xvi) engagement and payment of fees of brokers;
(xvii) required stockholder votes of Cornerstone; (xviii) certain matters
relating to the Current Properties and the Purchased Loans; and (xix) the
absence of any notice of insolvency or insolvency proceedings.
Standstill Agreement
In the event the Property Acquisition is not consummated, Cornerstone and
PGGM agree that, for a period of 24 months after the date of the Loan Purchase
Agreement, unless specifically invited in writing by the other party's Board of
Directors, neither Cornerstone nor PGGM (nor any of their respective
affiliates), will in any manner, directly or indirectly, (a) effect or seek,
offer or propose (whether publicly or otherwise) to effect, or cause or
participate in, (i) the acquisition of the other party's securities (or
beneficial ownership thereof) or assets, (ii) any tender or exchange offer,
merger or other business combination involving the other party, (iii) any
recapitalization, restructuring, liquidation, dissolution or other extraordinary
transaction with respect to the other party or (iv) any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the Commission) or
consents to vote any of the other party's voting securities; (b) form, join or
in any way participate in a "group" (as defined under the Exchange Act) or
otherwise act, alone or in concert with others, to seek to control or influence
the other party's management, Board of Directors or policies; or (c) enter into
any discussion or arrangement with any third party with respect to any of the
foregoing. Notwithstanding the foregoing, in the event either of Cornerstone or
PGGM willfully and intentionally breach any of their respective obligations
under the Loan Purchase Agreement with the result that a closing thereunder does
not occur, the non-defaulting party shall not be bound by such standstill
agreement.
Indemnification.
The Loan Purchase Agreement provides that Cornerstone and PGGM will
indemnify, defend and hold harmless, to the fullest extent permitted by law, the
other party, its affiliates and the officers, directors or employees, agents,
successors and assigns of the other party against all losses, expenses, claims,
damages, liabilities, costs, and expenses, interest, awards, judgments and
penalties (including, without limitation, attorneys' and consultants' fees and
expenses) actually suffered or incurred arising out of or resulting from, among
other things, (i) the breach of any representation or warranty contained in the
Loan Purchase Agreement, and (ii) the breach of any covenant or agreement.
In the event of any loss incurred by PGGM or any affiliate thereof, for
purposes of determining the amount PGGM is entitled to recover under the Loan
Purchase Agreement on account of such loss, PGGM's loss shall be "grossed up" to
an amount equal to the quotient of (i) the amount of such loss divided by (ii) a
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fraction the numerator of which is the aggregate number of issued and
outstanding shares of capital stock of Cornerstone and owned by persons other
than DIHC and PGGM as the date on which any payment is made by Cornerstone on
account of such loss and the denominator of which is the aggregate amount of
issued and outstanding capital stock of Cornerstone as of such date.
With respect to any claim for the breach of representations and warranties
hereunder, no claim may be made with respect to any individual item of loss
unless the aggregate of all losses sought for breaches of representations or
warranties under the Loan Purchase Agreement plus any losses sought under the
Stock Purchase Agreement for breaches of representations or warranties shall
exceed $10,000,000, except in the event of a wilful and intentional breach. In
the event the indemnified party is entitled to seek recovery for breaches of
representations or warranties under the Loan Purchase Agreement, the indemnity
shall be for the full extent of all the losses to the indemnified party
resulting from such breach exceeding and excluding the first $10,000,000 under
the Stock Purchase Agreement and the Loan Purchase Agreement aggregated.
Notwithstanding the foregoing, the aggregate liability for losses for breaches
of representations and warranties under the Stock Purchase Agreement and the
Loan Purchase Agreement for which either party is liable is limited to an
aggregate amount of $100,000,000, except in the event of wilful and intentional
breach.
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CERTAIN PROVISIONS OF THE REGISTRATION
RIGHTS AND VOTING AGREEMENT
RESTRICTIONS ON TRANSFER GENERALLY; RULE 144
Upon the closing of the Property Acquisition, Cornerstone will have
approximately 83,044,242 shares of Common Stock outstanding. The 34,187,500
shares of Common Stock to be issued to PGGM and DIHC in connection with the
Property Acquisition may be publicly sold only if such Common Stock is
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares for at least one year, including an "affiliate," as
that term is defined in Rule 144, is entitled to sell, within any three-month
period, a number of "restricted" shares that does not exceed the greater of one
percent (1%) of the then outstanding shares of Common Stock (approximately
83,044,242 shares immediately after the consummation of the Property
Acquisition) or the average weekly trading volume during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain manner of
sale limitations, notice requirements and the availability of current public
information about Cornerstone. Rule 144(k) provides that a person who is not
deemed an "affiliate" and who has beneficially owned shares for at least two
years is entitled to sell such shares at any time under Rule 144 without regard
to the limitation described above.
As described below, PGGM and DIHC will be subject to certain limited
contractual restrictions on resale with respect to shares of the Common Stock
received by them in connection with the Property Acquisition. In addition,
unless such shares are registered for sale under the Securities Act, for
purposes of Rule 144 they would be considered "restricted securities" and would
be subject to the limitations on sale pursuant to Rule 144 described above. PGGM
and DIHC may also be considered "affiliates" for purposes of Rule 144.
REGISTRATION RIGHTS
In connection with the execution of the Purchase Agreement and as a
condition to the consummation of the Property Acquisition, Cornerstone has
agreed to enter into the Registration Rights and Voting Agreement. The
Registration Rights and Voting Agreement provides that, subject to certain
limitations, upon the closing of the Property Acquisition, PGGM and DIHC will
have the right to demand, on no more than eight occasions, that Cornerstone
register all or a portion of the shares of Common Stock issued to PGGM and DIHC
in connection with the Property Acquisition, subject to a requirement that the
market value of the shares requested to be registered as of the date of any
demand must equal or exceed $75 million (or the total aggregate amount of shares
held by PGGM and DIHC, if less than $75 million). Cornerstone will be required
to use its reasonable best efforts to effect any such registration on demand and
will have the ability to defer the filing of a registration statement relating
to a demand in certain circumstances. Such registrations will be at the expense
of Cornerstone, except that PGGM and DIHC will bear all underwriting discounts
and commissions and fees and expenses of its own counsel.
In order to facilitate the registration rights of PGGM and DIHC, upon the
request of PGGM, Cornerstone is required to use its commercially reasonable
efforts within 20 days after the consummation of the Property Acquisition to
register all of the 34,187,500 shares of Common Stock issued in the Property
Acquisition on a registration statement which provides for the offering of such
securities on a delayed or continuous basis. Prior to selling Common Stock under
such registration statement, PGGM and DIHC must give written notice to
Cornerstone of their intentions. Cornerstone will have the right in certain
circumstances to defer such intended sales.
In the event that Cornerstone exercises its rights to defer requested
registrations or sales of Common Stock by PGGM and DIHC due to a contemplated
public offering of Common Stock by Cornerstone, PGGM and DIHC will have the
right to include their shares in Cornerstone's registration statement. These
additional registration rights will be subject to certain customary limitations
as well as limitations contained in other agreements between Cornerstone and its
stockholders.
Cornerstone is unable to estimate the number of shares of Common Stock that
may be sold in the future by PGGM and DIHC or the effect, if any, that sales of
shares by PGGM and DIHC will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
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PGGM and DIHC, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock.
BOARD REPRESENTATION
The Registration Rights Agreement provides that, so long as PGGM and DIHC
and their respective affiliates own in the aggregate 5% or more of the issued
and outstanding shares of Common Stock, Cornerstone will take all action
necessary to ensure that two members of the Cornerstone Board are individuals
nominated by PGGM ("PGGM Directors"). In addition, until the earlier to occur of
(a) the date on which PGGM and DIHC and their respective affiliates own in the
aggregate less than 25% of the issued and outstanding shares of Common Stock or
(b) the fifth anniversary of the closing of the Property Acquisition, (i)
Cornerstone will take all action necessary to ensure that one PGGM Director is
appointed to the Board Affairs Committee of the Cornerstone Board, (ii) all
nominees for directors of Cornerstone by the Cornerstone Board (other than
"Incumbent Directors" (as defined below) and PGGM Directors) shall be persons
not affiliated with PGGM or DIHC or any of their affiliates and shall be made
with the approval of a majority of the members of the Board Affairs Committee,
which majority includes the approval (which will not be unreasonably withheld)
of the PGGM Director sitting on the Board Affairs Committee, (iii) PGGM and DIHC
shall vote (or provide written consent with respect to) all shares of Common
Stock over which it exercises voting authority in favor of the persons nominated
as PGGM Directors and all nominees of the Board, (iv) Cornerstone will take all
action necessary to ensure that vacancies on the Cornerstone Board caused by a
PGGM Director are filled with a PGGM Director and (v) Cornerstone will not
increase the number of directors constituting the full Cornerstone Board without
the prior written consent of PGGM.
"Incumbent Directors" means (i) all individuals constituting the
Cornerstone Board on the closing date of the Property Acquisition, (ii) all
individuals thereafter designated as nominees to the Cornerstone Board by NYSTRS
pursuant to a letter agreement dated November 22, 1996, (iii) all individuals
thereafter designated as nominees to the Cornerstone Board by Rodamco pursuant
to a letter agreement dated November 7, 1996, and (iv) one individual thereafter
designated by Deutsche Bank AG as a nominee to the Cornerstone Board.
TRANSFER RESTRICTIONS; STANDSTILL PROVISIONS
Under the Registration Rights and Voting Agreement, PGGM and DIHC have
agreed to the following restrictions on their rights to transfer and acquire
shares of Cornerstone Common Stock:
10% Ownership Limitation. Until the earlier to occur of the third
anniversary of the closing of the Property Acquisition or the date as of which
PGGM and DIHC and their respective affiliates are the owners of less than 25% of
the issued and outstanding shares of Common Stock (the "Standstill Period"),
PGGM and DIHC have agreed not to transfer or sell any shares of Common Stock to
any person if as a result of the sale, such person and affiliates of such person
would own collectively more than 10% of the Common Stock then outstanding. This
limitation will not apply in the case of any sale to (A) a mutual fund company,
pension fund, insurance company, investment company any state, city or county,
or any agency or instrumentality of any state, city or county, or any state
university or state college, and any retirement system for the benefit of
employees thereof, any religious or educational organization or other passive
institutional investor or (B) any "Non-U.S. Person" (as defined below) that is
not controlled by "U.S. Persons" (as defined below).
Standstill Agreement. PGGM and DIHC and their respective affiliates have
agreed that during the Standstill Period they shall not:
(a) directly or indirectly purchase or otherwise acquire, or propose
or offer to purchase or otherwise acquire, any Equity Securities if,
immediately after such purchase or acquisition, PGGM and DIHC and their
respective affiliates would own 41% or more of the Common Stock;
(b) directly or indirectly propose to Cornerstone a Business
Combination with any person or entity;
(c) make, or in any way participate in, any "solicitation" of
"proxies" to vote (as such terms are used in the rules promulgated by the
Commission under Section 14(a) of the Exchange Act) or seek to advise,
encourage or influence any person or entity with respect to the voting of
any shares of capital stock of Cornerstone, initiate, propose or otherwise
solicit stockholders of Cornerstone for the approval of one or more
stockholder proposals or induce or attempt to induce any other person or
entity to initiate any stockholder proposal; or
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(d) deposit any Equity Securities into a voting trust or subject any
Equity Securities to any arrangement or agreement with respect to the
voting of such securities or form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any Equity Securities.
"Business Combination" means any one of the following transactions:
(i) Any merger or consolidation of Cornerstone or any subsidiary
thereof with any person or entity (other than Cornerstone);
(ii) Any sale, lease exchange, mortgage, pledge, transfer or other
disposition by Cornerstone (in one transaction or a series of
transactions) to or with any person or entity of all or a substantial
portion of the assets of Cornerstone;
(iii) The adoption of any plan or proposal for the liquidation or
dissolution of Cornerstone proposed by or on behalf of PGGM or any
affiliate of PGGM; or
(iv) Any reclassification of securities (including any reverse
stock split), recapitalization of Cornerstone, or any merger or
consolidation of Cornerstone with any subsidiary thereof or any other
transaction to which Cornerstone is a party (whether or not with or into
or otherwise involving PGGM, DIHC any of their respective affiliates)
which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of Common Stock of
Cornerstone or any subsidiary thereof which is directly or indirectly
owned by PGGM and DIHC or any affiliate of PGGM or DIHC.
"Equity Security" means any (i) Common Stock, (ii) securities of
Cornerstone convertible into or exchangeable for Common Stock, and (iii)
options, rights, warrants and similar securities issued by Cornerstone to
acquire Common Stock.
OTHER AGREEMENTS
Cornerstone has agreed to the following additional restrictions under the
terms of the Registration Rights and Voting Agreement:
Leverage Ratio.
As long as PGGM and DIHC and their respective affiliates are the owner of
at least 2.5% of the issued and outstanding shares of Common Stock, Cornerstone
has agreed to maintain a ratio of Indebtedness to Total Market Capitalization
("Leverage Ratio") of not more than 0.45 to 1.
"Indebtedness" means: (a) all indebtedness, whether or not contingent, for
borrowed money, (b) all obligations of such Person for the deferred purchase
price of property or services, (c) all obligations evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by Cornerstone (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations as lessee under
leases that have been or should be, in accordance with U.S. generally accepted
accounting principles, recorded as capital leases, (f) all obligations,
contingent or otherwise, under acceptance, letter of credit or similar
facilities, (g) all obligations to purchase, redeem, retire, defease or
otherwise acquire for value any capital stock of Cornerstone or any warrants,
rights or options to acquire such capital stock, valued, in the case of
redeemable preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (h) the greater of (i)
principal amount and (ii) the redemption value of any perpetual preferred stock
issued by Cornerstone, (i) all Indebtedness of others referred to in clauses (a)
through (f) above guaranteed directly or indirectly in any manner by
Cornerstone, or in effect guaranteed directly or indirectly by Cornerstone
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to assure a
creditor against loss, and (j) all
42
<PAGE> 47
Indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any encumbrance on property (including, without
limitation, accounts and contract rights) owned by Cornerstone, even though
Cornerstone has not assumed or become liable for the payment of such
Indebtedness.
"Total Market Capitalization" means on any day: the sum of (i)
Cornerstone's total Indebtedness on such day, plus (ii) the product of (x) the
number of issued and outstanding shares of Common Stock, plus the number of
shares of Common Stock issuable upon conversion of issued and outstanding
preferred stock (other than convertible preferred stock subject to redemption at
the option of the holder), times (y) the average of the closing prices of the
Common Stock for the five-day period immediately preceding the day in question.
Notwithstanding the foregoing, (i) Cornerstone may at any time incur
Indebtedness in an amount which does not exceed the principal amount of
outstanding Indebtedness of Cornerstone extended, refinanced renewed or replaced
with the proceeds thereof, plus any costs associated with the extension
refinancing, renewal or replacement, even if such incurrence causes the Leverage
Ratio to exceed 0.45 to 1, (ii) Cornerstone may incur Indebtedness if, as of the
date on which Cornerstone enters into a binding commitment with respect to such
Indebtedness, the Leverage Ratio including Indebtedness did not exceed 0.45 to 1
and (iii) with respect to lines of credit, Cornerstone may incur Indebtedness
under such line, if, as of the date Cornerstone enters into the line of credit,
the Leverage Ratio including the entire amount of Indebtedness available under
such line did not exceed 0.45 to 1.
Minimum Offering Price for Common Stock.
Cornerstone has agreed that for the six-month period following the closing
of the Property Acquisition, it shall not issue or sell any shares of Common
Stock except at a price per share equal to or greater than $16.00 (appropriately
adjusted for stock dividends, stock splits and like events) and except in the
case of (i) the conversion of securities or Indebtedness of Cornerstone into
Common Stock by Deutsche Bank AG; (ii) the conversion of promissory notes held
by Hines Colorado Limited; (iii) Cornerstone's stock option or management
incentive compensation plans; (iv) Cornerstone's dividend reinvestment plan; and
(v) stock splits or stock dividends.
Limitations on Issuance of Common Stock Outside the United States.
So long as PGGM and DIHC and their respective affiliates own 2.5% or more
of the issued and outstanding shares of Common Stock, Cornerstone has agreed not
to issue any Equity Securities in connection with any public offering or other
sale to any Non-U.S. Person, other than in connection with stock splits or stock
dividends or under Cornerstone's dividend investment plan or stock option or
management incentive compensation plans; provided, however, that Cornerstone in
connection with any offering of equity securities, may issue and sell up to 15%
of the securities issued in such offering to Non-U.S. Persons.
As used in the Registration Rights and Voting Agreement:
"Non-U.S. Person" means (i) a nonresident alien individual (as defined in
the Code), (ii) a foreign corporation, foreign partnership, foreign trust,
foreign estate, foreign government, and any other organization or entity which
is not organized under the laws of the United States or a State, and (iii) any
other person or entity treated as a "foreign person" under regulations
promulgated under the Code.
"U.S. Person" means any person other than a Non-U.S. Person.
One Norwest Center Policy
So long as PGGM and DIHC and their respective affiliates own 2.5% or more
of the issued and outstanding shares of Common Stock, Cornerstone has agreed
that it will not alter the policy adopted by the Cornerstone Board in August
1997 regarding its interests in One Norwest Center without the prior written
consent of PGGM. The policy requires that Cornerstone not dispose of its
interest in One Norwest Center except in a tax deferred exchange of properties
or in a similar tax deferred manner, and also applies to all properties which
Cornerstone may receive in any such exchange transaction.
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<PAGE> 48
PROPOSAL B: THE ACQUISITION AMENDMENT
In connection with the Property Acquisition, Cornerstone is proposing to
amend the Cornerstone Articles to include certain new provisions designed to
cause Cornerstone to become a "domestically controlled REIT" under United States
tax laws. The approval of this Acquisition Amendment is a condition precedent to
the closing of the Property Acquisition. In the event the Property Acquisition
is not approved, the Acquisition Amendment will be withdrawn from consideration
and will not be separately approved.
Set forth below is a more complete description of the Acquisition
Amendment. The complete text of the Acquisition Amendment is attached to this
Proxy Statement as Annex IV and the description below is qualified in its
entirety by reference to Annex IV.
THE ACQUISITION AMENDMENT
The Stock Purchase Agreement and the Loan Purchase Agreement each require
Cornerstone to take action to amend the Cornerstone Articles to include new
provisions designed to assist Cornerstone in becoming a "domestically controlled
REIT" under the Internal Revenue Code of 1986, as amended (the "Code"). The
Acquisition Amendment proposes to amend the Cornerstone Articles by including a
new Article 9 of the Cornerstone Articles which will provide that shares of the
Company's stock will not be transferred to any Non-U.S. person if such transfer
would cause such Non-U.S. person to become the direct or indirect owner of more
than 3% of the value of the outstanding shares of any class of capital stock of
Cornerstone (the "Non-U.S. Ownership Limit"). Shares of stock acquired in excess
of the Non-U.S. Ownership Limit will be deemed to be transferred to Cornerstone
as trustee for the benefit of the Non-U.S. person to whom the Non-U.S. person
who acquired the excess shares later transfers such shares. In addition, excess
shares will be deemed to have been offered for sale to Cornerstone or its
designee at their "fair market value" for a 90-day period. The proposed new
Article 9 will not apply, however, to transfers by any U.S. Person by operation
of law or pursuant to death, a merger or sale of substantially all of the assets
of such person, bankruptcy or pledges of security.
As used in the Acquisition Amendment:
"Non-U.S. Person" means (i) a nonresident alien individual (as defined
in the Code), (ii) a foreign corporation, foreign partnership, foreign
trust, foreign estate, foreign government, and any other organization or
entity which is not organized under the laws of the United States or a
State, and (iii) any other person or entity treated as a "foreign person"
under regulations promulgated under the Code.
"U.S. Person" means any person other than a Non-U.S. Person.
The Acquisition Amendment is designed to limit the ownership of Common
Stock by Non-U.S. Persons and thereby assist the Company in becoming, and
thereafter remaining, a "domestically controlled REIT" for United States federal
income tax purposes (as defined below). Status as a domestically controlled REIT
may be beneficial to certain stockholders who are nonresident alien individuals,
foreign corporations, foreign partnerships, foreign trust, or foreign estates
("Non-U.S. Stockholders") and who hold or have held substantial positions in
Cornerstone Common Stock.
In general, the sale or other taxable disposition ("sale") of Common Stock
by a Five Percent Non-U.S. Stockholder is subject to United States income tax
unless and until the Company becomes a domestically controlled REIT. A "Five
Percent Non-U.S. Stockholder" is a Non-U.S. Stockholder who, at some time during
the five-year period preceding such sale, beneficially owned (including under
certain rules of constructive ownership) more than five percent of the total
fair market value of the Common Stock (as outstanding from time to time) or
owned shares of another class of stock of Cornerstone that represented value
equivalent to five percent of the Common Stock (measured at the time such shares
were acquired). For so long as Cornerstone continues to be regularly traded on
an established securities market, the sale of shares by any other Non-U.S.
Stockholder is generally not subject to United States federal income tax (unless
any gain realized therefrom is effectively connected with a trade or business
conducted by such Non-U.S. Stockholder in the United States or, in the case of a
nonresident alien individual, such person is present in the United States for
more than 182 days during the taxable year and certain other requirements are
met).
44
<PAGE> 49
A REIT is a domestically controlled REIT if, at all times during the
five-year period preceding the relevant testing date, less than 50 percent in
value of its shares is held directly or indirectly by Non-U.S. Stockholders
(taking into account those persons required to include Cornerstone's dividends
in income for United States federal income tax purposes). Currently more than 50
percent in value of Cornerstone's shares is held directly or indirectly by
Non-U.S. Stockholders, and Cornerstone will not qualify as a domestically
controlled REIT for at least five years following such date as less than 50
percent is so held. Further, in part because the Common Stock is publicly traded
in the United States and Germany, no assurance can be given that Cornerstone
will qualify as a domestically controlled REIT even following such five-year
period.
So long as Cornerstone is not a domestically controlled REIT, a Five
Percent Non-U.S. Stockholder will be taxable in the same manner as a U.S.
Stockholder with respect to gain on the sale of Common Stock (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Even at such time as Cornerstone may
become a domestically controlled REIT, a Non-U.S. Stockholder would remain
subject to United States federal income tax in respect of such Non-U.S.
Stockholder's share of any distribution by Cornerstone to the extent
attributable to gain recognized from the sale of a United States real property
interest.
THE FOREGOING IS A GENERAL SUMMARY OF THE REASON FOR THE ACQUISITION
AMENDMENT AND THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
THAT MAY RESULT FROM THE ACQUISITION AMENDMENT. THE FOREGOING DISCUSSION IS NOT
TAX ADVICE AND IT DOES NOT DEAL WITH ALL TAX ASPECTS THAT MIGHT BE RELEVANT TO A
PARTICULAR STOCKHOLDER. EACH STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN
TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF A SALE OF COMMON STOCK.
LIMITATIONS ON THE ACQUISITION AMENDMENT
UNDER NEVADA LAW, THE ACQUISITION AMENDMENT WILL NOT BE BINDING ON
STOCKHOLDERS WHO DO NOT VOTE IN FAVOR OF THE ACQUISITION AMENDMENT. AS A RESULT,
STOCKHOLDERS WHO VOTE AGAINST THE ACQUISITION AMENDMENT AS WELL AS ABSTENTIONS
AND BROKER NON-VOTES, WILL NOT BE BOUND BY THE ACQUISITION AMENDMENT.
BOARD RECOMMENDATION
THE CORNERSTONE BOARD BELIEVES THAT ADOPTION OF THE ACQUISITION AMENDMENT
IS IN THE BEST INTERESTS OF THE STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE ACQUISITION AMENDMENT.
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<PAGE> 50
PROPOSAL C: INCREASE IN CORNERSTONE'S
AUTHORIZED COMMON STOCK
In connection with the Property Acquisition, Cornerstone is proposing to
amend the Cornerstone Articles to increase the authorized number of shares of
Common Stock from 100,000,000 to 250,000,000. Upon the Closing of the Property
Acquisition, Cornerstone will have approximately 83,044,242 shares of Common
Stock outstanding of the 100,000,000 shares of Common Stock it is authorized to
issue under the Cornerstone Articles. In order to provide the Cornerstone Board
with additional flexibility to undertake offerings of Common Stock in the
future, the Common Stock Amendment will increase the authorized shares of Common
Stock under the Cornerstone Articles from 100,000,000 to 250,000,000.
Although the increase in authorized Common Stock is not necessary to
complete the Property Acquisition, management and the Cornerstone Board believe
that the availability of such additional shares of Common Stock will give the
Company added flexibility in the conduct of Cornerstone's business and permit
Cornerstone to take prompt action on such corporate opportunities as may
materialize without necessarily requiring further stockholder action. If this
amendment to the Cornerstone Articles is approved, the additional shares of
Common Stock which will be authorized will be available for issue without
further action of the stockholders. On September 17, 1997, the closing price of
the Common Stock was DM33.10 on the Frankfurt Stock Exchange and $19.50 on the
NYSE.
THE CORNERSTONE BOARD BELIEVES THAT THE ADOPTION OF THE AUTHORIZED SHARES
AMENDMENT IS IN THE BEST INTEREST OF THE STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE TO APPROVE THE AUTHORIZED SHARES AMENDMENT.
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<PAGE> 51
PROPOSAL D: SETTLEMENT OF TRADES ON THE NYSE
Cornerstone has been requested by the NYSE to amend its Articles of
Incorporation to clarify that the provisions of the Cornerstone Articles will
not interfere with the settlement of trades on the NYSE. The provision is
commonly requested to be included by REITs which trade on the NYSE and which
have provisions similar to Cornerstone's 6% Limit. If approved, the amendment
will be included as Article 10 of the Cornerstone Articles.
The full text of the proposed NYSE Amendment is as follows:
New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in these Restated Articles of
Incorporation shall preclude the settlement of any transaction entered into
through the facilities of the New York Stock Exchange.
The affirmative vote of a majority of Cornerstone stockholders is required
to approve the NYSE Amendment. Approval of the NYSE Amendment is not a condition
to the closing of the Property Acquisition.
THE BOARD OF DIRECTORS OF CORNERSTONE HAS UNANIMOUSLY APPROVED THE NYSE
AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE NYSE
AMENDMENT.
47
<PAGE> 52
CORNERSTONE PROPERTIES INC.
Cornerstone is a self-advised REIT which owns, through subsidiaries,
interests in eight Class A office Properties comprising nearly five million
rentable square feet. The Current Properties are located in seven major
metropolitan areas throughout the United States: Boston, suburban Chicago,
Denver, Minneapolis, New York City (two Properties), Pittsburgh and Seattle. All
of the Current Properties were built in the mid-to late-1980s, with the
exception of the Pittsburgh property, which was built in 1902 and substantially
renovated in 1988. Cornerstone's strategy is to own Class A office properties in
prime CBD locations and major suburban office markets in U.S. metropolitan
areas. Class A office properties are generally considered to be those that have
the most favorable locations and physical attributes, attract premium rents and
experience the highest tenant retention rates within their markets. As of June
30, 1997, the Current Properties were approximately 97% leased to 411 tenants.
Cornerstone was formed in May 1981 and became a self-advised REIT in July
1995. In November 1996, the Company completed a private placement of $166.5
million of 8% Cumulative Convertible Preferred Stock and 8% Cumulative
Convertible Preferred Stock, Series A to Rodamco and NYSTRS. In April 1997,
Cornerstone completed an initial public offering of 16,100,000 shares of Common
Stock in the United States and listed on the New York Stock Exchange. In July
1997, all outstanding shares of Cornerstone's 8% Cumulative Convertible
Preferred Stock and 8% Cumulative Convertible Preferred Stock, Series A, were
converted into shares of Common Stock. Following the conversion and as of the
date of this proxy statement, Cornerstone has 48,856,742 shares of Common Stock
outstanding.
Cornerstone is led by John S. Moody, the President and Chief Executive
Officer since 1991, and by Rodney C. Dimock, who joined Cornerstone in 1995 as
Executive Vice President and Chief Operating Officer. Mr. Moody and Mr. Dimock
have a combined total of approximately 50 years of commercial real estate
experience. They are supported by a team of six officers with an average of 13
years of experience in all areas of acquisitions, asset management, leasing and
finance, as well as nine professional and administrative staff members.
The principal executive offices of Cornerstone are located at Tower 56, 126
East 56th Street, New York, New York 10022, and its telephone number at that
location is (212) 605-7100. Cornerstone was organized under the laws of the
State of Nevada in May 1981.
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<PAGE> 53
SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical consolidated financial
data and selected unaudited pro forma consolidated financial data for the
periods and as of the dates indicated for Cornerstone.
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and the
related notes thereto of Cornerstone included in the documents described under
"Available Information." The following data should also be read in conjunction
with unaudited pro forma condensed financial statements and accompanying notes,
set forth in the historical Financial Statements and notes thereto, and
"Management Discussion and Analysis of Financial Condition and Results of
Operations."
The selected consolidated operating and balance sheet data as of and for
the years ended December 31, 1994 through 1996 have been derived from
Cornerstone's audited financial statements. The selected financial data at June
30, 1997 and for the six months ended June 30, 1997 and 1996 is derived from
unaudited financial statements. The unaudited financial information includes all
adjustments consisting of only normal recurring adjustments that management
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results of Cornerstone for
the six months ended June 30, 1997 are not necessarily indicative of results
expected for the entire year ended December 31, 1997.
The unaudited selected pro forma operating data is presented as if the
Property Acquisition, Cornerstone offering of Common Stock in April 1997, the
sale and conversion of Cornerstone's 8% Preferred Stock and the 8% Preferred
Stock, Series A, Cornerstone's repayment of a $32.5 million term loan from
Deutsche Bank and the acquisitions of two properties in New York City, the
property in Oakbrook Terrace, Illinois and the property in Pittsburgh had
occurred as of January 1, 1996. The selected unaudited pro forma balance sheet
data is presented as if the Property Acquisition and the sale and conversion of
Cornerstone's 8% Preferred Stock and the 8% Preferred Stock, Series A, had
occurred at June 30, 1997. The pro forma amounts are not necessarily indicative
of results of operations or the consolidated financial position that would have
resulted had the Property Acquisition and the other aforementioned transactions
been consummated at the dates indicated.
49
<PAGE> 54
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
HISTORICAL YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------
PRO FORMA PRO FORMA HISTORICAL
(UNAUDITED) (UNAUDITED) (UNAUDITED) ------------------------------
1997 1997 1996 1996 1996 1995 1994
----------- -------- -------- ----------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Office and parking rentals............. $ 107,952 $ 68,691 $ 52,913 $ 207,951 $111,494 $ 88,548 $ 83,557
Equity in earnings..................... 2,816 -- -- 6,832 -- -- --
Interest and other income.............. 18,117 4,564 2,849 37,941 5,414 3,839 2,017
---------- -------- -------- --------- -------- -------- --------
Total Revenues................... 128,885 73,255 55,762 252,724 116,908 92,387 85,574
---------- -------- -------- --------- -------- -------- --------
Expenses:
Building operating expenses............ 43,124 26,653 20,764 84,046 44,188 31,530 29,991
Interest expense....................... 25,785 14,748 15,870 52,601 31,345 29,467 30,792
Depreciation and amortization.......... 19,825 14,097 12,114 39,000 24,801 23,877 23,432
General and administrative............. 3,468 3,218 2,936 6,812 6,312 5,553 3,869
Unrealized (gain) loss on interest rate
swap................................. (99) (99) (5,465) (4,278) (4,278) 7,672 --
---------- -------- -------- --------- -------- -------- --------
Total expenses....................... 92,103 58,617 46,219 178,181 102,368 98,099 88,084
---------- -------- -------- --------- -------- -------- --------
Income (loss) from operations............ 36,782 14,638 9,543 74,543 14,540 (5,712) (2,510)
Minority interest........................ 1,994 994 686 3,505 1,519 3,417 3,899
---------- -------- -------- --------- -------- -------- --------
Income (loss) before extraordinary
items.................................. 34,788 13,644 8,857 71,038 13,021 (9,129) (6,409)
Extraordinary loss(1).................... (54) (54) -- (3,925) (3,925) (4,445) (581)
---------- -------- -------- --------- -------- -------- --------
Net income (loss)........................ $ 34,734 $ 13,590 $ 8,857 $ 67,113 $ 9,096 $(13,574) $ (6,990)
========== ======== ======== ========= ======== ======== ========
Net income (loss) (per share).......... $ 0.40 $ 0.19 $ 0.35 $ 0.77 $ 0.19 $ (0.94) $ (0.53)
========== ======== ======== ========= ======== ======== ========
Distributions to stockholders (per
share)............................... -- $ 0.60 $ 0.60 -- $ 1.20 $ 1.16 $ 1.16
========== ======== ======== ========= ======== ======== ========
BALANCE SHEET DATA:
Real estate investments before
accumulated depreciation............... $1,968,081 $873,211 $718,781 -- $799,662 $706,988 $577,134
Total assets............................. 1,868,429 972,941 615,300 -- 766,180 586,089 477,996
Long-term debt........................... 617,103 367,103 400,515 -- 400,142 369,600 130,500
Credit facility debt..................... 67,548 -- -- -- -- -- 236,467
Total liabilities...................... 762,746 445,198 440,733 -- 442,375 403,927 400,712
Minority interest........................ 13,430 (17,510) (16,786) -- (17,478) (7,194) (6,642)
Redeemable preferred stock............... -- 162,515 -- -- 162,743 -- --
Preferred stock.......................... 50,000 50,000 50,000 -- 50,000 50,000 --
Common stockholders' equity.............. 1,042,253 332,738 191,353 -- 128,540 139,356 83,926
OTHER DATA:
Funds from operations(2)................. 58,707 27,173 16,086 116,258 34,718 21,424 15,562
Capital expenditures..................... -- 5,140 2,771 -- 6,100 712 1,790
Preferred stock dividends(3)............. 1,750 8,410 1,750 3,500 5,153 1,449 --
Common stock distributions............... -- 18,653 -- -- 24,551 18,485 15,359
Cash flow provided by (used in):
Operations............................. -- 26,978 14,605 -- 34,522 20,036 28,968
Investing.............................. -- (72,224) (3,101) -- (57,259) (135,527) (1,762)
Financing.............................. -- 153,017 13,612 -- 129,800 110,725 (33,141)
Total rentable square footage of
properties(4).......................... 9,447 4,941 4,087 9,447 4,725 4,087 3,461
Average occupancy........................ 96% 97% -- 96% 97% 98% 98%
Weighted average number of shares of
Common Stock outstanding............... 82,692 27,237 20,309 82,182 20,411 15,910 13,241
</TABLE>
- ---------------
(1) Reflects the costs associated with the extinguishment of long-term debt.
(2) Cornerstone calculates Funds From Operations ("FFO") based upon guidance
from NAREIT. FFO is defined as net income, excluding gains or losses from
debt restructuring and sales of property, plus real estate depreciation and
amortization, and after adjustments for unconsolidated joint ventures.
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<PAGE> 55
Cornerstone makes two adjustments to FFO which are not contemplated by
NAREIT in its definition. The first adjustment is for the principal payments
of the rent notes receivable from Hines which were put in place to
compensate Cornerstone for its share of cash flow from the partnership which
owned One Norwest Center during the period when Cornerstone owned 90% of the
partnership but received 100% of the cash flow. The notes were kept in place
at the time of the acquisition of Hines' 10% partnership interest to
compensate Cornerstone for the future value of the cash flow which
Cornerstone would have received had the partnership remained in place. These
notes will be fully prepaid as of December 31, 1998.
The second adjustment is made for the differential between the real estate
tax expense at Norwest Center and the accrual of the recovery of such taxes
due to the one year time lag between the assessment of such taxes and actual
payment. Cornerstone believes that, since the building is 100% leased, these
funds will be collected under any circumstance as a pass-through to the
tenants. Based on this fact, Cornerstone eliminates the timing effects of
these tax increases in its calculation of FFO. The effect of the adjustment
in 1996 and 1995 is substantial due to a 29.4% and 13.8% increase in real
estate taxes over the last two years.
The table below sets forth the adjustments which were made to the net income
(loss) of Cornerstone for the last three years and Pro Forma 1996 and 1997
in the calculation of FFO (in thousands).
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS
------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
--------------------------- YEAR ENDED DECEMBER 31,
HISTORICAL -------------------------------------
PRO FORMA (UNAUDITED) PRO FORMA HISTORICAL
(UNAUDITED) ---------------- (UNAUDITED) --------------------------
1997 1997 1996 1996 1996 1995 1994
--------- ------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)................................... $34,734 $13,590 $ 8,857 $ 67,113 $ 9,096 $(13,574) $(6,990)
NAREIT Adjustments:
Depreciation and amortization..................... 19,536 13,808 11,801 38,515 24,316 22,572 22,321
Net (gain) loss on swap transactions.............. (99) (99) (5,465) (4,278) (4,278) 7,672 --
Extraordinary losses.............................. 54 54 -- 3,925 3,925 4,445 581
Unconsolidated joint venture depreciation......... 4,975 -- -- 9,950 -- -- --
Minority interest adjustments..................... (1,050) (737) (1,021) (2,637) (2,011) (1,617) (1,358)
Other Adjustments:
Amortization on rent notes........................ 557 557 502 1,242 1,242 1,119 1,008
Real estate tax adjustment........................ -- -- 1,412 2,428 2,428 807 --
------- ------- ------- ------- -------- ------- -------
Funds from Operations............................... 58,707 27,173 16,086 116,258 34,718 21,424 15,562
======= ======= ======= ======= ======== ======= =======
Preferred Dividends................................. (1,750) (8,410) (1,750) (3,500) (5,153) (1,449) --
======= ======= ======= ======= ======== ======= =======
Funds from Operations Available for Common Shares... $56,957 $18,763 $14,336 $112,758 $29,565 $ 19,975 $15,562
======= ======= ======= ======= ======== ======= =======
</TABLE>
Although Cornerstone believes that this table is a full and fair
presentation of Cornerstone's FFO, similarly captioned items may be defined
differently by other REITs, in which case direct comparisons may not be
possible.
Industry analysts generally consider FFO to be an appropriate measure of
performance of any equity REIT such as Cornerstone, and Cornerstone believes
that FFO is helpful to investors as a measure of the performance of an
equity REIT. FFO does not represent cash generated from operating activities
in accordance with GAAP and, therefore, should not be considered a
substitute for net income as a measure of performance or cash flow from
operations as a measure of liquidity calculated in accordance with GAAP.
(3) Includes preferred stock dividends accrued but not declared. Pro forma
amounts reflect the conversion of the 8% Preferred Stock and the 8%
Preferred Stock, Series A, of Cornerstone.
(4) At December 31, 1995, Cornerstone held the mortgage note on Tower 56, and
the square footage of Tower 56 is included as of that date.
51
<PAGE> 56
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Financial and Operating Data set forth above, the Pro Forma
Condensed Consolidated Financial Statements and Notes thereto set forth below,
Management's Discussion and Analysis of Financial Condition and Results of
Operation incorporated by reference in this Proxy Statement and the Consolidated
Financial Statements and Notes thereto incorporated by reference herein.
PRO FORMA SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO HISTORICAL SIX MONTHS ENDED
JUNE 30, 1997.
Net income in the pro forma six months ended June 30, 1997 ("Pro Forma Six
Months 1997") was $34,734,000 as compared to $13,590,000 for the same period in
the historical six months ended June 30, 1997 ("Six Months 1997").
The increase in office and parking revenues from $68,691,000 in Six Months
1997 to $107,952,000 in Pro Forma Six Months 1997 is due to the revenues from
the Additional Properties which totalled $36,081,000 in Pro Forma Six Months
1997, not including the partnership interests for 191 Peachtree Street and
Market Square, which are accounted for on the equity method. Additional
increases in Pro Forma Six Months 1997 are due to an adjustment for a
recalculation of straight-line rents of $1,768,000 and the addition of revenues
of $1,412,000 for the period January 1, 1997 through February 13, 1997 for 527
Madison Avenue. The Equity in Earnings in Pro Forma Six Months 1997 of
$2,816,000 is due to the acquisition of the partnership interests in 191
Peachtree Street and Market Square which are accounted for on the equity method
while the other seven properties are consolidated.
The increase in interest and other income from $4,564,000 in Six Months
1997 to $18,117,000 in Pro Forma Six Months 1997 is due primarily to a reduction
of $2,120,000 in the interest income earned on the proceeds from Cornerstone's
public offering in April 1997 (assumed to be the consideration for the
Additional Properties), a reduction of $424,000 to account for the purchase of
527 Madison Avenue on a pro forma basis and a reduction of $379,000 to account
for the repayment of the $32.5 million term loan on a pro forma basis. These
amounts are offset by an increase of $15,589,000 relating to the acquisition of
the mortgages on 191 Peachtree Street and Market Square and an increase of
$887,000 due to interest and other income relating to the seven consolidated
Additional Properties.
Building operating expenses increased from $26,653,000 in Six Months 1997
to $43,124,000 in Pro Forma Six Months 1997 primarily due to expenses from the
seven consolidated Additional Properties. The increase in interest expense from
$14,748,000 in Six Months 1997 to $25,785,000 in the Pro Forma Six Months 1997
is due to the interest on the purchase money mortgage and the acquisition line
of credit reduced by the elimination of the interest on the $32.5 million term
loan.
The increase in depreciation and amortization from $14,097,000 in Six
Months 1997 to $19,825,000 in Pro-Forma Six Months 1997 is due primarily to
depreciation and amortization from the seven consolidated Additional Properties.
The increase in minority interest from $994,000 to $1,994,000 is due to
Hines' 8.5% share of earnings in 500 Boylston Street and 222 Berkeley Street.
PRO FORMA YEAR ENDED DECEMBER 31, 1996 COMPARED TO HISTORICAL YEAR ENDED
DECEMBER 31, 1996.
Net income in the pro forma year ended December 31, 1996 ("Pro Forma 1996")
was $67,113,000 as compared to $9,096,000 for the same period in the historical
year ended December 31, 1996 ("Historical 1996").
The increase in office and parking revenues from $111,494,000 in Historical
1996 to $207,951,000 in Pro Forma 1996 is due to the increase in revenues from
the seven consolidated Additional Properties which totalled $70,853,000 in Pro
Forma 1996. Additional increases in Pro Forma 1996 are due to an adjustment for
52
<PAGE> 57
a recalculation of straight-line rents of $3,506,000 and the addition of
revenues of $22,098,000 for 527 Madison Avenue, One Lincoln Centre and The Frick
Building. The Equity in Earnings in Pro Forma 1996 of $6,832,000 is due to the
acquisition of the partnership interests in 191 Peachtree Street and Market
Square.
The increase in interest and other income from $5,414,000 in Historical
1996 to $37,941,000 in Pro Forma 1996 is due primarily to an increase of
$31,178,000 relating to the acquisition of the mortgages on 191 Peachtree Street
and Market Square and an increase due to interest and other income of $1,723,000
relating to the seven consolidated Additional Properties. These amounts are
partially offset by a reduction of $374,000 to account for the purchase of 527
Madison on a pro forma basis.
Building operating expenses increased from $44,188,000 in Historical 1996
to $84,046,000 in Pro Forma 1996 primarily due to expenses of $30,353,000 from
the seven consolidated Additional Properties and expenses of $9,505,000 on 527
Madison Avenue, One Lincoln Centre and The Frick Building. The increase in
interest expense from $31,345,000 in Historical 1996 to $52,601,000 in Pro Forma
1996 is due to the interest on the purchase money mortgage and the acquisition
line of credit of $22,881,000 reduced by the elimination of $1,625,000 of
interest on the $32.5 million term loan.
The increase in depreciation and amortization from $24,801,000 in
Historical 1996 to $39,000,000 in Pro Forma 1996 is due primarily to
depreciation and amortization from the seven consolidated Additional
Properties.
The increase in minority interest from $1,519,000 in Historical 1996 to
$3,505,000 in Pro Forma 1996 is due to Hines' 8.5% share of earnings in 500
Boylston Street and 222 Berkeley Street.
53
<PAGE> 58
PROPERTIES
Cornerstone owns and operates eight Class A office properties, comprising
nearly five million rentable square feet. Class A office properties generally
are considered to be those which have the most favorable locations and physical
attributes, attract premium rents, and experience the highest tenant retention
rates within their markets. Based on rentable square feet, as of June 30, 1997,
the Current Properties were approximately 97% leased to a total of 411 tenants.
Cornerstone has agreed to purchase nine additional Class A office
properties and one land parcel pursuant to the Stock Purchase Agreement. Based
on rentable square feet, as of June 30, 1997, the Additional Properties were
approximately 96% leased to a total of 268 tenants.
The following table summarizes certain information as of June 30, 1997 with
respect to the Additional Properties and the Current Properties.
TABLE OF PROPERTIES
<TABLE>
<CAPTION>
REMAINING
AVERAGE
COMPANY'S TOTAL NUMBER LEASE
YEAR PERCENTAGE RENTABLE OCCUPANCY OF TERM
PROPERTY NAME AND LOCATION CONSTRUCTED INTEREST SQUARE FEET RATE TENANTS (IN YEARS) LARGEST TENANTS
- ------------------------------ ------------ ---------- ----------- --------- ------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONAL PROPERTIES
191 Peachtree Street(1)
Atlanta, Georgia............ 1991 80% 1,221,000 95% 37 8.7 Wachovia Bank King &
Spalding Powell,
Goldstein Frazer &
Murphy
Market Square(2) Washington,
D.C......................... 1990 60 689,000 91 46 7.7 Fulbright & Jaworski
Edison Electric
Institute
Reid & Priest
Shearman & Sterling
500 Boylston Street Boston,
Massachusetts(3)............ 1988 91.5 715,000 100 16 6.8 Massachusetts
Financial
Services
The New England
Towers Perrin Forster
& Crosby, Inc.
222 Berkeley Street Boston,
Massachusetts(3)............ 1991 91.5 531,000 100 31 7.0 Houghton Mifflin
Saga International
Holidays
Oracle Corporation
Charlotte Plaza Charlotte,
North Carolina.............. 1982 100 613,000 98 42 5.4 First Union
Aetna/Travelers
Parker Poe,
Adams & Bernstein
200 Galleria Atlanta,
Georgia..................... 1985 100 433,000 94 60 3.7 Liberty Mutual Group
11 Canal Center Alexandria,
Virginia.................... 1986 100 70,000 96 6 7.5 Robbins Gioia
Veda Inc.
99 Canal Center Alexandria,
Virginia.................... 1986 100 138,000 98 18 4.0 Lowe, Price, LeBlanc
& Becker
Howard, Needles,
Tannen & Bergendoff
National District
Attorney's
Association
TransPotomac Plaza 5
Alexandria, Virginia........ 1983 100 96,000 93 12 3.5 Cities In Schools
--------- --- --- ----
The Onyx Group
Larson & Taylor
Total/Weighted Average All
Additional Properties....... 4,506,000 96% 268 6.8
========= === === ====
</TABLE>
54
<PAGE> 59
<TABLE>
<CAPTION>
REMAINING
YEAR AVERAGE
CONSTRUCTED/ COMPANY'S TOTAL NUMBER LEASE
YEAR PERCENTAGE RENTABLE OCCUPANCY OF TERM
PROPERTY NAME AND LOCATION ACQUIRED INTEREST SQUARE FEET RATE TENANTS (IN YEARS) LARGEST TENANTS
- ------------------------------ ------------ ---------- ----------- --------- ------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT PROPERTIES
- ------------------------
One Norwest Center Denver,
Colorado.................... 1983 100% 1,188,000 98% 44 9.6 Norwest Bank Denver
N.A.
Newmont Gold Company
Teletech, Inc.
Norwest Center(4) Minneapolis,
Minnesota................... 1988 50 1,118,000 100 36 12.8 Norwest Corporation
Faegre & Benson
KPMG Peat Marwick
Washington Mutual Tower(5)(6)
Seattle, Washington......... 1988 50 1,155,000 98 126 4.8 Perkins Coie
Washington Mutual
125 Summer Street Boston,
Massachusetts............... 1989/1995 100 464,000 90 29 3.3 Deloitte & Touche
BTM Capital Corp.(7)
Tower 56(8) New York, New
York........................ 1983/1996 100 162,000 95 45 3.3 ICC Associates, L.P.
United Bank of Kuwait
One Lincoln Centre Oakbrook
Terrace, Illinois........... 1986/1996 100 297,000 94 42 2.7 Superior Bank FSB
Microsoft Corporation
Frick Building(9) Pittsburgh,
Pennsylvania................ 1902/1996 100 341,000 87 70 3.7 Meyer, Darragh,
Buckler, Bebenek &
Eck
Sable, Makaroff &
Gudsky
527 Madison Avenue(10) New
York, New York.............. 1986/1997 100 216,000 96 19 5.4 The Sumitomo Trust &
Banking Co., Ltd.
W.P. Stewart Co.,
--------- -- --- ---- Inc.
Total/Weighted Average All
Current Properties.......... 4,941,000 97 411 7.4
========= == === ====
Total/Weighted Average, All
Properties (following
Property Acquisition)....... 9,447,000 96% 679 7.1
========= == === ====
</TABLE>
- ---------------
(1) While Cornerstone's stated interest in the partnership which owns 191
Peachtree Street will be 80%, its economic interest is significantly larger
since it will acquire the first mortgage note in the amount of $145 million
on the property which earns interest at 9.375% and receive a priority
distribution on its acquired capital base. During 1996, the partners in the
transaction, CH Association, Ltd, received a $250,000 priority distribution,
which they will receive under the partnership agreement through February 28,
2000, with Cornerstone's predecessor receiving the remainder.
(2) While Cornerstone's stated interest in the partnerships which own Market
Square will be 60% following the consummation of the Property Acquisition,
its economic interest will be significantly larger since it will acquire the
first mortgage note in the amount of $181 million on the property which
earns interest at 9.75% and receive a priority distribution on its acquired
capital base. During 1996, Cornerstone's predecessor received 100% of the
cash flow from the property.
(3) Distributions of cash flow and sales and refinancing proceeds will be in
accordance with the partnership ownership interests of 91.5% to Cornerstone
and 8.5% to Hines. The stated ownership interests of Hines and Cornerstone
were agreed upon in August 1997.
(4) While Cornerstone's stated interest in the partnership which owns Norwest
Center is 50%, its economic interest in the Property is significantly larger
due to priority distributions it receives on its invested capital base. For
the twelve months ended December 31, 1996, Cornerstone's share of earnings
and cash distributions from the partnership which owns Norwest Center was
78.2%. See "Properties -- Description of Properties and Market
Data -- Norwest Center."
(5) Includes the Galland and Seneca Buildings. See "Properties -- Description of
Properties and Market Data -- Washington Mutual Tower."
55
<PAGE> 60
(6) While Cornerstone's stated interest in the partnership which owns
Washington Mutual Tower is 50%, its economic interest in the Property is
significantly larger due to priority distributions it receives on its
invested capital base. For the twelve months ended December 31, 1996,
Cornerstone received 100% of the cash distributions from the partnership
which owns Washington Mutual Tower. See "Properties -- Description of
Properties and Market Data -- Washington Mutual Tower."
(7) BTM Capital Corporation is a wholly-owned subsidiary of the Bank of
Tokyo -- Mitsubishi.
(8) Cornerstone's headquarters are located at Tower 56. See
"Properties -- Description of Properties and Market Data -- New York City
Properties -- Advisory Services Obligations -- Tower 56" for additional
information regarding Cornerstone's economic interest in Tower 56 upon a
sale of the Property.
(9) The Property was substantially renovated in 1988.
(10) The Property was acquired by Cornerstone in February 1997.
TENANTS
Cornerstone's tenants include local, regional, national and international
companies engaged in a wide variety of businesses. The following tables set
forth, as of June 30, 1997, information concerning Cornerstone's ten largest
tenants (ranked by Full Service Straight-Line Rent as of that date) prior to the
Property Acquisition and Cornerstone's ten largest tenants, if the Property
Acquisition is consummated (ranked by Full Service Straight-Line Rent as of June
30, 1997). "Full Service Straight-Line Rent" is Straight-Line Rent plus
Recoveries. "Straight-Line Rent" means the average of all Actual Rent required
to be paid through the term of the lease calculated in accordance with GAAP.
Full Service Straight-Line Rent does not reflect any increases or decreases in
monthly operating expense recoveries or any lease expirations which are
scheduled to occur or which may occur after June 30, 1997 or the cost of any
leasing commissions or tenant improvements.
56
<PAGE> 61
Prior to the Property Acquisition
TEN LARGEST TENANTS
(AS OF JUNE 30, 1997)
<TABLE>
<CAPTION>
FULL SERVICE
STRAIGHT-LINE RENT SCHEDULED
------------------------- LEASE
STRAIGHT-LINE PERCENTAGE EXPIRATION SQUARE
TENANT RENT RECOVERIES AMOUNT OF TOTAL DATE FEET
- ------------------------- ------------ ----------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Norwest Corporation(1)... $ 20,512,000 $10,717,000 $ 31,229,000 24% Jan-99 14,000
Aug-01 7,000
Jul-03 143,000
Jul-13 402,000
Aug-18 451,000
---------
1,017,000
Faegre & Benson.......... 3,492,000 3,097,000 6,589,000 5 Dec-97 21,000
Sep-03 175,000
---------
196,000
Perkins Coie............. 5,177,000 425,000 5,602,000 4 Jul-97 6,000
Jul-98 7,000
Jul-04 199,000
---------
212,000
Deloitte & Touche........ 4,695,000 515,000 5,210,000 4 Oct-99 121,000
The Sumitomo Trust and
Banking Company........ 4,334,000 559,000 4,893,000 4 Oct-01 78,000
Washington Mutual........ 3,231,000 285,000 3,516,000 3 Feb-03 16,000
Aug-03 21,000
Apr-07 138,000
---------
175,000
Burns & Levinson......... 2,896,000 386,000 3,282,000 2 Mar-00 85,000
KPMG Peat Marwick........ 1,831,000 1,203,000 3,034,000 2 Aug-09 75,000
BTM Capital
Corporation(2)(3)...... 2,513,000 130,000 2,643,000 2 Aug-97 3,000
Jul-02 91,000
---------
94,000
Newmont Gold Company..... 1,294,000 700,000 1,994,000 1 Jan-99 23,000
------------ ----------- ------------
Jan-04 94,000
---------
117,000
Ten Largest Tenants...... $ 49,975,000 $18,017,000 $ 67,992,000 51%
============ =========== ============ ==
Total Portfolio $102,267,000 $31,165,000 $133,432,000
============ =========== ============
</TABLE>
- ---------------
(1) Includes Norwest Corporation and Norwest Bank Denver N.A.
(2) BTM Capital Corporation has contracted to expand into 21,000 square feet to
be delivered to tenant no later than August 1, 1997 at a gross rate of
$26.00 per square foot.
(3) Beginning January 15, 1997, the lease with BTM Capital Corporation adjusted
to a 1997 base year. Escalations will be collected only as expenses increase
above those actually paid in 1997.
57
<PAGE> 62
Following the Proposed Acquisition
TEN LARGEST TENANTS
(AS OF JUNE 30, 1997)
<TABLE>
<CAPTION>
FULL SERVICE
STRAIGHT-LINE RENT SCHEDULED
----------------------- LEASE
STRAIGHT-LINE PERCENT EXPIRATION SQUARE
TENANT RENT RECOVERIES AMOUNT OF TOTAL DATE FEET
- --------------------------- ------------ ----------- ------------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Norwest Corporation(1)..... $ 20,512,000 $10,717,000 $ 31,229,000 12% Jan-99 14,000
Aug-01 7,000
Jul-03 143,000
Jul-13 402,000
Aug-18 451,000
---------
1,017,000
Massachusetts Financial
Services................. 10,094,000 4,424,000 14,518,000 6 Feb-03 359,000
Wachovia Bank.............. 8,966,000 3,451,000 12,417,000 5 Dec-08 382,000
King & Spalding............ 8,043,000 2,650,000 10,693,000 4 Mar-06 306,000
The New England............ 5,102,000 2,633,000 7,735,000 3 Sep-08 213,000
First Union(2)............. 5,664,000 1,804,000 7,468,000 3 Aug-97 47,000
Dec-97 4,000
Aug-98 23,000
Dec-98 23,000
Mar-99 23,000
Aug-00 23,000
Mar-01 46,000
Aug-02 22,000
Mar-08 46,000
Mar-09 23,000
Mar-10 47,000
Mar-11 47,000
---------
374,000
Powell Goldstein........... 5,366,000 1,812,000 7,178,000 3 Jan-06 199,000
Frazer & Murphy
Faegre & Benson............ 3,492,000 3,097,000 6,589,000 2 Dec-97 21,000
Sep-03 175,000
---------
196,000
Perkins Coie............... 5,177,000 425,000 5,602,000 2 Jul-97 6,000
Jul-98 7,000
Jul-04 199,000
---------
212,000
Deloitte & Touche.......... 4,695,000 515,000 5,210,000 2 Oct-99 121,000
------------ ----------- ------------
--
Ten Largest Tenants........ $ 77,111,000 $31,528,000 $108,639,000 41%
============ =========== ============ ==
Total
Portfolio...... $196,756,000 $65,179,000 $261,935,000
============ =========== ============
</TABLE>
- ---------------
(1) Includes Norwest Corporation and Norwest Bank Denver N.A.
(2) On June 30, 1998, 115,000 square feet currently leased to AETNA at $15 per
square foot expires. First Union has contracted to lease all the expiring
space beginning September 1, 1998. This space is included in the 374,000
square feet of space above. The 47,000 square feet of space which expired in
August has been vacated by the tenant.
58
<PAGE> 63
LEASE EXPIRATIONS
Prior to the Property Acquisition
The following table sets forth certain categories of information relating
to lease expirations for all of the Current Properties, collectively, prior to
the Property Acquisition.
<TABLE>
<CAPTION>
7/97-12/97 1998 1999 2000 2001 2002 2003
---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring....... 215,000 444,000 592,000 571,000 240,000 441,000 521,000
Straight-Line Rent......... $4,471,000 $ 8,847,000 $13,224,000 $11,398,000 $ 7,946,000 $ 8,941,000 $ 8,988,000
Straight-Line Rent per sq.
ft........................ $ 20.80 $ 19.93 $ 22.34 $ 19.96 $ 33.11 $ 20.27 $ 17.25
Recoveries................. $ 884,000 $ 2,331,000 $ 2,823,000 $ 3,603,000 $ 1,122,000 $ 2,096,000 $ 3,930,000
Full Service Straight-Line
Rent...................... $5,355,000 $11,178,000 $16,047,000 $15,001,000 $ 9,068,000 $11,037,000 $12,918,000
Full Service Straight-Line
Rent per sq. ft........... $ 24.91 $ 25.18 $ 27.11 $ 26.27 $ 37.78 $ 25.03 $ 24.79
% Full Service
Straight-Line Rent........ 4.01% 8.38% 12.03% 11.24% 6.80% 8.27% 9.68%
Cumulative percent of Full
Service Straight-Line
Rent...................... 4.01% 12.39% 24.42% 35.66% 42.46% 50.73% 60.41%
No. of tenant leases
expiring.................. 76 86 69 68 34 36 14
<CAPTION>
2006 AND
2004 2005 BEYOND TOTAL
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Square feet expiring....... 514,000 29,000 1,205,000 4,772,000
Straight-Line Rent......... $11,246,000 $ 794,000 $26,412,000 $102,267,000
Straight-Line Rent per sq.
ft........................ $ 21.88 $ 27.38 $ 21.92 $ 21.43
Recoveries................. $ 2,699,000 $ 27,000 $11,650,000 $ 31,165,000
Full Service Straight-Line
Rent...................... $13,945,000 $ 821,000 $38,062,000 $133,432,000
Full Service Straight-Line
Rent per sq. ft........... $ 27.13 $ 28.31 $ 31.59 $ 27.96
% Full Service
Straight-Line Rent........ 10.45% 0.62% 28.53% 100.00%
Cumulative percent of Full
Service Straight-Line
Rent...................... 70.86% 71.47% 100.0%
No. of tenant leases
expiring.................. 12 3 13 411
</TABLE>
Following the Property Acquisition (Pro Forma)
The following table sets forth certain categories of information relating
to lease expirations for the Current Properties and the Additional Properties,
collectively, if the Property Acquisition is consummated.
<TABLE>
<CAPTION>
7/97-12/97 1998 1999 2000 2001 2002 2003
---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring....... 357,000 742,000 733,000 756,000 720,000 866,000 971,000
Straight-Line Rent......... $6,822,000 $16,204,000 $15,773,000 $15,497,000 $19,009,000 17,167,000 $21,132,000
Straight-Line Rent per sq.
ft........................ $ 19.11 $ 21.84 $ 21.52 $ 20.50 $ 26.40 $ 19.82 $ 21.76
Recoveries................. $1,031,000 $ 3,787,000 $ 3,661,000 $ 4,050,000 $ 3,847,000 $ 3,900,000 $ 8,844,000
Full Service Straight-Line
Rent...................... $7,853,000 $19,991,000 $19,434,000 $19,547,000 $22,856,000 $21,067,000 $29,976,000
Full Service Straight-Line
Rent per sq. ft........... $ 22.00 $ 26.94 $ 26.51 $ 25.86 $ 31.74 $ 24.33 $ 30.87
% Full Service
Straight-Line Rent........ 3.00% 7.63% 7.42% 7.46% 8.73% 8.04% 11.44%
Cumulative percent of Full
Service Straight-Line
Rent...................... 3.00% 10.63% 18.05% 25.51% 34.24% 42.28% 53.72%
No. of tenant leases
expiring.................. 103 131 94 102 75 71 27
<CAPTION>
2006 AND
2004 2005 BEYOND TOTAL
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Square feet expiring....... 684,000 247,000 3,018,000 9,094,000
Straight-Line Rent......... $14,401,000 $7,477,000 $63,274,000 $196,756,000
Straight-Line Rent per sq.
ft........................ $ 21.05 $ 30.27 $ 20.97 $ 21.64
Recoveries................. $ 3,515,000 $2,084,000 $30,460,000 $ 65,179,000
Full Service Straight-Line
Rent...................... $17,916,000 $9,561,000 $93,734,000 $261,935,000
Full Service Straight-Line
Rent per sq. ft........... $ 26.19 $ 38.71 $ 31.06 $ 28.80
% Full Service
Straight-Line Rent........ 6.84% 3.65% 35.79% 100.00%
Cumulative percent of Full
Service Straight-Line
Rent...................... 60.56% 64.21% 100.00%
No. of tenant leases
expiring.................. 21 15 40 679
</TABLE>
59
<PAGE> 64
MORTGAGE INDEBTEDNESS AND CREDIT FACILITY
The following two tables sets forth certain information regarding the
consolidated debt obligations of Cornerstone as of the date of this Proxy
Statement and the consolidated debt obligations of Cornerstone resulting from
the Property Acquisition, respectively, including mortgage obligations relating
to specific Current Properties. All of this debt is nonrecourse to Cornerstone.
However, even with respect to nonrecourse indebtedness, the lender may have the
right to recover deficiencies from Cornerstone in certain circumstances,
including fraud, misappropriation of funds and environmental liabilities.
Cornerstone has received a commitment, subject to certain conditions, for a
three-year, $200 million, unsecured Revolving Credit Facility from Bankers Trust
Company and The Chase Manhattan Bank which will be used for the acquisition of
the Additional Properties. Borrowings under the Revolving Credit Facility bear
interest at a rate between 1.25% and 1.625% over LIBOR, depending on
Cornerstone's leverage ratio while funds are outstanding.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN $
THOUSANDS)
(AS OF INTEREST MATURITY PREPAYMENT
PROPERTY/OBLIGATION 6/30/97) AMORTIZATION RATE DATE PROVISIONS
- ------------------------------ -------- ------------- -------- ---------------------- --------------
<S> <C> <C> <C> <C> <C>
Prior to Property Acquisition
Convertible Note(1)........... $ 12,926 Interest only 8.11% max(2) Dec-2000 Not prepayable
One Norwest Center Denver,
Colorado.................... 97,251 30 year 7.50% Aug-2001 (3)
125 Summer Street Boston,
Massachusetts............... 50,000 Interest only(4) 7.20% Jan-2003 (5)
Tower 56 New York, New York... 17,826 30 year 7.67% May-2003 (6)
Washington Mutual Tower
Seattle, Washington......... 79,100 Interest only 7.53% Nov-2005 (7)
Norwest Center Minneapolis,
Minnesota................... 110,000 Interest only 8.74% Dec-2005 Not prepayable
-------- ----
Subtotal/Weighted
Average................. $367,103 7.87%
======== ====
Financing Resulting From Property Acquisition(8)
Dearborn Land Chicago,
Illinois.................... $ 10,000 Interest only 0% 3 years after closing (9)
5 Transpotomac Plaza and
Charlotte Plaza............. 55,000 Interest only 7.28% 3 years after closing Not prepayable
527 Madison Avenue and One
Lincoln Centre.............. 65,000 Interest only 7.47% 7 years after closing Not prepayable
Market Square (10)
and 200 Galleria............ 120,000 Interest only 7.54% 10 years after closing Not prepayable
-------- ----
Total/Weighted Average.... $617,107 7.58%
======== ====
</TABLE>
- ---------------
(1) The lender, Hines Colorado Limited, has the right to convert the note into
Common Stock at a conversion price of $14.30 per share. At maturity, the
Company is entitled to repay the principal of the note with Common Stock
priced at the lesser of $14.30 per share or the then existing share price.
(2) Lesser of 30-day LIBOR + 0.5% or 8.11%.
(3) No prepayment until July 24, 1998. From July 24, 1998 through July 23,
2000, prepayment fee is greater of 1% of outstanding principal balance or
Treasury Yield Maintenance. Beginning July 24, 2000, prepayment fee is
Treasury Yield Maintenance. Loan may be prepaid at par during last 90 days
of loan.
(4) Interest only payments through January 1, 2001. Beginning February 1, 2001,
25-year amortization schedule.
60
<PAGE> 65
(5) Beginning July 1, 1999, prepayment fee is greater of Treasury Yield
Maintenance or 1% of outstanding principal balance. Prepayment without fee
on or after three months prior to maturity date.
(6) Open to prepayment after December 31, 1999 with a prepayment fee of greater
of 1.0% of principal balance or Treasury Yield Maintenance. Prepayment
without fee on or after three months prior to maturity date.
(7) No prepayment rights through September 30, 1998, prepayable thereafter,
with a prepayment fee of the greater of: (1) 1.0% of the outstanding
principal balance or (2) Treasury Yield Maintenance. Prepayment without fee
for the six months prior to the maturity date.
(8) The four notes arising from the Property Acquisition will be
cross-collateralized having the effect of forming a "collateral pool" for
the underlying notes.
(9) Prepayable at par upon the sale of the land.
(10) The collateral for this loan will be a pledge of the $181 million first
mortgage loan on Market Square which Cornerstone will purchase from PGGM.
DESCRIPTION OF ADDITIONAL PROPERTIES AND MARKET DATA
191 PEACHTREE STREET
Description
191 Peachtree Street, located in downtown Atlanta, is a 50-story
multi-tenant office building containing 1,221,000 square feet. The property is
very high quality and is widely regarded as the best building in Downtown
Atlanta. The project was completed in 1991 and designed by John Burgee and
Philip Johnson. Attached to the building is a 16-story parking deck with 1,386
spaces.
191 Peachtree Street is located in the heart of Atlanta's CBD, also
referred to as Downtown. Peachtree Street is the major corridor through the CBD
from which development radiates. The property is located on the east side of
Peachtree Street between Ellis Street and International Boulevard, and extends
to Peachtree Center Avenue. The topography of the site slopes down to the east,
with both the Peachtree Street and Peachtree Center Avenue entrances at street
grade.
Cornerstone will acquire the $145 million first mortgage directly from
PGGM, two loans from PGGM to the parent of DIHC Peachtree Associates and the 80%
partnership interest in 191 Peachtree Street from DIHC by purchasing,
indirectly, a wholly owned subsidiary of DIHC. The partnership interest will
continue to be held by DIHC Peachtree Associates at the time of the closing of
the Property Acquisition. The Property is managed under a long-term management
agreement by C-H Management Associates, and leased by C-H Leasing Associates
under a long-term leasing agreement.
Market Information
The Company believes economic fundamentals in the Atlanta market are
positive. Atlanta is considered the political capital of Georgia and economic
capital of the Southeast region. With a population of approximately 3.4 million,
Atlanta is the tenth largest metropolitan area in the nation. The median per
capita personal income in 1995 was 8% above the national level and the cost of
doing business is 6% above the national average.
Atlanta's pro-business attitudes and highly-skilled workforce continue to
be recognized on a national and global level. Over 400 of the Fortune 500
industrial and service companies are represented in the city. Major employers
include Delta Airlines, AT&T, Bell South, Lockheed International Systems and
Turner Broadcasting System. Office employment in Atlanta has been growing at an
average annual rate of 5.4% over the ten years ended December 31, 1996 as
compared to an average of 2.7% for the nation.
As of December 31, 1996, the Atlanta metropolitan area contained a total
inventory of 91.7 million square feet of office space. The downtown submarket,
where 191 Peachtree is located, contains approximately 15.6 million square feet
of this inventory with an overall occupancy rate of 80.9% as of December 31,
1996.
61
<PAGE> 66
There are 10.9 million square feet of Class A space in the downtown submarket
and the Class A occupancy rate was 85.7% as of December 31, 1996.
<TABLE>
<CAPTION>
NET PERIOD
ABSORPTION COMPLETIONS END 191 PEACHTREE
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- --------------------------------------------------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
December 31, 1996.................................. (713,000) 0 80.9% 92.3%
December 31, 1995.................................. 876,000 0 85.4 --
December 31, 1994.................................. 542,000 0 79.8 --
December 31, 1993.................................. 1,486,000 0 76.4 --
December 31, 1992.................................. 694,000 2,518,000 67.4 --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The downtown Atlanta submarket occupancy rate improved from 67.4% in 1992
to 80.9% in 1996 due to moderate demand growth and an absence of new supply in
the market.
Principal Tenants
The following table lists the principal tenants of 191 Peachtree Street as
of December 31, 1996.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- --------------------------------------------------------------- --------- ----------- ----------
<S> <C> <C> <C>
Wachovia Bank.................................................. Banking 382,000 31.3%
King & Spalding................................................ Legal 306,000 25.1
Powell, Goldstein, Frazer & Murphy............................. Legal 199,000 16.3
----------- -----
Total................................................ 887,000 72.7%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 1,221,000 rentable square feet as of June 30, 1997.
Lease Expirations
The following table sets forth lease expirations for 191 Peachtree Street.
<TABLE>
<CAPTION>
7/97- 2006 AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
-------- -------- ------- -------- ---------- ---------- ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring.... 6,000 17,000 1,000 6,000 137,000 46,000 34,000 17,000 892,000
Straight-Line Rent...... $164,000 $247,000 $23,000 $ 62,000 $2,567,000 $ 690,000 $ 839,000 $297,000 $17,227,000
Straight-Line Rent per
sq. ft................. $ 27.33 $ 14.53 $ 23.00 $ 10.33 $ 18.74 $ 15.00 $ 24.68 $ 17.47 $ 19.31
Recoveries.............. $ 12,000 $140,000 $14,000 $ 40,000 $1,114,000 $ 402,000 $ 307,000 $171,000 $ 7,953,000
Full Service
Straight-Line Rent..... $176,000 $387,000 $37,000 $102,000 $3,681,000 $1,092,000 $1,146,000 $468,000 $25,180,000
Full Service
Straight-Line Rent per
sq. ft................. $ 29.33 $ 22.76 $ 37.00 $ 17.00 $ 26.87 $ 23.74 $ 33.71 $ 27.53 $ 28.23
% Full Service
Straight-Line Rent..... 0.55% 1.20% 0.11% 0.32% 11.41% 3.38% 3.55% 1.45% 78.03%
Asking market rent per
sq. ft. ............... $ 26.00
No. of tenant leases
expiring............... 2 6 1 3 7 6 3 5 4
</TABLE>
62
<PAGE> 67
Ownership Structure
The Mortgage. It is intended that Cornerstone will purchase and hold the
first mortgage on the property in the amount of $145 million. The mortgage earns
interest at a rate of 9.375% and matures on February 28, 2008. The loan will be
interest only through March 1, 1998 and, thereafter, will require principal
payments based on a 30-year amortization schedule.
The Partnership. Cornerstone intends to acquire an 80% partnership
interest in One Ninety One Peachtree Associates, the partnership which owns 191
Peachtree Street, through its acquisition (indirectly by the acquisition of DIHC
of Georgia, Inc., a wholly owned subsidiary of DIHC) of DIHC Peachtree
Associates, a partner in One Ninety One Peachtree Associates.
Through February 28, 2000, the minority partner in the transaction C-H
Associates, LTD (CHA) will receive an Incentive Distribution (as defined) of
$250,000 per annum. This payment will be made out of Net Cash Flow after the
payment of the first mortgage loan described above.
Cornerstone will receive the remaining cash flow up to the amount of an
Undistributed Preferred Return, defined in the partnership agreement for the
Property. Should cash flow be insufficient to repay the Undistributed Preferred
Return, the remainder will earn interest as follows for each year described
below.
<TABLE>
<CAPTION>
YEAR INTEREST RATE
----------------------------------------------------------------- -------------
<S> <C>
1997............................................................. 7.00%
1998............................................................. 7.25%
1999-2001........................................................ 8.25%
2002............................................................. 9.50%
2003............................................................. 10.00%
2004............................................................. 10.50%
2005............................................................. 11.00%
Thereafter....................................................... 11.50%
</TABLE>
Total cash flow for 1996 was $23,754,700, of which $13,904,700 was used to
pay debt service on the mortgage note, $250,000 was paid to CHA, with the
remaining $9,600,000 paid to Cornerstone's predecessor.
Following the Property Acquisition, Cornerstone's interest in One Ninety
One Peachtree Associates will be accounted for on the equity method, as the
partners participate in day-to-day decision making at the Property.
Cornerstone will have the ability to gain full control of the asset through
a buy-sell agreement which becomes effective beginning in 2002.
The Ground Lease. A small portion of the site that is below the parking
structure is subject to a long-term ground lease from the Ritz Carlton. As part
of the ground lease agreement, the Ritz Carlton has its ballroom located in the
basement of 191 Peachtree Street.
MARKET SQUARE
Description
Market Square, located at 701 and 801 Pennsylvania Avenue in Washington,
D.C., comprises two free standing buildings which are mirror images of each
other. Each building contains eight floors of office space, a plaza and a
concourse level, plus four floors of condominium residential units. The
condominium units are owned separately and are not part of this transaction. The
total area of the Market Square property including the plaza and concourse
levels and excluding the residential component is 689,000 square feet and a four
level below grade parking garage with 777 spaces. Of this total area, 621,000
square feet is office space, 58,000 square feet is retail and concourse space,
and 10,000 square feet is storage space. Designed by Hartman Cox, the project
won a competition to be the backdrop for the U.S. Navy Memorial plaza.
Market Square is located midway between the White House and the Capitol
Building on Pennsylvania Avenue, a prominent address in Washington, D.C.
Pennsylvania Avenue is wide, thereby providing the project
63
<PAGE> 68
with open city views, including the White House, the Capitol Building and the
Washington Monument. In addition, the Archives-Navy Memorial Metro stop is
located in the U.S. Navy Memorial Plaza in front of the building.
The Property is managed by Trammell Crow Real Estate Services, Inc. under a
long-term management agreement.
Market Information
The Company believes the economic fundamentals of the Washington, D.C. area
are positive. Washington, D.C., the nation's capital, has a metropolitan
statistical area population of 4.47 million people, making it the sixth largest
in the country. The metropolitan statistical area ("MSA") includes the District
of Columbia, Maryland and Northern Virginia. The mean per capita personal income
for the MSA is $27,672, which is 33.4% above the national average.
The Washington, D.C. MSA enjoyed very rapid growth and diversification
during the 1980s, with private sector industries such as high tech, health
services, telecommunications, and biotechnology leading the way. The East End
submarket, where Market Square is located, is largely a creation of the last
decade, during which over half of the 24,000,000 square foot inventory was
constructed. The tenant base in the East End is dominated by services firms,
particularly law firms and trade associations. This trend was so powerful that
the East End now contains 15.4 million square feet of Class A space, almost as
much Class A space as all other District markets combined. The East End area
also includes many government agencies (12% share of the Class A market),
several hotels, the old retail corridor and the city's convention center. A new
sports arena under construction in the center of the East End will host the
professional basketball and hockey teams of Washington, D.C.
As of December 31, 1996, the Washington, D.C. MSA contained a total
inventory of 209 million square feet of inventory, of which approximately 63%
had been built since 1980. The East End submarket had an occupancy rate of 89.7%
and a Class A occupancy rate of 91.7% as of December 31, 1996.
Set forth below is certain statistical information regarding the East End
Washington, D.C. submarket.
<TABLE>
<CAPTION>
NET
ABSORPTION COMPLETIONS PERIOD END MARKET SQUARE
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- ------------------------------------------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
December 31, 1996................................ (680,000) 0 89.7% 92.0%
December 31, 1995................................ 249,000 509,000 92.4 --
December 31, 1994................................ 432,000 0 92.6 --
December 31, 1993................................ 1,189,000 154,000 91.0 --
December 31, 1992................................ 1,595,000 905,000 87.0 --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The East End Washington, D.C. submarket occupancy rate improved from 87.0%
in 1992 to 89.7% in 1996 due primarily to a relatively small amount of new
supply on the market. Torto Wheaton Research forecasts approximately 2.0 million
square feet of space to be built annually over the next two years throughout the
Washington, D.C. area.
64
<PAGE> 69
Principal Tenants
The following table lists the principal tenants of Market Square as of June
30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- ----------------------------------------------------- -------------------- ----------- ----------
<S> <C> <C> <C>
Fulbright & Jaworski................................. Legal 123,000 17.8%
Edison Electric Institute............................ Industry Association 119,000 17.3
Reid & Priest........................................ Legal 46,000 6.7
Shearman & Sterling.................................. Legal 38,000 5.5
----------- -----
Total...................................... 326,000 47.3%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 689,000 rentable square feet as of June 30, 1997.
Lease Expirations
The following table sets forth lease expirations for Market Square.
<TABLE>
<CAPTION>
7/97- 2006
12/97 1998 1999 2000 2001 2002 2003 2004 2005 AND BEYOND
-------- ---------- -------- ---------- ---------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring........... 11,000 57,000 5,000 50,000 89,000 10,000 11,000 13,000 174,000 207,000
Straight-Line
Rent............... $190,000 $1,888,000 $113,000 $1,391,000 $3,357,000 $316,000 $431,000 $418,000 $5,796,000 $6,616,000
Straight-Line Rent
per sq. ft......... $ 17.27 $ 33.12 $ 22.60 $ 27.82 $ 37.72 $ 31.60 $ 39.18 $ 32.15 $ 33.31 $ 31.96
Recoveries.......... $ 60,000 $ 45,000 $ 1,000 $ 323,000 $ 713,000 $ 15,000 $ 99,000 $ 85,000 $1,792,000 $2,470,000
Full Service
Straight-Line
Rent............... $250,000 $1,933,000 $114,000 $1,714,000 $4,070,000 $331,000 $530,000 $503,000 $7,588,000 $9,086,000
Full Service
Straight-Line Rent
per sq. ft......... $ 22.73 $ 33.91 $ 22.80 $ 34.28 $ 45.73 $ 33.10 $ 48.18 $ 38.69 $ 43.61 $ 43.89
% Full Service
Straight-Line
Rent............... 0.96% 7.40% 0.44% 6.56% 15.58% 1.27% 2.03% 1.93% 29.05% 34.79%
Asking full service
market rent per sq.
ft................. $ 46.75
No. of tenant leases
expiring........... 3 5 1 7 9 4 3 2 4 8
</TABLE>
Ownership Structure
The Mortgage. The Company intends to purchase the $181.0 million first
mortgage note on the property. The loan bears interest at a rate of 9.75% and
matures with a balloon payment on November 15, 2007. The loan requires
amortization on a 30 year schedule.
The Partnership. Cornerstone intends to acquire up to an 85.7143% interest
in Market Square Associates, the partnership which, together with
Crow-Pennsylvania Avenue Limited Partnership, owns a 70% interest in Avenue
Associates along with Western Associates Limited Partnership. The acquisition
will be effected in a series of transactions occurring contemporaneously with or
following the closing under the Stock Purchase Agreement. Avenue Associates
holds the fee title to Market Square.
Cash flow from Avenue Associates is distributed first to pay the debt
service on the mortgage loan described above. Remaining cash flow is used to pay
a series of preference returns and buffer loans (as defined).
The Company will have the right to gain control of the asset through a
buy-sell agreement which becomes effective beginning in 2007.
For the year ended December 31, 1996, all of net cash flow from the
property of $17,858,000 was distributed to Cornerstone's predecessor in payment
of mortgage loans, buffer loans and preference returns.
Following the Property Acquisition, Cornerstone will account for its
interest in Market Square Associates on the equity method, as the partners will
participate in the day to day decision making at the Property.
65
<PAGE> 70
500 BOYLSTON STREET
Description
500 Boylston Street, a 25-story, Class A office building containing a total
rentable area of 715,000 square feet, was designed by the team of John Burgee
Architects and Philip Johnson. The project shares a full city block with 222
Berkeley Street, and together, the two buildings are considered the premier
buildings in the Back Bay submarket of Boston. 500 Boylston is comprised of
642,000 square feet of office area on floors three through twenty-five, 8,000
square feet of storage space, and 65,000 square feet of retail area on floors
one and two. Parking for 1,000 cars is shared with 222 Berkeley Street and is
located on three levels below grade. The 500 Boylston Street site contains
approximately 137,000 square feet of land area or 3.15 acres, with approximately
500 feet of frontage on Boylston Street.
500 Boylston Street is located in the Back Bay submarket of Boston. The 500
Boylston Street and 222 Berkeley Street complex occupies a city block bounded by
Boylston Street on the north, St. James Avenue on the south, Clarendon Street on
the west and Berkeley Street on the east. Development in the Back Bay has
historically been subject to restrictive zoning ordinances, aimed at preserving
the character of the area and concentrating commercial development along the
"High Spine", of which Boylston Street is the center. Companies like John
Hancock Mutual Life Insurance, Boston Edison, Bain & Co., Liberty Mutual Life
Insurance and The New England are all headquartered in this submarket.
Cornerstone will acquire DIHC's interest in the partnership which owns fee
simple title to 500 Boylston (Five Hundred Boylston West Venture) by purchasing
two of DIHC's wholly owned subsidiaries, DIHC Boylston Corp. and DIHC Boylston
Back Bay Corp. The Property is managed by Hines under a long-term management
agreement.
Market Information
The Company believes the economic fundamentals of the Boston area are
strong. The Boston metropolitan area has one of the healthiest economies in the
northeast and is the growth leader among the largest industrial markets in the
region. With a population of 5.76 million people, Boston is the fifth largest
MSA in the nation. The median per capita personal income is $27,361, which is
18% above the national level.
Led by an expanding financial services industry, a revitalized high
technology sector, the economic expansion of Boston has been broad based. Much
of the city's success has come from the strength of its internal resources such
as a highly skilled labor pool, a focus on research and development, local
capital sources, and a host of firms that have become dominant in their
respective industries. The Boston economy did slow when the national and local
economies declined, and a recession dominated the area in the late 1980s and
early 1990s; however, the past few years have seen continued diversification of
the economy and increases in total employment.
As of December 31, 1996, the Boston MSA contained a total inventory of 103
million square feet of office space, of which 51.6 has been built since 1980.
The Back Bay submarket, where 222 Berkeley and 500 Boylston are located,
contains approximately 10.8 million square feet of that inventory. As of
December 31, 1996, the overall Back Bay occupancy rate was 94.8%. The Back Bay
submarket includes 7 million square feet of Class A office space, with a Class A
occupancy rate of 95.1%.
66
<PAGE> 71
Set forth below is certain statistical information regarding the Back Bay
submarket.
<TABLE>
<CAPTION>
PERIOD END
NET PERIOD 500 BOYLSTON PERIOD END
ABSORPTION COMPLETIONS END STREET 222 BERKELEY STREET
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY OCCUPANCY
- ----------------------------------- ---------- ---------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
December 31, 1996.................. 180,000 0 94.8% 100.0% 100.0%
December 31, 1995.................. 472,000 0 94.2 -- --
December 31, 1994.................. 269,000 0 89.0 -- --
December 31, 1993.................. 302,000 700,000 96.4 -- --
December 31, 1992.................. 286,000 0 93.6 -- --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The Boston market continues to show strong and steady absorption in the
Back Bay market with a shortage of large blocks of contiguous space downtown.
67
<PAGE> 72
Principal Tenants
The following table lists the principal tenants of 500 Boylston Street as
of June 30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- --------------------------------------------- -------------------------- ----------- ----------
<S> <C> <C> <C>
Massachusetts Financial Services............. Financial Services 359,000 50.2%
The New England.............................. Insurance 213,000 29.8
Towers, Perrin, Forster & Crosby............. Human Resources Consulting 44,000 6.2
----------- -----
Total.............................. 616,000 86.2%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 715,000 rentable square feet as of June 30, 1997.
Lease Expirations
The following table sets forth lease expirations for 500 Boylston Street.
<TABLE>
<CAPTION>
7/97- 2006 AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
---------- ---------- -------- -------- -------- -------- ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring............ 76,000 16,000 400,000 10,000 213,000
Straight-Line Rent... $2,561,000 $300,000 $10,900,000 $126,000 $5,102,000
Straight-Line Rent
per sq. ft.......... $ 33.70 $ 18.75 $ 27.25 $ 12.60 $ 23.95
Recoveries........... $ 946,000 $ 83,000 $ 4,792,000 $115,000 $2,633,000
Full Service
Straight-Line
Rent................ $3,507,000 $383,000 $15,692,000 $241,000 $7,735,000
Full Service
Straight-Line Rent
per sq. ft.......... $ 46.14 $ 23.94 $ 39.23 $ 24.10 $ 36.31
% Full Service
Straight-Line
Rent................ 12.73% 1.39% 56.94% 0.87% 28.07%
Asking full service
market rent per sq.
ft.................. $ 36.30
No. of tenant leases
expiring............ 8 3 3 1 1
</TABLE>
The Partnership
Cornerstone will own its interests in 500 Boylston Street through a
partnership in which it will own a 91.5% interest and Hines will own an 8.5%
interest. Cornerstone and Hines will also have a straight 91.5% share and 8.5%
share respectively in the cash flow, financing and sales proceeds from 500
Boylston Street. Cornerstone will consolidate its investment in the partnership
on its balance sheet since it will have unilateral control over all decisions to
be made in the ordinary course of business.
The Company will have the right to take control of the asset under a
buy-sell agreement which becomes effective in 2007.
222 BERKELEY STREET
Description
222 Berkeley Street is a 22-story, Class A office building containing
531,000 square feet of net rentable area. Its floor plates range from
approximately 40,000 square feet on floors one through six to approximately
14,000 square feet on floors twenty through twenty-two. The low rise portion of
the structure has Boston bay windows. The main lobby has impressive inlaid
marble patterned floors, marble and painted walls and upper level mill worked
interior windows. Designed by Robert A.M. Stern Architects, the building is clad
in brick and uses natural and cast stone for trim and detailing. This design
approach blends the historic flavor of the Back Bay area architecture with that
of a modern office building. The retail area of 46,000 square feet is located on
the first and second floors. Completed in 1991, 222 Berkeley Street was designed
as the second phase of a full block development and is therefore physically
attached to 500 Boylston Street. The two buildings have interconnecting garage
and retail areas. A reciprocal easement agreement has been established to permit
the operation of these shared facilities.
68
<PAGE> 73
The site is bounded by Berkeley Street on the east, St. James Avenue on the
south, the 500 Boylston Street building on the west and Boylston Street on the
north. The office tower fronts on Berkeley Street and is turned at a ninety
degree angle to the tower of 500 Boylston Street, providing views from the tower
towards downtown Boston and the Charles River.
Cornerstone will acquire DIHC's interest in the partnership which owns fee
simple title to 222 Berkeley (Two Twenty Two Berkeley Venture) by purchasing two
of DIHC's wholly-owned subsidiaries, DIHC Berkeley Corp. and DIHC Berkeley Back
Bay Corp. The Property is managed by Hines under a long-term management
agreement.
Market Information
Cornerstone believes the economic fundamentals of the Boston area and the
Back Bay submarket are strong for the reasons described above under "-- 500
Boylston Street."
Principal Tenants
The following table lists the principal tenants of 222 Berkeley Street as
of June 30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- ---------------------------------------------- ------------------ ----------- ----------
<S> <C> <C> <C>
Houghton Mifflin.............................. Publishing 247,000 46.5%
Saga International Holidays................... Travel Agent 40,000 7.5
Oracle Corporation............................ Computer Software 38,000 7.2
----------- -----
Total............................... 325,000 61.2%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 531,000 rentable square feet as of June 30, 1997.
Lease Expirations
<TABLE>
<CAPTION>
2006
7/97- AND
12/97 1998 1999 2000 2001 2002 2003 2004(2) 2005 BEYOND
-------- ---------- ---------- -------- ---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring......... 4,000 20,000 50,000 70,000 113,000 271,000
Straight-Line
Rent............. $164,000 $ 274,000 $ 824,000 $1,327,000 $2,154,000 $4,094,000
Straight-Line Rent
per sq. ft....... $ 41.00 $ 13.70 $ 16.48 $ 18.96 $ 19.06 $ 15.11
Recoveries........ $ 30,000 $ 249,000 $ 682,000 $ 772,000 $1,251,000 $3,161,000
Full Service
Straight-Line
Rent............. $194,000 $ 523,000 $1,506,000 $2,099,000 $3,405,000 $7,255,000
Full Service
Straight-Line
Rent per sq.
ft............... $ 48.50 $ 26.15 $ 30.12 $ 29.99 $ 30.13 $ 26.77
% Full Service
Straight-Line
Rent............. 1.29% 3.49% 10.05% 14.01% 22.73% 48.42%
Asking full
service market
rent per sq.
ft............... $ 36.30
No. of tenant
leases
expiring......... 4 4 5 6 6 6
</TABLE>
The Partnership
Cornerstone will own its interest in 222 Berkeley Street through a
partnership (Two Twenty Two Berkeley Venture) in which it will own a 91.5%
interest and Hines will own a 8.5% interest. Cornerstone and Hines will also
have a straight 91.5% and 8.5% share respectively in the cash flow, financing
and sales proceeds from 222 Berkeley Street. Cornerstone will consolidate its
investment in the partnership on its balance sheet since it will have unilateral
control over all decisions to be made in the ordinary course of business.
The Company will have the right to take control of the asset under a
buy-sell agreement which becomes effective in 2007.
69
<PAGE> 74
CHARLOTTE PLAZA
Description
Charlotte Plaza is a 27-story, Class A office building with a total net
rentable area of 613,000 square feet. Designed by Jarvis Putty Jarvis and
completed in 1982, the average floor plate contains approximately 23,000 square
feet. Amenities to the building include an eight-level, 863 space parking garage
and direct access to Charlotte's Overstreet Mall System. The Overstreet is an
elevated walkway system that connects various office and retail sites, with
direct access considered to be a competitive advantage. An additional benefit
for the office tenants is the Tower Club, located on the 27th floor. The Tower
Club is a members-only restaurant and lounge which has become very popular with
the local business community for entertaining clients.
Charlotte Plaza is located in the Uptown district, between South College
Street and South Brevard Street and between East Third and East Fourth Street.
Uptown Charlotte is the Central Business District (CBD) and is accessible by
interstates, local roads and public transportation. Located in the vicinity of
Charlotte Plaza are the Charlotte Convention Center and Carolinas Stadium. A
substantial portion of the Uptown submarket is occupied by NationsBank, First
Union and their support firms.
Cornerstone will hold the fee interest in Charlotte Plaza through two
wholly-owned subsidiaries of DIHC which will be acquired at the time of the
closing of the Property Acquisition. The Property is managed by Trammell Crow
SE, Inc.
Market Information
The Company believes the economic fundamentals of the Charlotte area are
positive. Charlotte is the financial services and distribution hub of the
Carolina region. Charlotte is the largest metropolitan area between Atlanta and
Washington, D.C., with a population of 1.29 million people. The median per
capita personal income is $22,777 which is 2% below the national average.
Fifty-three of the Fortune 100 companies are represented within the CBD of
Uptown Charlotte. The majority of these firms are involved in the finance,
insurance and real estate industries. Major employers include Duke Power
Company, IBM Corporation, NationsBank Corporation, First Union Corporation,
Southern Bell Telephone and state and local government agencies. Over the last
ten years, the finance, insurance and real estate services sector of Charlotte
had a growth rate of 3.8%. This is noteworthy when compared to the nation as a
whole as sampled by Torto Wheaton's 54 cities which averaged only 0.6%.
Employment growth is expected to remain strong throughout the remainder of the
decade.
As of December 31, 1996, the Charlotte MSA contained a total inventory of
20.5 million square feet, of which 65.1% had been built since the 1980s. The
Uptown submarket contains approximately 8.9 million square feet of this
inventory and 5.7 million square feet of Class A inventory. The overall Uptown
occupancy rate was 94.0%, and the Class A Uptown occupancy rate was 98.0% as of
December 31, 1996.
Set forth below is certain statistical information regarding the Uptown
Charlotte submarket.
<TABLE>
<CAPTION>
NET CHARLOTTE
ABSORPTION COMPLETIONS PERIOD END PLAZA
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- ---------------------------------------------------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1996................................... (62,000) 0 94.0% 98.6%
December 31, 1995................................... (99,000) 0 94.7 --
December 31, 1994................................... 453,000 0 95.4 --
December 31, 1993................................... 924,000 0 90.2 --
December 31, 1992................................... 535,000 0 80.2 --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The Uptown Charlotte submarket occupancy rate improved from 80.2% in 1992
to 94.0% in 1996 due primarily to an absence of new supply and office employment
growth that has consistently outpaced the nation.
70
<PAGE> 75
Principal Tenants
The following table lists the principal tenants of Charlotte Plaza as of
June 30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- -------------------------------------------------------------- --------- ------------ ----------
<S> <C> <C> <C>
First Union(2)................................................ Banking 374,000 61.0%
Parker, Poe, Adams & Bernstein................................ Legal 79,000 12.9
------------ ----------
Total............................................... 453,000 73.9%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 613,000 rentable square feet as of June 30, 1997.
(2) On June 30, 1998, 115,000 square feet currently leased to AETNA/Travelers at
$15 per square foot expires. First Union has contracted to lease all the
expiring space beginning September 1, 1998. This space is included in the
374,000 Total Rentable Square Feet above and is included in the expiration
table under the First Union terms. The 47,000 square feet of space which
expired in August 1997 has been vacated.
Lease Expirations
The following table sets forth lease expirations for Charlotte Plaza.
<TABLE>
<CAPTION>
7/97- 2006
12/97 1998 1999 2000 2001 2002 2003 2004 2005 AND BEYOND
-------- ---------- -------- -------- -------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring.... 60,000 70,000 31,000 27,000 46,000 38,000 22,000 113,000 11,000 178,000
Straight-Line Rent...... $733,000 $1,319,000 $580,000 $471,000 $784,000 $576,000 $438,000 $1,772,000 $209,000 $2,517,000
Straight-line Rent per
sq. ft................. $ 12.22 $ 18.84 $ 18.71 $ 17.44 $ 17.04 $ 15.16 $ 19.91 $ 15.68 $ 19.00 $ 14.14
Recoveries.............. $ 5,000 $ 44,000 $ 19,000 $ -- $ -- $ 26,000 $ 12,000 $ 309,000 $ 77,000 $2,593,000
Full Service
Straight-Line Rent..... $738,000 $1,363,000 $599,000 $471,000 $784,000 $602,000 $450,000 $2,081,000 $286,000 $5,110,000
Full Service
Straight-Line Rent per
sq. ft................. $ 12.30 $ 19.47 $ 19.32 $ 17.44 $ 17.04 $ 15.84 $ 20.45 $ 18.42 $ 26.00 $ 28.71
% Full Service
Straight-Line Rent..... 5.91% 10.92% 4.80% 3.77% 6.28% 4.82% 3.60% 16.67% 2.29% 40.93%
Asking full service
market rent per sq.
ft..................... $ 22.00
No. of tenant leases
expiring............... 5 7 6 5 1 5 3 3 1 6
</TABLE>
200 GALLERIA
Description
200 Galleria is part of a four-office building complex containing a total
of over 1.5 million square feet of space. Completed in 1985, 200 Galleria is a
20-story office building constructed of reinforced concrete, polished rose
granite facade, and reflective glass curtain-wall. 200 Galleria is connected to
a seven-level, 2,551-car parking garage which serves both the 200 and 300
Galleria buildings. Two three-story atrium lobbies are located on either side of
the building's core, which contains 433,000 rentable square feet of space with
approximately 23,000 square feet per typical floor.
200 Galleria is located in northwest Atlanta, sometimes referred to as the
Cumberland or Galleria area. This area is generally defined by Northside Parkway
and Johnson Ferry Road to the east, Austell Road on the west, Moores Mill Road
and Bankhead Highway on the south, and Roswell Road on the north. The center of
the area is the intersection of I-75 and I-285, just east of 200 Galleria. The
property is bound to the east by the 300 Galleria building, to the south by
Galleria Parkway, to the West by Galleria Drive, and to the north by I-285. Also
within the project are the Renaissance Waverly Hotel and the Cobb Galleria
Centre, a county-owned convention center. Planning for a 140,000 square foot
addition to the convention center is currently underway. There are an additional
22 acres of undeveloped land available for development within the Galleria
Project.
A small portion of the site that is below the parking garage is subject to
a long-term ground lease. Cornerstone expects to enter into an agreement to
purchase the property that is subject to the ground lease.
71
<PAGE> 76
Cornerstone will hold the fee interest in 200 Galleria through a wholly
owned subsidiary which will be acquired from DIHC at the time of the closing of
the Property Acquisition. The Property is managed by CK Atlanta Office
Management, Inc.
Market Information
The Company believes the economic fundamentals of the Atlanta area are
strong for the reasons described above under "--191 Peachtree Street".
The Northwest submarket where 200 Galleria is located has developed the
synergy of a small metropolitan area, combining business, retail, hospitality
and health services. The area has a sizable hotel presence, and the center of
the retail area in this market is Cumberland Mall, which contains approximately
1.2 million square feet. Also located in the Galleria development is the 13,200
square foot Galleria Mall, another important retail center in the area. The
Galleria Mall was built in 1983 and filled with specialty stores. One of the
major factors in the development of the Northwest submarket in the 1980s was its
interstate access. Currently under construction is the Kennedy Parkway which
will provide greater access to the Galleria development when completed.
As of December 31, 1996, the Atlanta metropolitan area contained a total
inventory of 91.7 million square feet of office space. The Northwest submarket
where 200 Galleria is located contains approximately 18.3 million square feet of
this inventory. As of December 31, 1996, the overall Northwest occupancy rate
was 92.4%. The Northwest submarket includes 9.5 million square feet of Class A
office space, with an occupancy rate of 94.4% as of December 31, 1996.
Set forth below is certain statistical information regarding the downtown
Northwest Atlanta submarket.
<TABLE>
<CAPTION>
NET
ABSORPTION COMPLETIONS PERIOD END 200 GALLERIA
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- --------------------------------------------------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
December 31, 1996.................................. 797,000 346,000 92.4% 93.1 %
December 31, 1995.................................. 269,000 14,000 89.7 --
December 31, 1994.................................. 572,000 17,000 88.3 --
December 31, 1993.................................. 449,000 238,000 85.2 --
December 31, 1992.................................. 770,000 100,000 83.8 --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The most likely influence on the Atlanta market over the next several years
will be the amount of new construction. Torto Wheaton Research estimates 4.8
million square feet to be completed annually throughout the metropolitan area,
and 3.2 million square feet of net absorption forecasted over the same period.
Principal Tenants
The following table lists the principal tenants of 200 Galleria as of June
30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- ------------------------------------------------------- ------------------ ----------- ----------
<S> <C> <C> <C>
Liberty Mutual Group................................... Financial Services $ 58,000 13.4%
Worldspan.............................................. Travel Software 39,000 9.0
Cobank ACB............................................. Banking 23,000 5.3
----------- -----
Total........................................ $ 120,000 27.7%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 433,000 rentable square feet as of June 30, 1997.
72
<PAGE> 77
Lease Expirations
The following table sets forth lease expirations for 200 Galleria.
<TABLE>
<CAPTION>
2006
7/97- AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
-------- -------- -------- ---------- ---------- ---------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring..... 32,000 38,000 26,000 71,000 61,000 164,000 3,000 11,000
Straight-Line Rent....... $457,000 $722,000 $487,000 $1,548,000 $1,276,000 $3,289,000 $76,000 $266,000
Straight-Line Rent per
sq. ft.................. $ 14.28 $ 19.00 $ 18.73 $ 21.80 $ 20.92 $ 20.05 $ 25.33 $ 24.18
Recoveries............... $ 5,000 $ 31,000 $ 32,000 $ 71,000 $ 46,000 $ 89,000 $ -- $ 16,000
Full Service
Straight-Line Rent...... $462,000 $753,000 $519,000 $1,619,000 $1,322,000 $3,278,000 $76,000 $282,000
Full Service
Straight-Line Rent per
sq. ft.................. $ 14.44 $ 19.82 $ 19.96 $ 22.80 $ 21.67 $ 20.60 $ 25.33 $ 25.64
% Full Service
Straight-Line Rent...... 5.49% 8.95% 6.17% 19.25% 15.72% 40.16% 0.90% 3.35%
Asking full service
market rent per sq.
ft...................... $ 25.85
No. of tenant leases
expiring................ 6 11 5 15 12 9 1 1
</TABLE>
73
<PAGE> 78
11 CANAL CENTER, 99 CANAL CENTER and
TRANSPOTOMAC PLAZA 5
Description
11 Canal Center, 99 Canal Center, and TransPotomac Plaza 5 are three
buildings located in the waterfront office district of Alexandria, Virginia. The
three buildings are located within two adjacent office complexes.
The four-story building at 11 Canal Center contains 70,000 square feet and
the six-story building at 99 Canal Center contains 138,000 square feet. These
buildings are part of a four building complex on a ten acre irregular shaped
site. The buildings have access to an underground parking facility that is
shared with the other buildings of the Canal Center Complex. At the Canal
Center's garage, 187 spaces are allocated to 11 Canal Center and 370 spaces are
allocated to 99 Canal Center. The complex does not presently comply with zoning
requirements that certain space will be leased to non-office use.
TransPotomac Plaza 5 is a ten-story, triangular office building with 96,000
net rentable square feet. It was constructed in 1983 of red face brick veneer.
Underground parking is allocated between the five-building, three acre complex
with TransPotomac Plaza 5 receiving an allocation of 222 spaces.
Canal Center and TransPotomac Plaza are well located in the North
Waterfront district of Alexandria. The buildings have excellent views of the
Potomac River and the Washington, D.C. city skyline. The properties are several
blocks east of George Washington Parkway, a principal thoroughfare connecting
central Old Town to National Airport and downtown Washington, D.C. Two Metrorail
stations, including Braddock Road and King Street, provide public access to the
properties.
The immediate neighborhood consists of low and mid-rise office buildings
with street level retail. A waterfront recreational green area, known as
Locharbor Gardens and through which the Mount Vernon Bike Trail passes, lies
just to the north and east between the building and the Potomac River and
provides tenants with an open, park-like setting.
Cornerstone will acquire title to 11 Canal Center, 99 Canal Center and
TransPotomac Plaza 5 through three wholly-owned DIHC Subsidiaries which will be
acquired from DIHC at the time of the closing of the Property Acquisition. The
Properties are managed by Faison and Associates, Inc.
Market Information
The Company believes the economic fundamentals of the Washington, D.C.
area, which includes Alexandria, Virginia, are positive for the reasons
described above under "-- Market Square".
The Washington, D.C. MSA enjoyed very rapid growth and diversification
during the 1980s, with private sector industries such as high tech, health
services, telecommunications, and biotechnology leading the way. Northern
Virginia, where 11 and 99 Canal Center and Transpotomac Plaza 5 are located, is
a relatively new market. More than 50% of the current inventory of 85 million
square feet has been built since 1980. The real estate industry has made a full
recovery from the collapse of the market in the late 1980s, as is seen by the
95.2% overall occupancy rate in Northern Virginia. While the exodus of tenants
from Washington, D.C. was responsible for the suburban market's early recovery
and development, recent growth has been independent of Washington's activity.
The technology and communications industries have transformed Northern Virginia
into one of the nation's top high-technology areas.
As of December 31, 1996, the Northern Virginia submarket contained a total
inventory of 84.6 million square feet of inventory, of which approximately 50%
had been built since 1980. The Alexandria submarket, where the buildings are
located within Virginia, had an occupancy rate of 94.9% and a Class A occupancy
rate of 91.4% as of December 31, 1996. Alexandria comprises approximately 4.6
million square feet of the Washington, D.C. MSA and 1.2 million square feet of
that space is considered Class A.
74
<PAGE> 79
Set forth below is certain statistical information regarding the
Alexandria/Oldtown submarket of Washington, D.C.
<TABLE>
<CAPTION>
NET TRANSPOTOMAC
ABSORPTION COMPLETIONS PERIOD END 11 CANAL CTR. 99 CANAL CTR. PLAZA 5
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY OCCUPANCY OCCUPANCY
- --------------------------- ---------- ----------- ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996.......... 27,000 0 94.9% 95.8% 98.2% 79.7%
December 31, 1995.......... 163,000 0 94.2 -- -- --
December 31, 1994.......... (75,000) 0 90.6 -- -- --
December 31, 1993.......... 78,000 0 92.1 -- -- --
December 31, 1992.......... 92,000 0 90.6 -- -- --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The Alexandria/Oldtown submarket occupancy rate improved from 90.6% in 1992
to 94.9% in 1996 due primarily to moderate demand growth and an absence of new
supply.
Principal Tenants
The following table lists the principal tenants of 11 Canal Center as of
June 30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- --------------------------------------- -------------------- ----------- ----------
<S> <C> <C> <C>
Robbins Gioia.......................... Management Advisory 42,000 60.0%
Veda Inc............................... Professional Svcs. 9,000 12.9
----------- -----
Total........................ 51,000 72.9%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 70,000 rentable square feet as of June 30, 1997.
The following table lists the principal tenants of 99 Canal Center as of
June 30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- ---------------------------------------------- ------------- ----------- ----------
<S> <C> <C> <C>
Lowe, Price, LeBlanc & Becker................. Legal 33,000 23.9%
Howard, Needles, Tannen & Bergendorf.......... Architecture 20,000 14.5
National District Attorneys Assoc. ........... Legal/Lobbying 16,000 11.6
----------- ----------
Total............................... 69,000 50.0%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 138,000 rentable square feet as of June 30, 1997.
The following table lists the principal tenants of TransPotomac Plaza 5 as
of June 30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- --------------------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Onyx Group............................................... Software 21,000 21.9%
Cities in Schools........................................ Non-profit 15,000 15.6
Larson & Taylor.......................................... Legal 10,000 10.4
----------- -----
Total.......................................... 46,000 47.9%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 96,000 rentable square feet as of June 30, 1997.
75
<PAGE> 80
Lease Expirations
The following table sets forth lease expirations for 11 Canal Center.
<TABLE>
<CAPTION>
2006
7/97- AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
-------- -------- -------- ------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring......... 9,000 5,000 2,000 5,000 5,000 42,000
Straight-Line Rent........... $294,000 $103,000 $39,000 $128,000 $115,000 $1,043,000
Straight-Line Rent per sq.
ft.......................... $ 32.67 $ 20.60 $ 19.50 $ 25.60 $ 23.00 $ 24.83
Recoveries................... $ 31,000 $ 1,000 $ 1,000 $ --
Full Service Straight-Line
Rent........................ $325,000 $104,000 $39,000 $128,000 $116,000 $1,043,000
Full Service Straight-Line
Rent per sq. ft............. $ 36.11 $ 20.80 $ 19.50 $ 25.60 $ 23.20 $ 24.83
% Full Service Straight-Line
Rent........................ 18.52% 5.93% 2.22% 7.29% 6.61% 59.43%
Asking full service market
rent per sq. ft............. $ 26.50
No. of tenant leases
expiring.................... 1 1 1 1 1 1
</TABLE>
The following table sets forth lease expirations for 99 Canal Center.
<TABLE>
<CAPTION>
2006
7/97- AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
------- ------ ------- -------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square Feet expiring............ 5,000 2,000 5,000 27,000 62,000 22,000 14,000
Straight-Line Rent.............. $46,000 $9,000 $76,000 $556,000 $1,477,000 $542,000 $299,000
Straight-Line Rent per sq.
ft............................. $ 9.20 $ 4.50 $ 15.20 $ 20.59 $ 23.82 $ 24.64 $ 21.36
Recoveries...................... $ 2,000 $ -- $ 6,000 $ 13,000 $ 80,000 $ 18,000 $ 11,000
Full Service Straight-Line
Rent........................... $48,000 $9,000 $82,000 $569,000 $1,557,000 $560,000 $310,000
Full Service Straight-Line Rent
per sq. ft..................... $ 9.60 $ 4.50 $ 16.40 $ 21.07 $ 25.11 $ 25.45 $ 22.14
% Full Service Straight-Line
Rent........................... 1.53% 0.29% 2.62% 18.15% 49.67% 17.86% 9.89%
Asking full service market rent
per sq. ft..................... $ 26.50
No. of tenant leases expiring... 3 1 2 2 5 2 3
</TABLE>
The following table sets forth lease expirations for TransPotomac Plaza 5.
<TABLE>
<CAPTION>
2006
7/97- AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring............ 15,000 18,000 2,000 2,000 15,000 27,000 10,000
Straight-Line Rent.............. $303,000 $337,000 $43,000 $32,000 $275,000 $531,000 $263,000
Straight-Line Rent per sq.
ft............................. $ 20.20 $ 18.72 $ 21.50 $ 16.00 $ 18.33 $ 19.67 $ 26.30
Recoveries...................... $ 2,000 $ 1,000 -- -- -- $ 3,000 $ --
Full Service Straight-Line
Rent........................... $305,000 $338,000 $43,000 $32,000 $275,000 $534,000 $263,000
Full Service Straight-Line Rent
per sq. ft..................... $ 20.33 $ 18.78 $ 21.50 $ 16.00 $ 18.33 $ 19.78 $ 26.30
% Full Service Straight-Line
Rent........................... 17.04% 18.88% 2.40% 1.79% 15.36% 29.83% 14.69%
Asking full service market rent
per sq. ft..................... $ 23.00
No. of tenant leases expiring... 3 3 1 1 1 2 1
</TABLE>
76
<PAGE> 81
DEARBORN LAND
Description
Under the terms of the Stock Purchase Agreement and the Loan Purchase
Agreement, Cornerstone would acquire a rectangular-shaped parcel containing
66,768 square feet or 1.533 acres, situated at the northwest corner of State and
Adams Streets in Chicago. The Dearborn Land is well located within the Chicago
CBD, and has physical attributes, zoning classification and accessibility
conducive to office or commercial development.
There are no building improvements on the Dearborn Land. The Dearborn Land
was formerly improved with a department store that was razed. The subterranean
levels are still in place, but would be demolished at the time of any new
construction.
The Stock Purchase Agreement and the Loan Purchase Agreement allow DIHC to
sell the Dearborn Land prior to the closing of the Property Acquisition. In the
event such a sale occurs, the total consideration payable to DIHC in the
Property Acquisition will be reduced by $10,000,000 by adjusting the principal
amount of the promissory notes to be issued by Cornerstone.
77
<PAGE> 82
DESCRIPTION OF CURRENT PROPERTIES AND MARKET DATA
ONE NORWEST CENTER
Description
Completed in 1983, One Norwest Center is a 50-story granite and glass
office tower containing approximately 1,188,000 square feet of net rentable area
and a 12-level, 1,004-vehicle parking facility. One Norwest Center is located in
downtown Denver -- the major business, financial, government and cultural center
for the Rocky Mountain region. In downtown Denver, the compact central core area
of offices, financial institutions, retail stores, and hotels is bordered by
adjacent districts of public buildings. One Norwest Center is located at 17th
Street and Lincoln Street on the east boundary of the financial district.
Historically, this financial district has been a major hub for many financial
institutions in the Rocky Mountain region.
One Norwest Center is owned by 1700 Lincoln Limited, in which the Company
owns a 90% partnership interest through its wholly owned subsidiary,
ARICO-Denver, Inc., and a 10% partnership interest through its wholly owned
subsidiary, 1700 Lincoln Inc. The Property is managed by Hines.
Market Information
The Company believes economic fundamentals in the Denver market are
positive. Key factors supporting a positive view of the Denver market include:
(1) an expanding local economy, (2) improving office occupancy rates in downtown
Denver when certain extraordinary effects are excluded, and (3) the lack of new
construction of office space.
The Denver area has had a recent positive history of office employment
growth led by a mix of technological, communications and financial service
firms, as well as businesses engaged in tourism and miscellaneous business
services. Torto Wheaton Research reports that office employment in the Denver
area grew at an average annual rate of 3.9% for the ten-year period ended June
30, 1996, which compares positively to the office employment growth of 2.5% in
the 54 MSAs covered by their research. Over the 12 months ended June 30, 1996,
office employment in the Denver area grew 6.2% as compared to an average
employment growth rate of 3.5% in the same 54 MSAs.
As of December 31, 1996, the Denver MSA contained a total inventory of 64.6
million square feet of office space, of which 64.2% had been built since 1980,
with most building occurring in the early 1980s. This increased inventory was
largely due to increased interest in oil and gas exploration in the Rocky
Mountain Region. The downtown submarket, where One Norwest Center is located,
contains approximately 22.6 million square feet of this inventory. As of
December 31, 1996, the overall downtown occupancy rate was 86.4%. The downtown
submarket includes 11.0 million square feet of Class A office space, with an
occupancy rate of 89.4% as of December 31, 1996.
Set forth below is certain statistical information regarding the downtown
Denver submarket.
<TABLE>
<CAPTION>
NET
ABSORPTION COMPLETIONS PERIOD END ONE NORWEST
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- --------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996.................................. 439,000 0 86.4% 99%
December 31, 1995.................................. (362,000) 0 84.5 98
December 31, 1994.................................. 563,000 0 86.2 96
December 31, 1993.................................. 470,000 0 83.4 96
December 31, 1992.................................. 344,000 0 81.2 95
</TABLE>
- ---------------
Source: Torto Wheaton Research
The downtown Denver submarket occupancy rate improved from 81.2% in 1992 to
86.2% in 1994 reflecting strong space absorption in the submarket. The occupancy
rate fell to 84.5% in 1995, due primarily to the actions of the Federal Deposit
Insurance Corporation and the Resolution Trust Corporation, which closed offices
in Denver and returned substantial space to the office leasing market. As of
June 30, 1997, the market had fully absorbed this additional space, and the
occupancy rate increased to 86.4%.
78
<PAGE> 83
Principal Tenants
The following table lists the principal tenants of One Norwest Center as of
June 30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT OF
TENANT ACTIVITY SQUARE FEET TOTAL(1)
- ----------------------------------------------------- ------------------ ----------- ----------
<S> <C> <C> <C>
Norwest Bank Denver N.A.............................. Banking 566,000 47.6%
Newmont Gold Company................................. Mining 117,000 9.8
Teletech, Inc........................................ Telecommunications 72,000 6.1
----------- -----
Total...................................... 755,000 63.6%
========= =======
</TABLE>
- ---------------
(1) Based on a total of 1,188,000 rentable square feet as of June 30, 1997.
Lease Expirations
The following table sets forth lease expirations for One Norwest Center.
<TABLE>
<CAPTION>
7/97- 2006
12/97 1998 1999 2000 2001 2002 2003 2004 2005 AND BEYOND
-------- -------- ---------- ---------- -------- ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring........ 38,000 42,000 99,000 125,000 55,000 81,000 146,000 118,000 461,000
Straight-Line
Rent(1)......... $329,000 $295,000 $ 883,000 $ 991,000 $592,000 $ 742,000 $2,115,000 $1,338,000 $ 7,225,000
Straight-Line
Rent per sq.
ft.(1).......... $ 8.66 $ 7.02 $ 8.92 $ 7.93 $ 10.76 $ 9.16 $ 14.49 $ 11.34 $ 15.67
Recoveries....... $214,000 $246,000 $ 590,000 $ 740,000 $330,000 $ 482,000 $ 890,000 $ 707,000 $ 2,834,000
Full Service
Straight-Line
Rent(1)......... $543,000 $541,000 $1,473,000 $1,731,000 $922,000 $1,224,000 $3,005,000 $2,045,000 $10,059,000
Full Service
Straight-Line
Rent per sq.
ft.(1).......... $ 14.29 $ 12.88 $ 14.88 $ 13.85 $ 16.76 $ 15.11 $ 20.58 $ 17.33 $ 21.82
% Full Service
Straight-Line
Rent(1)......... 2.52% 2.51% 6.84% 8.04% 4.28% 5.68% 13.95% 9.49% 46.69%
Asking market
rent per sq.
ft.(2).......... $ 18.00
No. of tenant
leases
expiring........ 4 8 8 6 5 7 1 2 3
</TABLE>
- ---------------
(1) Newmont Gold Company's lease expiration is included in 2004 since it has
exercised its renewal option to extend its lease from January 1, 1999
through January 1, 2004. The rate on the lease will be determined based on
market conditions for similar space in the Denver market. The expiring rates
shown are based on the rates which Newmont is currently paying on its lease.
(2) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.
79
<PAGE> 84
NORWEST CENTER
Description
Norwest Center is a 55-story, granite and glass office tower containing
approximately 1,118,000 square feet of net rentable area and a 340-vehicle
underground parking facility. Norwest Center is located at the center of
downtown Minneapolis, at the intersection of Seventh Street South and Marquette
Avenue. The main business entrance to the building is on Seventh Street South,
opposite the IDS Center, a prominent landmark in the Twin Cities. Pedestrian
access is also available from Sixth Street South and Marquette Avenue; a grand
ceremonial entrance to the building on Sixth Street South incorporates a rotunda
and retail banking function.
Norwest Center is owned by NWC Limited Partnership ("NWC"), a partnership
in which the Company owns a 50% general partnership interest. Sixth & Marquette
Limited Partnership ("S&M") owns a 50% partnership interest in NWC. The general
partner of S&M is also a Minnesota limited partnership in which Gerald D. Hines,
individually, and entities affiliated with Gerald D. Hines are directly or
indirectly the sole general partners. The Company has the right, at its sole
discretion, to become the managing general partner of NWC. Norwest Center is
managed by Hines. Hines currently owns 349,650 shares of the Company's Common
Stock.
Market Information
The Company believes the economic fundamentals of the Minneapolis CBD
Class-A office market are strong. Unlike many American cities, the Minneapolis
CBD has been growing in importance as the commercial center of its metropolitan
area. Since 1980, the Minneapolis CBD office market has more than doubled in
size while experiencing strong net absorption of space. At the same time, the
Minneapolis-St. Paul metropolitan area has witnessed strong economic growth over
the past several years. Low unemployment rates and a highly educated workforce
earning a per capita income which is 13% above the national level are additional
indicators of growth potential.
The economic base of the Minneapolis-St. Paul area is well diversified. The
metropolitan economy includes a broad foundation of income-producing trades
including agribusiness, computer/high technology systems, machinery
manufacturing, graphic art, government, medical, and educational institutions.
This diversification has helped prevent any major out-migrations during the past
and has led to general stability and low unemployment rates. Office employment
has been strong during the last ten years, in part because of the area's
reputation as a desirable place for corporate relocations. As of September 1996,
a total of 32 Fortune 500 companies were headquartered in the Minneapolis-St.
Paul area.
As of December 31, 1996 the Minneapolis MSA contained a total inventory of
50.8 million square feet of office space, of which 56.9% had been built since
1980. The Minneapolis CBD, where Norwest Center is located, contained
approximately 20.6 million square feet of this inventory. As of December 31,
1996, the overall Minneapolis CBD occupancy rate was 93.3%. The Minneapolis CBD
submarket included 12.9 million square feet of Class A office space, with an
occupancy rate of 96.2% as of December 31, 1996.
Set forth below is certain statistical information regarding the
Minneapolis CBD submarket.
<TABLE>
<CAPTION>
NET PERIOD
ABSORPTION COMPLETIONS END ONE NORWEST
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- --------------------------------------------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1996.................................. 370,000 0 93.3% 100%
December 31, 1995.................................. (69,000) 0 91.5 100
December 31, 1994.................................. 1,147,000 0 91.8 100
December 31, 1993.................................. 804,000 0 86.1 100
December 31, 1992.................................. 401,000 1,893,000 82.1 100
</TABLE>
- ---------------
Source: Torto Wheaton Research
80
<PAGE> 85
The above table reflects strong space absorption in the Minneapolis CBD,
which, when combined with the absence of new construction, has resulted in a
steady reduction in vacancies from 1992 through 1994. The market has effectively
absorbed the excess supply which came on the market in the late 1980s and early
1990s. In 1996, continued demand from tenants again resulted in positive
absorption and a marginal increase in the occupancy rate.
Principal Tenants
The following table lists the principal tenants of Norwest Center as of
June 30, 1997.
<TABLE>
<CAPTION>
PRINCIPAL TOTAL
BUSINESS RENTABLE PERCENT
TENANT ACTIVITY SQUARE FEET OF TOTAL(1)
- ------------------------------------------------------------ ---------- ----------- -----------
<S> <C> <C> <C>
Norwest Corporation......................................... Banking 451,000 40.3%
Faegre & Benson............................................. Legal 196,000 17.5
KPMG Peat Marwick........................................... Accounting 75,000 6.7
----------- -----
Total............................................. 722,000 64.5%
========= ========
</TABLE>
- ---------------
(1) Based on a total of 1,118,000 rentable square feet as of June 30, 1997.
Lease Expirations
The following table sets forth lease expirations for Norwest Center.
<TABLE>
<CAPTION>
2006
7/97- AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring.... 14,000 73,000 61,000 105,000 2,000 49,000 177,000 97,000 539,000
Straight-Line
Rent........ $207,000 $ 621,000 $1,055,000 $1,646,000 $ 34,000 $ 370,000 $2,634,000 $1,628,000 $13,807,000
Straight-Line
Rent per sq.
ft.......... $ 14.79 $ 8.51 $ 17.30 $ 15.68 $ 17.00 $ 7.55 $ 14.88 $ 16.78 $ 25.62
Recoveries... $211,000 $1,075,000 $ 947,000 $1,613,000 $ 32,000 $ 737,000 $2,747,000 $1,501,000 $ 8,450,000
Full Service
Straight-Line
Rent........ $418,000 $1,696,000 $2,002,000 $3,259,000 $ 66,000 $1,107,000 $5,381,000 $3,129,000 $22,257,000
Full Service
Straight-Line
Rent per sq.
ft.......... $ 29.86 $ 23.23 $ 32.82 $ 31.04 $ 33.00 $ 22.59 $ 30.40 $ 32.26 $ 41.29
% Full
Service
Straight-
Line Rent... 1.06% 4.31% 5.09% 8.29% 0.17% 2.82% 13.69% 7.96% 56.61%
Asking market
rent per sq.
ft.(1)...... $ 32.70
No. of tenant
leases
expiring.... 5 15 5 3 1 2 1 2 2
</TABLE>
- ---------------
(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.
The Partnership
Under the partnership agreement governing NWC, the managing general partner
has the right to manage and operate NWC's business. Until certain cash flow
levels have been achieved for two consecutive years (the "NWC Preference
Period"), S&M and the Company each hold a 50% interest in NWC. After the NWC
Preference Period ends, the Company will be entitled to hold a 60% interest
(subject to increases in the Company's interest that may result from early
termination of the NWC Preference Period), and S&M a 40% interest. The Company
does not expect the NWC Preference Period to end in the foreseeable future.
During the NWC Preference Period, the Company is entitled to receive a
cumulative preference return equal to 7.0% of its capital base, which is $92.3
million. Cash distributions of $11.46 million during 1996 were split $8.96
million to the Company (78.2%) and $2.5 million to S&M (21.8%). Currently, there
is no accrued deficiency in the Company's preference return outstanding on
Norwest Center.
81
<PAGE> 86
Subject to the preferential distributions to the Company described above,
all of NWC's operating revenues remaining after making payments required for the
operations of NWC and Norwest Center and the payment of debt service will be
distributed 50% to the Company and 50% to S&M during the NWC Preference Period.
WASHINGTON MUTUAL TOWER
Description
Washington Mutual Tower is a 55-story, granite and glass office tower
containing approximately 1,155,000 square feet of net rentable area (including
the Galland and Seneca Buildings described below). Washington Mutual Tower is
located in the heart of the downtown Seattle CBD, at 1201 Third Avenue, with
unobstructed views of Puget Sound. The project site (the "Project Site") is
comprised of Washington Mutual Tower and Block 6 ("Block 6"), which consists of
a six-level underground parking facility for 810 cars; an adjacent historic
brick building (the Brooklyn Building); three levels of restaurants, shops and
service businesses; and, to protect sight lines from Washington Mutual Tower,
two masonry office buildings located across the street -- the Galland and Seneca
Buildings -- master leased by Third and University Limited Partnership ("Third
Partnership") through 2005 from Samis Land Company. Wright Runstad & Company has
a subordinated equity interest in Washington Mutual Tower and manages the
Property for Third Partnership.
As of June 30, 1996, the Seattle MSA contained a total inventory of 51.3
million square feet of office space, of which 64.8% had been placed in service
since 1980. The Seattle CBD, where Washington Mutual Tower is located, contains
approximately 15.9 million square feet of this inventory. As of June 30, 1997,
the overall occupancy rate in the Seattle CBD was 93.3%. The Seattle CBD
submarket includes 13.1 million square feet of Class A office space, with an
occupancy rate of 94.7%.
The Project Site is owned by Third Partnership. The Company owns, through a
wholly owned subsidiary, a 50% general partnership interest in Third
Partnership. Third Partnership is the successor in interest as lessee under a
13-year lease, expiring in 2005, of the Galland and Seneca Buildings. The
Company holds the right, at its sole discretion, to elect to become the managing
general partner of Third Partnership. 1212 Second Avenue Limited Partnership
("1212 Partnership") was originally the only general partner and is now the
managing general partner with the obligation to manage and operate Third
Partnership's business.
Market Information
The Company believes economic fundamentals in the Seattle market are
strong. Key factors supporting a positive view of the Seattle market are: (1)
growth in office employment at an average annual rate of 4.4% over the ten years
ended June 30, 1996 as compared to an average of 2.0% in the 54 MSAs reported on
by Torto Wheaton Research and at the rate of 4.9% in the twelve months ended
June 30, 1996 as compared to an average of 3.5% in the 54 MSAs; (2) a
diversified job base, which has reduced the economy's dependence on the Boeing
Company as an employer over the last fifteen years; and (3) a Class A occupancy
rate of 94.7% in the Seattle CBD as of June 30, 1996 with no new construction in
the near term forecast.
The economy in the Seattle and surrounding Puget Sound area is fairly well
diversified. The largest employment sector is the services sector, accounting
for approximately 27% of the total non-agricultural employment in the region.
The next largest employment sector is wholesale and retail trade at
approximately 25% of total 1995 non-agricultural employment. Forest products,
pulp, paper, aircraft, ships, and seafood products are recognized as the
traditional components of the region's economic base. Several services, such as
transportation, engineering and finance, are also exported and thus considered
base industries. An increasing share of software and durable goods is also
exported, making these industries significant contributors to the economic base.
The area has consistently experienced relatively low unemployment in recent
years, with rates below the national average, but did experience slight
decreases in employment due to layoffs at Boeing during the early 1990s.
82
<PAGE> 87
Set forth below is certain statistical information regarding the Seattle
CBD submarket.
<TABLE>
<CAPTION>
NET WASHINGTON
ABSORPTION COMPLETIONS PERIOD END MUTUAL TOWER
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- -------------------------------------------------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
December 31, 1996................................. 226,000 22,000 93.3% 97%
December 31, 1995................................. 681,000 0 92.6 97
December 31, 1994................................. 528,000 0 88.2 97
December 31, 1993................................. 144,000 0 84.9 96
December 31, 1992................................. 258,000 0 84.0 94
</TABLE>
- ---------------
Source: Torto Wheaton Research
The above table reflects strong space absorption in the Seattle CBD, which,
when combined with the absence of new construction, has resulted in a steady
reduction in vacancy in 1994 and 1995. The market has effectively absorbed the
excess supply which came on the market in the late 1980s and early 1990s.
Principal Tenants
The following table lists the principal tenants of Washington Mutual Tower
and Block 6 as of June 30, 1997.
<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL --------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ----------------------------------------------------------------- --------- ------- ----------
<S> <C> <C> <C>
Perkins Coie..................................................... Legal 212,000 18.4%
Washington Mutual................................................ Banking 175,000 15.2
Karr Tuttle Campbell............................................. Legal 51,000 4.4
------- -----
Total.................................................. 438,000 38.0%
======= =======
</TABLE>
- ---------------
(1) Based on a total of 1,155,000 rentable square feet as of June 30, 1997.
Lease Expirations
The following table sets forth lease expirations for Washington Mutual
Tower.
<TABLE>
<CAPTION>
7/97- 2006 AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring..... 51,000 195,000 193,000 37,000 47,000 88,000 102,000 270,000 13,000 138,000
Straight-Line
Rent......... $904,000 $4,166,000 $3,648,000 $ 589,000 $ 995,000 $1,845,000 $1,903,000 $6,482,000 $242,000 $2,653,000
Straight-Line
Rent per sq.
ft........... $ 17.73 $ 21.36 $ 18.90 $ 15.92 $ 21.17 $ 20.97 $ 18.66 $ 24.01 $ 18.62 $ 19.22
Recoveries.... $ 21,000 $ 356,000 $ 175,000 $ 27,000 $ 35,000 $ 59,000 $ 100,000 $ 481,000 $ 5,000 $ 272,000
Full Service
Straight-Line
Rent......... $925,000 $4,522,000 $3,823,000 $ 616,000 $1,030,000 $1,904,000 $2,003,000 $6,963,000 $247,000 $2,925,000
Full Service
Straight-Line
Rent per sq.
ft........... $ 18.14 $ 23.19 $ 19.81 $ 16.65 $ 21.91 $ 21.64 $ 19.64 $ 25.79 $ 19.00 $ 21.20
% Full Service
Straight-Line
Rent......... 3.71% 18.12% 15.32% 2.47% 4.13% 7.63% 8.03% 27.90% 0.99% 11.72%
Asking market
rent per sq.
ft.(1)....... $ 27.00
No. of tenant
leases
expiring..... 32 29 28 12 9 6 4 4 1 1
</TABLE>
- ---------------
(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.
83
<PAGE> 88
The Partnership
Under the partnership agreement governing Third Partnership, until certain
cash flow levels have been achieved for two consecutive years, the Company is
entitled to receive an annual preference return (the "Washington Preference
Return") equal to 8% of its capital base, which was $100 million as of June 30,
1997. As of June 30, 1997, the Company is due a cumulative preference deficit,
including accrued interest, of approximately $7.8 million which will be reduced
as cash flow becomes available. On a priority basis to the Washington Preference
Return described above, the Company also receives a 9.53% return on an
additional equity investment of $47 million made in September 1995. The Company
is entitled to receive this 9.53% return through September 30, 2003, at which
time the rate of return will be adjusted based on conditions in the interest
rate markets. Revenues remaining after making such payments will be distributed
50% to the Company and 50% to 1212 Partnership. Cash flow of $12.4 million was
distributed to the Company during 1996. The Company's partner, 1212 Partnership,
does not currently share in the cash flow from Washington Mutual Tower.
125 SUMMER STREET
Description
Completed in 1989, 125 Summer Street is a 22-story, granite and glass
office tower containing approximately 464,000 square feet of net rentable area
and a 292-vehicle underground parking facility. 125 Summer Street is located on
the edge of the financial district in the downtown submarket of Boston, one
block from Boston's busiest train station (South Station).
The Company acquired the fee interest in 125 Summer Street through its
wholly owned subsidiary, CStone-Boston Inc., on November 1, 1995. The Property
is managed by Hines pursuant to a management contract which is, after December
1998, cancellable with 30 days' notice.
Market Information
The Company believes the economic fundamentals of the Boston area are
strong for the reasons set forth above under "-- 500 Boylston Street."
As of December 31, 1996, the Boston MSA contained a total inventory of
104.0 million square feet of office space, of which 51.6% had been built since
1980. The downtown submarket, where 125 Summer Street is located, contains
approximately 48.2 million square feet of this inventory. As of December 31,
1996, the overall downtown occupancy rate was 93.6%. The downtown submarket
includes 31.1 million square feet of Class A office space, with an occupancy
rate of 96.1% as of December 31, 1996.
Set forth below is certain statistical information regarding the downtown
Boston submarket.
<TABLE>
<CAPTION>
PERIOD END
NET 125 SUMMER
ABSORPTION COMPLETIONS PERIOD END STREET
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- ------------------------------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996................................ 1,294,000 0 93.6% 100%
December 31, 1995................................ 1,394,000 0 90.8 94
December 31, 1994................................ 1,646,000 0 88.0 --
December 31, 1993................................ 1,158,000 700,000 86.1 --
December 31, 1992................................ 1,028,000 0 85.4 --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The Boston market continues to show strong and steady absorption in the
downtown market with a shortage of large blocks of contiguous space downtown.
84
<PAGE> 89
Principal Tenants
The following table lists the principal tenants of 125 Summer Street as of
June 30, 1997.
<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL --------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- -------------------------------------------------------------- ----------- ------- ----------
<S> <C> <C> <C>
Deloitte & Touche............................................. Accounting 121,000 26.1%
BTM Capital Corporation....................................... Finance 94,000 20.3
Burns & Levinson.............................................. Legal 85,000 18.3
------- -----
Total............................................... 300,000 64.7%
======= ========
</TABLE>
- ---------------
(1) Based on a total of 464,000 rentable square feet as of June 30, 1997.
Lease Expirations
The following table sets forth lease expirations for 125 Summer Street.
<TABLE>
<CAPTION>
7/97- 2006
12/97 1998 1999 2000 2001 2002 2003 2004 2005 AND BEYOND
-------- -------- ---------- ---------- -------- ---------- -------- --- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring(1).... 20,000 12,000 134,000 120,000 9,000 97,000 16,000 10,000
Straight-Line Rent......... $462,000 $288,000 $5,038,000 $4,038,000 $139,000 $2,651,000 $318,000 $275,000
Straight-Line Rent per sq.
ft........................ $ 23.10 $ 24.00 $ 37.60 $ 33.65 $ 15.44 $ 27.33 $ 19.88 $ 27.50
Recoveries................. $ 72,000 $ 58,000 $ 701,000 $ 523,000 $131,000 $ 171,000 $154,000 $ 19,000
Full Service St-Line
Rent...................... $534,000 $346,000 $5,739,000 $4,561,000 $270,000 $2,822,000 $472,000 $294,000
Full Service St-Line Rent
per sq. ft................ $ 26.70 $ 28.83 $ 42.83 $ 38.01 $ 30.00 $ 29.09 $ 29.50 $ 29.40
% Full Service
Straight-Line Rent........ 3.55% 2.30% 38.16% 30.33% 1.80% 18.77% 3.14% 1.96%
Asking market rent per sq.
ft.(2).................... $ 36.60
No. of tenant leases
expiring.................. 5 6 3 8 2 2 2 1
</TABLE>
- ---------------
(1) BTM Capital Corporation is required to expand into 21,308 square feet of
space to be delivered to the tenant no later than August 1, 1997 at a gross
rate of $26.00 per square foot.
(2) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.
NEW YORK CITY PROPERTIES
Description
Tower 56. Completed in 1983, Tower 56 is a 33-story, steel and granite
office tower containing approximately 162,000 square feet of net rentable area.
Tower 56 is located in the midtown east district of Manhattan, the largest
commercial real estate market in the world and a major business, financial,
government and cultural center. Tower 56 is located on the south side of 56th
Street between Park and Lexington Avenues.
The Company acquired the fee interest in Tower 56 through its wholly owned
subsidiary, CStone-New York, Inc., on April 24, 1996. The Property is managed by
HRO International Ltd. ("HRO").
527 Madison Avenue. Completed in 1986, 527 Madison Avenue is a 26-story,
precast concrete, granite and reflective glass office tower containing
approximately 216,000 square feet of net rentable area. 527 Madison Avenue is
located in the midtown east district of Manhattan, the largest commercial real
estate market and a major business, financial, government and cultural center of
the world. 527 Madison Avenue is located on the southeast corner of 54th Street
and Madison Avenue.
The Company acquired the fee interest in 527 Madison Avenue through its
wholly owned subsidiary, CStone-527 Madison, Inc., on February 14, 1997. The
Property is managed by HRO pursuant to a management contract which is
cancellable with 30 days notice.
85
<PAGE> 90
Market Information
The Company believes the economic fundamentals of the New York City area
are positive. Key factors supporting a positive view of the New York City market
include: (1) a highly educated workforce with a mean per capita income which is
34.3% higher than the national average; (2) a lack of well-located building
sites and the high cost of building new office towers which are major barriers
to entry; and (3) the continued trend in the market to redevelop obsolete office
space for alternative uses.
Midtown market leasing has been driven by numerous small to mid-sized
office tenants in the legal, communications, entertainment and financial
advisory sectors. These firms have provided sufficient growth to partially
offset net losses from corporate restructuring and financial services
consolidation. However, due to a significant number of large tenants signing
long-term leases over the past few years, smaller transactions are expected to
continue to dominate leasing activity until 1998 and 1999, when tenants who
signed 10-year leases in new buildings built in the late 1980s return to the
market.
As of December 31, 1996, the New York MSA contained a total inventory of
311.5 million square feet of office space, of which only 17.5% had been built
since 1980. The midtown submarket, where Tower 56 and 527 Madison Avenue are
located, contains approximately 218.5 million square feet of this inventory. As
of December 31, 1996, the overall midtown occupancy rate was 91.6%. The midtown
submarket includes 128.0 million square feet of Class A office space with an
occupancy rate of 92.4%.
Set forth below is certain statistical information regarding the midtown
submarket.
<TABLE>
<CAPTION>
PERIOD END
NET PERIOD PERIOD END 527 MADISON
ABSORPTION COMPLETIONS END TOWER 56 AVENUE
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY OCCUPANCY
- ---------------------------------------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1996....................... 7,190,000 0 91.6% 97% 96%
December 31, 1995....................... 2,555,000 0 88.3 91 --
December 31, 1994....................... (34,800) 0 87.1 -- --
December 31, 1993....................... 4,019,000 324,000 87.4 -- --
December 31, 1992....................... 2,228,000 1,877,000 85.6 -- --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The above table reflects strong absorption in the submarket for four of the
last five years, with a steady reduction in vacancies over the last two years.
The Park/Lexington section of the submarket, where Tower 56 is located, has
extremely low vacancy at 4.8% and the highest Class A asking rents in New York
City with rents which are 65% higher than the average, according to Torto
Wheaton Research. The Fifth/Madison section of the submarket, where 527 Madison
Avenue is located, has a 9.5% vacancy rate.
Principal Tenants
Tower 56. The following table lists the principal tenants of Tower 56 as
of June 30, 1997.
<TABLE>
<CAPTION>
RENTABLE SQUARE
FEET
-------------------
PRINCIPAL BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ----------------------------------------------------- -------------------- ------ ----------
<S> <C> <C> <C>
ICC Associates, L.P.................................. Cable Communications 8,000 4.9%
United Bank of Kuwait................................ Banking 6,000 3.7
------ ---
14,000 8.6%
====== ========
</TABLE>
- ---------------
(1) Based on a total of 162,000 rentable square feet as of June 30, 1997.
86
<PAGE> 91
527 Madison Avenue. The following table lists the principal tenants of 527
Madison Avenue as of June 30, 1997.
<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL --------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ---------------------------------------------------------------- ---------- ------- ----------
<S> <C> <C> <C>
The Sumitomo Trust & Banking Co., Ltd........................... Banking 78,000 36.1%
W.P. Stewart Co., Inc........................................... Brokerage 26,000 12.0
Hill Samuel New York, Inc....................................... Finance 18,000 8.3
Saudi Petroleum International................................... Energy 12,000 5.6
------- ----------
Total................................................. 134,000 62.0%
======= =======
</TABLE>
- ---------------
(1) Based on a total of 216,000 rentable square feet as of June 30, 1997.
Lease Expirations
The following table sets forth lease expirations for Tower 56 and 527
Madison Avenue.
<TABLE>
<CAPTION>
2006
7/97- AND
TOWER 56 12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
- ---------------------------- -------- -------- ---------- -------- ---------- ---------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring........ 16,000 18,000 30,000 14,000 37,000 25,000 5,000 10,000
Straight-Line Rent.......... $690,000 $729,000 $1,228,000 $581,000 $1,561,000 $1,206,000 $194,000 $424,000
Straight-Line Rent per sq.
ft......................... $ 43.13 $ 40.50 $ 40.93 $ 41.50 $ 42.19 $ 48.24 $ 38.80 $ 42.40
Recoveries.................. $ 4,000 $ 11,000 $ 18,000 $ 3,000 $ 6,000 $ 12,000 $ 6,000 $ 4,000
Full Service St.-Line
Rent....................... $694,000 $740,000 $1,246,000 $584,000 $1,567,000 $1,218,000 $200,000 $428,000
Full Service St.-Line Rent
per sq. ft................. $ 43.38 $ 41.11 $ 41.53 $ 41.71 $ 42.35 $ 48.72 $ 40.00 $ 42.80
% Full Service Straight-Line
Rent....................... 10.39% 11.08% 18.66% 8.75% 23.47% 18.24% 3.00% 6.41%
Asking market rent per sq.
ft.(1)..................... $ 49.70
No. of tenant leases
expiring................... 6 5 7 6 10 7 2 2
</TABLE>
- ---------------
(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.
<TABLE>
<CAPTION>
7/97- 2006 AND
527 MADISON AVENUE 12/97 1998 1999 2000 2001 2002 2003 2004(2) 2005 BEYOND
- ---------------------- -------- ---------- ---------- -------- ---------- ------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring............. 15,000 21,000 9,000 78,000 22,000 8,000 6,000 49,000
Straight-Line Rent.... $764,000 $1,111,000 $392,000 $4,334,000 $802,000 $1,128,000 $277,000 $2,217,000
Straight-Line Rent per
sq. ft............... $ 50.93 $ 52.90 $ 43.56 $ 55.56 $ 36.45 $ 141.00 $ 46.17 $ 45.24
Recoveries............ $109,000 $ 158,000 $ 11,000 $ 559,000 $ 14,000 $ 6,000 $ 3,000 $ 44,000
Full Service St.-Line
Rent................. $873,000 $1,269,000 $403,000 $4,893,000 $816,000 $1,134,000 $280,000 $2,261,000
Full Service St.-Line
Rent per sq. ft...... $ 58.20 $ 60.43 $ 44.78 $ 62.73 $ 37.09 $ 141.75 $ 46.67 $ 46.14
% Full Service
Straight-Line Rent... 7.32% 10.64% 3.38% 41.02% 6.84% 9.51% 2.35% 18.95%
Asking market rent per
sq. ft.(1)........... $ 47.70
No. of tenant leases
expiring............. 4 3 2 1 2 1 1 5
</TABLE>
- ---------------
(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.
(2) The expiring rent in 2004 is a retail lease.
Advisory Services Obligations -- Tower 56
Certain affiliates of HRO have agreed to provide additional advisory
services relating to the management and leasing of Tower 56, and for rendering
such services receive 33% of (i) annual net cash flow in excess of $2.97 million
which represents 9% of the Company's $32.99 million investment in Tower 56 and
(ii) the net proceeds of any sale of Tower 56 in excess of the Company's net
investment in Tower 56. For the period from
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<PAGE> 92
December 19, 1995 through June 30, 1997, the net cash flow of the Property was
$2.83 million giving rise to a $141,000 shortfall which must be recovered by the
Company before HRO can share in cash flow.
ONE LINCOLN CENTRE
Description
Completed in 1986, One Lincoln Centre is a 16-story office building
containing approximately 297,000 square feet of net rentable area and a 5-level,
1,056-vehicle parking facility. One Lincoln Centre is located in the
Oakbrook-Oakbrook Terrace submarket in the middle of the East-West Corridor
market, the first suburban office market in Chicago. The market has evolved
around the development of the Oakbrook Mall. One Lincoln Centre is located at
the intersection of 22nd Street and Butterfield Road, the major east-west
roadways that service the Oakbrook area.
The Company acquired a fee interest in One Lincoln Centre through its
wholly owned subsidiary, CStone-Oakbrook, Inc., on November 7, 1996. The
Property is managed by Hines pursuant to a management contract which is
cancellable with 30 days' notice.
Market Information
The Company believes the economic fundamentals of Oakbrook Terrace and the
Chicago market are strong. The Chicago area has a diversified economic base
which is supported by a number of prospering industries, including brokerage
firms, air travel, electronics, insurance, retail and printing/publishing. This
diversity has helped reduce vulnerability to economic swings, creating a stable
economy. Overall employment has grown at an annual rate of nearly 3% since 1995.
Continued strong employment growth in Oakbrook Terrace, where finance and
service jobs are projected to grow at twice the national average, generates
ongoing positive trends. The area has the fourth highest concentration of
corporate and regional headquarters in the nation. Shorter commute times, lower
occupancy costs, higher quality of life and easy access created strong
incentives for businesses to relocate to Oakbrook. Oakbrook Terrace is
surrounded by affluent communities and substantial commercial and retail
development.
As of December 31, 1996, the Chicago MSA contained 188.2 million square
feet of office space, of which 50.2% has been built since 1980. The Oakbrook
submarket, where One Lincoln Centre is located, contains approximately 26.0
million square feet of this space, and 10.2 million square feet of which is
Class A. The overall occupancy rate in Oakbrook is 90.6% and the Class A
occupancy rate in the Oakbrook submarket was 92.4% as of December 31, 1996.
Set forth below is certain information regarding the Oakbrook submarket.
<TABLE>
<CAPTION>
PERIOD END
NET ONE LINCOLN
ABSORPTION COMPLETIONS PERIOD END CENTRE
YEAR ENDED (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- --------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996.................................. 499,000 244,000 90.6% 91%
December 31, 1995.................................. 405,000 0 89.6 --
December 31, 1994.................................. 955,000 0 88.1 --
December 31, 1993.................................. 692,000 193,000 84.3 --
December 31, 1992.................................. 146,000 30,000 82.2 --
</TABLE>
- ---------------
Source: Torto Wheaton Research
The Oakbrook submarket has shown strong and steady absorption over the last
five years with the vacancy rate declining and rental rates rising even with the
additional inventory added in 1996.
88
<PAGE> 93
Principal Tenants
The following table lists the principal tenants of One Lincoln Centre as of
June 30, 1997.
<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL --------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ------------------------------------------------------------ -------------- ------- ----------
<S> <C> <C> <C>
Superior Bank............................................... Banking 57,000 19.2%
Microsoft Corporation....................................... Software 19,000 6.4
Arthur Andersen, L.L.P...................................... Accounting 19,000 6.4
Corporate Travel............................................ Travel Agency 16,000 5.4
------- -----
Total............................................. 111,000 37.4%
======= =======
</TABLE>
- ---------------
(1) Calculated based on a total of 297,000 rentable square feet as of June 30,
1997.
Lease Expirations
The following table sets forth lease expirations for One Lincoln Centre.
<TABLE>
<CAPTION>
7/97- 2006 AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
-------- ---------- ---------- ---------- -------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring............. 22,000 56,000 41,000 87,000 3,000 70,000
Straight-Line Rent.... $342,000 $1,089,000 $ 661,000 $1,815,000 $ 54,000 $1,567,000
Straight-Line Rent per
sq. ft............... $ 15.55 $ 19.45 $ 16.12 $ 20.86 $ 18.00 $ 22.39
Recoveries............ $188,000 $ 401,000 $ 375,000 $ 663,000 $ 25,000 $ 634,000
Full Service
Straight-Line Rent... $530,000 $1,490,000 $1,036,000 $2,478,000 $ 79,000 $2,201,000
Full Service
Straight-Line Rent
per sq. ft........... $ 24.09 $ 26.61 $ 25.27 $ 28.48 $ 26.33 $ 31.44
% Full Service
Straight-Line Rent... 6.78% 19.07% 13.26% 31.71% 1.01% 28.17%
Asking market rent per
sq. ft.(1)........... $ 28.40
No. of tenant leases
expiring............. 5 12 7 12 1 5
</TABLE>
- ---------------
(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.
THE FRICK BUILDING
Description
Completed in 1902 and renovated in 1988, the Frick Building is a 20-story
granite office building containing approximately 341,000 square feet of net
rentable area. The Frick Building is a prominent and historic office building
located in the heart of Pittsburgh's CBD. The Frick Building is located on Grant
Street between Forbes and Fifth Avenues, across from the Allegheny County Court
House and the City-County Building. The success of the building is due in large
part to its strategic location across Grant Street from these two important
government buildings, providing convenient access for its tenants, principally
small law firms, lawyers and judges.
The Company acquired a fee interest in the Frick Building through its
wholly owned subsidiary CStone-Pittsburgh Trust on November 7, 1996. The
Property is managed by The Galbreath Company pursuant to a management contract
which is cancellable with 30 days notice.
Market Information
Since the late 1970s, the Pittsburgh MSA has shifted its concentration from
a manufacturing economy to a more diversified economic base. In addition to its
strength in heavy industry, the city is now recognized as a major finance,
business, health care, research and educational center. As a result of
Pittsburgh's transition from a manufacturing-based economy to a diversified one,
its population steadily declined through the 1970s
89
<PAGE> 94
and 1980s. The population began to stabilize as of 1990, and the current
population is approximately 2.5 million.
Pittsburgh is the seventh largest corporate headquarters location in the
U.S. Nine Fortune 500 companies have their headquarters in Pittsburgh including
USX Corporation, Westinghouse Electric Corporation, PPG Industries and the H.J.
Heinz Company. The Pittsburgh area is known as one of the largest and most
productive centers of scientific and technological innovation in the nation.
As of December 31, 1996, the Pittsburgh MSA contained a total inventory of
37.0 million square feet of office space. The Pittsburgh CBD, where the Frick
Building is located, contains approximately 24.0 million square feet of this
inventory. As of December 31, 1996, the overall Pittsburgh CBD occupancy rate
was 82.7%. The Pittsburgh CBD submarket includes 14.6 million square feet of
Class A office space with an occupancy rate of 87.5%.
Set forth below is certain information regarding the Pittsburgh CBD
submarket.
<TABLE>
<CAPTION>
PERIOD END
NET FRICK
ABSORPTION COMPLETIONS PERIOD END BUILDING
AS OF (SQ. FT.) (SQ. FT.) OCCUPANCY OCCUPANCY
- --------------------------------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996.................................. 137,000 0 82.7% 85%
December 31, 1995.................................. 275,000 0 83.2 --
December 31, 1994.................................. 319,000 0 82.1 --
December 31, 1993.................................. (128,000) 0 84.4 --
December 31, 1992.................................. 250,000 0 82.2 --
</TABLE>
- ---------------
Source: The Galbreath Company
From 1992 to 1996, the Pittsburgh market has been stable with positive
absorption in four of the five years. Occupancy rates have increased at a slower
pace because of several significant building renovations which brought
additional space to the market.
Principal Tenants
The following table lists the principal tenants of the Frick Building as of
June 30, 1997.
<TABLE>
<CAPTION>
RENTABLE SQUARE
FEET
PRINCIPAL -------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ------------------------------------------------------------------ --------- ------ ----------
<S> <C> <C> <C>
Meyer, Darragh, Buckler, Bebenek & Eck............................ Law 39,000 11.4%
Sable, Makaroff & Gudsky.......................................... Law 17,000 5.0
------ -----
56,000 16.4%
====== ========
</TABLE>
- ---------------
(1) Based on a total of 341,000 rentable square feet as of June 30, 1997.
90
<PAGE> 95
Lease Expirations
The following table sets forth lease expirations for the Frick Building.
<TABLE>
<CAPTION>
7/97- 2006 AND
12/97 1998 1999 2000 2001 2002 2003 2004 2005 BEYOND
-------- -------- -------- ---------- -------- -------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring......... 39,000 27,000 34,000 74,000 9,000 31,000 53,000 11,000 18,000
Straight-Line Rent........... $773,000 $548,000 $711,000 $1,346,000 $237,000 $560,000 $1,022,000 $246,000 $510,000
Straight-Line Rent per sq.
ft.......................... $ 19.82 $ 20.30 $ 20.91 $ 18.19 $ 26.33 $ 18.06 $ 19.28 $ 22.36 $ 28.33
Recoveries................... $ 65,000 $ 26,000 $ 17,000 $ 23,000 $ 4,000 $ 1,000 $ 19,000 $ -- $ 50,000
Full Service Straight-Line
Rent........................ $838,000 $574,000 $728,000 $1,369,000 $241,000 $561,000 $1,041,000 $246,000 $560,000
Full Service Straight-Line
Rent per sq. ft............. $ 21.49 $ 21.26 $ 21.41 $ 18.50 $ 26.78 $ 18.10 $ 19.64 $ 22.36 $ 31.11
% Full Service Straight-Line
Rent........................ 13.61% 9.32% 11.82% 22.23% 3.91% 9.11% 16.90% 3.99% 9.09%
Asking market rent per sq.
ft.(1)...................... $ 21.70
No. of tenant leases
expiring.................... 15 8 11 19 5 7 2 1 2
</TABLE>
- ---------------
(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.
91
<PAGE> 96
DIRECTORS AND OFFICERS OF CORNERSTONE
FOLLOWING THE PROPERTY ACQUISITION
Directors
The Loan Purchase Agreement provides that, at the first meeting of the
Cornerstone Board occurring after the closing of the Property Acquisition, if
PGGM so requests the Cornerstone Board will be increased to a total of twelve
directors, consisting of (i) all ten of the persons who are currently Directors
of Cornerstone and (ii) two persons nominated by PGGM.
Executive Officers
Upon the closing of the Property Acquisition, Cornerstone's current
Management will remain unchanged.
Stock Ownership of Directors, Executive Officers and Five Percent Shareholders
For information concerning ownership of Cornerstone Common Stock by
Directors, Executive Officers and five percent stockholders of Cornerstone, see
the 1997 Notice of Annual Meeting and Proxy Statement of Cornerstone and the
Cornerstone Annual Report on Form 10-K for the year ended December 31, 1996.
EXPERTS
The consolidated financial statements and financial statement schedules of
Cornerstone Properties Inc. as of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996, and the combined statement of
revenues and certain operating expenses of the Property Acquisition for the year
ended December 31, 1996, incorporated by reference in this Proxy Statement have
been incorporated by reference herein in reliance upon the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
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<PAGE> 97
WHERE YOU CAN FIND MORE INFORMATION
Cornerstone is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, such material can be obtained from the Commission's web site at
http://www.sec.gov. The Common Stock is listed and traded on the NYSE under the
symbol "CPP", as well as on the Frankfurt and Dusseldorf Stock Exchanges. All
such reports, proxy statements and other information filed by Cornerstone with
the NYSE may be inspected at the NYSE's offices at 20 Broad Street, New York,
New York 10005.
THIS PROXY STATEMENT INCORPORATES CERTAIN CORNERSTONE DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE UPON ORAL OR WRITTEN REQUEST FROM CORNERSTONE PROPERTIES INC.,
TOWER 56, 126 EAST 56TH STREET, NEW YORK, NEW YORK 10022, ATTENTION: SECRETARY,
(TELEPHONE (212) 605-7100). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY OCTOBER 17, 1997.
The Commission allows us to incorporate by reference information into this
Proxy Statement, which means that we can disclose important information to you
by referring you to another document filed separately with the Commission. The
following documents, which have been filed with the Commission pursuant to the
Exchange Act, are hereby incorporated herein by reference (Commission File No.
0-10421):
1. Cornerstone's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended by the Company's Report on Form 10-K/A, dated
March 10, 1997, filed with the Commission pursuant to the Exchange Act.
2. Cornerstone's Notice of Annual Meeting and Proxy Statement, dated
May 1, 1997, filed with the Commission pursuant to the Exchange Act.
3. Cornerstone's Reports on Form 10-Q, dated May 12, 1997 and August
12, 1997 filed with the Commission pursuant to the Exchange Act.
4. Cornerstone's Current Reports on Form 8-K, dated January 29, 1997,
July 30, 1997 and August 21, 1997, filed with the Commission pursuant to
the Exchange Act.
5. Cornerstone's Current Reports on Form 8-K/A, dated January 22,
1997, February 24, 1997, February 24, 1997, March 10, 1997 and September
18, 1997, filed with the Commission pursuant to the Exchange Act.
All documents filed by Cornerstone pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the date of the
Special Meeting shall be deemed to be incorporated herein by reference and to be
a part hereof from the date of filing of such documents. All information
appearing in this Proxy Statement or in any document incorporated herein by
reference is not necessarily complete and is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in this
Proxy Statement or the documents incorporated by reference herein and should be
read together with such information and documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a
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<PAGE> 98
statement contained herein or in any other subsequently filed document that is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Proxy Statement, and if given or made, such information or representations
should not be relied upon as having been authorized. This Proxy Statement is
dated September 23, 1997. Cornerstone has tried to make this Proxy Statement as
accurate as possible, but cannot assure that this document remains accurate
after such date. You should not assume that the information contained in this
Proxy Statement is accurate as of any date other than such date, and the
delivery of this Proxy Statement shall not, under any circumstances, create any
implication that there has been no change in the information set forth or
incorporated herein by reference or in the affairs of Cornerstone since the date
of this Proxy Statement.
By Order of the Board of
Directors of Cornerstone
Properties Inc.
/s/ Thomas P. Loftus
THOMAS P. LOFTUS
Vice President and
Secretary
94
<PAGE> 99
GLOSSARY
"1212 Partnership" means 1212 Second Avenue Limited Partnership, the
managing general partner of Third Partnership.
"6% Limit" means, for the purpose of preserving the Company's REIT
qualification, the Articles of Incorporation provision that no holder is
permitted to own, either actually or constructively under the applicable
attribution rules of the Code, more than 6% of the value of the aggregate
outstanding shares of all classes of stock of the Company.
"Acquisition Amendment" means the amendment to the Cornerstone Articles
which includes new provisions that are designed to cause Cornerstone to become a
"domestically controlled REIT" under United States tax laws.
"Actual Rent" means the actual stated fixed rent received on a net or a
gross basis.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the possession
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Additional Properties" means the nine properties and one parcel of
undeveloped land to be acquired in the Property Acquisition.
"Authorized Share Amendment" means the amendment to the Cornerstone
Articles which increases the authorized number of shares of Common Stock under
the Cornerstone Articles from 100,000,000 to 250,000,000.
"Base Rent" means the monthly contractual base rent under the applicable
lease(s) (e.g., relating to a tenant, a Property or all of the Properties, as
applicable).
"CBD" means central business district.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock of Cornerstone, without par value.
"Cornerstone Articles" means the Restated Articles of Incorporation of
Cornerstone.
"Cornerstone Board" means the Board of Directors of Cornerstone.
"Company" means Cornerstone Properties Inc., a Nevada Corporation, and its
subsidiaries on a consolidated basis.
"DBRA" means Deutsche Bank Realty Advisors, Inc.
"Deutsche Bank" means Deutsche Bank AG.
"DIHC" means Dutch Institutional Holding Company, Inc.
"DIHC Subsidiaries" means certain subsidiaries of DIHC.
"FFO" means Funds from Operations.
"Five or Fewer Requirement" means the requirement under the Code and
Treasury Regulations that during the last half of each taxable year, not more
than 50% in value of a REIT's outstanding stock be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
specified entities).
"Full Service Straight-Line Rent" means Straight-Line Rent plus Recoveries.
"GAAP" means generally accepted accounting principles.
95
<PAGE> 100
"Hines" means Hines Interests Limited Partnership and its affiliates.
"HRO" means HRO International Ltd.
"LIBOR" means the London Interbank Offered Rate.
"Loan Purchase" means the sale of the Purchased Loans from PGGM to
Cornerstone.
"Loan Purchase Agreement" means the Loan Purchase Agreement, dated as of
August 18, 1997, between Cornerstone and PGGM.
"MSA's" means Metropolitan Statistical Areas.
"Net Effective Rent" means (i) Actual Rent determined for each year on a
straight-line basis through the term of the lease, less (ii) the amount of
operating expenses net of Recoveries and the amortization of deferred leasing
costs (tenant improvements, leasing commissions, takeover obligations and other
tenant inducements).
"NWC" means NWC Limited Partnership, the owner of Norwest Center.
"NYSE" means the New York Stock Exchange.
"NYSE Amendment" means the amendment to the Cornerstone Articles which
clarifies the mechanics of settling trades on the NYSE.
"NYSTRS" means the New York State Teachers' Retirement System.
"PGGM" means Stichting Pensioenfonds Voor de Gezondheid, Geestelijke en
Maatschappelijke Belangen.
"Phase I Assessments" mean Phase I Environmental Assessments conducted by
environmental consultants.
"Current Properties" means the Cornerstone's interests in eight Class A
office properties encompassing approximately five million rentable square feet.
"Property Acquisition" means the acquisition of a portfolio of nine
properties and one parcel of land by Cornerstone.
"Purchased Loans" means certain secured and unsecured mortgage loans
associated with the Additional Properties.
"Recoveries" means the actual recovery of operating expenses in net lease
buildings or the actual recovery of operating expense escalations in gross lease
buildings.
"Record Date" means September 22, 1997.
"Registration Rights and Voting Agreements" means the Registration Rights
and Voting Agreement to be entered into by Cornerstone, PGGM and DIHC.
"Regulation S" means Regulation S under the Securities Act.
"REIT" means a real estate investment trust, as defined by Sections 856
through 860 of the Code and applicable Treasury Regulations.
"Revolving Credit Facility" means the unsecured acquisition credit facility
to be provided by Bankers Trust Company and The Chase Manhattan Bank in an
amount of up to $200 million and bearing interest at a rate between 1.25% and
1.625% above LIBOR, depending upon the Company's ratio of total debt to asset
value while funds are outstanding.
"Rodamco" means Rodamco N.V. together with its subsidiaries.
"Rule 144" means Rule 144 under the Securities Act.
"S&M" means Sixth and Marquette Limited Partnership, owner of a 50%
partnership interest in NWC.
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<PAGE> 101
"Securities Act" means the Securities Act of 1933, as amended.
"Special Meeting" means the Special meeting of stock holders of Cornerstone
to be held on October 27, 1997 at The St. Regis Hotel, 2 East 55th Street, New
York, NY, commencing at 2:00 P.M.
"Straight-Line Rent" means the average of all Actual Rent required to be
paid through the term of the lease calculated in accordance with GAAP.
"Stock Purchase Agreement" means the Stock Purchase Agreement between
Cornerstone and DIHC, dated as of August 18, 1997.
"Third Partnership" means Third and University Limited Partnership, the
owner of Washington Mutual Tower.
"Treasury Regulations" means regulations issued by the United States
Treasury Department under the Code.
"WRALP" means Wright Runstad Associates Limited Partnership.
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<PAGE> 102
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
INDEX TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES
<TABLE>
<S> <C>
Condensed Consolidated Pro Forma Balance Sheet at June 30, 1997.................... F-1
Condensed Consolidated Pro Forma Statement of Operations for the six months ended
June 30, 1997.................................................................... F-2
Condensed Consolidated Pro Forma Statement of Operations for the year ended
December 31, 1996................................................................ F-3
Notes to Pro Forma Financial Statements............................................ F-4
</TABLE>
<PAGE> 103
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
(8)
HISTORICAL PROPERTY PRO FORMA PRO FORMA
CORNERSTONE ACQUISITION ADJUSTMENTS CORNERSTONE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Real estate investments............... $ 873,211 $ 1,086,870 $ 8,000(9) $ 1,968,081
Less: Accumulated depreciation........ 212,745 -- -- 212,745
----------- ----------- ----------- -----------
Real estate investments............... 660,466 1,086,870 8,000 1,755,336
Other assets.......................... 312,475 (199,382) -- 113,093
----------- ----------- ----------- -----------
Total assets.......................... $ 972,941 $ 887,488 $ 8,000 $ 1,868,429
========= ========= ========= =========
Liabilities
Long term debt........................ $ 367,103 $ 250,000 $ -- $ 617,103
Other liabilities..................... 78,095 59,548 8,000(9) 145,643
----------- ----------- ----------- -----------
Total liabilities..................... 445,198 309,548 8,000 762,746
----------- ----------- ----------- -----------
Minority interest....................... (17,510) 30,940 -- 13,430
Redeemable preferred stock.............. 162,515 -- (162,515)(6) --
Stockholders' investment................ 382,738 547,000 162,515(6) 1,092,253
----------- ----------- ----------- -----------
Total Liabilities and stockholders'
investment............................ $ 972,941 $ 887,488 $ 8,000 $ 1,868,429
========= ========= ========= =========
</TABLE>
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CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
(8) (16)
HISTORICAL PROPERTY EQUITY IN PRO FORMA PRO FORMA
CORNERSTONE ACQUISITION EARNINGS ADJUSTMENTS CORNERSTONE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
Office and parking rentals..... $68,691 $66,818 $ (30,737) $ 3,180(2)(13) $ 107,952
Equity in earnings of joint
ventures.................... -- -- 20,946 (18,130)(2)(4)(15) 2,816
Interest and other income...... 4,564 1,055 (168) 12,666(10)(13)(14) 18,117
----------- ----------- -----------
Total Revenues............ 73,255 67,873 (2,284) 128,885
----------- ----------- -----------
Expenses
Building operating expenses.... 26,653 26,035 (9,959) 395(13)(17) 43,124
Interest expense............... 14,748 -- 11,037(3)(11) 25,785
Depreciation and
amortization................ 14,097 -- 5,728(4)(13) 19,825
General and administrative..... 3,218 -- 250 3,468
----------- ----------- ----------- -----------
Total Expenses............ 58,716 26,035 17,410 92,202
----------- ----------- ----------- -----------
Other income (expenses)
Net gain (loss) on interest
rate swap................... 99 -- -- 99
Minority Interest.............. (994) -- (1,000)(5) (1,994)
----------- ----------- ----------- -----------
Income (loss) before
extraordinary loss............. $13,644 $41,838 $ (20,694) $ 34,788
========= ========= ========= =========
Extraordinary Loss............... (54) -- (54)
Net Income (Loss)................ $13,590 $41,838 $ (20,694) $ 34,734
========= ========= ========= =========
Preferred Dividends.............. 8,410 (6,660)(6) 1,750
Income available for Common
Stockholders................... $ 5,180 $41,838 $ (14,034) $ 32,984
========= ========= ========= =========
Income Before Extraordinary Loss
per Share...................... $ 0.19 $ 0.40
========= =========
Net Income per Share............. $ 0.19 $ 0.40
========= =========
Weighted Shares Outstanding...... 27,237 55,455(7)(10)(12) 82,692
========= =========
</TABLE>
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CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
(1) (16)
PREVIOUSLY EQUITY
HISTORICAL REFLECTED PROPERTY IN PRO FORMA PRO FORMA
CORNERSTONE ADJUSTMENTS ACQUISITION EARNINGS ADJUSTMENTS CORNERSTONE
----------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Office and parking rentals.... $ 111,494 $22,098 $ 133,865 $(63,012) $ 3,506(2) $ 207,951
Equity in earnings of joint
ventures................... -- -- -- 43,233 (36,401)(2)(4)(15) 6,832
Interest and other income..... 5,414 (374) 2,301 (578) 31,178(14) 37,941
----------- ----------- ----------- ----------- -----------
Total Revenues........... 116,908 21,724 136,166 (1,717) 252,724
----------- ----------- ----------- ----------- -----------
Expenses
Building operating expenses... 44,188 9,505 51,160 (20,357) (450)(17) 84,046
Interest expense.............. 31,345 (1,625) -- 22,881(3) 52,601
Depreciation and
amortization............... 24,801 3,028 -- 11,171(4) 39,000
General and administrative.... 6,312 -- -- 500 6,812
----------- ----------- ----------- ----------- -----------
Total Expenses........... 106,646 10,908 51,160 34,102 182,459
----------- ----------- ----------- ----------- -----------
Other income (expenses)
Net gain (loss) on interest
rate swap.................. 4,278 -- -- -- 4,278
Minority Interest............. (1,519) -- -- (1,986)(5) (3,505)
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary loss............ $ 13,021 $10,816 $ 85,006 $ (37,805) $ 71,038
========= ========= ======== ========= =========
Extraordinary Loss.............. (3,925) -- -- -- (3,925)
Net Income (Loss)............... $ 9,096 $10,816 $ 85,006 $ (37,805) $ 67,113
========= ========= ======== ========= =========
Preferred Dividends............. 5,153 11,667 -- (13,320)(6) 3,500
Income available for Common
Stockholders.................. $ 3,943 $ (851) $ 85,006 $ (24,485) $ 63,613
========= ========= ======== ========= =========
Income Before Extraordinary Loss
per Share..................... $ 0.39 $ 0.82
========= =========
Net Income per Share............ $ 0.19 $ 0.77
========= =========
Weighted Shares Outstanding..... 20,411 14,000 47,771(7) 82,182
========= =========
</TABLE>
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CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed consolidated pro forma statements of operations are
presented as if the Property Acquisition, Cornerstone's offering of Common Stock
in April 1997, the sale and conversion of Cornerstone's 8% Cumulative
Convertible Preferred Stock and the 8% Cumulative Convertible Preferred Stock,
Series A, Cornerstone's repayment of a $32.5 million term loan from Deutsche
Bank and the acquisition of two properties in New York City, the property in
Oakbrook Terrace, Illinois and the property in Pittsburgh had occurred as of
January 1, 1996. The unaudited condensed consolidated pro forma balance sheet is
presented as if the Property Acquisition and the sale and conversion of
Cornerstone's 8% Cumulative Convertible Preferred Stock and 8% Cumulative
Convertible Preferred Stock, Series A, had occurred at June 30, 1997. The
condensed consolidated pro forma financial statements are not necessarily
indicative of results of operations or the consolidated financial position that
would have resulted had the Property Acquisition and the other aforementioned
transactions been consummated at the dates indicated.
(1) Represents the adjustments for the Cornerstone offering of Common Stock in
April 1997, the sale of the Company's 8% Cumulative Convertible Preferred
Stock and the 8% Cumulative Convertible Preferred Stock, Series A, the
Company's repayment of a $32.5 million term loan from Deutsche Bank and the
acquisition of One Lincoln Centre, The Frick Building and 527 Madison
Avenue previously reflected in the Prospectus Supplement dated April 15,
1997.
(2) Represents an adjustment for the straight line rent effect of acquiring the
Properties on January 1, 1996. Historical straight line rent has been
eliminated.
(3) Represents additional interest expense related to the Property acquisition
which was financed in part with purchase money debt and acquisition line of
credit. The weighted average interest rate for this financing is 7.23%.
(4) Represents depreciation on the Properties which has been calculated over 40
years on a straight-line basis. The purchase price has been allocated to
each property based on fair market value and further allocated to building
and land.
(5) Represents an adjustment for the 8.5% minority interest in earnings on 500
Boylston Street and 222 Berkeley Street.
(6) Represents the conversion to Common Stock of the 8% Cumulative Convertible
Preferred Stock and the 8% Cumulative Convertible Preferred Stock, Series
A.
(7) Represents the conversion noted in (6) into 11.5 million common shares, the
exercise of the over-allotment option by the lead underwriter of
Cornerstone's offering of Common Stock in April 1997 (2.1 million shares)
and the issuance of 34.2 million shares for the Property Acquisition.
(8) The $1.057 billion purchase price will be funded through $260 million in
cash ($60 million coming from a line of credit), $250 million purchase
money mortgage debt and $547 million in equity (34.2 million shares at
$16.00/share). The fair value of the minority interests in 500 Boylston
Street and 222 Berkeley Street is approximately $31 million.
(9) Represents due diligence and closing costs which have been estimated at $8
million. These acquisition costs will be capitalized to real estate
investments and depreciated straight line over 40 years.
(10) Represents an adjustment to eliminate the interest income and weighted
shares outstanding of the Cornerstone offering of Common Stock in April
1997, for the period from April 21, 1997 to June 30, 1997. Interest income
has also been adjusted for the funds used to repay the $32.5 term loan and
purchase 527 Madison Avenue.
(11) Represents the elimination of interest expense on the $32.5 million term
loan.
(12) Represents the Cornerstone offering of Common Stock in April 1997, as if it
were outstanding for the entire period.
(13) Represents the income statement activity of 527 Madison Avenue for the
period January 1, 1997 to February 13, 1997. 527 Madison Avenue was
acquired by Cornerstone on February 14, 1997.
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(14) Represents the interest income earned by Cornerstone for the mortgages on
191 Peachtree Street and Market Square.
(15) Represents the interest expense to the joint ventures for the mortgages on
191 Peachtree Street and Market Square.
(16) Represents the Equity in Earnings of the partnerships that own 191
Peachtree Street and Market Square.
(17) Represents the asset management fees earned by Cornerstone on 191 Peachtree
Street, Market Square, 500 Boylston Street and 222 Berkeley Street.
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ANNEXES TO THE PROXY STATEMENT
<TABLE>
<S> <C>
Annex I -- Stock Purchase Agreement
Annex II -- Loan Purchase Agreement
Annex III -- Registration Rights and Voting Agreement
Annex IV -- Acquisition Amendment
Annex V -- Opinion of Lazard Freres LLC
</TABLE>
<PAGE> 109
ANNEX I
================================================================================
------------------------
STOCK PURCHASE AGREEMENT
------------------------
BETWEEN
DUTCH INSTITUTIONAL HOLDING COMPANY, INC.,
AS "SELLER"
AND
CORNERSTONE PROPERTIES INC.,
AS "PURCHASER"
DATED AS OF AUGUST 18, 1997
================================================================================
<PAGE> 110
STOCK PURCHASE AGREEMENT.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms................................................... 1
ARTICLE II
PURCHASE AND SALE
Section 2.01. Interests............................................................... 8
Section 2.02. Purchase Price; Payment; Order of Transfers; Allocation of Purchase
Price................................................................... 8
Section 2.03. Closing................................................................. 9
Section 2.04. Closing Deliveries by the Seller........................................ 9
Section 2.05. Closing Deliveries by the Purchaser..................................... 9
Section 2.06. Certain Adjustments..................................................... 10
Section 2.07. Closing Accounting...................................................... 10
Section 2.08. Record Date for Final Dividend of the Purchaser......................... 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
Section 3.01. Organization and Authority of the Seller................................ 12
Section 3.02. Capital Structure and Ownership of Seller Subsidiaries.................. 12
Section 3.03. Seller Subsidiaries..................................................... 12
Section 3.04. Books and Records....................................................... 13
Section 3.05. Noncontravention; Consents.............................................. 13
Section 3.06. Seller Financial Information; Books and Records......................... 14
Section 3.07. No Undisclosed Liabilities.............................................. 14
Section 3.08. Space Leases............................................................ 14
Section 3.09. Litigation.............................................................. 14
Section 3.10. Compliance with Laws.................................................... 15
Section 3.11. Environmental and Other Permits and Licenses; Related Matters........... 15
Section 3.12. Material Contracts...................................................... 16
Section 3.13. Management Agreements................................................... 16
Section 3.14. Seller Properties....................................................... 16
Section 3.15. Ground Leases........................................................... 17
Section 3.16. Employment Matters...................................................... 17
Section 3.17. Taxes................................................................... 17
Section 3.18. Insurance............................................................... 18
Section 3.19. Full Disclosure......................................................... 18
Section 3.20. Brokers................................................................. 18
Section 3.21. Insolvency.............................................................. 18
</TABLE>
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<TABLE>
<CAPTION>
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
Section 4.01. Organization and Authority of the Purchaser............................. 19
Section 4.02. Purchaser Subsidiaries.................................................. 19
Section 4.03. Capital Structure....................................................... 19
Section 4.04. Authority; Noncontravention; Consents................................... 20
Section 4.05. SEC Documents; Financial Statements; Undisclosed Liabilities............ 21
Section 4.06. Absence of Certain Changes or Events.................................... 21
Section 4.07. Litigation.............................................................. 22
Section 4.08. Purchaser Properties.................................................... 22
Section 4.09. Environmental and Other Permits and Licenses; Related Matters........... 22
Section 4.10. Related Party Transactions.............................................. 23
Section 4.11. Taxes................................................................... 23
Section 4.12. Brokers................................................................. 24
Section 4.13. Compliance with Laws.................................................... 24
Section 4.14. Contracts; Debt Instruments............................................. 24
Section 4.15. Absence of Changes in Benefit Plans; ERISA Compliance................... 25
Section 4.16. Vote Required........................................................... 26
Section 4.17. Space Leases............................................................ 26
Section 4.18. Ground Leases........................................................... 26
Section 4.19. Insurance............................................................... 26
Section 4.20. Insolvency.............................................................. 26
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01. Conduct of Business by Seller Prior to the Closing; Competing
Transactions............................................................ 26
Section 5.02. Conduct of Business by the Purchaser Prior to the Closing............... 27
Section 5.03. Preparation of the Proxy Statement; Shareholders Meeting................ 29
Section 5.04. Commercially Reasonable Efforts; Notification........................... 29
Section 5.05. Name Changes............................................................ 30
Section 5.06. Intentionally omitted................................................... 31
Section 5.07. Transfer and Gains Taxes................................................ 31
Section 5.08. Access to Information................................................... 31
Section 5.09. Confidentiality......................................................... 31
Section 5.10. Section 754 Election.................................................... 32
Section 5.11. Standstill Agreement.................................................... 32
Section 5.12. Performance Under Redemption Agreement.................................. 32
ARTICLE VI
TAX MATTERS
Section 6.01. Indemnity............................................................... 33
Section 6.02. Straddle Period Taxes................................................... 33
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Section 6.03. Returns and Payments.................................................... 34
Section 6.04. Refunds................................................................. 34
Section 6.05. Contests................................................................ 34
Section 6.06. Section 338(h)(10) Election............................................. 35
Section 6.07. Time of Payment......................................................... 35
Section 6.08. Cooperation and Exchange of Information................................. 35
Section 6.09. Miscellaneous........................................................... 36
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.01. Conditions to Obligations of the Seller................................. 36
Section 7.02. Conditions to Obligations of the Purchaser.............................. 37
Section 7.03. Condition to each Parties Obligation to Effect Transaction.............. 39
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Survival of Representations and Warranties.............................. 39
Section 8.02. Indemnification......................................................... 39
Section 8.03. Limitations on Recovery................................................. 41
Section 8.04. Tax Matters............................................................. 41
ARTICLE IX
TERMINATION
Section 9.01. Termination............................................................. 41
Section 9.02. Effect of Termination................................................... 42
ARTICLE X
GENERAL PROVISIONS
Section 10.01. Expenses................................................................ 42
Section 10.02. Notices................................................................. 42
Section 10.03. Waiver of Jury Trial.................................................... 43
Section 10.04. Headings................................................................ 43
Section 10.05. Severability............................................................ 43
Section 10.06. No Purchaser's Lien..................................................... 43
Section 10.07. Entire Agreement........................................................ 43
Section 10.08. Assignment.............................................................. 44
Section 10.09. No Third Party Beneficiaries............................................ 44
Section 10.10. Amendment............................................................... 44
Section 10.11. Governing Law........................................................... 44
Section 10.12. Counterparts............................................................ 44
Section 10.13. Waiver.................................................................. 44
Section 10.14. Closing under Loan Purchase Agreement................................... 44
Section 10.15. Limited Survival........................................................ 44
</TABLE>
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<PAGE> 113
STOCK PURCHASE AGREEMENT, dated as of August 18, 1997, between DUTCH
INSTITUTIONAL HOLDING COMPANY, INC. (the "Seller"), and CORNERSTONE PROPERTIES
INC., a Nevada corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller, directly and through its various direct and indirect
subsidiaries, owns interests in and with respect to a portfolio of office
buildings and land located in various locations in the United States; and
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, the "Seller Subsidiary Shares" (as herein
defined) upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants hereinafter set forth, the Purchaser and the Seller hereby agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Additional Charter Provisions" shall mean the following proposed
additions to the Charter Amendment: (i) "Nothing in these Restated Articles
of Incorporation shall preclude the settlement of any transaction with
respect to the Common Stock of the Corporation entered into through the
facilities of the New York Stock Exchange;" and (ii) "The aggregate number
of shares that the Corporation shall have the authority to issue is Two
Hundred Sixty-Five Million (265,000,000) shares of Capital Stock consisting
of Fifteen Million (15,000,000) shares of Preferred Stock with no par value
per share and Two Hundred Fifty Million (250,000,000) shares of Common
Stock with no par value per share."
"Administrative Agreements" means the administrative, consulting,
management and similar agreements to which a Seller Subsidiary is a party
and which are listed on Schedule 1.01(a).
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Stock Purchase Agreement,
dated as of August 18, 1997 between the Seller and the Purchaser (including
the Exhibits and the Schedules hereto) and all amendments hereto made in
accordance with the provisions of Section 10.10.
"Ancillary Agreements" means the Purchase Money Notes, the Purchase
Money Mortgages, the Registration Rights and Voting Agreement and the Loan
Purchase Agreement.
"500 Boylston and 222 Berkeley Amendments" has the meaning specified
in Section 5.04(a).
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by Law to be closed in New
York, New York or Atlanta, Georgia.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq., as amended
through the date hereof.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation, and Liability Information System, as updated through the date
hereof.
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<PAGE> 114
"Charter Amendment" has the meaning specified in Section 5.03(a).
"CHV" has the meaning specified in Section 5.04(a).
"Closing" has the meaning specified in Section 2.03.
"Closing Accounting" has the meaning set forth in Section 2.07(b).
"Closing Date" has the meaning specified in Section 2.03.
"Code" means the Internal Revenue Code of 1986, as amended through the
date hereof.
"Continuing Contracts" means the Material Contracts described on
Schedule 1.01(b).
"control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or
more Persons, means the possession, directly or indirectly or as trustee,
personal representative or executor, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee, personal representative or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs
of such Person.
"Direct Seller Subsidiaries" means the Seller Subsidiaries which are
directly and wholly-owned by the Seller.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement, or restriction of any
kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of
ownership.
"Environment" means all surface waters, groundwaters, soil, drinking
water supplies, sediments associated with any water body, subsurface
strata, and ambient air and any workplace at any real property.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims (whether based on
strict liability or otherwise), liens, notices of potential responsibility,
notices of potential liability, notices of non-compliance or violation,
abatement orders, enforcement actions, investigations, proceedings,
settlements, consent decrees, consent orders or consent agreements relating
in any way to any Environmental Law, Environmental Permit or any Hazardous
Material (hereinafter "Claims"), including, without limitation, (a) any and
all Claims by Governmental Authorities or any Person for enforcement, cost
recovery, compensation, penalties, fines, restitution, injunctive relief,
cleanup, removal, response, remedial or other actions or damages pursuant
to any applicable Environmental Law or applicable Environmental Permit and
(b) any and all Claims by any Person or Governmental Authority seeking
damages, contribution, indemnification, cost recovery, cleanup, removal,
response, remedial or other actions, compensation or injunctive relief
relating to a Release of a Hazardous Material or arising from an alleged or
actual injury or threat of injury to health, safety, natural resources
(including, without limitation, all flora and fauna) or the Environment.
"Environmental Condition" means a condition relating to or arising or
resulting from a failure or alleged failure to comply with any applicable
Environmental Law or applicable Environmental Permit or relating to or
arising or resulting from an actual or a threatened Release of a Hazardous
Material.
"Environmental Laws" means any Law, now or hereafter in effect and as
amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree, order or
judgment, relating to the Environment, health, safety, natural resources
(including, without limitation, all flora and fauna) or Hazardous Materials
including, without limitation, the CERCLA; the Resource Conservation and
Recovery Act, 42 U.S.C. Sections 6901 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq.; the Clean Water Act,
33 U.S.C. Sections 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. Sections 2601 et seq.; the Clean Air Act, 42 U.S.C. Sections 7401 et
seq.; the Safe
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<PAGE> 115
Drinking Water Act, 42 U.S.C. Sections 300f et seq.; the Atomic Energy Act,
42 U.S.C. Sections 2011 et seq.; the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Sections 136 et seq.; the Occupational Safety and
Health Act, 29 U.S.C. Sections 651 et seq.; the Endangered Species Act, 16
U.S.C. Sections 1531 et seq.; the Oil Pollution Act, 33 U.S.C.
Sections 2701 et seq.; the Emergency Planning and Community Right-To-Know
Act, 42 U.S.C. Sections 11001 et seq.; and the Federal Food, Drug, and
Cosmetic Act, 21 U.S.C. Sections 301 et seq.
"Environmental Permits" means all permits, approvals, identification
numbers, licenses, registrations and other authorizations and notices
required under any applicable Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate of the Purchaser" has the meaning ascribed to it in
Section 4.15.
"Estimated Closing Accounting" has the meaning specified in Section
2.07(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning specified in Section 2.01(b).
"Final Purchaser Dividend" has the meaning specified in Section 2.08.
"Financial Statement Date" has the meaning specified in Section 4.06.
"Financial Statements" has the meaning specified in Section
3.06(a)(i).
"Governmental Authority" means any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or
arbitral body.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Ground Leases" mean the ground leases under which a Seller Subsidiary
holds an interest as a ground lessee and listed on Schedule 1.01(c).
"Hazardous Materials" means those substances, materials, and items, in
any form, whether solid, liquid, gaseous, semisolid, or any combination
thereof, whether waste materials, raw materials, chemicals, finished
products, byproducts, or any other material or article, which are regulated
by or form the basis of liability under any applicable Environmental Law
including, without limitation: (a) wastes, materials, chemicals, and
substances defined as or included within the definition of "hazardous
wastes," "hazardous substances," "pollutants," "contaminants," "hazardous
materials," "hazardous chemicals," "extremely hazardous substances," "toxic
substances," "toxic pollutants," "hazardous pollutants," or words of
similar import, under any applicable Environmental Law; and (b) asbestos in
any form, polychlorinated biphenyls ("PCBs"), transformers or other
equipment containing PCBs, petroleum (including, but not limited to, crude
oil, petroleum-derived substances, wastes, or breakdown or decomposition
products thereof, or any fraction thereof), radioactive substances, radon
gas, and urea formaldehyde.
"Hines" has the meaning specified in Section 5.04(a).
"Indebtedness" means, with respect to any Person, (a) all indebtedness
of such Person, whether or not contingent, for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee under leases that have been or should
be, in accordance with U.S. GAAP, recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all obligations of such Person
to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire
such capital stock, valued, in the case of redeemable
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preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of
others referred to in clauses (a) through (f) above guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly
or indirectly by such Person through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase
of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to or in
any other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received or
such services are rendered) or (iv) otherwise to assure a creditor against
loss, and (i) all Indebtedness referred to in clauses (a) through (f) above
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Encumbrance on
property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
"Indemnified Party" has the meaning specified in Section 8.02(b).
"Indemnitor" has the meaning specified in Section 8.02(c).
"Interim Financial Statements" has the meaning specified in Section
5.04(b).
"IRS" means the Internal Revenue Service of the United States.
"Joint Ventures" means those certain Seller Subsidiaries which
constitute limited partnerships or joint ventures and which are not
wholly-owned, directly or indirectly, by the Seller. The Joint Ventures are
listed on Schedule 3.02(b) hereto.
"Joint Venture Agreements" mean those certain partnership and joint
venture agreements governing the Joint Ventures and to which a Seller
Subsidiary is a party described in Schedule 3.02(b) hereof.
"Joint Venture Consents" has the meaning specified in Section 3.03(d).
"Knowledge" and correlative terms such as "knowledge of," "knows of,"
"is aware of," or "best knowledge" when used herein with respect to the
Purchaser shall mean the actual knowledge of the Persons named on Schedule
1.01(d) and where used with respect to the Seller shall mean the actual
knowledge of the Persons named on Schedule 1.01(e).
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, requirement or rule of common
law.
"Liabilities" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising
under any Law (including, without limitation, any Environmental Law),
Action or Governmental Order and those arising under any contract,
agreement, arrangement, commitment or undertaking.
"Loan Purchase Agreement" means the Loan Purchase Agreement of even
date herewith between PGGM, as the "Seller" and the Purchaser, as the
"Purchaser".
"Loss" has the meaning specified in Section 8.02(b).
"MI" means M.I. West Pennsylvania Limited Partnership, a District of
Columbia limited partnership.
"MSDI" means Market Square Development Investors, a District of
Columbia general partnership.
"MSDI Loan Agreement" has the meaning specified in Section 5.01.
"Material Contracts" has the meaning specified in Section 3.12(a).
"Management Agreements" means all property management agreements,
asset management agreements and leasing agreements listed on Schedule
1.01(g) pursuant to which the Seller or the Seller
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Subsidiaries have engaged third party providers of leasing and/or
management services with respect to the Seller Properties.
"Net Working Capital" has the meaning specified in Section 2.07(c).
"Net Working Capital Deficit" has the meaning specified in Section
2.07(c).
"Non-confidential Information" has the meaning specified in Section
5.09.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PGGM" means Stichting Pensioenfonds Voor De Gezondheid Geestelijke en
Maatschappelijke Belangen.
"Permits" has the meaning specified in Section 3.11(a).
"Permitted Encumbrances" means the following: (a) liens for taxes,
assessments and governmental charges of Governmental Authorities or levies
not yet due and payable; (b) rights of tenants, as tenants only, under the
Space Leases; (c) with respect to the Seller Properties only, those
existing title matters affecting the Seller Properties listed on Schedule
1.01(h), and with respect to the Purchaser Properties only, those existing
title matters affecting the Purchaser Properties listed on Schedule
1.01(i); (d) with respect to the Seller Properties, the Purchased Loans;
and (e) survey exceptions and other easements, rights-of-way, covenants,
restrictions and title exceptions that (i) do not render title to the
property encumbered thereby unmarketable, (ii) do not, individually or in
the aggregate, have a material adverse effect on the value of or the use of
the property encumbered thereby for its present purposes, and (iii) do not
interfere with the ordinary conduct of the property encumbered thereby or
detract from the value or usefulness thereof.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as
any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Securities Exchange Act of 1934, as amended.
"Property Restrictions" has the meaning specified in Section 4.08(b).
"Proxy Statement" has the meaning specified in Section 4.04.
"Purchase Money Mortgages" means the mortgages, deeds to secure debts,
deeds of trust, assignments of leases and rents, stock pledge agreements,
collateral note assignments, collateral mortgage assignments, assignments
of partnership interests, guaranty agreements, UCC-1 financing statements
and other security documents and instruments to be executed by the
Purchaser and Purchaser Subsidiaries and delivered to the Seller or PGGM on
the Closing Date in form acceptable to the Seller (in its sole discretion),
but consistent with the terms and provisions contained in Exhibit 1.01(d),
to secure the indebtedness evidenced by the Purchase Money Notes.
"Purchase Money Notes" means the four (4) Promissory Notes to be
executed by the Purchaser and delivered to the Seller or PGGM on the
Closing Date in form acceptable to the Seller (in its sole discretion), but
consistent with the terms and provisions contained in Exhibit 1.01(d), to
evidence the $250,000,000.00 purchase money loans being made by the Seller
and PGGM to the Purchaser to finance, in part, the acquisition of the
Seller Subsidiary Shares hereunder and the "Purchased Loans" under the Loan
Purchase Agreement, on the terms more particularly described therein.
"Purchase Price" has the meaning specified in Section 2.02.
"Purchased Loans" has the meaning specified in the Loan Purchase
Agreement.
"Purchaser" has the meaning specified in the recitals to this
Agreement.
"Purchaser Benefit Plans" has the meaning specified in Section
4.15(a).
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"Purchaser Change of Control" shall mean any of the following
occurrences:
(a) securities of the Purchaser representing 30% or more of the
combined voting power of the Purchaser's then outstanding voting securities
are acquired pursuant to a tender offer or an exchange offer; or
(b) a merger or consolidation is consummated in which the Purchaser
is a constituent corporation and which results in less than 50% of the
outstanding voting securities of the surviving or resulting entity being
owned by the former stockholders of the Purchaser; or
(c) any person becomes the beneficial owner, directly or
indirectly, of securities of the Purchaser representing 30% or more of
the combined voting power of the Purchaser's then outstanding
securities.
provided that a "Purchaser Change of Control" shall in no event refer to
any of the foregoing if, as a result thereof, control of the Purchaser is
held by a Person who is an Affiliate of the Purchaser as of the date
hereof.
"Purchaser Common Shares" means the common stock of the Purchaser with
no par value.
"Purchaser Indemnified Party" has the meaning specified in Section
8.02(a).
"Purchaser Material Adverse Change" has the meaning specified in
Section 4.06.
"Purchaser Material Adverse Effect" means any circumstance, change in,
or effect on, the Purchaser Properties (including, without limitation, any
casualty or condemnation affecting any of the Purchaser Properties), the
Purchaser or any Purchaser Subsidiary that, individually or in the
aggregate with any other circumstances, changes in, or effect on, the
Purchaser, any Purchaser Subsidiaries or the Purchaser Properties: (a) is,
or could be, materially adverse to the business, operations, assets or
liabilities (including, without limitation, contingent liabilities),
results of operations or the condition (financial or otherwise) of any of
the Purchaser or the Purchaser Subsidiaries or any one or more of the
Purchaser Properties or (b) could materially adversely affect the ability
of the Purchaser to operate any one or more of the Purchaser Properties in
the manner in which they are currently operated by the Purchaser and the
Purchaser Subsidiaries.
"Purchaser Preferred Shares" means the shares of preferred shares of
stock of the Purchaser.
"Purchaser Properties" means the real property described on Schedule
1.01(j) hereof in which the Purchaser or a Purchaser Subsidiary owns a
direct or indirect fee simple or leasehold interest, together with the
Purchaser's or Purchaser Subsidiaries' rights in and to all buildings and
other structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property
attached or appurtenant thereto and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Purchaser SEC Documents" has the meaning specified in Section 4.05.
"Purchaser Shareholder Approval" has the meaning specified in Section
4.04.
"Purchaser Shareholder Meeting" has the meaning specified in Section
5.03(b).
"Purchaser Subsidiaries" means the corporations listed on Schedule
1.01(k) (each of which corporations is individually referred to herein as a
"Purchaser Subsidiary").
"Purchaser's Charter" has the meaning specified in Section 4.01.
"Redemption Agreement" means that certain Redemption Agreement between
MSDI, the Seller and MI dated as of August 15, 1997.
"Reference Balance Sheet" has the meaning specified in Section 3.06.
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"Registration Rights and Voting Agreement" means the Registration
Rights and Voting Agreement to be executed by the Seller, PGGM and the
Purchaser on the Closing Date substantially in the form of Exhibit 1.01(k).
"Regulations" means the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"REIT" has the meaning specified in Section 4.11(d).
"Release" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and like
actions or events (including, without limitation, the abandonment or
discarding of barrels, containers, drums, tanks, or other closed
receptacles containing any Hazardous Materials) resulting in the placement
of any Hazardous Material on, under, about, or in any medium of the
Environment.
"Remedial Action" means all action reasonably necessary or required
under any applicable Environmental Law or applicable Environmental Permit
and all actions required by a Governmental Authority to (i) investigate,
mitigate, clean up, remove, treat, store, dispose of, handle or respond in
any other way to Hazardous Materials in the Environment affecting human
health, affecting the Environment or affecting natural resources; (ii)
prevent, control, or otherwise respond to the Release of Hazardous
Materials so that they do not migrate, endanger or threaten to endanger
public health, natural resources or the Environment; (iii) perform remedial
investigations, feasibility studies, health assessments, natural resource
damage assessments, corrective actions, closures, and postremedial or
postclosure studies, investigations, operations, maintenance and monitoring
at, on, under, about or in any real property, or at any other location
affected by Hazardous Materials associated with the real property; or (iv)
come into compliance with any applicable Environmental Law or any
applicable Environmental Permit.
"Returns" has the meaning specified in Section 3.17.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" has the meaning specified in the recitals to this Agreement.
"Seller Indemnified Party" has the meaning specified in Section
8.02(b).
"Seller Material Adverse Effect" means any circumstance, change in, or
effect on, the Seller Properties (including, without limitation, any
casualty or condemnation affecting any of the Seller Properties), the
Seller or any Seller Subsidiary that, individually or in the aggregate with
any other circumstances, changes in, or effect on, the Seller, any Seller
Subsidiaries or the Seller Properties: (a) is, or could be, materially
adverse to the business, operations, assets or liabilities (including,
without limitation, contingent liabilities), results of operations or the
condition (financial or otherwise) of any of the Seller Subsidiaries or any
one or more of the Seller Properties or (b) could materially adversely
affect the ability of the Purchaser to operate any one or more of the
Seller Properties in the manner in which they are currently operated by the
Seller and the Seller Subsidiaries.
"Seller Properties" means the real property described on Schedule
1.01(l) hereof in which the Seller or a Seller Subsidiary owns a direct or
indirect fee simple or leasehold interest, together with the Seller's or
Seller Subsidiaries' rights in and to all buildings and other structures,
facilities or improvements currently or hereafter located thereon, all
fixtures, systems, equipment and items of personal property attached or
appurtenant thereto and all easements, licenses, rights and appurtenances
relating to the foregoing.
"Seller Subsidiaries" means the corporations and partnerships listed
on Schedule 1.01(m) (each of which corporations or partnerships is
individually referred to as a "Seller Subsidiary").
"Seller Subsidiary Common Stock" has the meaning specified in Section
3.02(a).
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"Seller Subsidiary Shares" means the shares of Seller Subsidiary
Common Stock in each of the Direct Seller Subsidiaries.
"Space Lease" has the meaning specified in Section 3.08.
"Surplus Net Working Capital" has the meaning specified in Section
2.07(c).
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any foreign, U.S., state and local government
or taxing authority, including, without limitation: taxes or other charges
on or with respect to income, franchises, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security, workers' compensation, unemployment compensation, or net worth;
taxes or other charges in the nature of excise, withholding, ad valorem,
stamp, transfer, mortgage recording, value added, or gains taxes; license,
registration and documentation fees; and customs' duties, tariffs, and
similar charges.
"Tenant Costs" has the meaning specified in Section 2.06.
"Third Party Claims" has the meaning specified in Section 8.02(c).
"Transfer and Gains Taxes" has the meaning specified in Section 5.07.
"Unconsolidated Seller Financial Statements" has the meaning specified
in Section 3.06(a).
"U.S. GAAP" means United States generally accepted accounting
principles and practices in effect from time to time applied consistently
throughout the periods involved.
"USTs" means underground storage tanks (and associated underground
piping), as such term is defined in the Resource Conservation and Recovery
Act, as amended, and the regulations promulgated thereunder, or any other
applicable Environmental Law.
ARTICLE II
PURCHASE AND SALE
Section 2.01. Interests. (a) On the terms and subject to the conditions
of this Agreement, the Seller shall (or shall cause the appropriate Seller
Subsidiary to), on the Closing Date, sell, assign, transfer, convey and deliver
to the Purchaser or the Purchaser Subsidiary designated by Purchaser, and the
Purchaser shall purchase from the Seller, on the Closing Date, the Seller
Subsidiary Shares.
(b) The following assets owned by the Seller and the Seller Subsidiaries
shall not be sold to the Purchaser (the "Excluded Assets"): (i) all employees
(and all personnel records and files relating to all current and former
employees) employed by any Seller Subsidiary (including, without limitation,
DIHC Management Corporation), (ii) the de Kooning sculpture currently located in
the Seller's offices at 200 Galleria, Atlanta, Georgia and (iii) the shares of
stock of GCHC, Inc. and DIHC Market Square, Inc. owned by the Seller.
Section 2.02. Purchase Price; Payment; Order of Transfers; Allocation of
Purchase Price. (a) Subject to the provisions of Section 2.07, the aggregate
purchase price for the Seller Subsidiary Shares shall be TWO HUNDRED SEVENTY TWO
MILLION ONE HUNDRED SIXTEEN THOUSAND AND NO/100 DOLLARS ($272,116,000) (the
"Purchase Price") which shall be payable in the manner described herein.
(b) The Purchase Price shall be payable by the Purchaser as follows:
(i) At the Closing, the Purchaser shall pay to the Seller (or to PGGM
as the Seller shall direct) the amount of THIRTY-FOUR MILLION FOUR HUNDRED
EIGHTY-EIGHT THOUSAND AND NO/100 DOLLARS ($34,488,000.00) (the "Initial
Cash Payment") by wire transfer in immediately available funds, to an
account or accounts designated at least two (2) Business Days prior to the
Closing Date by the Seller in a written notice to the Purchaser;
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(ii) At the Closing, the Purchaser shall execute and deliver to the
Seller or the Seller's designee the Purchase Money Notes and Purchase Money
Mortgages evidencing a principal amount of ONE HUNDRED THIRTY MILLION AND
NO/100 DOLLARS ($130,000,000.00); and
(iii) On the Closing Date, Purchaser shall issue to the Seller or PGGM
as the Seller may direct 6,726,750 validly issued, fully paid and
nonassessable Purchaser Common Shares (adjusted as necessary to reflect
fully the effect of any stock split, reverse stock split, or stock dividend
with respect to the Purchaser Common Shares occurring after the date hereof
and prior to the Closing Date) at an agreed value of $16 per share and not
subject to adjustment notwithstanding any changes in the stock price
between the date of this Agreement and the Closing Date.
(c) The Purchaser and the Seller agree and acknowledge that the transfer of
the Seller Subsidiary Shares shall be effected in the order and priority
described on Schedule 2.02(c).
(d) The Purchase Price shall be allocated as of the Closing Date in
accordance with Exhibit 2.02(d). For all Tax purposes, the Purchaser and the
Seller agree to report the transactions contemplated in this Agreement in a
manner consistent with the terms of this Agreement, including the allocation
under Exhibit 2.02(d), and that neither of the parties will take any position
inconsistent therewith in any Tax Return, in any refund claim, in any
litigation, or otherwise.
(e) The Purchaser and the Seller agree that the Seller shall have the right
to cause the sale of the Seller Property known as the "Dearborn Land" or the
shares of the Seller Subsidiaries which indirectly own the Dearborn Land prior
to the Closing Date. In the event the Dearborn Land is sold on or prior to the
Closing Date, the Purchase Price shall be reduced by $10,000,000 by a reduction
in the principal amount of Promissory Note B of the Purchase Money Notes by
$10,000,000.
(f) In addition to the above Purchase Price, the Seller and the Purchaser
shall consummate the transactions described in Schedule 1.01(f) in the manner
and at the times specified in such Schedule.
Section 2.03. Closing. Subject to the terms and conditions of this
Agreement, the sale and purchase of the Seller Subsidiary Shares shall take
place at a closing (the "Closing") to be held at the offices of King & Spalding,
1185 Avenue of the Americas, New York, New York at 10:00 A.M. New York City time
on the date which is two (2) Business Days after the date on which the
conditions set forth herein with respect thereto and the conditions set forth in
the Loan Purchase Agreement with respect to a Closing thereunder shall be
satisfied or duly waived, or at such other place or at such other time or on
such other date as the Seller and the Purchaser may mutually agree upon in
writing (the day on which the Closing takes place being the "Closing Date").
Section 2.04. Closing Deliveries by the Seller. At the Closing, the
Seller shall deliver or cause to be delivered to the Purchaser:
(a) stock certificates evidencing the Seller Subsidiary Shares duly
endorsed in blank, or accompanied by stock powers duly executed in blank,
in form satisfactory to the Purchaser and with all required stock transfer
tax stamps affixed;
(b) an executed counterpart of the Registration Rights and Voting
Agreement by PGGM and the Seller and the other Ancillary Agreements to
which the Seller or any Seller Subsidiary is a party;
(c) a receipt for that portion of the Purchase Price paid at Closing;
and
(d) the opinions, certificates and other documents required to be
delivered pursuant to Section 7.02.
Section 2.05. Closing Deliveries by the Purchaser. At the Closing, the
Purchaser shall deliver to the Seller:
(a) the cash portion of Purchase Price described in clause (i) of
Section 2.02(b) above;
(b) executed counterparts of the Purchase Money Notes and the Purchase
Money Mortgages;
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(c) stock certificates evidencing the Purchaser Common Shares to be
issued to Seller pursuant to clause (iii) of Section 2.02(b) above;
(d) an executed counterpart of the Registration Rights and Voting
Agreement by the Purchaser and the other Ancillary Agreements to which the
Purchaser is a party; and
(e) the opinions and other documents required to be delivered pursuant
to Section 7.01.
Section 2.06. Certain Adjustments. (a) Pursuant to Section 3.16 hereof,
the Seller has represented and warranted to the Purchaser that other than the
employees described in Section 2.01(b) which constitute "Excluded Assets," the
Seller Subsidiaries have no employees (all other personnel associated with the
Seller Properties being (i) employees of property managers, (ii) employees of
other independent contractors of the Seller, or (iii) employees of the Seller).
Accordingly, there will be no adjustments in the Closing Accounting for payroll
or benefits of employees of the Seller Subsidiaries.
(b) At the election of the Purchaser given at least thirty (30) days prior
to the Closing Date, the insurance policies of the Seller Subsidiaries (other
than the Joint Ventures) will be terminated as of Closing (and the Seller shall
pay any cancellation fees resulting from such termination). To the extent such
insurance policies are terminated, there will be no provision for insurance
premiums or prepayments in the Closing Accounting. To the extent such insurance
policies are not terminated, the premiums paid or due and payable thereunder
shall be taken into account in the Closing Accounting.
(c) With respect to rental concessions, tenant improvement work and leasing
commissions excluding rental concessions, tenant improvements and leasing
commissions for expansions or renewals commencing after the Closing and
excluding leasing commissions paid over time (herein "Tenant Costs"), the Seller
shall be responsible for all Tenant Costs which are committed to or provided for
under any currently existing Space Lease or any Space Lease entered into after
the date hereof but prior to the Closing Date. The Purchaser shall be
responsible for all Tenant Costs committed to or provided for under Space Leases
entered into from and after the Closing Date.
(d) The Seller Subsidiaries as described in items (26) and (27) on Schedule
1.01(m) hereof have contingent liability for certain condominium claims under
construction warranties. The Purchaser acknowledges that such contingent
liability has been disclosed to the Purchaser for purposes of Section 3.07
hereof. The Purchaser and the Seller further agree that as provided in Section
2.07(v) below, an adjustment in the amount of $300,000 (net of $250,000 of
restricted cash) shall be made in the Closing Accounting to account, in part,
for such contingent liability.
Section 2.07. Closing Accounting.
(a) At least fifteen (15) days prior to Closing, the Seller shall prepare
and deliver to the Purchaser using the methodology applied in the preparation of
the Interim Financial Statements, and prepared in accordance with U.S. GAAP
consistently applied, a proposed accounting ("Estimated Closing Accounting")
that shall estimate, in itemized form for the Seller Subsidiaries, the following
items (unless otherwise indicated, as of 12:01 am on the date of Closing):
(i) All cash and receivables held by the Seller Subsidiaries,
including without limitation, the banks accounts of the Seller Subsidiaries
and rentals under Space Leases;
(ii) All amounts prepaid by the Seller Subsidiaries under the
Continuing Contracts, the Management Agreements, prepaid insurance (to the
extent not terminated in accordance with Section 2.06(b) above) and the
Ground Leases and any prepaid interest or other amounts in respect of debt
service on the Purchased Loans;
(iii) All refundable deposits made by the Seller Subsidiaries under
the Continuing Contracts, and all refundable deposits made by the Seller
Subsidiaries with any utility company or governmental agency in connection
with the Seller Properties;
(iv) All accounts payable and accrued expenses of the Seller
Subsidiaries, including, without limitation, accounts payable and accrued
expenses under the Space Leases, insurance policies (to the
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extent not terminated in accordance with Section 2.06(b) above), the
Management Agreements and Continuing Contracts, any Tenant Costs which have
not been funded or paid prior to the Closing Date to the extent Seller is
responsible therefor under Section 2.06(c) above, and all other ordinary
and customary accounts payable and accrued expenses, including without
limitation water, sewer, electricity and gas charges, real estate taxes and
assessments, personal property taxes, sales taxes, and property owners'
assessments;
(v) All accrued but unpaid interest and other debt service due on the
Purchased Loans and the amount of $300,000 for the contingent liability
(net of $250,000 of restricted cash) described in Section 2.06(d) above;
and
(vi) All amounts received by the Seller Subsidiaries as rentals under
Space Leases or under the Administrative Agreements to the extent payable
by such tenants on account of Rentals accruing for periods, or services to
be provided, on and after the date of Closing, and all security deposits
held by the Seller Subsidiaries under any Space Lease.
(b) Following receipt of the Estimated Closing Accounting by the Purchaser,
the Purchaser shall review the Estimated Closing Accounting and shall have the
right to approve the same, such approval not to be unreasonably withheld. On the
day immediately preceding Closing, the Seller's and Purchaser's accountants,
Coopers & Lybrand L.L.P., in consultation with the Seller and the Purchaser,
shall update the approved Estimated Closing Accounting ("Closing Accounting")
based upon actual operations of the Seller Subsidiaries as of such date.
(c) To the extent that the sum of the assets described in clauses (i)
through (iii) of the Closing Accounting minus the sum of the liabilities
described in clauses (iv) through (vi) of the Closing Accounting ("Net Working
Capital") is a positive number (such positive number is referred to in this
Section 2.07 (c) as "Surplus Net Working Capital"), the cash portion of the
Purchase Price shall be adjusted upward to reimburse the Seller for the Surplus
Net Working Capital by increasing the Purchase Price by the amount of the
Surplus Net Working Capital. To the extent that the Net Working Capital is a
negative number, (such negative number is referred to in this Section 2.07(c) as
"Net Working Capital Deficit"), the cash portion of the Purchase Price shall be
adjusted downward to reimburse the Purchaser for the Net Working Capital Deficit
by the amount of the Net Working Capital Deficit. The calculations described in
this Section 2.07 shall be performed by the Seller's and the Purchaser's
accountants, Coopers & Lybrand L.L.P., as part of the Closing Accounting. In the
event that the Seller and the Purchaser are unable to agree on the Estimated
Closing Accounting or the Closing Accounting, the issue shall be submitted to
such accountants for final resolution, and the Seller and the Purchaser shall be
bound by such resolution, absent manifest error.
(d) In the event such accountants are unable to finally resolve any issue
relating to the Estimated Closing Accounting or the Closing Accounting prior to
the Closing Date, the matter shall be resolved following the Closing in the
post-closing audit to be conducted by such accountants pursuant to clause (e) of
this Section 2.07.
(e) Within one hundred and twenty (120) days after the Closing, the Seller
and the Purchaser shall cause Coopers & Lybrand L.L.P. (Atlanta) to conduct an
audit of the Closing Accounting and, to the extent it is determined that either
party has retained or received amounts in excess of the amounts to which it is
entitled under this Section 2.07, such party shall remit such excess to the
other party within thirty (30) days of such determination.
Section 2.08. Record Date for Final Dividend of the Purchaser. The
Purchaser shall declare a dividend (the "Final Purchaser Dividend") to holders
of the Purchaser Common Shares, the record date for which shall be the close of
business on the last business day prior to the Closing Date in an amount equal
to the Purchaser's most recent quarterly dividend of $.30 per share, multiplied
by the number of days elapsed since the last dividend record date through and
including the Closing Date and divided by 90.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
As an inducement to the Purchaser to enter into this Agreement, the Seller
hereby represents and warrants to the Purchaser as follows:
Section 3.01. Organization and Authority of the Seller. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and authority to enter into
this Agreement and the Ancillary Agreements to which it is a party, to carry out
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Seller is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its businesses makes such licensing or
qualification necessary other than in such jurisdictions where the failure to be
so qualified or licensed, individually or in the aggregate, would not have a
Seller Material Adverse Effect. The execution and delivery by the Seller of this
Agreement and the Ancillary Agreements to which it is a party, the performance
by the Seller of its obligations hereunder and thereunder and the consummation
by the Seller of the transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of the Seller and its
shareholders. This Agreement has been, and upon their execution the Ancillary
Agreements to which the Seller is a party will be, duly executed and delivered
by the Seller, and (assuming due authorization, execution and delivery by the
Purchaser) this Agreement constitutes, and upon their execution the Ancillary
Agreements to which the Seller is a party will constitute, legal, valid and
binding obligations of the Seller enforceable against the Seller in accordance
with their respective terms, subject to applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights and equitable
principles.
Section 3.02. Capital Structure and Ownership of Seller
Subsidiaries. (a) The authorized capital stock of each Seller Subsidiary that
is a corporation consists of the number of shares of common stock each indicated
on Schedule 3.02, ("Seller Subsidiary Common Stock"). As of the date hereof, all
issued and outstanding shares of Seller Subsidiary Common Stock are validly
issued, fully paid and nonassessable. None of the issued and outstanding shares
of Seller Subsidiary Common Stock was issued in violation of any preemptive
rights. There are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the capital
stock of any such Seller Subsidiaries or obligating any such Seller Subsidiary
or the Seller to issue or sell any shares of capital stock of, or other interest
in, any such Seller Subsidiary. There are no outstanding contractual obligations
of any such Seller Subsidiary to repurchase, redeem or otherwise acquire any
shares of such Seller Subsidiary's Common Stock or to provide funds to, or make
any investment (in the form of a loan, capital contribution or otherwise) in,
any other Person (other than as set forth in the Joint Venture Agreements, the
MSDI Loan Agreement or the Redemption Agreement). The Seller Subsidiary Common
Stock described on Schedule 3.02 constitutes all the issued and outstanding
capital stock of each Seller Subsidiary which is a corporation and are owned of
record and beneficially by the Seller, free and clear of all Encumbrances. There
are no voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
Seller Subsidiary Common Stock.
(b) Schedule 3.02(b) sets forth (i) the name of each Seller Subsidiary
which is a limited partnership, general partnership, joint venture or limited
liability company, (ii) the name of each partner, joint venturer, member or
other Person (including, without limitation, Seller Subsidiaries) having a
direct ownership interest in such Seller Subsidiaries, and (iii) the percentage
ownership interest of each such Person.
Section 3.03. Seller Subsidiaries. (a) Schedule 3.03(a) sets forth for
each Seller Subsidiary its name, type of entity, the jurisdiction and date of
its incorporation or organization, its authorized capital stock, partnership
capital or equivalent, the number and type of its issued and outstanding shares
of capital stock, partnership interests or similar ownership interests and the
current ownership of such shares, partnership interests or similar ownership
interests.
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(b) Each Seller Subsidiary that is a corporation: (i) is a corporation duly
organized and validly existing under the laws of its jurisdiction of
incorporation, (ii) has all necessary power and authority to own, operate or
lease the properties and assets owned, operated or leased by such Seller
Subsidiary and to carry on its business as it has been and is currently
conducted by such Seller Subsidiary and (iii) is duly licensed or qualified to
do business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary or desirable other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Seller Material Adverse Effect. Each Seller Subsidiary that is not a
corporation: (i) is duly organized and validly existing under the laws of its
jurisdiction of organization, (ii) has all necessary power and authority to own,
operate or lease the properties and assets owned, operated or leased by such
Seller Subsidiary and to carry on its business as it has been and is currently
conducted by such Seller Subsidiary, and (iii) is duly licensed or qualified to
do business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary other than in such jurisdictions where the failure to be
so qualified or licensed, individually or in the aggregate, would not have a
Seller Material Adverse Effect.
(c) True and complete copies of the charter, by-laws and partnership
agreement (or similar organizational documents), as amended to the date of this
Agreement, of each Seller Subsidiary (excluding the Joint Ventures) have been
delivered or made available to the Purchaser. To the Knowledge of the Seller,
true and complete copies of the partnership agreements of the Joint Ventures
have been delivered or made available to the Purchaser.
(d) Except as set forth in Schedule 3.03(a), no Seller Subsidiary owns,
directly or indirectly, any capital stock or other ownership interest in any
Person. Neither the Seller nor any Seller Subsidiary is in default under any of
the Joint Venture Agreements (provided, however, that the Seller makes no
representation or warranty regarding any consent which may be required from the
third-party partners in the Joint Ventures (the "Joint Venture Consents").
Section 3.04. Books and Records. To the Seller's Knowledge, the minute
books of the Seller and the Seller Subsidiaries that constitute corporations
contain accurate records of all meetings and accurately reflect all other
material actions taken by the shareholders, Boards of Directors and all
committees of the Boards of Directors of the Seller and the Seller Subsidiaries.
To the Seller's Knowledge, complete and accurate copies of all such minute books
and of the stock register of the Seller and each such Seller Subsidiary have
been made available or provided by the Seller to the Purchaser.
Section 3.05. Noncontravention; Consents. The execution, delivery and
performance by the Seller of this Agreement and the Ancillary Agreements to
which it is a party do not and will not conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Encumbrance upon any of the properties or assets of the Seller or any
Seller Subsidiary under (i) the charter and bylaws, as amended, of the Seller or
the comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any Seller Subsidiary (provided, however, that
the Seller makes no representation or warranty regarding the necessity of any
Joint Venture Consents), (ii) any loan or credit agreement, note, bond,
mortgage, indenture, reciprocal easement agreement, lease or other agreement,
instrument, permit, concession, contract, franchise or license applicable to the
Seller or any Seller Subsidiary or their respective properties or assets or
(iii) subject to the governmental filings and other matters referred to in the
following sentence, any Laws applicable to the Seller or any Seller Subsidiary,
or their respective properties or assets, other than, in the case of clause (ii)
or (iii), any such conflicts, violations, defaults, rights or Encumbrances that
either individually or in the aggregate would not (x) have a Seller Material
Adverse Effect or (y) prevent the consummation of the transactions contemplated
by this Agreement. To the Knowledge of the Seller, no consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Authority is required by or with respect to the Seller or any
Seller Subsidiary in connection with the execution and delivery of this
Agreement by the Seller or the consummation by the Seller of the transactions
contemplated by this Agreement, except for (i) such filings as may be required
in connection with the payment of any Transfer and Gains Taxes, (ii) filings
required under the
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Exchange Act, and (iii) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as are set forth in Schedule 3.05, or
which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement or otherwise prevent the Seller from performing its obligations under
this Agreement or the Ancillary Agreements in any material respect or have,
individually or in the aggregate, a Seller Material Adverse Effect.
Section 3.06. Seller Financial Information; Books and Records. (a) True
and complete copies of the audited consolidated balance sheet of the Seller and
the Seller Subsidiaries for each of the three fiscal years ended as of December
31, 1994, December 31, 1995 and December 31, 1996, and the related audited
consolidated statements of income, retained earnings, stockholders' equity and
changes in financial position of the Seller, together with all related notes and
schedules thereto, accompanied by the reports thereon of the Seller's
accountants, BDO Seidman for the audits for the 1994 and 1995 fiscal years, and
Coopers & Lybrand L.L.P. for the 1996 fiscal year (collectively referred to
herein as the "Financial Statements"; the audited consolidated balance sheet for
the fiscal year ended as of December 31, 1996 included in the Financial
Statements, herein the "Reference Balance Sheet") have been delivered by the
Seller to the Purchaser. The Financial Statements (i) were prepared in
accordance with the books of account and other financial records of the Seller
and the Seller Subsidiaries, (ii) present fairly the consolidated financial
condition and results of operations of the Seller and the consolidated Seller
Subsidiaries, taken as a whole, as of the dates thereof or for the periods
covered thereby, and (iii) have been prepared in accordance with U.S. GAAP
applied on a basis consistent with the past practices of the Seller and the
Seller Subsidiaries and throughout the periods involved. The audited financial
statements as of December 31, 1996 of the unconsolidated Joint Ventures
previously delivered to the Purchaser (the "Unconsolidated Seller Financial
Statements") (i) were prepared in accordance with the books of account and other
financial records of the unconsolidated Seller Subsidiaries, (ii) present fairly
the financial condition and results of operations of the unconsolidated Seller
Subsidiaries as of the dates thereof or for the periods covered thereby, and
(iii) have been prepared in accordance with U.S. GAAP on the basis consistent
with the past practices of the unconsolidated Seller Subsidiaries and throughout
the periods involved.
Section 3.07. No Undisclosed Liabilities. To the Knowledge of the Seller,
there are no Liabilities of any Seller Subsidiary, other than Liabilities (i)
reflected or reserved against on the Reference Balance Sheet or the
Unconsolidated Seller Financial Statements, (ii) under the Permitted
Encumbrances, the Space Leases, the Continuing Contracts, the Administrative
Agreements, the Ground Leases and the contracts described on Schedule 3.07 which
(other than Liabilities in respect of contingent liabilities or liabilities not
otherwise required by U.S. GAAP to be reflected or reserved against on a balance
sheet) are reflected on or reserved against on the Reference Balance Sheet,
(iii) for payables being accounted for in the Closing Accounting under Section
2.07 hereof or described in Section 2.06 (iv) in respect of fixtures, equipment
or services purchased or leased in the ordinary course of business since the
date of the Reference Balance Sheet and (v) described in or referred to in this
Agreement, including the Exhibits and the Schedules.
Section 3.08. Space Leases. To the Knowledge of Seller, each lease,
tenancy or occupancy agreement, and operating agreement with tenants and
operators currently occupying space in the Seller Properties (herein, the "Space
Leases") constitutes the legal, valid, binding, and enforceable obligation of
the landlord and tenant thereunder, is in full force and effect and the term of
the same and the obligation to pay rent thereunder has commenced and the tenant
thereunder is in full possession and actual occupancy thereof, and all tenant
improvements required under the provisions thereof are completed. To the
Knowledge of the Seller, neither the Seller nor any Seller Subsidiary has
received any notice of cancellation or termination under any Space Lease. To the
Knowledge of the Seller, neither Seller nor any Seller Subsidiary, nor to the
Knowledge of Seller, any other party is in breach or default in any material
respect under any Space Lease. Except as set forth on Schedule 3.08, to the
Knowledge of Seller, no tenant is currently asserting any claim, defense, offset
or lien against the Seller any Seller Subsidiary or against any Seller
Properties.
Section 3.09. Litigation. To the Knowledge of the Seller, except as set
forth in Schedule 3.09 (which, with respect to each Action disclosed therein,
sets forth the parties, nature of the proceeding, date and method commenced,
amount of damages or other relief sought and, if applicable, paid or granted),
there are no Actions by or against the Seller or any Seller Subsidiary, or
affecting any of the Seller Properties, pending
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before any Governmental Authority (or, to the Knowledge of the Seller,
threatened to be brought by or before any Governmental Authority) which could
reasonably be expected to have a Seller Material Adverse Effect. To the
Knowledge of the Seller, none of the matters disclosed in Schedule 3.09 has had
or could reasonably be expected to have a Seller Material Adverse Effect or
could affect the legality, validity or enforceability of this Agreement, any
Ancillary Agreement or the consummation of the transactions contemplated hereby
or thereby. To the Knowledge of the Seller, except as set forth in Schedule
3.09, none of the Seller, the Seller Subsidiaries nor any of their respective
assets or properties, including, without limitation, the Seller Properties, is
subject to any Governmental Order (nor, to the Knowledge of the Seller, are
there any such Governmental Orders threatened to be imposed by any Governmental
Authority) which has had or could reasonably be expected to have a Seller
Material Adverse Effect.
Section 3.10. Compliance with Laws. To the Knowledge of the Seller, the
Seller and the Seller Subsidiaries have each conducted and continue to conduct
their respective businesses and operations in accordance with all Laws and
Governmental Orders applicable to the Seller or any Seller Subsidiary or any of
their properties or assets, including, without limitation, the Seller Properties
and neither the Seller nor any Seller Subsidiary is in violation of any such Law
or Governmental Order which has had or could reasonably be expected to have a
Seller Material Adverse Effect. Notwithstanding the foregoing, the Seller makes
no representation or warranty regarding the compliance of the Seller Properties
with ADA requirements.
Section 3.11. Environmental and Other Permits and Licenses; Related
Matters. To the Knowledge of the Seller, except as disclosed in the reports
referenced in Schedule 3.11, (a) the Seller and the Seller Subsidiaries
currently hold all of the environmental, health and safety and other permits,
licenses, authorizations, identification numbers, certificates, registrations,
notifications, exceptions and approvals of Governmental Authorities
(collectively, "Permits"), including, without limitation, Environmental Permits,
required, necessary or proper for the current use, occupancy and operation of
the Seller Properties, and all such Permits and Environmental Permits are in
full force and effect; (b) there is no existing practice, action or activity of
the Seller or any Seller Subsidiary and no existing condition of or condition
associated with the properties or assets of the Seller or any Seller Subsidiary,
including, without limitation, the Seller Properties, which would give rise to
any civil or criminal Liability under, or violate or prevent compliance with,
any applicable Environmental Law, applicable Permits or applicable Environmental
Permits or other applicable law; (c) neither the Seller nor any Seller
Subsidiary has received any notice from any Governmental Authority proposing to
or actually revoking, canceling, rescinding, materially modifying or refusing to
renew any Permit or Environmental Permit or providing written notice of
violations under any applicable Environmental Law or applicable Environmental
Permit; (d) the Seller and each Seller Subsidiary is in all respects in
compliance with the Permits, all applicable Environmental Laws and the
requirements of all Environmental Permits; (e) Hazardous Materials have not been
generated, used, treated, handled or stored on, or transported to or from, any
Seller Property (other than such activities that have been conducted in strict
accordance with all applicable Environmental Laws and Environmental Permits
consistent with the nature of the applicable Seller Property and that would not
have a Seller Material Adverse Effect); (f) Hazardous Materials (regardless of
the source) have not been Released on any Seller Property or otherwise
contaminated any Seller Property and Hazardous Materials have not been Released
on or contaminated any property adjoining any Seller Property (except in either
instance, Releases or contamination involving only de minimis amounts of
Hazardous Materials, the Release of which or contamination by would not violate
any applicable Environmental Law, violate any Environmental Permit, trigger any
reporting obligation, or trigger any obligation to investigate, remediate,
cleanup or otherwise respond to such Hazardous Material); (g) the Seller and the
Seller Subsidiaries have disposed of all wastes, including those consisting of
or containing Hazardous Materials, in compliance in all material respects with
all applicable Environmental Laws and Environmental Permits; (h) there are no
past, pending or threatened Environmental Claims against the Seller, any Seller
Subsidiary or any Seller Property; (i) no Seller Property nor any property
adjoining any Seller Property is listed or proposed for listing on the National
Priorities List under CERCLA or on the CERCLIS or any analogous state list of
sites requiring investigation or cleanup of Hazardous Materials; (j) neither the
Seller nor any Seller Subsidiary has used or arranged for the use of any
location for the treatment, storage, disposal, Release or other handling of any
Hazardous Materials or transported or arranged for the transportation of any
Hazardous Materials to any location that is listed or proposed for listing on
the National Priorities List under
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CERCLA or on the CERCLIS or any analogous state list or which is the subject of
any Environmental Claim; (k) there are not now and never have been any USTs
located on any Seller Property or on any property adjoining any Seller Property;
and (l) there is not now any asbestos in, on, or about any Seller Property.
Section 3.12. Material Contracts. (a) To the Knowledge of the Seller,
Schedule 3.12(a) lists all of the following written contracts and agreements of
the Seller Subsidiaries or to which any Seller Subsidiary or a Seller Property
is bound (such contracts and agreements, together with all contracts and
agreements concerning the management or operation of any Seller Properties
(excluding the Management Contracts) listed or otherwise disclosed in Schedule
3.12(a) to which the Seller or any Seller Subsidiary is a party or to which any
Seller Subsidiary or Seller Property is bound set forth in Schedule 3.12(a),
being "Material Contracts"):
(i) each contract, agreement and other arrangement of any nature which
involves an unperformed commitment or for the provision of services to any
Seller Subsidiary or otherwise related to the Seller Properties under the
terms of which any Seller Subsidiary: (A) is likely to pay or otherwise
give consideration of more than $100,000 in the aggregate during the
calendar year ended December 31, 1997, (B) is likely to pay or otherwise
give consideration of more than $100,000 in the aggregate over the
remaining term of such contract, or (C) cannot be canceled by such Seller
Subsidiary without penalty or further payment and without more than 30
days' notice;
(ii) all property management contracts, asset management contracts and
similar contracts (or arrangements) which are not cancelable without
penalty or further payment and without more than 30 days' notice;
(iii) all contracts and agreements relating to Indebtedness of each
Seller Subsidiary;
(iv) all contracts and agreements with any Governmental Authority;
(v) all contracts and agreements between or among any Seller
Subsidiary and any Affiliate of the Seller;
(vi) all partnership, joint venture or similar agreements or
arrangements (including, without limitation, the Joint Venture Agreements
described in Schedule 3.02(b) hereof); and
(vii) any power of attorney or agency agreement or arrangement with
any Person pursuant to which such Person is granted the authority to act
for and on behalf of any Seller Subsidiary.
(b) To the Seller's Knowledge, each Continuing Contract and Administrative
Agreement is valid and binding on the respective parties thereto and is in full
force and effect. To the Knowledge of the Seller, neither the Seller nor any
Seller Subsidiary is in breach of, or default under, any Continuing Contract and
no other party to any Continuing Contract or is in breach thereof or default
thereunder.
(c) There is no contract, agreement or other arrangement granting any
Person any preferential right to purchase any of the properties or assets of the
Seller or any Seller Subsidiary, including, without limitation, the Seller
Properties, except as set forth in the Joint Venture Agreements.
Section 3.13. Management Agreements. To the Seller's Knowledge, no party
to a Management Agreement has asserted rights of set off or counterclaim against
the Seller or any Seller Subsidiary under such Management Agreement, and neither
the Seller nor any Seller Subsidiary is in default thereunder in any material
respect nor is the Seller aware of any facts or circumstances which, with the
notice or passage of time, or both, would constitute a material default by the
Seller or any Seller Subsidiary under any Management Agreement. To the Seller's
Knowledge, no property manager is in default in any material respect under any
Management Agreement nor is the Seller aware of any facts or circumstances
which, with notice or passage of time, or both, would constitute a material
default by a property manager under any Management Agreement.
Section 3.14. Seller Properties. (a) To the Seller's Knowledge, a Seller
Subsidiary owns fee simple title (or where indicated, a leasehold estate) to
each of the Seller Properties in each case free of all Encumbrances except for
Permitted Encumbrances. To the Seller's Knowledge, except as described in
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Schedule 3.14, there is no material violations of any Law (including, without
limitation, any building, planning or zoning Law) relating to any of the Seller
Properties.
(b) To the Knowledge of the Seller, no improvements on the Seller
Properties and none of the current uses and conditions thereof violate in any
material respect any applicable deed restrictions or other applicable Laws,
covenants, restrictions, agreements, existing site plan approvals, zoning or
subdivision regulations or urban redevelopment plans as modified by any duly
issued variances (collectively, "Property Restrictions"), and no material
permits, licenses or certificates pertaining to the ownership or operation of
all improvements on the Seller Properties, other than those which are available
to the Seller Properties, are required by any Governmental Authority having
jurisdiction over the Seller Properties. Neither the Seller nor any of the
Seller's Subsidiaries have Knowledge of, (i) any condemnation or rezoning
proceedings are pending or threatened with respect to any of the Seller
Properties or (ii) any Property Restriction will be violated in any material
respect by the continued maintenance, operation or use of any of the buildings
or other improvements on any of the Seller Properties for their current use.
(c) The Seller has completed or will complete on or prior to the Closing
Date all capital improvement work (including replacements of capital items) with
respect to the Seller Properties contemplated in the operating and capital
improvement budgets for each of the Seller Properties for the period ending on
the Closing Date, true and correct copies of which have been provided or made
available to the Purchaser.
Section 3.15. Ground Leases. To the Knowledge of the Seller, each Ground
Lease is valid and in full force and effect and the copy of each Ground Lease
provided to the Purchaser is true, correct and complete and constitutes the
entire agreement between the ground lessor and ground lessee thereunder and
there have been no amendments thereto (either orally or in writing). To the
Knowledge of the Seller, there is no material default by either the ground
lessor or ground lessee under any Ground Lease and no conditions exists that,
with the passage of time or the giving of notice or both, would constitute a
material default thereunder and no notice of termination has been given by
either a ground lessor or a ground lessee under any Ground Lease. To the
Knowledge of the Seller, the applicable Seller Subsidiaries' interest in each
Ground Lease is free of all Encumbrances except for the Permitted Encumbrances.
Section 3.16. Employment Matters. Except as set forth in Section 2.01(b),
the Seller Subsidiaries have no employees (all personnel associated with the
Seller Properties being (i) employees of property managers, (ii) employees of
other independent contractors of the Seller or a Seller Subsidiary, or (iii)
employees of the Seller) and none of the Seller Subsidiaries have ever employed
any employees or been a party to any employee contract. Notwithstanding the
foregoing, the Seller has disclosed to the Purchaser that a Seller Subsidiary,
DIHC Management Corporation has had and currently has employees.
Section 3.17. Taxes. (a) Except as disclosed in Schedule 3.17(a), with
respect to the Seller and the Seller Subsidiaries (other than the Joint
Ventures), and, with respect to the Joint Ventures, to the Knowledge of the
Seller, (i) all returns and reports in respect of Taxes ("Returns") required to
be filed with respect to the Seller and each Seller Subsidiary have been timely
filed (taking into account any valid extensions of time for filing); (ii) all
Taxes required to be shown on such Returns or otherwise due have been timely
paid; (iii) all such Returns are true, correct and complete in all material
respects; (iv) no adjustment relating to such Returns has been proposed formally
or informally by any Tax authority and, to the Knowledge of the Seller, no basis
exists for any such adjustment; (v) there are no pending or, to the Knowledge of
the Seller, threatened actions or proceedings for the assessment or collection
of Taxes against the Seller or any Seller Subsidiary or (insofar as either
relates to the activities or income of the Seller or any Seller Subsidiary or
could result in liability of any Seller Subsidiary on the basis of joint and/or
several liability) any corporation that was includible in the filing of a return
with the Seller on a consolidated or combined basis; and (vi) there are no Tax
liens on any assets of the Seller or any Seller Subsidiary.
(b) To the Knowledge of the Seller, (i) there are no outstanding waivers or
agreements extending the statute of limitations for any period with respect to
any Tax to which the Seller or any Seller Subsidiary may be subject; (ii) there
are no requests for information currently outstanding that could affect the
Taxes of the Seller or any Seller Subsidiary; (iii) there are no proposed
reassessments of any property owned by the Seller or any Seller Subsidiary or
other proposals that could materially increase the amount of any Tax to which
the
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Seller or any Seller Subsidiary would be subject; and (iv) no power of attorney
that is currently in force has been granted with respect to any matter relating
to Taxes that could affect any Seller Subsidiary.
(c) Each of the Seller and the Seller Subsidiaries (other than the Joint
Ventures), and to the Knowledge of the Seller, each Joint Venture, has withheld
and paid all material Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(d) (i) Schedule 3.17(d) lists all income, franchise and similar Tax
Returns (federal, state, local and foreign) filed with respect to each Seller
Subsidiary (other than the Joint Ventures) and, to the Knowledge of the Seller,
with respect to each Joint Venture, for taxable periods ended on or after
December 31, 1993, indicates the most recent income, franchise or similar Tax
Return for each relevant jurisdiction for which an audit has been completed or
the statute of limitations has lapsed and indicates all Tax Returns that
currently are the subject of audit; and (ii) the Seller has delivered or made
available to the Purchaser correct and complete copies of all federal, state and
foreign income, franchise and similar Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any Seller
Subsidiary (other than the Joint Ventures), and, to the Knowledge of the Seller,
by any Joint Venture since December 31, 1993.
(e) The Seller and each Seller Subsidiary is not a "foreign person" within
the meaning of Section 1445(f)(3) of the Code and will furnish to the Purchaser,
if requested by the Purchaser, an affidavit and form satisfactory to the
Purchaser confirming the same.
(f) Seller and each Seller Subsidiary that is a corporation are members of
an "affiliated group" under Section 1504(a) of the Code and currently file a
consolidated U.S. federal income tax return.
(g) To the extent the representations and warranties made in this Section
3.17 relate to the Seller Subsidiaries that were Joint Ventures during the
period at issue, such representations and warranties are limited to the
Knowledge of the Seller.
Section 3.18. Insurance. Schedule 3.18 lists all casualty, liability,
business interruption and other insurance policies insuring the Seller
Subsidiaries. All such insurance policies are in full force and effect. To the
Knowledge of the Seller, all material assets, properties and risks of the Seller
and each Seller Subsidiary are covered by valid and, except for policies that
have expired under their terms in the ordinary course, currently effective
insurance policies or binders of insurance (including, without limitation,
general liability insurance, property insurance and workers' compensation
insurance) issued in favor of the Seller or a Seller Subsidiary, as the case may
be, in each case with responsible insurance companies, in such types and amounts
and covering such risks as are consistent with customary practices and standards
of companies engaged in businesses and operations similar to those of the Seller
or such Seller Subsidiary.
Section 3.19. Full Disclosure. The Seller is not aware of any facts
pertaining to the Seller or any Seller Subsidiary which would, or would be
reasonably likely to have a Seller Material Adverse Effect which have not been
disclosed in this Agreement, the Schedules or Exhibits hereto or the Financial
Statements or otherwise disclosed to the Purchaser by the Seller in writing.
Section 3.20. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements based
upon arrangements made by or on behalf of the Seller.
Section 3.21. Insolvency. There has not been filed by nor has the Seller
or any Seller Subsidiary received notice of a petition in bankruptcy or any
other insolvency proceeding, or for the reorganization or appointment of a
receiver or trustee, nor has the Seller or any Seller Subsidiary made an
assignment for the benefit of creditors, nor filed a petition for arrangement,
nor entered into any arrangement of creditors, nor admitted in writing its
inability to pay debts as they become due.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
As an inducement to the Seller to enter into this Agreement, the Purchaser
hereby represents and warrants to the Seller as follows:
Section 4.01. Organization and Authority of the Purchaser. The Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has the requisite power and authority to carry
on its business as now being conducted. The Purchaser is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have a Seller Material Adverse Effect. The Purchaser has
delivered to the Seller complete and correct copies of its Restated Articles of
Incorporation (the "Purchaser's Charter") and Bylaws, as amended to the date of
this Agreement.
Section 4.02. Purchaser Subsidiaries. Schedule 4.02 to this Agreement
sets forth each Purchaser Subsidiary and the ownership interest therein of the
Purchaser. Except as set forth on Schedule 4.02, (a) all the outstanding shares
of capital stock of each Purchaser Subsidiary that is a corporation have been
validly issued and are fully paid and nonassessable, are owned by the Purchaser
or by another Purchaser Subsidiary free and clear of all Encumbrances and (b)
all equity interests in each Purchaser Subsidiary that is a partnership, joint
venture, limited liability company or trust are owned by the Purchaser, by
another Purchaser Subsidiary, or by the Purchaser and another Purchaser
Subsidiary, or by two or more Purchaser Subsidiaries free and clear of all
Encumbrances. Except for the capital stock of or other equity or ownership
interests in the Purchaser Subsidiaries, and except as set forth on Schedule
4.02, the Purchaser does not own, directly or indirectly, any capital stock or
other ownership interest in any Person. Each Purchaser Subsidiary that is a
corporation is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted, and each Purchaser
Subsidiary that is a partnership, limited liability company or trust is duly
organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
as now being conducted. Each Purchaser Subsidiary is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Purchaser Material Adverse Effect. True, complete and correct copies
of the articles of incorporation, bylaws, organization documents and partnership
and joint venture agreements of each Purchaser Subsidiary, as amended to the
date of this Agreement, have been previously delivered or made available to
Purchaser.
Section 4.03. Capital Structure. The authorized capital stock of the
Purchaser consists of 100,000,000 shares of Purchaser Common Shares and
15,000,000 shares of Purchaser Preferred Shares. On the date hereof (i)
48,856,742 shares of Purchaser Common Shares are issued and outstanding, (ii)
3,030,303 shares of Purchaser Preferred Shares are issued and outstanding, (iii)
51,143,258 shares of Purchaser Common Shares are authorized but not issued, (iv)
no shares of Purchaser Common Shares are reserved for issuance under the
Purchaser's employee benefit or incentive plans pursuant to awards granted by
the Purchaser (the "Purchaser Employee Stock Plans"), (v) 1,757,500 shares of
Purchaser Common Shares are issuable upon the exercise of outstanding options
(the "Purchaser Options") to purchase Purchaser Common Shares, (vi) no shares of
Purchaser Preferred Shares are issuable upon the exercise of outstanding
options, (vii) no Purchaser Common Shares are reserved for issuance for the
Purchaser's Dividend Reinvestment Share Purchase Plan, and (viii) no Purchaser
Common Shares are reserved for issuance pursuant to the Purchaser's Employee
Share Purchase Plan. On the date of this Agreement, except as set forth above in
this Section 4.03, no shares of stock or other voting securities of the
Purchaser were issued, reserved for issuance or outstanding. The Purchaser has
no outstanding stock appreciation rights relating to the shares of the
Purchaser. All outstanding shares of common stock and preferred stock of the
Purchaser are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth on Schedule 4.03, there
are no bonds,
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debentures, notes or other indebtedness of the Purchaser having the right to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which shareholders of the Purchaser may vote. Except (i)
as set forth in this Section 4.03, or (ii) as set forth in Schedule 4.03, as of
the date of this Agreement there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Purchaser or any Purchaser Subsidiary is a party or by
which such entity is bound, obligating the Purchaser or any Purchaser Subsidiary
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock, voting securities or securities convertible into voting
securities or other ownership interests of the Purchaser or any Purchaser
Subsidiary or obligating the Purchaser or any Purchaser Subsidiary to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking (other than to the Purchaser
or a Purchaser Subsidiary). Except as set forth on Schedule 4.03, there are no
outstanding contractual obligations of the Purchaser or any Purchaser Subsidiary
to repurchase, redeem or otherwise acquire any beneficial shares of interest of
the Purchaser or any capital stock, voting securities or other ownership
interests in any Purchaser Subsidiary or make any material investment (in the
form of a loan, capital contribution or otherwise) in any Person (other than a
Purchaser Subsidiary).
Section 4.04. Authority; Noncontravention; Consents. The Purchaser has
the requisite power and authority to enter into this Agreement and, subject to
(i) the approval of the issuance (the "Share Issuance") of Purchaser Common
Shares under this Agreement by an affirmative vote of the holders of a majority
of the Purchaser Common Shares present at a duly convened meeting of the
stockholders of the Company in accordance with the requirements of the New York
Stock Exchange and (ii) the approval of the Charter Amendment by an affirmative
vote of the holders of a majority of the issued and outstanding Purchaser Common
Shares and an affirmative vote of the holders of a majority of the issued and
outstanding shares of Purchaser Preferred Shares in accordance with the
requirements of Nevada law and the Purchaser's articles of incorporation (the
approval of the Share Issuance and the approval of the Charter Amendment
together referred to as the "Purchaser Shareholder Approvals"). The execution
and delivery of this Agreement by the Purchaser and the consummation by the
Purchaser of the transactions contemplated by this Agreement and the Ancillary
Agreements to which the Purchaser is a party have been duly authorized by all
necessary action on the part of the Purchaser, subject to the Purchaser
Shareholder Approvals. This Agreement has been duly executed and delivered by
the Purchaser and constitutes, and upon their execution by the Purchaser and the
Purchaser Subsidiaries the Ancillary Agreements will constitute, the legal,
valid and binding obligation of the Purchaser and the Purchaser Subsidiaries,
enforceable against the Purchaser and the Purchaser Subsidiaries in accordance
with their respective terms, subject to applicable bankruptcy, insolvency or
similar laws affecting the enforcement to creditors' rights and equitable
principles. The execution and delivery by the Purchaser of this Agreement and
the Ancillary Agreements to which it is a party does not, and the consummation
by the Purchaser of the transactions contemplated by this Agreement and the
Ancillary Agreements to which it is a party and compliance by the Purchaser with
the provisions of this Agreement and the Ancillary Agreements to which it is a
party will not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
benefit or alteration of rights or obligations under, or result in the creation
of any Encumbrance upon any of the properties or assets of the Purchaser or any
Purchaser Subsidiary under (i) the Charter and Bylaws, as amended, of the
Purchaser or the comparable charter or organizational documents or partnership
or similar agreement (as the case may be) of any Purchaser Subsidiary, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession, contract,
franchise or license applicable to the Purchaser or any Purchaser Subsidiary or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to the Purchaser or any Purchaser Subsidiary, or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights or Encumbrances that either individually
or in the aggregate would not (x) have a Purchaser Material Adverse Effect or
(y) materially delay or prevent the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements. Without limiting
the foregoing, the Purchaser has taken all action necessary to ensure that the
issuance of the Purchaser Common Shares to Seller pursuant hereto shall not be
deemed a violation of Section 8.01(a) of the
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Purchaser's Charter. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to the Purchaser or any Purchaser Subsidiary in connection
with the execution and delivery of this Agreement by the Purchaser or the
consummation by the Purchaser of the transactions contemplated by this Agreement
and the Ancillary Agreements, except for (i) the filing with the SEC of (x) a
proxy statement relating to the approval by the Purchaser's shareholders of the
transactions contemplated by this Agreement and the Ancillary Agreements (as
amended or supplemented from time to time, the "Proxy Statement") and (y) such
reports under Section 13(a) of the Exchange Act, as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (ii) such filings as maybe required in connection with the payment of
any Transfer and Gains Taxes, (iii) the filing of the Charter Amendment with the
Nevada Secretary of State, and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as are set forth in
Schedule 4.04, or which, if not obtained or made, would not prevent or delay in
any material respect the consummation of any of the transactions contemplated by
this Agreement or otherwise prevent the Purchaser from performing its
obligations under this Agreement in any material respect or have, individually
or in the aggregate, a Purchaser Material Adverse Effect.
Section 4.05. SEC Documents; Financial Statements; Undisclosed
Liabilities. The Purchaser has timely filed all required reports, schedules,
forms, statements and other documents required to be filed with the SEC (the
"Purchaser SEC Documents"). All of the Purchaser SEC Documents, as of their
respective filing dates, complied, or will comply, as the case may be, in all
material respects with all applicable requirements of the Securities Act, and
the Exchange Act and, in each case, the rules and regulations promulgated
thereunder applicable to such Purchaser SEC Documents. No SEC "stop order" has
been issued or is effective with respect to the Purchaser. None of the Purchaser
SEC Documents (including, without limitation, the Proxy Statement) at the time
of filing or effectiveness contained, or will contain, as the case may be, any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been amended, modified or
superseded by later Purchaser SEC Documents (including, without limitation, the
Proxy Statement). The consolidated financial statements of the Purchaser
included in the Purchaser SEC Documents (including, without limitation, the
Proxy Statement) complied, or will comply, as the case may be, as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with U.S. GAAP (except, in the case of unaudited statements, as
permitted by Form 10-Q promulgated under the Exchange Act) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented, or will present, as the case may be, in
accordance with the applicable requirements of U.S. GAAP, the consolidated
financial position of the Purchaser and the Purchaser Subsidiaries as of the
dates thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments). Except as set forth in the Purchaser SEC
Documents filed with the SEC prior to the date hereof or in Schedule 4.05,
neither the Purchaser nor any Purchaser Subsidiary has any Liabilities required
by U.S. GAAP to be set forth on a consolidated balance sheet of the Purchaser
and the Purchaser Subsidiaries or, to the Knowledge of the Purchaser, or in the
notes thereto and which, individually or in the aggregate, would have a
Purchaser Material Adverse Effect.
Section 4.06. Absence of Certain Changes or Events. Except as disclosed
in the Purchaser SEC Documents filed with the SEC prior to the date hereof or in
Schedule 4.06, since the date of the most recent financial statements included
in the Purchaser SEC Documents (the "Financial Statement Date") and to the date
of this Agreement, the Purchaser and the Purchaser Subsidiaries have conducted
their business only in the ordinary course and there has not been (i) any change
that would have a Purchaser Material Adverse Effect (a "Purchaser Material
Adverse Change"), nor has there been any occurrence or circumstance that with
the passage of time would reasonably be expected to result in a Purchaser
Material Adverse Change, (ii) except for regular quarterly dividends not in
excess of $.30 per share of Purchaser Common Shares and regular annual dividends
not in excess of $1.155 per share of Purchaser Preferred Shares with customary
record and payment dates, (iii) any split, combination or reclassification of
any of the Purchaser's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
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substitution for, or giving the right to acquire by exchange or exercise, shares
of its capital stock or any issuance of an ownership interest in, any Purchaser
Subsidiary, (iv) any damage, destruction or loss to the Purchaser's and the
Purchaser Subsidiaries' property, not covered by insurance, that has or would
have a Purchaser Material Adverse Effect or (v) any change in accounting
methods, principles or practices by the Purchaser or any Purchaser Subsidiary,
except insofar as required by a change in U.S. GAAP.
Section 4.07. Litigation. To the Knowledge of the Purchaser, except as
set forth in Schedule 4.07 (which, with respect to each Action disclosed
therein, sets forth the parties, nature of the proceeding, date and method
commenced, amount of damages or other relief sought and, if applicable, paid or
granted), there are no Actions by or against the Purchaser or any Purchaser
Subsidiary, pending before any Governmental Authority (or, to the Knowledge of
the Purchaser, threatened to be brought by or before any Governmental Authority)
which has had or could reasonably be expected to have a Purchaser Material
Adverse Effect. To the Knowledge of the Purchaser, none of the matters disclosed
in Schedule 4.07 has had or could reasonably be expected to have a Purchaser
Material Adverse Effect or could affect the legality, validity or enforceability
of this Agreement, any Ancillary Agreement or the consummation of the
transactions contemplated hereby or thereby. To the Knowledge of the Purchaser,
except as set forth in Schedule 4.07, none of the Purchaser, the Purchaser
Subsidiaries nor any of their respective assets or properties, is subject to any
Governmental Order, including any stop order by the SEC (nor, to the Knowledge
of the Purchaser, are there any such Governmental Orders threatened to be
imposed by any Governmental Authority) which has had or could reasonably be
expected to have a Purchaser Material Adverse Effect.
Section 4.08. Purchaser Properties. (a) To the Purchaser's Knowledge,
Purchaser Subsidiary own fee simple title (or where indicated, a leasehold
estate) to each of the Purchaser Properties in each case free of all
Encumbrances except for Permitted Encumbrances. Except as described in Schedule
4.08, to the Purchaser's Knowledge, there is no material violations of any Law
(including, without limitation, any building, planning or zoning Law) relating
to any of the Purchaser Properties.
(b) To the Knowledge of the Purchaser, no improvements on the Purchaser
Properties and none of the current uses and conditions thereof violate in any
material respect any Property Restrictions, and no material permits, licenses or
certificates pertaining to the ownership or operation of all improvements on the
Purchaser Properties, other than those which are available to the Purchaser
Properties, are required by any Governmental Authority having jurisdiction over
the Purchaser Properties. Neither the Purchaser nor any of the Purchaser's
Subsidiaries have Knowledge of (i) any condemnation or rezoning proceedings are
pending or threatened with respect to any of the Purchaser Properties or (ii)
any Property Restriction will be violated in any material respect by the
continued maintenance, operation or use of any of the buildings or other
improvements on any of the Purchaser Properties for their current use.
Section 4.09. Environmental and Other Permits and Licenses; Related
Matters. To the Knowledge of the Purchaser, except as disclosed in the reports
referenced in Schedule 4.09, (a) the Purchaser and the Purchaser Subsidiaries
currently hold all of the Permits, including, without limitation, Environmental
Permits, required, necessary or proper for the current use, occupancy and
operation of each Purchaser Property, and all such Permits and Environmental
Permits are in full force and effect; (b) there is no existing practice, action
or activity of the Purchaser or any Purchaser Subsidiary and no existing
condition of or condition associated with the Purchaser Properties which would
give rise to any civil or criminal Liability under, or violate or prevent
compliance with, any applicable Environmental Law, applicable Permits or
applicable Environmental Permits or other applicable law; (c) neither the
Purchaser nor any Purchaser Subsidiary has received any notice from any
Governmental Authority proposing to or actually revoking, canceling, rescinding,
materially modifying or refusing to renew any Permit or Environmental Permit or
providing written notice of violations under any applicable Environmental Law or
applicable Environmental Permit; (d) the Purchaser, and each Purchaser
Subsidiary is in all respects in compliance with the Permits, all applicable
Environmental Laws and the requirements of all Environmental Permits; (e)
Hazardous Materials have not been generated, used, treated, handled or stored
on, or transported to or from, any Purchaser Property (other than such
activities that have been conducted in strict accordance with all applicable
Environmental Laws and Environmental Permits consistent with the nature of the
applicable Purchaser Property and that would not have a Purchaser Material
Adverse Effect); (f) Hazardous Materials (regardless of the source) have not
been Released on any
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Purchaser Property or otherwise contaminated any Purchaser Property and
Hazardous Materials have not been Released on or contaminated any property
adjoining any Purchaser Property (except in either instance, Releases or
contamination involving only de minimis amounts of Hazardous Materials, the
Release of which or contamination by would not violate any applicable
Environmental Law, violate any Environmental Permit, trigger any reporting
obligation, or trigger any obligation to investigate, remediate, cleanup or
otherwise respond to such Hazardous Material); (g) the Purchaser and the
Purchaser Subsidiaries have disposed of all wastes, including those consisting
of or containing Hazardous Materials, in compliance in all material respects
with all applicable Environmental Laws and Environmental Permits; (h) there are
no past, pending or threatened Environmental Claims against the Purchaser, any
Purchaser Subsidiary or any Purchaser Property; (i) no Purchaser Property or any
property adjoining any Purchaser Property is listed or proposed for listing on
the National Priorities List under CERCLA or on the CERCLIS or any analogous
state list of sites requiring investigation or cleanup of Hazardous Materials;
and (j) neither the Purchaser nor any Purchaser Subsidiary has used or arranged
for the use of any location for the treatment, storage, disposal, Release or
other handling of any Hazardous Materials or transported or arranged for the
transportation of any Hazardous Materials to any location that is listed or
proposed for listing on the National Priorities List under CERCLA or on the
CERCLIS or any analogous state list or which is the subject of any Environmental
Claim; (k) there are not now and never have been any USTs located on any
Purchaser Property or on any property adjoining any Purchaser Property; and (l)
there is not now any asbestos in, on, or about any Purchaser Property.
Section 4.10. Related Party Transactions. Set forth in Schedule 4.10, or
in the Purchaser SEC Documents including the Purchaser's definitive proxy
statements for the Annual Meetings of the Purchaser's shareholders held on June
2, 1997, June 20, 1996 and June 19, 1995, or in the Proxy Statement, is a list
of all arrangements, agreements and contracts entered into by the Purchaser or
any of the Purchaser Subsidiaries with any Person who (vi) is an executive
officer, director or Affiliate of the Purchaser or any of the Purchaser
Subsidiaries, or any entity of which any of the foregoing is an Affiliate which
would be required to be disclosed under Item 404 of Regulation S-K promulgated
under the Securities Act and the Exchange Act or (vii) acquired Purchaser Common
Shares in a private placement. Such documents, copies of all of which have been
previously delivered or made available to Seller, are listed in Schedule 4.10,
in the Purchaser SEC Documents, in the Purchaser's definitive proxy statements
for the Annual Meetings of the Purchaser's shareholders held on June 2, 1997,
June 20, 1996 and June 19, 1995, or in the Proxy Statement.
Section 4.11. Taxes. (a) (i) All returns and reports in respect of Taxes
required to be filed with respect to the Purchaser and each Purchaser Subsidiary
have been timely filed (taking into account any valid extensions of time for
filing); (ii) all Taxes required to be shown on such returns and reports or
otherwise due have been timely paid; (iii) all such returns and reports are
true, correct and complete in all material respects; (iv) no adjustment relating
to such returns has been proposed formally or informally by any Tax authority
and, to the Knowledge of the Purchaser, no basis exists for any such adjustment;
(v) there are no pending or, to the Knowledge of the Purchaser, threatened
actions or proceedings for the assessment or collection of Taxes against the
Purchaser or any Purchaser Subsidiary or (insofar as either relates to the
activities or income of the Purchaser or any Purchaser Subsidiary or could
result in liability of any Purchaser Subsidiary on the basis of joint and/or
several liability) any corporation that was includible in the filing of a return
with the Purchaser on a consolidated or combined basis; (vi) no consent under
Section 341(f) of the Code has been filed with respect to the Purchaser or any
Purchaser Subsidiary; and (vii) there are no Tax liens on any assets of the
Purchaser or any Purchaser Subsidiary.
(b) (i) There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax to which the
Purchaser or any Purchaser Subsidiary may be subject; (ii) there are no requests
for information currently outstanding that could affect the Taxes of the
Purchaser or any Purchaser Subsidiary; (iii) there are no proposed reassessments
of any property owned by the Purchaser or any Purchaser Subsidiary or other
proposals that could materially increase the amount of any Tax to which the
Purchaser or any Purchaser Subsidiary would be subject; and (iv) no power of
attorney that is currently in force has been granted with respect to any matter
relating to Taxes that could affect any Purchaser Subsidiary.
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(c) Each of the Purchaser and the Purchaser Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(d) None of the Purchaser and the Purchaser Subsidiaries is a party to any
Tax allocation or sharing agreement. None of the Purchaser and the Purchaser
Subsidiaries (i) has been a member of an "affiliated group" (as defined in
Section 1504(a)(1) of the Code) filing a consolidated federal income Tax return
(other than a group the common parent of which was the Purchaser) or (ii) has
any Liability for the Taxes of any Person (other than any of the Purchaser and
the Purchaser Subsidiaries) under Section 1.1502-6 of the Treasury Regulations
(or any similar provision of state, local, or foreign law), as a transferee or
successor, by contract or otherwise.
(e) The Purchaser (i) for the period commencing with the taxable year
ending December 31, 1988 to the present has been organized and operated in
conformity with the requirements for qualification as a real estate investment
trust (a "REIT") (within the meaning of Section 856 of the Code) under the Code
and has been subject to taxation as a REIT and has satisfied all requirements to
qualify as a REIT for such periods, (ii) has operated, and intends to continue
to operate, in such a manner as to qualify as a REIT for the tax year ending
December 31, 1997, and (iii) has not taken or omitted to take any action which
would reasonably be expected to result in a challenge to its status as a REIT,
and to the Purchaser's Knowledge, no such challenge is pending or threatened.
Each Purchaser Subsidiary which is a partnership, joint venture or limited
liability company has been during and since its formation and continues to be
treated for federal income tax purposes as a partnership and not as a
corporation or an association taxable as a corporation. Each Purchaser
Subsidiary which is a corporation for federal income tax purposes is a
"qualified REIT subsidiary," as defined in Section 856(i) of the Code. The
Purchaser did not incur in its 1996 tax year any liability for taxes under
Section 857(b), 860(c) or 4981 of the Code.
Section 4.12. Brokers. No broker, investment banker, financial advisor or
other Person, other than Merrill Lynch & Co., Lazard Freres & Co. LLC, and
Triton Pacific Capital LLC, the fees and expenses of which have previously been
disclosed to Seller and will be paid by the Purchaser, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Purchaser or any Purchaser Subsidiary.
Section 4.13. Compliance with Laws. To the Knowledge of the Purchaser,
the Purchaser and the Purchaser Subsidiaries have each conducted and continue to
conduct their respective businesses and operations in accordance with all Laws
and Governmental Orders applicable to the Purchaser or any Purchaser Subsidiary
or any of their properties or assets and neither the Purchaser nor any Purchaser
Subsidiary is in violation of any such Law or Governmental Order which has had
or could have a Purchaser Material Adverse Effect. Notwithstanding the
foregoing, the Purchaser makes no representation or warranty regarding the
compliance of the Purchaser Properties with ADA requirements.
Section 4.14. Contracts; Debt Instruments.
(a) To the Knowledge of the Purchaser, neither the Purchaser nor any
Purchaser Subsidiary is in violation of or in default under (nor does there
exist any condition which upon the passage of time or the giving of notice or
both would cause such a violation of or default under) any material loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except as set forth in Schedule 4.14 and except for violations
or defaults that would not, individually or in the aggregate, result in a
Purchaser Material Adverse Effect.
(b) Except for any of the following expressly identified in the Purchaser
SEC Documents, Schedule 4.14 sets forth a list of all loan or credit agreements,
notes, bonds, mortgages, indentures and other agreements and instruments
pursuant to which any indebtedness of the Purchaser or any of the Purchaser
Subsidiaries, other than indebtedness payable to the Purchaser or a Purchaser
Subsidiary or to any third-party partner or joint
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venturer in any Purchaser Subsidiary, in an aggregate principal amount in excess
of $500,000 per item is outstanding or may be incurred.
Section 4.15. Absence of Changes in Benefit Plans; ERISA Compliance.
(a) Except as disclosed in the Purchaser SEC Documents or in Schedule
4.15(a) and except as permitted by Section 5.02 (for the purpose of this
sentence, as if Section 5.02 had been in effect since December 31, 1996), since
the Financial Statement Date, there has not been any adoption or amendment by
the Purchaser, any Purchaser Subsidiary or any Person affiliated with the
Purchaser under Section 414(b), (c), (m) or (o) of the Code (each, an "ERISA
Affiliate of the Purchaser") of any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other employee benefit plan, arrangement or
understanding (whether or not legally binding, or oral or in writing) providing
benefits to any current or former employee, officer or director of the
Purchaser, any Purchaser Subsidiary, or any ERISA Affiliate of the Purchaser
(collectively, "Purchaser Benefit Plans"). No Purchaser Benefit Plan is subject
to Title IV of ERISA or to Section 412 of the Code or Section 302 of ERISA.
(b) Each Purchaser Benefit Plan is listed in Schedule 4.15(b), including,
with respect to terminated Purchaser Benefit Plans, the date of termination.
True and correct copies of each of the following have been made available to the
Seller: (i) the most recent annual report (Form 5500) relating to each such
Purchaser Benefit Plan filed with the IRS, (ii) each such Purchaser Benefit
Plan, (iii) the trust agreement, if any, relating to each such Purchaser Benefit
Plan, (iv) the most recent summary plan description for each such Purchaser
Benefit Plan for which a summary plan description is required by ERISA, and (v)
the most recent determination letter, if any, issued by the IRS with respect to
any such Purchaser Benefit Plan qualified under Section 401 of the Code.
(c) Except as set forth in Schedule 4.15(c), as to any such Purchaser
Benefit Plan intended to be qualified under Section 401 of the Code, such
Purchaser Benefit Plan satisfies in form the requirements of such Section and
there has been no termination or partial termination of such Purchaser Benefit
Plan within the meaning of Section 411(d)(3) of the Code. As to any such
terminated Purchaser Benefit Plan intended to have been qualified under Section
401 of the Code, such terminated Purchaser Benefit Plan received a favorable
determination letter from the IRS with respect to its termination.
(d) There are no actions, suits or claims pending (other than routine
claims for benefits) or, to the Knowledge of the Purchaser, threatened against,
or with respect to, any of such Purchaser Benefit Plans or their assets that
could reasonably be expected to have a Purchaser Material Adverse Effect. To the
Knowledge of the Purchaser, there is no matter pending before the IRS, the
Department of Labor or the PBGC with respect to any of such Purchaser Benefit
Plans. All contributions required to be made to such Purchaser Benefit Plans
pursuant to their terms and provisions have been timely made. Except as set
forth in Schedule 4.15(a), neither the Purchaser nor any Purchaser Subsidiary is
a party to or is bound by any severance agreement, program or policy. True and
correct copies of all employment agreements with officers of the Purchaser and
Purchaser Subsidiaries, and all vacation, overtime and other compensation
policies of the Purchaser and Purchaser Subsidiaries relating to their employees
have been made available to the Purchaser.
(e) Except as described in the Purchaser SEC Documents or as would not have
a Purchaser Material Adverse Effect, (i) all Purchaser Benefit Plans, including
any such plan that is an "employee benefit plan" as defined in Section 3(3) of
ERISA, are in compliance with all applicable requirements of law, including
ERISA and the Code, and (ii) other than claims for benefits in the normal
course, neither the Purchaser, any Purchaser Subsidiary nor any ERISA Affiliate
of the Purchaser has any liabilities or obligations with respect to any such
Purchaser Benefit Plan, whether accrued, contingent or otherwise, nor to the
Knowledge of the Purchaser are any such liabilities or obligations expected to
be incurred. The execution of, and performance of the transactions contemplated
in, this Agreement will not constitute an event under any Purchaser Benefit
Plan, policy, arrangement or agreement or any trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee or director of the
Purchaser, any Purchaser Subsidiary, or any ERISA Affiliate of the Purchaser.
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Section 4.16. Vote Required. The Purchaser Shareholder Approvals are the
only votes of the holders of any class or series of the Purchaser's shares
necessary (under applicable Law or otherwise) to approve the Share Issuance and
the Charter Amendment.
Section 4.17. Space Leases. To the Knowledge of Purchaser, each lease,
tenancy or occupancy agreement and operating agreement with tenants and
operators currently occupying space in the Purchaser Properties (herein, the
"Purchaser Space Leases") constitutes the legal, valid, binding, and enforceable
obligation of the landlord and tenant thereunder, is in full force and effect
and the term of the same and the obligation to pay rent thereunder has commenced
and the tenant thereunder is in full possession and actual occupancy thereof,
and all tenant improvements required under the provisions thereof are completed.
To the Knowledge of the Purchaser, neither the Purchaser nor any Purchaser
Subsidiary has any Knowledge of the cancellation or termination of any Purchaser
Space Lease. To the Knowledge of the Purchaser, neither Purchaser nor any
Purchaser Subsidiary, nor to the Knowledge of Purchaser, any other party is in
breach or default in any material respect under any Purchaser Space Lease. To
the Knowledge of Purchaser, no tenant is currently asserting any material claim,
defense, offset or lien against Purchaser, any Purchaser Subsidiary or against
any Purchaser Properties.
Section 4.18. Ground Leases. To the Knowledge of the Purchaser, each
ground lease affecting a Purchaser Property is valid and in full force and
effect and the copy of each such ground lease provided to the Seller is true,
correct and complete and constitutes the entire agreement between the ground
lessor and ground lessee thereunder and there have been no amendments thereto
(either orally or in writing). To the Knowledge of the Purchaser, there is no
material default by either the ground lessor or ground lessee under any such
ground lease and no conditions exists that, with the passage of time or the
giving of notice or both, would constitute a material default thereunder and no
notice of termination has been given by either a ground lessor or a ground
lessee under any such ground lease. To the Knowledge of the Purchaser, the
applicable Purchaser Subsidiaries' interest in each such ground lease is free of
all Encumbrances except for the Permitted Encumbrances.
Section 4.19. Insurance. Schedule 4.19 lists all casualty, liability,
business interruption and other insurance policies insuring the Purchaser
Subsidiaries. All such insurance policies are in full force and effect. To the
Knowledge of the Purchaser, all material assets, properties and risks of the
Purchaser and each Purchaser Subsidiary are covered by valid and, except for
policies that have expired under their terms in the ordinary course, currently
effective insurance policies or binders of insurance (including, without
limitation, general liability insurance, property insurance and workers'
compensation insurance) issued in favor of the Purchaser or a Purchaser
Subsidiary, as the case may be, in each case with responsible insurance
companies, in such types and amounts and covering such risks as are consistent
with customary practices and standards of companies engaged in businesses and
operations similar to those of the Purchaser or such Purchaser Subsidiary.
Section 4.20. Insolvency. There has not been filed by nor has the
Purchaser or any Purchaser Subsidiary received notice of a petition in
bankruptcy or any other insolvency proceeding, or for the reorganization or
appointment of a receiver or trustee, nor has the Purchaser or any Purchaser
Subsidiary made an assignment for the benefit of creditors, nor filed a petition
for arrangement, nor entered into any arrangement of creditors, nor admitted in
writing its inability to pay debts as they become due.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01. Conduct of Business by Seller Prior to the Closing;
Competing Transactions. (a) The Seller covenants and agrees that, between the
date hereof and the Closing or earlier termination of this Agreement, Seller
shall cause the Seller Properties to be operated in the ordinary and usual
course of business and consistent with the Seller's and the Seller Subsidiaries'
prior practice, shall not, directly or indirectly through any officer, trust
manager, employee, agent, investment banker, financial advisor, attorney,
accountant, broker or other representative, initiate, solicit or effect the sale
or listing for sale of any of the Seller
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Properties (other than the Seller Property listed on Schedule 5.01 [Dearborn
Land]) or any of its direct or indirect interests in the Seller Subsidiaries
(including, without limitation, the Seller Subsidiary Shares), shall use its
commercially reasonable efforts to preserve the goodwill and advantageous
relationships of the Seller and the Seller Subsidiaries with tenants, customers,
suppliers, independent contractors and other Persons material to the operation
of the Seller Properties, shall perform its, and cause the Seller Subsidiaries
to perform their, material obligations under the Space Leases and other Material
Contracts affecting the Seller Properties and shall not wilfully or knowingly
take or permit any action or omission which would cause any of its
representations or warranties contained herein to become inaccurate in any
material respect or any of the covenants made by it to be breached in any
material respect, (b) the Seller will not cause or permit any default to occur
by the Seller or any Seller Subsidiary under any Indebtedness of any of the
Seller Subsidiaries or secured by the Seller Properties or cause or permit any
increase in the outstanding aggregate principal balance thereof (other than by
the Seller Subsidiary known as DIHC Finance Corporation as expressly
contemplated in that certain Promissory Note and Loan Agreement dated August 15,
1997 (the "MSDI Loan Agreement"), having MSDI, as "Maker" and DIHC Finance
Corporation, as "Payee" in a principal amount of up to $41,900,000) or incur any
Indebtedness or make any loans, advances or capital contributions in or to any
other Person, (c) except as provided in Section 2.06(b), the Seller shall
continue to maintain all insurance policies referred to in Section 3.18 in full
force and effect, (d) the Seller shall not, and shall not permit the Seller
Subsidiaries to, effect any change in its capital structure or initiate, solicit
or effect any merger, consolidation, share exchange, business combination, or
similar transaction with any other Person or sell, or grant any option or right
in respect of, any shares of common stock, any other voting securities of any
Seller Subsidiary or any securities convertible into or any rights, warrants or
options to acquire, any such shares, voting securities or convertible securities
(except to the Seller or a Seller Subsidiary); except that, with the prior
written consent of the Purchaser, which consent shall not be unreasonably
withheld, Seller may undertake internal restructuring transactions with respect
to the Seller Subsidiaries, (e) the Seller shall not, and shall not permit any
Seller Subsidiary to, amend the articles or certificate of incorporation,
charter, bylaws, partnership agreement or other comparable charter or
organizational documents of the Seller or any Seller Subsidiary except to the
extent necessary to carry out internal restructuring transactions referred to in
(d) that are consented to by the Purchaser, (f) the Seller will not cause or
permit any default to occur by the Seller or any Seller Subsidiary under any of
the Administrative Agreements and the Seller shall, and shall cause the Seller
Subsidiaries to, perform their obligations under the Administrative Agreements
and shall not, and shall not permit any Seller Subsidiary to modify, amend or
terminate of any of the Administrative Agreements, and (g) without the prior
written consent of the Purchaser (which shall not be unreasonably withheld) the
Seller shall not, and shall not permit any Seller Subsidiary to, (i) enter into
any Material Contract or grant concessions regarding any Material Contract that
constitutes a Continuing Contract after the Closing, or (ii) as to any Space
Lease (A) in excess of 10,000 square feet of usable space, or (B) for a term in
excess of five (5) years, enter into any such Space Lease or modify, amend,
renew or terminate (except in connection with a tenant default) any such Space
Lease. The Seller and the Purchaser acknowledge and agree that, with respect to
the Seller Subsidiaries that constitute Joint Ventures, the Seller does not own
(directly or indirectly) all of the equity interests of the Joint Ventures and
thus does not unilaterally control all actions and decisions of the Joint
Ventures. Accordingly, the Seller and the Purchaser agree that, with respect to
the Seller Subsidiaries that constitute Joint Ventures, the Seller shall be
deemed to have complied with the foregoing covenants in the event the Seller or
applicable Seller Subsidiary performs such covenants consistent with its rights
under, and subject to any limitations on its authority under, the Joint Venture
Agreements.
Section 5.02. Conduct of Business by the Purchaser Prior to the
Closing. During the period from the date of this Agreement through the Closing
or earlier termination of this Agreement, the Purchaser shall, and shall cause
the Purchaser Subsidiaries each to, carry on their respective businesses in the
ordinary and usual course of business and consistent with the Purchaser's and
the Purchaser Subsidiaries' prior practice and shall use its reasonable best
efforts to preserve intact the goodwill and advantageous relationships of the
Purchaser and the Purchaser Subsidiaries with tenants, customers, suppliers,
independent contractors and other Persons material to the operation of the
Purchaser Properties and shall not wilfully or knowingly take or permit any
action or omission which would cause any of its representations or warranties
contained herein to become
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inaccurate in any respect or any of the covenants made by it to be breached in
any material respect. Without limiting the generality of the foregoing, the
following additional restrictions shall apply: during the period from the date
of this Agreement until the earlier of the (i) termination of this Agreement or
(ii) Closing, the Purchaser shall not and shall cause the Purchaser Subsidiaries
not to (and not to authorize or commit or agree to) without the prior written
consent of the Seller (which such consent shall not be unreasonably withheld or
delayed):
(a) except for (i) its regular quarterly dividends not in excess of $.30
per share of issued and outstanding Purchaser Common Shares or (ii) its regular
annual dividends not in excess of $1.155 per share of issued and outstanding
Purchaser Preferred Shares with customary record and payment dates, declare, set
aside or pay any dividends on, or make any other distributions in respect of any
of the Purchaser Common Shares or Purchaser Preferred Shares;
(b) except for the Purchaser's Dividend Reinvestment Share Purchase Plan
and the exercise of share options or issuance of shares pursuant to stock
rights, options, restricted share or performance share awards or warrants
outstanding on the date of this Agreement, issue, deliver or sell, or grant any
option or other right in respect of, any shares of common stock, any other
voting securities of the Purchaser or any Purchaser Subsidiary or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (except to the Purchaser or
a Purchaser Subsidiary), except the foregoing shall not prohibit the issuance of
shares of Common Stock of the Purchaser in connection with the conversion of any
currently outstanding convertible preferred stock or convertible notes or in
connection with the granting of any employee stock options or restricted shares
to any employee of Purchaser in an amount not to exceed $10,000,000;
(c) except as otherwise contemplated by this Agreement, amend the articles
or certificate of incorporation, charter, bylaws, partnership agreement or other
comparable charter or organizational documents of the Purchaser or any Purchaser
Subsidiary;
(d) in the case of the Purchaser or any other Purchaser Subsidiary, merge
or consolidate with any Person;
(e) in any transaction or series of related transactions involving capital,
securities or other assets or Indebtedness of the Purchaser, a Purchaser
Subsidiary, or any combination thereof in excess of $10,000,000: (i) acquire by
merging or consolidating with, or by purchasing all or a substantial portion of
the equity securities or all or substantially all of the assets of, or by any
other manner, any business or any corporation, partnership, limited liability
company, joint venture, association, real estate investment trust, business
trust or other business organization or division thereof or interest therein;
(ii) subject to any Encumbrance, sell, lease or otherwise dispose of any of the
Purchaser Properties or any material assets or assign or encumber the right to
receive income, dividends, distributions and the like; or (iii) incur any
Indebtedness, issue or refinance any Indebtedness or make any loans, advances or
capital contributions to, or investments in, any other Person; excluding (y) the
Purchaser's proposed $200 million line of credit with Bankers Trust Company and
The Chase Manhattan Bank and (z) financial transactions undertaken by Purchaser
or Purchaser's Subsidiaries in accordance with their respective ordinary cash
management practices such as investments or deposits in commercial paper,
obligations of the United States of America or its agencies or
instrumentalities, certificates of deposit, time deposits, repurchase agreements
and similar financial arrangements;
(f) adopt any new employee benefit plan, incentive plan, severance plan,
stock option or similar plan, grant new stock appreciation rights or amend any
existing plan or rights, except such changes as are required by Law or which are
not more favorable to participants than provisions presently in effect; and
(g) enter into or amend or otherwise modify any agreement or arrangement
with Persons that are Affiliates or, as of the date hereof, are executive
officers, trust managers or directors of the Purchaser or any Purchaser
Subsidiary.
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Section 5.03. Preparation of the Proxy Statement; Shareholders Meeting.
(a) As soon as practicable following the date of this Agreement but not
later than August 29, 1997, the Purchaser shall finalize and file with the SEC a
preliminary Proxy Statement in form and substance satisfactory to Purchaser. The
Purchaser shall use its reasonable best efforts to respond to any comments of
the SEC and the Purchaser will use its reasonable best efforts to cause the
Proxy Statement to be mailed to the Purchaser's shareholders as promptly as
practicable. The Purchaser will notify the Seller of any comments from the SEC
and of any request by the SEC for amendments or supplements to the Proxy
Statement or for additional information. The Proxy Statement shall comply in all
material respects with all applicable requirements of Law. The Seller shall
furnish all information concerning the Seller and the Seller Subsidiaries as the
Purchaser may reasonably request in connection with such actions and the
preparation of the Proxy Statement. The Proxy Statement shall include a proposal
to amend the Purchaser's Charter in the form of the Charter amendment attached
hereto as Exhibit 5.03(a) (the "Charter Amendment") and the recommendations of
the Board of Directors of Purchaser in favor of the Share Issuance and the
Charter Amendment. The Seller hereby approves the form of Charter Amendment
attached hereto as Exhibit 5.03(a) and consents to the Additional Charter
Provisions and agrees that the Additional Charter Provisions shall be included
in the Charter Amendments, provided, however that the Purchaser and the Seller
agree that the approval of the Additional Charter Provisions by the shareholders
of the Purchaser shall not be a condition precedent hereunder to the parties
obligation to effect the Closing.
(b) The Purchaser will submit the Share Issuance and the Charter Amendment
to a vote of the Purchaser's shareholders at a special meeting (the "Purchaser
Shareholders Meeting") for the purpose of obtaining the Purchaser Shareholder
Approvals.
(c) The information supplied by the Seller for inclusion in the Proxy
Statement shall not, (i) at the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of the
Purchaser, (ii) at the time of the Purchaser Shareholders Meeting, and (iii) the
Closing Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The Purchaser shall provide Seller a
reasonable opportunity to review the preliminary Proxy Statement, including the
information supplied by Seller for inclusion therein under the terms of this
Section 5.03, prior to the filing of such Proxy Statement with the SEC. If at
any time prior to the Closing Date any event or circumstances relating to the
Seller or any of the Seller Subsidiaries, or their respective officers or
directors, should be discovered by the Seller which should be set forth in an
amendment or a supplement to the Proxy Statement, the Seller shall promptly
inform the Purchaser. The Seller shall have no liability for the accuracy or
inaccuracy of any information set forth in the Proxy Statement or otherwise in
connection with the Proxy Statement except in respect of any breach by the
Seller of the covenants set forth in this clause (c).
Section 5.04. Commercially Reasonable Efforts; Notification.
(a) Subject to the terms and conditions herein provided, the Purchaser and
Seller shall: (a) use all commercially reasonable efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Closing with, and which consents, approvals, permits or authorizations are
required to be obtained prior to the Closing from, governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
and any third parties in connection with the execution and delivery of this
Agreement, and the consummation of the transactions contemplated by such
Agreement and (ii) timely making all such filings and timely seeking all such
consents, approvals, permits and authorizations, (b) use all commercially
reasonable efforts to obtain in writing any consents required from third parties
to effectuate the transactions contemplated by this Agreement, such consents to
be in reasonably satisfactory form to the Seller and Purchaser; and (c) use all
commercially reasonable efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary, proper or appropriate
to consummate and make effective the transactions contemplated by this
Agreement. In furtherance of the foregoing, the Seller and the Purchaser
acknowledge that they have each reviewed and approved documentation to be
entered into effective as of the Closing Date between the Purchaser (or the
applicable Seller Subsidiary or Purchaser Subsidiary) and Hines Interests
Limited Partnership ("Hines") which evidences the agreement with Hines regarding
the
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respective rights, duties and obligations from and after the Closing Date of
Hines and the Seller Subsidiary or Subsidiaries which are the partners with
Hines in the partnerships which are the fee simple owners of the Seller
Properties described on Schedule 1.01(l) hereof in items (6) and (7) [500
Boylston and 222 Berkeley], such documentation being in the form of the
documents attached hereto as Exhibit 5.04(c)(i) (the "500 Boylston and 222
Berkeley Amendments") (the form and substance of which the parties have
approved) and that each of the Purchaser and the Seller shall use their best
efforts to obtain Hines' agreement to enter into the 500 Boylston and 222
Berkeley Amendments (or documents in a form substantially similar thereto) to be
effective as of the Closing Date. In addition, the Seller and the Purchaser
acknowledge that they have proposed to C-H Associates, Ltd. ("CHV"), a partner
in One Ninety-One Peachtree Associates, the Joint Venture which owns the Seller
Property known as One Ninety-One Peachtree, certain revisions to the Joint
Venture Agreement governing the Joint Venture known as One Ninety-One Peachtree
Associates. The substance of the proposed amendments are described in the letter
to CHV dated August 1, 1997, attached hereto as Exhibit 5.04(c)(ii) which terms
have been approved by the parties. The Purchaser and Seller agree that they will
reasonably approve amendments to the Joint Venture Agreement of One Ninety-One
Peachtree Associates to reflect the terms set forth in the attached letter and
that they shall each use their best efforts to obtain the agreement of CHV to
enter into such an amendment to be effective as of the Closing Date. If, at any
time after the Closing, any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of the
Purchaser and Seller shall take all such necessary action.
(b) Prior to the Closing, the Seller and the Purchaser shall deliver to the
other information supplementing or amending the representations, warranties,
Schedules and other disclosures provided in Articles III and IV of this
Agreement to set forth the information relating to any event or circumstance
arising after date of this Agreement, or, with respect to matters that are
limited to the Knowledge of either party, information that becomes a matter
within the Knowledge of such party following the date of this Agreement, in
order to make such representations and warranties, Schedules or other
disclosures complete and accurate as of the date of such supplement or
amendment. Each representation or warranty contained herein and the statements
contained in Articles III and IV (including the Schedules hereto and the other
disclosures) shall be deemed to have been amended by any such supplement or
amendment. All references herein to any such representation, warranty or
statement (including the Schedules hereto and other disclosures) provided
hereby, to the extent such supplement or amendment refers specifically to such
representation, warranty or statement, shall be deemed to refer to the same as
so amended or supplemented. Without limiting the foregoing, the Seller covenants
and agrees that within thirty (30) days of this Agreement, the Seller shall
provide to the Purchaser an unaudited consolidated balance sheet of the Seller
and the Seller Subsidiaries as of June 30, 1997, and the related consolidated
statements of income, retained earnings, stockholders' equity and changes in
financial position of the Seller, together with all related notes and schedules
thereto, reviewed by Coopers & Lybrand, L.L.P. (the "Interim Financial
Statements"). The Interim Financial Statements will consist only of normal
recurring accruals necessary to summarize fairly the unaudited results of
operations for the six month period. The Interim Financial Statement shall be
deemed to constitute a supplement to the Seller's representations and warranties
under Section 3.07 hereto and shall give rise to a termination right on the part
of the Purchaser under Section 7.01(a) hereof to the extent such Interim
Financial Statements disclose any Seller Material Adverse Effect since the date
of this Agreement (as determined by reference to the Reference Balance Sheet and
the Seller's representations under Sections 3.06 and 3.07 hereof.) Any other
amendments or supplements given to either party pursuant to this Section 5.04(b)
may be a basis for the termination of this Agreement as provided for in Sections
9.01(b) and 9.02(c); provided the terminating party exercises its right to
terminate this Agreement under Section 9.01(b) or 9.02(c), as applicable, with
twenty (20) days after receipt of the amending or supplementary information
giving rise to such termination right.
Section 5.05. Name Changes. The Purchaser covenants and agrees that
following the Closing Date, the Purchaser shall (i) promptly take all
appropriate action to effect the change of the corporate names of each of the
Seller Subsidiaries in which the acronym "DIHC" appears to omit such acronym, it
being acknowledged and agreed that the Purchaser is acquiring no right, title or
interest in and to the name "Dutch Institutional Holding Company, Inc." or
"DIHC" other than a license to use the same until such name changes are
effected, and (ii) not use such names without the prior consent of the Seller.
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Section 5.06. Intentionally omitted.
Section 5.07. Transfer and Gains Taxes. Seller and the Purchaser shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, mortgage recording, intangible, value
added, stock transfer and stamp taxes, any transfer, recording, registration and
other fees and any similar taxes which become payable in connection with the
transactions contemplated hereby, excluding state and federal income taxes
(together with any related interests, penalties or additions to tax, "Transfer
and Gains Taxes"). The Purchaser shall be required to pay all Transfer and Gains
Taxes (including, without limitation, all Transfer and Gains Taxes due and
payable in connection with the execution, delivery and/or filing or recording of
the Purchase Money Notes and the Purchase Money Mortgages) incurred in
connection with the acquisition of the Seller Subsidiaries hereunder.
Notwithstanding the foregoing, the Seller and the Purchaser agree that any
Transfer and Gains Tax due and payable in connection with the transfer by the
Seller of its interests in the Seller Property described as item 10 on Schedule
1.01(l) hereof [Market Square, Washington D.C.] shall be shared equally between
the Seller and the Purchaser (the Seller's share thereof to be paid by an
adjustment to the cash portion of the Purchase Price payable at Closing and the
Purchaser's portion to be paid in cash or by check at Closing).
Section 5.08. Access to Information. (a) From the date hereof until the
Closing, upon reasonable notice, each party and their respective Affiliates and
their respective officers, directors, employees, agents, accountants and counsel
shall: (i) afford the officers, employees and authorized agents, accountants,
counsel, financing sources and representatives of the other party reasonable
access, during normal business hours, to the properties, offices, other
facilities, books and records of such party and its Affiliates and to those
officers, directors, employees, agents, accountants and counsel of such party
and its Affiliates who have any knowledge relating to such party, its Affiliates
or its properties and (ii) furnish to the officers, employees and authorized
agents, accountants, counsel, financing sources and representatives of the other
party such additional financial and operating data and other information
regarding it and its Affiliates properties as the other party may from time to
time reasonably request.
(b) In order to facilitate the resolution of any claims made against or
incurred by the Seller prior to the Closing, for a period of seven years after
the Closing, the Purchaser shall (i) retain the books and records of the Seller
and the Seller Subsidiaries which are transferred to the Purchaser pursuant to
this Agreement relating to periods prior to the Closing in a manner reasonably
consistent with the prior practices of the Seller and the Seller Subsidiaries
and (ii) upon reasonable notice, afford the officers, employees and authorized
agents and representatives of the Seller reasonable access (including the right
to make, at the Seller's expense, photocopies), during normal business hours, to
such books and records.
(c) In order to facilitate the resolution of any claims made by or against
or incurred by the Purchaser after the Closing or for any other reasonable
purpose, for a period of seven years following the Closing, the Seller shall (i)
retain all books and records of the Seller, and the Seller Subsidiaries which
are not transferred to the Purchaser pursuant to this Agreement and which relate
to the Seller, the Seller Subsidiaries, or the Seller Properties for periods
prior to the Closing and which shall not otherwise have been delivered to the
Purchaser (including, without limitation, employee files relating to the
employees of the Seller Subsidiaries which are not being acquired by the
Purchaser) and (ii) upon reasonable notice, afford the officers, employees and
authorized agents and representatives of the Purchaser, reasonable access
(including the right to make photocopies at the expense of the Purchaser),
during normal business hours, to such books and records.
Section 5.09. Confidentiality. Each of the Purchaser and Seller covenant
that they shall not, without the prior written consent of the other, divulge,
furnish or make accessible any information or documents provided to the other in
connection with their due diligence review of the other party's operations and
assets (other than "Non-confidential Information" as hereinafter defined) to any
other Person (other than as required by law, including applicable securities law
or stock exchange regulations, and other than to their respective employees,
accountants, attorneys, consultants, investment bankers, financial advisors,
creditors, outside partners or co-venturers in, and property managers of, any of
the parties' properties and other agents who will be bound by the terms of this
Section 5.09). The term "Non-confidential Information" shall mean
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information generally available to the public, previously known or in the
possession of the other party or which becomes available prior to any disclosure
or use thereof from some other source not restricted as to disclosure. Purchaser
and Seller agree that if this Agreement is terminated, each shall return to the
other all documents previously delivered to it in connection with the
transactions contemplated by this Agreement and shall destroy all copies of such
documents made by it and (to the extent not prohibited by law or contrary to
customary internal corporate policy) all memoranda, notes and other written
material and work-product related thereto. Each of the Purchaser and Seller
shall promptly notify the other of any request or demand by any court,
governmental agency or other person asserting a demand or request for
confidential information supplied to such party so that the other party may seek
an appropriate protective order. In the absence of such protective order or
receipt of a waiver hereunder, if Purchaser or Seller (or any of their
respective representatives) are, in the reasonable opinion of such party's
counsel, compelled to disclose confidential information or else stand liable for
contempt or suffer other censure or significant penalty, the Purchaser or Seller
may disclose that portion of the requested information which such party's
counsel advises it that it is compelled to disclose. If such party proposes to
make disclosure based upon the opinion of its counsel as aforesaid, such party
will (to the extent reasonably possible and permitted) advise and consult with
the other party prior to such disclosure concerning the information it proposes
to disclose.
Section 5.10. Section 754 Election. With respect to any partnership in
which a Seller Subsidiary has a direct or indirect interest that has not made an
election under Section 754 of the Code (a "Section 754 Election"), Purchaser and
Seller shall use their best efforts to cause such partnership to file a Section
754 Election with the partnership's federal income Tax Return for the taxable
year of the partnership that ends on or includes the Closing Date.
Section 5.11. Standstill Agreement. In the event the Closing does not
occur, the Purchaser and the Seller agree that, for a period of 24 months after
the date of this Agreement, unless specifically invited in writing by the other
party's Board of Directors, neither the Purchaser nor the Seller (nor any of
their respective Affiliates), will in any manner, directly or indirectly, (a)
effect or seek, offer or propose (whether publicly or otherwise) to effect, or
cause or participate in, (i) the acquisition of the other party's securities (or
beneficial ownership thereof) or assets, (ii) any tender or exchange offer,
merger or other business combination involving the other party, (iii) any
recapitalization, restructuring, liquidation, dissolution or other extraordinary
transaction with respect to the other party or (iv) any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the SEC) or consents to
vote any of the other party's voting securities; (b) form, join or in any way
participate in a "group" (as defined under the Exchange Act) or otherwise act,
alone or in concern with others, to seek to control or influence the other
party's management, Board of Directors or policies; or (c) enter into any
discussion or arrangement with any third party with respect to any of the
foregoing; provided, however, that the restrictions set forth in this paragraph
shall not apply to professional asset managers or investment advisers retained
by the Purchaser or the Seller or their respective Affiliates who are authorized
to exercise discretion with respect to all or a portion of the assets which they
manage for the Purchaser or the Seller or their respective Affiliates.
Notwithstanding the foregoing, in the event either of the Purchaser or the
Seller willfully and intentionally breach any of their respective obligations
under this Agreement with the result that a Closing hereunder does not occur,
the non-defaulting party shall not be bound by the covenants in this Section
5.11.
Section 5.12. Performance Under Redemption Agreement. As described on
Schedule 1.01(f), upon the making by the Purchaser (or its designated Purchaser
Subsidiary) on or following the Closing Date of a capital contribution to MSDI
in the amount of $2,083,000, MSDI shall redeem M.I.'s interest in MSDI pursuant
to the Redemption Agreement and the Purchaser's percentage interest in MSDI
shall be increased to equal the former percentage of interest of M.I. The
Purchaser covenants to make such capital contribution as and when requested by
the Seller upon no less than ten days prior written notice and within the
permissible time periods for a "Closing" under the Redemption Agreement and the
Seller covenants and agrees that, upon the making by the Purchaser of such
capital contribution to MSDI, it shall perform its obligations under the
Redemption Agreement as provided therein in a timely manner and shall cause the
redemption of M.I.'s interest in MSDI and the resultant increase in the interest
of the Purchaser (or its designated Purchaser Subsidiary) in MSDI. The Purchaser
agrees to indemnify the Seller and its Affiliates as of the Closing for all
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obligations and liabilities of the Seller under Section 10 of the Redemption
Agreement in respect of Capital Calls to MSDI and agrees to fund all capital
calls required to be made on behalf of M.I. pursuant to Section 10 of the
Redemption Agreement. In the event the Closing under the Redemption Agreement
does not close for any reason other than failure of the Purchaser to make the
capital contribution to MSDI required hereunder to fund the redemption of M.I.'s
interest in MSDI, the Seller shall reimburse the Purchaser for all such Capital
Calls funded by the Purchaser and any other payments made by the Purchaser
pursuant to the indemnity under Section 10 of the Redemption Agreement.
ARTICLE VI
TAX MATTERS
Section 6.01. Indemnity. (a) In addition to any indemnities covered by
Article VIII, the Seller agrees to indemnify and hold harmless the Purchaser and
the Purchaser Subsidiary against the following taxes and, except as otherwise
provided in Section 6.05, against any loss, damage, liability or expense,
including reasonable fees for attorneys and other outside consultants, incurred
in contesting or otherwise in connection with any such taxes: (i) federal or
state income or franchise taxes (including interest, penalties, additions to tax
and additional amounts imposed with respect thereto) imposed on the Seller,
Seller Subsidiary (other than a Joint Venture), or any member of any affiliated
group with which any of the Seller or the Seller Subsidiaries file, have filed
or should have filed a Tax Return on a consolidated or combined basis with
respect to taxable periods ending on or before the Closing Date, including, but
not limited to, federal or state income or franchise taxes (including interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed under Section 1.1502-6 of the Regulations (or any similar provision of
state or local law or under the laws of the District of Columbia); (ii) with
respect to taxable periods beginning before the Closing Date and ending after
the Closing Date, federal or state income or franchise taxes (including
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed on the Seller or any Seller Subsidiary which are
allocable, pursuant to Section 6.02, to the portion of such period ending on the
Closing Date; and (iii) in any adverse consequence to the Purchaser or any
Purchaser Subsidiary any adverse consequence to the Purchaser or any Purchaser
Subsidiary arising out of any failure of Seller to pay any federal or state
income or franchise taxes (including interest, penalties, additions to tax and
additional amounts imposed with respect thereto) attributable to the making of
the Section 338(h)(10) Election. The Purchaser shall indemnify the Seller for
any liability of Seller for Taxes and associated expenses imposed on Seller
Subsidiaries for taxable periods ending after the Closing Date and not allocated
to the Seller pursuant to the first sentence hereof, and also shall indemnify
Seller for any Transfer and Gains Taxes allocated to the Purchaser under Section
5.07.
Section 6.02. Straddle Period Taxes. In the case of federal or state
income or franchise taxes that are payable with respect to a taxable period that
begins before the Closing Date and ends after the Closing Date, the portion of
any such tax that is allocable to the portion of the period ending on the
Closing Date shall be:
(i) in the case of taxes that are either (x) based upon or related to
income or receipts, or (y) imposed in connection with any sale or other
transfer or assignment of property (real or personal, tangible or
intangible), deemed equal to the amount which would be payable if the
taxable year ended with the Closing Date; and
(ii) in the case of taxes imposed on a periodic basis with respect to
the assets of the Seller or any Seller Subsidiary, any Seller Properties or
otherwise measured by the level of any item, deemed to be the amount of
such taxes for the entire period (or, in the case of such taxes determined
on an arrears basis, the amount of such taxes for the immediately preceding
period) multiplied by a fraction the numerator of which is the number of
calendar days in the period ending on the Closing Date and the denominator
of which is the number of calendar days in the entire period.
(c) The parties recognize that Section 2.07(a)(iv) addresses the
provision for certain taxes and that Section 5.07 allocates responsibility
for Transfer and Gains Taxes. The parties intend that no multiple payment
or recovery shall be made or obtained with respect to such taxes under
Section 2.07(a)(iv) or Section 5.07 and this Article VI.
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Section 6.03. Returns and Payments. (a) From the date of this Agreement
through and after the Closing Date, the Seller shall prepare and file or
otherwise furnish in proper form to the appropriate Governmental Authority (or
cause to be prepared and filed or so furnished) in a timely manner all (i)
consolidated federal income Tax Returns for the affiliated group of which the
Seller is common parent, and (ii) the separate and combined state income Tax
Returns of the Seller. The Seller Subsidiaries shall be included in such
consolidated federal income Tax Return through the close of business on the
Closing Date. The results of operations of the Seller Subsidiaries shall be
included, to the extent consistent with past practice, in such combined state
income Tax Returns through the close of business on the Closing Date.
(b) The Seller shall prepare and file or otherwise furnish in proper form
to the appropriate Governmental Authority (or cause to be prepared and filed or
so furnished) in a timely manner all other state or local Tax Returns of each
Seller Subsidiary that is not a Joint Venture for taxable periods ending on or
before the Closing Date.
(c) Purchaser shall prepare and file or otherwise furnish in proper form to
the appropriate Governmental Authority (or cause to be prepared and filed or so
furnished) in a timely manner all separate or combined state or local Tax
Returns or each Seller Subsidiary for any taxable periods ending after the
Closing Date.
(d) With respect to any Tax Return required to be filed by the Purchaser or
the Seller with respect to the Seller Subsidiaries and as to which an amount of
Tax is allocable to the other party under Section 6.02, the filing party shall
provide the other party and its authorized representatives with a copy of such
completed Tax Return and a statement certifying the amount of Tax shown on such
Tax Return that is allocable to such other party pursuant to Section 6.02,
together with appropriate supporting information and schedules at least 20
Business Days prior to the due date (including any extension thereof) for the
filing of such Tax Return, and such other party and its authorized
representatives shall have the right to review and comment on such Tax Return
and statement prior the filing of such Tax Return.
(e) The Seller shall pay or cause to be paid when due and payable all Taxes
(other than Taxes addressed under Section 2.07(a)(iv) and Transfer and Gains
Taxes allocated to the Purchaser under Section 5.07) with respect to the Seller
and the Seller Subsidiaries for any taxable period ending on the Closing Date.
Section 6.04. Refunds. Any Tax refund or credit (including any interest
with respect thereto) relating to the Seller, any Seller Subsidiary, or the
Seller Properties for any taxable period ending on or prior to the Closing Date
shall be the property of the Seller, and if received by the Purchaser (or any
Affiliate of Purchaser) shall be paid promptly to the Seller within fifteen (15)
Business Days of the earlier of receipt or entitlement thereto (and if received
by Seller, retained by it). The Purchaser shall, if so requested by the Seller,
cause the relevant entity to file for any refunds or equivalent amounts to which
the Seller is entitled under this Section 6.04.
Section 6.05. Contests. (a) After the Closing Date, each party shall
promptly notify the other party in writing of any written notice from a
Governmental Authority, including any written notice of a proposed assessment or
claim in an audit or administrative or judicial proceeding involving a matter to
which the other party may have an indemnification obligation to the first party
pursuant to this Agreement. Such notice shall contain factual information
describing the assessment, claim, or other matter in reasonable detail and shall
include copies of any notice or other document received from such Governmental
Authority. If the first party fails to give the other party prompt notice as
required by this Section 6.05, then (i) if the other party is precluded by the
failure to give prompt notice from contesting the proposed Tax liability in the
appropriate judicial forums, then such party shall not have any obligation to
indemnify the first party for any such Tax liability, and (ii) if the other
party is not so precluded from contesting, but such failure to give prompt
notice results in a detriment to the other party, then any amount the other
party is otherwise required to pay pursuant to this Article VI with respect to
such Tax liability shall be reduced by the amount of such detriment.
(b) Seller and its duly appointed representatives shall have the sole right
to supervise or otherwise coordinate any examination process and to negotiate,
resolve, settle or contest any asserted Tax deficiencies or assert and prosecute
any claim for refund for taxable periods ending on or prior to the Closing Date.
Costs of such contests shall be borne solely by Seller. Purchaser and its duly
appointed representatives shall, at
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Purchaser's expense, have the right to supervise or otherwise coordinate any
examination process and to negotiate, resolve, settle, or contest any asserted
Tax deficiencies or assert and prosecute any claim for refund for taxable
periods of the Seller Subsidiaries that begin on or after the Closing Date.
(c) With respect to issues relating to a potential adjustment for Taxes
addressed under Section 6.02 and the last sentence of Section 5.07, (i) each
party may participate in the audit or proceeding, and (ii) the audit or
proceeding shall be controlled by that party which would bear the burden of the
greater portion of the sum of the adjustment and any corresponding adjustments
that may reasonably be anticipated for future Tax periods. The principle set
forth in the preceding sentence shall govern also for purposes of deciding any
issue that must be decided jointly (in particular, choice of judicial forum) in
situations in which separate issues are otherwise controlled under this Article
VI by the Purchaser and the Seller.
(d) The Purchaser and the Seller agree (and Purchaser agrees to cause
Seller Subsidiaries) to cooperate in the defense against or compromise of any
claim in any audit or proceeding.
Section 6.06. Section 338(h)(10) Election. The Seller will join with the
Purchaser in making an election under Section 338(h)(10) of the Code (and any
corresponding elections under state or local tax law or under the laws of the
District of Columbia) (collectively, a "Section 338(h)(10) Election") with
respect to the purchase and sale of the Seller Subsidiaries (which includes the
deemed purchase and sale of any Subsidiary of a Seller Subsidiary) hereunder.
The Purchaser shall be responsible for the preparation of the Form 8023-A and
any other forms or schedules required to effect the Section 338(h)(10) Election
and shall file such election not later than the fifteenth (15th) day of the
ninth (9th) month beginning after the month in which the Closing Date occurs.
The Seller will pay any Tax attributable to the making of the Section 338(h)(10)
election. The Purchase Price allocated to each Seller Subsidiary under Section
2.02(d), as adjusted for the assumed liabilities of such Seller Subsidiary
(including any Subsidiaries thereof) and other relevant items shall be allocated
in the manner mutually agreed to by Purchaser and Seller, which allocation shall
be agreed to in writing within 60 days after the Closing Date.
Section 6.07. Time of Payment. Except with respect to payments pursuant
to Section 6.04, any payment by one party to the other party pursuant to this
Article VI in respect of Taxes shall be made within three Business Days
following an agreement between the Seller and the Purchaser that an indemnity
amount is payable, an assessment of a Tax by a Governmental Authority, or a
"determination" as defined in Section 1313(a) of the Code. If liability under
this Article VI is in respect of costs or expenses other than Taxes, payment by
a party of any amounts due under this Article VI shall be made within five
Business Days after the date when such party has been notified by the other
party that the first party has a liability for a determinable amount under this
Article VI and is provided with calculations or other materials supporting such
liability.
Section 6.08. Cooperation and Exchange of Information. Upon the terms set
forth in Sections 5.04 and 5.08, the Seller and the Purchaser will (and
Purchaser will cause the Seller Subsidiaries to) provide the other with such
cooperation and information as they reasonably may request in filing any Tax
Return, amended return or claim for refund, determining a liability for Taxes or
a right to a refund of Taxes, or participating in or conducting any audit or
other proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of relevant Tax Returns or portions thereof, together
with accompanying schedules, related work papers and documents relating to
rulings or other determinations by Governmental Authorities. The Seller and
Purchaser shall (and Purchaser shall cause the Seller Subsidiaries to) make its
respective employees (if any) available on a basis mutually convenient to
provide explanations of any documents or information provided hereunder. Each of
the Seller and the Purchaser shall (and Purchaser shall cause the Seller
Subsidiaries to) retain all Tax Returns, schedules and work papers, records and
other documents in its possession relating to Tax matters of the Seller and the
Seller Subsidiaries for each taxable period first ending after the Closing Date
and for all prior taxable periods until the later of (i) the expiration of the
statute of limitations of the taxable periods to which such Tax Returns and
other documents relate, without regard to extensions except to the extent
notified by the other party in writing of such extensions for the respective Tax
periods or (ii) six years following the due date (without extension) for such
Tax Returns. Before Purchaser or the Seller Subsidiaries shall dispose of any of
such books and records, at least ninety (90)
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calendar days' prior written notice to such effect shall be given by Purchaser
to the Seller, and the Seller shall be given an opportunity, at its cost and
expense, to remove and retain all or any part of such books and records as the
Seller may select. Any information obtained under this Section 6.08 shall be
kept confidential in accordance with Section 5.09 except as may be otherwise
necessary in connection with the filing of Tax Returns or claims for refund or
in conducting an audit or other proceeding.
Section 6.09. Miscellaneous. (a) The Seller and the Purchaser agree to
treat all payments made by either to or for the benefit of the other under this
Article VI, under other indemnity provisions of this Agreement and for any
misrepresentations or breach of warranties or covenants as adjustments to the
cash portion of the Purchase Price for Tax purposes and that such treatment
shall govern for purposes hereof except to the extent that the laws of a
particular jurisdiction provide otherwise, in which case such payments shall be
made in an amount sufficient to indemnify the relevant party on an after-Tax
basis.
(b) Notwithstanding any provision in this Agreement to the contrary, the
obligations of the Seller to indemnify and hold harmless the Purchaser pursuant
to this Article VI, and the representations and warranties contained in Section
3.17, shall terminate at the close of business on the 120th day following the
expiration of the applicable statute of limitations with respect to the Tax
liabilities in question (giving effect to any waiver, mitigation or extension
thereof).
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.01. Conditions to Obligations of the Seller. The obligations of
the Seller to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions unless waived by the Seller:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Purchaser contained in this Agreement shall have been
true and correct when made and shall be true and correct in all material
respects as of the Closing, with the same force and effect as if made as of
the Closing Date, other than such representations and warranties as are
made as of another date, the covenants and agreements contained in this
Agreement to be complied with by the Purchaser on or before the Closing
shall have been complied with in all material respects, and the Seller
shall have received a certificate from the Purchaser to such effect signed
by the chief executive officer or chief financial officer of the Purchaser.
This condition shall be deemed satisfied unless breaches of the Purchaser's
representations, warranties and covenants in this Agreement are, in the
aggregate, reasonably expected to have or have had a Purchaser Material
Adverse Effect or adversely affect any of the Seller's collateral under the
Purchase Money Mortgages in any material respect;
(b) No Proceeding or Litigation. No Action shall have been commenced
by or before any Governmental Authority against either the Seller or the
Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated by this Agreement which, in the reasonable, good
faith determination of the Seller, is likely to render it impossible or
unlawful to consummate such transactions; provided, however, that the
provisions of this Section 7.01(b) shall not apply if the Seller has
directly or indirectly solicited or encouraged any such Action;
(c) Resolutions. The Seller shall have received a true and complete
copy, certified by the Secretary or an Assistant Secretary of the
Purchaser, of the resolutions duly and validly adopted by the Board of
Directors of the Purchaser evidencing its authorization of the execution
and delivery of this Agreement and the Ancillary Agreements to which it is
a party and the consummation of the transactions contemplated hereby and
thereby;
(d) No Material Adverse Change. Since the date of this Agreement,
there shall not have been any change, circumstance or event in the business
or prospects of the Purchaser which has had or would reasonably be expected
to have a Purchaser Material Adverse Effect or adversely affect any of the
Seller's collateral under the Purchase Money Mortgages in any material
respect and Seller shall have received a certificate of the chief executive
officer or chief financial officer of the Purchaser certifying to such
effect;
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(e) Opinions Relating to REIT. Seller shall have received an opinion
of counsel to the Purchaser, dated as of the Closing Date, reasonably
satisfactory to Seller that, commencing with its taxable year ending
December 31, 1993, the Purchaser was organized and is operated in
conformity with the requirements for qualification as a REIT under the
Code;
(f) Consents. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained, other than such
consents and waivers from third parties, which, if not obtained, would not
result individually or in the aggregate, in a Seller Material Adverse
Effect or a Purchaser Material Adverse Effect;
(g) Closing Under Loan Purchase Agreement. All conditions precedent
to a closing under the Loan Purchase Agreement shall have been satisfied
and a closing thereunder shall occur immediately preceding the Closing
hereunder;
(h) Other Legal Opinions. The Seller shall have received opinions of
counsel to the Purchaser, dated as of Closing Date, regarding the
enforceability, non-contravention, conflicts with law (and, where
applicable, the due authorization, execution and delivery) of the
Registration Rights and Voting Agreement, the Proxy Statement, the Charter
Amendment and the other Ancillary Agreements to which the Purchaser or any
Purchaser Subsidiary is a party, the due authorization and issuance of the
Purchaser Common Shares being issued to Seller and PGGM on the Closing
Date, and such other matters as the Seller shall reasonably require;
(i) Certified Rent Roll. A rent roll with respect to each of the
Purchaser Properties (prepared by the Purchaser or the property manager of
each of the Purchaser Properties) certified as to Knowledge of the
Purchaser to be true and correct in all material respects by the chief
executive officer or chief financial officer of the Purchaser including a
description of all Purchaser Space Leases in effect as of the Closing Date,
the rentals payable by each tenant thereunder (including, without
limitations, reimbursements for common area expenses), the original and
current balance of each security deposit delivered under each Purchaser
Space Lease, and all delinquencies and defaults under each Purchaser Space
Lease;
(j) Organizational Documents. The Seller shall have received a copy
of (i) the Certificate of Incorporation, as amended, of the Purchaser
certified by the secretary of state of the jurisdiction in which such
entity is incorporated or organized, as of a date not earlier than fifteen
Business Days prior to the Closing Date and accompanied by a certificate of
the Secretary or Assistant Secretary of the Purchaser, dated as of the
Closing Date, stating that no amendments have been made to such Certificate
of Incorporation since such date except as contemplated by this Agreement,
and (ii) the By-laws of the Purchaser, certified by the Secretary or
Assistant Secretary of the Purchaser; and
(k) Good Standing; Qualification to Do Business. The Seller shall
have received a good standing certificate for the Purchaser from the
secretary of state of the jurisdiction in which such entity is incorporated
or organized and from the secretary of state in each other jurisdiction in
which the properties owned or leased by the Purchaser, or the operation of
its business in such jurisdiction, requires the Purchaser to qualify to do
business as a foreign entity, in each case dated as of a date not earlier
than fifteen Business Days prior to the Closing Date.
Section 7.02. Conditions to Obligations of the Purchaser. The obligations
of the Purchaser to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions unless waived by the Purchaser:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Seller contained in this Agreement shall have been
true and correct when made and shall be true and correct in all material
respects as of the Closing with the same force and effect as if made as of
the Closing, other than such representations and warranties as are made as
of another date, the covenants and agreements contained in this Agreement
to be complied with by the Seller on or before the Closing shall have been
complied with in all material respects, and the Purchaser shall have
received a certificate of the Seller to
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such effect signed by the chief executive officer or the chief financial
officer of the Seller. This condition shall be deemed satisfied unless
breaches of the Seller's representations, warranties and covenants in this
Agreement are, in the aggregate, reasonably expected to have or have had a
Seller Material Adverse Effect;
(b) No Proceeding or Litigation. No Action shall have been commenced
or threatened by or before any Governmental Authority against either the
Seller or the Purchaser, seeking to restrain or materially and adversely
alter the transactions contemplated hereby which the Purchaser believes, in
its sole and absolute discretion, is likely to render it impossible or
unlawful to consummate the transactions contemplated by this Agreement or
which could have a Seller Material Adverse Effect; provided, however, that
the provisions of this Section 7.02(b) shall not apply if the Purchaser has
solicited or encouraged any such Action;
(c) Resolutions of Seller. The Purchaser shall have received a true
and complete copy, certified by the Secretary or an Assistant Secretary of
the Seller, of the resolutions duly and validly adopted by the Board of
Directors of the Seller evidencing its authorization of the execution and
delivery of this Agreement and the Ancillary Agreements to which it is a
party and the consummation of the transactions contemplated hereby and
thereby;
(d) No Material Adverse Change. Since the date of this Agreement,
there shall not have been any change, circumstance or event in the Seller
Properties or the business or prospects of the Seller or the Seller
Subsidiaries which has had or would reasonably be expected to have a Seller
Material Adverse Effect and the Purchaser shall have received a certificate
of the chief executive officer or chief financial officer of the Seller
certifying to such effect;
(e) Consents. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained, other than such
consents and waivers from third parties, which, if not obtained, would not
result individually or in the aggregate in a Seller Material Adverse Effect
or a Purchaser Material Adverse Effect;
(f) Resignations. The Purchaser shall have received the resignations,
effective as of the Closing, of all directors and officers of each Seller
Subsidiary;
(g) Organizational Documents. The Purchaser shall have received a
copy of (i) the Certificates of Incorporation, as amended, of each Seller
Subsidiary which is a corporation, and of the Certificate of Limited
Partnership for each Seller Subsidiary which is a limited partnership,
certified by the secretary of state of the jurisdiction in which such
entity is incorporated or organized, as of a date not earlier than fifteen
Business Days prior to the Closing Date and accompanied by a certificate of
the Secretary or Assistant Secretary of such entity (or a general partner
thereof in the case of a general or limited partnership), dated as of the
Closing Date, stating that no amendments have been made to such
Certificates of Incorporation or Certificate of Limited Partnership since
such date, and (ii) the By-laws or partnership agreement of each Seller
Subsidiary, certified by the Secretary or Assistant Secretary of such
entity or its general partner, as the case may be;
(h) Minute Books. The Purchaser shall have received a true and
complete copy of the minute books and stock register of each Seller
Subsidiary which is a corporation, certified by its Secretary or Assistant
Secretary as of the Closing;
(i) Good Standing; Qualification to Do Business. The Purchaser shall
have received good standing certificates for each Seller Subsidiary from
the secretary of state of the jurisdiction in which such entity is
incorporated or organized and from the secretary of state in each other
jurisdiction in which the properties owned or leased by Seller Subsidiary,
or the operation of its business in such jurisdiction, requires Seller
Subsidiary to qualify to do business as a foreign entity, in each case
dated as of a date not earlier than fifteen Business Days prior to the
Closing Date;
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(j) Certified Rent Roll. A rent roll with respect to each of the
Seller Properties (prepared by the Seller or the property manager of each
of the Seller Properties) certified as to knowledge of the Seller to be
true and correct in all material respects by the chief executive officer or
chief financial officer of the Seller including a description of all Space
Leases in effect as of the Closing Date, the rentals payable by each tenant
thereunder (including, without limitations, reimbursements for common area
expenses), the original and current balance of each security deposit
delivered under each Space Lease, and all delinquencies and defaults under
each Space Lease;
(k) Legal Opinions. The Purchaser shall have received legal opinions
of counsel to the Seller, dated as of the Closing Date, regarding the
enforceability (and, where applicable, the due authorization, execution and
delivery) of the Registration Rights and Voting Agreement and the other
Ancillary Agreements to which the Seller is a party and such other matters
as the Purchaser shall reasonably require; and
(l) Closing Under Loan Purchase Agreement. All conditions precedent
to a closing under the Loan Purchase Agreement shall have been satisfied
and a closing thereunder shall occur immediately preceding the Closing
hereunder.
Section 7.03. Condition to each Parties Obligation to Effect
Transaction. The respective obligation of each party to consummate the
transactions contemplated under this Agreement is subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Purchaser Shareholder Approvals. The Purchaser Shareholder
Approvals shall have been obtained.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by a court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the transactions contemplated by this Agreement shall
be in effect.
(c) Related Transactions. The Registration Rights and Voting
Agreement substantially in the form attached hereto as Exhibit 1.01(k)
shall have been duly executed and delivered by the parties thereto and
shall remain in full force and effect.
(d) Charter Amendment. The Charter Amendment shall have been duly
filed with the Secretary of State of the State of Nevada.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Survival of Representations and Warranties. The
representations and warranties of the Seller and the Purchaser contained in this
Agreement and the Ancillary Agreements, shall survive the Closing until March
31, 1999; provided, however, that the representations and warranties of the
Seller dealing with Tax matters shall survive as provided in Section 6.08(b).
Neither the period of survival nor the liability of either party hereto with
respect to such party's representations and warranties shall be reduced by any
investigation made at any time by or on behalf of the party seeking
indemnification. If written notice of a claim has been given prior to the
expiration of the applicable representations and warranties by the party seeking
indemnification to the other party, then the relevant representations and
warranties shall survive as to such claim until the claim has been finally
resolved.
Section 8.02. Indemnification. (a) The Purchaser and its Affiliates
(including, without limitation, the Seller Subsidiaries from and after the
Closing Date), officers, directors, employees, agents, successors and assigns
(each a "Purchaser Indemnified Party") shall be indemnified and held harmless by
the Seller for any and all Loss arising out of or resulting from the breach of
any representation or warranty made by the Seller contained in this Agreement or
the Ancillary Agreements or the breach of any covenant or agreement by the
Seller contained in this Agreement or the Ancillary Agreements.
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(b) The Seller and its Affiliates (excluding the Seller Subsidiaries after
the Closing Date), officers, directors, employees, agents, successors and
assigns (each a "Seller Indemnified Party"; a Purchaser Indemnified Party or a
Seller Indemnified Party sometimes herein referred to as an "Indemnified Party")
shall be indemnified and held harmless by the Purchaser for any and all losses
arising out of or resulting from the breach of any representation or warranty
made by the Purchaser contained in this Agreement or the Ancillary Agreements or
the breach of any covenant or agreement by the Purchaser contained in this
Agreement or the Ancillary Agreements.
As used herein the term "Loss" or "Losses" means any Liabilities, losses,
damages, claims, costs and expenses, interests, awards, judgments and penalties
(including, without limitation, attorneys' and consultants' fees and expenses)
actually suffered or incurred by any Indemnified Party (including, without
limitation, any Action brought or otherwise initiated by any Indemnified Party
but excluding amounts accounted for in the Closing Accounting). In the event of
any Loss incurred by the Seller or any Affiliate thereof, for purposes of
determining the amount the Seller is entitled to recover hereunder on account of
such Loss (but not for purposes of determining the threshold amount of Losses or
the cap on liability under Section 8.03), the Seller's Loss shall be "grossed
up" to an amount equal to the quotient of (i) the amount of such Loss divided by
(ii) a fraction the numerator of which is the aggregate number of issued and
outstanding shares of Purchaser Common Shares and Purchaser Preferred Shares
owned by Persons other than the Seller and PGGM as of the date on which any
payment is made by the Purchaser on account of such Loss and the denominator of
which is the aggregate amount of issued and outstanding Purchaser Common Shares
and Purchaser Preferred Shares as of such date.
To the extent that the Purchaser's or the Seller's undertakings set forth
in this Section 8.02 may be unenforceable, the Purchaser or the Seller which is
liable for the undertaking shall contribute the maximum amount that it is
permitted to contribute under applicable Law to the payment and satisfaction of
all Losses incurred by the other party.
(c) An Indemnified Party shall give the party from which it is seeking
indemnification hereunder (the "Indemnitor") notice of any matter which an
Indemnified Party has determined has given or could give rise to a right of
indemnification under this Agreement, within 30 days of such determination,
stating the amount of the Loss, if known, and method of computation thereof, and
containing a reference to the provisions of this Agreement in respect of which
such right of indemnification is claimed or arises. The obligations and
Liabilities of the Indemnitor under this Article VIII with respect to Losses
arising from claims of any third party which are subject to the indemnification
provided for in this Article VIII ("Third Party Claims") shall be governed by
and contingent upon the following additional terms and conditions: if an
Indemnified Party shall receive notice of any Third Party Claim, the Indemnified
Party shall give the Indemnitor notice of such Third Party Claim within 30 days
of the receipt by the Indemnified Party of such notice; provided, however, that
the failure to provide such notice shall not release the Indemnitor from any of
its obligations under this Article VIII except to the extent the Indemnitor is
materially prejudiced by such failure and shall not relieve the Indemnitor from
any other obligation or liability that it may have to any Indemnified Party
otherwise than under this Article VIII. If the Indemnitor acknowledges in
writing its obligation to indemnify the Indemnified Party hereunder against any
Losses that may result from such Third Party Claim, then the Indemnitor shall be
entitled to assume and control the defense of such Third Party Claim at its
expense and through counsel of its choice if it gives notice of its intention to
do so to the Indemnified Party within five days of the receipt of such notice
from the Indemnified Party; provided, however, that if there exists or is
reasonably likely to exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the Indemnified Party for the same
counsel to represent both the Indemnified Party and the Indemnitor, then the
Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Indemnitor. In the event the Indemnitor exercises the right
to undertake any such defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnitor in such defense
and make available to the Indemnitor, at the Indemnitor's expense, all
witnesses, pertinent records, materials and information in the Indemnified
Party's possession or under the Indemnified Party's control relating thereto as
is reasonably required by the Indemnitor. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third
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Party Claim, the Indemnitor shall cooperate with the Indemnified Party in such
defense and make available to the Indemnified Party, at the Indemnitor's
expense, all such witnesses, records, materials and information in the
Indemnitor's possession or under the Indemnitor's control relating thereto as is
reasonably required by the Indemnified Party. No such Third Party Claim may be
settled by the Indemnitor without the written consent of the Indemnified Party,
which will not be unreasonably withheld or delayed.
Section 8.03. Limitations on Recovery. With respect to any claim for the
breach of representations and warranties hereunder, no claim may be made by an
Indemnified Party against an Indemnitor for indemnification hereunder with
respect to any individual item of Loss unless the aggregate of all Losses for
which the Indemnified Party is seeking recovery from an Indemnitee under this
Article VIII for breaches of representations or warranties plus any Losses for
which such Indemnified Party or any Affiliate thereof is seeking indemnity under
Article VII of the Loan Purchase Agreement for breaches of representations or
warranties shall exceed Ten Million and No/100 Dollars ($10,000,000.00), except
in the event the Indemnified Party is seeking indemnity as a result of a wilful
and intentional breach by the Indemnitor of any of its material representations
or warranties set forth in this Agreement in which such case the foregoing
limitations shall not be applied and the Indemnified Party shall be entitled to
recover its Losses to the full extent thereof. In the event the Indemnified
Party is entitled to seek recovery for breaches of representations or warranties
hereunder, the indemnity shall be for the full extent of all the Losses to the
Indemnified Party resulting from such breach exceeding and excluding the first
$10,000,000.00 under this Agreement and the Loan Purchase Agreement aggregated.
Notwithstanding the foregoing, the aggregate liability for Losses for breaches
of representations and warranties of any Indemnitor (and its Affiliates) under
this Article VIII and Article VII of the Loan Purchase Agreement shall be
limited to an aggregate amount of One Hundred Million and No/100 Dollars
($100,000,000.00), except in the event the Indemnified Party is seeking
indemnity hereunder as a result of the wilful and intentional breach by the
Indemnitor of any of its material representations or warranties set forth in
this Agreement in which event the foregoing limitation on liability shall not be
applicable and the Indemnified Party shall be entitled to recover its Losses to
the full extent thereof.
Payments made by an Indemnitor hereunder shall be limited to the amount of
Losses that remain after deducting therefrom any insurance proceeds and any
indemnity, contribution or other payment actually received by the Indemnified
Party from any Person with respect thereto.
Section 8.04. Tax Matters. Anything in this Article VIII to the contrary
notwithstanding, the rights and obligations of the parties with respect to any
indemnification for Tax matters covered by Article VI shall be governed solely
by Article VI.
ARTICLE IX
TERMINATION
Section 9.01. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent duly authorized by the respective Boards
of Directors of Purchaser and the Seller;
(b) by Purchaser, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Seller set forth in this
Agreement if such breach is reasonably expected to, or has, a Seller
Material Adverse Effect or a Purchaser Material Adverse Effect, or if any
material representation or warranty of the Seller shall have become untrue
in any material respect such that the conditions set forth in Section
7.02(a) would be incapable of being satisfied on or prior to December 31,
1997;
(c) by the Seller, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Purchaser set forth in
this Agreement if such breach is reasonably expected to, or has, a
Purchaser Material Adverse Effect, or if any material representation or
warranty of the Purchaser shall have become untrue in any material respect
such that the conditions set forth in Section 7.01(a) would be incapable of
being satisfied on or prior to December 31, 1997;
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(d) by the Purchaser, if any judgment, injunction, order, decree or
action by any Governmental Authority preventing the consummation of the
transactions contemplated hereby or requiring actions as a condition
precedent to the consummation of such transactions which would result in a
Purchaser Material Adverse Effect or Seller Material Adverse Effect shall
have become final and nonappealable;
(e) by the Seller, if any judgment, injunction, order, decree or
action by any Governmental Authority preventing the consummation of the
transactions contemplated hereby or requiring actions as a condition
precedent to the consummation of such transactions which would result in a
Purchaser Material Adverse Effect (or the impairment in any material
respect of any of the Seller's collateral under the Purchase Money
Mortgages) shall have become final and nonappealable;
(f) by either the Purchaser or the Seller, if the Loan Purchase
Agreement is terminated;
(g) by either Seller or the Purchaser if Purchaser Shareholder
Approvals shall not have been obtained on or before December 31, 1997; or
(h) by the Seller upon any Purchaser Change of Control.
Section 9.02. Effect of Termination. In the event of termination of this
Agreement by either the Seller or the Purchaser as provided in Section 9.01,
this Agreement shall forthwith become void and have no effect (provided,
however, that the provisions of Sections 5.09, 5.11 and 10.01, together with the
definitions set forth in Section 1.01 which are operative with respect to such
provisions and the operative provisions of Article X such as "Notice,"
"Governing Law" and similar provisions, shall survive such termination subject
to any limitations on or survival described therein), without any liability or
obligation on the part of Purchaser or the Seller except to the extent that such
termination results from a wilful and intentional breach by a party of any of
its material representations, warranties, covenants or agreements set forth in
this Agreement. In the event of a wilful, intentional breach by either party of
any of its material representations warranties, covenants or agreements, the
non-defaulting party shall have the right to seek specific performance of this
Agreement and shall have the right to pursue any and all other rights or
remedies available at law, in equity or under this Agreement (including, without
limitation, to seek indemnification under Article VIII) without regard to the
limitations set forth in Section 8.03.
ARTICLE X
GENERAL PROVISIONS
Section 10.01. Expenses. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not the Closing shall have
occurred. Without limiting the generality of the foregoing, the Seller and
Purchaser acknowledge and agree that (i) the Seller has engaged Coopers &
Lybrand L.L.P. (Atlanta), Greenstreet Advisors, Inc., Landauer Associates and
Arthur Andersen LLP to advise it in connection with the transactions
contemplated hereby and that the Seller shall be responsible for the fees and
expenses of such advisors, and (ii) the Purchaser has engaged Coopers & Lybrand
L.L.P. (New York), Merrill Lynch & Co., Lazard Frres & Co. LLC and Triton
Pacific Capital LLC to advise it in connection with the transactions
contemplated hereby and that the Purchaser shall be responsible for the fees and
expenses of such advisors.
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Section 10.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
10.02):
(a) if to the Seller:
200 Galleria Parkway, NW
Suite 2000
Atlanta, Georgia 30339
Telecopy: (770) 951-9349
Attention: Mr. Robert T. Sorrentino
Mr. Michael F. Perkins
with a copy to:
Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4873
Telecopy: (212) 750-9022
Attention: Robert M. Safron, Esq.
(b) if to the Purchaser:
126 East 56th Street
New York, New York 10022
Telecopy: (212) 605-7199
Attention: Mr. John S. Moody
with a copy to:
King & Spalding
191 Peachtree Street, NE
Atlanta, Georgia 30303
Telecopy: (404) 572-5148
Attention: William B. Fryer, Esq.
Section 10.03. Waiver of Jury Trial. To the extent permitted by
applicable law, the parties hereby irrevocably waive any and all right to trial
by jury in any legal proceeding arising out of or relating to this Agreement,
the ancillary agreements or the transactions contemplated hereby or thereby.
Section 10.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 10.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
Section 10.06. No Purchaser's Lien. The parties acknowledge that in no
event that shall this Agreement constitute an encumbrance upon any of Seller's
Properties or the Seller's Subsidiaries' interests and Purchaser hereby
expressly waives any purchaser's lien, if any, that it may otherwise have upon
or against Seller's Properties or the Seller' Subsidiaries' interests by virtue
of this Agreement.
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Section 10.07. Entire Agreement. This Agreement with the Ancillary
Agreements constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and undertakings,
both written and oral, between the Seller and the Purchaser with respect to the
subject matter hereof (including, without limitation, the Confidentiality
Agreement between DIHC Management Corporation and the Purchaser dated July 15,
1997).
Section 10.08. Assignment. This Agreement may not be assigned by
operation of Law or otherwise without the express written consent of the Seller
and the Purchaser (which consent may be granted or withheld in the sole
discretion of the Seller and the Purchaser). The Seller acknowledges and agrees
that in connection with any liquidation or dissolution of the Seller occurring
during the period which Seller has any Liability hereunder (by way of indemnity
or otherwise), PGGM shall assume all such Liability of the Seller prior to or
upon such liquidation or dissolution as provided in the Loan Purchase Agreement.
Section 10.09. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person under or by reason of this Agreement.
Section 10.10. Amendment. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, the Seller and
the Purchaser.
Section 10.11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any New York state or federal court sitting in the City
of New York.
Section 10.12. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 10.13. Waiver. Either party to this Agreement may (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or conditions
of the other party contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
Section 10.14. Closing under Loan Purchase Agreement. The parties hereto
acknowledge and agree that the transactions contemplated hereunder are intended
to (and shall) close immediately subsequent to the transactions contemplated
under the Loan Purchase Agreement.
Section 10.15. Limited Survival. Except as expressly provided in Sections
2.02(c), 2.02(d), 2.02(f), 2.06, 2.07, 5.03(c), 5.04(a), 5.05, 5.06, 5.07,
5.08(b) and (c), 5.09, 5.10, 5.11, 9.02, Articles VI, VIII and X hereof (which
provisions together with the definitions set forth in Section 1.01 which are
operative with respect thereto and the operative provisions of this Article 10
such as "Notice," "Governing Law," and similar operative provisions) shall
survive the Closing subject to any limitations on survival described therein),
the provisions of this Agreement shall not survive the Closing and shall be
merged into the Ancillary Agreements and the other documents executed and
delivered at the Closing.
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IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
DUTCH INSTITUTIONAL HOLDING
COMPANY, INC.
By: /s/ ROBERT T. SORRENTINO
------------------------------------
Name: Robert T. Sorrentino
Title: Vice President
CORNERSTONE PROPERTIES INC.
By: /s/ JOHN S. MOODY
------------------------------------
Name: John S. Moody
Title: President and Chief
Executive Officer
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SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 1.01(a) "Administrative Agreements"
Schedule 1.01(b) "Continuing Contracts"
Schedule 1.01(c) Ground Leases
Schedule 1.01(d) Purchaser Persons for purposes of defining Knowledge
Schedule 1.01(e) Seller Persons for purposes of defining Knowledge
Schedule 1.01(f)
Schedule 1.01(g) Management Agreements
Schedule 1.01(h) Seller Properties Permitted Title Exceptions
Schedule 1.01(i) Permitted Title Exceptions -- "Purchaser Properties"
Schedule 1.01(j) Purchaser Properties
Schedule 1.01(k) Purchaser Subsidiaries
Schedule 1.01(l) Seller Properties
Schedule 1.01(m) Seller Subsidiaries
Schedule 2.02(c) Order and Priority of Transfer of Assets
Schedule 3.02 Seller Subsidiary Common Stock
Schedule 3.02(b) Joint Ventures and Partnerships
Schedule 3.03(a) Seller Subsidiary Corporate Information
Schedule 3.05 Registrations, consents, declarations or approvals required for
consummation of transaction (which might cause delay in
consummation of transaction)
Schedule 3.07 Contract Liabilities
Schedule 3.08 Claims or Potential Claims Under Space Leases
Schedule 3.09 List of any Actions against Seller or Seller Subs
Schedule 3.11 Seller Environmental Reports
Schedule 3.12(a) Material Contracts (excluding Management Contracts) to which
Seller is bound
Schedule 3.14 Material violations of any Law relating to the Seller
Properties; any existing fact or condition which would currently
result in the termination of utility service or access to the
Seller Property
Schedule 3.17(a) Tax Liability
Schedule 3.17(d) Tax Returns
Schedule 3.18 List of all insurance policies insuring the Seller Subsidiaries
(casualty, liability, business interruption, etc.)
Schedule 4.02 Purchaser Subsidiaries and Ownership of Purchaser
Schedule 4.03 Convertible Debt and Convertible Preferred Shares
Schedule 4.04 Required Consents of Governmental Authorities for Purchaser or
Purchaser Subsidiaries to enter into and consummate agreement
Schedule 4.05 Liabilities Required by U.S. GAAP to be set forth on
Consolidated Balance Sheet of Purchaser and Purchaser
Subsidiaries
Schedule 4.06 List of any Purchaser Material Adverse Change occurring since
the date of the most recent financial statements included in the
SEC Documents (the "Financial Statement Date") to the date of
the Agreement
Schedule 4.07 List of any Actions by or against the Purchaser or any Purchaser
Subsidiary (must include name of parties, nature of the
proceeding, date and method commenced, amount of damages or
other relief sought and amount paid, if applicable)
</TABLE>
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<TABLE>
<S> <C>
Schedule 4.08 Material Violations of law relating to any of the Purchaser
Properties
Schedule 4.09 Purchaser Environmental Reports
Schedule 4.10 List of Related Party Transactions by Purchaser and the
Purchaser Subsidiaries
Schedule 4.14 Defaults under Purchaser Debt Instruments and Debt Instruments
Not Described in Purchaser SEC Documents
Schedule 4.15(a) Any bonus, pension, profit sharing, severance plan, adopted by
Purchaser and not disclosed in the SEC Documents since the
Financial Statement Date
Schedule 4.15(b) List of Purchaser Benefit Plans
Schedule 4.15(c) Section 401 Benefit Plans not qualified under the Code or
terminated under the Code
Schedule 4.19 List of all insurance policies insuring the Purchaser
Subsidiaries.
Schedule 5.01 Seller Property which may be the subject of another Sale.
Exhibit 1.01(d) Description of Purchase Money Notes and Purchase Money Mortgages
Exhibit 1.01(k) Form of Registration Rights and Voting Agreement to be executed
by Purchaser, PGGM and Seller
Exhibit 2.02(d) Purchase Price Allocation
Exhibit 5.03(a) Form of Purchaser's Charter amendment to be included in Proxy
Statement
Exhibit 5.04(a)(c)(i) Form of documents to be entered into between Seller and Hines
which evidences the agreement between Seller and Hines regarding
their respective rights, duties, obligations, etc., from and
after the Closing Date with respect to 222 Berkeley and 500
Boylston West
Exhibit 5.04(a)(c)(ii) August 1, 1997 CHV Letter
</TABLE>
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SCHEDULE 1.01(f)
1. As of August 15, 1997, MSDI, M.I. and the Seller entered into the
Redemption Agreement pursuant to which MSDI is entitled to redeem M.I.'s entire
interest as a general partner in MSDI. Immediately prior to the closing of the
redemption of M.I.'s interest in MSDI, the Purchaser will make a capital
contribution to MSDI in the amount of $2,083,000 and be admitted as a general
partner. Thereafter, MSDI shall redeem M.I.'s interest in MSDI pursuant to the
Redemption Agreement and the Purchaser's percentage interest in MSDI shall be
increased to equal the former percentage interest of M.I.
2. On the Closing Date (if M.I.'s consent is required and is obtained) or
otherwise immediately after the redemption of M.I.'s interest by MSDI, Purchaser
will make a recourse loan to MSDI in the amount of $2,867,000 (increased by
$434.00 each day between the Closing and the date the loan is made), the
proceeds of which shall be distributed to DIHC Market Square, Inc. ("DIHC MS")
in partial redemption of its interest in MSDI. Following such redemption, DIHC
MS shall have a 1% interest in MSDI. At the Closing, DIHC MS shall also enter
into an agreement to sell its 1% interest in MSDI to Purchaser for $50,000 (to
be paid by a cash payment of $18,000 and the issuance by the Purchaser of 2,000
Purchaser Common Shares at an agreed value of $16.00 per share and not subject
to adjustment notwithstanding any changes in the stock price between the date of
this Agreement and the closing of such sale) with the closing of such sale to
occur at such time as shall be agreed to by the parties on the Closing Date.
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ANNEX II
================================================================================
------------------------
LOAN PURCHASE AGREEMENT
------------------------
BETWEEN
STICHTING PENSIOENFONDS VOOR DE
GEZONDHEID, GEESTELIJKE EN
MAATSCHAPPELIJKE BELANGEN,
AS "SELLER"
AND
CORNERSTONE PROPERTIES INC.,
AS "PURCHASER"
DATED AS OF AUGUST 18, 1997
================================================================================
<PAGE> 162
LOAN PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms.................................................... 1
ARTICLE II
PURCHASE AND SALE
Section 2.01. Purchased Loans to Be Sold............................................... 7
Section 2.02. Assumption and Exclusion of Liabilities.................................. 7
Section 2.03. Purchase Price; Payment; Order of Transfers; Allocation of Purchase 7
Price....................................................................
Section 2.04. Closing.................................................................. 8
Section 2.05. Closing Deliveries by the Seller......................................... 8
Section 2.06. Closing Deliveries by the Purchaser...................................... 8
Section 2.07. Record Date for Final Dividend of the Purchaser.......................... 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
Section 3.01. Organization and Authority of the Seller................................. 9
Section 3.02. Noncontravention; Consents............................................... 9
Section 3.03. Litigation............................................................... 10
Section 3.04. Full Disclosure.......................................................... 10
Section 3.05. Brokers.................................................................. 10
Section 3.06. Insolvency............................................................... 10
Section 3.07. Enforceability; Ownership................................................ 10
Section 3.08. Taxes.................................................................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
Section 4.01. Organization and Authority of the Purchaser.............................. 11
Section 4.02. Purchaser Subsidiaries................................................... 11
Section 4.03. Capital Structure........................................................ 11
Section 4.04. Authority; Noncontravention; Consents.................................... 12
Section 4.05. SEC Documents; Financial Statements; Undisclosed Liabilities............. 13
Section 4.06. Absence of Certain Changes or Events..................................... 13
Section 4.07. Litigation............................................................... 14
Section 4.08. Purchaser Properties..................................................... 14
Section 4.09. Environmental and Other Permits and Licenses; Related Matters............ 14
Section 4.10. Related Party Transactions............................................... 15
Section 4.11. Taxes.................................................................... 15
Section 4.12. Brokers.................................................................. 16
Section 4.13. Compliance with Laws..................................................... 16
Section 4.14. Contracts; Debt Instruments.............................................. 16
Section 4.15. Absence of Changes in Benefit Plans; ERISA Compliance.................... 17
Section 4.16. Vote Required............................................................ 18
Section 4.17. Space Leases............................................................. 18
Section 4.18. Ground Leases............................................................ 18
Section 4.19. Insurance................................................................ 18
Section 4.20. Insolvency............................................................... 18
</TABLE>
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ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01. Conduct of Business by the Purchaser Prior to the Closing................ 18
Section 5.02. Preparation of the Proxy Statement; Shareholders Meeting................. 20
Section 5.03. Commercially Reasonable Efforts; Notification............................ 20
Section 5.04. Transfer and Gains Taxes................................................. 21
Section 5.05. Access to Information.................................................... 21
Section 5.06. Confidentiality.......................................................... 21
Section 5.07. Taxes.................................................................... 22
Section 5.08. Standstill Agreement..................................................... 23
Section 5.09. Board of Directors....................................................... 23
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.01. Conditions to Obligations of the Seller.................................. 23
Section 6.02. Conditions to Obligations of the Purchaser............................... 24
Section 6.03. Condition to each Parties Obligation to Effect Transaction............... 25
ARTICLE VII
INDEMNIFICATION
Section 7.01. Survival of Representations and Warranties............................... 26
Section 7.02. Indemnification.......................................................... 26
Section 7.03. Limitations on Recovery.................................................. 27
ARTICLE VIII
TERMINATION
Section 8.01. Termination.............................................................. 28
Section 8.02. Effect of Termination.................................................... 28
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Expenses................................................................. 28
Section 9.02. Notices.................................................................. 29
Section 9.03. Waiver of Jury Trial..................................................... 29
Section 9.04. Headings................................................................. 29
Section 9.05. Severability............................................................. 29
Section 9.06. Entire Agreement......................................................... 30
Section 9.07. Assignment............................................................... 30
Section 9.08. No Third Party Beneficiaries............................................. 30
Section 9.09. Amendment................................................................ 30
Section 9.10. Governing Law............................................................ 30
Section 9.11. Counterparts............................................................. 30
Section 9.12. Waiver................................................................... 30
Section 9.13. No Purchaser's Lien...................................................... 30
Section 9.14. Closing under Loan Purchase Agreement.................................... 30
Section 9.15. Limited Survival......................................................... 30
</TABLE>
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LOAN PURCHASE AGREEMENT, dated as of August 18, 1997, between PENSIOENFONDS
VOOR DE GEZONDHEID, GEESTELIJKE EN MAATSCHAPPELIJKE BELANGEN (the "Seller"), and
CORNERSTONE PROPERTIES INC., a Nevada corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller owns certain secured and unsecured loans, as set forth
on Schedule 3.07(a); and
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller such loans, all upon the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants hereinafter set forth, the Purchaser and the Seller hereby agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"ADA" means the Americans with Disabilities Act.
"Additional Charter Provisions" shall mean the following proposed
additions to the Charter Amendment: (i) "Nothing in these Restated Articles
of Incorporation shall preclude the settlement of any transaction with
respect to the Common Stock of the Corporation entered into through the
facilities of the New York Stock Exchange;" and (ii) "The aggregate number
of shares that the Corporation shall have the authority to issue is Two
Hundred Sixty-Five Million (265,000,000) shares of Capital Stock consisting
of Fifteen Million (15,000,000) shares of Preferred Stock with no par value
per share and Two Hundred Fifty Million (250,000,000) shares of Common
Stock with no par value per share."
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Loan Purchase Agreement,
dated as of August 18, 1997 between the Seller and the Purchaser (including
the Exhibits hereto and the Schedules) and all amendments hereto made in
accordance with the provisions of Section 9.09.
"Ancillary Agreements" means the Assignment of Mortgages and other
Purchase Loan Documents, the Purchase Money Notes, the Purchase Money
Mortgages, the Registration Rights and Voting Agreement, and the Stock
Purchase Agreement.
"Assumed Liabilities" has the meaning specified in Section 2.02(a).
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by Law to be closed in New
York, New York or Atlanta, Georgia.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. secs. 9601 et seq., as amended
through the date hereof.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation, and Liability Information System, as updated through the date
hereof.
"Charter Amendment" has the meaning specified in Section 5.02(a).
"Closing" has the meaning specified in Section 2.04.
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"Closing Date" has the meaning specified in Section 2.04.
"Code" means the Internal Revenue Code of 1986, as amended through the
date hereof.
"control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or
more Persons, means the possession, directly or indirectly or as trustee
personal representative or executor, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee, personal representative or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs
of such Person.
"DIHC" means Dutch Institutional Holding Company, Inc., a wholly-owned
subsidiary of the Seller.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement, or restriction of any
kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of
ownership.
"Environment" means all surface waters, groundwaters, soil, drinking
water supplies, sediments associated with any water body, subsurface
strata, and ambient air and any workplace at any real property.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims (whether based on
strict liability or otherwise), liens, notices of potential responsibility,
notices of potential liability, notices of non-compliance or violation,
abatement orders, enforcement actions, investigations, proceedings,
settlements, consent decrees, consent orders or consent agreements relating
in any way to any Environmental Law, Environmental Permit or any Hazardous
Material (hereinafter "Claims"), including, without limitation, (a) any and
all Claims by Governmental Authorities or any Person for enforcement, cost
recovery, compensation, penalties, fines, restitution, injunctive relief,
cleanup, removal, response, remedial or other actions or damages pursuant
to any applicable Environmental Law or applicable Environmental Permit and
(b) any and all Claims by any Person or Governmental Authority seeking
damages, contribution, indemnification, cost recovery, cleanup, removal,
response, remedial or other actions, compensation or injunctive relief
relating to a Release of a Hazardous Material or arising from an alleged or
actual injury or threat of injury to health, safety, natural resources
(including, without limitation, all flora and fauna) or the Environment.
"Environmental Condition" means a condition relating to or arising or
resulting from a failure or alleged failure to comply with any applicable
Environmental Law or applicable Environmental Permit or relating to or
arising or resulting from an actual or a threatened Release of a Hazardous
Material.
"Environmental Laws" means any Law, now or hereafter in effect and as
amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree, order or
judgment, relating to the Environment, health, safety, natural resources
(including, without limitation, all flora and fauna) or Hazardous Materials
including, without limitation, the CERCLA; the Resource Conservation and
Recovery Act, 42 U.S.C. secs. 6901 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. secs. 1801 et seq.; the Clean Water Act, 33
U.S.C. secs. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C.
secs. 2601 et seq.; the Clean Air Act, 42 U.S.C. secs. 7401 et seq.; the
Safe Drinking Water Act, 42 U.S.C. secs. 300f et seq.; the Atomic Energy
Act, 42 U.S.C. secs. 2011 et seq.; the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. secs. 136 et seq.; the Occupational Safety and
Health Act, 29 U.S.C. secs. 651 et seq.; the Endangered Species Act, 16
U.S.C. secs. 1531 et seq.; the Oil Pollution Act, 33 U.S.C. secs. 2701 et
seq.; the Emergency Planning and Community Right-To-Know Act, 42 U.S.C.
secs. 11001 et seq.; and the Federal Food, Drug, and Cosmetic Act, 21
U.S.C. secs. 301 et seq.
"Environmental Permits" means all permits, approvals, identification
numbers, licenses, registrations and other authorizations and notices
required under any applicable Environmental Law.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate of the Purchaser" has the meaning ascribed to it in
Section 4.15(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Liabilities" has the meaning specified in Section 2.02(b).
"Final Purchaser Dividend" has the meaning specified in Section 2.07.
"Financial Statement Date" has the meaning specified in Section 4.06.
"Governmental Authority" means any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or
arbitral body.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Hazardous Materials" means those substances, materials, and items, in
any form, whether solid, liquid, gaseous, semisolid, or any combination
thereof, whether waste materials, raw materials, chemicals, finished
products, byproducts, or any other material or article, which are regulated
by or form the basis of liability under any applicable Environmental Law
including, without limitation: (a) wastes, materials, chemicals, and
substances defined as or included within the definition of "hazardous
wastes," "hazardous substances," "pollutants," "contaminants," "hazardous
materials," "hazardous chemicals," "extremely hazardous substances," "toxic
substances," "toxic pollutants," "hazardous pollutants," or words of
similar import, under any applicable Environmental Law; and (b) asbestos in
any form, polychlorinated biphenyls ("PCBs"), transformers or other
equipment containing PCBs, petroleum (including, but not limited to, crude
oil, petroleum-derived substances, wastes, or breakdown or decomposition
products thereof, or any fraction thereof), radioactive substances, radon
gas, and urea formaldehyde.
"Indebtedness" means, with respect to any Person, (a) all indebtedness
of such Person, whether or not contingent, for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee under leases that have been or should
be, in accordance with U.S. GAAP, recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all obligations of such Person
to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire
such capital stock, valued, in the case of redeemable preferred stock, at
the greater of its voluntary or involuntary liquidation preference plus
accrued and unpaid dividends, (h) all Indebtedness of others referred to in
clauses (a) through (f) above guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness
or to advance or supply funds for the payment or purchase of such
Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to or in
any other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received or
such services are rendered) or (iv) otherwise to assure a creditor against
loss, and (i) all Indebtedness referred to in clauses (a) through (f) above
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Encumbrance on
property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
"Indemnified Party" has the meaning specified in Section 7.02(b).
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"Indemnitor" has the meaning specified in Section 7.02(c).
"Initial Cash Payment" has the meaning specified in Section
2.03(b)(i).
"IRS" means the Internal Revenue Service of the United States.
"Knowledge" and correlative terms such as "knowledge of," "knows of,"
"is aware of," or "best knowledge" when used herein with respect to the
Purchaser shall mean the actual knowledge of the Persons named on Schedule
1.01(d) and where used with respect to the Seller shall mean the actual
knowledge of the Persons named on Schedule 1.01(e).
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, requirement or rule of common
law.
"Liabilities" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising
under any Law (including, without limitation, any Environmental Law),
Action or Governmental Order and those arising under any contract,
agreement, arrangement, commitment or undertaking.
"Loss" has the meaning specified in Section 7.02(b).
"Non-confidential information" has meaning specified in Section 5.06.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" means, with respect to any real property, all environmental,
health, safety and other permits, licenses, authorization, identification
numbers, certificates, registrations, notifications and approval of
Governmental Authority applicable to the ownership or operation thereof.
"Permitted Encumbrances" means the following: (a) liens for taxes,
assessments and governmental charges of Governmental Authorities or levies
not yet due and payable; (b) rights of tenants, as tenants only, under the
Purchaser Space Leases; and (c) minor survey exceptions and other
easements, rights-of-way, covenants and restrictions and title exceptions
that (i) do not render title to the property encumbered thereby
unmarketable, (ii) do not, individually or in the aggregate, have a
material adverse effect on the value of or the use of the property
encumbered thereby for its present purposes, and (iii) do not interfere
with the ordinary conduct of the property encumbered thereby or detract
from the value or usefulness thereof.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as
any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Securities Exchange Act of 1934, as amended.
"Property Restriction" means, with respect to any real property, any
applicable deed restrictions or other applicable Laws, covenants,
restrictions, agreements, existing site plan approvals, zoning or
subdivision regulations or urban redevelopment plans as modified by any
duly issued variances.
"Proxy Statement" has the meaning specified in Section 4.04.
"Purchase Money Mortgages" means the mortgages, deeds to secure debts,
deeds of trust, assignments of leases and rents, stock pledge agreements,
collateral note assignments, collateral mortgage assignments, assignments
of partnership interests, guaranty agreements, UCC-1 financing statements
and other security documents and instruments to be executed by the
Purchaser and Purchaser Subsidiaries and delivered to the Seller or DIHC on
the Closing Date in form acceptable to the Seller (in its sole discretion),
but consistent with the terms and provisions contained in Exhibit 1.01(d),
to secure the indebtedness evidenced by the Purchase Money Notes.
"Purchase Money Notes" means the four (4) Promissory Notes to be
executed by the Purchaser and delivered to the Seller or DIHC on the
Closing Date in form acceptable to the Seller (in its sole discretion), but
consistent with the terms and provisions contained in Exhibit 1.01(d), to
evidence the $250,000,000.00 purchase money loans being made by the Seller
and DIHC to the Purchaser to finance,
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in part, the acquisition of the Seller Subsidiary Shares under the Stock
Purchase Agreement and the Purchased Loans hereunder, on the terms more
particularly described therein.
"Purchase Price" has the meaning specified in Section 2.03.
"Purchased Loans" means the loans described on Schedule 3.07(a) hereof
owned by the Seller.
"Purchased Loan Documents" means all documents, agreements,
instruments and certificates creating, evidencing or securing the Purchased
Loans and being listed on Schedule 3.07(a) hereof.
"Purchaser" has the meaning specified in the recitals to this
Agreement.
"Purchaser Benefit Plans" has the meaning specified in Section
4.15(a).
"Purchaser Change of Control" shall mean any of the following
occurrences:
(a) securities of the Purchaser representing 30% or more of the
combined voting power of the Purchaser's then outstanding voting
securities are acquired pursuant to a tender offer or an exchange offer;
or
(b) a merger or consolidation is consummated in which the Purchaser
is a constituent corporation and which results in less than 50% of the
outstanding voting securities of the surviving or resulting entity being
owned by the former stockholders of the Purchaser; or
(c) any person becomes the beneficial owner, directly or
indirectly, of securities of the Purchaser representing 30% or more of
the combined voting power of the Purchaser's then outstanding
securities.
provided that a "Purchaser Change of Control" shall in no event refer to
any of the foregoing if, as a result thereof, control of the Purchaser is
held by a Person who is an Affiliate of the Purchaser as of the date
hereof.
"Purchaser Common Shares" means the common stock of the Purchaser with
no par value.
"Purchaser Indemnified Party" has the meaning specified in Section
7.02(a).
"Purchaser Material Adverse Change" has the meaning specified in
Section 4.06.
"Purchaser Material Adverse Effect" means any circumstance, change in,
or effect on, the Purchaser Properties (including, without limitation, any
casualty or condemnation affecting any of the Purchaser Properties), the
Purchaser or any Purchaser Subsidiary that, individually or in the
aggregate with any other circumstances, changes in, or effect on, the
Purchaser, any Purchaser Subsidiaries or the Purchaser Properties: (a) is,
or could be, materially adverse to the business, operations, assets or
liabilities (including, without limitation, contingent liabilities),
results of operations or the condition (financial or otherwise) of any of
the Purchaser or the Purchaser Subsidiaries or any one or more of the
Purchaser Properties or (b) could materially adversely affect the ability
of the Purchaser to operate any one or more of the Purchaser Properties in
the manner in which they are currently operated by the Purchaser and the
Purchaser Subsidiaries.
"Purchaser Preferred Shares" means the preferred shares of stock of
the Purchaser.
"Purchaser Properties" means the real property described on Schedule
1.01(j) hereof in which the Purchaser or a Purchaser Subsidiary owns a
direct or indirect fee simple or leasehold interest, together with the
Purchaser's or Purchaser Subsidiaries' rights in and to all buildings and
other structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property
attached or appurtenant thereto and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Purchaser SEC Documents" has the meaning specified in Section 4.05.
"Purchaser Shareholder Approvals" has the meaning specified in Section
4.04.
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"Purchaser Shareholder Meeting" has the meaning specified in Section
5.02(b).
"Purchaser Space Leases" has the meaning specified in Section 4.17.
"Purchaser Subsidiaries" means the corporations listed on Schedule
1.01(f) (each of which corporations is individually referred to herein as a
"Purchaser Subsidiary").
"Purchaser's Charter" has the meaning specified in Section 4.01.
"Registration Rights and Voting Agreement" means the Registration
Rights and Voting Agreement to be executed by the Purchaser, the Seller and
DIHC on the Closing Date substantially in the form of Exhibit 1.01(f).
"Regulations" means the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"REIT" has the meaning specified in Section 4.11(e).
"Release" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and like
actions or events (including, without limitation, the abandonment or
discarding of barrels, containers, drums, tanks, or other closed
receptacles containing any Hazardous Materials) resulting in the placement
of any Hazardous Material on, under, about, or in any medium of the
Environment.
"Remedial Action" means all action reasonably necessary or required
under any applicable Environmental Law or applicable Environmental Permit
and all actions required by a Governmental Authority to (i) investigate,
mitigate, clean up, remove, treat, store, dispose of, handle or respond in
any other way to Hazardous Materials in the Environment affecting human
health, affecting the Environment or affecting natural resources; (ii)
prevent, control, or otherwise respond to the Release of Hazardous
Materials so that they do not migrate, endanger or threaten to endanger
public health, natural resources or the Environment; (iii) perform remedial
investigations, feasibility studies, health assessments, natural resource
damage assessments, corrective actions, closures, and postremedial or
postclosure studies, investigations, operations, maintenance and monitoring
at, on, under, about or in any real property, or at any other location
affected by Hazardous Materials associated with the real property; or (iv)
come into compliance with any applicable Environmental Law or any
applicable Environmental Permit.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" has the meaning specified in the recitals to this Agreement.
"Seller Indemnified Party" has the meaning specified in Section
7.02(b).
"Seller Material Adverse Effect" means any circumstance, change in, or
effect on, any one or more of the Purchased Loans or the Seller that,
individually or in the aggregate with any other circumstances, changes in,
or effect on, the Purchased Loans or the Seller is, or could be, materially
adverse to any one or more of the Purchased Loans.
"Seller Subsidiary" has the meaning specified in the Stock Purchase
Agreement.
"Seller Subsidiary Shares" has the meaning specified in the Stock
Purchase Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Share Issuance" has the meaning specified in Section 4.04.
"Stock Purchase Agreement" means that certain Stock Purchase Agreement
between the Purchaser and DIHC entered into on the date hereof.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed
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with respect thereto) imposed by any foreign, U.S., state and local
government or taxing authority, including, without limitation: taxes or
other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, mortgage recording, value added,
or gains taxes; license, registration and documentation fees; and customs'
duties, tariffs, and similar charges.
"Third Party Claims" has the meaning specified in Section 7.02(c).
"Transfer and Gains Taxes" has the meaning specified in Section 5.04.
"U.S. GAAP" means United States generally accepted accounting
principles and practices in effect from time to time applied consistently
throughout the periods involved.
"USTs" means underground storage tanks (and associated underground
piping), as such term is defined in the Resource Conservation and Recovery
Act, as amended, and the regulations promulgated thereunder, or any other
applicable Environmental Law.
ARTICLE II
PURCHASE AND SALE
Section 2.01. Purchased Loans to Be Sold. On the terms and subject to the
conditions of this Agreement, the Seller shall, on the Closing Date, sell,
assign, transfer, convey and deliver to the Purchaser or the Purchaser
Subsidiary designated by Purchaser, and the Purchaser shall purchase from the
Seller, on the Closing Date, the Purchased Loans and the Purchased Loan
Documents.
Section 2.02. Assumption and Exclusion of Liabilities. (a) On the terms
and subject to the conditions of this Agreement, the Purchaser shall, on the
Closing Date, assume and shall pay, perform and discharge when due all
Liabilities of the Seller arising out of or relating to the Purchased Loans and
relating to any period, or any portion of any period, ending from and after the
Closing Date (the "Assumed Liabilities").
(b) The Seller shall retain, and shall be responsible for paying,
performing and discharging when due, and the Purchaser shall not assume or have
any responsibility for, all Liabilities of the Seller other than the Assumed
Liabilities, or attributable to the Purchased Loans and relating to any period,
or any portion of any period, ending on or prior to the Closing Date (the
"Excluded Liabilities").
Section 2.03. Purchase Price; Payment; Order of Transfers; Allocation of
Purchase Price. (a) The aggregate purchase price for the Purchased Loans shall
be SEVEN HUNDRED SEVENTY NINE MILLION, FOUR HUNDRED THIRTY-TWO THOUSAND AND
NO/100 DOLLARS ($779,432,000.00) (the "Purchase Price") which shall be payable
in the manner described herein.
(b) The Purchase Price shall be payable by the Purchaser as follows:
(i) At the Closing, the Purchaser shall pay to the Seller the amount
of TWO HUNDRED TWENTY MILLION NINETY-TWO THOUSAND AND NO/100 DOLLARS
($220,092,000.00) (the "Initial Cash Payment") by wire transfer in
immediately available funds, to an account or accounts designated at least
two (2) Business Days prior to the Closing Date by the Seller in a written
notice to the Purchaser;
(ii) At the Closing the Purchaser shall execute and deliver to the
Seller or the Seller's designee the Purchase Money Notes and Purchase Money
Mortgages evidencing the principal amount of ONE HUNDRED TWENTY MILLION AND
NO/100 DOLLARS ($120,000,000.00); and
(iii) On the Closing Date, Purchaser shall issue to the Seller
27,458,750 validly issued, fully paid and nonassessable Purchaser Common
Shares (adjusted as necessary to reflect fully the effect of any stock
split, reverse stock split, or stock dividend with respect to the Purchaser
Common Shares occurring after the date hereof and prior to the Closing
Date) at an agreed value of $16 per share and not subject to
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adjustment notwithstanding any changes in the stock price between the date
of this Agreement and the Closing Date.
(c) The Purchaser and the Seller agree and acknowledge that the transfer of
the Purchased Loans shall be effected in the order and priority described on
Schedule 2.03(c).
(d) The Purchase Price shall be allocated among the Purchased Loans as of
the Closing Date in accordance with Exhibit 2.03(d). For all Tax purposes, the
Purchaser and the Seller agree to report the transactions contemplated in this
Agreement in a manner consistent with the terms of this Agreement, including the
allocation under Exhibit 2.03(d), and that neither of the parties will take any
position inconsistent therewith in any Tax Return, in any refund claim, in any
litigation, or otherwise.
(e) Provided that the Seller complies with Section 2.05(e) hereof, the
Purchaser shall not withhold any U.S. withholding tax from the payment of the
Purchase Price.
(f) Interest and other debt service on the Purchased Loans shall be
prorated between the Purchaser and the Seller as of the Closing Date with the
Seller being entitled to all interest accruing for periods occurring prior to
the Closing Date and the Purchaser being entitied to all interest accruing on or
after the Closing Date.
Section 2.04. Closing. Subject to the terms and conditions of this
Agreement, the sale and purchase of the Purchased Loans shall take place at a
closing (the "Closing") to be held at the offices of King & Spalding, 1185
Avenue of the Americas, New York, New York at 10:00 A.M. New York City time on
the date which is two (2) Business Days after the date on which the conditions
set forth herein with respect thereto and the conditions set forth in the Stock
Purchase Agreement with respect to the Closing thereunder shall be satisfied or
duly waived, or at such other place or at such other time or on such other date
as the Seller and the Purchaser may mutually agree upon in writing (the day on
which the Closing takes place being the "Closing Date").
Section 2.05. Closing Deliveries by the Seller. At the Closing, the
Seller shall deliver or cause to be delivered to the Purchaser:
(a) the original promissory notes evidencing the Purchased Loans duly
endorsed as directed by the Purchaser, an assignment of the Purchased Loan
Documents and such other instruments, all in form and substance reasonably
satisfactory to the Purchaser, as may be requested by the Purchaser to
transfer the Purchased Loans to the Purchaser (provided, however, that if
any such original Purchased Loan Documents are lost, and the Seller, after
making commercially reasonable efforts, is unable to obtain replacement
Purchased Loan Documents, the Purchaser agrees to accept a lost document
affidavit and indemnity from the Seller with respect to such lost Purchased
Loan Documents);
(b) an executed counterpart of the Registration Rights and Voting
Agreement by DIHC and the Seller and the other Ancillary Agreements to
which the Seller is a party;
(c) a receipt for that portion of the Purchase Price paid at Closing;
(d) the opinions, certificates and other documents required to be
delivered pursuant to Section 6.02; and
(e) IRS Form 1001 indicating that Seller is exempt from U.S.
withholding tax with respect to interest on the Loans.
Section 2.06. Closing Deliveries by the Purchaser. At the Closing, the
Purchaser shall deliver to the Seller:
(a) the cash portion of Purchase Price described in clause (i) of
Section 2.03(b) above;
(b) the Purchase Money Notes and the Purchase Money Mortgages
described in clause (ii) of Section 2.03(b) above;
(c) stock certificates evidencing the Purchaser Common Shares to be
issued to Seller pursuant to clause (iii) of Section 2.03(b) above;
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(d) an executed counterpart of the Registration Rights and Voting
Agreement by the Purchaser and the other Ancillary Agreements to which the
Purchaser is a party; and
(e) the opinions, certificates and other documents required to be
delivered pursuant to Section 6.01.
Section 2.07. Record Date for Final Dividend of the Purchaser. The
Purchaser shall declare a dividend (the "Final Purchaser Dividend") to holders
of the Purchaser Common Shares, the record date for which shall be the close of
business on the last business day prior to the Closing Date in an amount equal
to the Purchaser's most recent quarterly dividend of $0.30 per share, multiplied
by the number of days elapsed since the last dividend record date through and
including the Closing Date and divided by 90.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Purchaser to enter into this Agreement, the Seller
hereby represents and warrants to the Purchaser as follows:
Section 3.01. Organization and Authority of the Seller. The Seller is a
stichting duly organized, validly existing and in good standing under the laws
of The Netherlands and has all necessary power and authority to enter into this
Agreement and the Ancillary Agreements to which it is a party, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Seller is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the operation of
its businesses makes such licensing or qualification necessary other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Seller Material Adverse
Effect. The execution and delivery by the Seller of this Agreement and the
Ancillary Agreements to which it is a party, the performance by the Seller of
its obligations hereunder and thereunder and the consummation by the Seller of
the transactions contemplated hereby and thereby have been duly authorized by
all requisite action on the part of the Seller. This Agreement has been, and
upon their execution the Ancillary Agreements to which the Seller is a party
will be, duly executed and delivered by the Seller and (assuming due
authorization, execution and delivery by the Purchaser) this Agreement
constitutes, and upon their execution the Ancillary Agreements to which the
Seller is a party will constitute, legal, valid and binding obligations of the
Seller enforceable against the Seller in accordance with their respective terms
subject to applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights and equitable principles.
Section 3.02. Noncontravention; Consents. The execution, delivery and
performance by the Seller of this Agreement and the Ancillary Agreements to
which it is a party do not and will not conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Encumbrance upon any of the Purchased Loans under (i) the charter and
bylaws, as amended, of the Seller, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, reciprocal easement agreement, lease or other
agreement, instrument, permit, concession, contract, franchise or license
applicable to the Seller or the Purchased Loans or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any Laws applicable to the Seller or the Purchased Loans, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, defaults, rights
or Encumbrances that either individually or in the aggregate would not (x) have
a Seller Material Adverse Effect or (y) prevent the consummation of the
transactions contemplated by this Agreement. To the Knowledge of the Seller, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required by or with respect to the
Seller in connection with the execution and delivery of this Agreement by the
Seller or the consummation by the Seller of the transactions contemplated by
this Agreement, except for (i) such filings as may be required in connection
with the payment of any Transfer and Gains Taxes, (ii) filings required under
the Exchange Act, and (iii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as are set forth in
Schedule 3.02, or which, if not obtained or made, would not prevent or delay in
any material respect the consummation of any of the transactions contemplated by
this Agreement or
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otherwise prevent the Seller from performing its obligations under this
Agreement or the Ancillary Agreements in any material respect or have,
individually or in the aggregate, a Seller Material Adverse Effect.
Section 3.03. Litigation. Except as set forth in Schedule 3.03 (which,
with respect to each Action disclosed therein, sets forth the parties, nature of
the proceeding, date and method commenced, amount of damages or other relief
sought and, if applicable, paid or granted), there are no Actions by or against
the Seller affecting any of the Purchased Loans pending before any Governmental
Authority (or, to the Knowledge of the Seller after due inquiry, threatened to
be brought by or before any Governmental Authority) which could reasonably be
expected to have a Seller Material Adverse Effect. To the Knowledge of the
Seller, none of the matters disclosed in Schedule 3.03 has had or could
reasonably be expected to have a Seller Material Adverse Effect or could affect
the legality, validity or enforceability of this Agreement, any Ancillary
Agreement, the Purchased Loan Documents or the consummation of the transactions
contemplated hereby or thereby. To the Knowledge of the Seller, except as set
forth in Schedule 3.03, none of the Seller nor any of the Purchased Loans is
subject to any Governmental Order (nor, to the Knowledge of the Seller, are
there any such Governmental Orders threatened to be imposed by any Governmental
Authority) which has had or could reasonably be expected to have a Seller
Material Adverse Effect.
Section 3.04. Full Disclosure. The Seller is not aware of any facts
pertaining to the Seller or the Purchased Loans which would, or would be
reasonably likely to have a Seller Material Adverse Effect which have not been
disclosed in this Agreement, the Schedules hereto or otherwise disclosed to the
Purchaser by the Seller in writing.
Section 3.05. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements based
upon arrangements made by or on behalf of the Seller.
Section 3.06. Insolvency. There has not been filed by nor has the Seller
received notice of a petition in bankruptcy or any other insolvency proceeding,
or for the reorganization or appointment of a receiver or trustee, nor has the
Seller made an assignment for the benefit of creditors, nor filed a petition for
arrangement, nor entered into any arrangement of creditors, nor admitted in
writing its inability to pay debts as they become due.
Section 3.07. Enforceability; Ownership. To the Seller's Knowledge, the
Purchased Loan Documents constitute the legal, valid and binding obligation of
the parties thereto, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights and principles of equity. The Seller, as the
"Lender", is the owner of the Purchased Loans and the Purchased Loan Documents
free and clear of all Encumbrances. To the Seller's Knowledge, no borrower under
the Purchased Loan Documents has asserted any offset, counterclaim or defense
against the holder of such Purchased Loan Documents with respect to any
Purchased Loans. There is no material default by any party to the Purchased Loan
Documents and, to the Seller's Knowledge, no event has occurred that, with the
giving of notice or passage of time, or both, would constitute a default
thereunder. True, complete and correct copies of the Purchased Loan Documents
have been provided to Purchaser (together with any and all amendments and
modifications thereto) and are listed on Schedule 3.07(a). The outstanding
principal balance of each of the Purchased Loans, the interest rate payable
thereon and the date through which interest has been paid are set forth on
Schedule 3.07(b). From the date hereof through the Closing or the earlier
termination of this Agreement, the Seller covenants that it shall not, (i)
modify or amend any term or provision of any of the Purchased Loan Documents,
(ii) waive any rights of the "lender" thereunder or (iii) grant any consent or
approval required from the "lender" thereunder without Purchaser's prior written
consent, which consent shall not be unreasonably withheld.
Section 3.08. Taxes. (a) FIRPTA. The Purchased Loans do not constitute a
"United States real property interest" within the meaning of Section 897 of the
Code and Treasury Regulation Section 1.897-1(d).
(b) Tax Liens. There are no Tax liens on any of the Purchased Loans.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
As an inducement to the Seller to enter into this Agreement, the Purchaser
hereby represents and warrants to the Seller as follows:
Section 4.01. Organization and Authority of the Purchaser. The Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has the requisite power and authority to carry
on its business as now being conducted. The Purchaser is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have a Seller Material Adverse Effect. The Purchaser has
delivered to the Seller complete and correct copies of its Restated Articles of
Incorporation (the "Purchaser's Charter") and Bylaws, as amended to the date of
this Agreement.
Section 4.02. Purchaser Subsidiaries. Schedule 4.02 to this Agreement
sets forth each Purchaser Subsidiary and the ownership interest therein of the
Purchaser. Except as set forth on Schedule 4.02, (a) all the outstanding shares
of capital stock of each Purchaser Subsidiary that is a corporation have been
validly issued and are fully paid and nonassessable, are owned by the Purchaser
or by another Purchaser Subsidiary free and clear of all Encumbrances and (b)
all equity interests in each Purchaser Subsidiary that is a partnership, joint
venture, limited liability company or trust are owned by the Purchaser, by
another Purchaser Subsidiary, or by the Purchaser and another Purchaser
Subsidiary, or by two or more Purchaser Subsidiaries free and clear of all
Encumbrances. Except for the capital stock of or other equity or ownership
interests in the Purchaser Subsidiaries, and except as set forth on Schedule
4.02, the Purchaser does not own, directly or indirectly, any capital stock or
other ownership interest in any Person. Each Purchaser Subsidiary that is a
corporation is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted, and each Purchaser
Subsidiary that is a partnership, limited liability company or trust is duly
organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
as now being conducted. Each Purchaser Subsidiary is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Purchaser Material Adverse Effect. True, complete and correct copies
of the articles of incorporation, bylaws, organization documents and partnership
and joint venture agreements of each Purchaser Subsidiary, as amended to the
date of this Agreement, have been previously delivered or made available to
Purchaser.
Section 4.03. Capital Structure. The authorized capital stock of the
Purchaser consists of 100,000,000 shares of Purchaser Common Shares and
15,000,000 shares of Purchaser Preferred Shares. On the date hereof (i)
48,856,742 shares of Purchaser Common Shares are issued and outstanding, (ii)
3,030,303 shares of Purchaser Preferred Shares are issued and outstanding, (iii)
51,143,258 shares of Purchaser Common Shares are authorized but not issued, (iv)
no shares of Purchaser Common Shares are reserved for issuance under the
Purchaser's employee benefit or incentive plans pursuant to awards granted by
the Purchaser (the "Purchaser Employee Stock Plans"), (v) 1,757,500 shares of
Purchaser Common Shares are issuable upon the exercise of outstanding options
(the "Purchaser Options") to purchase Purchaser Common Shares, (vi) no shares of
Purchaser Preferred Shares are issuable upon the exercise of outstanding
options, (vii) no Purchaser Common Shares are reserved for issuance for the
Purchaser's Dividend Reinvestment Share Purchase Plan, and (viii) no Purchaser
Common Shares are reserved for issuance pursuant to the Purchaser's Employee
Share Purchase Plan. On the date of this Agreement, except as set forth above in
this Section 4.03, no shares of stock or other voting securities of the
Purchaser were issued, reserved for issuance or outstanding. The Purchaser has
no outstanding stock appreciation rights relating to the shares of the
Purchaser. All outstanding shares of common stock and preferred stock of the
Purchaser are duly authorized, validly issued, fully paid and
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nonassessable and not subject to preemptive rights. Except as set forth on
Schedule 4.03, there are no bonds, debentures, notes or other indebtedness of
the Purchaser having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which shareholders
of the Purchaser may vote. Except (i) as set forth in this Section 4.03, or (ii)
as set forth in Schedule 4.03, as of the date of this Agreement there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Purchaser or
any Purchaser Subsidiary is a party or by which such entity is bound, obligating
the Purchaser or any Purchaser Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock, voting
securities or securities convertible into voting securities or other ownership
interests of the Purchaser or any Purchaser Subsidiary or obligating the
Purchaser or any Purchaser Subsidiary to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking (other than to the Purchaser or a Purchaser Subsidiary). Except
as set forth on Schedule 4.03, there are no outstanding contractual obligations
of the Purchaser or any Purchaser Subsidiary to repurchase, redeem or otherwise
acquire any beneficial shares of interest of the Purchaser or any capital stock,
voting securities or other ownership interests in any Purchaser Subsidiary or
make any material investment (in the form of a loan, capital contribution or
otherwise) in any Person (other than a Purchaser Subsidiary).
Section 4.04. Authority; Noncontravention; Consents. The Purchaser has
the requisite power and authority to enter into this Agreement and, subject to
(i) the approval of the issuance (the "Share Issuance") of Purchaser Common
Shares under this Agreement by an affirmative vote of the holders of a majority
of the Purchaser Common Shares present at a duly convened meeting of the
stockholders of the Company in accordance with the requirements of the New York
Stock Exchange and (ii) the approval of the Charter Amendment by an affirmative
vote of the holders of a majority of the issued and outstanding Purchaser Common
Shares and an affirmative vote of the holders of a majority of the issued and
outstanding shares of Purchaser Preferred Shares in accordance with the
requirements of Nevada law and the Purchaser's articles of incorporation (the
approval of the Share Issuance and the approval of the Charter Amendment
together referred to as the "Purchaser Shareholder Approvals"). The execution
and delivery of this Agreement by the Purchaser and the consummation by the
Purchaser of the transactions contemplated by this Agreement and the Ancillary
Agreements to which the Purchaser is a party have been duly authorized by all
necessary action on the part of the Purchaser, subject to the Purchaser
Shareholder Approvals. This Agreement has been duly executed and delivered by
the Purchaser and constitutes, and upon their execution by the Purchaser and the
Purchaser Subsidiaries the Ancillary Agreements will constitute, the legal,
valid and binding obligation of the Purchaser and the Purchaser Subsidiaries,
enforceable against the Purchaser and the Purchaser Subsidiaries in accordance
with their respective terms, subject to applicable bankruptcy, insolvency or
similar laws affecting the enforcement to creditors' rights and equitable
principles. The execution and delivery by the Purchaser of this Agreement and
the Ancillary Agreements to which it is a party does not, and the consummation
by the Purchaser of the transactions contemplated by this Agreement and the
Ancillary Agreements to which it is a party and compliance by the Purchaser with
the provisions of this Agreement and the Ancillary Agreements to which it is a
party will not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
benefit or alteration of rights or obligations under, or result in the creation
of any Encumbrance upon any of the properties or assets of the Purchaser or any
Purchaser Subsidiary under (i) the Charter and Bylaws, as amended, of the
Purchaser or the comparable charter or organizational documents or partnership
or similar agreement (as the case may be) of any Purchaser Subsidiary, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession, contract,
franchise or license applicable to the Purchaser or any Purchaser Subsidiary or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to the Purchaser or any Purchaser Subsidiary, or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights or Encumbrances that either individually
or in the aggregate would not (x) have a Purchaser Material Adverse Effect or
(y) materially delay or prevent the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements. Without limiting
the foregoing, the Purchaser has taken all action necessary to ensure that the
issuance of the
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Purchaser Common Shares to Seller pursuant hereto shall not be deemed a
violation of Section 8.01(a) of the Purchaser's Charter. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Authority is required by or with respect to the Purchaser or any
Purchaser Subsidiary in connection with the execution and delivery of this
Agreement by the Purchaser or the consummation by the Purchaser of the
transactions contemplated by this Agreement and the Ancillary Agreements, except
for (i) the filing with the SEC of (x) a proxy statement relating to the
approval by the Purchaser's shareholders of the transactions contemplated by
this Agreement and the Ancillary Agreements (as amended or supplemented from
time to time, the "Proxy Statement") and (y) such reports under Section 13(a) of
the Exchange Act, as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (ii) such filings as maybe required
in connection with the payment of any Transfer and Gains Taxes, (iii) the filing
of the Charter Amendment with the Nevada Secretary of State, and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as are set forth in Schedule 4.04, or which, if not obtained or made,
would not prevent or delay in any material respect the consummation of any of
the transactions contemplated by this Agreement or otherwise prevent the
Purchaser from performing its obligations under this Agreement in any material
respect or have, individually or in the aggregate, a Purchaser Material Adverse
Effect.
Section 4.05. SEC Documents; Financial Statements; Undisclosed
Liabilities. The Purchaser has timely filed all required reports, schedules,
forms, statements and other documents required to be filed with the SEC (the
"Purchaser SEC Documents"). All of the Purchaser SEC Documents, as of their
respective filing dates, complied, or will comply, as the case may be, in all
material respects with all applicable requirements of the Securities Act, and
the Exchange Act and, in each case, the rules and regulations promulgated
thereunder applicable to such Purchaser SEC Documents. No SEC "stop order" has
been issued or is effective with respect to the Purchaser. None of the Purchaser
SEC Documents (including, without limitation, the Proxy Statement) at the time
of filing or effectiveness contained, or will contain, as the case may be, any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been amended, modified or
superseded by later Purchaser SEC Documents (including, without limitation, the
Proxy Statement). The consolidated financial statements of the Purchaser
included in the Purchaser SEC Documents (including, without limitation, the
Proxy Statement) complied, or will comply, as the case may be, as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with U.S. GAAP (except, in the case of unaudited statements, as
permitted by Form 10-Q promulgated under the Exchange Act) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented, or will present, as the case may be, in
accordance with the applicable requirements of U.S. GAAP, the consolidated
financial position of the Purchaser and the Purchaser Subsidiaries as of the
dates thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments). Except as set forth in the Purchaser SEC
Documents filed with the SEC prior to the date hereof or in Schedule 4.05,
neither the Purchaser nor any Purchaser Subsidiary has any Liabilities required
by U.S. GAAP to be set forth on a consolidated balance sheet of the Purchaser
and the Purchaser Subsidiaries or, to the Knowledge of the Purchaser, or in the
notes thereto and which, individually or in the aggregate, would have a
Purchaser Material Adverse Effect.
Section 4.06. Absence of Certain Changes or Events. Except as disclosed
in the Purchaser SEC Documents filed with the SEC prior to the date hereof or in
Schedule 4.06, since the date of the most recent financial statements included
in the Purchaser SEC Documents (the "Financial Statement Date") and to the date
of this Agreement, the Purchaser and the Purchaser Subsidiaries have conducted
their business only in the ordinary course and there has not been (i) any change
that would have a Purchaser Material Adverse Effect (a "Purchaser Material
Adverse Change"), nor has there been any occurrence or circumstance that with
the passage of time would reasonably be expected to result in a Purchaser
Material Adverse Change, (ii) except for regular quarterly dividends not in
excess of $.30 per share of Purchaser Common Shares and regular annual dividends
not in excess of $1.155 per share of Purchaser Preferred Shares with customary
record and payment dates, (iii) any split, combination or reclassification of
any of the Purchaser's capital
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stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, or giving the right
to acquire by exchange or exercise, shares of its capital stock or any issuance
of an ownership interest in, any Purchaser Subsidiary, (iv) any damage,
destruction or loss to the Purchaser's and the Purchaser Subsidiaries' property,
not covered by insurance, that has or would have a Purchaser Material Adverse
Effect or (v) any change in accounting methods, principles or practices by the
Purchaser or any Purchaser Subsidiary, except insofar as required by a change in
U.S. GAAP.
Section 4.07. Litigation. To the Knowledge of the Purchaser, except as
set forth in Schedule 4.07 (which, with respect to each Action disclosed
therein, sets forth the parties, nature of the proceeding, date and method
commenced, amount of damages or other relief sought and, if applicable, paid or
granted), there are no Actions by or against the Purchaser or any Purchaser
Subsidiary, pending before any Governmental Authority (or, to the Knowledge of
the Purchaser, threatened to be brought by or before any Governmental Authority)
which has had or could reasonably be expected to have a Purchaser Material
Adverse Effect. To the Knowledge of the Purchaser, none of the matters disclosed
in Schedule 4.07 has had or could reasonably be expected to have a Purchaser
Material Adverse Effect or could affect the legality, validity or enforceability
of this Agreement, any Ancillary Agreement or the consummation of the
transactions contemplated hereby or thereby. To the Knowledge of the Purchaser,
except as set forth in Schedule 4.07, none of the Purchaser, the Purchaser
Subsidiaries nor any of their respective assets or properties, is subject to any
Governmental Order, including any stop order by the SEC (nor, to the Knowledge
of the Purchaser, are there any such Governmental Orders threatened to be
imposed by any Governmental Authority) which has had or could reasonably be
expected to have a Purchaser Material Adverse Effect.
Section 4.08. Purchaser Properties. (a) To the Purchaser's Knowledge,
Purchaser Subsidiary own fee simple title (or where indicated, a leasehold
estate) to each of the Purchaser Properties in each case free of all
Encumbrances except for Permitted Encumbrances. Except as described in Schedule
4.08, to the Purchaser's Knowledge, there is no material violations of any Law
(including, without limitation, any building, planning or zoning Law) relating
to any of the Purchaser Properties.
(b) To the Knowledge of the Purchaser, no improvements on the Purchaser
Properties and none of the current uses and conditions thereof violate in any
material respect any Property Restrictions, and no material permits, licenses or
certificates pertaining to the ownership or operation of all improvements on the
Purchaser Properties, other than those which are available to the Purchaser
Properties, are required by any Governmental Authority having jurisdiction over
the Purchaser Properties. Neither the Purchaser nor any of the Purchaser's
Subsidiaries have Knowledge of (i) any condemnation or rezoning proceedings are
pending or threatened with respect to any of the Purchaser Properties or (ii)
any Property Restriction will be violated in any material respect by the
continued maintenance, operation or use of any of the buildings or other
improvements on any of the Purchaser Properties for their current use.
Section 4.09. Environmental and Other Permits and Licenses; Related
Matters. To the Knowledge of the Purchaser, except as disclosed in the reports
referenced in Schedule 4.09, (a) the Purchaser and the Purchaser Subsidiaries
currently hold all of the Permits, including, without limitation, Environmental
Permits, required, necessary or proper for the current use, occupancy and
operation of each Purchaser Property, and all such Permits and Environmental
Permits are in full force and effect; (b) there is no existing practice, action
or activity of the Purchaser or any Purchaser Subsidiary and no existing
condition of or condition associated with the Purchaser Properties which would
give rise to any civil or criminal Liability under, or violate or prevent
compliance with, any applicable Environmental Law, applicable Permits or
applicable Environmental Permits or other applicable law; (c) neither the
Purchaser nor any Purchaser Subsidiary has received any notice from any
Governmental Authority proposing to or actually revoking, canceling, rescinding,
materially modifying or refusing to renew any Permit or Environmental Permit or
providing written notice of violations under any applicable Environmental Law or
applicable Environmental Permit; (d) the Purchaser, and each Purchaser
Subsidiary is in all respects in compliance with the Permits, all applicable
Environmental Laws and the requirements of all Environmental Permits; (e)
Hazardous Materials have not been generated, used, treated, handled or stored
on, or transported to or from, any Purchaser Property (other than such
activities that have been conducted in strict accordance with all applicable
Environmental Laws and Environmental Permits consistent with the nature of the
applicable Purchaser Property and that would not have a Purchaser Material
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Adverse Effect); (f) Hazardous Materials (regardless of the source) have not
been Released on any Purchaser Property or otherwise contaminated any Purchaser
Property and Hazardous Materials have not been Released on or contaminated any
property adjoining any Purchaser Property (except in either instance, Releases
or contamination involving only de minimis amounts of Hazardous Materials, the
Release of which or contamination by would not violate any applicable
Environmental Law, violate any Environmental Permit, trigger any reporting
obligation, or trigger any obligation to investigate, remediate, cleanup or
otherwise respond to such Hazardous Material); (g) the Purchaser and the
Purchaser Subsidiaries have disposed of all wastes, including those consisting
of or containing Hazardous Materials, in compliance in all material respects
with all applicable Environmental Laws and Environmental Permits; (h) there are
no past, pending or threatened Environmental Claims against the Purchaser, any
Purchaser Subsidiary or any Purchaser Property; (i) no Purchaser Property or any
property adjoining any Purchaser Property is listed or proposed for listing on
the National Priorities List under CERCLA or on the CERCLIS or any analogous
state list of sites requiring investigation or cleanup of Hazardous Materials;
and (j) neither the Purchaser nor any Purchaser Subsidiary has used or arranged
for the use of any location for the treatment, storage, disposal, Release or
other handling of any Hazardous Materials or transported or arranged for the
transportation of any Hazardous Materials to any location that is listed or
proposed for listing on the National Priorities List under CERCLA or on the
CERCLIS or any analogous state list or which is the subject of any Environmental
Claim; (k) there are not now and never have been any USTs located on any
Purchaser Property or on any property adjoining any Purchaser Property; and (l)
there is not now any asbestos in, on, or about any Purchaser Property.
Section 4.10. Related Party Transactions. Set forth in Schedule 4.10, or
in the Purchaser SEC Documents including the Purchaser's definitive proxy
statements for the Annual Meetings of the Purchaser's shareholders held on June
2, 1997, June 20, 1996 and June 19, 1995, or in the Proxy Statement, is a list
of all arrangements, agreements and contracts entered into by the Purchaser or
any of the Purchaser Subsidiaries with any Person who (vi) is an executive
officer, director or Affiliate of the Purchaser or any of the Purchaser
Subsidiaries, or any entity of which any of the foregoing is an Affiliate which
would be required to be disclosed under Item 404 of Regulation S-K promulgated
under the Securities Act and the Exchange Act or (vii) acquired Purchaser Common
Shares in a private placement. Such documents, copies of all of which have been
previously delivered or made available to Seller, are listed in Schedule 4.10,
in the Purchaser SEC Documents, in the Purchaser's definitive proxy statements
for the Annual Meetings of the Purchaser's shareholders held on June 2, 1997,
June 20, 1996 and June 19, 1995, or in the Proxy Statement.
Section 4.11. Taxes. (a)(i) All returns and reports in respect of Taxes
required to be filed with respect to the Purchaser and each Purchaser Subsidiary
have been timely filed (taking into account any valid extensions of time for
filing); (ii) all Taxes required to be shown on such returns and reports or
otherwise due have been timely paid; (iii) all such returns and reports are
true, correct and complete in all material respects; (iv) no adjustment relating
to such returns has been proposed formally or informally by any Tax authority
and, to the Knowledge of the Purchaser, no basis exists for any such adjustment;
(v) there are no pending or, to the Knowledge of the Purchaser, threatened
actions or proceedings for the assessment or collection of Taxes against the
Purchaser or any Purchaser Subsidiary or (insofar as either relates to the
activities or income of the Purchaser, any Purchaser Subsidiary or could result
in liability of any Purchaser Subsidiary on the basis of joint and/or several
liability) any corporation that was includible in the filing of a return with
the Purchaser on a consolidated or combined basis; (vi) no consent under Section
341(f) of the Code has been filed with respect to the Purchaser or any Purchaser
Subsidiary; and (vii) there are no Tax liens on any assets of the Purchaser or
any Purchaser Subsidiary.
(b) (i) There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax to which the
Purchaser or any Purchaser Subsidiary may be subject; (ii) there are no requests
for information currently outstanding that could affect the Taxes of the
Purchaser or any Purchaser Subsidiary; (iii) there are no proposed reassessments
of any property owned by the Purchaser or any Purchaser Subsidiary or other
proposals that could materially increase the amount of any Tax to which the
Purchaser or any Purchaser Subsidiary would be subject; and (iv) no power of
attorney that is currently in force has been granted with respect to any matter
relating to Taxes that could affect any Purchaser Subsidiary.
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(c) Each of the Purchaser and the Purchaser Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(d) None of the Purchaser and the Purchaser Subsidiaries is a party to any
Tax allocation or sharing agreement. None of the Purchaser and the Purchaser
Subsidiaries (i) has been a member of an "affiliated group" (as defined in
Section 1504(a)(1) of the Code) filing a consolidated federal income Tax return
(other than a group the common parent of which was the Purchaser) or (ii) has
any Liability for the Taxes of any Person (other than any of the Purchaser and
the Purchaser Subsidiaries) under Section 1.1502-6 of the Treasury Regulations
(or any similar provision of state, local, or foreign law), as a transferee or
successor, by contract or otherwise.
(e) The Purchaser (i) for the period commencing with the taxable year
ending December 31, 1988 to the present has been organized and operated in
conformity with the requirements for qualification as a real estate investment
trust (a "REIT") (within the meaning of Section 856 of the Code) under the Code
and has been subject to taxation as a REIT and has satisfied all requirements to
qualify as a REIT for such periods, (ii) has operated, and intends to continue
to operate, in such a manner as to qualify as a REIT for the tax year ending
December 31, 1997, and (iii) has not taken or omitted to take any action which
would reasonably be expected to result in a challenge to its status as a REIT,
and to the Purchaser's Knowledge, no such challenge is pending or threatened.
Each Purchaser Subsidiary which is a partnership, joint venture or limited
liability company has been during and since its formation and continues to be
treated for federal income tax purposes as a partnership and not as a
corporation or an association taxable as a corporation. Each Purchaser
Subsidiary which is a corporation for federal income tax purposes is a
"qualified REIT subsidiary," as defined in Section 856(i) of the Code. The
Purchaser did not incur in its 1996 tax year any liability for taxes under
Section 857(b), 860(c) or 4981 of the Code.
Section 4.12. Brokers. No broker, investment banker, financial advisor or
other Person, other than Merrill Lynch & Co., Lazard Freres & Co. LLC, and
Triton Pacific Capital LLC, the fees and expenses of which have previously been
disclosed to Seller and will be paid by the Purchaser, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Purchaser or any Purchaser Subsidiary.
Section 4.13. Compliance with Laws. To the Knowledge of the Purchaser,
the Purchaser and the Purchaser Subsidiaries have each conducted and continue to
conduct their respective businesses and operations in accordance with all Laws
and Governmental Orders applicable to the Purchaser or any Purchaser Subsidiary
or any of their properties or assets and neither the Purchaser nor any Purchaser
Subsidiary is in violation of any such Law or Governmental Order which has had
or could have a Purchaser Material Adverse Effect. Notwithstanding the
foregoing, the Purchaser makes no representation or warranty regarding the
compliance of the Purchaser Properties with ADA requirements.
Section 4.14. Contracts; Debt Instruments.
(a) To the Knowledge of the Purchaser, neither the Purchaser nor any
Purchaser Subsidiary is in violation of or in default under (nor does there
exist any condition which upon the passage of time or the giving of notice or
both would cause such a violation of or default under) any material loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except as set forth in Schedule 4.14 and except for violations
or defaults that would not, individually or in the aggregate, result in a
Purchaser Material Adverse Effect.
(b) Except for any of the following expressly identified in the Purchaser
SEC Documents, Schedule 4.14 sets forth a list of all loan or credit agreements,
notes, bonds, mortgages, indentures and other agreements and instruments
pursuant to which any indebtedness of the Purchaser or any of the Purchaser
Subsidiaries, other than indebtedness payable to the Purchaser or a Purchaser
Subsidiary or to any third-party partner or joint
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venturer in any Purchaser Subsidiary, in an aggregate principal amount in excess
of $500,000 per item is outstanding or may be incurred.
Section 4.15. Absence of Changes in Benefit Plans; ERISA Compliance.
(a) Except as disclosed in the Purchaser SEC Documents or in Schedule
4.15(a) and except as permitted by Section 5.02 (for the purpose of this
sentence, as if Section 5.02 had been in effect since December 31, 1996), since
the Financial Statement Date, there has not been any adoption or amendment by
the Purchaser, any Purchaser Subsidiary or any Person affiliated with the
Purchaser under Section 414(b), (c), (m) or (o) of the Code (each, an "ERISA
Affiliate of the Purchaser") of any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other employee benefit plan, arrangement or
understanding (whether or not legally binding, or oral or in writing) providing
benefits to any current or former employee, officer or director of the
Purchaser, any Purchaser Subsidiary, or any ERISA Affiliate of the Purchaser
(collectively, "Purchaser Benefit Plans"). No Purchaser Benefit Plan is subject
to Title IV of ERISA or to Section 412 of the Code or Section 302 of ERISA.
(b) Each Purchaser Benefit Plan is listed in Schedule 4.15(b), including,
with respect to terminated Purchaser Benefit Plans, the date of termination.
True and correct copies of each of the following have been made available to the
Seller: (i) the most recent annual report (Form 5500) relating to each such
Purchaser Benefit Plan filed with the IRS, (ii) each such Purchaser Benefit
Plan, (iii) the trust agreement, if any, relating to each such Purchaser Benefit
Plan, (iv) the most recent summary plan description for each such Purchaser
Benefit Plan for which a summary plan description is required by ERISA, and (v)
the most recent determination letter, if any, issued by the IRS with respect to
any such Purchaser Benefit Plan qualified under Section 401 of the Code.
(c) Except as set forth in Schedule 4.15(c), as to any such Purchaser
Benefit Plan intended to be qualified under Section 401 of the Code, such
Purchaser Benefit Plan satisfies in form the requirements of such Section and
there has been no termination or partial termination of such Purchaser Benefit
Plan within the meaning of Section 411(d)(3) of the Code. As to any such
terminated Purchaser Benefit Plan intended to have been qualified under Section
401 of the Code, such terminated Purchaser Benefit Plan received a favorable
determination letter from the IRS with respect to its termination.
(d) There are no actions, suits or claims pending (other than routine
claims for benefits) or, to the Knowledge of the Purchaser, threatened against,
or with respect to, any of such Purchaser Benefit Plans or their assets that
could reasonably be expected to have a Purchaser Material Adverse Effect. To the
Knowledge of the Purchaser, there is no matter pending before the IRS, the
Department of Labor or the PBGC with respect to any of such Purchaser Benefit
Plans. All contributions required to be made to such Purchaser Benefit Plans
pursuant to their terms and provisions have been timely made. Except as set
forth in Schedule 4.15(a), neither the Purchaser nor any Purchaser Subsidiary is
a party to or is bound by any severance agreement, program or policy. True and
correct copies of all employment agreements with officers of the Purchaser and
Purchaser Subsidiaries, and all vacation, overtime and other compensation
policies of the Purchaser and Purchaser Subsidiaries relating to their employees
have been made available to the Purchaser.
(e) Except as described in the Purchaser SEC Documents or as would not have
a Purchaser Material Adverse Effect, (i) all Purchaser Benefit Plans, including
any such plan that is an "employee benefit plan" as defined in Section 3(3) of
ERISA, are in compliance with all applicable requirements of law, including
ERISA and the Code, and (ii) other than claims for benefits in the normal
course, neither the Purchaser, any Purchaser Subsidiary nor any ERISA Affiliate
of the Purchaser has any liabilities or obligations with respect to any such
Purchaser Benefit Plan, whether accrued, contingent or otherwise, nor to the
Knowledge of the Purchaser are any such liabilities or obligations expected to
be incurred. The execution of, and performance of the transactions contemplated
in, this Agreement will not constitute an event under any Purchaser Benefit
Plan, policy, arrangement or agreement or any trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee or director of the
Purchaser, any Purchaser Subsidiary, or any ERISA Affiliate of the Purchaser.
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Section 4.16. Vote Required. The Purchaser Shareholder Approvals are the
only votes of the holders of any class or series of the Purchaser's shares
necessary (under applicable Law or otherwise) to approve the Share Issuance and
the Charter Amendment.
Section 4.17. Space Leases. To the Knowledge of Purchaser, each lease,
tenancy or occupancy agreement and operating agreement with tenants and
operators currently occupying space in the Purchaser Properties (herein, the
"Purchaser Space Leases") constitutes the legal, valid, binding, and enforceable
obligation of the landlord and tenant thereunder, is in full force and effect
and the term of the same and the obligation to pay rent thereunder has commenced
and the tenant thereunder is in full possession and actual occupancy thereof,
and all tenant improvements required under the provisions thereof are completed.
To the Knowledge of the Purchaser, neither the Purchaser nor any Purchaser
Subsidiary has any Knowledge of the cancellation or termination of any Purchaser
Space Lease. To the Knowledge of the Purchaser, neither Purchaser nor any
Purchaser Subsidiary, nor to the Knowledge of Purchaser, any other party is in
breach or default in any material respect under any Purchaser Space Lease. To
the Knowledge of Purchaser, no tenant is currently asserting any material claim,
defense, offset or lien against Purchaser, any Purchaser Subsidiary or against
any Purchaser Properties.
Section 4.18. Ground Leases. To the Knowledge of the Purchaser, each
ground lease affecting a Purchaser Property is valid and in full force and
effect and the copy of each such ground lease provided to the Seller is true,
correct and complete and constitutes the entire agreement between the ground
lessor and ground lessee thereunder and there have been no amendments thereto
(either orally or in writing). To the Knowledge of the Purchaser, there is no
material default by either the ground lessor or ground lessee under any such
ground lease and no conditions exists that, with the passage of time or the
giving of notice or both, would constitute a material default thereunder and no
notice of termination has been given by either a ground lessor or a ground
lessee under any such ground lease. To the Knowledge of the Purchaser, the
applicable Purchaser Subsidiaries' interest in each such ground lease is free of
all Encumbrances except for the Permitted Encumbrances.
Section 4.19. Insurance. Schedule 4.19 lists all casualty, liability,
business interruption and other insurance policies insuring the Purchaser
Subsidiaries. All such insurance policies are in full force and effect. To the
Knowledge of the Purchaser, all material assets, properties and risks of the
Purchaser and each Purchaser Subsidiary are covered by valid and, except for
policies that have expired under their terms in the ordinary course, currently
effective insurance policies or binders of insurance (including, without
limitation, general liability insurance, property insurance and workers'
compensation insurance) issued in favor of the Purchaser or a Purchaser
Subsidiary, as the case may be, in each case with responsible insurance
companies, in such types and amounts and covering such risks as are consistent
with customary practices and standards of companies engaged in businesses and
operations similar to those of the Purchaser or such Purchaser Subsidiary.
Section 4.20. Insolvency. There has not been filed by nor has the
Purchaser or any Purchaser Subsidiary received notice of a petition in
bankruptcy or any other insolvency proceeding, or for the reorganization or
appointment of a receiver or trustee, nor has the Purchaser or any Purchaser
Subsidiary made an assignment for the benefit of creditors, nor filed a petition
for arrangement, nor entered into any arrangement of creditors, nor admitted in
writing its inability to pay debts as they become due.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01. Conduct of Business by the Purchaser Prior to the
Closing. During the period from the date of this Agreement through the Closing
or earlier termination of this Agreement, the Purchaser shall, and shall cause
the Purchaser Subsidiaries each to, carry on their respective businesses in the
ordinary and usual course of business and consistent with the Purchaser's and
the Purchaser Subsidiaries' prior practice and shall use its reasonable best
efforts to preserve intact the goodwill and advantageous relationships of the
Purchaser and the Purchaser Subsidiaries with tenants, customers, suppliers,
independent contractors and other Persons
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material to the operation of the Purchaser Properties and shall not wilfully or
knowingly take or permit any action or omission which would cause any of its
representations or warranties contained herein to become inaccurate in any
respect or any of the covenants made by it to be breached in any material
respect. Without limiting the generality of the foregoing, the following
additional restrictions shall apply: during the period from the date of this
Agreement until the earlier of the (i) termination of this Agreement or (ii)
Closing, the Purchaser shall not and shall cause the Purchaser Subsidiaries not
to (and not to authorize or commit or agree to) without the prior written
consent of the Seller (which such consent shall not be unreasonably withheld or
delayed):
(a) except for (i) its regular quarterly dividends not in excess of
$.30 per share of issued and outstanding Purchaser Common Shares or (ii)
its regular annual dividends not in excess of $1.155 per share of issued
and outstanding Purchaser Preferred Shares with customary record and
payment dates, declare, set aside or pay any dividends on, or make any
other distributions in respect of any of the Purchaser Common Shares or
Purchaser Preferred Shares;
(b) except for the Purchaser's Dividend Reinvestment Share Purchase
Plan and the exercise of share options or issuance of shares pursuant to
stock rights, options, restricted share or performance share awards or
warrants outstanding on the date of this Agreement, issue, deliver or sell,
or grant any option or other right in respect of, any shares of common
stock, any other voting securities of the Purchaser or any Purchaser
Subsidiary or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities (except to the Purchaser or a Purchaser Subsidiary), except the
foregoing shall not prohibit the issuance of shares of Common Stock of the
Purchaser in connection with the conversion of any currently outstanding
convertible preferred stock or convertible notes or in connection with the
granting of any employee stock options or restricted shares to any employee
of Purchaser in an amount not to exceed $10,000,000;
(c) except as otherwise contemplated by this Agreement, amend the
articles or certificate of incorporation, charter, bylaws, partnership
agreement or other comparable charter or organizational documents of the
Purchaser or any Purchaser Subsidiary;
(d) in the case of the Purchaser or any other Purchaser Subsidiary,
merge or consolidate with any Person;
(e) in any transaction or series of related transactions involving
capital, securities or other assets or Indebtedness of the Purchaser, a
Purchaser Subsidiary, or any combination thereof in excess of $10,000,000:
(i) acquire by merging or consolidating with, or by purchasing all or a
substantial portion of the equity securities or all or substantially all of
the assets of, or by any other manner, any business or any corporation,
partnership, limited liability company, joint venture, association, real
estate investment trust, business trust or other business organization or
division thereof or interest therein; (ii) subject to any Encumbrance,
sell, lease or otherwise dispose of any of the Purchaser Properties or any
material assets or assign or encumber the right to receive income,
dividends, distributions and the like; or (iii) incur any Indebtedness,
issue or refinance any Indebtedness or make any loans, advances or capital
contributions to, or investments in, any other Person; excluding (y) the
Purchaser's proposed $200 million line of credit with Bankers Trust Company
and The Chase Manhattan Bank and (z) financial transactions undertaken by
Purchaser or Purchaser's Subsidiaries in accordance with their respective
ordinary cash management practices such as investments or deposits in
commercial paper, obligations of the United States of America or its
agencies or instrumentalities, certificates of deposit, time deposits,
repurchase agreements and similar financial arrangements;
(f) adopt any new employee benefit plan, incentive plan, severance
plan, stock option or similar plan, grant new stock appreciation rights or
amend any existing plan or rights, except such changes as are required by
Law or which are not more favorable to participants than provisions
presently in effect; and
(g) enter into or amend or otherwise modify any agreement or
arrangement with Persons that are Affiliates or, as of the date hereof, are
executive officers, trust managers or directors of the Purchaser or any
Purchaser Subsidiary.
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Section 5.02. Preparation of the Proxy Statement; Shareholders Meeting.
(a) As soon as practicable following the date of this Agreement but not
later than August 29, 1997, the Purchaser shall finalize and file with the SEC a
preliminary Proxy Statement in form and substance satisfactory to Purchaser. The
Purchaser shall use its reasonable best efforts to respond to any comments of
the SEC and the Purchaser will use its reasonable best efforts to cause the
Proxy Statement to be mailed to the Purchaser's shareholders as promptly as
practicable. The Purchaser will notify the Seller of any comments from the SEC
and of any request by the SEC for amendments or supplements to the Proxy
Statement or for additional information. The Proxy Statement shall comply in all
material respects with all applicable requirements of Law. The Seller shall
furnish all information concerning the Seller and the Purchased Loans as the
Purchaser may reasonably request in connection with such actions and the
preparation of the Proxy Statement. The Proxy Statement shall include a proposal
to amend the Purchaser's Charter in the form of the Charter amendment attached
hereto as Exhibit 5.02(a) (the "Charter Amendment") and the recommendations of
the Board of Directors of Purchaser in favor of the Share Issuance and the
Charter Amendment. The Seller hereby approves the form of Charter Amendment
attached hereto as Exhibit 5.02(a) and consents to the Additional Charter
Provisions and agrees that the Additional Charter Provisions shall be included
in the Charter Amendments, provided, however that the Purchaser and the Seller
agree that the approval of the Additional Charter Provisions by the shareholders
of the Purchaser shall not be a condition precedent hereunder to the parties
obligation to effect the Closing.
(b) The Purchaser will submit the Share Issuance and the Charter Amendment
to a vote of the Purchaser's shareholders at a special meeting (the "Purchaser
Shareholders Meeting") for the purpose of obtaining the Purchaser Shareholder
Approvals.
(c) The information supplied by the Seller for inclusion in the Proxy
Statement shall not, (i) at the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of the
Purchaser, (ii) at the time of the Purchaser Shareholders Meeting, and (iii) the
Closing Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The Purchaser shall provide the Seller a
reasonable opportunity to review the preliminary Proxy Statement, including the
information supplied by Seller for inclusion therein under the terms of this
Section 5.03, prior to the filing of such Proxy Statement with the SEC. If at
any time prior to the Closing Date any event or circumstances relating to the
Seller should be discovered by the Seller which should be set forth in an
amendment or a supplement to the Proxy Statement, the Seller shall promptly
inform the Purchaser. The Seller shall have no liability for the accuracy or
inaccuracy of any information set forth in the Proxy Statement or otherwise in
connection with the Proxy Statement except in respect of any breach by the
Seller of the covenants set forth in this clause (c).
Section 5.03. Commercially Reasonable Efforts; Notification. (a) Subject
to the terms and conditions herein provided, the Purchaser and Seller shall: (a)
use all commercially reasonable efforts to cooperate with one another in (i)
determining which filings are required to be made prior to the Closing with, and
which consents, approvals, permits or authorizations are required to be obtained
prior to the Closing from, governmental or regulatory authorities of the United
States, the several states and foreign jurisdictions and any third parties in
connection with the execution and delivery of this Agreement, and the
consummation of the transactions contemplated by such Agreement and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
and authorizations, (b) use all commercially reasonable efforts to obtain in
writing any consents required from third parties to effectuate the transactions
contemplated by this Agreement, such consents to be in reasonably satisfactory
form to the Seller and Purchaser; and (c) use all commercially reasonable
efforts to take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement.
(b) Prior to the Closing, the Seller and the Purchaser shall deliver to the
other information supplementing or amending the representations, warranties,
Schedules and other disclosures provided in Articles III and IV of this
Agreement to set forth the information relating to any event or circumstance
arising after date of this Agreement, or, with respect to matters that are
limited to the Knowledge of either party, information that
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becomes a matter within the Knowledge of such party following the date of this
Agreement, in order to make such representations and warranties, Schedules or
other disclosures complete and accurate as of the date of such supplement or
amendment. Each representation or warranty contained herein and the statements
contained in Articles III and IV (including the Schedules hereto and the other
disclosures) shall be deemed to have been amended by any such supplement or
amendment. All references herein to any such representation, warranty or
statement (including the Schedules hereto and other disclosures) provided
hereby, to the extent such supplement or amendment refers specifically to such
representation, warranty or statement, shall be deemed to refer to the same as
so amended or supplemented. Any amendments or supplements given to either party
pursuant to this Section 5.03(b) may be a basis for the termination of this
Agreement as provided for in Sections 8.01(b) and 8.01(c); provided the
terminating party exercises its right to terminate this Agreement under Section
8.01(b) or 8.01(c), as applicable, with twenty (20) days after receipt of the
amending or supplementary information giving rise to such termination right.
Section 5.04. Transfer and Gains Taxes. Seller and the Purchaser shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, mortgage recording, intangible, value
added stock transfer and stamp taxes, any transfer, recording, registration and
other fees and any similar taxes which become payable in connection with the
transactions contemplated hereby, excluding state and federal income taxes
(together with any related interests, penalties or additions to tax, "Transfer
and Gains Taxes").
Section 5.05. Access to Information. (a) From the date hereof until the
Closing, upon reasonable notice, each party and their respective Affiliates and
their respective officers, directors, employees, agents, accountants and counsel
shall: (i) afford the officers, employees and authorized agents, accountants,
counsel, financing sources and representatives of the other party reasonable
access, during normal business hours, to the properties, offices, other
facilities, books and records of such party and its Affiliates and to those
officers, directors, employees, agents, accountants and counsel of such party
and its Affiliates who have any knowledge relating to such party, its
Affiliates, its properties or the Purchased Loans and (ii) furnish to the
officers, employees and authorized agents, accountants, counsel, financing
sources and representatives of the other party such additional financial and
operating data and other information regarding it and its Affiliates properties
and the Purchased Loans as the other party may from time to time reasonably
request.
(b) In order to facilitate the resolution of any claims made against or
incurred by the Seller prior to the Closing, for a period of seven years after
the Closing, the Purchaser shall (i) retain the books and records of the Seller
which are transferred to the Purchaser pursuant to this Agreement relating to
periods prior to the Closing in a manner reasonably consistent with the prior
practices of the Seller and (ii) upon reasonable notice, afford the officers,
employees and authorized agents and representatives of the Seller reasonable
access (including the right to make, at the Seller's expense, photocopies),
during normal business hours, to such books and records.
(c) In order to facilitate the resolution of any claims made by or against
or incurred by the Purchaser after the Closing or for any other reasonable
purpose, for a period of seven years following the Closing, the Seller shall (i)
retain all books and records of the Seller which are not transferred to the
Purchaser pursuant to this Agreement and which relate to the Seller or the
Purchased Loans for periods prior to the Closing and which shall not otherwise
have been delivered to the Purchaser and (ii) upon reasonable notice, afford the
officers, employees and authorized agents and representatives of the Purchaser,
reasonable access (including the right to make photocopies at the expense of the
Purchaser), during normal business hours, to such books and records.
Section 5.06. Confidentiality. Each of the Purchaser and Seller covenant
that they shall not, without the prior written consent of the other, divulge,
furnish or make accessible any information or documents provided to the other in
connection with their due diligence review of the other party's operations and
the Purchased Loans (other than "Non-confidential Information" as hereinafter
defined) to any other Person (other than as required by law, including
applicable securities law or stock exchange regulations, and other than to their
respective employees, accountants, attorneys, consultants, investment bankers,
financial advisors, creditors, outside partners or co-venturers in, and property
managers of, any of the parties' properties and other
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agents who will be bound by the terms of this Section 5.06). The term
"Non-confidential Information" shall mean information generally available to the
public, previously known or in the possession of the other party or which
becomes available prior to any disclosure or use thereof from some other source
not restricted as to disclosure. Purchaser and Seller agree that if this
Agreement is terminated, each shall return to the other all documents previously
delivered to it in connection with the transactions contemplated by this
Agreement and shall destroy all copies of such documents made by it and (to the
extent not prohibited by law or contrary to customary internal corporate policy)
all memoranda, notes and other written material and work-product related
thereto. Each of the Purchaser and Seller shall promptly notify the other of any
request or demand by any court, governmental agency or other person asserting a
demand or request for confidential information supplied to such party so that
the other party may seek an appropriate protective order. In the absence of such
protective order or receipt of a waiver hereunder, if Purchaser or Seller (or
any of their respective representatives) are, in the reasonable opinion of such
party's counsel, compelled to disclose confidential information or else stand
liable for contempt or suffer other censure or significant penalty, the
Purchaser or Seller may disclose that portion of the requested information which
such party's counsel advises it that it is compelled to disclose. If such party
proposes to make disclosure based upon the opinion of its counsel as aforesaid,
such party will (to the extent reasonably possible and permitted) advise and
consult with the other party prior to such disclosure concerning the information
it proposes to disclose.
Section 5.07. Taxes. (a) Provided that Seller furnishes to the Purchaser
such forms and statements as may be reasonably requested by the Purchaser
(including IRS Form 1001) to qualify the Seller for exemption from US tax
pursuant to any tax treaty or provision of the Code or Regulations, the
Purchaser shall not withhold any Tax from payments made to Seller with respect
to the Purchase Money Notes (including notes originally issued to DIHC).
(b) Provided that Seller furnishes to the Purchaser such forms and
statements as may be reasonably requested by the Purchaser (including IRS Form
1001) to qualify the Seller for exemption from US tax pursuant to any tax treaty
or provision of the Code or Regulations, the Purchaser shall not withhold Tax
under section 1442 of the Code from ordinary dividends distributed to Seller on
Purchaser Common Shares (including shares originally issued to DIHC).
(c) If Purchaser recognizes a net capital gain in 1997, then to the extent
possible, the Purchaser shall designate as capital gain dividends an amount of
dividends distributed in 1997 prior to the Closing Date equal to the amount of
the Purchaser's net capital gain.
(d) The Purchaser shall withhold Taxes with respect to any distribution to
the Seller to the extent required by Section 1445 of the Code and the
Regulations thereunder; provided, however, that the Purchaser shall cooperate
with any Seller applications or withholding certificates described in section
1445 and any Regulations and revenue procedures thereunder.
(e) In the event the Purchaser intends to make a deduction or withholding
of Taxes in consistent herewith, it shall advise the Seller prior to actually
deducting and withholding such Taxes. In the event the Purchaser shall so deduct
or withhold Taxes, it (i) shall pay to or deposit with the appropriate taxing
authority in a timely manner the full amount of Taxes it has deducted or
withheld; (ii) shall provide, within thirty days of the payment or deposit
thereof, evidence of payment of such Taxes to, or the deposit thereof with, the
appropriate taxing authority and a statement setting forth the amount of Taxes
deducted or withheld, the applicable rate, and any other information or
documentation reasonably requested by the Seller for the purpose of (x)
assisting in obtaining any applicable credits or deductions for such Taxes in
any jurisdiction in which the Seller is subject to tax or (y) satisfying any
information reporting requirements; and (iii) shall forward to such person(s) as
soon as possible any official tax receipts or other documentation with respect
to the payment or deposit of the deducted or withheld Taxes as may be issued
from time to time by the appropriate taxing authority.
(f) Within 60 days after the close of each calendar year and at such other
times as the Seller shall reasonably request, the Purchaser shall provide to the
Seller a certificate of an officer of the Purchaser stating the officer's belief
as to the status of the Purchaser as a domestically controlled REIT as of the
close of such
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year and any schedules or summaries setting forth the computations used by the
Purchaser to determine such status.
Section 5.08. Standstill Agreement. In the event the Closing does not
occur, the Purchaser and the Seller agree that, for a period of 24 months after
the date of this Agreement, unless specifically invited in writing by the other
party's Board of Directors, neither the Purchaser nor the Seller (nor any of
their respective Affiliates), will in any manner, directly or indirectly, (a)
effect or seek, offer or propose (whether publicly or otherwise) to effect, or
cause or participate in, (i) the acquisition of the other party's securities (or
beneficial ownership thereof) or assets, (ii) any tender or exchange offer,
merger or other business combination involving the other party, (iii) any
recapitalization, restructuring, liquidation, dissolution or other extraordinary
transaction with respect to the other party or (iv) any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the SEC) or consents to
vote any of the other party's voting securities; (b) form, join or in any way
participate in a "group" (as defined under the Exchange Act) or otherwise act,
alone or in concern with others, to seek to control or influence the other
party's management, Board of Directors or policies; or (c) enter into any
discussion or arrangement with any third party with respect to any of the
foregoing; provided, however, that the restrictions set forth in this paragraph
shall not apply to professional asset managers or investment advisers retained
by the Purchaser or the Seller or their respective Affiliates who are authorized
to exercise discretion with respect to all or a portion of the assets which they
manage for the Purchaser or the Seller or their respective Affiliates.
Notwithstanding the foregoing, in the event either of the Purchaser or the
Seller willfully and intentionally breach any of their respective obligations
under this Agreement with the result that a Closing hereunder does not occur,
the non-defaulting party shall not be bound by the covenants in this Section
5.08.
Section 5.09. Board of Directors. At the first meeting of the Board of
Directors occurring after the Closing Date, if the Seller so requests, the total
number of persons serving on the Board of Directors of Purchaser shall be
increased to 12 and two additional persons to be nominated by Seller after the
Closing Date shall be appointed by the Board of Directors of Purchaser to fill
the vacancies, effective at such meeting of the Board, thereby created. Between
the Closing Date and the date such nominees are appointed to the Board, the
Board of Directors shall not take any action by written consent or otherwise.
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.01. Conditions to Obligations of the Seller. The obligations of
the Seller to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions unless waived by the Seller:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Purchaser contained in this Agreement shall have been
true and correct when made and shall be true and correct in all material
respects as of the Closing, with the same force and effect as if made as of
the Closing Date, other than such representations and warranties as are
made as of another date, the covenants and agreements contained in this
Agreement to be complied with by the Purchaser on or before the Closing
shall have been complied with in all material respects, and the Seller
shall have received a certificate from the Purchaser to such effect signed
by the chief executive officer or chief financial officer of the Purchaser.
This condition shall be deemed satisfied unless breaches of the Purchaser's
representations, warranties and covenants in this Agreement are in the
aggregate reasonably expected to have or have had a Purchaser Material
Adverse Effect or adversely affect any of the Seller's collateral under the
Purchase Money Mortgages in any material respect;
(b) No Proceeding or Litigation. No Action shall have been commenced
by or before any Governmental Authority against either the Seller or the
Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated by this Agreement which, in the reasonable, good
faith determination of the Seller, is likely to render it impossible or
unlawful to consummate such transactions; provided, however, that the
provisions of this Section 6.01(b) shall not apply if the Seller has
directly or indirectly solicited or encouraged any such Action;
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(c) Resolutions. The Seller shall have received a true and complete
copy, certified by the Secretary or an Assistant Secretary of the
Purchaser, of the resolutions duly and validly adopted by the Board of
Directors of the Purchaser evidencing its authorization of the execution
and delivery of this Agreement and the Ancillary Agreements to which it is
a party and the consummation of the transactions contemplated hereby and
thereby;
(d) No Material Adverse Change. Since the date of this Agreement,
there shall not have been any change, circumstance or event in the business
or prospects of the Purchaser which has had or would reasonably be expected
to have a Purchaser Material Adverse Effect or adversely affect any of the
Seller's collateral under the Purchase Money Mortgages in any material
respect and Seller shall have received a certificate of the chief executive
officer or chief financial officer of the Purchaser certifying to such
effect;
(e) Opinions Relating to REIT. Seller shall have received an opinion
of counsel to the Purchaser, dated as of the Closing Date, reasonably
satisfactory to Seller that, commencing with its taxable year ending
December 31, 1993, the Purchaser was organized and is operated in
conformity with the requirements for qualification as a REIT under the
Code;
(f) Consents. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained, other than such
consents and waivers from third parties, which, if not obtained, would not
result individually or in the aggregate, in a Seller Material Adverse
Effect or a Purchaser Material Adverse Effect;
(g) Closing Under Stock Purchase Agreement. All conditions precedent
to a closing under the Stock Purchase Agreement shall have been satisfied;
(h) Other Legal Opinions. The Seller shall have received opinions of
counsel to the Purchaser, dated as of Closing Date, regarding the
enforceability (and, where applicable, the due authorization, execution and
delivery) of the Registration Rights and Voting Agreement, the Proxy
Statement, the Charter Amendment and the other Ancillary Agreements to
which the Purchaser or any Purchaser Subsidiary is a party, the due
authorization and issuance of the Purchaser Common Shares being issued to
Seller and DIHC on the Closing Date, and such other matters as the Seller
shall reasonably require.
(i) Amendment of Articles. The Articles shall be amended by Purchaser
Shareholder Approvals to add a new Article 9.
(j) Organizational Documents. The Seller shall have received a copy
of (i) the Certificate of Incorporation, as amended, of the Purchaser
certified by the secretary of state of the jurisdiction in which such
entity is incorporated or organized, as of a date not earlier than fifteen
Business Days prior to the Closing Date and accompanied by a certificate of
the Secretary or Assistant Secretary of the Purchaser, dated as of the
Closing Date, stating that no amendments have been made to such Certificate
of Incorporation since such date except as contemplated in this Agreement,
and (ii) the By-laws of the Purchaser, certified by the Secretary or
Assistant Secretary of the Purchaser; and
(k) Good Standing; Qualification to Do Business. The Seller shall
have received a good standing certificate for the Purchaser from the
secretary of state of the jurisdiction in which such entity is incorporated
or organized and from the secretary of state in each other jurisdiction in
which the properties owned or leased by the Purchaser, or the operation of
its business in such jurisdiction, requires the Purchaser to qualify to do
business as a foreign entity, in each case dated as of a date not earlier
than fifteen Business Days prior to the Closing Date.
Section 6.02. Conditions to Obligations of the Purchaser. The obligations
of the Purchaser to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions unless waived by the Purchaser:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Seller contained in this Agreement shall have been
true and correct when made and shall be true and correct in all material
respects as of the Closing with the same force and effect as if made as of
the Closing, other
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than such representations and warranties as are made as of another date,
the covenants and agreements contained in this Agreement to be complied
with by the Seller on or before the Closing shall have been complied with
in all material respects, and the Purchaser shall have received a
certificate of the Seller to such effect signed by the chief executive
officer or the chief financial officer of the Seller. This condition shall
be deemed satisfied unless breaches of the Seller's representations,
warranties and covenants in this Agreement are in the aggregate reasonably
expected to have or have a Seller Material Adverse Effect;
(b) No Proceeding or Litigation. No Action shall have been commenced
or threatened by or before any Governmental Authority against either the
Seller or the Purchaser, seeking to restrain or materially and adversely
alter the transactions contemplated hereby which the Purchaser believes, in
its sole and absolute discretion, is likely to render it impossible or
unlawful to consummate the transactions contemplated by this Agreement or
which could have a Seller Material Adverse Effect; provided, however, that
the provisions of this Section 6.02(b), shall not apply if the Purchaser
has solicited or encouraged any such Action;
(c) Legal Opinions. The Purchaser shall have received legal opinions
of counsel to the Seller, dated as of the Closing Date, regarding the
enforceability (and, where applicable, the due authorization, execution and
delivery) of the Registration Rights and Voting Agreement and the other
Ancillary Agreements to which the Seller is a party and to consummate the
transactions contemplated hereby and thereby;
(d) No Material Adverse Change. Since the date of this Agreement,
there shall not have been any change, circumstance or event in the
Purchased Loans or the business or prospects of the Seller which has had or
would reasonably be expected to have a Seller Material Adverse Effect and
the Purchaser shall have received a certificate of the chief executive
officer or chief financial officer of the Seller certifying to such effect;
(e) Consents. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained, other than such
consents and waivers from third parties, which, if not obtained, would not
result individually or in the aggregate in a Seller Material Adverse Effect
or a Purchaser Material Adverse Effect; and
(f) Closing Under Stock Purchase Agreement. All conditions precedent
to a closing under the Stock Purchase Agreement shall have been satisfied.
Section 6.03. Condition to each Parties Obligation to Effect
Transaction. The respective obligation of each party to consummate the
transactions contemplated under this Agreement is subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Purchaser Shareholder Approvals. The Purchaser Shareholder
Approvals shall have been obtained.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by a court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the transactions contemplated by this Agreement shall
be in effect.
(c) Related Transactions. The Registration Rights and Voting
Agreement substantially in the form attached hereto as Exhibit 1.01(f)
shall have been duly executed and delivered by the parties thereto and
shall remain in full force and effect.
(d) Charter Amendment. The Charter Amendment shall have been duly
filed with the Secretary of State of the State of Nevada.
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ARTICLE VII
INDEMNIFICATION
Section 7.01. Survival of Representations and Warranties. The
representations and warranties of the Seller and the Purchaser contained in this
Agreement and the Ancillary Agreements shall survive the Closing until March 31,
1999. Neither the period of survival nor the liability of either party hereto
with respect to such party's representations and warranties shall be reduced by
any investigation made at any time by or on behalf of the party seeking
indemnification. If written notice of a claim has been given prior to the
expiration of the applicable representations and warranties by the party seeking
indemnification to the other party, then the relevant representations and
warranties shall survive as to such claim until the claim has been finally
resolved.
Section 7.02. Indemnification. (a) The Purchaser and its Affiliates
(including, without limitation, the Seller Subsidiaries from and after the
Closing Date), officers, directors, employees, agents, successors and assigns
(each a "Purchaser Indemnified Party") shall be indemnified and held harmless by
the Seller for any and all Loss arising out of or resulting from (i) the breach
of any representation or warranty made by the Seller contained in this Agreement
or the Ancillary Agreements; or (ii) the breach of any covenant or agreement by
the Seller contained in this Agreement or the Ancillary Agreements; or (iii)
Liabilities, whether arising before or after the Closing Date, that are not
expressly assumed by the Purchaser pursuant to this Agreement, including,
without limitation, the Excluded Liabilities.
(b) The Seller and its Affiliates, officers, directors, employees, agents,
successors and assigns (each a "Seller Indemnified Party"; a Purchaser
Indemnified Party or a Seller Indemnified Party sometimes herein referred to as
an "Indemnified Party") shall be indemnified and held harmless by the Purchaser
for any and all losses arising out of or resulting from the breach of any
representation or warranty made by the Purchaser contained in this Agreement or
the Ancillary Agreements or the breach of any covenant or agreement by the
Purchaser contained in this Agreement or the Ancillary Agreements.
As used herein the term "Loss" or "Losses" means any Liabilities, losses,
damages, claims, costs and expenses, interests, awards, judgments and penalties
(including, without limitation, attorneys' and consultants' fees and expenses)
actually suffered or incurred by any Indemnified Party (including, without
limitation, any Action brought or otherwise initiated by any Indemnified Party).
In the event of any Loss incurred by the Seller on any Affiliate thereof, for
purposes of determining the amount the Seller is entitled to recover hereunder
on account of such Loss (but not for purposes of determining the threshold
amount of Losses or the cap on liability under Section 7.03), the Seller's Loss
shall be "grossed up" to an amount equal to the quotient of (i) the amount of
such Loss divided by (ii) a fraction the numerator of which is the aggregate
number of issued and outstanding shares of Purchaser Common Shares and Purchaser
Preferred Shares owned by Persons other than the Seller and DIHC as of the date
on which any payment is made by the Purchaser on account of such Loss and the
denominator of which is the aggregate amount of issued and outstanding Purchaser
Common Shares and Purchaser Preferred Shares as of such date.
To the extent that the Seller's or the Purchaser's undertakings set forth
in this Section 7.02 may be unenforceable, the Seller or the Purchaser which is
liable for the undertaking shall contribute the maximum amount that it is
permitted to contribute under applicable Law to the payment and satisfaction of
all Losses incurred by the other party.
(c) An Indemnified Party shall give the party from which it is seeking
indemnification hereunder (the "Indemnitor") notice of any matter which an
Indemnified Party has determined has given or could give rise to a right of
indemnification under this Agreement, within 30 days of such determination,
stating the amount of the Loss, if known, and method of computation thereof, and
containing a reference to the provisions of this Agreement in respect of which
such right of indemnification is claimed or arises. The obligations and
Liabilities of the Indemnitor under this Article VII with respect to Losses
arising from claims of any third party which are subject to the indemnification
provided for in this Article VII ("Third Party Claims") shall be governed by and
contingent upon the following additional terms and conditions: if an Indemnified
Party shall receive notice of any Third Party Claim, the Indemnified Party shall
give the Indemnitor notice of such Third Party Claim within 30 days of the
receipt by the Indemnified Party of such notice; provided, however,
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that the failure to provide such notice shall not release the Indemnitor from
any of its obligations under this Article VII except to the extent the
Indemnitor is materially prejudiced by such failure and shall not relieve the
Indemnitor from any other obligation or liability that it may have to any
Indemnified Party otherwise than under this Article VII. If the Indemnitor
acknowledges in writing its obligation to indemnify the Indemnified Party
hereunder against any Losses that may result from such Third Party Claim, then
the Indemnitor shall be entitled to assume and control the defense of such Third
Party Claim at its expense and through counsel of its choice if it gives notice
of its intention to do so to the Indemnified Party within five days of the
receipt of such notice from the Indemnified Party; provided, however, that if
there exists or is reasonably likely to exist a conflict of interest that would
make it inappropriate in the reasonable judgment of the Indemnified Party for
the same counsel to represent both the Indemnified Party and the Indemnitor,
then the Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Indemnitor. In the event the Indemnitor exercises the right
to undertake any such defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnitor in such defense
and make available to the Indemnitor, at the Indemnitor's expense, all
witnesses, pertinent records, materials and information in the Indemnified
Party's possession or under the Indemnified Party's control relating thereto as
is reasonably required by the Indemnitor. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnitor shall cooperate with the Indemnified
Party in such defense and make available to the Indemnified Party, at the
Indemnitor's expense, all such witnesses, records, materials and information in
the Indemnitor's possession or under the Indemnitor's control relating thereto
as is reasonably required by the Indemnified Party. No such Third Party Claim
may be settled by the Indemnitor without the written consent of the Indemnified
Party, which will not be unreasonably withheld or delayed.
Section 7.03. Limitations on Recovery. With respect to any claim for the
breach of representations and warranties hereunder, no claim may be made by an
Indemnified Party against an Indemnitor for indemnification hereunder with
respect to any individual item of Loss unless the aggregate of all Losses for
which the Indemnified Party is seeking recovery from an Indemnitor under this
Article VII for breaches of representations or warranties plus any Losses for
which such Indemnified Party or any Affiliate thereof is seeking indemnification
under Article VIII of the Stock Purchase Agreement for breaches of
representations or warranties shall exceed Ten Million and No/100 Dollars
($10,000,000.00), except in the event the Indemnified Party is seeking indemnity
as a result of a wilful and intentional breach by the Indemnitor of any of its
material representations or warranties set forth in this Agreement in which such
case the foregoing limitations shall not be applied and the Indemnified Party
shall be entitled to recover its Losses to the full extent thereof. In the event
the Indemnified Party is entitled to seek recovery for breaches of
representations or warranties hereunder, the indemnity shall be for the full
extent of all the Losses to the Indemnified Party resulting from such breach
exceeding and excluding the first Ten Million and No/100 Dollars
($10,000,000.00) under this Agreement and the Stock Purchase Agreement
aggregated. Notwithstanding the foregoing, the aggregate liability for Losses
for breaches of representations and warranties of any Indemnitor (and its
Affiliates) under this Article VII or Article VIII of the Stock Purchase
Agreement shall be limited to an aggregate amount of One Hundred Million and
No/100 Dollars ($100,000,000.00), except in the event the Indemnified Party is
seeking indemnity hereunder as a result of the wilful and intentional breach by
the Indemnitor of any of its material representations or warranties set forth in
this Agreement in which event the foregoing limitation on liability shall not be
applicable and the Indemnified Party shall be entitled to recover its Losses to
the full extent thereof.
Payments made by an Indemnitor hereunder shall be limited to the amount of
Losses that remain after deducting therefrom any insurance proceeds and any
indemnity, contribution or other payment actually received by the Indemnified
Party from any Person with respect thereto.
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ARTICLE VIII
TERMINATION
Section 8.01. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent duly authorized by the respective Boards
of Directors of Purchaser and the Seller;
(b) by Purchaser, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Seller set forth in this
Agreement if such breach is reasonably expected to, or has, a Seller
Material Adverse Effect or a Purchaser Material Adverse Effect, or if any
material representation or warranty of the Seller shall have become untrue
in any material respect such that the conditions set forth in Section
6.02(a) would be incapable of being satisfied on or prior to December 31,
1997;
(c) by the Seller, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Purchaser set forth in
this Agreement if such breach is reasonably expected to, or has, a
Purchaser Material Adverse Effect, or if any material representation or
warranty of the Purchaser shall have become untrue in any material respect
such that the conditions set forth in Section 6.01(a) would be incapable of
being satisfied on or prior to December 31, 1997;
(d) by the Purchaser, if any judgment, injunction, order, decree or
action by any Governmental Authority preventing the consummation of the
transactions contemplated hereby or requiring actions as a condition
precedent to the consummation of such transactions which would result in a
Purchaser Material Adverse Effect or Seller Material Adverse Effect shall
have become final and nonappealable;
(e) by the Seller, if any judgment, injunction, order, decree or
action by any Governmental Authority preventing the consummation of the
transactions contemplated hereby or requiring actions as a condition
precedent to the consummation of such transactions which would result in a
Purchaser Material Adverse Effect (or the impairment in any material
respect of any of the Seller's collateral under the Purchase Money
Mortgages) shall have become final and nonappealable;
(f) by either the Purchaser or the Seller, if the Stock Purchase
Agreement is terminated;
(g) by either Seller or the Purchaser if the Purchaser Shareholder
Approvals shall not have been obtained on or before December 31, 1997; or
(h) by the Seller upon any Purchaser Change of Control.
Section 8.02. Effect of Termination. In the event of termination of this
Agreement by either the Seller or the Purchaser as provided in Section 8.01,
this Agreement shall forthwith become void and have no effect (provided,
however, that the provisions of Sections 5.06, 5.08 and this Section 8.02,
together with the definitions set forth in Section 1.01 which are operative with
respect to such provisions and the operative provisions of Article IX such as
"Notice," "Governing Law" and similar provisions, shall survive such termination
subject to any limitations on or survival described therein), without any
liability or obligation on the part of Purchaser or the Seller except to the
extent that such termination results from a wilful and intentional breach by a
party of any of its material representations, warranties, covenants or
agreements set forth in this Agreement. In the event of a wilful, intentional
breach by either party of any of its material representations warranties,
covenants or agreements, the non-defaulting party shall have the right to seek
specific performance of this Agreement and shall have the right to pursue any
and all other rights or remedies available at law, in equity or under this
Agreement (including, without limitation, to seek indemnification under Article
VII) without regard to the limitations set forth in Section 7.03.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Expenses. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred
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in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such costs and expenses, whether or not the
Closing shall have occurred. Without limiting the generality of the foregoing,
the Seller and Purchaser acknowledge and agree that the Purchaser has engaged
Coopers & Lybrand L.L.P. (New York), Merrill Lynch & Co., Lazard Freres & Co.
LLC and Triton Pacific Capital LLC to advise it in connection with the
transactions contemplated hereby and that the Purchaser shall be responsible for
the fees and expenses of such advisors.
Section 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
9.02):
(a) if to the Seller:
Pensioenfonds PGGM
Kroostweg-Noord 149
3704DV Zeist, The Netherlands
Telecopy: 011-31-30-696-3388
Attention: Mr. Jan van der Vlist
Ms. Anneke C. van de Puttelaar
with a copy to:
Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4873
Telecopy: (212) 750-9022
Attention: Robert M. Safron, Esq.
(b) if to the Purchaser:
126 East 56th Street
New York, New York 10022
Telecopy: (212) 605-7199
Attention: Mr. John S. Moody
with a copy to:
King & Spalding
191 Peachtree Street, NE
Atlanta, Georgia 30303
Telecopy: (404) 572-5148
Attention: William B. Fryer, Esq.
Section 9.03. Waiver of Jury Trial. To the extent permitted by applicable
law, the parties hereby irrevocably waive any and all right to trial by jury in
any legal proceeding arising out of or relating to this Agreement, the ancillary
agreements or the transactions contemplated hereby or thereby.
Section 9.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 9.05. Severability. Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any Law
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as
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closely as possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the greatest
extent possible.
Section 9.06. Entire Agreement. This Agreement with the Ancillary
Agreements constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and undertakings,
both written and oral, between the Seller and the Purchaser with respect to the
subject matter hereof (including, without limitation, the Confidentiality
Agreement between Seller and the Purchaser dated July 15, 1997).
Section 9.07. Assignment. This Agreement may not be assigned by operation
of Law or otherwise without the express written consent of the Seller and the
Purchaser (which consent may be granted or withheld in the sole discretion of
the Seller and the Purchaser). The Seller acknowledges and agrees that in
connection with any liquidation or dissolution of DIHC occurring during the
period which DIHC has any Liability under the Stock Purchase Agreement (by way
of indemnity or otherwise), Seller shall assume all such Liability of DIHC upon
such liquidation or dissolution.
Section 9.08. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person under or by reason of this Agreement.
Section 9.09. Amendment. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, the Seller and
the Purchaser.
Section 9.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any New York state or federal court sitting in the City
of New York.
Section 9.11. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 9.12. Waiver. Either party to this Agreement may (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or conditions
of the other party contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
Section 9.13. No Purchaser's Lien. The parties acknowledge that in no
event that shall this Agreement constitute an encumbrance upon any of the
Purchased Loans and Purchaser hereby expressly waives any purchaser's lien, if
any, that it may otherwise have upon or against the Purchased Loans by virtue of
this Agreement.
Section 9.14. Closing under Loan Purchase Agreement. The parties hereto
acknowledge and agree that the transactions contemplated hereunder are intended
to (and shall) close immediately preceding to the transactions contemplated
under the Stock Purchase Agreement.
Section 9.15. Limited Survival. Except as expressly provided in Sections
2.03(d), 5.02(c), 5.03(a), 5.04, 5.05(b) and (c), 5.06, 5.07, 8.02, Articles V
and VII hereof (which provisions together with the definitions set forth in
Section 1.01 which are operative with respect thereto and the operative
provisions of this Article IX such as "Notice," "Governing Law," and similar
operative provisions) shall survive the Closing subject to any limitations on
survival described therein), the provisions of this Agreement shall not survive
the Closing and shall be merged into the Ancillary Agreements and the other
documents executed and delivered at the Closing.
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<PAGE> 194
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
STICHTING PENSIOENFONDS VOOR DE
GEZONDHEID, GEESTELIJKE EN
MAATSCHAPPELIJKE BELANGEN
By: /s/ D. J. DE BEUS
------------------------------------
Name: D. J. de Beus
Title: Chairman, Board of Managing
Directors
By: /s/ P. S. VAN DEN BERG
------------------------------------
Name: P. S. van den Berg
Title: Director
CORNERSTONE PROPERTIES INC.
By: /s/ JOHN S. MOODY
------------------------------------
Name: John S. Moody
Title: President and Chief
Executive Officer
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<PAGE> 195
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 1.01(d) Purchaser Persons for purposes of defining Knowledge
Schedule 1.01(e) Seller Persons for purposes of defining Knowledge
Schedule 1.01(f) Purchaser Subsidiary Corporations
Schedule 1.01(j) Purchaser Properties
Schedule 2.03(c) Order and priority of transfer of Purchased Loans
Schedule 3.02 Required Consents of Governmental Authorities for Seller to enter
into and consummate agreement
Schedule 3.03 Litigation affecting Purchased Loans
Schedule 3.07(a) Purchased Loan Documents
Schedule 3.07(b) Outstanding Principal Balance of each Purchased Loan, interest
rate payable thereon and date through which interest has been paid
Schedule 4.02 Purchaser's ownership interest in each Purchaser Subsidiary
Schedule 4.03 Convertible Debt and Convertible Purchaser Preferred Shares
Schedule 4.04 Required Consents of Governmental Authorities for Purchaser or
Purchaser Subsidiaries to enter into and consummate agreement
Schedule 4.05 Liabilities Required by U.S. GAAP to be set forth on Consolidated
Balance Sheet of Purchaser and Purchaser Subsidiaries
Schedule 4.06 List of any Purchaser Material Adverse Change occurring since the
date of the most recent financial statements included in the SEC
Documents (the "Financial Statement Date") to the date of the
Agreement
Schedule 4.07 List of Actions Against Purchaser or any Purchaser Subsidiary
Schedule 4.08 Material violations of law relating to any of the Purchaser
Properties.
Schedule 4.09 Purchaser Environmental Reports
Schedule 4.10 List of related party transactions by Purchaser and the Purchaser
Subsidiaries
Schedule 4.14 Debt Instruments Not Described in Purchaser SEC Documents and any
Defaults Thereunder
Schedule 4.15(a) Any bonus, pension, profit sharing, severance plan adopted by
Purchaser and not disclosed in the SEC Documents since the
Financial Statement Date
Schedule 4.15(b) List of Purchaser Benefit Plans
Schedule 4.15(c) Section 401 Benefit Plans not Qualified under the Code or
terminated under the Code
Schedule 4.19 Liability, Casualty, Business Interruption and other Insurance
Policies Insuring the Purchaser Subsidiaries
Exhibit 1.01(d) Description of Purchase Money Notes and Mortgages
Exhibit 1.01(f) Registration Rights and Voting Agreement
Exhibit 2.03(d) Purchase Price Allocations for Purchased Loans
Exhibit 5.02(a) Proposed Charter Amendment to Purchaser's Charter
</TABLE>
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<PAGE> 196
SCHEDULE 3.07(b)
OUTSTANDING PRINCIPAL BALANCE OF EACH PURCHASED LOAN,
INTEREST RATE PAYABLE THEREON AND DATE THROUGH WHICH INTEREST HAS BEEN PAID
SEE ATTACHED
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<PAGE> 197
SCHEDULE 3.07(b)
PGGM LOANS
SCHEDULE OF LOAN ACTIVITY
AS OF: AUGUST 14, 1997
<TABLE>
<CAPTION>
PRINCIPAL
-------------------------------------------
AS OF
LENDER BORROWER AUTHORIZED DUE RATE 12/31/96 FUNDINGS PAYDOWNS
- ------ ------------------------- ------------ -------------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PGGM 191 Peachtree Assc. 145,000,000 28-Feb-08 9.375% 145,000,000 --
PGGM **500 Boylston (stated) 117,604,975 29-May-21 8.50% 117,604,975 --
PGGM COTA (A Loan) 33,000,000 30-Jun-20 12.00% 31,507,441 (166,185)
PGGM COTA (B Loan) 8,196,549 31-Dec-97 12.00% 8,196,549 --
PGGM Transcanal Properties 7,061,865 31-Dec-99 9.50% 6,974,614 (34,252)
PGGM Canal Center Prop 17,963,441 31-Dec-99 9.50% 17,741,500 (87,128)
PGGM DIHC Properties I 33,310,305 1-Oct-97 9.00% 32,812,038 (180,131)
PGGM Bryce Mountain 9,001,126 31-Dec-99 9.50% 3,309,114 (407,059)
PGGM AALP 188,491,750 15-Nov-07 9.75% 182,170,778 (1,146,592)
PGGM DIHC Atlanta 25,000,000 1-Mar-99 8.75% 24,237,180 (163,697)
PGGM DIHC Peachtree 25,000,000 1-Mar-99 8.75% 24,237,180 (163,697)
PGGM DIHC Boylston 18,461,283 30-Jun-99 9.25% 17,950,241 (162,186)
PGGM DIHC Berkeley 44,000,000 31-Dec-04 9.00% 43,399,128 (234,408)
PGGM *DIHC Boylston Back Bay 27,327,000 14-Aug-00 7.70% -- 27,327,000 --
PGGM *DIHC Berkeley Back Bay 45,080,000 14-Aug-00 7.70% -- 45,080,000 --
----------- ---------- -----------
655,140,738 72,407,000 (2,745,335)
=========== ========== ===========
<CAPTION>
INTEREST
----------------------------------------------------------
AS OF AS OF AS OF
LENDER 8/14/97 12/31/96 INTEREST PAYMENTS 8/14/97
- ------ ------------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
PGGM 145,000,000 1,173,501 8,516,656 (9,198,089) 492,068
PGGM 117,604,975 600,878 6,162,178 (6,680,894) 82,162
PGGM 31,341,256 315,074 2,331,223 (2,514,866) 131,431
PGGM 8,196,549 9,278,485 1,342,227 -- 10,620,712
PGGM 6,940,362 55,216 408,613 (440,788) 23,041
PGGM 17,654,372 140,454 1,039,400 (1,121,243) 58,611
PGGM 32,631,907 246,090 1,820,590 (1,964,047) 102,633
PGGM 2,902,055 26,197 181,870 (198,432) 9,635
PGGM 181,024,186 1,480,138 10,945,548 (11,808,890) 616,796
PGGM 24,073,483 176,729 1,306,586 (1,409,703) 73,612
PGGM 24,073,483 176,729 1,306,586 (1,409,703) 73,612
PGGM 17,788,055 138,366 1,021,740 (1,102,606) 57,500
PGGM 43,164,720 325,493 2,408,130 (2,597,863) 135,760
PGGM 27,327,000 -- -- --
PGGM 45,080,000 -- -- --
----------- ---------- ---------- ------------ ----------
724,802,403 14,133,350 38,791,347 (40,447,124) 12,477,573
=========== ========== ========== ============ ==========
</TABLE>
NOTE: IN ACCORDANCE WITH GAAP, THE 500 BOYLSTON PERMANENT LOAN INTEREST IS
RECORDED USING THE INTEREST RATE METHOD. CUMULATIVE ACCRUED EFFECTIVE
RATE INTEREST AS OF AUGUST 14, 1997 IS $5,813,339 WITH A PREMIUM OVER
STATED RATE INTEREST OF $5,731,177.
* To be assigned to PGGM before closing.
** All loans reflect 13 days accrued interest except for 500 Boylston which
made an interest payment on August 11, 1997.
Accordingly, the 500 Boylston Note reflects 3 days of accrued interest.
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<PAGE> 198
EXHIBIT 1.01(d)
DESCRIPTION OF PURCHASE MONEY NOTES AND PURCHASE MONEY MORTGAGES
NOTES:
- - Note A: payable to DIHC, $55 million, matures 3 years from Closing, annual
interest rate of 7.28%.
Note B: payable to DIHC, $10 million, matures 3 years from Closing, annual
interest rate of 7.28% (but interest will not accrue until the
earlier of the closing of the sale of the Dearborn land or 3 years
from Closing).
Note C: payable to DIHC, $65 million, matures 7 years from Closing, annual
interest rate of 7.47%.
Note D: payable to PGGM, $120 million, matures 10 years from Closing, annual
interest rate of 7.54%.
- - Interest is payable quarterly in arrears; no amortization payments.
- - All Notes shall be issued by Cornerstone Properties Inc. and shall be
"non-recourse" to Cornerstone except as to customary "carve-outs."
- - The Default Rate shall be the higher of 3% above the regular interest rate set
forth in the Notes or 3% above the "prime rate" of The Chase Manhattan Bank.
There will also be a late charge of 5% of the amount due if the amount is not
paid after 5 days of when due.
- - The Notes may not be prepaid in full or in part except during the period 60
days prior to maturity.
- - The Notes shall have a 5 day grace period for payment defaults.
- - The Notes shall be cross-defaulted to each other.
- - The Notes shall be freely transferrable by the holder(s) thereof in whole or
in part.
GUARANTIES:
- - The Notes shall each be guaranteed by:
DIHC Properties I, Inc.
Bryce Mountain, Inc.
Charlotte Office Tower Associates
DIHC Berkeley Associates
DIHC Dearborn Venture
- - There will be no guaranty by the Market Square entity if the Market Square
first mortgage is directly owned by Cornerstone after its acquisition from
PGGM.
- - Each of the Guarantors shall be and remain single-purpose entities.
- - The Guarantors will be prohibited from selling (directly or indirectly) all or
part of their Collateral or from placing any other lien on the Collateral,
except that they may transfer the Collateral to other wholly-owned,
single-purpose subsidiaries of Cornerstone and Cornerstone shall not be
prohibited from merging with another entity provided that entity assumes all
obligations under the loans (nor shall trading of Cornerstone shares nor
issuance by Cornerstone of securities be deemed a prohibited sale or transfer
of the Collateral).
COLLATERAL:
- - The Notes/Guaranties shall be secured by: Assignment of Partnership Interests
by DIHC Berkeley Associates of its venture interests in 222 Berkeley
Associates.
Collateral Assignment of Market Square (AALP) Note and Deed of Trust and
Security Agreement (which has an original face amount of $181,491,750) and
related security documents and mortgage title policies, etc., by Cornerstone
(i.e., immediately after Cornerstone receives an assignment of this note and
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<PAGE> 199
mortgage from PGGM). At Seller's option, Seller will also receive a Collateral
Assignment of MSDI $38,900,000 Loan from MSDI.
New mortgages (and separate collateral assignments of leases and rents, UCC-1
financing statements, etc.) on real property owned by all Guarantors other
than DIHC Berkeley Associates (i.e., Galleria, 5 TransPotomac Plaza, Dearborn
and Charlotte). Since these mortgages must be freely transferable and
marketable, Cornerstone must also deliver (at its expense) new mortgage title
policies to DIHC/PGGM for each mortgage. Seller will consider accepting an
assignment of existing mortgages on those properties if there are existing
mortgage title policies and collateral package is not otherwise adversely
affected.
All mortgages and other security agreements must be in recordable form and be
cross-defaulted with the other security documents.
- - At Seller's option, Cornerstone will pledge its equity interests in each
Guarantor subject to provisions of any applicable venture documents.
- - At Seller's option, a collateral agent may be appointed to hold the collateral
and the guaranties for the benefit of all of the creditors and Seller shall
have the right (at its sole option) to uncollateralize or uncross-default
particular Notes.
- - All documents must conform to applicable state law and to any debtor or
collateral specific requirements.
- - The documents will provide for the release of (i) Charlotte and 5 TransPotomac
Plaza on the full payment of Note A, (ii) Dearborn on the full payment of Note
B, (iii) 222 Berkeley on the full payment of Note C, and (iv) Galleria and
Market Square on the full payment of Note D.
- - The documents will contain such other customary terms (as are acceptable to
Seller in its sole discretion) for, among other things, lease approvals and
non-disturbance, right to perform non-material alterations, use of insurance
proceeds, tax and insurance escrows following default, and financial and rent
roll information.
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<PAGE> 200
ANNEX III
REGISTRATION RIGHTS AND VOTING AGREEMENT
THIS REGISTRATION RIGHTS AND VOTING AGREEMENT (this "Agreement"), is made
and entered into as of this day of , 1997, by and between
CORNERSTONE PROPERTIES INC., a Nevada corporation (the "Company"), DUTCH
INSTITUTIONAL HOLDING COMPANY, INC., a Delaware corporation ("DIHC"), and
STICHTING PENSIOENFONDS VOOR DE GEZONDHEID, GEESTELIJKE EN MAATSCHAPPELIJKE
BELANGEN, a stichting formed according to the laws of The Netherlands ("PGGM").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of that certain Stock Purchase Agreement
(the "Purchase Agreement"), dated as of August , 1997, between the Company and
DIHC, and the Loan Purchase Agreement (the "Loan Agreement") dated as of August
, 1997, between the Company and PGGM, the Company is acquiring certain shares
of capital stock, partnership interests and loans from DIHC and PGGM and issuing
shares of its Common Stock (as defined below) to DIHC and PGGM; and
WHEREAS, the Company, DIHC and PGGM desire to provide (i) for compliance
with the Securities Act of 1933, as amended (the "Securities Act"), with respect
to the issuance of shares of its Common Stock and (ii) for the registration
under the Securities Act of certain shares upon the terms and conditions set
forth below; and
WHEREAS, the Company, DIHC and PGGM desire to provide (i) for the
nomination and election of certain persons to serve on the Board of Directors of
the Company, (ii) for certain restrictions regarding the transfer of shares of
Common Stock and (iii) for certain covenants regarding the operation of the
Company's business, upon the consummation of the transactions provided for by
the Purchase Agreement and the Loan Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Certain Other Definitions. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Purchase Agreement. The
capitalized terms set forth below (in their singular and plural forms as
applicable) shall have the following meanings:
1.1 "Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
1.2 "Business Combination" means any one of the following transactions:
(i) Any merger or consolidation of the Company or any subsidiary
thereof with any other Person (other than the Company);
(ii) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Company (in one transaction or a series of transactions)
to or with any Person of all or a substantial portion of the assets of the
Company and its subsidiaries taken as a whole;
(iii) The adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by or on behalf of any Holder or its
Affiliates that together own 25% or more of the issued and outstanding
Common Stock; or
(iv) Any reclassification of securities (including any reverse stock
split), recapitalization of the Company, or any merger or consolidation of
the Company with any subsidiary thereof or any other transaction to which
the Company is a party which has the effect, directly or indirectly, of
increasing the Holder Interest of such Holder or its Affiliates that
together own 25% or more of the issued and
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<PAGE> 201
outstanding Common Stock (whether or not with or into or otherwise
involving such Holder or any of its Affiliates).
1.3 "Closing Date" has the meaning specified in Section 2.04 of the
Purchase Agreement.
1.4 "Commission" shall mean the United States Securities and Exchange
Commission and any successor federal agency having similar powers.
1.5 "Common Stock" shall mean the common stock without par value of the
Company.
1.6 "control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee, personal
representative or executor, of the power to direct or cause the direction of the
affairs or management of a Person, whether through the ownership of voting
securities, as trustee, personal representative or executor, by contract or
otherwise, including, without limitation, the ownership, directly or indirectly,
of securities having the power to elect a majority of the board of directors or
similar body governing the affairs of such Person.
1.7 "Current Market Price" of each share of Common Stock shall mean (i)
the average of the closing prices of the Common Stock for the five New York
Stock Exchange trading days immediately preceding the day in question as
reported by The Wall Street Journal under the New York Stock Exchange Composite
Transactions quotation system (or under any successor quotation system) or, if
the Common Stock is no longer traded on the New York Stock Exchange under the
quotation system under which such closing prices are reported or, if The Wall
Street Journal no longer reports such closing prices, such closing prices as
reported by a newspaper or trade journal selected by the Company or (ii) if no
such closing prices are available on such dates, the fair market value as
determined in good faith by the Board of Directors of the Company.
1.8 "Demand Offering" shall mean a offering required to be effected
pursuant to Section 3.3 hereof.
1.9 "Demand Prospectus" shall mean the prospectus included in the Shelf
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, including any supplement relating to the terms of the
offering of any portion of the Demand Offering Securities covered by the Demand
Prospectus, and in each case including all material incorporated by reference
therein.
1.10 "Demand Offering Securities" shall mean the Shares held by DIHC and
PGGM or any subsequent Holder to whom this Agreement has, or rights to cause the
Company to register Shares in accordance with Section 3 have, been assigned
pursuant to Section 9, excluding (i) Shares that have been disposed of under the
Shelf Registration Statement or any other effective registration statement, (ii)
Shares sold or otherwise transferred pursuant to Rule 144 under the Securities
Act, and (iii) those Shares held by any single Holder if such Holder holds less
than 1% of the issued and outstanding shares of Common Stock and all of such
Shares are eligible for sale pursuant to Rule 144 under the Securities Act and
all of such Holder's Shares could be sold by such Holder in a single transaction
under Rule 144 under the Securities Act.
1.11 "Demand Offering Expenses" shall mean any and all expenses incurred
by the Company in connection with Demand Offerings, including, without
limitation: (i) all Commission, stock exchange and National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with state securities or
"blue sky" laws (including reasonable fees and disbursements of counsel in
connection with qualification of any of the Demand Offering Securities under any
state securities or blue sky laws and the preparation of a blue sky memorandum)
and compliance with the rules of the NASD, (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and distributing
any Demand Prospectus, certificates and other documents relating to the
performance of and compliance with this Agreement, (iv) all fees and expenses
incurred in connection with the listing, if any, of any of the Demand Offering
Securities on any U.S. securities exchange or exchanges, and (v) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance. Demand Offering Expenses
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<PAGE> 202
shall specifically exclude Selling Expenses and the fees and expenses of counsel
representing the Holders, all of which shall be borne by the Holders in all
cases.
1.12 "Demand Offering Request" shall have the meaning set forth in Section
3.3(a) hereof.
1.13 "DIHC" shall have the meaning set forth in the Preamble.
1.14 "Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement, or restriction of any
kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership.
1.15 "Equity Security" means any (i) Common Stock, (ii) securities of the
Company convertible into or exchangeable for Common Stock, and (iii) options,
rights, warrants and similar securities issued by the Company to acquire Common
Stock.
1.16 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
1.17 "Holder" shall mean DIHC and PGGM (and their respective transferees
of Shares as permitted by this Agreement to whom this Agreement has, or rights
to cause the Company to register Shares in accordance with Section 3 have, been
assigned pursuant to Section 9).
1.18 "Holder Interest" means, with respect to any Holder, the percentage
of issued and outstanding Common Stock represented by the shares of Common Stock
owned by such Holder and its Affiliates; provided, however, that shares of
Common Stock indirectly owned through an intermediary (i) of which such Holder
owns less than 1% of the issued and outstanding common shares, or (ii) in
connection with which Holder has no right to direct the vote of shares of the
Company shall not be included in the Holder Interest of such Holder.
1.19 "Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance with U.S. GAAP,
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) the greater of (i) the
principal amount and (ii) the redemption value of any perpetual preferred stock
issued by such Person, (i) all Indebtedness of others referred to in clauses (a)
through (f) above guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness, (ii) to purchase, sell or
lease (as lessee or lessor) property, or to purchase or sell services, primarily
for the purpose of enabling the debtor to make payment of such Indebtedness or
to assure the holder of such Indebtedness against loss, (iii) to supply funds to
or in any other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received or such
services are rendered) or (iv) otherwise to assure a creditor against loss, and
(j) all Indebtedness referred to in clauses (a) through (f) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness.
1.20 "Incumbent Directors" shall mean (i) all of the individuals
constituting the board of directors of the Company at the Closing Date (ii) all
individuals hereafter designated as nominees to the board of
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directors by the New York State Teachers' Retirement System pursuant to a letter
agreement dated November 22, 1996, (iii) all individuals hereafter designated as
nominees to the board of directors by Hexalon Real Estate, Inc. pursuant to a
letter agreement dated November 7, 1996, and (iv) one individual hereafter
designated by Deutsche Bank AG as a nominee to the board of directors.
1.21 "Initial Percentage" means the percentage of issued and outstanding
Common Stock represented immediately after the Closing by the Shares.
1.22 "Leverage Ratio" shall mean the ratio of the Company's Indebtedness
to the Company's Total Market Capitalization.
1.23 "Maximum Number" shall having the meaning set forth in Section 3.3(e)
hereof.
1.24 "Permitted Transferee" means any (i) mutual fund company, pension
fund, insurance company, investment company, any state, city, or county, or any
agency or instrumentality of a state, city, or county, or any state university
or state college, and any retirement system for the benefit of employees of any
of the foregoing, any religious or educational organization or other passive
institutional investor or (ii) any non-U.S. Person (as defined in Section 9.02
of the Charter Amendment) that is not controlled by U.S. Persons (as defined in
the Charter Amendment).
1.25 "Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Exchange Act.
1.26 "PGGM" shall have the meaning set forth in the Preamble.
1.27 "Piggyback Registration" shall have the meaning set forth in Section
3.6(a) hereof.
1.28 "Piggyback Registration Request" shall have the meaning set forth in
Section 3.6(a) hereof.
1.29 "Public Offering" means a public offering of Common Stock pursuant an
effective registration statement under the Securities Act.
1.30 The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
1.31 "Securities Act" means the Securities Act of 1933, as amended.
1.32 "Selling Expenses" shall mean all underwriting discounts and selling
commissions and transfer taxes applicable to the sale of Shelf Registrable
Securities or Demand Offering Securities and disbursements of underwriters.
1.33 "Shares" shall mean (a) the shares of Common Stock issued pursuant to
the Purchase Agreement and the Loan Agreement and (b) shares of Common Stock or
any other securities which are hereafter issued with respect to the shares
referred to in Section 1.33(a) by way of conversion, exchange, reclassification,
dividend or distribution, whether or not such securities have been offered and
sold to the public.
1.34 "Shelf Prospectus" shall mean the prospectus included in the Shelf
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, including any supplement relating to the terms of the
offering of any portion of the Shelf Registrable Securities covered by the Shelf
Registration Statement, and in each case including all material incorporated by
reference therein.
1.35 "Shelf Registration" shall mean the registration required to be
effected pursuant to Section 3.1 hereof.
1.36 "Shelf Registrable Securities" shall mean the Shares held by DIHC and
PGGM or any subsequent Holder to whom this Agreement has, or rights to cause the
Company to register Shares in accordance with Section 3 have, been assigned
pursuant to Section 9, excluding (i) Shares that have been disposed of under the
Shelf Registration Statement or any other effective registration statement, (ii)
Shares sold or otherwise transferred pursuant to Rule 144 under the Securities
Act, and (iii) those Shares held by any single Holder if
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such Holder holds less than 1% of the issued and outstanding shares of Common
Stock and all of such Shares are eligible for sale pursuant to Rule 144 under
the Securities Act and all of such Holder's Shares could be sold by such Holder
in a single transaction under Rule 144 under the Securities Act.
1.37 "Shelf Registration Expenses" shall mean any and all expenses
incident to performance of or compliance with this Agreement, including, without
limitation: (i) all Commission, stock exchange and NASD registration and filing
fees, (ii) all fees and expenses incurred in connection with compliance with
state securities or "blue sky" laws (including reasonable fees and disbursements
of counsel in connection with qualification of any of the Shelf Registrable
Securities under any state securities or blue sky laws and the preparation of a
blue sky memorandum) and compliance with the rules of the NASD, (iii) all
expenses of any Persons in preparing or assisting in preparing, word processing,
printing and distributing the Shelf Registration Statement, any Shelf
Prospectus, certificates and other documents relating to the performance of and
compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Shelf Registrable Securities
on any securities exchange or exchanges, and (v) the fees and disbursements of
counsel for the Company and of the independent public accountants of the
Company, including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance. Shelf Registration
Expenses shall specifically exclude Selling Expenses and the fees and
disbursements of counsel representing the Holders, all of which shall be borne
by the Holders in all cases.
1.38 "Shelf Registration Notice" shall have the meaning set forth in
Section 3.2(b) hereof.
1.39 "Shelf Registration Statement" shall mean a registration statement of
the Company (and any other entity required to be a registrant with respect to
such registration statement pursuant to the requirements of the Securities Act)
that covers all of the Shelf Registrable Securities to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act, or any
similar rule that may be adopted by the Commission, and all amendments
(including post-effective amendments) to such registration statement, and all
exhibits thereto and materials incorporated by reference therein.
1.40 "Standstill Period" means, with respect to any Holder, a period of
time commencing on the Closing Date and terminating on , 2000
(the date three years after the Closing Date).
1.41 "Total Market Capitalization" shall mean the sum of (i) the Company's
total Indebtedness, plus (ii) the product of (x) the number of issued and
outstanding shares of Common Stock, plus the number of shares of Common Stock
issuable upon conversion of issued and outstanding preferred stock (other than
convertible preferred stock subject to redemption at the option of the holder)
times (y) the Current Market Price.
1.42 "U.S. GAAP" means United States generally accepted accounting
principles and practices in effect from time to time applied consistently
throughout the periods involved.
2. Restrictions on Transfer.
2.1 Representations and Warranties of PGGM. (a) PGGM and DIHC hereby
represent, acknowledge, covenant and agree as follows: (i) the Shares are being
acquired for PGGM's and DIHC's own account for investment and not with a view to
any distribution or public offering within the meaning of the Securities Act or
any state securities law; (ii) the Shares have not been registered under the
Securities Act or any state securities law; (iii) PGGM and DIHC is each an
"accredited investor" within the meaning of Rule 501 promulgated by the
Commission pursuant to the Securities Act; (iv) PGGM and DIHC have been
furnished with all information that PGGM or DIHC has requested for purposes of
evaluating the Company and each has had an opportunity to ask questions of and
receive answers from the Company regarding its business, assets, results of
operations, and financial condition; and (v) PGGM and DIHC will not sell or
otherwise transfer any of the Shares except upon the terms and conditions
specified herein.
2.2 Legends. Except as provided in Section 2.4, each certificate
representing the Shares issued to PGGM and DIHC or transferred to a subsequent
Holder pursuant to Section 2.3 shall include, in addition to the legends
relating to provisions of the Company's articles of incorporation, legends in
substantially the
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following form, provided that the first such legend shall not be required if
such transfer is being made in connection with a sale that is (i) pursuant to a
Public Offering or (ii) exempt from registration pursuant to Rule 144 under the
Securities Act or if the opinion of counsel referred to in Section 2.3 is to the
further effect that such legend is not required in order to ensure compliance
with the Securities Act; provided further, that the second such legend shall not
be required if Sections 7.6 and 8 hereof do not apply to such subsequent Holder:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACT AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM.
SUCH SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS
SPECIFIED IN THE REGISTRATION RIGHTS AND VOTING AGREEMENT DATED AS OF
, 1997, AMONG THE ISSUER AND THE OTHER PARTY(IES) NAMED
THEREIN, A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED TO THE HOLDER
HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
2.3 Notice of Transfer. Prior to any proposed assignment, transfer or
sale of any Shares, the Holder of such Shares shall give written notice to the
Company of Holder's intention to effect such assignment, transfer or sale, which
notice shall set forth the date of such proposed assignment, transfer or sale.
Holder shall also furnish to the Company a written agreement by the transferee
that it is taking and holding the same subject to the terms and conditions
specified in this Agreement and, except in transfers pursuant to a Public
Offering or under Rule 144 or Regulation S under the Securities Act, a written
opinion of Holder's counsel, in form reasonably satisfactory to the Company, to
the effect that the proposed transfer may be effected without registration under
the Securities Act.
2.4 Termination of Restrictions. The restrictions set forth in this
Section 2 shall terminate and cease to be effective with respect to any of the
Shares (i) upon the sale of any such Shares which has been registered under the
Securities Act or is made pursuant to Rule 144 under the Securities Act or (ii)
upon receipt by the Company of an opinion of counsel, which counsel and which
opinion are reasonably satisfactory to the Company, to the effect that
compliance with such restrictions is not necessary in order to comply with the
Securities Act with respect to the sale of the Shares. The restrictions with
respect to a Holder set forth in Sections 7.6 and 8 hereof shall terminate upon
the end of the Standstill Period. Whenever such restrictions shall so terminate,
the Holder of such Shares shall be entitled to receive from the Company, without
expense (other than transfer taxes, if any), certificates for such Shares not
bearing the respective legends set forth in Section 2.2.
3. Registration under Securities Act.
3.1 Shelf Registration.
(a) Within 20 days after the Closing Date and upon the request of PGGM, the
Company will use its commercially reasonable efforts to cause to be filed the
Shelf Registration Statement providing for the sale by the Holders of all of the
Shelf Registrable Securities in accordance with the terms hereof and will use
its commercially reasonable efforts to cause such Shelf Registration Statement
to be declared effective by the Commission as soon as practicable thereafter.
The Company agrees to use its commercially reasonable efforts to keep the Shelf
Registration Statement with respect to the Shelf Registrable Securities
continuously effective so long as Holder holds Shelf Registrable Securities.
Subject to Section 3.2(b) and Section 3.2(i), the Company further agrees to
amend the Shelf Registration Statement if and as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration Statement or by the Securities Act or any
rules and regulations thereunder; provided, however, that the Company shall not
be deemed to have used its commercially reasonable efforts to keep the Shelf
Registration Statement effective during the applicable period if it voluntarily
takes any action that would result in the Holders not being able to sell Shelf
Registrable Securities covered thereby during that period, unless such
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action is required under applicable law or the Company has filed a
post-effective amendment to the Shelf Registration Statement and the Commission
has not declared it effective or except as otherwise permitted by the last six
sentences of Section 3.2(b). The Holders will provide information reasonably
requested by the Company in connection with the Shelf Registration Statement as
promptly as practicable after receipt of such request. The "Plan of
Distribution" section of the Shelf Registration Statement shall permit
negotiated purchases, secondary distributions, block trades, ordinary brokerage
transactions or a combination of such methods of sale, provided, however, that
the Company's obligations under Sections 3.1 and 3.2 hereof shall not include
participation in underwritten offerings or other organized distributions of
securities, which obligations are limited to registrations under Section 3.3 and
3.6 hereof.
(b) Expenses. The Company shall pay all Shelf Registration Expenses in
connection with the registration pursuant to Section 3.1(a). The Holders shall
pay all Selling Expenses and the fees and disbursements of counsel representing
the Holders, relating to the sale or disposition of such Shelf Registrable
Securities pursuant to the Shelf Registration Statement.
3.2 Shelf Registration Procedures. In connection with the obligations of
the Company with respect to the Shelf Registration Statement contemplated by
Section 3.1 hereof, the Company shall:
(a) prepare and file with the Commission, within the time period set
forth in Section 3.1(a) hereof, the Shelf Registration Statement, which
Shelf Registration Statement shall comply as to form in all material
respects with the requirements of the applicable form and include all
financial statements required by the Commission to be filed therewith;
(b) subject to the last six sentences of this Section 3.2(b) and
Section 3.2(i) hereof, (i) prepare and file with the Commission such
amendments to such Shelf Registration Statement as may be necessary to keep
such Shelf Registration Statement effective throughout the applicable
period; (ii) cause the Shelf Prospectus to be amended or supplemented as
required and to be filed as required by Rule 424 or any similar rule that
may be adopted under the Securities Act; and (iii) respond as promptly as
practicable to any comments received from the Commission with respect to
the Shelf Registration Statement or any amendment thereto. Notwithstanding
anything to the contrary contained herein, the Company shall not be
required to take any of the actions described in clauses (i), (ii) or (iii)
in this Section 3.2(b), Section 3.2(d) or Section 3.2(i) with respect to
the Shelf Registrable Securities (x) to the extent that (i) in the
reasonable opinion of the Company (A) securities laws applicable to such
sale would require the Company to disclose material non-public information
("Non-Public Information") and (B) the disclosure of such Non-Public
Information would materially adversely affect the Company; (ii) such sale
would occur during the measurement period for determining the amount of
Common Stock, or the amount of any other consideration the amount of which
will be based on the price of the Common Stock, in connection with the
acquisition of a business or assets by the Company (a "Measurement
Period"); or (iii) the Company is contemplating an underwritten Public
Offering of its securities and in the reasonable opinion of the
underwriters such sale would interfere materially with such Public Offering
by the Company (a "Financing Period"); and the Company delivers written
notice to the Holders to the effect that the Holders may not make offers or
sales under the Shelf Registration Statement for a period not to exceed 45
days from the date of such notice; provided, however, that the Company may
deliver only four such notices under this Section 3.2(b) and Section 3.4(a)
within any twelve-month period, provided, further, that the Company may
deliver only two such notices under this Section 3.2(b) and Section 3.4(a)
within the twelve-month period immediately following the expiration of the
six-month period referred to in Section 3.3(f)(i) hereof and (y) unless and
until the Company has received a written notice (a "Shelf Registration
Notice") from any Holder that such Holder intends to make offers or sales
under the Shelf Registration Statement as specified in such Shelf
Registration Notice; provided, however, that the Company shall have ten
business days to prepare and file any such amendment or supplement after
receipt of the Shelf Registration Notice. The Measurement Period and
Financing Period are collectively referred to herein as the "Restricted
Period." In the event the sale by the Holders of Shelf Registrable
Securities is deferred because of the existence of Non-Public Information,
the Company will notify the Holders promptly upon such Non-Public
Information being included by the Company in a filing with the Commission,
being otherwise disclosed to the public (other
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than through the actions of any Holder), or ceasing to be material to the
Company, and upon such notice being given by the Company, the Holders shall
again be entitled to sell Shelf Registrable Securities as provided herein.
In the event the sale by the Holders of Shelf Registrable Securities is
deferred because it is proposed to be made during a Restricted Period, the
Company shall specify, in notifying the Holders of the deferral of its
sale, when the Restricted Period will end, at which time the Holders shall
again be entitled to sell Shelf Registrable Securities as provided herein.
If the Restricted Period is thereafter changed, the Company will promptly
notify the Holders of such change and upon the end of the Restricted Period
as so changed, the Holders will again be entitled to sell Shelf Registrable
Securities as provided herein. If an agreement to which such Restricted
Period relates is terminated prior to the end of the Restricted Period, the
deferral period hereunder shall end immediately and the Company shall
promptly notify the Holders of the end of the deferral period;
(c) promptly furnish the Holders after a Holder has delivered a Shelf
Registration Notice to the Company, without charge, as many copies of each
Shelf Prospectus and any amendment or supplement thereto in order to
facilitate the public sale or other disposition of the Shelf Registrable
Securities; the Company consents to the use of the Shelf Prospectus and any
amendment or supplement thereto by the Holders of Shelf Registrable
Securities in connection with the offering and sale of the Shelf
Registrable Securities covered by the Shelf Prospectus or amendment or
supplement thereto;
(d) use its commercially reasonable efforts to register or qualify the
Shelf Registrable Securities by the time the Shelf Registration Statement
is declared effective by the Commission under all applicable state
securities or blue sky laws of such jurisdictions in the United States and
its territories and possessions as the Holders shall reasonably request in
writing, keep each such registration or qualification effective during the
period such Shelf Registration Statement is required to be kept effective
or during the period offers or sales are being made by the Holders after a
Holder has delivered a Shelf Registration Notice to the Company, whichever
is shorter; provided, however, that in connection therewith, the Company
shall not be required to (i) qualify as a foreign corporation to do
business or to register as a broker or dealer in any such jurisdiction
where it would not otherwise be required to qualify or register but for
this Section 3.2(d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) file a general consent to service of process in any
such jurisdiction;
(e) notify the Holders promptly and, if requested by a Holder, confirm
in writing, (i) when the Shelf Registration Statement and any
post-effective amendments thereto have become effective, (ii) when any
amendment or supplement to the Shelf Prospectus has been filed with the
Commission, (iii) of the issuance by the Commission or any state securities
authority of any stop order suspending the effectiveness of the Shelf
Registration Statement or any part thereof or the initiation of any
proceedings for that purpose, (iv) if the Company receives any notification
with respect to the suspension of the qualification of the Shelf
Registrable Securities for offer or sale in any jurisdiction or the
initiation of any proceeding for such purpose, and (v) of the happening of
any event during the period the Shelf Registration Statement is effective
as a result of which (A) such Shelf Registration Statement contains any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading or (B) the Shelf Prospectus as then amended or supplemented
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading;
(f) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement or
any part thereof as promptly as possible;
(g) promptly furnish to the Holders after a Holder has delivered a
Shelf Registration Notice to the Company, without charge, at least one
conformed copy of the Shelf Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(h) cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Shelf Registrable Securities to
be sold and not bearing any Securities Act legend; and enable
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certificates for such Shelf Registrable Securities to be issued for such
numbers of shares as the Holders may reasonably request at least two
business days prior to any sale of Shelf Registrable Securities;
(i) subject to the last six sentences of Section 3.2(b) hereof, upon
the occurrence of any event contemplated by clause (v) of Section 3.2(e)
hereof, use its reasonable best efforts promptly to prepare and file an
amendment or a supplement to the Shelf Prospectus or any document
incorporated therein by reference or prepare, file and obtain effectiveness
of a post-effective amendment to the Shelf Registration Statement, or file
any other required document, in any such case to the extent necessary so
that, as thereafter delivered to the purchasers of the Shelf Registrable
Securities, such Shelf Prospectus as then amended or supplemented will not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading;
(j) make available for inspection by the Holders after a Holder has
provided a Shelf Registration Notice to the Company and any counsel,
accountants or other representatives retained by the Holders all financial
and other records, material corporate documents and properties of the
Company and cause the officers, directors and employees of the Company to
supply all such material records, documents or information reasonably
requested by the Holders, counsel, accountants or representatives in
connection with the Shelf Registration Statement; provided, however, that
such records, documents or information which the Company determines in good
faith to be confidential and notifies the Holders, counsel, accountants or
representatives in writing that such records, documents or information are
confidential shall not be disclosed by the Holders, counsel, accountants or
representatives unless (i) such disclosure is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, or (ii)
such records, documents or information become generally available to the
public other than through a breach of this Agreement;
(k) a reasonable time prior to the filing of the Shelf Registration
Statement or any amendment thereto, or any Shelf Prospectus or any
amendment or supplement thereto, provide copies of such document (not
including any documents incorporated by reference therein unless requested)
to the Holders; and
(l) use its reasonable best efforts to cause all Shelf Registrable
Securities to be listed on the New York Stock Exchange at the time the
Shelf Registration Statement is declared effective.
The Company may require the Holders to furnish to the Company in writing
such information regarding the proposed distribution by the Holders as the
Company may from time to time reasonably request in writing.
In connection with and as a condition to the Company's obligations with
respect to the Shelf Registration Statement pursuant to Section 3.1 hereof and
this Section 3.2, the Holders covenant and agree that (i) they will not offer or
sell any Shelf Registrable Securities under the Shelf Registration Statement
until a Holder has provided a Shelf Registration Notice pursuant to Section
3.2(b) and have received copies of the Shelf Prospectus as then amended or
supplemented as contemplated by Section 3.2(c) and notice from the Company that
the Shelf Registration Statement and any post-effective amendments thereto have
become effective as contemplated by Section 3.2(e); (ii) upon receipt of any
notice from the Company contemplated by Section 3.2(b) or Section 3.2(e) (in
respect of the occurrence of an event contemplated therein), the Holders shall
not offer or sell any Shelf Registrable Securities pursuant to the Shelf
Registration Statement until the Holders receive copies of the supplemented or
amended Shelf Prospectus contemplated by Section 3.2(i) hereof and receive
notice that any post-effective amendment has become effective, and, if so
directed by the Company, the Holders will deliver to the Company (at the expense
of the Company) all copies in its possession, other than permanent file copies
then in the Holders' possession, of the Shelf Prospectus as amended or
supplemented at the time of receipt of such notice; (iii) upon the expiration of
60 days after the first date on which offers or sales can be made pursuant to
clause (i) above, the Holders will not offer or sell any Shelf Registrable
Securities under the Shelf Registration Statement until they have again complied
with the provisions of clause (i) above; (iv) each Holder and any of such
Holder's partners, officers, directors or Affiliates, if any, will comply with
the provisions of Regulation M under the Exchange Act as applicable to them in
connection with sales of Shelf Registrable Securities pursuant to the Shelf
Registration Statement;
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(v) each Holder and any of such Holder's partners, officers, directors or
Affiliates, if any, will comply with the prospectus delivery requirements of the
Securities Act as applicable to them in connection with sales of Shelf
Registrable Securities pursuant to the Shelf Registration Statement; and (vi)
each Holder and any of such Holder's partners, officers, directors or
Affiliates, if any, will enter into such written agreements as the Company shall
reasonably request to ensure compliance with clauses (iv) and (v) above.
3.3 Demand Offerings.
(a) Requests for Demand Offering. PGGM, DIHC or a Holder or Holders owning
a majority of the Demand Offering Securities (the "Demand Initiating Holder")
may request the offering under the Securities Act of all or any portion of the
Demand Offering Securities held by such Holders for sale in the manner specified
in such request, including an underwritten offering. Upon receipt of such
request, the Company will promptly, but in any event within 20 days, give
written notice of such requested registration to all Holders of Demand Offering
Securities, and thereupon, in accordance with Section 3.4 hereof, the Company
will use its reasonable best efforts to effect the registration and sale of:
(i) the Demand Offering Securities which the Company has been so
requested to register by such Demand Initiating Holder;
(ii) all other Demand Offering Securities which the Company has been
requested to register by the other Holders thereof by written request
delivered to the Company within 15 days after the giving of such written
notice by the Company, and
(iii) all shares of Common Stock which the Company may elect to
register for its own account or for the account of others in connection
with the offering of Demand Offering Securities pursuant to this Section
3.3.
Each initial request for a offering pursuant to this Section 3.3 shall
specify the number of Demand Offering Securities requested to be sold by the
Demand Initiating Holder, the method of disposition to be employed and the
Current Market Price of the Common Stock as of the date of such request. Any
request for an offering pursuant to this Section 3.3(a) shall be referred to
herein as a "Demand Offering Request" and all registrations requested pursuant
to this Section 3.3 are referred to herein as "Demand Offerings."
(b) Number of Demand Offerings. The Company shall not be required under
this Section 3.3 (i) to effect more than one Demand Offering in any twelve-month
period or (ii) to effect more than eight Demand Offerings in the aggregate.
Notwithstanding anything to the contrary contained herein, if such method of
disposition is a firm commitment underwritten public offering, a registration
shall count as a Demand Offering only when all such Demand Offering Securities
shall have been sold pursuant thereto; provided, however, that if a Demand
Prospectus filed by the Company pursuant to a Demand Offering Request shall be
abandoned or withdrawn at the behest of the Demand Initiating Holder, then,
unless the Holders shall, promptly upon receipt of a request by the Company
therefor supported by an invoice setting forth the expenses in reasonable
detail, reimburse the Company for the Demand Offering Expenses in respect of
such prospectus attributable to the Holders, the Company shall be deemed to have
effected a Demand Offering.
(c) Minimum Offering Amount. The Company shall not be required to comply
with this Section 3.3 unless the aggregate Current Market Price of all Demand
Offering Securities covered by the Demand Offering Request and the Demand
Offering Securities described in Section 3.3(a)(ii) shall be $75 million or more
(unless and to the extent the Demand Initiating Holder shall hold less than $75
million of Demand Offering Securities, in which case such minimum offering
amount shall be equal to the amount of Demand Offering Securities so held).
(d) Selection of Underwriters. If the method of disposition specified by
PGGM shall be an underwritten public offering, the Company may designate the
managing underwriter of such offering, subject to the approval of the Demand
Initiating Holder which approval shall not be unreasonably withheld.
(e) Priority on Demand Offerings. The Company shall be entitled to include
in any offering referred to in this Section 3.3, for sale in accordance with the
method of disposition specified by the Demand Initiating Holder shares of Common
Stock to be sold by the Company for its own account or by other shareholders of
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the Company for their account. Nonetheless, whether or not the Company desires
to include any such additional shares in a Demand Offering, if the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such offering exceeds the maximum number
which can be included in such offering without adversely affecting the
marketability of the offering (the "Maximum Number"), then the Company will
limit the number of shares included in such offering to the Maximum Number, and
the shares offered shall be selected in the following order of priority: (i)
first, Demand Offering Securities covered by the Demand Offering Request and the
Demand Offering Securities described in Section 3.3(a)(ii), subject to the
proviso set forth in clause (iii) below, (ii) second, securities the Company
proposes to sell and (iii) third, securities requested to be included in such
registration pursuant to (A) the Stockholders' Agreement, dated as of November
22, 1996, by and among the Company and the New York State Teachers' Retirement
System and (B) the Stockholders' Agreement, dated as of November 7, 1996, by and
between the Company and Hexalon Real Estate, Inc., pro rata among the holders
thereof on the basis of the number of shares requested to be included in such
registration; provided that the securities requested to be included pursuant to
clauses (A) and (B) shall not be reduced to less than one-third of the total
number of shares in such offering, and (iv) fourth, other securities requested
to be included in such registration.
(f) Exception. Anything in this Section 3.3 to the contrary
notwithstanding, the Company shall not be required to file a Demand Prospectus
in connection with a Demand Offering (i) within six months after the closing
date of a Demand Offering or the effective date of any registration statement
(other than pursuant to Section 3.1 or a registration statement on Form S-8 with
respect to an employee benefit plan or a registration statement on Form S-4
relating to securities to be issued in a merger or in exchange for securities or
assets of another Person) of the Company or (ii) if counsel for the Company,
reasonably acceptable to the Demand Initiating Holder shall deliver an opinion
to the Holders to the effect that, pursuant to Rule 144 under the Securities Act
or otherwise, the Holders can publicly offer and sell the Demand Offering
Securities as to which sale has been requested without registration under the
Securities Act.
3.4 Demand Offering Procedures. If and whenever the Company is required
by the provisions of Section 3.3 hereof to use its reasonable best efforts to
effect the sale of any of the Demand Offering Securities under the Securities
Act, the Company shall use its reasonable best efforts to effect the
registration and sale of the Demand Offering Securities in accordance with the
intended method of disposition thereof and will, as expeditiously as possible:
(a) within 45 days after receiving a request for a Demand Offering,
prepare and file with the Commission a Demand Prospectus as a supplement to
the Shelf Registration Statement with respect to such Demand Offering
Securities. Notwithstanding anything to the contrary contained herein, the
filing of such Demand Prospectus may be delayed for a period not to exceed
45 days if (i) any of the events specified in clause (x) of Section 3.2(b)
hereof shall have occurred, or (ii) the Company is engaged in any program
for the repurchase of Common Stock or other securities of the Company and
the Company provides written notice to the Demand Initiating Holder;
provided, however, that the Company may deliver only four notices under
this Section 3.4(a) and 3.2(b) hereof within any twelve-month period;
provided, further, that the Company may deliver only two such notices under
this Section 3.4(a) and Section 3.2(b) within the twelve-month period
immediately following the expiration of the six-month period referred to in
Section 3.3(f)(i) hereof.
(b) prior to the filing described in paragraph (a) above, furnish to
the Holders copies of the Demand Prospectus and any amendments or
supplements thereto, which documents shall be subject to the approval of
the Holders only with respect to any statement in the Demand Prospectus
which relates to the Holders;
(c) notify the Holders promptly and, if requested by the Holders,
confirm in writing, (i) when the Demand Prospectus has been filed with the
Commission, (ii) when any amendment or supplement to the Demand Prospectus
has been filed with the Commission, (iii) of the issuance by the Commission
or any state securities authority of any stop order suspending the
effectiveness of the Shelf Registration Statement or any part thereof or
the initiation of any proceedings for that purpose, (iv) if the Company
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receives any notification with respect to the suspension of the
qualification of the Demand Offering Securities for offer or sale in any
jurisdiction or the initiation of any proceeding for such purpose, and (v)
of the happening of any event during the period of the offering pursuant to
the Demand Prospectus as a result of which (A) such Shelf Registration
Statement contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (B) the Demand Prospectus as then
amended or supplemented contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Shelf Registration Statement or any
part thereof as promptly as possible;
(e) furnish to the Holders after delivery of a Demand Offering Request
to the Company, without charge, at least one conformed copy of the Shelf
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(f) prepare and file with the Commission such amendments and
supplements to such Shelf Registration Statement and the Demand Prospectus
used in connection therewith as may be necessary and comply with the
provisions of the Securities Act with respect to the disposition of all
Demand Offering Securities covered by such Demand Prospectus in accordance
with the Holders' intended method of disposition set forth in such Demand
Prospectus for such period;
(g) furnish to the Holders and to each underwriter such number of
copies of the Shelf Registration Statement and the Demand Prospectus
included therein (including each preliminary prospectus) and such other
documents, as such persons may reasonably request in order to facilitate
the public sale or other disposition of the Demand Offering Securities
covered by such Demand Prospectus;
(h) use its reasonable best efforts to register or qualify the Demand
Offering Securities covered by such Demand Prospectus under the securities
or blue sky laws of such jurisdictions as the Holders or, in the case of an
underwritten public offering, the managing underwriter, shall reasonably
request;
(i) provide a transfer agent and registrar, which may be a single
entity, for all Demand Offering Securities;
(j) use its reasonable best efforts to cause all Demand Offering
Securities to be listed on the New York Stock Exchange;
(k) furnish on the date that Demand Offering Securities are delivered
to the underwriters for sale pursuant to such registration: (i) an opinion
dated such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters, stating that the Shelf
Registration Statement has become effective under the Securities Act and
that (A) to the best knowledge of such counsel, no stop order suspending
the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Securities Act, (B) the Shelf Registration Statement, the related Demand
Prospectus, and each amendment or supplement thereto, comply as to form in
all material respects with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder and that such
counsel does not believe that any such Shelf Registration Statement, Demand
Prospectus, amendment or supplement contains a misstatement of a material
fact or an omission to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading (except that such
counsel need express no opinion as to financial statements or financial or
statistical data contained therein) and (C) to such other effects as may
reasonably be requested by counsel for the underwriters or by the Holders
or their counsel, and (ii) a "cold comfort" letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company included in the Shelf
Registration Statement or the Demand Prospectus, or any amendment or
supplement thereto, comply as to form in all
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material respects with the applicable accounting requirements of the
Securities Act, and such letter shall additionally cover such other
financial matters (including information as to the period ending no more
than five business days prior to the date of such letter) with respect to
the registration in respect of which such letter is being given as such
underwriters may reasonably request; and
(l) make available for inspection by the Holders after the Demand
Initiating Holder has provided a Demand Offering Request to the Company and
any counsel, accountants or other representatives retained by the Holders
all financial and other material records, pertinent corporate documents and
properties of the Company and cause the officers, directors and employees
of the Company to supply all such material records, documents or
information reasonably requested by the Holders, counsel, accountants or
representatives in connection with the Demand Prospectus; provided,
however, that such records, documents or information which the Company
determines in good faith to be confidential and notifies the Holders,
counsel, accountants or representatives in writing that such records,
documents or information are confidential shall not be disclosed by
Holders, counsel, accountants or representatives unless (i) such disclosure
is ordered pursuant to a subpoena or other order from a court of competent
jurisdiction, or (ii) such records, documents or information become
generally available to the public other than through a breach of this
Agreement.
For purposes of paragraphs (a) and (f) of this Section 3.4, the period
of distribution of Demand Offering Securities in a firm commitment
underwritten public offering shall be deemed to be that period during which
the underwriters in such offering require in an underwriting agreement in
the form customarily used by such underwriters for comparable transactions
that the Company keep a registration statement effective to permit each
underwriter to complete the distribution of all securities purchased by it,
and the period of distribution of Demand Offering Securities in any other
registration shall be deemed to extend until the earlier of the sale of all
Demand Offering Securities covered thereby or nine months after the
effective date thereof.
In connection with each registration hereunder, each Holder will furnish to
the Company in writing such information with respect to itself and the proposed
distribution by itself as shall be reasonably necessary in order to assure
compliance with federal and applicable state securities laws. Reasonable
compliance with the obligation to furnish such information shall be a condition
to the rights afforded such Holder hereunder. In addition, each Holder and any
of its partners, officers, directors or Affiliates, if any, (i) will comply with
the provisions of Regulation M as applicable to them in connection with sales of
Demand Offering Securities pursuant to the Demand Prospectus; (ii) will comply
with the prospectus delivery requirements of the Securities Act as applicable to
them in connection with sales of Demand Offering Securities pursuant to the
Demand Prospectus; and (iii) will enter into such written agreements as the
Company shall reasonably request to ensure compliance therewith.
In connection with each registration pursuant to Section 3.3 hereof
covering an underwritten public offering, the Company agrees to enter into a
written agreement with the managing underwriter selected in the manner herein
provided in such form and containing such provisions as are customary in the
securities business for such an arrangement between major underwriters and
companies of the Company's size and investment stature; provided that such
agreement shall not contain any such provision applicable to the Company which
is inconsistent with the provisions hereof; provided, further that the time and
place of the closing under said agreement shall be as mutually agreed upon
between the Company and such managing underwriter.
3.5 Demand Offering Expenses. In connection with any Demand Offering, the
Company shall pay all Demand Offering Expenses and the Holders shall pay all
Selling Expenses applicable to the shares sold by the Holders.
3.6 Piggyback Registrations.
(a) Right to Piggyback. In the event that a Holder is not permitted to
effect sales under the Shelf Registration Statement under Section 3.2(b)(x)(iii)
hereof or the Holders are not permitted to effect Demand Offering due to Section
3.4(a)(i), Holders shall become entitled to the rights of this Section 3.6.
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The Company will promptly (but in any event within 30 days) give written notice
to the Holders of its intention to effect such registration and a description of
any underwriting agreement to be entered into with respect thereto and will
include in such registration all Shelf Registrable Securities or Demand Offering
Securities with respect to which the Company has received written requests for
inclusion within 15 days after the receipt of the Company's notice (a "Piggyback
Registration Request"); provided, however, that the Company shall not be
required to include Shelf Registrable Securities or Demand Offering Securities
in the securities to be registered pursuant to a registration statement on any
form which limits the amount of securities which may be registered by the issuer
and/or selling security holders if, and to the extent that, such inclusion would
make the use of such form unavailable. In the event that any Piggyback
Registration shall be, in whole or in part, an underwritten public offering of
Common Stock, the Holders shall agree that such Demand Offering Securities or
Shelf Registrable Securities are to be included in the underwriting on the same
terms and conditions as the shares of Common Stock otherwise being sold through
underwriters under such registration.
(b) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
shares requested to be included in such registration exceeds the Maximum Number,
the Company will limit the number of shares included in such registration to the
Maximum Number, and the shares registered shall be selected in the following
order of priority: (i) first, securities the Company proposes to sell, subject
to the proviso set forth in clause (ii) below, (ii) second, (A) Shelf
Registrable Securities or Demand Offering Securities covered by Piggyback
Registration Requests, and (B) securities requested to be included in such
registration pursuant to (x) the Stockholders' Agreement, dated as of November
22, 1996, by and among the Company and the New York State Teachers' Retirement
System and (y) the Stockholders' Agreement, dated as of November 7, 1996, by and
between the Company and Hexalon Real Estate, Inc., pro rata among the holders
thereof on the basis of the number of shares requested to be included in such
registration; provided that the securities requested to be included pursuant to
clauses (x) and (y) shall not be reduced to less than one-third of the total
number of shares in such offering and (iii) third, other securities requested to
be included in such registration.
(c) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the Maximum Number, the Company will include in such
registration the shares requested to be included therein by the holders
requesting such registration and the Shelf Registrable Securities and Demand
Offering Securities covered by Piggyback Registration Requests and any other
securities requested to be included in such registration, pro rata among the
holders thereof on the basis of the number of shares requested to be included in
such registration; provided, however, that if the holders requesting
registration are doing so pursuant to demand registration rights of such
holders, such holders' shares shall take priority over any Shelf Registrable
Securities and Demand Offering Securities and any other securities requested to
be included, which shall be included on a pro rata basis, subject to the proviso
set forth in Section 3.6(b)(ii)(B).
3.7 Indemnification.
(a) Indemnification by the Company. To the extent permitted by law, the
Company shall indemnify and hold harmless the seller of any Shares covered by
any registration statement filed pursuant to Section 3, its directors, trustees
and officers, each other person who participates as an underwriter in the
offering or sale of such securities and each other person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act
against any losses, claims, damages, liabilities or expenses, joint or several,
to which such seller or any such director, trustee or officer or participating
or controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or related
actions or proceedings) arise out of or are based upon (x) any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities Act,
any preliminary prospectus, final prospectus or summary prospectus contained in
such registration statement, or any amendment or supplement to such registration
statement, or any document incorporated by reference in such registration
statement, or (y) any omission or alleged
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omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such seller, and each such director, trustee, officer, participating
person and controlling person for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding, provided that the Company shall not be
liable in any such case (1) to the extent that any such loss, claim, damage,
liability or expense (or action or proceeding in respect thereof) arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller or any such director,
trustee, officer, participating person or controlling person specifically
stating that it is for use in the preparation of such registration statement or
(2) to the extent any amount paid in settlement of any such loss, claim, damage,
liability or action of such settlement is effected without the written consent
of the Company (which consent shall not be unreasonably withheld). Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, trustee, officer,
participating person or controlling person and shall survive the transfer of
such securities by such seller. The Company shall agree to make provision for
contribution relating to such indemnity as shall be reasonably requested by any
seller of Shares or the underwriters.
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Shares in any registration statement filed pursuant
to Section 3, that the Company shall have received an undertaking satisfactory
to it from each prospective seller of such securities, severally and not
jointly, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 3.6(a)) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement
and each other person, if any, who controls the Company within the meaning of
the Securities Act, with respect to any untrue statement in or omission from
such registration statement, any preliminary prospectus, final prospectus or
summary prospectus included in such registration statement, or any amendment or
supplement to such registration statement, of a material fact if such statement
or omission was made in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such seller
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling person and shall survive the transfer of such
securities by such seller.
(c) Indemnification Procedure. Promptly after receipt by any party
entitled to indemnification pursuant to Section 3.7(a) or 3.7(b) of this
Agreement (an "Indemnified Party") of notice by a third party of any complaint
or the commencement of any action or proceeding with respect to which
indemnification is being sought hereunder, such Indemnified Party shall notify
the party obligated to provide such indemnification (the "Indemnifying Party")
of such complaint or of the commencement of such action or proceeding; provided,
however, that the failure to so notify the Indemnifying Party shall not relieve
the Indemnifying Party from liability for such claim arising otherwise than
under this Agreement, and such failure to so notify the Indemnifying Party shall
relieve the Indemnifying Party from liability which the Indemnifying Party may
have hereunder with respect to such claim if, but only if, and only to the
extent that, such failure to notify the Indemnifying Party results in the
forfeiture by the Indemnifying Party of material rights and defenses otherwise
available to the Indemnifying Party with respect to such claim. The Indemnifying
Party shall have the right, upon written notice to the Indemnified Party, to
assume the defense of such action or proceeding, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of the
fees and disbursements of such counsel. In the event, however, that the
Indemnifying Party declines or fails to assume the defense of the action or
proceeding or to employ counsel reasonably satisfactory to the Indemnified
Party, in either case in a timely manner, then such Indemnified Party may employ
counsel to represent or defend it in any such action or proceeding and the
Indemnifying Party shall pay the reasonable fees and disbursements of such
counsel as incurred; provided, however, that the Indemnifying Party shall not be
required to pay the fees and disbursements of more than one counsel for all
Indemnified Parties in any jurisdiction in any single action or proceeding. In
any action or proceeding with respect to which indemnification is being sought
hereunder, the Indemnified Party or the Indemnifying Party, whichever is not
assuming
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the defense of such action, shall have the right to participate in such
litigation and to retain its own counsel at such party's own expense. The
Indemnifying Party or the Indemnified Party, as the case may be, shall at all
times use reasonable best efforts to keep the Indemnifying Party or the
Indemnified Party, as the case may be, reasonably apprised of the status of the
defense of any action, the defense of which it is maintaining and to cooperate
in good faith with the Indemnifying Party or the Indemnified Party, as the case
may be, with respect to the defense of any such action.
No Indemnified Party may settle or compromise any claim or consent to the
entry of any judgment with respect to which indemnification is being sought
hereunder without the prior written consent of the Indemnifying Party, unless
such settlement, compromise or consent includes an unconditional release of the
Indemnifying Party from all liability arising out of such claim. An Indemnifying
Party may not, without the prior written consent of the Indemnified Party,
settle or compromise any claim or consent to the entry of any judgment with
respect to which indemnification is being sought hereunder unless such
settlement, compromise or consent includes an unconditional release of the
Indemnified Party from all liability arising out of such claim and does not
contain any equitable order, judgment or term which in any manner affects,
restrains or interferes with the business of the Indemnified Party or any of the
Indemnified Party's affiliates.
In the event an Indemnified Party shall claim a right to payment pursuant
to this Agreement, such Indemnified Party shall send written notice of such
claim to the appropriate Indemnifying Party. Such notice shall specify the basis
for such claim. As promptly as possible after the Indemnified Party has given
such notice, such Indemnified Party and the appropriate Indemnifying Party shall
establish the merits and amount of such claim (by mutual agreement or otherwise)
and, within five business days of the final determination of the merits and
amount of such claim, the Indemnifying Party shall deliver to the Indemnified
Party immediately available funds in an amount equal to such claim as determined
hereunder.
If for any reason the indemnification provided for in this Section 3.7 is
unavailable to an Indemnified Party or is insufficient to hold it harmless as
contemplated by this Section 3.7, then the Indemnifying Party shall contribute
to the amount paid or payable by the Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the Indemnified Party and the Indemnifying Party, as well as
any other relevant equitable considerations; provided that in no event shall the
liability of any Holder for such contribution and indemnification exceed, in the
aggregate, the dollar amount of the proceeds received by such Holder upon the
sale of Shares giving rise to such indemnification and contribution obligations.
The obligations of the parties under this Section 3.7 shall be in addition
to any liability which any party may otherwise have to any other party.
3.8 Limitations on Registration Rights of Others. The Company represents
and warrants that, except pursuant to this Agreement and pursuant to rights
granted pursuant to the agreements set forth on Exhibit A hereto, it has not
granted to any Person the right to request or require the Company to register
any securities issued by the Company.
4. Rule 144. The Company shall comply with the requirements of Rule 144
under the Securities Act, as such Rule may be amended from time to time (or any
similar rule or regulation hereafter adopted by the Commission), regarding the
availability of current public information to the extent required to enable any
Holder of Shares to sell Shares without registration under the Securities Act
pursuant to Rule 144 (or any similar rule or regulation). Upon the request of
any Holder of Shares, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holder or
Holders of a majority of the Shares (and, in the case of any amendment, action
or omission to act which adversely affects any specific Holder of Shares or a
specific group of Holders of Shares, the written consent of each such Holder or
Holders of a majority of the Shares held by such group). Each Holder of any
Shares at the time shall be bound by any consent authorized by this Section 5.
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6. Nominees for Beneficial Owners. In the event that any Shares are held
by a nominee for the beneficial owner thereof, the beneficial owner thereof may,
at its election, be treated as the Holder of such Shares for purposes of any
request or other action by any Holder or Holders of Shares pursuant to this
Agreement or any determination of any number or percentage of shares of Shares
held by any Holder or Holders of Shares contemplated by this Agreement. If the
beneficial owner of any Shares so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Shares.
7. Covenants of the Parties.
7.1 Board of Directors.
(a) So long as PGGM and DIHC and their respective Affiliates own in the
aggregate 5% or more of the issued and outstanding shares of Common Stock,
subject to the rights of the stockholders of the Company and the requirements of
Nevada law, the Company shall take all action necessary to nominate for election
to the board of directors of the Company (the "Board") at any annual or special
meeting of stockholders at which directors are being elected (or in connection
with a written consent in lieu of a meeting pursuant to which directors are
proposed to be elected) such persons as are necessary to ensure that after such
meeting (assuming all nominees are elected) two members of the Board are "PGGM
Directors" (as hereinafter defined). For purposes of this Agreement, a "PGGM
Director" shall be an individual nominated by PGGM.
(b) From the date hereof until the earlier to occur of (i) the date as of
which PGGM and DIHC and their respective Affiliates own in the aggregate less
than 25% of the issued and outstanding shares of Common Stock or (ii)
, 2002 (the date five years after the Closing Date), subject to
the rights of the stockholders of the Company and the requirements of the Nevada
law:
(i) the Company shall take all action necessary to ensure that one
PGGM Director is appointed to the board affairs committee of the Board (the
"Committee").
(ii) All nominees for election as directors of the Company by the
Board (other than Incumbent Directors and PGGM Directors nominated pursuant
to Section 7.1(a)) shall be persons not affiliated with PGGM or DIHC or any
of their respective Affiliates and shall be made with the approval of a
majority of the members of the Committee, which majority includes the
approval (which will not be unreasonably withheld) of the PGGM Director
serving on the Committee;
(iii) PGGM and DIHC shall vote (or provide written consent with
respect to) all shares of Common Stock over which it exercises voting
authority in favor of the persons nominated as PGGM Directors pursuant to
Section 7.1(a) and all nominees nominated in accordance with Section
7.1(b)(ii) and all Incumbent Directors nominated for election as directors
of the Company by the Board;
(iv) In the event of any vacancy on the Board, whether caused by a
director's resignation, removal, death or otherwise, the Company shall take
all action necessary to ensure that the successor to the director whose
absence from the Board caused such vacancy shall be a PGGM Director if the
director who caused such vacancy was a PGGM Director; and
(v) The Company shall not increase the number of directors
constituting the full Board without the prior written consent of PGGM.
(c) So long as PGGM and DIHC and their respective Affiliates own in the
aggregate 2.5% or more of the issued and outstanding shares of Common Stock, the
Company shall not without the prior written consent of PGGM modify the policy of
the Company with respect to its interest in One Norwest Center, Denver,
Colorado, adopted at a meeting of the Board on August 13, 1997.
7.2 Leverage Ratio. So long as PGGM and DIHC and their respective
Affiliates own in the aggregate 2.5% or more of the issued and outstanding
shares of Common Stock, the Company shall at all times maintain a Leverage Ratio
not in excess of 0.45 to 1; provided, however, that notwithstanding the
foregoing, (i) the Company may at any time incur Indebtedness in an amount which
does not exceed the principal amount of
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outstanding Indebtedness of the Company extended, refinanced, renewed or
replaced with the proceeds thereof, plus any costs associated with the extension
refinancing, renewal or replacement, even if such incurrence causes the Leverage
Ratio to exceed 0.45 to 1, (ii) the Company may incur Indebtedness if, as of the
date on which the Company enters into a binding commitment with respect to such
Indebtedness, the Leverage Ratio including such Indebtedness did not exceed 0.45
to 1 and (iii) with respect to lines of credit, the Company may incur
Indebtedness under such line, if, as of the date the Company enters into the
line of credit, the Leverage Ratio including the entire amount of Indebtedness
available under such line did not exceed 0.45 to 1.
7.3 Issuances of Common Stock. From the date hereof until
, 1998 (the date six months after the Closing Date), the
Company shall not issue or sell any shares of Common Stock or other Equity
Securities, except at a price per share of Common Stock equal to or greater than
$16.00 (appropriately adjusted for stock dividends, stock splits and the like),
except in connection with (i) the conversion of securities or Indebtedness of
the Company into Common Stock by Deutsche Bank AG, (ii) the conversion of
promissory notes of the Company held by Hines Colorado Limited, (iii) the
Company's stock option or management incentive compensation plans, (iv) the
Company's dividend reinvestment plan, and (v) stock splits or stock dividends.
7.4 Domestic REIT Status. So long as PGGM and DIHC and their respective
Affiliates own in the aggregate 2.5% or more of the issued and outstanding
shares of Common Stock, the Company shall not issue any Equity Securities in
connection with any Public Offering or other sale to any Non-U.S. Person (as
defined in Section 9.02 of the Charter Amendment), other than in connection with
stock splits or stock dividends or under the Company's dividend reinvestment
plan or stock option or management incentive compensation plans; provided,
however, that the Company, in connection with any Public Offering of Equity
Securities, may issue and sell up to 15% of the securities issued in such
offering to Non-U.S. Persons.
7.5 Holdback Agreements. Each Holder agrees, if so requested prior to
December 31, 1998, by the managing underwriter in any Public Offering by the
Company, not to effect any sale or distribution of Common Stock (other than as
part of such Public Offering) within such periods prior to and after the
effective date of such registration statement as the managing underwriter may
request and as may be required of executive officers and directors of the
Company after the effective date of such registration statement; provided that
no Holder shall be required to enter into more than one such agreement. After
December 31, 1998, each Holder will consider entering into such agreements if so
requested.
7.6 Restrictions on Transfer. During the Standstill Period, any Holder
and its Affiliates owning 25% or more of the issued and outstanding shares of
Common Stock, shall not assign, transfer or sell any Shares to any Person or
such Person's Affiliates (other than a Permitted Transferee that agrees in
writing to be bound by the provisions of this Agreement) in any single
transaction or series of related transactions if, after such transaction or
transactions, such Person and such Person's Affiliates would own more than 10%
of the then issued and outstanding shares of Common Stock (other than transfers
of Shares from DIHC to PGGM on or prior to , 1998 (the date
three months after the Closing Date)).
7.7 Ownership Limit. The Company has taken all action necessary to ensure
that issuance of the Shares to DIHC, DIHC Market Square, Inc. and PGGM pursuant
to the Purchase Agreement and the Loan Agreement shall not be deemed a violation
of Article 8 of the Company's articles of incorporation. Whenever PGGM or DIHC
(or DIHC Market Square, Inc.) proposes to transfer any Shares to any Person, in
accordance with the provisions of Section 8.03 of the articles of incorporation
of the Company, the Board shall determine whether the proposed transfer would
jeopardize the Company's status as a real estate investment trust (a "REIT")
under Section 856 of the Internal Revenue Code of 1986, as amended. If the Board
determines that it would not so jeopardize the Company's REIT status, or if it
receives an opinion of counsel, which counsel and opinion are reasonably
satisfactory to the Board, to the effect that such proposed transfer will not
jeopardize the Company's status as a REIT, the Board shall determine that such
transferee will not be treated as a "Person" within the meaning of Section
8.03(b) of the Company's articles of incorporation and therefore the ownership
of Shares by such transferee will be exempt from the restrictions imposed by
Article 8 of the Company's articles of incorporation. If the Board determines
that the proposed transfer would
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jeopardize the Company's REIT status, the Company shall provide a written
explanation to DIHC and PGGM of the basis for its determination and shall
provide reasonable access to information regarding the Company's shareholders to
DIHC and PGGM.
7.8 Transfers to PGGM. The Company shall take all action necessary to
ensure that any transfer of Shares from DIHC or DIHC Market Square, Inc. to PGGM
shall not be deemed a violation of Article 8 or Section 9.01 of the Company's
articles of incorporation.
7.9 Share Repurchases. So long as DIHC and PGGM and their respective
Affiliates own in the aggregate 25% or more of the issued and outstanding shares
of Common Stock, in the event the Company proposes to repurchase any shares of
Common Stock from any holder thereof owning together with its Affiliates 5% or
more of the issued and outstanding shares of Common Stock, DIHC and PGGM shall
have the right to require the Company to repurchase a number of shares of Common
Stock held by DIHC and PGGM equal to the product of (i) the total number of
shares proposed to be repurchased and (ii) a fraction, the numerator of which is
(A) the number of Shares owned by DIHC and PGGM and their respective Affiliates
and the denominator of which is (B) the sum of the number of shares of Common
Stock owned by such holder plus the number of Shares owned by DIHC and PGGM and
their respective Affiliates.
8. Standstill. During the Standstill Period, any Holder that together
with its Affiliates owns 25% or more of the issued and outstanding shares of
Common Stock shall not:
(a) directly or indirectly, purchase or otherwise acquire, or propose
or offer to purchase or otherwise acquire, any Equity Securities whether by
tender offer, market purchase, privately negotiated purchase, Business
Combination or otherwise, if, immediately after such purchase or
acquisition, the Holder Interest of such Holder would equal or exceed the
Initial Percentage;
(b) directly or indirectly propose to the Company or any Person a
Business Combination;
(c) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" to vote (as such terms are used in the rules
promulgated by the Commission under Section 14(a) of the Exchange Act) or
seek to advise, encourage or influence any person or entity with respect to
the voting of any shares of capital stock of the Company, initiate, propose
or otherwise solicit stockholders of the Company for the approval of one or
more stockholder proposals or induce or attempt to induce any other Person
to initiate any stockholder proposal; or
(d) deposit any Equity Securities into a voting trust or subject any
Equity Securities to any arrangement or agreement with respect to the
voting of such securities or form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any Equity Securities, other than as expressly set forth in
Section 7 hereof.
Nothing in this Section 8 shall limit the ability of PGGM Directors to
function in their capacities as members of the Board. The provisions of this
Section 8 may be waived by the Company only upon the approval of a majority of
the Board, excluding all PGGM Directors and shall not be applicable to actions
approved by the majority of the Board, excluding all PGGM Directors in
circumstances in which the PGGM Directors are "interested directors" under
Section 78.140 of the Nevada General Corporation Law.
9. Assignment. This Agreement shall not be assignable by the parties
hereto, except (i) by PGGM, DIHC or any Holder pursuant to a transfer of Shares
permitted hereunder to a Permitted Transferee that agrees in writing to be bound
by the terms hereof (including, without limitation, Section 7.6 and 8, if
applicable) and (ii) the rights to cause the Company to register Shares pursuant
to Section 3 may be assigned by PGGM, DIHC or any Holder, but only together with
all obligations of Holders under Section 3 and Section 7.5, to a transferee of
Shares representing at least 1% of the issued and outstanding shares of Common
Stock, provided that, within a reasonable time after such transfer, the Company
is furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned. Notwithstanding any transfer of Shares in connection with an
assignment permitted by this Section 9, the transferor shall comply with the
obligations set forth in Section 2 hereof.
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<PAGE> 219
10. Miscellaneous. This Agreement constitutes the sole understanding of
the parties hereto with respect to the subject matter hereof; provided, however,
that this provision is not intended to abrogate any other written agreement
between or among the parties executed with or after this Agreement or any
written agreement pertaining to another subject matter. No amendment of this
Agreement shall be binding unless made in writing and duly executed by the
parties hereto. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York without regard to conflict of laws
principles thereof. No provision of this Agreement shall be construed against or
interpreted to the disadvantage of any party hereto by any court or other
governmental or judicial authority or by any board of arbitrators by reason of
such party or its counsel having or being deemed to have structured or drafted
such provision. Unless otherwise expressly provided herein, all references in
this Agreement to Section(s) shall refer to the Section(s) of this Agreement.
The headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect the meaning of this Agreement. This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.
11. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
11):
<TABLE>
<S> <C> <C>
(a) if to PGGM: Pensioenfonds PGGM
Kroostweg-Noord 149
3704 DV Zeist
The Netherlands
P. O. Box 117
3700 AC Zeist
The Netherlands
Telecopy: 011 (31.30) 696-3388
Attention: Mr. Jan van der Vlist
Ms. Anneke C. van de Puttelaar
with a copy to: Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4873
Telecopy: (212) 750-9022
Attention: Robert M. Safron, Esq.
(b) if to DIHC: 200 Galleria Parkway, NW
Suite 2000
Atlanta, Georgia 30339
Telecopy: (770) 951-9349
Attention: Mr. Robert T. Sorrentino
Mr. Michael F. Perkins
with a copy to:
Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4873
Telecopy: (212) 750-9022
Attention: Robert M. Safron, Esq.
</TABLE>
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<PAGE> 220
<TABLE>
<S> <C> <C>
(c) if to the Company: 126 East 56th Street
New York, New York 10022
Telecopy: (212) 605-7199
Attention: Mr. John S. Moody
with a copy to:
King & Spalding
191 Peachtree Street, NE
Atlanta, Georgia 30303
Telecopy: (404) 572-5148
Attention: William B. Fryer, Esq.
</TABLE>
(d) If to any other Holder to the address set forth in the notice referred
to in Section 9 hereof.
12. Remedy. In the event that the Company materially breaches its
obligations to PGGM under Sections 7.1 and 7.2 hereof and such breach continues
for a period of 30 days after PGGM gives the Company written notice of such
breach, the obligations of PGGM under Sections 7.5, 7.6 and 8 shall thereafter
be suspended for such period of time as such breach continues; provided,
however, that upon any such breach being cured by the Company or waived by PGGM,
PGGM shall again be obligated to comply with the provisions of Sections 7.5, 7.6
and 8.
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<PAGE> 221
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
CORNERSTONE PROPERTIES INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
DUTCH INSTITUTIONAL HOLDING
COMPANY, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
STICHTING PENSIOENFONDS VOOR DE
GEZONDHEID, GEESTELIJKE EN
MAATSCHAPPELIJKE BELANGEN
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
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<PAGE> 222
EXHIBIT A
TO REGISTRATION RIGHTS AND VOTING AGREEMENT
Stockholders' Agreement dated November 22, 1996, between the Company and New
York State Teachers' Retirement System.
Stockholders' Agreement dated November 7, 1996, between the Company and Hexalon
Real Estate, Inc.
Convertible Promissory Note dated January 1, 1996 issued by the Company to Hines
Colorado Limited.
Letter Agreement dated July 10, 1995 between the Company and Deutsche Bank AG.
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<PAGE> 223
ANNEX IV
ARTICLE 9
RESTRICTIONS ON TRANSFER -- DOMESTICALLY CONTROLLED REIT STATUS
SECTION 9.01. All shares of stock of the Corporation shall be subject to
the following restrictions on transfer which are intended to limit the ownership
of the Corporation's shares by Non-U.S. Persons and thereby assist the
Corporation in becoming, and thereafter remaining as, a "domestically controlled
REIT" within the meaning of Section 897(h)(4)(B) of the Code:
(a) Shares of a class of stock of the Corporation shall not be
transferred by any U.S. Person to any person if such transfer would cause a
Non-U.S. Person to Beneficially Own (taking into account any other shares
of such class Beneficially Owned by such Non-U.S. Person) more than the
Non-U.S. Ownership Limit with respect to such class of stock, and the
intended transferee of such shares shall acquire no rights in such shares.
(b) To the extent any purported transfer of shares by any U.S. Person
would cause a Non-U.S. Person to Beneficially Own shares of a class of
stock of the Corporation in excess of the Non-U.S. Ownership Limit, those
shares of the Corporation as to which the Non-U.S. Person has most recently
acquired Beneficial Ownership shall constitute "Excess Shares" under this
Article 9. Excess Shares shall have the following characteristics;
(1) The holder of Excess Shares shall be deemed to have transferred
those shares to the Corporation as trustee (the "Trustee") for the
benefit of such person to whom such holder shall later transfer such
shares provided that such shares shall not be Excess Shares in the hands
of such person;
(2) An interest in the trust holding such Excess Shares shall be
freely transferable by the holder thereof at a price not in excess of
the price paid by such holder for the Excess Shares;
(3) Holders of Excess Shares shall not be entitled to exercise any
voting rights with respect to such Excess Shares;
(4) Excess Shares shall not be deemed to be outstanding for the
purpose of determining a quorum at the annual meeting or any special
meeting of stockholders;
(5) Any dividends or other distributions with respect to Excess
Shares which would have been payable in respect of shares of the
Corporation had they not constituted "Excess Shares" shall be
accumulated by the Trustee and deposited in a savings account in a New
York bank (which may be the Corporation's dividend disbursing agent) for
the benefit of, and be payable to, the holder or holders of such shares
of the Corporation at such time as such Excess Shares shall cease to be
Excess Shares; and
(6) Excess Shares shall be deemed to have been offered for sale to
the Corporation or its designee at their fair market value for a period
of ninety (90) days from the date of (i) the transfer of stock which
made the shares Excess Shares if the Corporation has actual knowledge
that such transfer creates Excess Shares as of the date of transfer or
(ii) if such transfer is not actually known to the Corporation, the
determination by the Board of Directors in good faith by resolution duly
adopted that a transfer creating Excess Shares has taken place. Fair
market value shall be determined as of the date of (i) or (ii) above, as
appropriate, and shall be the closing price on the New York Stock
Exchange or any other national stock exchange in the United States; but
if the shares are not listed on the New York Stock Exchange or any other
national stock exchange in the United States, then the closing price on
the Frankfurt, Luxembourg, or Dusseldorf stock exchanges; but if the
shares are not listed on the Frankfurt, Luxembourg, or Dusseldorf stock
exchanges, then the bid price in the over-the-counter market; but if the
shares are not traded in the over-the-counter market, then the price
determined in good faith by the Board of Directors.
(c) The following transfers by any U.S. Person (or by any person
through whom such U.S. Person has Beneficial Ownership of the shares) shall
be exempt from the limitation imposed by this Section 9.01(a): (i) any
transfer pursuant to the death of such U.S. Person or distribution pursuant
to the
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<PAGE> 224
terms of a decedent's will, trust or similar instrument, (ii) any transfer
pursuant to a merger or sale of substantially all of the assets of the U.S.
person, if such U.S. person is an entity; provided, however, that the
exception in this clause (ii) shall not apply to any such transfer if the
shares of the Corporation conveyed represent twenty percent or more of the
aggregate value of all assets conveyed by the U.S. Person in such merger or
sale, (iii) any transfer to a trustee or receiver in a bankruptcy or
similar proceeding, and (iv) any involuntary transfer that occurs by
operation of law.
(d) If the Board of Directors shall at any time determine in good
faith, by resolution duly adopted, that a transfer has taken place in
violation of Section 9.01(a), the Board of Directors may, but shall not be
obligated to, take such action as it deems advisable to prevent or refuse
to give effect to such transfer, including, but not limited to, refusing to
give effect to such transfer on the books of the Corporation or instituting
proceedings to enjoin such transfer.
(e) Any Non-U.S. Person to whom a transfer of shares is made in
violation of Section 9.01(a) is obliged immediately to give or cause to be
given written notice thereof to the Corporation and such other information
as the Corporation may reasonably require of such Non-U.S. Person relating
to such person's status as a Non-U.S. Person and the shares Beneficially
Owned or purported to be Beneficially Owned by such Non-U.S. Person.
(f) All certificates evidencing ownership of shares of the Corporation
shall bear a conspicuous legend describing the restrictions set forth in
this Article.
SECTION 9.02. For purposes of this Article 9,
(a) "Non-U.S. Person" shall mean (i) a nonresident alien individual
(as defined in Section 7701(b) of the Code), (ii) a foreign corporation,
foreign partnership, foreign trust, foreign estate, foreign government, and
any other organization or entity which is not organized under the laws of
the United States or a State, and (iii) any other person or entity treated
as a "foreign person" under Section 1.897-9T(c) of the Treasury Regulations
under the Code (or any corresponding provision of successor regulations).
(b) "U.S. Person" shall mean any person other than a Non-U.S. Person.
(c) "Non-U.S. Ownership Limit" shall mean, as to any class of stock of
the Corporation, three percent (3%) of the outstanding shares of such
class. The number of outstanding shares of a class of stock shall be
determined as of the time of the transfer in question.
(d) A Non-U.S. Person shall be considered to "Beneficially Own," be
the "Beneficial Owner," or have "Beneficial Ownership" of shares if such
Non-U.S. Person is (i) the holder of record of such shares (other than a
broker, nominee, transfer agent, depository or similar intermediary) or
(ii) the person required to include dividends with respect to such shares
in income for U.S. federal income tax purposes under Section 1.857-8 of the
Treasury Regulations.
SECTION 9.03. Nothing contained in this Article shall be construed as
imposing any affirmative obligation on the Corporation or its Board of Directors
to ensure that the Corporation becomes a domestically controlled REIT or that it
maintains such status once attained, other than the obligation to enforce the
transfer restrictions imposed by this Article 9 in good faith.
SECTION 9.04. If any provision of this Article or any application of such
provision is determined to be invalid by any federal or state court having
jurisdiction over the issues, the validity of the remaining provisions shall not
be affected and other applications of such provision shall be affected only to
the extent necessary to comply with the determination of such court.
SECTION 9.05. The Corporation shall, within 30 days after December 31 of
each year, request each record owner holding more than 3% of the outstanding
shares of any class of its stock on December 31 of such year to state whether
such holder is a Non-U.S. Person and to identify any other Non-U.S. Persons that
Beneficially Own such shares.
SECTION 9.06. The Board may, in its sole but good faith discretion, except
any purported transfer of shares from the limitations contained in this Article
9 if the Board determines that such transfer will not materially affect the
Corporation's ability to become a domestically controlled REIT or to continue
such status once attained, and is otherwise in the best interest of the
Corporation and its shareholders.
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<PAGE> 225
ANNEX V
[LAZARD FRERES & CO. LLC LETTERHEAD]
August 18, 1997
The Board of Directors
Cornerstone Properties Inc.
Tower 56
126 East 56th Street, 6th Fl.
New York, NY 10022
Dear Members of the Board:
We understand that Cornerstone Properties Inc. ("Cornerstone") has entered
into a Stock Purchase Agreement with Dutch Institutional Holding Company, Inc.
("DIHC"), the U.S. subsidiary of Stichting Pensioenfonds Voor de Gezondheid,
Geestelijke en Maatschappelijke Belangen ("PGGM"), and also into a Loan Purchase
Agreement with PGGM, both dated as of August 18, 1997 (collectively, the
"Agreements"), pursuant to which the Company will acquire a portfolio of ten
real estate assets (the "Portfolio") from DIHC and PGGM (the "Acquisition").
Under the terms of the Agreements, Cornerstone will acquire the portfolio in
exchange for total consideration of $1,055.3 million (the "Consideration"),
which shall include a combination of $258.3 million of cash, $250.0 million of
purchase-money notes, and 34,187,500 shares of Cornerstone's common stock. The
terms and conditions of the Acquisition are set forth more fully in the
Agreements.
You have requested our opinion as to the fairness, from a financial point
of view, to Cornerstone of the Consideration being paid in the Acquisition. In
connection with this opinion, we have:
(i) reviewed the financial terms and conditions of the Agreements;
(ii) analyzed certain historical business and financial information
relating to Cornerstone, including its Prospectus Supplement dated April
15, 1997, the Quarterly Report on Form 10-Q of Cornerstone for the period
ended March 31, 1997, and certain forecasts of Cornerstone's financial
performance provided to us by Cornerstone;
(iii) reviewed certain business and financial information relating to
the DIHC Portfolio, including third-party appraisals of the Portfolio,
forecasts of the Portfolio's performance, and other related data provided
to us by Cornerstone and DIHC;
(iv) reviewed Cornerstone's projections regarding the pro forma impact
of the Acquisition on Cornerstone's financial results;
(v) held discussions with certain members of the senior management of
Cornerstone regarding the current and projected performance of the
Portfolio and possible economic benefits that might be realized following
the Acquisition;
(vi) reviewed transactions involving the transfer of real estate
assets that we believe to be comparable to the assets contained in the
Portfolio;
(vii) reviewed public information with respect to the FFO trading
multiples of certain other real estate investment trusts engaged in
businesses we believe to be generally comparable to the businesses of
Cornerstone and DIHC;
(viii) reviewed the historical stock prices and trading volumes of
Cornerstone's common stock; and
(ix) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
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<PAGE> 226
THE BOARD OF DIRECTORS
CORNERSTONE PROPERTIES INC.
PAGE 2 August 18, 1997
We have relied upon the accuracy and completeness of the foregoing
information provided to or discussed with us or publicly available, and have not
assumed any responsibility for any independent verification of such information
or any independent valuation or appraisal of any of the assets or liabilities of
Cornerstone, DIHC, or PGGM. We express no opinion or view with regard to the
appraisals referred to above or the value of the assets of Cornerstone, DIHC, or
PGGM, and it is expressly understood that this opinion does not constitute a
valuation or appraisal of such assets. With respect to financial forecasts, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of
Cornerstone, DIHC, and PGGM as to the future financial performance of
Cornerstone and the Portfolio, respectively. We assume no responsibility for and
express no view as to such forecasts or the assumptions on which they are based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. In addition, you have advised us and we have assumed that
the Acquisition does not constitute a change of control of Cornerstone.
In rendering our opinion, we have assumed that the Acquisition will be
consummated on the terms described in the Agreements, without any waiver of any
material terms or conditions by the Company, and that obtaining the necessary
shareholder approvals for the Acquisition will not have an adverse effect on
Cornerstone.
Lazard Freres & Co. LLC is not acting as financial advisor to Cornerstone
in connection with the Acquisition, but has in the past provided investment
banking and financial advisory services to Cornerstone and has received fees for
rendering such services. PGGM has invested in certain Lazard Freres real estate
funds.
Our engagement and the opinion expressed herein are solely for the benefit
of the Company's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon, DIHC, PGGM, any stockholders of
Cornerstone, DIHC, or PGGM, or any other person; the opinion does not constitute
a recommendation to Cornerstone's shareholders as to how they should vote at the
shareholders' meeting in connection with the Acquisition. It is understood that,
except for inclusion in full in a proxy statement relating to the Acquisition,
this letter may not be disclosed or otherwise described or referred to without
our prior written consent, except as may otherwise be required by law or by a
court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that the
Consideration being paid in the Acquisition is fair to Cornerstone from a
financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ MATTHEW J. LUSTIG
----------------------------------
Managing Director
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<PAGE> 227
================================================================================
PROXY - CORNERSTONE PROPERTIES INC.
The undersigned stockholder of Cornerstone Properties Inc.
(Cornerstone) hereby appoints John S. Moody and Rodney C. Dimock, and
each of them, as Proxies, each with the power of substitution, to vote
all of the shares of Common Stock the undersigned may be entitled to
vote upon all matters at Cornerstone's Special Meeting of Stockholders
to be held on October 27, 1997, at The St. Regis Hotel, 2 East 55th
Street, New York, NY, commencing at 2:00 P.M. (local time), and at all
adjournments thereof, with all powers the undersigned would possess if
then and there personally present. Without limiting the general
authorization and power hereby given, the undersigned directs said
Proxies to cast the undersigned's vote as specified on the reverse
side hereof. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR
APPROVAL OF EACH OF THE PROPOSALS LISTED ON THE REVERSE SIDE HEREOF.
Stockholders who plan to attend the Special Meeting may revoke their
proxy by casting their vote at the meeting in person.
-------------------------------
Name of Stockholder (please
print)
-------------------------------
Signature
-------------------------------
Number of Shares Held
-------------------------------
Name of Correspondent Bank
------------------------, 1997
Date
PLEASE DATE, SIGN AND MAIL THIS PROXY TODAY IN THE ENCLOSED ENVELOPE.
<PAGE> 228
================================================================================
1. To approve the Property Acquisition, including the issuance of up
to 34,187,500 shares of Common Stock to PGGM and DIHC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve the amendment to the Restated Articles of Incorporation
of Cornerstone adding new Article Nine designed to cause
Cornerstone to become a domestically controlled REIT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the amendment to the Restated Articles of Incorporation
of Cornerstone increasing the number of authorized shares of Common
Stock from 100,000,000 to 250,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve the amendment to the Restated Articles of Incorporation
of Cornerstone to clarify the mechanics of settling trades on the
New York Stock Exchange.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To vote at the discretion of the Proxies upon such other matters as
may properly come before the meeting or any adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
----------------------------------
I intend to attend the Special Meeting of Stockholders. Please send
me an entry card. [ ]
==================================
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CORNERSTONE
PROPERTIES INC.
(Continued and to be dated and signed on the reverse side)
