<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Fiscal Year Ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ______________ to
____________.
Commission file Number 0-10421
CORNERSTONE PROPERTIES INC.
(Exact name of Registrant as specified in its Charter)
NEVADA 74-2170858
(State or other jurisdiction of (IRS Employer
incorporation and organization) Identification No.)
126 EAST 56TH STREET 10022
NEW YORK, NEW YORK (Zip Code)
(Address of principal
executive offices)
(212) 605-7100
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
Aggregate market value of registrant's voting Common Stock held by
non-affiliates as of February 14, 1997: $338,000,000.
Number of shares of Common Stock outstanding as of February 14, 1997:
20,609,754.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K
into which incorporated
-----------------------
Proxy Statement for Annual Meeting of
Stockholders to be held June 2, 1997 Part III
Total Number of Pages: 35
Exhibit Index: Page 31
<PAGE> 2
PART I
ITEM 1. BUSINESS
General
Cornerstone Properties Inc. (formerly ARICO America Realestate
Investment Company) ("Cornerstone" or the "Company") was incorporated under the
laws of the State of Nevada in May, 1981. The Company's principal place of
business is located at Tower 56, 126 East 56th Street, New York, New York
10022. The Company is a self-administered REIT which owns, through
subsidiaries, interests in seven Class A office Properties encompassing
approximately 4.7 million rentable square feet in seven major commercial
centers of the United States.
Tax Status
The Company has elected to be taxed as a real estate investment trust
("REIT") under Sections 856-860 of the United States federal income tax laws,
commencing in calendar year 1982. In order to qualify as a REIT, the Company
must, among other things (i) distribute at least 95 percent of its annual
taxable income, (ii) derive at least 75 percent of its annual gross income from
passive real estate or real estate mortgage investments, (iii) derive an
additional 20 percent of its income from passive real estate or mortgage
investments plus dividends or interest from any source, or gain from the sale
or other disposition of stocks and securities, (iv) derive less than 30 percent
of gross income from the sale of stock and securities held less than six
months, the sale of inventory-type property and the sale of real property held
for less than four years, and (v) at least 75 percent of the value of the
REIT's total assets must be represented by real estate assets, cash and
government securities at the close of each quarter of its taxable year. Of the
remaining 25 percent of total assets, not more than 5 percent of the value of
the REIT's assets may consist of the securities of any one issue, and not more
than 10 percent of the outstanding voting securities of any particular issue
may be owned by the REIT. With certain limited exceptions, the Company is not
subject to United States federal income taxes at the corporate level on the net
income that is currently distributed to its shareholders. Each shareholder,
however, is subject to United States federal taxation on that net income to the
extent it is distributed to him.
Investment Policies of the Company
The following information concerning the investment policies of the
Company represents the current policies of the Board of Directors of the
Company. In general, the Company intends to structure its investments so as to
maintain its treatment as a REIT under the United States federal income tax
laws.
Investment Properties
As of December 31, 1996, the Company owned and operated seven Class A
office Properties, encompassing approximately 4.7 million rentable square feet.
Class A office properties generally are considered to be those which have
excellent locations and access, attract high quality tenants, are
well-maintained and professionally managed, and achieve among the highest rent,
occupancy and tenant retention rates within their markets. Based on rentable
square feet, as of December 31, 1996, the Properties were approximately 97%
occupied by a total of 380 tenants. See Note 14 of the Notes to Consolidated
Financial Statements for information regarding a property acquisition completed
February 14, 1997.
Other investments, including debt or equity (or both) investments in other real
estate properties may be made in the future if attractive opportunities arise.
In such case, the Company would acquire or invest primarily in the ownership,
development, and equity and/or debt financing or refinancing of
income-producing real estate properties (directly or through partnerships,
joint ventures, or other entities) in the United States and Canada. In
considering and selecting real estate investments, the executive officers and
directors of the Company will consider such matters as the safety of principal,
cash flow expectations, quality of tenancy, long-term appreciation potential,
future financing and refinancing prospects, and the current value of the
properties. The Company's objectives are to generate current cash flow and to
provide capital appreciation.
Interim Investment
Funds that the Company may obtain from time to time, including taxable
income earned and held prior to distribution to the shareholders, will be placed
in investments, including but not limited to certificates of deposit,
interest-bearing accounts, United States government obligations, money market
funds and mortgages or investments secured by mortgages on real property.
2
<PAGE> 3
Sales of Securities The Company may finance or refinance its investments by
additional issues and sales of its debt or equity securities. The Company may
also issue its securities in exchange for property or property interests. Such
issues and sales may not be on the same terms as, or may have rights senior to
those of the common stock of the Company. In addition, such issues and sales may
have the result of diluting the relative interests of holders of common stock
and may result in changes in distributable income per share of common stock.
Mortgage and Trust Deeds The Company may finance or refinance its investments
through borrowings collateralized by first or subordinate mortgages or deeds of
trust. The extent to which the Company's borrowing capabilities are utilized at
any time will be determined by the executive officers and directors of the
Company after considering such factors as the availability of suitable
investments, the cost of borrowed funds, the tax effects of such borrowing, debt
service coverage ratios and the Company's projected cash flow.
Sale of Investments Generally, the Company does not currently intend to sell
its real estate investments and any such sales will likely be made, if at all,
at least four years after acquisition of the investment. Managerial judgment,
however, will be applied on a continuing basis, and, accordingly, specific
investments may be disposed of, if and when, in the opinion of the Company and
its shareholders, it is a prudent time to do so. When the Company sells an
equity investment, it may take back from the buyer, as whole or partial payment
for the investment, a purchase money obligation under which the buyer may not
have personal liability. The Company may sell its debt investments as
management deems appropriate. Sales of Company investments will be structured
so as to maintain the Company's status as a REIT.
Investment in Real Estate Mortgages The Company may, from time to time, invest
in real estate mortgages or securities collateralized by such mortgages. Such
investments may be short-term or long-term investments collateralized by
mortgages on income-producing properties to be developed and will generally not
be guaranteed by the United States Federal Housing Administration or the United
States Veterans' Administration. The Company may also invest in long-term
convertible mortgages that may be converted into equity interests in the
mortgaged properties.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities The Company may invest in securities or interests in other persons
primarily engaged in real estate activities, but only to the extent the Company
is permitted by law to maintain its status as a REIT. Such securities or
interests may include partnership or joint venture interests or direct
interests in real estate. Generally, the Company will invest in or with the
parties whose primary activities are the ownership, development, and/or
financing of income-producing real estate. The criteria by which investments in
such securities and interests will be made will be the same as those for the
Company's own real property investments.
Property Management
Independent contractors manage and operate the Company's properties and
furnish or render services to the tenants of such properties. Certain adverse
United States federal income tax consequences regarding the Company's
qualification as a REIT could result if the Company or any joint venture or
partnership of which the Company is a member earned fees from or performed
services for tenants which are not considered ordinary and customary in the
markets in which they are performed.
Competition
There is significant competition in the Denver, Minneapolis, Seattle,
Boston, New York, Oakbrook Terrace and Pittsburgh office markets from a wide
variety of institutions and other investors, who may have greater financial
resources than the Company and/or the partnerships that own the properties.
See "Properties" for market information on each of the above markets.
Employees
The Company currently has 16 employees, its principal executive offices
are located at Tower 56, 126 East 56th Street, New York, New York 10022, and
its phone number is 212-605-7100.
3
<PAGE> 4
ITEM 2. PROPERTIES.
ONE NORWEST CENTER
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 ("Lincoln") in
which the Company owns a 90 percent general partnership interest through its
wholly-owned subsidiary, ARICO-Denver, Inc., and a 10 percent general
partnership interest through its wholly-owned subsidiary, 1700 Lincoln Inc.
The Property is managed by Hines.
MARKET INFORMATION
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 1980's. 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 vacancy rate was 13.6%. The
downtown submarket includes 11.0 million square feet of Class A office space
with a vacancy rate of 8.8% as of December 31, 1996.
Set forth below is pertinent statistical information regarding the
downtown Denver submarket:
<TABLE>
<CAPTION>
Net Year to Date Period End One Norwest
As of Absorption (sq. ft.) Completions (sq. ft.) Vacancy Vacancy
- ----------------- ------------------- ------------------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996 132,208 0 13.6% 2%
December 31, 1995 (385,000) 0 15.5% 2%
December 31, 1994 633,000 0 13.8% 4%
December 31, 1993 498,000 0 16.6% 4%
December 31, 1992 361,000 0 18.8% 5%
</TABLE>
- --------------------------------
Source: Torto Wheaton Research
The downtown Denver submarket vacancy rate improved from 18.8 percent
in 1992 to 13.8 percent in 1994 reflecting strong space absorption in the
submarket. The vacancy rate rose to 15.5 percent 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 December 31, 1996, the vacancy rate had
decreased slightly to 13.6 percent.
HISTORICAL OCCUPANCY RATES
As of the dates noted, the following percentage of the net rentable
area in One Norwest Center was leased at the average Net Effective Rent per
square foot set forth below:
<TABLE>
<CAPTION>
Percentage Leased Average Net Effective
As of at Period End Rent Per Square Foot
- ------------------------ ------------- ---------------------
<S> <C> <C>
December 31, 1996............. 99% $10.80
December 31, 1995............. 98 10.56
December 31, 1994............. 96 10.25
December 31, 1993............. 96 10.59
December 31, 1992............. 95 10.92
</TABLE>
4
<PAGE> 5
PRINCIPAL TENANTS
The following table lists the principal tenants of One Norwest Center
as of December 31, 1996:
<TABLE>
<CAPTION>
Rentable Square Feet
Principal ----------------------------
Business Percent of
Tenant Activity Total Total (1)
- ---------------------------- --------- ----------------------------
<S> <C> <C> <C>
Norwest Bank Denver N.A. Banking 582,766 49%
Apache Corporation Oil and Gas 160,455 14%
Newmont Gold Company Mining 116,467 10%
------- ---
Total 859,688 72%
======= ===
</TABLE>
- ----------------------------
(1) Calculated based on a total of 1,187,852 rentable square feet as of
December 31, 1996.
NORWEST BANK DENVER NATIONAL ASSOCIATION LEASE. Lincoln entered into a
lease agreement dated February 5, 1981, with the United Bank of Denver (the
"United Bank of Denver Lease"). The United Bank of Denver Lease commenced on
July 5, 1983 and expires July, 2013. During 1992, this lease was assumed by
Norwest Bank Denver National Association as part of the acquisition of United
Bank of Denver by Norwest Corporation. The net rental rate until July, 1998 is
$14.89 per square foot. The net rental rate from July, 1998 through 2003 will
be $16.00 per square foot. The net rental rate from July, 2003 through 2008
will be the sum of (i) $16.00 per square foot and (ii) 50 percent of the excess
of the market rental rate for a single rate from July, 2008 through July, 2013
will be the greater of (i) the rental rate in the prior five-year period or
(ii) the rental rate for such five-year period plus 50 percent of the excess of
the market net rental rate for a single floor office tenant located between
floors 1 and 20 in the building as of July, 2008 over the rate for the prior
five-year period minus $1.00 per square foot. Norwest Bank Denver National
Association has three five-year renewal options beginning in July, 2013.
In addition, Norwest Bank Denver National Association pays variable rent to
Lincoln as lessor, equal to Norwest Bank Denver National Association's
proportionate share of operating expenses incurred in connection with the
operation of One Norwest Center. Basic and variable rent are payable monthly.
APACHE CORPORATION LEASE: The Apache Corporation Lease commenced on
April 1, 1987 and expires May 31, 1997. The net rental rate until May 31, 1997
is $12.00 per square foot. The Apache Corporation had two five year renewal
options which it did not exercise.
In addition, the Apache Corporation pays variable rent to Lincoln as lessor,
equal to Apache Corporation's proportionate share of operating expenses
incurred in connection with the operation of One Norwest Center. Basic and
variable rent are payable monthly.
NEWMONT GOLD COMPANY: The Newmont Gold Company ("Newmont") Lease
commenced on February 1, 1989 and expires January 31, 1999. The initial net
rent was $4 per square foot on 93,576 square feet. Every two years the rate
increases $2 per square foot with a final net rate of $12 per square foot. On
December 1, 1994, Newmont leased an additional 22,891 square feet with an
expiration date of January 31, 1999. The net rate on this additional space is
$5.75 per square foot for the first 13 months and $8.50 per square foot for the
remaining 37 months. During 1996, Newmont exercised their 5 year renewal
option on 93,576 square feet at a market rental rate to be determined.
In addition, Newmont pays variable rent to Lincoln as lessor, equal to Newmont's
proportionate share of operating expenses incurred in connection with the
operation of One Norwest Center. Basic and variable rent are payable monthly.
5
<PAGE> 6
Lease Expirations
The following table sets forth lease expirations for One Norwest
Center. All rents are calculated on a net basis. For the year ended December
31, 1996, recoverable operating expenses at One Norwest Center were $5.40 per
square foot.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet(a) 181,000 53,000 95,000 105,000 55,000 21,000 157,000 94,000
Annualized Base Rent(b) $1,931,000 $375,000 $869,000 $892,000 $593,000 $242,000 $2,159,000 $936,000
Annualized Base Rent per sq. ft. $10.67 $7.08 $9.15 $8.50 $10.78 $11.52 $13.75 $9.96
% Annualized Base Rent(c) 14% 3% 6% 6% 4% 2% 15% 7%
Tenants(d) 8 8 6 6 5 1 1 1
</TABLE>
<TABLE>
<CAPTION>
2008
and
2005 2006 2007 Beyond
---- ---- ---- ------
<S> <C> <C> <C> <C>
Square feet(a) -- -- -- 413,000
Annualized Base Rent(b) -- -- -- $6,064,000
Annualized Base Rent per sq. ft. -- -- -- $14.68
% Annualized Base Rent(c) -- -- -- 43%
Tenants(d) -- -- -- 2
</TABLE>
- ---------------------------------
(a) Total area in square feet covered by such leases.
(b) Annualized Base Rent as of December 31, 1996.
(c) Percentage of Annualized Base Rent as of December 31, 1996 represented
by such leases.
(d) The number of tenants whose leases will expire.
Real Estate Taxes
Real property tax expense for 1996 was approximately $1,834,000. The
tenant leases for One Norwest Center generally contain provisions passing
through to tenants the cost of real estate taxes, and therefore, such taxes
should not have a material effect on net operating income from One Norwest
Center (assuming that One Norwest Center is fully leased), although an
assessment exceeding that of similar properties could affect occupancy or
absorption.
NORWEST CENTER
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.
Market Information
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, contains
approximately 20.6 million square fee of this inventory. As of December 31,
1996, the overall Minneapolis CBD vacancy rate was 6.7%. The Minneapolis CBD
submarket includes 12.9 million square feet(.30) (.01) (.01) (.14) (.27) (.46)
(.15) (1.19) of class-A office space, with a vacancy rate of 3.8% as of December
31, 1996.
6
<PAGE> 7
Set forth below is pertinent statistical information regarding the
Minneapolis CBD submarket:
<TABLE>
<CAPTION>
Net Year to Date Period End Norwest Center
As of Absorption (sq. ft.) Completions (sq. ft.) Vacancy Vacancy
- ----------------- -------------------- --------------------- ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1996 255,612 0 6.7% 0%
December 31, 1995 0 0 8.5% 0%
December 31, 1994 1,115,000 0 8.5% 0%
December 31, 1993 825,000 0 13.9% 0%
December 31, 1992 1,348,000 1,893,000 17.9% 0%
- -----------------------------
Source Torto Wheaton Research
</TABLE>
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 1980's and early
1990's. In 1996, continued demand from tenants again resulted in positive
absorption and a marginal decrease in the vacancy rate.
THE PARTNERSHIP
Norwest Center is owned by NWC Limited Partnership ("NWC"), a
partnership in which the Company owns a 50 percent general partnership interest
through its wholly-owned subsidiary ARICO-Minneapolis, Inc. Sixth and Marquette
Limited Partnership ("S&M") owns a 49 percent managing general partnership
interest and a 1 percent limited partnership interest in NWC. The managing
general partner of NWC is currently S&M. The limited partners of S&M are Norwest
Center, Inc., a Minnesota corporation and affiliate of Norwest Corporation, and
Faegre & Benson, a Minnesota partnership, as nominee for a Minnesota partnership
comprised of persons who were partners in Faegre & Benson as of August 5, 1986.
The general partner of S&M is itself 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.
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 percent interest in NWC. After the
NWC Preference Period ends, the Company will be entitled to hold a 60 percent
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 percent interest.
The Company does not expect the Preference Period to end in the foreseeable
future.
During the NWC Preference Period, the Company is entitled to receive an
annual preference return (the "NWC Preference Return") equal to 7 percent of its
capital base, which is $92.3 million as of December 31, 1996. The NWC Preference
Return is cumulative, and if operating revenues (after payment of operating
costs, capital expenditures and debt service) are not sufficient to fund the
distribution of any NWC Preference Return then due, the amount of such
deficiency shall accumulate and shall bear interest at the rate of 7 percent,
compounded annually. Currently, there is no accrued deficiency outstanding on
the NWC Preference Return.
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 percent to the Company and 50 percent to S&M during the
NWC Preference Period.
7
<PAGE> 8
HISTORICAL OCCUPANCY RATES
As of the dates noted, the following percentage of the net rentable
area in Norwest Center was leased at the average Net Effective Rent per square
foot set forth below:
<TABLE>
<CAPTION>
Percentage Leased Average Net Effective Rent
As of at Period End Per Square Foot
- ----- ----------------- --------------------------
<S> <C> <C>
December 31, 1996........... 100% $17.43
December 31, 1995........... 100 17.31
December 31, 1994........... 100 17.00
December 31, 1993........... 100 17.27
December 31, 1992........... 100 17.48
</TABLE>
PRINCIPAL TENANTS
The following table lists the principal tenants of Norwest Center as of
December 31, 1996:
<TABLE>
<CAPTION>
Rentable Square Feet
Principal ------------------------
Business Percent of
Tenant Activity Total Total (1)
- ------------------------ --------- ---------- --------------
<S> <C> <C> <C>
Norwest Corporation Banking 451,079 40%
Faegre & Benson Legal 195,918 18%
------- ---
Total 646,997 58%
======= ===
</TABLE>
- ------------------------------
(1) Calculated based on a total of 1,118,062 rentable square feet as of
December 31, 1996.
NORWEST CORPORATION LEASE: NWC has leased to Norwest Corporation
approximately 451,000 square feet of office space, which is approximately 40
percent of the net rentable area in the building. The initial term of the lease
is for 30 years beginning in August 1988. Upon the expiration of the initial
term, the tenant has seven successive ten-year renewal options, subject to the
right of NWC, as landlord, to terminate the lease and demolish the building
after forty years from the commencement date. Net rent was payable monthly to
NWC at the annual rate of $18.25 per square foot of net rentable area for the
first five-year period of the initial term, $20.00 per square foot of net
rentable area for the second five-year period of the initial term, $23.00 per
square foot of net rentable area for the third five-year period of the initial
term, $27.00 per square foot of net rentable area for the fourth five-year
period of the initial term, $32.00 per square foot of net rentable area for the
fifth five-year period of the initial term and $38.00 per square foot of net
rentable area for the sixth five-year period of the initial term. Basic rent
for each of the renewal option periods shall be at the then prevailing market
rate. In addition, Norwest Corporation pays variable rent to NWC equal to the
sum of Norwest Corporation's proportionate share of operating expenses incurred
in connection with the operation of Norwest Center, Norwest Corporation's
proportionate share of all real property taxes, assessments and governmental
charges, and any other taxes and assessments attributable to Norwest Center.
FAEGRE & BENSON LEASE. NWC leased to the law firm of Faegre & Benson a
total of approximately 196,000 square feet of office space, which is
approximately 18 percent of the net rentable area in the building. The initial
term of the lease is for 10 years beginning in September 1988. Upon the
expiration of the initial term, the tenant has four successive five year
extension options. Base rent which is payable monthly to NWC is $19.00 per
square foot of net rentable area for the first five years of the initial term
and an annual rate of $20.75 per square foot of net rentable area for the
remaining five years of the initial term. Base rent during the extension
option periods shall be at either 95 percent, 92-1/2 percent, or 90 percent of
the prevailing market rate, the percentage depending upon the number of full
floors being leased by Faegre & Benson at the time of exercising the option.
In addition, Faegre & Benson pays variable rent to NWC, as landlord, equal to
the sum of Faegre & Benson's proportionate share of operating expenses incurred
in connection with the operation of Norwest Center, and Faegre & Benson's
proportionate share of all real property taxes, assessments and governmental
charges, and any other taxes and assessments attributable to Norwest Center.
By the terms of the Faegre & Benson lease, the individual partners of Faegre &
Benson bear no personal liability for defaults of the Faegre & Benson
partnership under the lease.
8
<PAGE> 9
LEASE EXPIRATIONS
The following table sets forth lease expirations for Norwest Center. All
rents are calculated on a net basis. For the year ending December 31, 1996,
recoverable operating expenses at Norwest Center were $12.17 per square foot.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet(a) 20,000 257,000 61,000 104,000 2,000 47,000 -- 99,000
Annualized Base Rent(b) $197,000 $4,242,000 $1,103,000 $1,690,000 $34,000 $350,000 -- $1,575,000
Annualized Base Rent per sq. ft. $9.85 $16.51 $18.08 $16.25 $17.00 $7.45 -- $15.91
% Annualized Base Rent(c) 1% 21% 6% 8% 0% 2% -- 8%
Tenants(d) 6 15 5 3 1 1 -- 2
<CAPTION>
2008
AND
2005 2006 2007 BEYOND
---- ---- ---- ------
<S> <C> <C> <C> <C>
Square feet(a) -- -- -- 527,000
Annualized Base Rent(b) -- -- -- $10,859,000
Annualized Base Rent per sq. ft. -- -- -- $20.61
% Annualized Base Rent(c) -- -- -- 54%
Tenants(d) -- -- -- 2
- ---------------------------------
(a) Total area in square feet covered by such leases.
(b) Annualized Base Rent as of December 31, 1996.
(c) Percentage of Annualized Base Rent as of December 31, 1996.
(d) The number of tenants whose leases will expire.
</TABLE>
REAL ESTATE TAXES
Real property tax expense for 1996 was approximately $10,582,000. The
tenant leases for Norwest Center generally contain provisions passing through to
tenants increases in the cost of real estate taxes, and therefore, increases in
such taxes should not have a material effect on net operating income from
Norwest Center (assuming that Norwest Center remains fully leased), although an
assessment exceeding that of similar properties could affect occupancy or
absorption.
WASHINGTON MUTUAL TOWER
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 central business district (the
"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 6-level underground parking garage
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.
MARKET INFORMATION
As of December 31, 1996, the Seattle MSA contained a total inventory of
51.3 million square feet of office space, of which 64.8 percent had been built
since 1980. The Seattle CBD, where Washington Mutual Tower is located, contains
approximately 15.9 million square feet of this inventory. As of December 31,
1996, the overall vacancy rate in the Seattle CBD was 6.7 percent. The Seattle
CBD submarket includes 13.1 million square feet of Class A office space, with a
vacancy rate of 5.3 percent.
9
<PAGE> 10
Set forth below is pertinent statistical information regarding the
Seattle CBD submarket:
<TABLE>
<CAPTION>
Washington
Net Year to Date Period End Mutual Tower
As of Absorption (sq. ft.) Completions (sq. ft.) Vacancy Vacancy
- ----------------- -------------------- --------------------- ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1996 89,239 21,500 6.7% 3%
December 31, 1995 701,000 0 7.4% 3%
December 31, 1994 509,000 0 11.8% 3%
December 31, 1993 143,000 0 15.1% 4%
December 31, 1992 191,000 0 16.0% 6%
- -----------------------------
Source Torto Wheaton Research
</TABLE>
The above table reflects strong space absorption in the Central Business
District, 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
1980's and early 1990's.
THE PARTNERSHIP
The Project Site is owned by Third Partnership. The Company owns,
through its wholly-owned subsidiary ARICO-Seattle, Inc., a 50 percent general
partnership interest in Third Partnership. 1212 Second Avenue Limited
Partnership, a Washington limited partnership ("1212 Partnership"), currently
holds a 49 percent managing general partnership interest and a 1 percent limited
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 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. Perkins
Building Partnership, a Washington general partnership comprised of partners in
the Seattle law firm of Perkins Cole, a Washington general partnership, is the
sole limited partner of 1212 Partnership. 1201 Third Avenue Limited Partnership,
a Washington limited partnership ("1201"), is the sole general partner of 1212
Partnership. Wright Runstad Associates Limited Partnership ("WRALP") is the sole
general partner of 1201, and Wright Runstad & Co. is the sole general partner of
WRALP. The majority of the limited partners of 1201 and WRALP are current or
former employees or other affiliates of Wright Runstad & Co.
Until certain cash flow levels have been achieved for two consecutive
years (the "Washington Preference Period"), all of Third Partnership's operating
revenues remaining after making payments required for (i) the operations of
Third Partnership and Washington Mutual Tower, (ii) net Block 6 costs, (iii) the
payment of debt service and (iv) the Washington Preference Return (defined
below), will be distributed 50 percent to the Company and 50 percent to 1212
Partnership. The Washington Preference Period is expected to continue for the
foreseeable future. During the Washington Preference Period, the Company is also
entitled to receive an annual preference return (the "Washington Preference
Return") equal to 8 percent of its capital base, which was $100 million as of
December 31, 1996. The Washington Preference Return is cumulative, and if
operating revenues, adjusted for payment of operating costs, capital
expenditures, debt service and for amounts due from 1212 Partnership and
subsidiary of the Company under the partnership agreement, are insufficient to
fund the distribution of any Washington Preference Return then due, the amount
of such deficiency shall accumulate and shall bear interest at the rate of 8
percent, compounded annually. As of December 31, 1996, 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 percent return on an additional equity investment of $47 million
made in September 1995. The Company is entitled to receive this return through
September 30, 2003, at which time the rate of return will adjust based on
conditions in the interest rate markets.
LEASES AND TENANTS
PERKINS COIE LEASE. 1212 Partnership originally leased to Perkins Coie
("Perkins Lease") a total of 176,000 square feet of space, which is
approximately 17 percent of the net rentable area in Washington Mutual Tower.
The Perkins Lease was assigned by 1212 Partnership to Third Partnership on
October 14, 1986. The Perkins Lease commenced in July 1988 with an initial term
of 16 years, followed by five successive five-year renewal options. Perkins Coie
has the right to terminate the Perkins Lease after ten years upon payment of a
certain termination fee. Gross rent will be payable monthly to Third
Partnership, as lessor, at the annual net rate of $26.25 per square foot of net
rentable area for the initial term. In addition,
10
<PAGE> 11
Perkins Coie pays its proportionate share of the increases (over a
specified base year amount) in real property taxes and the operating expenses
incurred in connection with the operation of Washington Mutual Tower. By the
terms of the Perkins Lease, individual partners of Perkins Coie are released
from liability upon their withdrawal, retirement or expulsion from the Perkins
Coie partnership.
WASHINGTON MUTUAL SAVINGS BANK LEASE. Third Partnership originally leased to
Washington Mutual Savings Bank ("Washington Mutual") approximately 138,000
square feet of space in Washington Mutual Tower, which is approximately 13
percent of the net rentable area of the building. The lease is for a primary
term of 18 years, commencing December 1, 1988. There was no rent payable prior
to April 30, 1989. Thereafter, gross rent was payable at the rate of $23.25
per square foot, per year for the first five years, $26.25 per square foot, per
year for the second five years, and $28.25 per square foot, per year for the
last eight years. On July 11, 1994, the lease was amended, thereby reducing
the rent by $95,000 per month for the period August 1, 1994 through April 30,
2007. The lease to Washington Mutual provides for the tenant to pay variable
rent for its share of increases in operating expenses above 1989 operating
expenses and for its share of increases in property taxes above $1.50 per
square foot per year. Washington Mutual has three renewal options of five
years each, at a rental rate equal to 90 percent of the then fair market rate.
If Washington Mutual renews, it must renew for at least 50 percent of its
space. Washington Mutual has expansion options for approximately 143,000
square feet of space, to be made available in varying increments between
December 1, 1990 and December 1, 2002. Base rent for expansion space is 90
percent of the then fair market rental rate. As of December 31, 1996,
Washington Mutual has exercised its option to expand into 20,658 square feet on
floor 8 and 20,764 square feet on floor 17.
HISTORICAL OCCUPANCY RATES
As of the dates noted, the following percentage of the net
rentable area in Washington Mutual Tower was leased at the average Net
Effective Rent per square foot set forth below:
<TABLE>
<CAPTION>
Percentage Leased Average Net Effective Rent
As of at Period End Per Square Foot
- ----------------------- ----------------- --------------------------
<S> <C> <C>
December 31, 1996............. 97% $11.80
December 31, 1995............. 97 11.83
December 31, 1994............. 97 11.03
December 31, 1993............. 96 10.84
December 31, 1992............. 94 10.43
</TABLE>
PRINCIPAL TENANTS
The following table lists the principal tenants of Washington Mutual Tower as
of December 31, 1996.
<TABLE>
<CAPTION>
Rentable Square Feet
---------------------------
Principal Percent
Tenant Business Activity Total of Total (1)
- ------------------------- ----------------- ------- ------------
<S> <C> <C> <C>
Perkins Coie Legal 195,983 17%
Washington Mutual Banking 158,739 14%
------- ---
Total 354,722 31%
======= ===
</TABLE>
- --------------------------
(1) Calculated based on a total of 1,154,560 rentable square feet as of
December 31, 1996.
11
<PAGE> 12
LEASE EXPIRATIONS
The following table sets forth lease expirations for Washington Mutual
Tower. All rents are calculated on a gross basis. For the year ended December
31, 1996, recoverable operating expenses at Washington Mutual Tower were $7.45
per square foot.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet(a) 97,000 218,000 210,000 23,000 42,000 61,000 63,000 247,000 13,000
Annualized Base Rent(b) $1,749,000 $4,986,000 $4,159,000 $399,000 $868,000 $1,319,000 $1,085,000 $6,366,000 $220,000
Annualized Base Rent per
sq. ft. $18.03 $22.46 $19.80 $17.35 $20.67 $21.62 $17.22 $25.77 $16.92
% Annualized Base 7% 21% 18% 2% 4% 6% 5% 27% 1%
Rent(c)
Tenants(d) 39 30 28 7 6 4 2 4 1
<CAPTION>
2008
AND
2006 2007 BEYOND
-----------------------------------------
<S> <C> <C> <C>
Square feet(a) 138,000
Annualized Base Rent(b) $2,480,000
Annualized Base Rent per $17.97
sq. ft.
% Annualized Base 11%
Rent(c)
Tenants(d) 1
</TABLE>
- -------------------------
(a) Total area in square feet covered by such leases.
(b) Annualized Base Rent as of December 31, 1996.
(c) Percentage of Annualized Base Rent as of December 31, 1996 represented
by such leases.
(s) The number of tenants whose leases will expire.
Long-Term Collateralized Debt
On September 28, 1995, Third Partnership refinanced the credit facility
provided by TULP Funding Corporation, a wholly-owned subsidiary of Cornerstone.
The amount outstanding, $126,100,000, was refinanced with a $79,100,000 mortgage
note to Teachers Insurance Annuity Association ("Teachers") and a $47,000,000
capital contribution from ARICO-Seattle, Inc. The loan matures November 1, 2005
and bears interest at the rate of 7.53 percent with the outstanding principal
due at maturity. The loan is collateralized by a first mortgage on Washington
Mutual Tower and assignment of all leases and rents. The mortgage debt
agreement stipulates that all prepayments of rent in excess of one month are to
be held in escrow by Third Partnership until due as rental income.
Real Estate Taxes
Real property tax expense for 1996 was approximately $2,139,000. The
tenant leases for Washington Mutual Tower generally contain provisions passing
through to tenants increases in the cost of real estate taxes above their base
year amounts, and therefore, increases in such taxes should not have a material
effect on net operating income from Washington Mutual Tower (assuming that
Washington Mutual Tower is fully leased), although an assessment exceeding that
of similar properties could affect occupancy or absorption.
125 SUMMER STREET
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. ("CStone-Boston"), on November 1,
1995. The Property is managed by Hines.
MARKET INFORMATION
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 percent had been built
since 1980. The downtown submarket, where 125 Summer Street is located,
contains approximately 48.9 million square feet of this inventory. As of
December 31, 1996, the overall downtown vacancy rate was
12
<PAGE> 13
6.4 percent. The downtown submarket includes 31.3 million square feet of Class
A office space, with a vacancy rate of 3.9 percent as of December 31, 1996.
Set forth below is pertinent statistical information regarding the downtown
Boston submarket:
<TABLE>
<CAPTION> Net Year to Date Period End 125 Summer Street
As of Absorption (sq. ft.) Completions (sq. ft.) Vacancy Vacancy
----------------- -------------------- --------------------- ---------- -----------------
<S> <C> <C> <C> <C>
December 31, 1996 923,866 0 6.4% 1%
December 31, 1995 1,367,000 0 7.1% 6%
December 31, 1994 1,746,000 0 10.2% N/A
December 31, 1993 1,083,000 700,000 13.8% N/A
December 31, 1992 1,300,000 0 14.8% N/A
</TABLE>
- ------------------------------
Source: Torto Wheaton Research
Lease and Tenants
DELOITTE & TOUCHE LLP LEASE. CStone-Boston leases office space at 125
Summer Street to Deloitte & Touche LLP ("Deloitte"), as successor in interest to
Touche Ross & Co., under the terms of a lease dated February 5, 1988. The
Deloitte gross rent payment is based on a total of approximately 106,000 square
feet and is calculated as follows: (i) $45.00 per rentable square foot for
tenant's area on the 5th floor; (ii) $32.00 per rentable square foot for the
tenant's area on the 17th floor; (iii) $55.80 per rentable square foot for
tenant's area on floors 19 and 20; and (iv) $62.40 per rentable square foot for
tenant's area on floors 21 and 22. Tenant is not obligated to pay the
installments of rent applicable to the first two months (Nov. and Dec.) for each
of the remaining lease years with respect to 21,308 square feet on floor 5 and
the 63,287 square feet on floors 19 through 22. The Deloitte lease term expires
on October 31, 1999. Deloitte pays its proportionate share of operating costs
and taxes in excess of $10.00 per rentable square foot exclusive of the 17th
floor. Deloitte pays its proportionate share of these operating costs for the
17th floor in excess of $11.02 per rentable square foot. Deloitte has two (2)
options to renew its lease for a period of five (5) years each at the current
fair market rental rate; however, such rate shall be no less than the rent being
paid at the time such renewal is exercised.
Upon the terms of a Fourth Amendment to Lease Agreement, Deloitte expanded
its premises, effective July 1, 1996, onto approximately 15,000 square feet
located on floor 10 at a net rental rate of $10.00 per square foot. The
amendment shall terminate on the earlier of (i) the date on which any additional
premises located on floors 15 and 16 is leased and delivered to Tenant of (ii)
October 31, 1999.
BTM CAPITAL CORPORATION LEASE. The original Bank of Tokyo lease, expiring
January 14, 1997, has been extended and expanded upon the terms of a lease dated
June 28, 1996 between CStone-Boston and BTM Capital Corporation (the "BTM
Lease"). Commencing January 15, 1997 the gross rental rate shall be $26.00 per
square foot for approximately 91,000 square feet on floors 2 through 5. No
later than August 1, 1997, BTM Capital Corporation shall pay $26.00 per square
foot for approximately 21,000 square feet of expansion space on floor 5. As
additional rent for the total square footage of approximately 113,000, tenant
shall pay its proportionate share of the increases over operating costs for
calendar year 1997 and real estate taxes for fiscal year 1997. In August of
1996, CStone-Boston issued BTM Capital Corporation a tenant improvement
allowance in the amount of $18.77 per square foot calculated on an area of
112,589 square feet. The BTM Lease shall expire on the earlier to occur of: (i)
five (5) years following the date of delivery of floor 5; or (ii) July 31, 2002.
BTM Capital Corporation has one option to extend the term of the lease for a
period of five (5) years at a rate equal to 95 percent of the Fair Market Rental
Rate. In addition, tenant has a Right of Second Offer with respect to available
space on floors 6 through 12.
BURNS & LEVINSON LEASE. CStone-Boston leases 85,169 square feet of office
space at 125 Summer Street to Burns & Levinson ("B & L") under the terms of a
lease dated December 16, 1987. The gross rental rate for the lease term, which
expires on April 3, 2000, is $34.00 per rentable square foot. B & L is liable
for its proportionate share of operating costs and taxes in excess of the total
sum of $10.00 per rentable square foot. Additionally, through calendar year
1997, B & L pays to CStone-Boston 33 percent of the amount by which its income
from operations exceeds its adjusted base income (i.e. B & L's income from 1992
as adjusted to reflect any change in the number of partners), up to an aggregate
of $2.5 million over the five years.
13
<PAGE> 14
Historical Occupancy Rates
As of the dates noted, the following percentage of the net rentable area
in 125 Summer Street was leased at the average Net Effective Rent per square
foot set forth below:
<TABLE>
<CAPTION>
Percentage Lease Average Net Effective
As of at Period End Rent Per Square Foot
- ----------------- -------------------- ---------------------
<S> <C> <C>
December 31, 1996 100% $22.27
December 31, 1995 94% $23.33
December 31, 1994 N/A N/A
December 31, 1993 N/A N/A
December 31, 1992 N/A N/A
</TABLE>
Principal Tenants
The following table lists the principal tenants of 125 Summer Street as
of December 31, 1996:
<TABLE>
<CAPTION>
Principal
Business
Tenant Activity Rentable Square Feet
- --------------------------- --------- -----------------------------------
Total Percent of Total(1)
-----------------------------------
<S> <C> <C> <C>
Deloitte & Touche Accounting 120,624 26%
BTM Capital Corporation Finance 94,211 20%
Burns & Levinson Legal 85,169 18%
------- ---
Total 300,004 64%
======= ===
- ----------------------------
(1) Calculated based on a total of 463,691 rentable square feet as of December 31, 1996.
</TABLE>
Lease Expirations
The following table sets forth lease expirations for 125 Summer Street.
All leases are calculated on a gross basis. For the year ended December 31,
1996, recoverable operating expenses at 125 Summer Street were $13.30 per square
foot.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet(a) 62,000 12,000 134,000 121,000 9,000 97,000 16,000
Annualized Base Rent(b) $2,181,000 $278,000 $5,038,000 $4,015,000 $139,000 $2,617,000 $303,000
Annualized Base Rent per sq. ft. $35.18 $23.17 $37.60 $33.18 $15.44 $26.98 $18.94
% Annualized Base Rent(c) 15% 2% 34% 27% 1% 18% 2%
Tenants(d) 5 6 3 9 2 2 2
<CAPTION>
2008
and
2005 2006 2007 Beyond
---- ---- ---- ------
<S> <C> <C> <C> <C>
Square feet(a) 10,000 -- --
Annualized Base Rent(b) $271,000 -- --
Annualized Base Rent per sq. ft. $27.10 -- --
% Annualized Base Rent(c) 2% -- --
Tenants(d) 1 -- --
- ---------------------------------
(a) Total area in square feet covered by such leases.
(b) Annualized Base Rent as of December 31, 1996.
(c) Percentage of Annualized Base Rent as of December 31, 1996 represented
by such leases.
(d) The number of tenants whose leases will expire.
</TABLE>
14
<PAGE> 15
Long-Term Collateralized Debt
On December 20, 1995, the Company, through its wholly-owned subsidiary
CStone-Boston, executed a promissory note with Northwestern Mutual Life
Insurance Company and received proceeds of $50,000,000. The loan is
collateralized by 125 Summer Street and matures on January 1, 2003. The loan
pays interest only at the rate of 7.20 percent until February 1, 2001 at which
time interest and principal (calculated on a 25 year level amortization period)
is payable.
Real Estate Taxes
Real property tax expense for 1996 was approximately $2,915,000. The
tenant leases for 125 Summer Street generally contain provisions passing through
to tenants increases in the cost of real estate taxes, and therefore, increases
in such taxes should not have a material effect on net operating income from 125
Summer Street (assuming that 125 Summer Street is fully leased), although an
assessment exceeding that of similar properties could affect occupancy or
absorption.
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. ("CStone-New York"), on April 24,
1996. The Property is managed by HRO International Ltd. ("HRO").
MARKET INFORMATION
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 percent had been
built since 1980. The Midtown submarket, where Tower 56 is located, contains
approximately 218.5 million square feet of this inventory. As of December 31,
1996, the overall midtown vacancy rate was 8.4 percent. The midtown submarket
includes 126.4 million square feet of Class A office space with a vacancy rate
of 7.6 percent.
Below is the pertinent statistical information regarding the midtown
submarket:
<TABLE>
<CAPTION>
Net Year to Date Period End Tower 56
As of Absorption (sq. ft.) Completions Vacancy Vacancy
- ----------------- -------------------- --------------------- ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1996 3,771 0 8.4% 1%
December 31, 1995 3,616 0 11.7% 6%
December 31, 1994 (2,186) 0 13.4% N/A
December 31, 1993 4,069 324 12.4% N/A
December 31, 1992 3,356 1,877 14.1% N/A
- -----------------------------
Source Torto Wheaton Research
</TABLE>
The above table reflects strong absorption in the market for the last 5
years, with a steady reduction in vacancies over the last 3 years. The
Park/Lexington section of the submarket, where Tower 56 is located, has
extremely low vacancy at 4.8 percent and the highest Class A asking rents in New
York City with rents which are 65 percent higher than the average, according to
Torto Wheaton Research.
ADVISORY SERVICES OBLIGATIONS
Certain affiliates of HRO have agreed to provide additional advisory
services relating to the management and leasing of Tower 56, and receive for
rendering such services 33 1/3 percent of (i) net cash flow in excess of a 9
percent cumulative, compounded return on the Company's investment in Tower 56
until Tower 56 is sold (or until the circumstances described in the next
sentence occur), and (ii) the net proceeds of any sale of Tower 56 in excess of
the Company's net investment in Tower
15
<PAGE> 16
56. Until December 31, 2002, if the Company receives a bona fide offer for Tower
56 for a price in excess of the price which would provide the Company with a 12
percent internal rate of return in its investment in Tower 56 and elects not to
sell Tower 56, the providers of these advisory services have the right to
receive 33 1/3 percent of the net proceeds of such sale, assuming such sale were
consummated, in excess of the Company's net investment in Tower 56.
HISTORICAL OCCUPANCY RATES
As of the dates noted, the following percentage of the net rentable area
in Tower 56 was leased at the average Net Effective Rental per square
foot set forth below:
<TABLE>
<CAPTION>
Percentage Leased Average Net Effective
As of at Period End Rent Per Square Foot
- ----------------- -------------------- ---------------------
<S> <C> <C>
December 31, 1996 97% $21.17
</TABLE>
PRINCIPAL TENANTS(1)
No tenant of Tower 56 occupied more than 10 percent of the property as
of December 31, 1996:
(1) Calculated based on a total of 162,034 rentable square feet as of
December 31, 1996
LEASE EXPIRATIONS
The following table sets forth lease expirations for Tower 56.
All leases are calculated on a gross basis. For the year ended December 31,
1996, recoverable operating expenses at Tower 56 were $20.82 per square
foot.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet(a) 29,000 30,000 31,000 3,000 42,000 7,000 5,000 10,000
Annualized Base Rent(b) $1,188,000 $1,323,000 $1,280,000 $105,000 $1,803,000 $275,000 $181,000 $436,000
Annualized Base Rent per sq. ft. $40.97 $44.10 $41.29 $35.00 $42.93 $39.29 $36.20 $43.60
% Annualized Base Rent(c) 18% 20% 19% 2% 27% 4% 3% 7%
Tenants(d) 11 7 8 1 11 3 2 2
<CAPTION>
2008
AND
2005 2006 2007 BEYOND
---- ---- ---- ------
<S> <C> <C> <C> <C>
Square feet(a)
Annualized Base Rent(b)
Annualized Base Rent per sq. ft.
% Annualized Base Rent(c)
Tenants(d)
</TABLE>
- ---------------------------------
(a) Total area in square feet covered by such leases.
(b) Annualized Base Rent as of December 31, 1996.
(c) Percentage of Annualized Base Rent as of December 31, 1996 represented
by such leases.
(d) The number of tenants whose leases will expire.
Long-Term Collateralized Debt
On April 25, 1996, the Company, through its wholly-owned subsidiary
CStone-New York, executed a promissory note with Northwestern Mutual Life
Insurance Company and received proceeds of $18,000,000. The loan is
collateralized by a first mortgage on Tower 56 and assignment of all leases and
rents, and matures on April 24, 2003. The loan pays interest at the rate of
7.674 percent with a 30-year principal amortization.
Real Estate Taxes
Real property tax expense for 1996 was approximately $1,568,000. The
tenant leases for Tower 56 generally contain provisions passing through to
tenants increases in the cost of real estate taxes above their base year
amounts, and therefore, increases in taxes should not have a material effect on
net operating income from Tower 56 (assuming that Tower 56 is fully leased),
although an assessment exceeding that of similar properties could affect
occupancy or absorption.
16
<PAGE> 17
ONE LINCOLN CENTRE
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 Oak Brook
- - 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 Oak Brook 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 8, 1996. The Property
is managed by Hines.
MARKET INFORMATION
As of December 31, 1996, the Chicago MSA contained 188.2 million square
feet of office space, of which 50.2 percent has been built since 1980. 25.8
million square feet of this space is located in the Oakbrook submarket, 10.2
million square feet of the space in Oakbrook is Class A. The overall vacancy
rate in Oakbrook is 9.4 percent and the class A vacancy rate in the Oakbrook
submarket was 7.5 percent as of December 31, 1996.
Set forth below is the pertinent information with regard to the Oakbrook
submarket:
<TABLE>
<CAPTION> Net Year to Date Period End One Lincoln Centre
As of Absorption (sq. ft) Completions (sq. ft.) Vacancy Vacancy
----------------- ------------------- --------------------- ---------- -------------------
<S> <C> <C> <C> <C>
December 31, 1996 30,448 244,171 9.4% 0%
December 31, 1995 332,000 0 10.6% N/A
December 31, 1994 972,000 0 12.0% N/A
December 31, 1993 645,000 193,000 15.7% N/A
December 31, 1992 101,000 30,000 17.6% N/A
</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 despite the
additional inventory added in 1996.
HISTORICAL OCCUPANCY RATES
As of the dates noted, the following percentage of the net rentable area in
One Lincoln Centre was leased at the average Net Effective Rent per square foot
set forth below:
<TABLE>
<CAPTION> Percentage Leased Average Net Effective
As of at Period End Rent Per Square Foot
- --------------------- ----------------- ---------------------
<S> <C> <C>
December 31, 1996.... 91% $19.70
</TABLE>
PRINCIPAL TENANTS
The following table lists the principal tenants of One Lincoln Centre as of
December 31, 1996:
<TABLE>
<CAPTION> Rentable Square Feet
Principal --------------------
Business Percent of
Tenant Activity Total Total(1)
- --------------------- ------------------- --------------------
<S> <C> <C>
Superior Bank Banking 56,645 19.05%
</TABLE>
(1) Calculated based on a total of 297,330 rentable square feet as of December
31, 1996.
SUPERIOR BANK, F.S.B. LEASE. The preceding landlord entered into a lease
agreement dated November 21, 1989, with Superior Bank, F.S.B., a Federal Savings
Bank, (the "Superior Bank Lease") for 57,000 square feet of office space, which
is approximately 19 percent of the net rentable area in the building. The
Superior Bank Lease commenced on March 2, 1990 and expires February 28, 2002.
Upon the expiration of the initial term of the lease, the tenant has two
five-year renewal options at the greater of fair market value or the then
current base rent in the last year of the lease term. The tenant has two
remaining cancellation options on the last day of the 84th and 108th months of
the lease term with twelve months notice and penalties of
17
<PAGE> 18
$3,890,000 and $2,865,000, respectively. The net rental rate through February,
1997, is $21.40 per square foot. The net rental rate increases by 2 percent each
lease year commencing in March. In addition, Superior Bank, F.S.B. pays variable
rent equal to the sum of its proportionate share of operating expenses incurred
in connection with the operation of One Lincoln Centre, its proportionate share
of all real property taxes, assessments and governmental charges, and any other
taxes and assessments attributable to One Lincoln Centre. As of December 31,
1996, approximately 26,000 square feet of this space has been subleased to
TakeCare Administrative Services Corp.
LEASE EXPIRATIONS
The following table sets forth lease expirations for One Lincoln Centre.
All leases are calculated on a net basis. For the year ended December 31, 1996,
recoverable operating expenses at One Lincoln Centre were $8.82 per square foot.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet(a) 36,000 51,000 41,000 80,000 3,000 61,000
Annualized Base Rent(b) $587,000 $965,000 $639,000 $1,642,000 $50,000 $1,307,000
Annualized Base Rent per sq. ft. $16.31 $18.92 $15.59 $20.53 $16.67 $21.43
% Annualized Base Rent(c) 11% 19% 12% 32% 1% 25%
Tenants(d) 8 12 7 9 1 3
<CAPTION>
2008
AND
2005 2006 2007 BEYOND
---- ---- ---- ------
<S> <C> <C> <C> <C>
Square feet(a)
Annualized Base Rent(b)
Annualized Base Rent per sq. ft.
% Annualized Base Rent(c)
Tenants(d)
</TABLE>
- ---------------------------------
(a) Total area in square feet covered by such leases.
(b) Annualized Base Rent as of December 31, 1996.
(c) Percentage of Annualized Base Rent as of December 31, 1996 represented
by such leases.
(d) The number of tenants whose leases will expire.
Real Estate Taxes
Real property tax expense for 1996 was approximately $757,000. The
tenant leases for One Lincoln Centre generally contain provisions passing
through to tenants the cost of real estate taxes, and therefore, such taxes
should not have a material effect on net operating income from One Lincoln
Centre (assuming that One Lincoln Centre is fully leased), although an
assessment exceeding that of similar properties could affect occupancy or
absorption.
18
<PAGE> 19
THE FRICK BUILDING
Completed in 1902 and extensively 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 central business district.
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 8, 1996. The
Property is managed by The Galbreath Company pursuant to a management agreement
which may be canceled upon thirty days' notice.
MARKET INFORMATION
As of December 31, 1996, the Pittsburgh MSA contained a total inventory
of 37,014,038 square feet of office space, of which 24 percent has been built
since 1980. The CBD, where the Frick Building is located, contains
approximately 24,057,000 square feet of this inventory. As of December 31, 1996,
the overall CBD vacancy rate was 17.3 percent. The CBD submarket including
14,627,000 square feet of Class A office space with a vacancy rate of 12.5
percent.
Set forth below is pertinent statistical information regarding the
Pittsburgh market:
<TABLE>
<CAPTION>
Net Year to Date Period End Frick Building
As of Absorption (sq. ft.) Completions (sq. ft.) Vacancy Vacancy
- ----------------- -------------------- --------------------- ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1996 137,128 0 17.3%
December 31, 1995 274,910 0 16.8% N/A
December 31, 1994 319,000 0 17.9% N/A
December 31, 1993 (128,000) 0 15.6% N/A
December 31, 1992 250,000 0 17.8% N/A
</TABLE>
HISTORICAL OCCUPANCY RATES
As of the dates noted, the following percentage of the net rentable area
in the Frick Building was leased at the average Net Effective Rent per square
foot set forth below:
<TABLE>
<CAPTION>
Percentage Lease Average Net Effective
As of at Period End Rent Per Square Foot
- ----------------- -------------------- ---------------------
<S> <C> <C>
December 31, 1996........... 85% $11.69
</TABLE>
PRINCIPAL TENANTS
The following table lists the principal tenants of the Frick Building as
of December 31, 1996:
<TABLE>
<CAPTION>
Principal Rentable Square Feet
Business -----------------------------------
Tenant Activity Total Percent of Total(1)
- --------------------------- --------- -----------------------------------
<S> <C> <C> <C>
Meyer, Darragh, Buckler,
Bebenek & Eck Law 38,956 11.4%
Total
- ----------------------------
(1) Calculated based on a total of 341,421 rentable square feet as of December 31, 1996.
</TABLE>
MEYER, DARRAGH, BUCKLER, BEBENEK & ECK LEASE. The preceding landlord
entered into a lease agreement dated May 1, 1985, with Meyer, Darragh, et al, a
local law firm, (the "Meyer Darragh Lease") for 39,000 square feet of office
space,
19
<PAGE> 20
which is approximately 11 percent of the net rentable area in the building. The
Meyer, Darragh Lease commenced on May 1, 1985 and has been amended to expire on
December 31, 2003. The gross rental rate beginning January, 1997, is $19.50 per
square foot, beginning January, 2000 is $20.50 per square foot, and beginning
January, 2003 is $21.50 per square foot. In addition, Meyer, Darragh, et al
pays its proportionate share of the increases (over a specified base year
amount) in real property taxes and the operating expenses incurred in connection
with the operation of the Frick Building.
Lease Expirations
The following table sets forth lease expirations for the Frick Building.
All leases are calculated on a gross basis. For the year ended December 31,
1996, recoverable operating expenses at the Frick Building were $9.94 per square
foot.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet(a) 95,000 23,000 30,000 69,000 9,000 53,000
Annualized Base Rent(b) $1,858,000 $468,000 $604,000 $1,363,000 $217,000 $956,000
Annualized Base Rent per sq. ft. $19.56 $20.35 $20.13 $19.75 $24.11 $18.04
% Annualized Base Rent(c) 32% 8% 10% 23% 4% 16%
Tenants(d) 33 7 9 14 4 2
<CAPTION>
2008
and
2005 2006 2007 Beyond
---- ---- ---- ------
<S> <C> <C> <C> <C>
Square feet(a) 9,000
Annualized Base Rent(b) $384,000
Annualized Base Rent per sq. ft. $42.67
% Annualized Base Rent(c) 7%
Tenants(d) 1
</TABLE>
- ---------------------------------
(a) Total area in square feet covered by such leases.
(b) Annualized Base Rent as of December 31, 1996.
(c) Percentage of Annualized Base Rent as of December 31, 1996 represented
by such leases.
(d) The number of tenants whose leases will expire.
Real Estate Taxes
Real property tax expense for 1996 was approximately $800,000. The
tenant leases for the Frick Building generally contain provisions passing
through to tenants increases in the cost of real estate taxes above their base
year amounts, and therefore, increases in taxes should not have a material
effect on net operating income from the Frick Building (assuming that the Frick
Building is fully leased), although an assessment exceeding that of similar
properties could affect occupancy or absorption.
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material legal proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
None.
20
<PAGE> 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The shares of common stock of the Company are traded on the Luxembourg,
Frankfurt and Duesseldorf Stock Exchanges. Quotations of the common stock in
Luxembourg are made in United States Dollars. Quotations in Duesseldorf and
Frankfurt are made in Deutsche Marks. The high and low sales prices (in United
States Dollars) on the Luxembourg Stock Exchange for each quarter of 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
Sales Price
- -----------
1995 High Low
---- ---- ---
<S> <C> <C>
1st Quarter $16.00 $13.88
2nd Quarter $16.30 $14.50
3rd Quarter $18.25 $14.40
4th Quarter $14.88 $13.75
1996
----
1st Quarter $15.50 $14.00
2nd Quarter $14.00 $12.50
3rd Quarter $15.10 $13.75
4th Quarter $16.00 $14.50
</TABLE>
21
<PAGE> 22
The high and low sales prices (in Deutsche Marks) on the Frankfurt Stock
Exchange for each quarter of 1995 and 1996 were as follows:
Sales Price
- -----------
<TABLE>
<CAPTION> High Low
------- -------
<S> <C> <C>
1995
- -----------
1st Quarter DM23.50 DM21.60
2nd Quarter DM22.20 DM20.30
3rd Quarter DM24.80 DM20.90
4th Quarter DM21.40 DM19.45
1996
- -----------
1st Quarter DM22.70 DM20.10
2nd Quarter DM20.80 DM20.00
3rd Quarter DM22.55 DM20.50
4th Quarter DM24.70 DM22.10
</TABLE>
The high and low sales prices (in Deutsche Marks) on the Duesseldorf Stock
Exchange for each quarter of 1995 and 1996 were as follows:
Sales Price
- -----------
<TABLE>
<CAPTION> High Low
-------- --------
<S> <C> <C>
1995
- -----------
1st Quarter DM23.40 DM21.60
2nd Quarter DM22.30 DM20.00
3rd Quarter DM24.60 DM20.90
4th Quarter DM21.40 DM19.45
1996
- -----------
1st Quarter DM22.50 DM20.30
2nd Quarter DM20.80 DM20.10
3rd Quarter DM22.55 DM20.50
4th Quarter DM24.30 DM21.10
</TABLE>
The closing quotation of the Company's common stock on February 14, 1997
was U.S. $16.40 on the Luxembourg Stock Exchange, DM27.50 on the Frankfurt Stock
Exchange and DM27.30 on the Duesseldorf Stock Exchange.
Trading in the common stock of the Company has been conducted only outside
the United States under laws that prevent disclosure of the number of beneficial
owners of the common stock, most of whom hold their shares through banks of
other fiduciaries. The company estimates, however, that the number of
beneficial owners of its common stock as of February 14, 1997 exceeds 13,000.
Distributions of U.S. $0.58 per share were paid on August 31, 1994, $0.29
per share were paid on October 17, 1994 and $0.29 per share were paid on January
31, 1995 for the year 1994; $0.68 per share were paid on August 31, 1995 and
$0.48 per share were paid on December 27, 1995 for the year 1995; and $0.60 per
share were paid on August 30, 1996 and $0.60 per share were paid on January 31,
1997 for the year 1996.
The Company intends to continue to pay cash distributions to its
stockholders. It is expected that distributions will be made on a quarterly
basis beginning in 1997 and, in accordance with the Company's qualification as a
REIT, will be equal to at least 95% of the Company's taxable income. The
Company intends that at least 85% of all distributions from income earned during
any taxable year will be made prior to the end of such taxable year. No
assurance can be given as to the amounts of future distributions since they are
subject to the Company's funds from operations, earnings, financial condition,
and such other factors as the Board of Directors deem relevant.
22
<PAGE> 23
Item 6. Selected Financial Data.
The selected financial data has been derived from, and should be read in
conjunction with, the related audited consolidated financial statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993(1) 1992(2)
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments
before accumulated
depreciation $799,662 $706,998 $571,831 $576,764 $362,618
Total assets 766,180 586,089 477,996 515,792 527,326
Long-term debt 400,142 369,600 130,500 141,638 140,215
Credit facility debt - - 236,467 235,677 236,713
Total liabilities 442,375 403,927 400,640 407,964 389,829
Redeemable preferred stock 162,743 - - - -
OPERATING DATA:
Revenues 116,908 92,387 85,574 65,827 35,702
Expenses 106,646 90,427 88,084 70,361 41,581
Gain (loss) on interest
rate swap 4,278 (7,672) - - -
Minority interest 1,519 3,417 3,899 1,214 -
Extraordinary loss 3,925 4,445 581 - -
Net income (loss) 9,096 (13,574) (6,990) (5,748) (5,879)
Per share information -
Income (loss) $0.19 ($0.94) ($0.53) ($0.43) (0.44)
Payments to stockholders:
Preferred stockholders:
(Amounts In Dollars) 5,153 - - - -
Common stockholders:
(Per share amounts)
From earnings - - - - -
From return of
contributed capital 1.20 1.16 1.16 1.15 1.10
----- ----- ----- ----- -----
$1.20 $1.16 $1.16 $1.15 $1.10
===== ===== ===== ===== =====
OTHER DATA:
Cash Flow from:
Operations 34,522 20,036 28,968 20,077 16,858
Investing (57,259) (135,527) (1,762) 13,240 (2,108)
Financing 129,800 110,725 (33,141) (24,137) (13,366)
Funds From Operations(3) 34,718 21,424 15,562 20,525 21,465
</TABLE>
(1) Effective December 31, 1993, the financial statements of NWC have been
consolidated with the financial statements of the Company.
(2) Effective December 31, 1992, the financial statements of Lincoln and Third
Partnership have been consolidated with the financial statements of the Company.
(3) Funds From Operations ("FFO") is a calculation which is defined by the
National Association of Real Estate Investment Trusts ("NAREIT") and is not
indicative of either net income or cash flow from operations as calculated in
accordance with GAAP. The Company makes certain additional adjustments to FFO
which are not contemplated in the NAREIT definition as disclosed in Item 7 of
this Form 10-K.
See Item 7 below for a discussion of the selected financial data.
23
<PAGE> 24
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Selected Consolidated
Financial and Operating Data set forth above and the Consolidated Financial
Statements and Notes included herein.
When used in the following discussion, the words "believes", "anticipates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to the
publicly release the result of any revisions of these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
CONSOLIDATION. Cornerstone's principal source of income is rental revenues
received through its investment in five fee simple investments and two real
estate partnerships held by eight wholly-owned subsidiaries: 1700 Lincoln
Limited owned 90 percent by ARICO-Denver, Inc. and 10 percent by 1700 Lincoln
Inc., NWC Limited Partnership owned by ARICO-Minneapolis, Inc., Third and
University Limited Partnership owned by ARICO-Seattle, Inc., 125 Summer Street
owned by CStone-Boston, Inc., Tower 56 owned by CStone-New York, Inc., One
Lincoln Centre owned by CStone-Oakbrook, Inc. and the Frick Building owned by
CStone-Pittsburg Trust, respectively. NWC Limited Partnership and Third and
University Limited Partnership have been consolidated since Cornerstone has a
majority interest in the economic benefits and has the right to become managing
general partner at its sole discretion.
PROPERTY RESULTS. For the years ended December 31, 1996, 1995 and 1994 property
results can be summarized as follows:
<TABLE>
<CAPTION> For the year ended For the year ended For the year ended
December 31, 1996 December 31, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Office and Parking Rentals $111,494 $ 88,548 $ 83,557
Less:
Building Operating Expenses 24,578 19,233 19,065
Real Estate Taxes 19,610 12,297 10,926
Depreciation and Amortization 24,801 23,877 23,432
-------- -------- --------
Total Operating Expenses 68,989 55,407 53,423
-------- -------- --------
Total Property Income $ 42,505 $ 33,141 $ 30,134
======== ======== ========
</TABLE>
The increase in property income from 1995 to 1996 of $9.4 million was due to a
full year of operations for 125 Summer Street as compared to 2 months of
operations in 1995 ($6.9 million); the acquisition of Tower 56 ($1.8 million),
One Lincoln Centre ($0.5 million), and the Frick Building ($0.3 million) during
1996; an increase in the income of Washington Mutual Tower due to the retirement
of certain deferred leasing costs in 1995 ($1.0 million), and a decrease in
total amortization of deferred financing costs ($0.5 million). These amounts are
partially offset by a decrease in the income of Norwest Center due to an
increase in real estate taxes ($1.5 million).
The increase from 1994 to 1995 of $3.0 million was primarily due to the
acquisition of 125 Summer Street in November ($1.0 million); an increase in
office and garage rentals ($0.6 million) and the completion of the garage
repair at One Norwest Center ($1.3 million), and an increase in office rentals
at Washington Mutual Tower ($0.5 million); these amounts were partially offset
by increased real estate taxes at Norwest Center ($0.2 million).
INTEREST AND OTHER INCOME. Interest and other income was $5,414,000 in 1996,
$3,839,000 in 1995, and $2,017,000 in 1994. These amounts primarily consist of
interest earned from short-term investments, interest earned on the Tower 56
mortgage notes receivable, notes receivable from partners, and income from the
advisory contracts in 1996 and 1995. Included in interest and other income is
interest earned on notes receivable from Hines Colorado Limited (HCL) in the
24
<PAGE> 25
amounts of $378,000, $501,000, and $612,000 for 1996, 1995 and 1994,
respectively. The 1996 increase in interest and other income of $1,575,000 from
1995 is due to the interest earned on the Tower 56 mortgage notes receivable of
approximately $1,100,000, increased advisory fees of $132,000 and larger
working capital balances available for short-term investment causing interest
income on short-term investments to increase by $466,000.
The 1995 increase in interest and other income of $1,822,000 from 1994 is due
to the stock placement proceeds being held in short-term investments from the
date of placement (August 4) until the date of investment (November 1) when the
Company purchased 125 Summer Street (approximately $0.9 million) and increased
advisory fees of approximately $800,000.
INTEREST EXPENSE. Interest expense incurred by Cornerstone relating to its
financing activities was $31,345,000, $29,467,000, and $30,792,000, for 1996,
1995 and 1994, respectively.
The increase in 1996 from 1995 of approximately $1.9 million is primarily due
to the interest expense on the Tower 56 debt of $945,000, a full year of
interest expense on the 125 Summer Street debt of $3,264,000, increased
interest expense due to the sale of the Norwest Center note of $131,000, and
interest expense on the Hines note of $769,000. These increases are partially
offset by a decrease in interest expense due to the refinancing of the
Washington Mutual Tower debt of $1,562,000, decreased interest expense on the
Term Loan due to the interest rate reduction of $662,000, interest expense
savings resulting from the refinancing of the One Norwest Center debt of
$887,000, and line of credit interest of $75,000 in 1995 not recurring in 1996.
The decrease in 1995 from 1994 of approximately $1.3 million is primarily due
to the refinancing and partial prepayment of the Washington Mutual Tower debt
and the interest rate reduction on the $32.5 million term loan from
approximately 9.66 percent to 5 percent.
GENERAL AND ADMINISTRATIVE EXPENSES. The aggregate amount of Cornerstone's
general and administrative expenses have increased to $6,312,000 in 1996 from
$5,553,000 in 1995 and $3,869,000 in 1994. The increase in 1996 from 1995 of
$759,000 was due to a full year of expenditures as a self-administered company.
The increase in 1995 from 1994 of $1,684,000 was due to the change of
self-administration on July 1, 1995; however, when considered with the advisory
income from third party contracts of $813,000 and the savings of transaction
fees relating to property acquisitions of approximately $1,360,000 which would
have been due under the prior advisory contract, the net overall savings from
the change to self-administration was approximately $489,000. The largest
component of general and administrative expenses prior to 1996 was advisory fee
expense which amounted to $1,050,000 in 1995 and $2,100,000 in 1994.
NET GAIN (LOSS) ON INTEREST RATE SWAPS. The Company accounts for its interest
rate swap agreements as hedges in accordance with SFAS No. 80 "Accounting for
Futures Contracts" if the swap is designated as a hedge and effectively reduces
the exposure to the Company of market interest rate changes. Changes in the
market value of these interest rate swap agreements are deferred and recognized
in income at the expiration or termination of the underlying debt. Forward
interest rate swap agreements that do not meet hedge criteria are accounted for
using mark-to-market accounting, recognizing any unrealized gain or loss on the
instrument in the period in which it is outstanding. When swaps are
extinguished at the same time as the underlying debt instrument, the cost to
extinguish the swap is treated as extraordinary gain or loss. When a swap
remains in place after the underlying instrument matures, it is accounted for
on a mark-to-market basis. The swap termination is accounted for as ordinary
gain or loss when it is extinguished with no underlying debt instrument in
place.
The net gain of $4,278,000 in 1996 represents an unrealized mark to market gain
of $7,403,000 on the forward interest rate swap partially offset by a realized
loss of $3,125,000 on the termination of a swap relating to the refinancing of
One Norwest Center. The Company currently includes $269,000 in the balance
sheet caption, "Unearned revenue and other liabilities", which represents the
estimated amount, at December 31, 1996, that the Company would pay to terminate
the $92,800,000 notional amount forward interest rate swap with a maturity date
of February 17, 2007. Effective January 16, 1997, this forward swap agreement
was terminated for a total cost of $170,000.
MINORITY INTEREST. The decrease in minority interest from 1995 to 1996 of
$1,898,000 is due to the purchase of the 10 percent minority interest in One
Norwest Center of $1,620,000 and the reduction in the partners' share of
earnings from Norwest Center of $278,000.
25
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
<TABLE>
<CAPTION>
Cash flow provided by For the year ended For the year ended For the year ended
(used in): December 31, 1995 December 31, 1994 December 31, 1993
<S> <C> <C> <C>
Operating activities $ 34,522 $ 20,036 $ 28,968
Investing activities (57,259) (135,527) (1,762)
Financing activities 129,800 110,725 (33,141)
Earnings to fixed
charges ratio 1.29 0.54 0.77
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The increase in cash provided by operating activities of approximately $14.5
million is primarily due to the $22.7 million increase in net income of the
Company. This amount is increased by the $924,000 increase in depreciation and
amortization expense, the $554,000 increase in deferred compensation resulting
from the amortization of the stock grants, the $5,027,000 increase in accounts
payable, accrued expenses and other liabilities due to higher accrued real
estate taxes and the $1,680,000 reduction in unbilled rental revenue due to the
aging of tenant leases. This amount is decreased by the $11,950,000 change in
cash flow effect of the interest rate swap valuation, the $521,000 decrease in
extraordinary loss from debt refinancing and the approximately $1,898,000
reduction in minority interest due to the purchase of the 10 percent minority
interest in One Norwest Center and lower earnings at Norwest Center, the
$1,897,000 increase in tenant and other receivables resulting from a reduction
of prepaid expenses and the accrual of real estate tax recoveries at One
Lincoln Centre, and a decrease in accrued interest payable of $103,000.
The reduction in cash used in investing activities of approximately $78.3
million is due to the purchase of One Lincoln Centre for $50.1 million, $2.7
million of additional costs relating to the foreclosure on Tower 56, $3.9
million of deferred leasing costs and $0.5 million of additional costs relating
to 125 Summer Street in 1996 as compared to the purchase of 125 Summer Street
for $105 million and the purchase of the Tower 56 mortgage notes receivable for
$30.5 million in 1995.
The increase in cash provided by financing activities of approximately $19.1
million is primarily due to the financing of Tower 56 for $18 million.
During 1996, the Company's earnings were sufficient to cover its fixed charges.
This was due to the fact that the Company reduced its ratio of long-term debt to
total assets from 63 percent at December 31, 1995 to 52 percent at December 31,
1996. Additionally, the interest rate on the One Norwest Center debt ($98
million) was reduced from 8.893 percent to 7.5 percent and the interest rate on
the term loan ($32.5 million) was reduced from 9.66 percent to 5 percent.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
In the year ended December 31, 1995, the Company generated net cash of $20.0
million from operating activities compared to $29.0 million in 1994, a decrease
of $9.0 million or 31%. The Company's net loss in the year ended December 31,
1995 increased to $13.6 million from a loss of $7.0 million in 1994 primarily
due to unrealized losses on its interest rate swap agreements and an
extraordinary loss related to its prepayment of debt on Washington Mutual Tower
and Norwest Center Adjustments to the Company's net loss in 1995 included $7.6
million to reflect the Company's unrealized loss on an interest rate swap
described above and a reduction of $8.1 million in the Company's increase in
accounts payable, accrued expenses and other liabilities from 1994 due to the
prepayment of the rentals relating to the priority distributions in 1994 on
Washington Mutual Tower and a major prepayment of a rent at Washington Mutual
Tower in the amount of $3.3 million. In addition, the Company's decrease in
accrued interest payable rose to $3.1 million in the year ended December 31,
1995 compared to $0.7 million in 1994 due the change in the timing of debt
service payments at Norwest Center, and its change in tenant and other
receivables outstanding increased by $1.8 million due to increases in notes
receivable and advisory fees receivable in 1995.
Cash used by the Company in investing activities rose to $135.5 million in the
year ended December 31, 1995 compared to $1.8 million in 1994. Investing
activities in 1995 included the purchase of 125 Summer Street for $105 million
and the acquisition of the Tower 56 mortgage notes receivable for $30.5
million. Additionally, the Company received repayment of the $1 million note
receivable from Wright Runstad & Company.
Cash provided by financing activities amounted to $110.7 million in the year
ended December 31, 1995 compared to $33.1 million which was used in financing
activities in 1994, for a total increase of $143.8 million. On August 4, 1995,
the Company received $90.4 million gross proceeds from the placement of
6,325,000 new shares of Common Stock at a price of
26
<PAGE> 27
$14.30 per share with retail investors in Germany through underwriters led by
Deutsche Bank. The net proceeds were used for the purchase of 125 Summer Street
and the Tower 56 mortgage notes. Also on August 4, 1995, 3,030,303 shares of
the Company's 7% Cumulative Convertible Preferred Stock were issued to Deutsche
Bank for gross proceeds of $50 million. The net proceeds from the preferred
share issuance were used to retire indebtedness existing at the time. On
December 27, 1995, the Company also received proceeds through a dividend
reinvestment plan available to all shareholders of approximately $2.8 million
for 207,302 shares of Common Stock.
For the years ended December 31, 1995 and 1994, the Company's earnings were
insufficient to cover its fixed charges by approximately $13.6 million and
$7.0 million, respectively.
CAPITAL STOCK TRANSACTIONS. On June 19, 1995, the Company increased the number
of authorized shares from 40,000,000 shares of common stock, without par value,
to 115,000,000 shares of capital stock, without par value, of which 15,000,000
shares are preferred stock and 100,000,000 shares are common stock.
On August 4, 1995, the Company received $90,447,500 gross proceeds from the
placement of 6,325,000 new shares of common stock at a price of $14.30 per
share with retail investors in Germany through underwriters led by Deutsche
Bank. The net proceeds were used for the purchase of 125 Summer Street and the
Tower 56 mortgage notes.
Also on August 4, 1995, 3,030,303 preferred shares were issued to Deutsche Bank
for gross proceeds of $50 million. The preferred shares are 7 percent
cumulative and convertible into common stock at $16.50 per share any time after
August 4, 2000. At December 31, 1995 there was approximately $1,449,000 or
$0.48 per share in accrued dividends not yet payable on these preferred shares.
The net proceeds from the preferred share issuance were used to retire existing
indebtedness.
On December 27, 1995, through a dividend reinvestment plan available to all
shareholders, Cornerstone received proceeds of approximately $2,840,000 and
issued an additional 207,302 shares of common stock to shareholders.
On August 31, 1996, through a dividend reinvestment plan available to all
shareholders, Cornerstone received proceeds of approximately $4,016,000 and
issued an additional 300,589 shares of common stock to stockholders.
On November 8, 1996, through a merger of subsidiaries, the Company issued
$66.5 million (458,621 shares) of 8% Cumulative Convertible Preferred Stock,
Series A, in exchange for $40 million cash and the Frick Building. The
preferred shares are convertible into the Company's Common Stock at a
conversion price of $14.50 per share subject to antidilution provisions. The
proceeds were used to acquire One Lincoln Centre in Oakbrook Terrace, Illinois.
On November 22, 1996, the Company issued $100 million (689,655 shares) of
8% Cumulative Convertible Preferred Stock. The preferred shares are convertible
into the Company's Common Stock at a conversion price of $14.50 per share
subject to antidilution provisions. A portion of the proceeds were used to
acquire 527 Madison Avenue in New York on February 14, 1997 with the balance
available for future acquisitions.
FUNDS FROM OPERATIONS
The Company calculates Funds from Operations (FFO) based upon guidance from the
National Association of Real Estate Investment Trusts (NAREIT). FFO is defined
as net income, excluding gains or losses from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated joint ventures. The Company has adjusted FFO by the net gain
(loss) on swap transactions previously discussed due to the non-cash nature of
this item.
Industry analysts generally consider FFO to be an appropriate measure of
performance of an equity Real Estate Investment Trust (REIT) such as
Cornerstone. FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and, therefore, should
not be considered a substitute for net income as a measure of performance or
for cash flow from operations as a measure of liquidity calculated in
accordance with generally accepted accounting principles.
The Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides
investors an understanding of the ability of the Company to incur and service
debt and to make capital expenditures. For cash flows from operating, financing
and investing activities, see the Consolidated Statements of Cash Flows
included in the Consolidated Financial Statements which are part of this
report.
For comparability purposes, the amounts reported in FFO for 1994 and 1995
differ from those previously reported to adjust for the revisions to the FFO
calculation recently adopted by the Board of Governors of NAREIT. Additionally,
the Company no longer reports free and deferred rents as an adjustment to FFO
since this is not part of the industry standard. Therefore, included in FFO for
1996, 1995 and 1994 are $993,000, $2,058,000 and $2,439,000, respectively, of
free and deferred rents.
27
<PAGE> 28
The table below sets forth the adjustments which were made to the net income
(loss) of the Company for the last three years in the calculation of FFO (in
thousands):
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS (A)
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $9,096 ($13,574) ($6,990)
NAREIT Adjustments:
Depreciation and amortization 24,316 22,572 22,321
Net (gain) loss on swap transactions (4,278) 7,672 --
Extraordinary losses 3,925 4,445 581
Minority interest adjustments (2,011) (1,617) (1,358)
Other Adjustments:
Amortization on rent notes 1,242 1,119 1,008
Real estate tax adjustment 2,428 807 --
------ ------ ------
FUNDS FROM OPERATIONS 34,718 21,424 15,562
------ ------ ------
Preferred Dividends (5,153) (1,449) --
------ ------ ------
FUNDS FROM OPERATIONS
AVAILABLE FOR COMMON SHARES $29,565 $19,975 $15,562
====== ====== ======
</TABLE>
(A) Although the Company believes that this table is a full and fair
presentation of the Company's FFO, similarly captioned items may be defined
differently by other REITs, in which case direct comparisons may not be
possible.
The increase in FFO from 1995 to 1996 of approximately $13.3 million is due to
a full year of operations for 125 Summer Street as compared to 2 months of
operations in 1995 ($8.7 million); the acquisition of Tower 56 ($2.2 million),
One Lincoln Centre ($0.7 million), and the Frick Building ($0.4 million) during
1996; a decrease in total amortization of deferred financing costs ($0.5
million), the increase in interest and other income of $1.6 million, and the
decrease in minority interest of $1.9 million. These amounts are offset by the
increase in interest expense of $1.9 million and the increase in general and
administrative expenses of approximately $800,000.
The increase in FFO from 1994 to 1995 of approximately $5.9 million was
primarily due to the completion in 1994 of the Denver garage repair
(approximately $1.3 million), increased rental revenue in 1995 from existing
properties net of minority interest (approximately $1.8 million), earnings
arising from the purchase of 125 Summer Street in 1995 (approximately $1.4
million), interest savings as a result of the repayment of the zero coupon debt
in 1994, the reduction of the outstanding debt at Washington Mutual Tower, and
the restructuring of the term loan, which in total reduced interest expense by
approximately $1.3 million, and additional interest income of approximately $0.8
million from investment earnings on the proceeds of the equity offering and
increased advisory income of $0.9 million in 1995. These increases are partially
offset by the increase in general and administrative expenses in 1995 of $1.7
million.
The Company will seek to continue increasing FFO and the value of its property
portfolio by acquiring additional properties that the Company believes will
produce favorable returns. As part of its ongoing business, the Company
periodically engages in discussions with public and private real estate entities
regarding possible portfolio or asset acquisitions or business combinations.
MORTGAGE NOTES RECEIVABLE. On December 19, 1995, the Company purchased two
mortgage notes collateralized by Tower 56 of New York City with a face value of
$54 million and accrued interest of approximately $11 million for a purchase
price of $30.15 million. The carrying amount of the mortgage notes receivable at
December 31, 1995 includes the purchase price, closing adjustments and related
acquisition costs. The existing owner, Tower 56 Partners, had agreed to a
"pre-packaged" bankruptcy plan through which it transferred title of Tower 56 to
Cornerstone during the second quarter of 1996. At the time of the transfer,
Cornerstone made a payment of $2,125,000 to two of the partners of Tower 56
Partners. Additionally, HRO International, an affiliate of Tower 56 Partners,
manages the building under a five year management agreement for a fee of 3
28
<PAGE> 29
percent of gross revenues and will receive one-third of the cash flow above that
which provides Cornerstone a 9 percent return on its investment in Tower 56. HRO
International will also receive one-third of the property sale proceeds above
that which provides Cornerstone with a 12 percent cumulative internal rate of
return.
MORTGAGE INDEBTEDNESS. On August 2, 1996, the Company refinanced its $98
million Interest-Bearing Notes, collateralized by One Norwest Center, by
entering into a $98 million Deed of Trust and Mortgage Notes with Massachusetts
Mutual Life Insurance Company, Connecticut General Life Insurance Company and
American General Life Insurance Company. As part of the refinancing, $15 million
of the Interest-Bearing Notes were defeased by the Company depositing funds with
the Notes Trustee under a Cash Collateral Account Pledge and Assignment
Agreement. The Mortgage Notes bear interest at a rate of 7.50 percent and mature
on July 1, 2001. Additionally, the Company is required to make payments of
principal based upon a thirty year amortization schedule. Upon the closing of
the mortgage debt, Cornerstone paid a prepayment penalty of approximately
$2,035,000 (Extraordinary loss) to the Interest-Bearing Noteholders. Unamortized
Interest-Bearing Notes financing costs of approximately $247,000 (Extraordinary
Loss) were written-off in connection with the refinancing.
Cornerstone was obligated to pay to Deutsche Bank New York Branch, for an
interest rate swap agreement used to fix the interest rates on the
Interest-Bearing Notes, an amount equal to 0.752 percent on a notional amount of
$107 million throughout the term of the Interest-Bearing Notes. This amount was
treated as a yield adjustment on the long-term debt and has been included in
interest expense. On August 2, 1996, this swap was terminated at an approximate
cost of $1,505,000 which was treated as an extraordinary loss.
As protection against market interest rates rising prior to the maturity of the
Interest Bearing Notes, on September 29, 1993, Cornerstone entered into a
forward interest rate swap agreement with Deutsche Bank AG. The interest rate
swap agreement was revised as part of the refinancing of One Norwest Center. The
forward interest rate swap agreement was for a fixed rate of 7.14 percent on a
notional amount of $92.8 million for a period of five years beginning July 1,
2001. Effective January 16, 1997, this forward swap was terminated.
On April 7, 1995, the Third Amended and Restated Promissory Note, dated as of
August 5, 1986, made by NWC Limited Partnership payable to the order of NWC
Funding Corporation in the original principal amount of $110 million was sold to
Norwest Corporation. The loan matures December 31, 2005 and bears interest at
the rate of 8.74 percent. The loan is collateralized by a first mortgage on
Norwest Center and assignment of all leases and rents.
On September 28, 1995, Third and University Limited Partnership, through
Teachers Insurance and Annuity Association, refinanced $79.1 million of
outstanding debt collateralized by Washington Mutual Tower. The loan matures
November 1, 2005 and bears interest at the rate of 7.53 percent with the
principal due at maturity. The loan is collateralized by a first mortgage on
Washington Mutual Tower and assignment of all leases and rents.
On December 20, 1995, the Company, through its wholly-owned subsidiary
CStone-Boston, Inc., executed a promissory note with Northwestern Mutual Life
Insurance Company and received proceeds of $50 million. The loan is
collateralized by 125 Summer Street and matures on January 1, 2003. The loan
pays interest only at the rate of 7.20 percent until February 1, 2001 at which
time interest and principal (calculated on a 25 year level amortization period)
is payable.
On April 25, 1996, the Company, through its wholly-owned subsidiary CStone-New
York, Inc., executed a promissory note with Northwestern Mutual Life Insurance
Company and received proceeds of $18 million. The Tower 56 loan bears interest
at a rate of 7.674 percent with a 30 year principal amortization and matures on
April 24, 2003. The loan is collateralized by a first mortgage on Tower 56 and
assignment of all leases and rents. The proceeds of the loan were used to
replenish working capital.
OTHER INDEBTEDNESS. On August 8, 1995, the existing $32.5 million term loan was
extended through December 31, 2003 and assigned to Deutsche Bank AG London at an
interest rate of 5 percent. The loan must be repaid at par upon the sale of
either Norwest Center or Washington Mutual Tower, or from the first proceeds of
an initial public offering in the U.S. of the Company's common stock and listing
on the New York Stock Exchange. The term loan had a $32.5 million balance at
December 31, 1996 and 1995.
Effective January 1, 1996, in connection with the acquisition of the 10 percent
minority interest in 1700 Lincoln Limited, the Company entered into a
$12,926,000 convertible promissory note payable to Hines Colorado Limited
("HCL"). The note payable is pays monthly interest only at the lesser of 8.11
percent or LIBOR plus 50 basis points. The note is convertible at the option of
HCL into shares of common stock at $14.30 per share after January 1, 1997. At
maturity of the note on January
29
<PAGE> 30
1, 2001, Cornerstone has the right to redeem the note in exchange for common
shares of the Company at the lower of the market price or $14.30 per share.
At December 31, 1996, Cornerstone had a $10 million revolving line of credit
with Bankers Trust Company. The line is available for general corporate and
acquisition purposes at a rate equivalent to an adjusted Eurodollar rate. The
line is also available for the issuance of standby letters of credit at a rate
of 0.15 percent and expires on November 7, 1997. At December 31, 1996, none of
the credit line had been drawn upon.
OTHER MATTERS. The Company is not aware of any environmental issues at any
of its properties. The Company believes it has sufficient insurance coverage at
each of its properties. The Company's leases with the majority of its tenants
require the tenants to pay most operating expenses and increase in common area
maintenance expenses, which reduces the Company's exposure to increases in
costs and operating expenses resulting from inflation.
SHAREHOLDERS' DISTRIBUTIONS. Cornerstone intends to distribute at least 95
percent of its taxable income to maintain its qualification as a REIT. The
Company anticipates that FFO will exceed taxable income for the foreseeable
future. Cornerstone's distribution policy is to pay distributions based upon
FFO, less prudent reserves. For 1996, Cornerstone paid distributions from its
contributed capital to its shareholders of $0.60 per share on August 30, 1996
(to shareholders of record on June 28, 1996), and $0.60 per share on January
31, 1997 (to shareholders of record as of December 30, 1996).
LIQUIDITY. At December 31, 1996, the Company had $114,803,000 in cash and cash
equivalents and $4,426,000 in restricted cash. Restricted cash consists of
prepaid rents from Third Partnership held in escrow by the lender and funds
held by the mortgage servicer for the One Norwest Center mortgage loans,
representing real estate tax and insurance escrows. In addition, Cornerstone
anticipates it will receive distributions from real estate partnerships and
rents under tenant leases on a monthly basis which will be used to cover normal
operating expenses and pay distributions to its stockholders. Based upon its
cash reserves and other sources of funds, Cornerstone has sufficient liquidity
to meet its cash requirements for the foreseeable future.
ITEM 8. Financial Statements and Supplementary Data.
See the Financial Statements included as a part hereof.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
The information required to be included in Form 10-K in response to the
following items is to be included in the Company's Proxy Statement for its
Annual Meeting to be held on June 2, 1997, to be filed pursuant to Regulation
14A, and pursuant to applicable rules is incorporated herein by reference.
ITEM 10. Directors and Executive Officers of the Registrant.
ITEM 11. Executive Compensation.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
ITEM 13. Certain Relationships and Related Transactions.
30
<PAGE> 31
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
<TABLE>
<CAPTION>
The following documents are filed as part of this annual report: PAGE NUMBER
<S> <C>
(a) Financial Statements and Financial Statement Schedules:
(i) The Company: F-1
The following financial statements and report of
independent accountants are filed herewith at the
pages indicated:
Report of Independent Accountants F-2
Consolidated Balance Sheets -
December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders'
Investments for the years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7 to F-14
Schedule III F-15 to F-16
Schedule IV F-17
</TABLE>
Reports on Form 8-K
1. Form 8-K dated December 12, 1996
ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS.
Completion of the acquisition of the Frick
Building in Pittsburgh, Pennsylvania through a merger of
subsidiaries resulting in the Company acquiring $40
million in cash and the Frick Building in exchange for
$66.5 million of 8% Cumulative Convertible Preferred
Stock, Series A; and the acquisition of One Lincoln
Centre in Oakbrook Terrace, Illinois for approximately
$50 million.
ITEM 5 - OTHER EVENTS.
The Company issued $100 million of 8%
Cumulative Convertible Preferred Stock to the
New York State Teachers' Retirement System.
2. Form 8-K/A dated January 22, 1997
ITEM 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
STATEMENTS AND EXHIBITS.
Financial statements reflecting the acquisition
of Tower 56 and One Lincoln Centre.
3. Form 8-K dated January 29, 1997
ITEM 5 - OTHER EVENTS.
31
<PAGE> 32
Board of Directors approval to acquire
527 Madison Avenue in midtown Manhattan for
approximately $67 million.
4. Form 8-K/A dated February 24, 1997
ITEM 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
STATEMENTS AND EXHIBITS.
Financial statements reflecting the
acquisition of 527 Madison Avenue.
(c) Exhibits:
2.1 Agreement of Sale and Purchase between 527 Madison Holdings
as Seller and Cornerstone Properties, Inc. as Purchaser
pertaining to 527 Madison Avenue, New York, New York,
incorporated by reference to Exhibit 2.1 of the Company's
Report on Form 8-K dated January 29, 1997.
2.2 Preferred Stock Purchase Agreement, dated as of November 22,
1996, between Cornerstone Properties, Inc., and the New York
State Teachers' Retirement System, incorporated by reference
to Exhibit 2.2 of the Company's Report on Form 8-K dated
December 12, 1996.
2.3 Agreement and Plan of Merger, dated as of November 7, 1996,
among Cornerstone Properties Inc., CStone-Pittsburgh Trust,
Frick Building, Inc., and Hexalon Real Estate, Inc.,
incorporated by reference to Exhibit 2.1 of the Company's
Report on Form 8-K dated December 12, 1996.
*3.1 Restated Articles of Incorporation of Cornerstone Properties
Inc., as of March 12, 1996.
3.5 Bylaws of Cornerstone Properties Inc., as amended as of
December 8, 1995, incorporated by reference to Exhibit 3.5 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
4.1 Specimen Common Stock Certificates, incorporated by reference
to Exhibit 4.1 of the Company's Registration Statement on
Form 10.
4.2 Certificate of voting powers, designations, preferences,
limitations, restrictions and relative rights of 7% cumulative
convertible preferred stock of ARICO America Realestate
Investment Company, incorporated by reference to Exhibit 10.57
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
4.3 Certificate of Designations of the Voting Powers, Designation,
Preferences and Relative Participating, Optional or Other
Special Rights and Qualifications. Limitations and Restrictions
of 8% Cumulative Convertible Preferred Stock of Cornerstone
Properties Inc., incorporated by reference to Exhibit 4.1 of the
Company's Report on Form 8-K as of December 12, 1996.
4.4 Certificate of the Designations, Voting Powers, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of 8% Cumulative
Convertible Preferred Stock, Series A, of Cornerstone Properties
Inc., incorporated by reference to Exhibit 4.2 of the Company's
Report on Form 8-K as of December 12, 1996.
5.1 Legal opinion, dated August 4, 1995, regarding the sale of
Preferred Stock of ARICO America Realestate Investment Company
to Deutsche Bank AG, incorporated by reference to Exhibit 5.1
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.37 Third Amended and Restated Articles of Limited Partnership of
1700 Lincoln Limited effective as of April 20, 1989,
incorporated by reference to Exhibit 10.37 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
32
<PAGE> 33
10.38 First Amendment to Third Amended and Restated Articles of Limited
Partnership of 1700 Lincoln Limited dated as of September 28, 1993,
incorporated by reference to Exhibit 10.38 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
*10.39 Second Amendment to Third Amended and Restated Articles of Limited
Partnership of 1700 Lincoln Limited.
10.40 Amended and Restated Articles of Limited Partnership of NWC Limited
Partnership effective as of September 29, 1993, incorporated by
reference to Exhibit 10.40 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
10.41 Third Amended and Restated Promissory Note between NWC Limited
Partnership and NWC Funding Corporation dated as of September 29, 1993,
incorporated by reference to Exhibit 10.41 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
10.47 Deed-In-Lieu Agreement dated as of December 29, 1993 between Block Six
Limited Partnership and Third and University Limited Partnership,
incorporated by reference to Exhibit 10.47 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
10.50 Deed of Trust Note, dated September 27, 1995, made by Third and
University Limited Partnership to Teachers Insurance and Annuity
Association of America, incorporated by reference to Exhibit 10.50 of
the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
10.51 Third Amended and Restated Articles of Limited Partnership of Third and
University Limited Partnership, dated as of September 27, 1995,
incorporated by reference to Exhibit 10.51 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
10.52 Assignment of Recorded Documents, dated as of April 7, 1995, by NWC
Funding Corporation to Norwest Corporation, incorporated by reference
to Exhibit 10.52 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
10.53 Assignment of Documents, dated as of April 7, 1995, by NWC Funding
Corporation to Norwest Corporation, incorporated by reference to
Exhibit 10.53 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
10.55 Mortgage and Security Agreement, dated as of December 20, 1995, between
CStone-Boston and The Northwestern Mutual Life Insurance Company,
incorporated by reference to Exhibit 10.55 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
10.56 Loan Sale Agreement, dated as of November 21, 1995, between The Sakura
Bank, LTD. and Cornerstone Properties Inc., incorporated by reference
to Exhibit 10.56 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
10.59 Credit Agreement, dated as of August 8, 1995, between ARICO America
Realestate Investment Company and Deutsche Bank AG London, incorporated
by reference to Exhibit 10.59 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
*10.60 Amended and Restated Mortgage and Security Agreement and Amended and
Restated Note, dated as of April 25, 1996, between CStone-New York,
Inc. and The Northwestern Mutual Life Insurance Company.
33
<PAGE> 34
*10.61 Deed of Trust and Security Agreement, and Promissory
Notes, dated July 23, 1996, made by 1700 Lincoln Limited
with Massachusetts Mutual Life Insurance Company,
Connecticut General Life Insurance Company and American
General Life Insurance Company.
*10.62 Letter Agreement dated December 5, 1996, with Deutsche
Bank AG regarding the $32.5 million Term Loan.
*10.63 Convertible Promissory Note dated January 1, 1996 made
by Cornerstone Properties Inc. with Hines Colorado
Limited in the amount of $12,925,976.48.
*11.1 Statement of Computation of Earnings Per Share.
20.1 Stockholders' Agreement, dated as of November 22, 1996,
by and among Cornerstone Properties Inc., and the New
York State Teachers' Retirement System together with
any other purchasers of 8% Preferred Stock, incorporated
by reference to Exhibit 20.1 of the Company's Report on
Form 8-K as of December 12, 1996.
20.2 Stockholders' Agreement, dated as of November 7, 1996,
by and between Cornerstone Properties, Inc., and Hexalon
Real Estate, Inc., and together with any other
purchasers of 8% Preferred Stock, Series A, incorporated
by reference to Exhibit 20.2 of the Company's Report on
Form 8-K as of December 12, 1996.
*21 List of Subsidiaries.
*24.1 Powers of Attorney.
*27 For EDGAR filing purposes only, this report contains
Exhibit 27, Financial Data Schedule.
- ---------------------
*Filed herewith.
34
<PAGE> 35
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CORNERSTONE PROPERTIES INC.
(Registrant)
/s/ John S. Moody
-------------------------------
John S. Moody, President & CEO
DATED: February 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John S. Moody
- -------------------------------------------------------------
John S. Moody, President and Director
(Principal Executive Officer)
/s/ Thomas P. Loftus
- -------------------------------------------------------------
Thomas P. Loftus, Vice President and Controller
(Principal Financial and Accounting Officer)
*/s/ Dr. Rolf-E. Breuer
- -------------------------------------------------------------
Dr. Rolf-E. Breuer, Director and Chairman
*/s/ Cecil D. Conlee
- -------------------------------------------------------------
Cecil D. Conlee, Director
*/s/ George A. Davis
- -------------------------------------------------------------
George A. Davis, Director
*/s/ Blake Eagle
- -------------------------------------------------------------
Blake Eagle, Director
*/s/ Dr. Karl-Ludwig Hermann
- -------------------------------------------------------------
Dr. Karl-Ludwig Hermann, Director
*/s/ Hans C. Mautner
- -------------------------------------------------------------
Hans C. Mautner, Director
*/s/ Gerald Rauenhorst
- -------------------------------------------------------------
Gerald Rauenhorst, Director
*/s/ Berthold T. Wetteskind
- -------------------------------------------------------------
Berthold T. Wetteskind, Director
*By /s/ John S. Moody
- -------------------------------------------------------------
John S. Moody, as Attorney-in-Fact for the persons indicated
DATED: February 25, 1997
35
<PAGE> 36
CORNERSTONE PROPERTIES INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
AND FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
F-1
<PAGE> 37
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cornerstone Properties Inc.
We have audited the consolidated financial statements and financial statement
schedules of Cornerstone Properties Inc. and Subsidiaries (the "Company") as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, listed in item 14(a)(i) of this Form 10-K. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cornerstone
Properties Inc. and Subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P
New York, NY
February 20, 1997
F-2
<PAGE> 38
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Investments, at cost: (Notes 1,2, and 4)
Land $ 68,395 $ 57,823
Buildings and improvements 612,567 503,688
Mortgage note receivable - 30,731
Deferred lease costs 118,700 114,746
--------- ---------
799,662 706,988
Less: Accumulated depreciation and amortization 198,686 175,167
--------- ---------
Total investments 600,976 531,821
Cash and cash equivalents (Note 1) 114,803 7,740
Restricted cash 4,426 4,393
Other deferred costs, net of accumulated amortization of $1,140 and $5,301 3,562 2,895
Deferred tenant receivables (Note 1 and 10) 34,747 32,695
Tenant and other receivables (Note 1) 2,405 1,585
Notes receivable 2,911 4,153
Other assets 2,350 807
--------- ---------
TOTAL ASSETS $ 766,180 $ 586,089
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Long-term debt (Note 4) $ 400,142 $ 369,600
Accrued interest payable 1,082 4,327
Accrued real estate taxes payable 13,222 10,045
Common Stockholders' distribution payable 12,366 -
Accounts payable and accrued expenses 6,468 3,456
Unearned revenue and other liabilities 9,095 16,499
--------- ---------
TOTAL LIABILITIES 442,375 403,927
--------- ---------
Minority Interest (Note 1) (17,478) (7,194)
--------- ---------
Commitments and Contingencies (Notes 2,4,5,6 and 8)
Redeemable Preferred Stock, $166,500,000 redemption value (Note 6) 162,743 -
--------- ---------
STOCKHOLDERS' INVESTMENT (Note 7)
7% Cumulative Convertible Preferred Stock, $16.50 stated value 50,000 50,000
15,000,000 shares authorized; 3,030,303 shares issued and outstanding
Common stock, no par value; 100,000,000 authorized shares;
shares issued and outstanding (1996-20,609,754; 1995-19,959,515)
Paid-in capital 160,577 181,477
Accumulated deficit (30,789) (39,885)
Deferred compensation (1,248) (2,236)
--------- ---------
TOTAL STOCKHOLDERS' INVESTMENT 178,540 189,356
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 766,180 $ 586,089
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE> 39
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
REVENUES
Office and parking rentals $ 111,494 $ 88,548 $ 83,557
Interest and other income 5,414 3,839 2,017
--------- -------- --------
TOTAL REVENUES 116,908 92,387 85,574
--------- -------- --------
EXPENSES
Building operating expenses 24,578 19,233 19,065
Real estate taxes 19,610 12,297 10,926
Interest expense 31,345 29,467 30,792
Depreciation and amortization 24,801 23,877 23,432
General and administrative 6,312 5,553 3,869
--------- -------- --------
TOTAL EXPENSES 106,646 90,427 88,084
--------- -------- --------
10,262 1,960 (2,510)
--------- -------- --------
OTHER INCOME (EXPENSES)
Net gain (loss) on interest rate swaps (Note 8) 4,278 (7,672) -
Minority Interest (1,519) (3,417) (3,899)
--------- -------- --------
Income (loss) before extraordinary item 13,021 (9,129) (6,409)
Extraordinary loss (Note 4) (3,925) (4,445) (581)
--------- -------- --------
NET INCOME (LOSS) $ 9,096 $(13,574) $ (6,990)
========= ======== ========
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM PER SHARE (Note 1) $ 0.39 $ (0.67) $ (0.48)
========= ======== ========
NET INCOME (LOSS) PER SHARE (Note 1) $ 0.19 $ (0.94) $ (0.53)
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-4
<PAGE> 40
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------- ---------------------
Outstanding Paid-In Outstanding Paid-In Accumulated Deferred
Shares Capital Shares Capital Deficit Compensation Total
----------- --------- ----------- -------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 13,240,500 $ 125,596 - $ - $(19,321) $ - $ 106,275
Net Loss - - - - (6,990) - (6,990)
Common Stock Distributions ($1.16/shr) - (15,359) - - - - (15,359)
----------- --------- --------- ------- -------- ------- ---------
BALANCE, DECEMBER 31, 1994 13,240,500 110,237 - - (26,311) - 83,926
Common Stock Proceeds,
net of $6,083 in stock issue costs 6,325,000 84,365 - - - - 84,365
Preferred Stock Proceeds - - 3,030,303 50,000 - - 50,000
Restricted Stock Grants 186,713 2,670 - - - (2,670) -
Restricted Stock Grant Vesting - - - - - 434 434
Net Loss - - - - (13,574) - (13,574)
Dividend Reinvestment,
net of $150 in stock issue costs 207,302 2,690 - - - - 2,690
Common Stock Distributions ($1.16/shr) - (18,485) - - - - (18,485)
----------- --------- --------- ------- -------- ------- ---------
BALANCE, DECEMBER 31, 1995 19,959,515 $ 181,477 3,030,303 $50,000 $(39,885) $(2,236) $ 189,356
Common Stock issued for
10% Partnership purchase 349,650 5,000 - - - - 5,000
Restricted Stock Grant Vesting - - - - - 988 988
Net Income - - - - 9,096 - 9,096
Dividend Reinvestment,
net of $212 in stock issue costs 300,589 3,804 - - - - 3,804
Preferred Stock Distributions - (5,153) - - - - (5,153)
Common Stock Distributions ($1.20/shr) (24,551) (24,551)
----------- --------- --------- ------- -------- ------- ---------
BALANCE, DECEMBER 31, 1996 20,609,754 $ 160,577 3,030,303 $50,000 $(30,789) $(1,248) $ 178,540
=========== ========= ========= ======= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-5
<PAGE> 41
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
(NOTE 13)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 9,096 $ (13,574) $ (6,990)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 24,801 23,877 23,432
Deferred compensation amortization 988 434 -
Unrealized (gain) loss on interest rate swap (4,278) 7,672 -
Extraordinary loss 3,925 4,446 581
Unbilled rental revenue (1,408) (3,088) (2,380)
Interest accretion on zero coupon notes - - 1,310
Decrease in accrued interest payable (3,245) (3,142) (744)
Minority interest share of income 1,519 3,417 3,899
(Increase) decrease in tenant and other receivables and other assets (2,461) (564) 1,174
Increase in accounts payable, accrued expenses and other liabilities 5,585 558 8,686
--------- --------- --------
Total adjustments 25,426 33,610 35,958
--------- --------- --------
Net cash provided by operating activities 34,522 20,036 28,968
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment property (58,501) (137,403) (2,420)
Repayment of notes receivable 1,242 2,068 1,008
Loan to a property manager - (192) (350)
--------- --------- --------
Net cash used in investing activities (57,259) (135,527) (1,762)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under mortgage loans, net of $1,185 and $555 in issue costs 114,815 238,545 -
Repayments under mortgage loans (98,384) - -
Proceeds from preferred stock offering, net of $3,757 and $0 in stock issue costs 136,243 50,000 -
Proceeds from dividend reinvestment plan, net of $212 and $150 in issue costs 3,804 2,690 -
Net payments for swap terminations and prepayment costs (6,804) (2,453) -
(Increase) decrease in restricted cash (33) 339 10,391
Distribution to minority partners (2,503) (3,970) (11,913)
Distributions to stockholders (17,338) (22,324) (19,199)
Proceeds from common stock offering, net of $6,083 in stock issue costs - 84,365 -
Net (repayments) borrowings under lines of credit - (236,467) 790
Repayment of zero coupon notes - - (18,529)
Repayment of term loan - - (500)
Borrowings under term loan - - 6,000
Contributions returned to minority partners - - (181)
--------- --------- --------
Net cash provided by (used in) financing activities 129,800 110,725 (33,141)
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 107,063 (4,766) (5,935)
CASH AND CASH EQUIVALENTS, beginning of year 7,740 12,506 18,441
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of year $ 114,803 $ 7,740 $ 12,506
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-6
<PAGE> 42
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. NATURE OF COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE COMPANY'S BUSINESS
Cornerstone Properties Inc. ("Cornerstone" or the "Company") is a
self-advised equity real estate investment trust which owns, through
subsidiaries, interests in seven Class A office properties ("Properties")
encompassing approximately 4.7 million rentable square feet. The Company
was formed in May 1981 as ARICO America Realestate Investment Company, a
Nevada corporation, to invest in major commercial real estate projects in
North America.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Cornerstone,
its wholly-owned qualified REIT subsidiaries and controlled partnerships.
NWC Limited Partnership ("NWC") and Third and University Limited
Partnership ("Third Partnership") have been consolidated since Cornerstone
has a majority interest in the economic benefits and has the right to
become managing general partner at its sole discretion. All significant
intercompany balances and transactions have been eliminated in
consolidation.
INVESTMENT PROPERTY
The costs of the buildings, garages and improvements are being depreciated
on the straight-line method over their estimated useful lives, ranging from
20 years for electrical and mechanical installations to 40 years for
structural components. Tenant improvements are being amortized over the
terms of the related leases.
Cornerstone and the real estate partnerships hold the Properties for
long-term investment and such investments are carried at cost less
accumulated depreciation. Management continuously assesses for impairment
in value whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.
DEFERRED LEASE COSTS
As an inducement to execute a lease, incentives are sometimes offered which
may include cash and/or other allowances. These incentives and other lease
costs, such as commissions, which are directly related to specific leases,
are deferred and amortized over the terms of the related leases. Other
marketing costs (which include sales facility costs, model office costs,
building models, etc.) and other lease costs not related to specific
leases, which were incurred during the buildings' development stage, were
deferred and are being amortized over their expected benefit period of 10
years.
OTHER DEFERRED COSTS
Costs incurred in the underwriting and issuance of long-term debt, and
costs incurred in investigating investments in real estate partnerships
have been deferred. The costs incurred in connection with the long-term
debt are being amortized over the term of the debt. Deferred organization
and start-up costs related to investments in real estate partnerships are
being amortized over a period of 60 months.
REVENUE RECOGNITION
Rental revenue is recognized ratably as earned over the terms of the
leases. Deferred tenant receivables result from rental revenues which have
been earned but will be received in future periods as a result of rent
concessions provided to tenants and scheduled future rent increases.
Recovery and escalation income for the years ended December 31, 1996, 1995
and 1994 was approximately $28,230,000, $20,716,000 and $17,838,000,
respectively.
An allowance for doubtful accounts of approximately $105,000 and $65,000,
respectively, has been recorded at December 31, 1996 and 1995, relating to
tenant and other receivables. Bad debt write-offs totaled approximately
$40,000 and $30,000 during 1996 and 1995, respectively.
F-7
<PAGE> 43
INTEREST RATE SWAP AGREEMENTS
The Company accounts for its interest rate swap agreements as hedges in
accordance with SFAS No. 80 "Accounting for Futures Contracts" if the swap
is designated as a hedge and effectively reduces the exposure to the
Company of market interest rate changes. Changes in the market value of
these interest rate swap agreements are deferred and recognized in income
at the expiration or termination of the underlying debt. Forward interest
rate swap agreements that do not meet hedge criteria are accounted for
using mark-to-market accounting, recognizing any unrealized gain or loss on
the instrument in the period in which it is outstanding. When swaps are
extinguished at the same time as the underlying debt instrument, the cost
to extinguish the swap is treated as extraordinary gain or loss. When a
swap remains in place after the underlying instrument matures, it is
accounted for on a mark-to-market basis. The swap termination is accounted
for as ordinary gain or loss when it is extinguished with no underlying
debt instrument in place.
FEDERAL INCOME TAXES
No provision for United States Federal income taxes has been made in the
accompanying financial statements. Cornerstone has elected to be taxed as a
real estate investment trust under Sections 856-860 of the United States
Internal Revenue Code. Under these sections of the Internal Revenue Code,
Cornerstone is permitted to deduct dividends paid to stockholders in
computing its taxable income. All taxable earnings and profits of
Cornerstone since inception have been distributed to the stockholders.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1996
financial statement presentation.
INCOME (LOSS) PER SHARE
Income (loss) per share is computed based on the weighted average number of
common shares outstanding of 20,411,004 for 1996, 15,909,805 for 1995 and
13,240,500 for 1994. For 1996 and 1995, dividends applicable to preferred
stock of $5,153,000 and $1,449,000, respectively, have been deducted from
the net income (loss) in computing income (loss) per share.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
investments with original maturities of three months or less from the date
of purchase. At December 31, 1996 and 1995, Cornerstone had on deposit with
major financial institutions substantially all of its cash and cash
equivalents. Cornerstone believes it mitigates its risk by investing in or
through major financial institutions. Recoverability of investments is
dependent upon the performance of the issuer.
MINORITY INTEREST
Minority Interest represents the Company's partner's capital account
balance in NWC and Third Partnership. Debit balances in certain of these
capital accounts originated through special income allocations in
accordance with certain provisions of the respective partnership agreement.
Realizability of the debit balances is continually monitored by analyzing
pro forma sales proceeds calculations, whose terms are specified in the
respective partnership agreements.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates and assumptions
are related to the recoverability and depreciable lives of investment
property, the recoverability of deferred tenant receivables and unrealized
gain and loss on an interest rate swap agreement. Actual results could
differ from those estimates.
F-8
<PAGE> 44
2. PROPERTIES
The following schedule summarizes Cornerstone's interest in real estate
investments at December 31, 1996:
<TABLE>
<CAPTION>
Completed/ Net Rentable Ownership
Property Location Acquired square feet % Leased Interest Notes
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center Denver, Colorado 1983 1,188,000 98% 100% A
Norwest Center Minneapolis, Minnesota 1988 1,118,000 100% 50% B
Washington Mutual Tower Seattle, Washington 1988 1,155,000 97% 50%
125 Summer Street Boston, Massachusetts 1989/1995 464,000 95% 100% C
Tower 56 New York, New York 1983/1996 162,000 97% 100% D
One Lincoln Centre Oakbrook Terrace, Illinois 1986/1996 297,000 92% 100% E
The Frick Building Pittsburgh, Pennsylvania 1902/1996 341,000 85% 100% F
</TABLE>
(A) Effective January 1, 1996, the Company, through 1700 Lincoln Inc., a
wholly-owned subsidiary, purchased the remaining 10 percent interest in
1700 Lincoln Limited, which owns and operates One Norwest Center, from
Hines Colorado Limited ("HCL") for a $12,925,976 convertible promissory
note and 349,650 newly-issued shares of common stock of the Company.
Hines Interests Limited Partnership ("Hines") manages One Norwest
Center under a management agreement that expires December 31, 2005.
(B) Hines manages Norwest Center under a management agreement that expires
December 31, 2001.
(C) Hines manages 125 Summer Street under a management agreement that
expires December 31, 1998.
(D) On April 24, 1996, the Company, through CStone-New York, Inc., a
wholly-owned subsidiary, converted its mortgage notes receivable
(acquired on December 19, 1995) and obtained title to Tower 56. HRO
International ("HRO") manages Tower 56 under a management agreement
that expires on April 25, 2001. In addition to a 3 percent fee based on
gross revenues, HRO will receive one-third of the cash flow above that
which provides Cornerstone a 9 percent return on its investment in
Tower 56. HRO will also receive one-third of the property sale proceeds
above that which provides Cornerstone with a 12 percent cumulative
internal rate of return.
(E) On November 8, 1996, the Company, through CStone-Oakbrook, Inc., a
wholly-owned subsidiary, acquired One Lincoln Centre for a purchase
price of approximately $49,950,000.
(F) On November 8, 1996, the Company, through CStone-Pittsburgh Trust, a
wholly-owned subsidiary, acquired The Frick Building for a purchase
price of approximately $26,500,000.
Fixed minimum future rental receipts and square feet expiring for the
portfolio's various years are as follows:
<TABLE>
<CAPTION>
Fixed Minimum Square
Rentals Feet
-------------------------------------------
<S> <C> <C>
1997 $ 86,905,417 520,000
1998 77,783,097 644,000
1999 66,470,736 602,000
2000 52,111,724 505,000
2001 45,278,598 162,000
2002 39,579,111 294,000
2003 34,968,056 294,000
2004 29,053,278 450,000
2005 24,777,183 23,000
2006 24,494,881 0
Thereafter $221,557,221 1,087,000
</TABLE>
F-9
<PAGE> 45
3. PARTNERSHIPS
NWC LIMITED PARTNERSHIP
Norwest Center is owned by NWC, a partnership in which the Company owns a
50 percent general partnership interest through its wholly-owned
subsidiary, ARICO-Minneapolis, Inc. Sixth & Marquette Limited Partnership
owns a 49 percent managing general partnership interest and a 1 percent
limited partnership interest in NWC. Cornerstone has the right, at its sole
discretion, to become the managing general partner of NWC.
Cornerstone is currently entitled to an annual preference return equal to 7
percent of its Capital Base ($92,300,000 at December 31, 1996), plus 50
percent of remaining cash flow. The preference period ends when certain
performance levels have been achieved for two consecutive years. At the end
of the preference period, Cornerstone will become a 60 percent general
partner and will be entitled to 60 percent of the cash flow of NWC after
debt service. The preference return is cumulative, and if operating
revenues (as defined) of NWC are not sufficient to fund the distribution of
any preference return then due, the amount of such deficiency shall
accumulate and shall bear interest at the rate of 7 percent, compounded
annually. As of December 31, 1996, Cornerstone is not due any cumulative
preference deficit.
THIRD AND UNIVERSITY LIMITED PARTNERSHIP
Washington Mutual Tower is owned by Third Partnership, a partnership in
which the Company owns a 50 percent general partnership interest through
its wholly-owned subsidiary, ARICO-Seattle, Inc. 1212 Second Avenue Limited
Partnership owns a 49 percent managing general partnership interest and a 1
percent limited partnership interest in Third Partnership. Cornerstone has
the right, at its sole discretion, to become the managing general partner
of Third Partnership.
Cornerstone is currently entitled to an annual preference return equal to 8
percent of its Capital Base ($100,000,000 at December 31, 1996), plus 50
percent of remaining cash flow. The preference period ends when certain
performance levels have been achieved for two consecutive years. At the end
of the preference period, Cornerstone will become a 60 percent general
partner and will be entitled to 60 percent of the cash flow of Third
Partnership after debt service. The preference return is cumulative, and if
operating revenues (as defined) of Third Partnership are not sufficient to
fund the distribution of any preference return then due, the amount of such
deficiency shall accumulate and shall bear interest at the rate of 8
percent, compounded annually. As of December 31, 1996, Cornerstone is due a
cumulative preference deficit, including accrued interest of approximately
$7,796,000 which will be reduced as cash flow becomes available.
The Company is also entitled to a 9.53 percent preferred return on its
additional equity investment of $47,000,000. After September 30, 2003, the
preferred return will adjust based on market conditions. As of December 31,
1996, Cornerstone is not due any preferred return on its additional equity
investment.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
Property Description 12/31/96 12/31/95
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate (A) Promissory Note $ 12,926,000 $ --
One Norwest Center (B) Mortgage Loans 97,706,000 98,000,000
Norwest Center (C) Mortgage Loan 110,000,000 110,000,000
Washington Mutual Tower (D) Mortgage Loan 79,100,000 79,100,000
125 Summer Street (E) Mortgage Loan 50,000,000 50,000,000
Tower 56 (F) Mortgage Loan 17,910,000 --
Corporate (G) Term Loan 32,500,000 32,500,000
- -------------------------------------------------------------------------------------------------------
$400,142,000 $369,600,000
========================================
</TABLE>
F-10
<PAGE> 46
(A) PROMISSORY NOTE
The convertible promissory note payable to HCL (Note 2) is due on January
1, 2001 and pays monthly interest only at the lesser of 8.11 percent or
LIBOR plus 50 basis points. The note is convertible at the option of HCL
into shares of common stock at $14.30 per share after January 1, 1997. At
maturity of the note, Cornerstone has the right to redeem the note in
exchange for common shares of the Company at the lower of market price or
$14.30 per share.
(B) MORTGAGE LOANS
On August 2, 1996, the Company refinanced its $98 million Interest-Bearing
Notes, collateralized by One Norwest Center, by entering into a $98 million
Deed of Trust and Mortgage Notes with Massachusetts Mutual Life Insurance
Company, Connecticut General Life Insurance Company and American General
Life Insurance Company. As part of the refinancing, $15 million of the
Interest-Bearing Notes were defeased by the Company depositing funds with
the Notes Trustee under a Cash Collateral Account Pledge and Assignment
Agreement. The Mortgage Notes bear interest at a rate of 7.50 percent and
mature on July 1, 2001. Additionally, the Company is required to make
payments of principal based upon a thirty year amortization schedule. Upon
the closing of the mortgage debt, Cornerstone paid a prepayment penalty of
approximately $2,035,000 (Extraordinary loss) to the Interest-Bearing
Noteholders. Unamortized Interest-Bearing Notes financing costs of
approximately $247,000 (Extraordinary loss) were written-off in connection
with the refinancing.
Cornerstone was obligated to pay to Deutsche Bank New York Branch, for an
interest rate swap agreement used to fix the interest rates on the
Interest-Bearing Notes, an amount equal to 0.752 percent on a notional
amount of $107,000,000 throughout the term of the Interest-Bearing Notes.
This amount was treated as a yield adjustment on the long-term debt and has
been included in interest expense. On August 2, 1996, this swap was
terminated at an approximate cost of $1,505,000 (Extraordinary loss).
As protection against market interest rates rising prior to the maturity of
the Interest Bearing Notes, on September 29, 1993, Cornerstone entered into
a forward interest rate swap agreement with Deutsche Bank AG. The interest
rate swap agreement was revised as part of the refinancing of One Norwest
Center. The forward interest rate swap agreement was for a fixed rate of
7.14 percent on a notional amount of $92,800,000 for a period of five years
beginning July 1, 2001. Effective January 16, 1997, this forward swap was
terminated. (See Note 8)
(C) The Norwest Center loan matures December 31, 2005 and bears interest at the
rate of 8.74 percent with the full principal due at maturity. The loan is
collateralized by a first mortgage on Norwest Center and assignment of all
leases and rents.
(D) The Washington Mutual Tower loan matures November 1, 2005 and bears
interest at the rate of 7.53 percent with the full principal due at
maturity. The loan is collateralized by a first mortgage on Washington
Mutual Tower and assignment of all leases and rents.
(E) The 125 Summer Street loan bears interest at the rate of 7.20 percent and
matures on January 1, 2003. Payment terms on the loan call for interest
only payments for the first 5 years and a 25 year principal amortization
thereafter. The loan is collateralized by a first mortgage on 125 Summer
Street and assignment of all leases and rents.
(F) The Tower 56 loan bears interest at a rate of 7.674 percent with a 30 year
principal amortization and matures on April 24, 2003. The loan is
collateralized by a first mortgage on Tower 56 and assignment of all leases
and rents.
(G) TERM LOAN
The term loan matures on December 31, 2003, and bears interest at the rate
of 5.00 percent. The loan must be prepaid at par upon the sale of either
Norwest Center or Washington Mutual Tower, or from the first proceeds from
an initial public offering in the U.S. and a listing of the Company's
common stock on the New York Stock Exchange.
The combined aggregate amount of maturities for all long-term borrowings
for 1997 through 2001 are $0,$0,$0,$0 and $105,651,000, respectively.
F-11
<PAGE> 47
5. LINE OF CREDIT
Bankers Trust Company has provided Cornerstone with a $10,000,000 revolving
credit line which is available for general corporate and acquisition
purposes at a rate equivalent to an Adjusted Eurodollar Rate (as defined),
as well as for the issuance of standby letters of credit at a rate of 0.15
percent. At December 31, 1996, none of the credit line had been drawn. The
line of credit expires on November 7, 1997.
6. REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
Redemption/ Shares Shares Carrying Value Common Stock
Title Stated Value Authorized Outstanding Net of issue costs Conversion Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8% Cumulative Convertible $145.00/Share 1,034,483 689,655 $ 97,743,000 $ 14.50
8% Cumulative Convertible, Series A $145.00/Share 458,621 458,621 $ 65,000,000 $ 14.50
--------------
$162,743,000
</TABLE>
Each holder of the 8% Cumulative Convertible and 8% Cumulative Convertible,
Series A, Preferred Stock, has the right to require the redemption of its
stock by the Company at the stated value upon the occurrence of a "Change
in Control"(as defined). Additionally, the Series A Preferred Stock may be
redeemed at stated value any time between December 31, 2000 and January 1,
2002, if the Company has not completed a Qualified Public Offering (as
defined).
7. STOCKHOLDERS' INVESTMENT
The 7% Cumulative Convertible Preferred Stock is convertible into common
stock at $16.50 per share at any time after August 4, 2000.
During 1995, the Board of Directors approved the issuance of stock options
to certain officers, covering 1,000,000 shares of common stock. The
purchase price of shares subject to each option granted equal their fair
market value at the date of grant. The options have a ten-year term and are
exercisable after one year from the date of grant, at the rate of 20
percent per year. At December 31, 1996, 137,500 shares were available for
granting further options and options for 862,500 shares were outstanding at
$14.30 per share of which 172,500 were exercisable.
The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
the options described above. Had compensation cost for these options been
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
NET INCOME (LOSS) NET INCOME (LOSS) PER SHARE
<S> <C> <C>
Year ended December 31, 1996 $ 8,673 $ 0.17
Year ended December 31, 1995 $(13,750) $ (0.96)
</TABLE>
During 1995, 186,713 restricted stock grants were awarded to officers. The
grants vest over a five year period, 13.333 percent on June 30 of 1996,
1997, 1998, and 1999; with the balance of 46.668 percent vesting on June
30, 2000. Deferred compensation of $2,670,000, or $14.30 per grant share,
is being amortized according to the respective amortization schedule for
each vesting period noted above, with the unamortized balance shown as a
deduction from stockholders' investment.
8. NET GAIN (LOSS) ON INTEREST RATE SWAPS
An unrealized gain of $7,672,000 and realized loss of $3,125,000 were
recorded as part of the Interest Bearing Notes swap revision (Note 4).
Additionally, an unrealized loss of $269,000 was recorded representing the
amount the Company would pay if the $92,800,000 notional amount forward
interest rate swap agreement were terminated at December 31, 1996. This
unrealized liability is recorded in "Unearned revenue and other
liabilities." Effective January 16, 1997, this forward swap agreement was
terminated for a total cost of $170,000 resulting in a realized gain of
$99,000.
F-12
<PAGE> 48
9. RETIREMENT PLANS
Effective July 1, 1995, the eligible employees of the Company participate
in a noncontributory age-weighted profit sharing plan. The Company's
contribution to such plan was approximately $91,200 and $76,000 for the
years ended December 31, 1996 and 1995, respectively.
Effective July 1, 1995, the eligible employees of the Company also
participate in a contributory savings plan (401K). Under the plan, the
Company matches contributions made by eligible employees based on a
percentage of the employee's salary. The Company will match 100 percent of
contributions up to 5 percent of such employee's salary with an annual
maximum matching contribution of $4,000 per employee. The Company's
matching contribution was approximately $46,000 and $13,000 for the years
ended December 31, 1996 and 1995, respectively.
10. CONCENTRATION
Norwest Corporation and its subsidiary, Norwest Bank Denver N.A., tenants
of the Company, provided approximately 26 percent, 31 percent and 32
percent of office and parking rentals for the years ended December 31,
1996, 1995 and 1994, respectively. Included in deferred tenant receivables
is approximately $28,014,000 and $25,143,000 due from Norwest Corporation
at December 31, 1996 and 1995, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board has issued Statement of Accounting
Standards No. 107, Disclosures About Fair Value of Financial Instruments
(SFAS 107) which became effective in 1992. Under SFAS 107, Cornerstone is
required to disclose the fair value of financial instruments for which it
is practicable to estimate that value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at December 31, 1996:
NOTES RECEIVABLE
The fair value of the note receivable at December 31, 1996 from HCL is
approximately $3,004,000 based on the present value of expected future note
payments using a market discount rate of 7.37 percent.
LONG-TERM DEBT
The Company determines the fair value based on the discounted future cash
flows at a discount rate that approximates the Company's effective current
borrowing rate. Except for the items noted below, the fair value of the
Company's long term debt approximates its carrying value:
<TABLE>
<CAPTION>
12/31/96
Fair Value
-------------
<S> <C>
Norwest Center-Mortgage Loan $ 120,057,000
Corporate-Term Loan $ 28,200,000
</TABLE>
12. PROFORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information shown below is based on the
consolidated historical statements of Cornerstone after giving effect to
the acquisitions of 125 Summer Street, Tower 56, One Lincoln Centre and The
Frick Building as if such acquisitions took place on January 1, 1996 and
1995, respectively. The pro forma financial information is presented for
informational purposes only and may not be indicative of results that would
have actually occurred had the acquisition taken place at the dates
indicated. Also, they may not be indicative of the results that may be
achieved in the future.
<TABLE>
<CAPTION>
December 31, 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Pro forma total revenues $127,207,000 $ 125,500,000
Pro forma net income before extraordinary items 16,863,000 349,000
Pro forma net income (loss) 12,938,000 (4,096,000)
Pro forma net income (loss) per share $ 0.12 $ (0.58)
</TABLE>
F-13
<PAGE> 49
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $34,590,000, $32,609,000 and
$32,075,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1996, the Company purchased a minority partnership interest through
the issuance of a $12,926,000 promissory note and 349,650 shares of common
stock. The Company also purchased The Frick Building by issuing $26,500,000
of 8% Cumulative Convertible, Series A, Preferred Stock.
14. SUBSEQUENT EVENT
Effective February 14, 1997, Cornerstone, through its wholly-owned
qualified REIT subsidiary, CStone-527 Madison, Inc., purchased 527 Madison
Avenue in Midtown Manhattan, New York for approximately $67 million. 527
Madison Avenue is a twenty-six story, 100% leased, Class A office building
with approximately 197,000 square feet of office space, 5,000 square feet
of first floor retail space and an underground parking facility for
approximately 50 vehicles. The acquisition was financed with the proceeds
from the Company's two offerings of Preferred Stock, completed in November
1996.
F-14
<PAGE> 50
CORNERSTONE PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
December 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D
- ----------------------------------------------------------------------------------------------------
Cost capitalized
subsequent to
Initial cost to company acquisition
-------------------------------------------
Buildings &
Description Encumbrances Land Improvements Improvements
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land One Norwest Center $ 2,900,000 $ 310,494
Buildings & Imp. One Norwest Center $ 98,000,000 12,903,000 124,584,624
Def. Lease Costs One Norwest Center 2,583,000 17,753,429
------------------------------------------
2,900,000 15,486,000 142,648,547
------------------------------------------
Land Norwest Center 18,000,000
Buildings & Imp. Norwest Center 110,000,000 32,620,255 108,406,611
Def. Lease Costs Norwest Center 992,691 45,232,846
------------------------------------------
18,000,000 33,612,946 153,639,457
------------------------------------------
Land Washington Mutual Tower 21,166,947 6,108
Buildings & Imp. Washington Mutual Tower 79,100,000 38,851,336 104,955,591
Def. Lease Costs Washington Mutual Tower 4,301,522 44,868,926
------------------------------------------
21,166,947 43,152,858 149,830,625
------------------------------------------
Land 125 Summer Street 15,750,000
Buildings & Imp. 125 Summer Street 50,000,000 89,250,000 975,929
Def. Lease Costs 125 Summer Street 2,528,067
------------------------------------------
15,750,000 89,250,000 3,503,996
------------------------------------------
Land Tower 56 5,528,324
Buildings & Imp. Tower 56 18,000,000 25,202,676 2,321,400
Def. Lease Costs Tower 56 426,598
------------------------------------------
5,528,324 25,202,676 2,747,998
------------------------------------------
Land One Lincoln Centre 2,192,079
Buildings & Imp. One Lincoln Centre 47,757,921 545,579
Def. Lease Costs One Lincoln Centre 426,598
------------------------------------------
2,192,079 47,757,921 972,177
------------------------------------------
Land The Frick Building 2,541,350
Buildings & Imp. The Frick Building 23,958,650 233,122
Def. Lease Costs The Frick Building -
------------------------------------------
2,541,350 23,958,650 233,122
----------------------------------------------------------
Grand Total $355,100,000 $68,078,700 $278,421,051 $453,575,922
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Column A Column E
- --------------------------------------------------------------------------------------------------------
Gross amount at which carried at close of period
---------------------------------------------------------
Buildings &
Land Improvements Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land One Norwest Center $3,210,494 $ 3,210,494
Buildings & Imp. One Norwest Center 137,487,624 $137,487,624
Def. Lease Costs One Norwest Center 20,336,429 $20,336,429
----------------------------------------------------------
3,210,494 157,824,053 161,034,547
----------------------------------------------------------
Land Norwest Center 18,000,000 $ 18,000,000
Buildings & Imp. Norwest Center 141,026,866 $141,026,866
Def. Lease Costs Norwest Center 46,225,537 $ 46,225,537
----------------------------------------------------------
18,000,000 187,252,403 205,252,403
----------------------------------------------------------
Land Washington Mutual Tower 21,173,055 $ 21,173,055
Buildings & Imp. Washington Mutual Tower 143,806,927 $143,806,927
Def. Lease Costs Washington Mutual Tower 49,170,448 $ 49,170,448
----------------------------------------------------------
21,173,055 192,977,375 214,150,430
----------------------------------------------------------
Land 125 Summer Street 15,750,000 $ 15,750,000
Buildings & Imp. 125 Summer Street 90,225,929 $ 90,225,929
Def. Lease Costs 125 Summer Street 2,528,067 $ 2,528,067
----------------------------------------------------------
15,750,000 92,753,996 108,503,996
----------------------------------------------------------
Land Tower 56 5,528,324 $ 5,528,324
Buildings & Imp. Tower 56 27,524,076 $27,524,076
Def. Lease Costs Tower 56 426,598 $ 426,598
----------------------------------------------------------
5,528,324 27,950,674 33,478,998
----------------------------------------------------------
Land One Lincoln Centre 2,192,079 $ 2,192,079
Buildings & Imp. One Lincoln Centre 48,303,500 $48,303,500
Def. Lease Costs One Lincoln Centre 12,565 $ 12,565
----------------------------------------------------------
2,192,079 48,316,065 50,508,144
----------------------------------------------------------
Land The Frick Building 2,541,350 $ 2,541,350
Buildings & Imp. The Frick Building 24,191,772 $24,191,772
Def. Lease Costs The Frick Building - $ -
----------------------------------------------------------
2,541,350 24,191,772 26,733,122
----------------------------------------------------------
Grand Total $68,395,302 $731,266,338 $799,661,640
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Column A Column F Column G Column H Column I
- --------------------------------------------------------------------------------------------------------------------
Life on which
depreciation in
latest income
Accumulated Date of statements is
depreciation Construction Date acquired computed
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land One Norwest Center 1988
Buildings & Imp. One Norwest Center 47,817,927 1981 1981-1995 20-35 Years
Def. Lease Costs One Norwest Center 17,022,102 1981-1995 05-10 Years
------------
64,840,029
------------
Land Norwest Center 1986
Buildings & Imp. Norwest Center 36,726,337 1986 1986-1995 20-35 Years
Def. Lease Costs Norwest Center 27,900,755 1986-1995 10-20 Years
------------
64,627,092
------------
Land Washington Mutual Tower 1986-1987
Buildings & Imp. Washington Mutual Tower 32,840,965 1986 1986-1995 08-40 Years
Def. Lease Costs Washington Mutual Tower 32,937,024 1986-1995 01-18 Years
------------
65,777,989
------------
Land 125 Summer Street 1989 1995
Buildings & Imp. 125 Summer Street 2,637,240 1995-1996 40
Def. Lease Costs 125 Summer Street 191,175 1996 5-6 Years
------------
2,828,415
------------
Land Tower 56 1983 1996
Buildings & Imp. Tower 56 300,075 1996 40 Years
Def. Lease Costs Tower 56 59,888 1996 1-6 Years
------------
359,963
------------
Land One Lincoln Centre 1986 1996
Buildings & Imp. One Lincoln Centre 150,776 1996 40 Years
Def. Lease Costs One Lincoln Centre 1,053 1996 1-6 Years
------------
151,829
------------
Land The Frick Building 1902 1996
Buildings & Imp. The Frick Building 100,390 1996 40 Years
Def. Lease Costs The Frick Building - 1996 -
------------
100,390
------------------------------------------------------------------------
Grand Total $198,685,707
====================================================================================================================
</TABLE>
F-15
<PAGE> 51
CORNERSTONE PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
December 31, 1996
(continued)
Reconciliation of "Real Estate and Accumulated Depreciation"
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT IN REAL ESTATE
Balance at beginning of period $676,257,618 $571,831,104 $571,462,068
Additions resulting from consolidation
of real estate partnerships:
Land - - -
Buildings and Improvements - - -
--------------------------------------------------------
- - -
Additions during the period:
Land 10,572,247 15,750,000
Deferred lease costs 5,262,535 409,693
Buildings and improvements 108,878,526 90,469,121 1,847,705
Deductions during the period:
Retirements and writeoffs 1,309,286 2,202,300 1,478,669
--------------------------------------------------------
Balance at end of period $799,661,640 $676,257,618 $571,831,104
========================================================
ACCUMULATED DEPRECIATION
Balance at beginning of period 175,167,480 154,227,950 132,930,479
Additions resulting from consolidation
of real estate partnerships: - -
Additions charged to operating expenses 24,827,513 23,141,830 22,776,140
Deductions due to retirements and writeoffs 1,309,286 2,202,300 1,478,669
--------------------------------------------------------
Balance at end of period $198,685,707 $175,167,480 $154,227,950
========================================================
</TABLE>
F-16
<PAGE> 52
CORNERSTONE PROPERTIES INC.
MORTGAGE LOANS ON REAL ESTATE
SCHEDULE IV
December 31, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F Column G Column H
- ---------------------------------------------------------------------------------------------------------------------------------
Principal amount of
Final maturity Periodic Payment Prior Face amount Carrying amount loans subject to delinquent
Description Interest rate date Terms Liens of mortgages of mortgages principal or interest
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Recociliation of Mortgage loans on real estate.
- ---------------------------------------------------------
<S> <C>
Balance at beginning of period $ 30,731,000
Additions during period: -
Deductions during period:
Foreclosure (30,731,000)
-----------------
Balance at close of period $ -
=================
</TABLE>
F-17
<PAGE> 53
EXHIBIT INDEX
Exhibit No. Description
2.1 Agreement of Sale and Purchase between 527 Madison Holdings
as Seller and Cornerstone Properties, Inc. as Purchaser
pertaining to 527 Madison Avenue, New York, New York,
incorporated by reference to Exhibit 2.1 of the Company's
Report on Form 8-K dated January 29, 1997.
2.2 Preferred Stock Purchase Agreement, dated as of November 22,
1996, between Cornerstone Properties, Inc., and the New York
State Teachers' Retirement System, incorporated by reference
to Exhibit 2.2 of the Company's Report on Form 8-K dated
December 12, 1996.
2.3 Agreement and Plan of Merger, dated as of November 7, 1996,
among Cornerstone Properties Inc., CStone-Pittsburgh Trust,
Frick Building, Inc., and Hexalon Real Estate, Inc.,
incorporated by reference to Exhibit 2.1 of the Company's
Report on Form 8-K dated December 12, 1996.
*3.1 Restated Articles of Incorporation of Cornerstone Properties
Inc., as of March 12, 1996.
3.5 Bylaws of Cornerstone Properties Inc., as amended as of
December 8, 1995, incorporated by reference to Exhibit 3.5 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
4.1 Specimen Common Stock Certificates, incorporated by reference
to Exhibit 4.1 of the Company's Registration Statement on
Form 10.
4.2 Certificate of voting powers, designations, preferences,
limitations, restrictions and relative rights of 7% cumulative
convertible preferred stock of ARICO America Realestate
Investment Company, incorporated by reference to Exhibit 10.57
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
4.3 Certificate of Designations of the Voting Powers, Designation,
Preferences and Relative Participating, Optional or Other
Special Rights and Qualifications. Limitations and Restrictions
of 8% Cumulative Convertible Preferred Stock of Cornerstone
Properties Inc., incorporated by reference to Exhibit 4.1 of the
Company's Report on Form 8-K as of December 12, 1996.
4.4 Certificate of the Designations, Voting Powers, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of 8% Cumulative
Convertible Preferred Stock, Series A, of Cornerstone Properties
Inc., incorporated by reference to Exhibit 4.2 of the Company's
Report on Form 8-K as of December 12, 1996.
5.1 Legal opinion, dated August 4, 1995, regarding the sale of
Preferred Stock of ARICO America Realestate Investment Company
to Deutsche Bank AG, incorporated by reference to Exhibit 5.1
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.37 Third Amended and Restated Articles of Limited Partnership of
1700 Lincoln Limited effective as of April 20, 1989,
incorporated by reference to Exhibit 10.37 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
<PAGE> 54
EXHIBIT INDEX (CONTINUED)
Exhibit Description
No.
10.38 First Amendment to Third Amended and Restated Articles of Limited
Partnership of 1700 Lincoln Limited dated as of September 28, 1993,
incorporated by reference to Exhibit 10.38 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
*10.39 Second Amendment to Third Amended and Restated Articles of Limited
Partnership of 1700 Lincoln Limited.
10.40 Amended and Restated Articles of Limited Partnership of NWC Limited
Partnership effective as of September 29, 1993, incorporated by
reference to Exhibit 10.40 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
10.41 Third Amended and Restated Promissory Note between NWC Limited
Partnership and NWC Funding Corporation dated as of September 29, 1993,
incorporated by reference to Exhibit 10.41 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
10.47 Deed-In-Lieu Agreement dated as of December 29, 1993 between Block Six
Limited Partnership and Third and University Limited Partnership,
incorporated by reference to Exhibit 10.47 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
10.50 Deed of Trust Note, dated September 27, 1995, made by Third and
University Limited Partnership to Teachers Insurance and Annuity
Association of America, incorporated by reference to Exhibit 10.50 of
the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
10.51 Third Amended and Restated Articles of Limited Partnership of Third and
University Limited Partnership, dated as of September 27, 1995,
incorporated by reference to Exhibit 10.51 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
10.52 Assignment of Recorded Documents, dated as of April 7, 1995, by NWC
Funding Corporation to Norwest Corporation, incorporated by reference
to Exhibit 10.52 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
10.53 Assignment of Documents, dated as of April 7, 1995, by NWC Funding
Corporation to Norwest Corporation, incorporated by reference to
Exhibit 10.53 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
10.55 Mortgage and Security Agreement, dated as of December 20, 1995, between
CStone-Boston and The Northwestern Mutual Life Insurance Company,
incorporated by reference to Exhibit 10.55 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
10.56 Loan Sale Agreement, dated as of November 21, 1995, between The Sakura
Bank, LTD. and Cornerstone Properties Inc., incorporated by reference
to Exhibit 10.56 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
10.59 Credit Agreement, dated as of August 8, 1995, between ARICO America
Realestate Investment Company and Deutsche Bank AG London, incorporated
by reference to Exhibit 10.59 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
*10.60 Amended and Restated Mortgage and Security Agreement and Amended and
Restated Note, dated as of April 25, 1996, between CStone-New York,
Inc. and The Northwestern Mutual Life Insurance Company.
<PAGE> 55
EXHIBIT INDEX (CONTINUED)
Exhibit No. Description
*10.61 Deed of Trust and Security Agreement, and Promissory
Notes, dated July 23, 1996, made by 1700 Lincoln Limited
with Massachusetts Mutual Life Insurance Company,
Connecticut General Life Insurance Company and American
General Life Insurance Company.
*10.62 Letter Agreement dated December 5, 1996, with Deutsche
Bank AG regarding the $32.5 million Term Loan.
*10.63 Convertible Promissory Note dated January 1, 1996 made
by Cornerstone Properties Inc. with Hines Colorado
Limited in the amount of $12,925,976.48.
*11.1 Statement of Computation of Earnings Per Share.
20.1 Stockholders' Agreement, dated as of November 22, 1996,
by and among Cornerstone Properties Inc., and the New
York State Teachers' Retirement System together with
any other purchasers of 8% Preferred Stock, incorporated
by reference to Exhibit 20.1 of the Company's Report on
Form 8-K as of December 12, 1996.
20.2 Stockholders' Agreement, dated as of November 7, 1996,
by and between Cornerstone Properties, Inc., and Hexalon
Real Estate, Inc., and together with any other
purchasers of 8% Preferred Stock, Series A, incorporated
by reference to Exhibit 20.2 of the Company's Report on
Form 8-K as of December 12, 1996.
*21 List of Subsidiaries.
*24.1 Powers of Attorney.
*27 For EDGAR filing purposes only, this report contains
Exhibit 27, Financial Data Schedule.
- ---------------------
*Filed herewith.
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
CORNERSTONE PROPERTIES INC.
Pursuant to the provisions of Section 78.403 of the Nevada Revised
Statutes, the Articles of Incorporation of Cornerstone Properties Inc., as
amended to the date of this certificate, are hereby restated as follows:
ARTICLE 1
NAME
Effective at 12:01 a.m. on September 18, 1995, the name of the
Corporation is CORNERSTONE PROPERTIES INC.
ARTICLE 2
PERIOD OF DURATION
The period of duration of the Corporation is perpetual.
ARTICLE 3
PURPOSE
The purpose for which the Corporation is organized is to engage in
the business of making real estate investments (directly or as a partner),
including, without limitation, the acquisition, development, encumbrance and
disposal of real estate or interests in real estate and all activities related
thereto, either on the Corporation's own behalf or on behalf of other persons or
entities, to do all acts and things in furtherance of such purposes and to
engage in any lawful activity.
ARTICLE 4
DATA RESPECTING SHARES
Section 4.01 Authorized Shares. The aggregate number of shares that
the Corporation shall have the authority to issue is One Hundred Fifteen Million
(115,000,000) shares of Capital Stock consisting of Fifteen Million (15,000,000)
shares of Preferred Stock with no par value per share and One Hundred Million
(100,000,000) shares of Common Stock with no par value per share.
The designations and powers, preferences and rights, and the
qualifications,
<PAGE> 2
limitations or restrictions thereof, of the shares of each class are as follows:
1. The Preferred Stock is to be issued in one or more series, from
time to time, with each such series to have such designations, preferences and
relative participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the creation of such series adopted by
the Board of Directors of the Corporation, subject to the limitations prescribed
by law and in accordance with the provisions hereof, the Board of Directors
being hereby expressly vested with authority to adopt any such resolution or
resolutions. The authority of the Board of Directors with respect to each series
shall include, but not be limited to, the determination or fixing of the
following:
(i) The number of shares to constitute the series and the
distinctive designation thereof;
(ii) The dividend rate on the shares of the series, whether
dividends shall be cumulative, and, if so, from what date or dates;
(iii) Whether or not the shares of the series shall be redeemable
and, if redeemable, the terms and provisions upon which the shares of the
series may be redeemed and the premium, if any, and any dividends accrued
thereon which the shares of the series shall be entitled to receive upon
redemption thereof;
(iv) Whether or not the shares of the series shall be subject to the
operation of a retirement or sinking fund to be applied to the purchase or
redemption of such shares for retirement and, if such retirement or
sinking fund be established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
(v) Whether or not the shares of the series shall be convertible
into shares of any class or classes, with or without par value, or of any
other series of the same class, and, if convertible, the terms of
conversion, the conversion price or prices or the rate at which such
conversion may be made and the method, if any, of adjusting the same;
(vi) The rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(vii) The restrictions, if any, on the payment of dividends upon,
and the making of distributions to, any class of stock ranking junior to
the shares of the series, and the restrictions, if any, on the purchase or
redemption of the shares of any such junior class;
(viii) Whether the series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights; and
(ix) Any other relative rights, preferences and limitations of that
series.
2. Holders of Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends at the rates fixed by the Board of Directors for
the respective series, before any dividends shall be declared and paid, or set
apart for payment, on the Common
2
<PAGE> 3
Stock with respect to the same dividend period.
3. Any shares of any series of Preferred Stock which shall at any
time have been redeemed or purchased or otherwise retired pursuant to law by the
Corporation, upon compliance with the applicable provisions of law, and any such
shares surrendered to the Corporation for conversion or exchange into or for
other shares of the Corporation, shall have the status of authorized and
unissued shares of Preferred Stock.
4. Whenever, at any time, dividends on the then outstanding
Preferred Stock as may be required with respect to any series outstanding shall
have been paid or declared and set apart for payment on the then outstanding
Preferred Stock, and after complying with respect to any retirement or sinking
fund or funds for any series of Preferred Stock, the Board of Directors may,
subject to the provisions of the resolution or resolutions creating any series
of Preferred Stock with respect to the payment of dividends on any series of
Preferred Stock, declare and pay dividends on the Common Stock, and the
Preferred Stock shall not be entitled to share therein.
5. The holders of Common Stock shall have the right to vote on all
questions to the exclusion of the Preferred Stock except as by law expressly
provided or as otherwise provided in the resolution or resolutions creating any
series of Preferred Stock. At all meetings of the stockholders of the
Corporation the holders of shares of Common Stock shall be entitled to one vote
for each share of Common Stock held by them, respectively.
Section 4.02 Assessment of Shares. The Capital Stock of the
Corporation, after the amount of subscription price has been paid, shall not be
subject to pay the debts of the Corporation, and no Capital Stock issued as
fully paid up shall ever be assessable or assessed.
Section 4.03 Denial of Preemptive Rights. No shareholder of the
Corporation shall have any preemptive or other right, by reason of his status as
a shareholder, to acquire any unissued shares, treasury shares, or securities
convertible into shares of the Capital Stock of the Corporation. This denial of
preemptive rights shall, and is intended to, negate any rights which would
otherwise be given to shareholders pursuant to NRS 78.265 or any successor
statute.
Section 4.04 Treasury Shares. Capital Stock issued and thereafter
acquired by the Corporation shall not carry voting or dividend rights and shall
not be counted as outstanding shares for any purpose.
ARTICLE 5
PRINCIPAL OFFICE AND INITIAL RESIDENT AGENT
Section 5.01 Principal Office. The address of the principal office
of the Corporation is One East First Street, Reno, Washoe County, Nevada 89501.
Section 5.02 Initial Resident Agent. The name of the initial
resident agent of the Corporation, a corporate resident of the State of Nevada,
whose business address is at the above address, is THE CORPORATION TRUST COMPANY
OF NEVADA.
3
<PAGE> 4
ARTICLE 6
DATA RESPECTING DIRECTORS
Section 6.01 Style of Governing Board. The members of the governing
board of the Corporation shall be styled Directors.
Section 6.02 Initial Board of Directors. The initial Board of
Directors shall consist of four (4) members, who need not be residents of the
State of Nevada or shareholders of the Corporation.
Section 6.03 Names and Addresses. The names and post office
addresses of the persons who are to serve as Directors until the next annual
meeting of the shareholders, or until their successors shall have been elected
and qualified, are as follows:
<TABLE>
<CAPTION>
Name Post Office Address
---- -------------------
<S> <C>
Dr. Rolf-E. Breuer Deutsche Bank AG
Taunusanlage 12
60325 Frankfurt am Main
Blake Eagle M.I.T. Center for Real Estate
Building W31 - 310
Cambridge, MA 02139
Dr. Karl-Ludwig Hermann 93 Doubling Road
Greenwich, CT 06830
Gerhard A. Koning Commerzbank AG
Neue Mainzer Strasse 32 -36
D-60261 Frankfurt am Main
Hans C. Mautner Corporate Property Investors, Inc.
3 Dag Hammarskjold Plaza
305 East 47th Street
New York, NY 10017
John S. Moody Cornerstone Properties Inc.
31 West 52nd Street, Suite 1600
New York, NY 10019
Gerald Rauenhorst Opus Corporation
800 Opus Center
9900 Bren Road East
Minneapolis, MN 55440
Dr. Walter Schorr Bankhaus Gebrueder Bethmann
Bethmannstrasse 7 - 9
60311 Frankfurt am Main
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
Michael J.G. Topham Hines
#1 Hans Street
London SW1 XOJD
England
Berthold T. Wetteskind Deutsche Immobilien Anlagegesellschaft mbH
Bockenheimer Landstrasse 42
60323 Frankfurt am Main
</TABLE>
Section 6.04 Vacancies. All vacancies, including without limitation
those caused by an increase in the number of Directors, may be filled by a
majority of the remaining Directors, even though less than a quorum.
5
<PAGE> 6
ARTICLE 7
DATA RESPECTING INCORPORATORS
The names and post office addresses of the incorporators of the
Corporation are as follows:
<TABLE>
<CAPTION>
Name Post Office Address
---- -------------------
<S> <C>
August E. Shouse First City National Bank Bldg.
Houston, Texas 77002
Glendon E. Johnson, Jr. First City National Bank Bldg.
Houston, Texas 77002
Robert J. Bachman First City National Bank Bldg.
Houston, Texas 77002
</TABLE>
ARTICLE 8
PROTECTION OF REIT STATUS
Section 8.01 So long as the Corporation has two or more stockholders
and subject to the terms and provisions of this Article,
(a) Shares of stock of the Corporation shall not be transferred to
any Person (as defined in Section 8.03, below) if such transfer would
cause such Person to be the Owner (as defined in Section 8.03, below) of
more than 6% of the value of the outstanding shares of capital stock (the
"Limit") of the Corporation, and any intended transferee of such shares
shall acquire no rights in such shares.
(b) No Person shall at any time be or become the Owner of shares in
excess of the Limit. If, notwithstanding the provisions of (a) above, at
any time a Person shall be or become an Owner of shares of the Corporation
in excess of the Limit, those shares of the Corporation most recently
acquired by such Person which are in excess of the Limit, including for
this purpose shares deemed Owned through attribution, shall constitute
"Excess Shares." Excess Shares shall have the following characteristics:
(1) The Owner 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 Owner 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 Owner thereof at a price not in excess
of the price paid by such Owner for the Excess Shares;
(3) Holders of Excess Shares shall not be entitled to exercise
any voting rights with respect to such Excess Shares;
6
<PAGE> 7
(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 Frankfurt, Luxembourg or Dusseldorf stock
exchanges; but if the shares are not listed on the Frankfurt,
Luxembourg or Dusseldorf stock exchanges or on any national stock
exchange in the United States, 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 as determined in good faith
by the Board of Directors.
(c) If, notwithstanding the provisions of (a) above, any Person
shall knowingly own shares in excess of the Limit and the Corporation
would have qualified as a real estate investment trust ("REIT"), or would
not have been a personal holding company but for the fact that more than
50% of the value of its shares are held by five or fewer individuals in
the last half of the taxable year in violation of the requirements of the
Internal Revenue Code (the "Code"), then that Person, and all legal
entities which constitute that Person, shall be jointly and severally
liable for and shall pay to the Corporation and each shareholder of the
Corporation other than such Person, on demand, such amounts as will, after
taking account of all taxes imposed with respect to the receipt or accrual
of such amount and all costs incurred by the Corporation and each such
shareholder of the Corporation as a result of the Corporation losing its
REIT qualification or being deemed a personal holding company, put the
Corporation and each such shareholder of the Corporation in the same
financial position as it would have been in had it not lost such REIT
qualification or become a personal holding company (the "Indemnity"). If
more than one Person shall hold Excess Shares which cause loss of REIT
qualification, then all such Persons, together with all legal entities
which constitute any of them, shall be jointly and severally liable, with
right of contribution, for the Indemnity. However, the foregoing sentences
shall not require that the Corporation proceed against any one or several
of such Persons or the legal entities which constitute them. Should the
loss of REIT qualification occur as described above, then the Corporation
may seek to have its qualification restored for the next taxable year, but
shall not be required to do so. If the Corporation either decides not to
attempt to requalify for the succeeding year, or is refused such
7
<PAGE> 8
requalification, the Indemnity shall be applicable to all five taxable
years, or such longer or shorter period as successor provisions of the
Code shall require, until the Corporation is again permitted to qualify as
a REIT. Should the Corporation decide not to seek requalification as a
REIT at the end of such period, then the Indemnity shall cease as of the
end of the fifth taxable year following loss of REIT qualification.
(d) All certificates evidencing ownership of shares of the
Corporation shall bear a conspicuous legend describing the restrictions
set forth in this Article.
Section 8.02 (a) 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 8.01(a) or that a Person intends to acquire or has
acquired Ownership of any shares of the Corporation which, upon acquisition, has
or would become Excess Shares, the Board of Directors may, but shall not be
obligated to, take such action as it deems advisable to prevent or to refuse to
give effect to such transfer or acquisition, including but not limited to
refusing to give effect to such transfer or acquisition on the books of the
Corporation or instituting proceedings to enjoin such transfer or acquisition.
(b) Each Person who enters into a transfer in violation of Section
8.01(a), or is or becomes the Owner of Excess Shares, 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 Person (1)
with respect to identifying all Owners and amount of Ownership of its
outstanding shares held directly or by attribution by such Person, and (2) such
other information as may be necessary to determine the Corporation's status
under the Code.
Section 8.03 For the purpose of determinations to be made under this
Article,
(a) A Person shall be considered to "Own," be the "Owner" or have
"Ownership" of shares if he is treated as owner of such shares for
purposes of Subchapter M, Part II of the Code, including ownership by
reason of the application of the ownership provisions of Sections 542 and
544 of the Code;
(b) "Person" includes an individual, corporation, partnership,
estate, trust, association, joint stock company or other entity but does
not include (i) any corporation, partnership, association, joint stock
company or other entity of which (A) the principal voting securities are
regularly traded on a national securities exchange (including the
Frankfurt, Luxembourg or Dusseldorf stock exchanges) or quoted on an
inter-broker quotation system and (B) no more than the Applicable
Percentage of the value of its capital stock is owned beneficially,
directly or indirectly (including all shares deemed owned under Section
856(h) of the Code), by any individual; or (ii) any other person whose
ownership of Excess Shares the Board of Directors shall determine in good
faith would not jeopardize the Company's REIT status under Section 856 of
the Code;
(c) "Applicable Percentage," for any corporation, partnership,
association, joint stock company or other entity referred to in Section
8.03(b)(i), shall be 12% for any such entity that owns less than 50% of
the value of the capital stock of the Company and, for all other such
entities, shall be 6%; and
8
<PAGE> 9
(d) In the case of an ambiguity in the application of any of the
provisions of (a), (b) and (c) above, the Board of Directors shall have
the power to determine for the purposes of this Article on the basis of
information known to it (i) whether any Person Owns shares, (ii) whether
any two or more individuals, corporations, partnerships, estates, trusts,
associations or joint stock companies or other entities constitute a
Person, and (iii) whether any of the entities of (ii) above constitute a
group.
Section 8.04 If any provision of this Article or any application of
any 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 8.05 Nothing contained in this Article shall limit the
authority of the Board of Directors to take such other action as they deem
necessary or advisable to protect the Corporation and the interests of its
stockholders by preservation of the Corporation's status as a REIT under the
Code.
Section 8.06 Notwithstanding anything contained in this Certificate
of Incorporation to the contrary, the affirmative vote of the holders of at
least 80% of the outstanding shares of common stock of the Corporation then
entitled to vote shall be required to alter, amend, adopt any provision
inconsistent with, or repeal, this Article 8 or any provision hereof.
9
<PAGE> 1
EXHIBIT 10.39
SECOND AMENDMENT TO
THIRD AMENDED AND RESTATED ARTICLES OF
LIMITED PARTNERSHIP OF
1700 LINCOLN LIMITED
THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED ARTICLES OF
LIMITED PARTNERSHIP OF 1700 LINCOLN LIMITED (this "AMENDMENT") is made and
entered into as of the 1st day of January, 1996, by and among HINES COLORADO
LIMITED, a Colorado limited partnership ("HINES"), ARICO-DENVER, INC, a
Delaware corporation ("ARICO") and 1700 LINCOLN INC. ("LINCOLN"), a Delaware
corporation.
W I T N E S S E T H :
WHEREAS, Hines is the sole Limited Partner and ARICO-Denver and
Hines are the General Partners in 1700 Lincoln Limited (the "PARTNERSHIP"), a
Colorado limited partnership;
WHEREAS, the Partnership is governed by those certain Third Amended
and Restated Articles of Limited Partnership of 1700 Lincoln Limited, dated as
of April 20, 1989 (the "RESTATED ARTICLES"), as amended by that certain First
Amendment to Third Amended and Restated Articles of Limited Partnership of 1700
Lincoln Limited, dated as of September 28, 1993 (the Restated Articles, as
amended, the "ARTICLES"; capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Articles);
WHEREAS, pursuant to that certain Assignment and Assumption
Agreement, dated as of January 1, 1996 (the "ASSIGNMENT"), between Hines and
Lincoln, Hines assigned to Lincoln all of Hines' right, title and interest in
and to the Partnership;
WHEREAS, the parties hereto desire to amend the Articles.
NOW, THEREFORE, in consideration of the premises and of the
respective representations, warranties, covenants and conditions herein
contained, the parties hereto agree as follows:
1. The parties hereto acknowledge that, in accordance with Section
7.03 of the Articles and pursuant to the Assignment, Hines has transferred its
entire Interest as the sole Limited Partner and as a General Partner to Lincoln
and that Lincoln shall be, and is hereby, admitted to the Partnership as the
sole Limited Partner and as a General Partner in substitution for Hines. The
parties hereto recognize, acknowledge and agree that, pursuant to the
Assignment, Hines shall have no further interest in the Partnership or any of
its assets.
2. Pursuant to the 1981 Act, the Partners do hereby continue the
Partnership as a Colorado limited partnership upon the terms and conditions of
the Articles, as amended by this Amendment.
3. (a) For purposes of notices under Section 10.06 of the Restated
Articles, notices intended for Lincoln shall be addressed to 1700 Lincoln Inc.,
c/o Cornerstone
<PAGE> 2
2
Properties Inc., 31 West 52nd Street, Suite 1600, New York, New York 10019,
Attention: President, Telephone Number: (212) 459-0600, Telex: 422908 ITT,
Telecopy: (212) 459-0632.
(b) Section 10.06 of the Restated Articles is further amended by
deleting the mailing address provided for ARICO-Denver and inserting in its
place and stead the following: ARICO-Denver, c/o Cornerstone Properties Inc., 31
West 52nd Street, Suite 1600, New York, New York 10019, Attention: President,
Telephone Number: (212) 459-0600, Telex: 422908 ITT, Telecopy: (212) 459-0632.
4. Except as herein modified and amended, the Articles are hereby
ratified and confirmed.
5. This Amendment shall inure to the benefit of, and shall be
binding upon, the parties hereto and their respective legal representatives,
successors and assigns.
6. This Amendment shall be interpreted and construed under and
governed by the laws of the Colorado.
7. This Amendment may be executed in separate original counterparts,
each of which shall for all purposes be deemed an original, and all of such
counterparts shall together constitute but one and the same agreement.
* * *
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the day and year first above written.
HINES COLORADO LIMITED,
a Colorado limited partnership
By: HINES COLORADO CORPORATION,
a Texas corporation, a general partner
By: _______________________
David McGinnis
Vice President
ARICO-DENVER, INC..
a Delaware corporation
By: __________________________
Name: Scott M. Dalrymple
Title: Vice President
By: __________________________
Name: Kevin P. Mahoney
Title: Vice President
1700 LINCOLN INC.
a Delaware corporation
By: __________________________
Name: Scott M. Dalrymple
Title: Vice President
By: __________________________
Name: Kevin P. Mahoney
Title: Vice President
<PAGE> 1
EXHIBIT 10.60
LOAN NO. C-331942 NEW YORK
AMENDED AND RESTATED MORTGAGE
AND SECURITY AGREEMENT
Between
CSTONE-NEW YORK INC.
as Mortgagor
and
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
as Mortgagee
Dated as of April 25, 1996
Location: Tower 56
112-156 East 56th Street
New York, New York
Block: 1310
Lot: 63
RECORD AND RETURN TO:
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Connie S. Meyer
<PAGE> 2
THIS AMENDED AND RESTATED MORTGAGE AND SECURITY AGREEMENT, made as of the 25th
day of April, 1996 between CSTONE - NEW YORK INC., a Delaware corporation, whose
mailing address is c/o Cornerstone Properties Inc., 126 East 56th Street, New
York, New York 10022, herein called "Mortgagor", and THE NORTHWESTERN MUTUAL
LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E. Wisconsin Avenue,
Milwaukee, WI 53202, herein called "Mortgagee,"
WITNESSETH:
WHEREAS, Cornerstone Properties Inc. ("Cornerstone"), a Nevada
corporation, was the mortgagee under that certain Substitute Mortgage No. 1 (the
"Prior Mortgage") of even date herewith made by Tower 56 Partners ("Tower 56"),
a New York partnership, in favor of Cornerstone;
WHEREAS, the lien of the Prior Mortgage constitutes a portion of the
liens of the mortgages described in Exhibit "A" annexed hereto;
WHEREAS, the Prior Mortgage secured the obligation of Tower 56 to make
payment to Cornerstone of principal indebtedness of Eighteen Million Dollars
($18,000,000.00) evidenced by that certain Substitute Mortgage Note No. 1 of
even date herewith (the "Prior Note");
WHEREAS, the indebtedness evidenced by the Prior Note constitutes a
portion of the indebtedness evidenced by the notes described in Exhibit "B"
annexed hereto;
WHEREAS, the Prior Mortgage encumbered the Property (as more
particularly described and defined below) commonly known as Tower 56 and by the
street number 126 East 56th Street, New York, New York and being situate in Lot
63 of Block 1310 of the Borough of Manhattan on the Tax Map of the Real Property
Assessment Bureau of the City of New York;
WHEREAS, on the date hereof, Mortgagor acquired title to the Property
from Tower 56;
WHEREAS, Mortgagee acquired Cornerstone's interests in the Prior Note
and the Prior Mortgage in consideration of payment to Cornerstone of
$18,000,000.00 pursuant to that certain Assignment of even date herewith;
WHEREAS, Mortgagor assumed the obligations of Tower 56 under the Prior
Note, and Mortgagor and Mortgagee have amended and restated the terms of the
Prior Note, pursuant to that certain Amended and Restated Note of even date
herewith; and
WHEREAS, Mortgagor and Mortgagee have agreed to supplement, amend,
modify and restate in its entirety the terms of the Prior Mortgage in the manner
hereinafter appearing;
NOW, THEREFORE, in pursuance of said agreement and in consideration of
the sum of Ten ($10.00) Dollars and other valuable consideration each to the
other in hand paid, the receipt of which is hereby acknowledged, the parties
hereto mutually covenant and agree as follows:
<PAGE> 3
That this instrument amends, restates, replaces and supersedes the
Prior Mortgage in its entirety but continues the lien thereof, it being the
intent of Mortgagor by this instrument to, and Mortgagor does hereby, grant,
mortgage, warrant, transfer, grant a security interest in, set over, deliver,
confirm and convey unto Mortgagee forever, with power of sale and right of entry
and possession upon the terms and conditions of this instrument, the following
property (the "Property"):
A. The land in the Borough of Manhattan, City of New York, County
of New York, State of New York, described in Exhibit "C"
attached hereto and incorporated herein (the "Land") and all
appurtenances thereto; and
B. All buildings and improvements now existing or hereafter
erected thereon, all waters and water rights, all engines,
boilers, elevators and machinery, all heating apparatus,
electrical equipment, air-conditioning equipment, water and
gas fixtures, and all other fixtures of every description
belonging to Mortgagor which are or may be placed or used upon
the Land or attached to the buildings or improvements, all of
which, to the extent permitted by applicable law, shall be
deemed an accession to the freehold and a part of the realty
as between the parties hereto.
Mortgagor agrees not to sell, transfer, assign or remove anything material
described in B above now or hereafter located on the Land (other than demolition
and removal of leasehold improvements in connection with the marketing or
re-leasing of vacant leasable space) without prior written consent from
Mortgagee unless (i) such action does not constitute a sale or removal of any
buildings or improvements or the sale or transfer of waters or water rights and
(ii) such action results in the substitution or replacement with similar items
of at least equal value or utility.
Without limiting the foregoing grants, Mortgagor hereby pledges to Mortgagee,
and grants to Mortgagee a security interest under the Uniform Commercial Code as
in effect in New York (the "Uniform Commercial Code") in, all of Mortgagor's
present and hereafter acquired right, title and interest in and to any and all
C. Cash and other funds now or at any time hereafter deposited by
or for Mortgagor on account of tax, special assessment,
replacement or other reserves required to be maintained
pursuant to the Loan Documents (as hereinafter defined) with
Mortgagee or otherwise deposited with, or in the possession
of, Mortgagee pursuant to the Loan Documents; and
D. All surveys, soils reports, environmental reports, architect's
contracts, construction contracts, drawings and
specifications,
-2-
<PAGE> 4
applications, permits, surety bonds and other contracts
relating to the acquisition, design, development, construction
and operation of the Property; and
E. All present and future rights to condemnation awards or
insurance proceeds at any time payable to or received by
Mortgagor on account of the Property or any of the foregoing
personal property; and
F. Proceeds of collateral are also covered.
All personal property hereinabove described is hereinafter referred to as the
"Personal Property".
TO HAVE AND TO HOLD the same unto Mortgagee for the purpose of securing:
(a) Payment to the order of Mortgagee of the indebtedness evidenced by
that certain Amended and Restated Note of even date herewith (and any
restatement, extension or renewal thereof and any amendment thereto) executed by
Mortgagor for the principal sum of EIGHTEEN MILLION DOLLARS, with final maturity
no later than May 1, 2003 and with interest as therein expressed (which
promissory note, as such instrument may be amended, restated, renewed and
extended, is hereinafter referred to as the "Note"); and
(b) Payment of all sums that may become due Mortgagee under the
provisions of, and the performance of each agreement of Mortgagor contained in,
the Loan Documents.
As used herein, "Loan Documents" means this instrument, the Note, that certain
Absolute Assignment of Leases and Rents of even date herewith between Mortgagor
and Mortgagee (the "Absolute Assignment"), that certain Certification of
Borrower of even date herewith and any other agreement entered into by Mortgagor
and delivered to Mortgagee in connection with the indebtedness evidenced by the
Note, except for any separate environmental indemnity agreement, as any of the
foregoing may be amended from time to time.
TO PROTECT THE SECURITY OF THIS MORTGAGE, MORTGAGOR COVENANTS AND AGREES:
PAYMENT OF DEBT. Mortgagor agrees to pay the indebtedness hereby secured (the
"Indebtedness") promptly and in full compliance with the terms of the Loan
Documents.
OWNERSHIP. Mortgagor represents that it has not created or suffered to exist any
encumbrances whatsoever, except as appears in the title insurance policy
delivered to Mortgagee on or about the date hereof. Mortgagor does hereby
forever warrant and shall forever defend the title and possession thereof
against the lawful claims of any and all persons whomsoever.
MAINTENANCE OF PROPERTY AND COMPLIANCE WITH LAWS. Mortgagor agrees to keep the
buildings and other improvements now or hereafter erected on the Land in good
condition and
-3-
<PAGE> 5
repair; not to commit or suffer any waste; to comply with all laws, rules and
regulations affecting the Property; and to permit Mortgagee to enter at all
reasonable times and upon reasonable notice for the purpose of inspection and of
conducting, in a reasonable and proper manner and at Mortgagee's expense, such
tests as Mortgagee determines to be necessary in order to monitor Mortgagor's
compliance with applicable laws and regulations regarding hazardous materials
affecting the Property.
INSURANCE. Mortgagor agrees to keep the Property insured for the protection of
Mortgagee in such manner as set forth below, in such amounts as set forth below
and in such companies as Mortgagee may from time to time reasonably approve, and
to promptly deliver original or certified copies of the policies (or an ACORD 27
in the case of a blanket policy) to Mortgagee; that insurance loss proceeds
(less expenses of collection) shall, at Mortgagee's option, be applied on the
Indebtedness, whether due or not, or to the restoration of the Property, or be
released to Mortgagor, but such application or release shall not cure or waive
any default under any of the Loan Documents. If Mortgagee elects to apply the
insurance loss proceeds on the Indebtedness, no prepayment privilege fee shall
be due thereon. Specifically, Mortgagor agrees to maintain the following types
of insurance:
(a) All risk property insurance coverage with an Agreed Amount
Endorsement for the estimated replacement cost of the
Improvements with a deductible of not greater than $25,000;
(b) Loss of rents insurance equal to twelve months rent or
business interruption insurance for 100 percent of the annual
gross earnings from business derived from the Property;
(c) Flood insurance, if the Property is located in a flood plain
(as that term is used in the National Flood Insurance
Program), in an amount acceptable to Lender;
(d) Mortgagor's own commercial general liability insurance policy
with Mortgagee named as an additional insured for its interest
in the Property; and
(e) Other insurance as customarily required by first mortgage
lenders in the New York area.
Notwithstanding the foregoing provision, Mortgagee agrees that if (i) Mortgagor
is not prohibited by then current zoning from completely restoring the building
on the Land to the height and square footage thereof prior to the casualty, (ii)
the insurance loss proceeds are less than the unpaid principal balance of the
Note and (iii) the casualty occurs prior to two years prior to the maturity date
of the Note, then the insurance loss proceeds (less expenses of collection)
shall be applied to restoration of the Property to its condition prior to the
casualty, subject to satisfaction of the following conditions:
-4-
<PAGE> 6
(a) There is no existing Event of Default at the time of casualty,
and if there shall occur any Event of Default after the date
of the casualty, Mortgagee shall have no further obligation to
release insurance loss proceeds hereunder.
(b) The casualty insurer has not denied liability for payment of
insurance loss proceeds as a result of any act, neglect, use
or occupancy of the Property by Mortgagor or any tenant of the
Property.
(c) Mortgagee shall be satisfied that all insurance loss proceeds
so held, together with supplemental funds received from
Mortgagor, shall be sufficient to complete the restoration of
the Property. Any remaining insurance loss proceeds may, at
the option of Mortgagee, be applied to the Indebtedness,
whether or not due, or be released to Mortgagor.
(d) If required by Mortgagee, Mortgagee shall be furnished a
satisfactory report addressed to Mortgagee from an
environmental engineer or other qualified professional
satisfactory to Mortgagee to the effect that no adverse
environmental impact to the Property resulted from the
casualty.
(e) Mortgagee shall release casualty insurance proceeds as
restoration of the Property progresses provided that Mortgagee
is furnished satisfactory evidence of the costs of restoration
and if, at the time of such release, there shall exist no
default under the Loan Documents with respect to which
Mortgagee shall have given Mortgagor notice pursuant to the
NOTICE OF DEFAULT provision herein. If the estimated cost of
restoration exceeds $250,000.00, (i) the drawings and
specifications for the restoration shall be approved by
Mortgagee in writing prior to commencement of the restoration,
and (ii) Mortgagee shall receive an administration fee equal
to 1% of the cost of restoration.
(f) Prior to each release of funds, Mortgagor shall obtain for the
benefit of Mortgagee an endorsement to Mortgagee's title
insurance policy insuring against any liens arising from the
restoration.
(g) Mortgagor shall pay all costs and expenses incurred by
Mortgagee, including, but not limited to, outside legal fees,
title insurance costs, third-party disbursement fees,
third-party engineering reports and inspections deemed
necessary by Mortgagee.
(h) All reciprocal easement and operating agreements, if any,
shall remain in full force and effect between the parties
thereto on and after restoration of the Property.
(i) Mortgagee shall be satisfied that Projected Debt Service
Coverage of at least 1.5 will be produced from the leasing of
not more than 145,830 rentable square feet of space to (A)
former tenants under their existing leases or (B) former
tenants or
-5-
<PAGE> 7
approved new tenants under leases satisfactory to Mortgagee
for terms of at least five (5) years to commence not later
than (30) days following completion of such restoration (the
foregoing leases in (A) and (B) being "Approved Leases").
As used herein, "Projected Debt Service Coverage" means a number calculated by
dividing Projected Operating Income Available for Debt Service for the first
fiscal year following restoration of the Property by the debt service during the
same fiscal year under all indebtedness secured by any portion of the Property.
For purposes of the preceding sentence, "debt service" means the greater of (x)
debt service due under all such indebtedness during the first fiscal year
following completion of the restoration of the Property and (y) debt service
that would be due and payable during such fiscal year if all such indebtedness
were amortized over 25 years (whether or not amortization is actually required)
and if interest on such indebtedness were due as it accrues at the face rate
shown on the notes therefor (whether or not interest payments based on such face
rates are required).
"Projected Operating Income Available for Debt Service" means projected gross
annual rent from the Approved Leases for the first full fiscal year following
completion of the restoration of the Property less the operating expenses of the
Property for the last fiscal year preceding the casualty.
All projections referenced above shall be calculated in a manner satisfactory to
Mortgagee.
CONDEMNATION. Mortgagor hereby assigns to Mortgagee (i) any award and any other
proceeds resulting from damage to, or the taking of, all or any portion of the
Property in connection with condemnation proceedings or the exercise of any
power of eminent domain and (ii) the proceeds from any sale or transfer in lieu
thereof; and grants Mortgagee the right, at its option, to apply such award and
other proceeds (less expenses of collection) on the Indebtedness (including any
prepayment privilege fee), whether due or not, or to the restoration of the
Property or to release all or any portion thereof to Mortgagor, but such
application or release shall not cure or waive any default under any of the Loan
Documents.
TAXES AND SPECIAL ASSESSMENTS. Mortgagor agrees to pay before delinquency all
taxes and special assessments of any kind that have been or may be levied or
assessed against the Property, this instrument, the Note or the Indebtedness, or
upon the interest of Mortgagee in the Property, this instrument, the Note or the
Indebtedness, and to procure and deliver to Mortgagee the official receipt of
the proper officer showing timely payment of all such taxes and assessments;
provided, however, that Mortgagor shall not be required to pay any such taxes or
special assessments if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings and funds
sufficient to satisfy the contested amount have been deposited in an escrow
satisfactory to Mortgagee.
PERSONAL PROPERTY. With respect to the Personal Property, Mortgagor hereby
represents, warrants and covenants as follows:
-6-
<PAGE> 8
(a) Except for the security interest granted hereby, Mortgagor is, and
as to portions of the Personal Property to be acquired after the date hereof
will be, the sole owner of the Personal Property, free from any lien, security
interest, encumbrance or adverse claim thereon of any kind whatsoever; it being
understood that Mortgagor shall be permitted to enter into leases of equipment
in the ordinary course of its business. Mortgagor shall notify Mortgagee of, and
shall indemnify and defend Mortgagee and the Personal Property against, all
claims and demands of all persons at any time claiming the Personal Property or
any part thereof or any interest therein.
(b) Except as otherwise provided herein, Mortgagor shall not lease,
sell, convey or in any manner transfer the Personal Property without the prior
consent of Mortgagee.
(c) Mortgagor maintains a place of business at the address first set
forth above in this instrument, and Mortgagor shall immediately notify Mortgagee
in writing of any change in its place of business.
(d) At the request of Mortgagee, Mortgagor shall join Mortgagee in
executing one or more financing statements and continuations and amendments
thereof pursuant to the Uniform Commercial Code of the jurisdiction in which the
Property is located in form satisfactory to Mortgagee, and Mortgagor shall pay
the cost of filing the same in all public offices wherever filing is deemed by
Mortgagee to be necessary or desirable.
OTHER LIENS. Mortgagor agrees to keep the Property free from all other mortgage
liens and from all liens prior to the lien created hereby. The creation of any
other mortgage lien, whether or not prior to the lien created hereby, the
creation of any prior lien or the assignment or pledge by Mortgagor of its
revocable license to collect, use and enjoy rents and profits from the Property,
shall constitute a default under the terms of this instrument. The term
"mortgage" includes a mortgage, deed of trust, deed to secure debt or any other
security interest in the Property.
Notwithstanding the foregoing, upon Mortgagee's prior written consent, CStone -
New York Inc., a Delaware corporation, may grant a mortgage lien subordinate to
the lien of this instrument and may assign or pledge to the holder of any such
subordinate lien CStone - New York Inc.'s interest in the revocable license to
collect, use and enjoy the rents and profits from the Property provided (i) Pro
Forma Debt Service Coverage of all indebtedness secured by mortgage liens on the
Property shall be at least 1.75 as reasonably determined by Mortgagee, (ii) the
secondary lender enters into an intercreditor agreement with, and reasonably
satisfactory to, Mortgagee, and (iii) the holder of the subordinate mortgage
shall not be permitted to foreclose the subordinate mortgage for so long as this
Mortgage shall have not been discharged. A default in any required payment of
the indebtedness secured by any subordinate lien or a default in any provision,
covenant or agreement contained in any instrument creating a subordinate lien or
the indebtedness secured thereby or the acceleration of any such indebtedness
shall constitute a default under this instrument.
As used herein, "Pro Forma Debt Service Coverage" means a number calculated by
dividing (A) Net Income Available for Debt Service for the last full fiscal year
as determined from financial statements provided by Mortgagor pursuant to the
covenants hereof following the
-7-
<PAGE> 9
caption "FINANCIAL STATEMENTS," by (B) Projected Debt Service during the first
full fiscal year following the full funding of the proposed subordinate loan
(the "Applicable Fiscal Year") under all indebtedness (including the
Indebtedness and the proposed subordinate loan) secured or to be secured by
mortgage liens on any portion of the Property.
For purposes of the preceding sentence, "Projected Debt Service" means the
greater of (x) actual debt service to become due during the Applicable Fiscal
Year under all indebtedness secured by mortgage liens or security interests in
or on any portion of the Property and (y) actual debt service that would become
due and payable during the Applicable Fiscal Year if all such indebtedness were
to be amortized over 25 years (whether or not amortization will be actually
required) and if interest on such notes were to become due monthly as it accrues
(regardless of the face rate shown or to be shown on the notes therefor and
whether or not monthly interest payments based on such face rates will be
required).
As used herein, "Net Income Available for Debt Service" means net income from
the Property, determined in accordance with generally accepted accounting
principles, for the applicable fiscal period plus (to the extent deducted in
determining net income from the Property) the following:
A) interest on indebtedness secured by any portion of the
Property for such fiscal period;
B) depreciation, if any, of fixed assets at or constituting the
Property for such fiscal period;
C) amortization, if any, of standard tenant finish expenditures
at the Property (but specifically EXCLUDING the amortization
of tenant finish expenditures by Mortgagor in excess of $15.00
per square foot (i.e., above standard tenant finishes), free
rent and rent concessions); and
D) amortization of costs incurred in connection with any
indebtedness secured by any portion of the Property and
leasing commissions which have been prepaid and
less the following:
E) a replacement reserve based on not less than $3.00 per net
rentable square foot per annum;
F) the amount, if any, by which actual gross income during such
fiscal period exceeds that which would have been earned from
the rental of 90% of the net rentable area in the Property;
and
G) the amount, if any, by which the actual management fee is less
than 3% of gross revenue during such fiscal period.
-8-
<PAGE> 10
All adjustments to net income referenced above shall be calculated in a manner
satisfactory to Mortgagee.
LEASES. Mortgagor represents and warrants that there is no assignment or pledge
of any leases of, or rentals or income from, the Property now in effect; and
covenants that, until the Indebtedness is fully paid, it (i) shall not make any
such assignment or pledge to anyone other than Mortgagee and (ii) except as
otherwise permitted above, shall not make any assignment or pledge to anyone of
its hereinafter described revocable license to collect, use and enjoy the rents
and profits. Further, reference is made to '291-f. of the Real Property Law of
the State of New York. Except as permitted under the next paragraph, without the
express written consent of Mortgagee in each instance, Mortgagor shall not
cancel, abridge, amend, extend or renew (unless required under the terms
thereof) or otherwise modify any tenancies, subtenancies, leases or subleases of
the Premises in existence at the date hereof, or accept prepayment of
installments of rent or additional rent to become due thereunder.
In consideration of the Indebtedness, Mortgagor, pursuant to the Absolute
Assignment, has assigned to Mortgagee all of Mortgagor's right, title and
interest in said leases, including Mortgagor's right to collect, use and enjoy
the rents and profits therefrom. Mortgagee has, in the Absolute Assignment,
granted to Mortgagor a license to collect, use and enjoy said rents and profits.
Such license is revocable by Mortgagee pursuant to the terms of the Absolute
Assignment.
FUTURE LEASES. Other than leases of 5,250 square feet of rentable space or less
entered into in the ordinary course of business which do not require Mortgagee
to enter into a non-disturbance or subordination agreement (the "Excluded
Leases"), Mortgagor shall not enter into any new lease or consent to the
assignment of any lease, or materially modify any lease (including, without
limitation, an acceptance of a surrender of such lease, a reduction in the term
thereof or an increase in the obligations of the landlord or a material decrease
in the obligations of the tenant thereunder) (any such new lease, assignment or
material modification of a lease, or any lease which provides by its terms for
Mortgagee to enter into a non-disturbance agreement (i.e., other than Excluded
Leases) being referred to herein as a "Future Lease"), except in accordance with
the following approval procedure:
(a) Mortgagor may from time to time provide Mortgagee with a term sheet
(a "Term Sheet") relating to a proposed Future Lease and specifying the material
economic terms and conditions of such Future Lease (including, without
limitation, the term, the amount of space to be leased and its location, the
base or fixed rental, and whether such amounts are quoted on a "gross" or "net"
basis, the base years or "stops" for real estate taxes and operating expenses,
the tenant improvement allowance offered to the tenant or the value of work to
be performed by landlord, brokerage commissions and free rent), together with
Mortgagor's analysis of the value of such material economic terms on a net
effective rent basis, which Term Sheet shall be so submitted prior to submitting
to Mortgagee an executed copy of such Future Lease. Mortgagee shall approve or
disapprove the Term Sheet within fifteen business days after receipt of same,
which approval shall not be unreasonably withheld. If Mortgagee shall fail to
disapprove of such Term Sheet within such fifteen business day period, time
being of the essence, Mortgagee shall
-9-
<PAGE> 11
be conclusively deemed to have approved such Term Sheet. Mortgagee's approval or
deemed approval of any Term Sheet shall be deemed an approval of the economic
terms of such proposed Future Lease only.
(b) In connection with any proposed Future Lease, Mortgagor shall
further provide to Mortgagee (i) the identity of such proposed future tenant,
(ii) current financial information with respect to such proposed tenant (and any
guarantor thereof), including, without limitation, a balance sheet and income
statement, if available, for such proposed tenant (and any guarantor) and any
credit reference or landlord references relating to such proposed tenant
reasonably requested by Mortgagee, (iii) the nature of such proposed tenant's
business and its proposed use or uses of the space to be leased and (iv) any
other information customarily provided relating to such proposed future tenant
and reasonably requested by Mortgagee. Within fifteen business days after
Mortgagee's receipt of all of the information required pursuant to clauses (i)
through (iv) above (which information may be submitted together with or prior to
the Term Sheet for a given Future Lease), Mortgagee shall approve or disapprove
of such proposed future tenant, which approval shall not be unreasonably
withheld. In the event that Mortgagee shall elect not to approve any proposed
future tenant, Mortgagee shall notify Mortgagor at the time of such disapproval
of the specific reasons for such disapproval. If Mortgagee shall fail to
disapprove of such proposed tenant within the foregoing fifteen business day
period, time being of the essence, Mortgagee shall be conclusively deemed to
have approved such tenant.
(c) Upon or prior to the execution of any proposed Future Lease,
Mortgagor shall deliver to Mortgagee an execution copy of a Future Lease marked
to show all changes from the approved standard form of Mortgagor's lease (the
"Form Lease") and a summary of such lease setting forth the material terms and
conditions thereof. If at the time of delivery of such execution copy of a
Future Lease, Mortgagee shall have approved a Term Sheet and the proposed tenant
in connection with such proposed Future Lease, and the economic terms and
conditions of such lease are consistent with the economic terms and conditions
set forth in the approved Term Sheet (and Mortgagor shall deliver to Mortgagee a
statement certifying same), Mortgagee shall approve or disapprove such lease
within fifteen business days after the receipt thereof by Mortgagee, which
approval shall not be withheld, provided that the non-economic terms and
conditions set forth in such proposed lease are not, in the reasonable judgment
of Mortgagee or its counsel, materially less favorable to landlord than the
terms and conditions of the Form Lease and provided there has been no material
adverse change in the financial condition of the proposed tenant. If Mortgagee
shall so withhold its consent, it shall, within fifteen business days after
request by Mortgagor, notify Mortgagor of the specific reasons for such
determination and suggest modifications to the proposed Future Lease, which, if
adopted, would render the proposed Future Lease acceptable to Mortgagee. If
Mortgagee shall fail to disapprove of such lease within such fifteen business
day period, time being of the essence, Mortgagee shall be conclusively deemed to
have approved such lease. If Mortgagee shall not have approved a Term Sheet or
the proposed Future Lease, Mortgagee shall not be required to approve or
disapprove such executed lease unless and until the Term Sheet and such
information shall have been delivered by Mortgagor in accordance with the
provisions hereof. With respect to any lease which Mortgagee approves, promptly
after request of Mortgagor, Mortgagee shall execute and
-10-
<PAGE> 12
deliver to Mortgagor and the approved tenant a non-disturbance and attornment
agreement in the form approved by Mortgagee.
(d) Mortgagor may propose modifications to the then-current Form Lease
as frequently as Mortgagor shall deem appropriate. Mortgagee shall notify
Mortgagor whether or not Mortgagee approves or disapproves any proposed revision
of the Form Lease within twenty business days after receipt thereof by
Mortgagee, failing which the proposed revision of the Form Lease shall be deemed
approved. Mortgagee shall not unreasonably withhold or delay its approval of
proposed revisions to the Form Lease, and if Mortgagee disapproves of all or any
portion of such Form Lease, Mortgagee shall specify the reasons for its
disapproval and suggest acceptable alternative guidelines or provisions. Until
such time as Mortgagor shall agree on revision to the Form Lease, the
then-current Form Lease shall remain in effect.
(e) All requests made by Mortgagor and all materials and information to
be furnished to Mortgagee pursuant to the preceding provisions shall be made and
furnished to Mortgagee at the following address:
The Northwestern Mutual Life Insurance Company
1133 20th Street, N.W. - Suite 700
Washington, DC 20036
Attn: Regional Manager
Re: Loan No. C-331942
Mortgagee may require Mortgagor to pay reasonable servicing fees for Mortgagee's
review of any Term Sheet, proposed future tenant, Future Lease or Form Lease
modification.
COSTS, FEES AND EXPENSES. Mortgagor agrees to appear in and defend any action or
proceeding purporting to affect the security hereof or the rights or powers of
Mortgagee hereunder; to pay all costs and expenses, including the cost of
obtaining evidence of title and reasonable attorney's fees, incurred in
connection with any such action or proceeding; and to pay any and all reasonable
attorney's fees and expenses of collection and enforcement in the event the Note
is placed in the hands of an attorney for collection, enforcement of any of the
Loan Documents is undertaken or suit is brought thereon.
FAILURE OF MORTGAGOR TO ACT. After the occurrence of an Event of Default,
Mortgagee may, without obligation so to do, without notice to or demand upon
Mortgagor and without releasing Mortgagor from any obligation hereof: (i) make
or do the same in such manner and to such extent as Mortgagee may deem necessary
to protect the security hereof, Mortgagee being authorized to enter upon the
Property for such purpose; (ii) appear in and defend any action or proceeding
purporting to affect the security hereof, or the rights or powers of Mortgagee;
(iii) pay, purchase, contest or compromise any encumbrance, charge or lien which
in the reasonable judgment of Mortgagee appears to be prior or superior hereto;
and (iv), in exercising any such powers, pay necessary expenses, employ counsel
and pay its reasonable fees. Sums so expended shall be payable by Mortgagor
immediately upon demand with interest from date of expenditure
-11-
<PAGE> 13
at the Default Rate (as defined in the Note). All sums so expended by Mortgagee
and the interest thereon shall be included in the Indebtedness and secured by
the lien of this instrument.
EVENT OF DEFAULT. Any default in any payment required in the Note or any other
Loan Document (a "Monetary Default") not cured by payment of all amounts in
default (including payment of interest at the Default Rate, as defined in the
Note, from the date of default to the date of cure on amounts owed to Mortgagee)
within five (5) business days after the date on which Mortgagee shall have given
such notice to Mortgagor shall constitute an "Event of Default."
Any other default in any provision, covenant, agreement or warranty contained in
the Note or in any other Loan Document (a "Non-Monetary Default") not cured
within thirty (30) days after the date on which Mortgagee shall have given such
notice of default to Mortgagor (or, if the Non-Monetary Default is not curable
within such 30-day period, Mortgagor shall not have diligently undertaken and
continued to pursue the curing of such Non-Monetary Default and, if the default
is capable of being cured by the payment of money, deposited an amount
sufficient to cure such Non-Monetary Default in an escrow account satisfactory
to Mortgagee) shall constitute an "Event of Default."
In no event shall the notice and cure period provisions recited above constitute
a grace period for the purposes of commencing interest at the Default Rate (as
defined in the Note).
NOTICES. Except as otherwise provided herein, any notice or demand hereunder
shall be in writing, may be delivered personally or sent by certified mail with
postage prepaid, by reputable courier service with charges prepaid, by
telecopier or by such other method whereby the receipt thereof may be confirmed.
Any notice or demand sent to Borrower by certified mail or reputable courier
service shall be addressed to Borrower at the address set forth above or such
other address in the United States of America as Borrower shall designate in a
notice to Lender given in the manner described herein. Any notice sent to
Borrower by telecopier shall be telecopied to 212-474-7199 or to such other
telecopier number in the United States of America as shall be designated in a
notice given to Lender in the manner described herein. Any notice sent to Lender
shall be addressed to the attention of the Real Estate Investment Department at
720 East Wisconsin Avenue, Milwaukee, WI 53202 and shall refer to the Loan No.
set forth above and, if telecopied, shall be telecopied to 414/299-1557 or at
such other address or telecopier number as Lender shall designate in a notice
given in the manner described herein. Any notice or demand sent hereunder by
telecopier shall also be sent by certified mail or reputable courier service.
Any notice or demand hereunder shall be deemed given when received. Any notice
or demand which is rejected, the acceptance of delivery of which is refused or
which is incapable of being delivered for any reason whatsoever at the address
or telecopier number specified herein or such other address or telecopier number
designated pursuant hereto shall be deemed received as of the date of attempted
delivery.
APPOINTMENT OF RECEIVER. Upon the occurrence of an Event of Default and the
commencement of any proceeding to enforce any right under this instrument,
including foreclosure thereof, Mortgagee (without limitation or restriction by
any present or future law, without regard to the solvency or insolvency at that
time of any party liable for the payment of the Indebtedness,
-12-
<PAGE> 14
without regard to the then value of the Property, whether or not there exists a
threat of imminent harm, waste or loss to the Property and or whether the same
shall then be occupied by the owner of the equity of redemption as a homestead)
shall have the absolute right to the appointment of a receiver of the Property
and of the revenues, rents, profits and other income therefrom, and said
receiver shall have (in addition to such other powers as the court making such
appointment may confer) full power to collect all such income and, after paying
all necessary expenses of such receivership and of operation, maintenance and
repair of said Property, to apply the balance to the payment of any of the
Indebtedness then due.
FORECLOSURE. Upon the occurrence of an Event of Default, the entire unpaid
Indebtedness shall, at the option of Mortgagee, become immediately due and
payable for all purposes without any notice or demand, except as required by
law, (ALL OTHER NOTICE OF THE EXERCISE OF SUCH OPTION, OR OF THE INTENT TO
EXERCISE SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED) and Mortgagee may in
addition to exercising any rights it may have with respect to the Personal
Property under the Uniform Commercial Code of the jurisdiction in which the
Property is located; Mortgagee may institute proceedings in any court of
competent jurisdiction to foreclose this instrument as a mortgage, or to enforce
any of the covenants hereof or Mortgagee may, either personally or by agent or
attorney in fact and without impairing its right to foreclose this instrument,
enter upon and take possession of the Property and may manage, rent or lease the
Property or any portion thereof upon such terms as Mortgagee may deem expedient,
collect, receive and receipt for all rentals and other income therefrom and
apply the sums so received as hereinafter provided in case of sale; and
Mortgagee may institute proceedings in any court of competent jurisdiction to
foreclose this instrument as a mortgage or to enforce any of the covenants
hereof, in accordance with and subject to applicable New York law. Mortgagor
hereby waives any right it may have to require that the Property be sold as
separate tracts or units if Mortgagee shall institute an action to foreclose
this instrument and agrees that, out of the proceeds or avails of such sale,
there may be first paid all fees, charges and costs of advertising the Property
and making said sale and attorneys' fees as herein provided, and then paid the
outstanding balance of the Indebtedness, including all sums advanced or expended
by Mortgagee or the legal holder of the Indebtedness, with interest from date of
advance or expenditure of such sums at the Default Rate (as defined in the Note)
until paid. Any such sale or sales and said deed or deeds made or given in
consequence of such foreclosure shall be a perpetual bar, both in law and
equity, against Mortgagor, its successors and assigns of Mortgagor, and all
other persons claiming the Property aforesaid, or any part thereof, by, from,
through or under Mortgagor. The legal holder of the Indebtedness may purchase
the Property or any part thereof, and it shall not be obligatory upon any
purchaser at any such sale to see to the application of the purchase money.
DUE ON SALE. The ownership and management of the Property are material
considerations to Mortgagee in making the loan secured by this instrument, and
Mortgagor shall not (i) convey title to all or any part of the Property, (ii)
enter into any contract to convey (land contract/installment sales
contract/contract for deed) title to all or any part of the Property which gives
a purchaser possession of, or income from, the Property prior to a transfer of
title to all or any part of the Property ("Contract to Convey") or (iii) cause
or permit a change in the proportionate ownership of Mortgagor. Except if
resulting from the death or legal incompetency
-13-
<PAGE> 15
of any individual, any conveyance, entering into a Contract to Convey or change
in the proportionate ownership of Mortgagor shall constitute a default under the
terms of this instrument.
For purposes of this instrument, a "change in the proportionate ownership of
Mortgagor" means a change in the ownership of the voting stock of Mortgagor such
that Cornerstone Properties Inc., no longer continues to own, directly or
indirectly, 51% or more of the voting stock of or ownership interests in
Mortgagor.
Notwithstanding anything contained herein, Mortgagor may, without the approval
of Mortgagee but subject to the Loan Documents, transfer its interest in the
Property to Cornerstone Properties Inc. or any entity in which Cornerstone
Properties Inc. owns, directly or indirectly, not less than 51% of the ownership
interests.
Notwithstanding the above, provided there is then no default in the terms and
conditions of any Loan Document and upon prior written request from Mortgagor,
Mortgagee shall not withhold its consent to a one-time transfer of the Property,
provided (i) the Property shall have achieved Debt Service Coverage of at least
1.75 for the last full fiscal year as determined from financial statements
furnished to Mortgagee pursuant to the provisions hereof following the caption
"FINANCIAL STATEMENTS"; (ii) the purchaser thereof has a net worth, determined
in accordance with generally accepted accounting principles, of at least
$18,000,000.00; (iii) the purchaser is experienced in the ownership and
management of Class A office buildings; (iv) the purchaser shall have a minimum
equity investment in the Property of $16,000,000; (v) the purchaser assumes in
writing all of the obligations and liabilities of Mortgagor under the Loan
Documents; (vi) the purchaser and the stockholders of such purchaser, the
beneficiaries of such purchaser, the partners of such purchaser, or the members
of such purchaser, as the case may be, execute an Environmental Indemnity
Agreement in the form signed by Mortgagor and Cornerstone Properties Inc. of
even date herewith and delivered to Mortgagee; (vii) an environmental report on
the Property no older than 90 days prior to the date of transfer which meets
Mortgagee's then current requirements is provided to Mortgagee at least 30 days
prior to the date of transfer and is satisfactory to Mortgagee at the time of
transfer; AND (viii) Mortgagor and Cornerstone Properties, Inc. shall remain
liable under the Environmental Indemnity Agreement dated of even date herewith
and delivered to Mortgagee, except for acts or occurrences after the date of the
transfer of the Property. If Mortgagor shall make a one-time transfer to an
approved purchaser, Mortgagee shall be paid a fee equal to one percent (1%) of
the then outstanding balance of the Note at the time of transfer. The fee shall
be paid on or before the closing date of such transfer. At the time of such
transfer, no modification of the Interest Rate or repayment terms of the Note
will be required.
No subsequent transfers of the Property or changes in the proportionate
ownership of purchaser shall be allowed. As used herein, a "change in the
proportionate ownership of purchaser" means, a change in the ownership such that
an individual or entity owning more than a majority of the ownership interest in
such purchaser or possessing the power (through ownership, by contract, or
otherwise) to control the policies of such purchaser prior to such change no
longer owns a
-14-
<PAGE> 16
majority of the ownership interest in such purchaser or no longer has the power
to control the policies of such purchaser.
For purposes of this provision, "Debt Service Coverage" means a number
calculated by dividing Net Income Available for Debt Service for a fiscal period
by the debt service during the same fiscal period under all indebtedness
(including the Indebtedness) secured by mortgage liens on any portion of the
Property. For purposes of the preceding sentence, "debt service" means the
greater of (x) actual debt service due under all indebtedness secured by any
portion of the Property or (y) debt service that would have been due and payable
if all indebtedness secured by any portion of the Property were amortized over
30 years (whether or not amortization is actually required) and if interest on
such indebtedness were due monthly as it accrues (regardless of the face rate
shown on the notes therefor and whether or not monthly interest payments based
on such face rates are required).
Nothing herein shall serve to limit the direct or indirect ownership of
Cornerstone Properties, Inc.
FINANCIAL STATEMENTS. Mortgagor agrees to furnish to Mortgagee, at Mortgagor's
expense and within 90 days after the close of each fiscal year of Mortgagor
("Financial Statements Due Date"), annual unaudited financial statements on the
Property, including
(a) a balance sheet; and
(b) an income statement with a detailed line item breakdown of all
operating expenses, expenditures for tenant improvements,
leasing commissions and capital improvements (collectively
referred to herein as the "Statements").
Mortgagor also agrees to provide Mortgagee by the Financial Statements Due Date
a current rent roll listing tenant sales, sales per square foot and percentage
rents for all retail spaces (the "Rent Roll") and a certification (the
"Certification") by the chief financial officer of Cornerstone Properties, Inc.
(or the chief financial officer of any permitted purchaser of the Property)
stating that the Statements and Rent Roll are true and correct and the
Statements have been prepared in accordance with generally accepted accounting
principles. Mortgagor acknowledges that Mortgagee requires the Statements, Rent
Roll and Certification in order to record accurately the value of the Property
for financial and regulatory reporting.
If Mortgagor does not furnish, or cause to be furnished, the Statements, Rent
Roll and Certification to Mortgagee by the Financial Statements Due Date and
continues to fail to do so within 30 days after Mortgagee shall have given
written notice to Mortgagor that the Statements, Rent Roll and/or Certification
have not been received as required,
(x) interest on the unpaid principal balance of the Indebtedness shall
as of the Financial Statements Due Date, accrue and become payable at a
rate equal to the sum of the Interest Rate (as defined in the Note)
plus one percent (1%) per annum (the "Increased Rate"); and
-15-
<PAGE> 17
(y) Mortgagee may elect to obtain an independent appraisal and audit of
the Property at Mortgagor's expense, and Mortgagor agrees that it will,
upon request, promptly make Mortgagor's books and records regarding the
Property available to Mortgagee and the person(s) performing the
appraisal and audit (which obligation Mortgagor agrees can be
specifically enforced by Mortgagee).
The amount of the monthly payments due under the Note during the time in which
the Increased Rate shall be in effect shall be changed to an amount which would
be sufficient on a level payment basis to amortize the then unpaid principal
balance at the Increased Rate during the then remaining portion of a period of
30 years commencing on the Amortization Period Commencement Date (as defined in
the Note). Interest shall continue to accrue and be due and payable monthly at
the Increased Rate until the Statements, Rent Roll and Certification shall be
furnished to Mortgagee as required. Commencing on the date on which the
Statements, Rent Roll and Certification are received by Mortgagee, interest on
the unpaid principal balance shall again accrue at the Interest Rate and the
payments due during the remainder of the term of the Note shall be changed to an
amount which would be sufficient on a level payment basis to amortize the then
unpaid principal balance at the Interest Rate during the then remaining portion
of a period of 30 years commencing on the Amortization Period Commencement Date.
Notwithstanding the foregoing, Mortgagee shall have the right to conduct an
independent audit at its own expense at any time.
PROPERTY MANAGEMENT. The management company for the Property shall be reasonably
satisfactory to Mortgagee. Any change in the management company without the
prior written consent of Mortgagee shall constitute a default under this
instrument. Mortgagee hereby approves the property management division of HRO
International Ltd. and any future property management affiliate of Cornerstone
Properties Inc.
LIEN LAW. In compliance with Section 13 and Article 3-A of the Lien Law of the
State of New York, Mortgagor will receive all advances secured by this Mortgage
and will hold the right to receive all such advances as a trust fund to be
applied first for the purpose of paying the cost of improvement before using any
part of such proceeds for any other purpose.
DEPOSITS BY MORTGAGOR. To assure the timely payment of real estate taxes and
special assessments, Mortgagee shall have the option after any Event of Default
to require Mortgagor to deposit funds with Mortgagee, in monthly or other
periodic installments in amounts estimated by Mortgagee from time to time
sufficient to pay real estate taxes and special assessments as they become due.
If at any time the funds so held by Mortgagee, or in such other account, shall
be insufficient to pay any of said expenses, Mortgagor shall, upon receipt of
notice thereof, immediately deposit such additional funds as may be necessary to
remove the deficiency. All funds so deposited shall be irrevocably appropriated
to Mortgagee to be applied to the payment of such real estate taxes and special
assessments and, at the option of Mortgagee after default, the Indebtedness.
MODIFICATION OF TERMS. Without affecting the liability of Mortgagor or any other
person (except any person expressly released in writing) for payment of the
Indebtedness or for
-16-
<PAGE> 18
performance of any obligation contained herein and without affecting the rights
of Mortgagee with respect to any security not expressly released in writing,
Mortgagee may, at any time and from time to time, either before or after the
maturity of the Note, without notice or consent: (i) release any person liable
for payment of all or any part of the Indebtedness or for performance of any
obligation; (ii) make any agreement extending the time or otherwise altering the
terms of payment of all or any part of the Indebtedness, or modifying or waiving
any obligation, or subordinating, modifying or otherwise dealing with the lien
or charge hereof; (iii) exercise or refrain from exercising or waive any right
Mortgagee may have; (iv) accept additional security of any kind; (v) release or
otherwise deal with any property, real or personal, securing the Indebtedness,
including all or any part of the Property.
EXERCISE OF OPTIONS. Whenever, by the terms of this instrument, of the Note or
any of the other Loan Documents, Mortgagee is given any option, such option may
be exercised when the right accrues or at any time thereafter, and no acceptance
by Mortgagee of payment of Indebtedness in default shall constitute a waiver of
any other default then existing and continuing or thereafter occurring.
NATURE AND SUCCESSION OF AGREEMENTS. Each of the provisions, covenants and
agreements contained herein shall inure to the benefit of, and be binding on,
the successors and assigns of the parties hereto, respectively, and the term
"Mortgagee" shall include the owner and holder of the Note.
LEGAL ENFORCEABILITY. No provision of this instrument, the Note or any other
Loan Document shall require the payment of interest or other obligation in
excess of the maximum permitted by law. If any such excess payment is provided
for in any Loan Document or shall be adjudicated to be so provided, the
provisions of this paragraph shall govern and Mortgagor shall not be obligated
to pay the amount of such interest or other obligation to the extent that it is
in excess of the amount permitted by law.
LIMITATION OF LIABILITY. Notwithstanding any provision contained herein to the
contrary, the liability of Mortgagor, its shareholders, directors, officers,
employees and agents for all of its covenants, representations, warranties and
undertakings under this Mortgage shall be subject to the limitations provided in
the Note mutatis mutandis.
CAPTIONS. The captions contained herein are for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect this instrument.
GOVERNING LAW. This Mortgage shall be controlled by, and construed in accordance
with, the laws of the State of New York.
CONTINUING LIEN. This Mortgage amends and restates the Prior Mortgage, and the
mortgage lien of the Prior Mortgage shall not be released or impaired and shall
continue as the same mortgage lien against the Property on the terms and
conditions herein contained.
-17-
<PAGE> 19
IN WITNESS WHEREOF, this instrument has been executed by the Mortgagor as of the
day and year first above written.
CSTONE - NEW YORK INC., a Delaware corporation
By: __________________________________
Name: Kevin P. Mahoney
Title: Vice President
By: __________________________________
Name: Scott M. Dalrymple
Title: Vice President
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
a Wisconsin corporation
By: __________________________________
Name: Ralph A. Pelton
Title: Vice President
Attest: ______________________________
Name: Warren L. Smith, Jr.
Title: Assistant Secretary
STATE OF )
)ss.
COUNTY OF )
On the ____ day of _____________ in the year 1996 before me personally came
_________________ to me known, who, being by me duly sworn, did depose and say
that he resides in ________________________________; that he is the
_________________ of the CSTONE - NEW YORK INC., the corporation described in
and which executed the above instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
_____________________________
Notary Public
My Commission Expires:_____________
-18-
<PAGE> 20
STATE OF )
)ss.
COUNTY OF )
On the ____ day of _____________ in the year 1996 before me personally came
_________________ to me known, who, being by me duly sworn, did depose and say
that he resides in ________________________________; that he is the
_________________ of the CSTONE - NEW YORK INC., the corporation described in
and which executed the above instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
_____________________________
Notary Public
My Commission Expires:_____________
-19-
<PAGE> 21
STATE OF WISCONSIN )
)ss.
COUNTY OF MILWAUKEE )
On the 23rd day of April in the year 1996 before me personally came Ralph A.
Pelton to me known, who, being by me duly sworn, did depose and say that he
resides at c/o 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202; that he is
the Vice President of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, the
corporation described in and which executed the above instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the board of trustees of said
corporation, and that he signed his name thereto by like order.
____________________________
Bernice Buse, Notary Public
My Commission Expires: January 16, 2000
-20-
<PAGE> 22
EXHIBIT "C"
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County, and State of New York, bounded and described
as follows:
BEGINNING at a point on the southerly side of 56th Street, distant 195 feet
easterly from the corner formed by the intersection of the easterly side of Park
Avenue (formerly 4th Avenue), with the southerly side of 56th Street;
RUNNING THENCE southerly, parallel with Park Avenue and partly through a party
wall, 100 feet 5 inches to the center line of the block between 56th and 55th
Streets;
THENCE easterly, parallel with 56th Street, 60 feet;
THENCE northerly, parallel with Park Avenue and partly through a party wall, 100
feet 5 inches to the southerly side of 56th Street;
THENCE westerly, along 56th Street, 60 feet to the point or place of BEGINNING.
TOGETHER with the benefits of the negative covenants as to height contained in
the Declaration of Restrictions and Zoning Lot Merger between 119th East 55th
Associates, Congregation Ahawath Chesed Shaar Hashomayim a/k/a Central
Synagogue, Tower 16 Partners, Saul Sapper, Leonard Zigelbaum, Philren
Associates, dated 9/3/81, recorded in Reel 588 page 596 and Supplemented by
Letter Agreement dated 4/2/82 and recorded in Reel 623 page 1749.
TOGETHER with the benefits in favor of the grantee of the negative covenants of
the height restrictions contained in the following provisions of the following
deeds:
Paragraph 3(c) of Deed made as of the 5th day of June, 1981 by Congregation
Ahawath Chesed Shaar Hashomayim, a/k/a Central Synagogue to 56 & Park
Properties, a partnership and recorded on June 10, 1981 at Reel 569 page 1093 in
the Office of the City Register of New York County (the Register's Office).
Paragraphs 3(c) and 3(d) of, and the easement for light and air in, Deed made as
of the 5th day of June, 1981 by 119 East 55th Associates to 56 and Park
Properties, a partnership recorded on June 10, 1981 at Reel 569 page 1100 in the
Register's Office.
<PAGE> 23
LOAN NO. C-331942
AMENDED AND RESTATED NOTE
$18,000,000.00 As of April 25, 1996
This Amended and Restated Note ("this note") is made by CSTONE - NEW
YORK INC., a Delaware corporation, herein called "Borrower", for the benefit of
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein, together with any subsequent
holder of this note, called "Lender."
WITNESSETH:
WHEREAS, Cornerstone Properties Inc. ("Cornerstone"), a Nevada
corporation, was the mortgagee under that certain Substitute Mortgage No. 1 (the
"Prior Mortgage"), of even date herewith, made by Tower 56 Partners ("Tower
56"), a New York partnership, in favor of Cornerstone encumbering certain real
property located at 126 East 56th Street, New York, New York (the "Property");
WHEREAS, the Prior Mortgage secured the obligation of Tower 56 to make
payment to Cornerstone of principal indebtedness of Eighteen Million Dollars
($18,000,000.00) evidenced by that certain Substitute Mortgage Note. No. 1 of
even date herewith (the "Existing Note");
WHEREAS, the indebtedness evidenced by the Existing Note constitutes a
portion of the indebtedness evidenced by the notes described in Exhibit "A"
annexed hereto;
WHEREAS, Lender acquired Cornerstone's interests in the Existing Note
and the Prior Mortgage in consideration of payment to Cornerstone of
$18,000,000.00 pursuant to that certain Assignment of even date herewith;
WHEREAS, Borrower acquired the Property subject to the Prior Mortgage
and desires to assume Tower 56's obligations under the Prior Mortgage and the
Existing Note; and
WHEREAS, it is the desire of Borrower and Lender to amend and restate
the Existing Note;
NOW, THEREFORE, FOR VALUE RECEIVED, Borrower hereby assumes the obligations of
Tower 56 under the Existing Note. Borrower and Lender agree that the Existing
Note is amended and restated in its entirety as follows: Borrower promises to
pay to the order of Lender, at 720 E. Wisconsin Avenue, Milwaukee, WI 53202 or
at such other place as Lender shall designate in writing, in coin or currency
which, at the time or times of payment, is legal tender for public and private
debts in the United States, the principal sum of EIGHTEEN MILLION DOLLARS or so
much thereof as shall have been advanced from time to time plus interest on the
outstanding principal balance at the rate and payable as follows:
Interest shall accrue from the date of advance until maturity
at the rate of seven and six hundred seventy-four thousandths percent
(7.674%) per annum (the "Interest Rate").
<PAGE> 24
Accrued interest only on the amount advanced shall be paid in
arrears on the first day of the month following the date of advance
(the "Amortization Period Commencement Date"). On the first day of the
following month (the "Initial Amortization Date") and on the first day
of each and every month thereafter, installments of principal and
interest shall be paid in an amount which would be sufficient on a
level payment basis to amortize fully the unpaid principal balance
outstanding on the Amortization Period Commencement Date at the
Interest Rate during a period of 30 years commencing on the
Amortization Period Commencement Date.
All installments shall be applied first in payment of
interest, calculated monthly in arrears on the unpaid principal
balance, and the remainder of each installment shall be applied in
payment of principal. The entire unpaid principal balance plus accrued
and unpaid interest thereon shall be due and payable on May 1, 2003
(the "Maturity Date").
Borrower shall have the right, upon thirty (30) days advance written
notice, beginning December 31, 1999 of paying this note in full with a
prepayment fee. This fee represents consideration to Lender for loss of yield
and reinvestment costs. The fee shall be the greater of Yield Maintenance or 1%
of the outstanding principal balance of this note on the date of prepayment.
As used herein, "Yield Maintenance" means the amount, if any, by which
(i) the present value of the Then Remaining Payments (as
hereinafter defined) calculated using a periodic discount rate
(corresponding to the payment frequency under this note)
which, when compounded for such number of payment periods in a
year, equals the sum of .50% and the per annum effective yield
of the Most Recently Auctioned United States Treasury
Obligation having a maturity date equal to the Maturity Date
(or, if there is no such equal maturity date, then the
linearly interpolated per annum effective yield of the two
Most Recently Auctioned United States Treasury Obligations
having maturity dates most nearly equivalent to the Maturity
Date) as reported by The Wall Street Journal five business
days prior to the date of prepayment; exceeds
(ii) the outstanding principal balance of this note (exclusive of
all accrued interest).
If such United States Treasury obligation yields shall not be reported as of
such time or the yields reported as of such time shall not be ascertainable,
then the periodic discount rate shall be equal to the sum of .50% and the
Treasury Constant Maturity Series yields reported, for the latest day for which
such yields shall have been so reported, as of five business days preceding the
prepayment date, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded United States Treasury
obligations having a constant maturity most nearly equivalent to the Maturity
Date.
As used herein, "Then Remaining Payments" means payments in such amounts and at
such times as would have been payable subsequent to the date of such prepayment
in accordance with the terms of this note.
-2-
<PAGE> 25
As used herein, "Most Recently Auctioned United States Treasury Obligations"
means the U. S. Treasury bonds, notes and bills with maturities of 30 years, 10
years, 5 years, 3 years, 2 years and 1 year which, as of the date the prepayment
fee is calculated, were most recently auctioned by the United States Treasury.
In the event of a prepayment of this note following (i) the occurrence of an
Event of Default (as defined in the Lien Instrument (as hereinafter defined))
followed by the acceleration of the whole indebtedness evidenced by this note or
(ii) a condemnation of all or substantially all of the Property, such prepayment
will constitute an evasion of the prepayment terms hereof and be deemed to be a
voluntary prepayment hereof, and such payment will, therefore, to the extent not
prohibited by law, include the prepayment fee required under the prepayment in
full privilege recited above or, if such prepayment occurs prior to December 31,
1999 and results from an Event of Default followed by an acceleration of the
whole indebtedness, then such payment will, to the extent not prohibited by law,
include a prepayment fee equal to the greater of Yield Maintenance or 3% of the
outstanding principal balance of this note. If such prepayment occurs prior to
December 31, 1999 and results from a condemnation of all or substantially all of
the Property, the prepayment fee shall be the greater of Yield Maintenance or 1%
of the outstanding principal balance of this note. If such prepayment occurs
during the last 90 days prior to the Maturity Date and results from
condemnation, no prepayment fee shall be due.
In addition, upon receipt of a Qualified Offer (as defined in the Carried
Interest Agreement dated of even date herewith between Mazal American Partners,
Larry Jay Wyman, Cornerstone Properties, Inc., and CStone - New York Inc.),
Borrower shall have the right, upon thirty (30) days advance written notice,
beginning December 19, 1997 through and including December 31, 1999 of paying
this note in full with a prepayment fee equal to the greater of Yield
Maintenance or 2% of the outstanding principal balance of this note.
Notwithstanding the foregoing and provided Borrower is not in default under any
provision contained in the Loan Documents (as defined in the Lien Instrument),
this note may be prepaid in full at any time, without a prepayment fee, during
the last ninety (90) days prior to the Maturity Date.
Borrower acknowledges and agrees that the interest rate hereunder shall
be increased if, and, for so long as, certain financial statements and other
reports are not furnished to Lender, all as described in more detail in the
provision of the Lien Instrument entitled "FINANCIAL STATEMENTS".
This note is secured by certain property (the "Property") in the
Borough of Manhattan, City of New York, County of New York, State of New York
described in an Amended and Restated Mortgage and Security Agreement (the "Lien
Instrument") of even date herewith executed by CSTONE - NEW YORK INC., a
Delaware corporation, to THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument), the whole unpaid principal hereof and accrued interest shall, at
the option of Lender, to be exercised at any time thereafter, become due and
payable at once without notice, notice of the exercise of, and the intent to
exercise, such option being hereby expressly waived.
-3-
<PAGE> 26
All parties at any time liable, whether primarily or secondarily, for
payment of indebtedness evidenced hereby, for themselves, their heirs, legal
representatives, successors and assigns, respectively, expressly waive
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection; consent to the extension by Lender of the time of said
payments or any part thereof; further consent that the real or collateral
security or any part thereof may be released by Lender, without in any way
modifying, altering, releasing, affecting, or limiting their respective
liability or the lien of the Lien Instrument; and agree to pay reasonable
attorneys' fees and expenses of collection in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.
Any principal, interest or other amounts payable under any of the Loan
Documents (as defined in the Lien Instrument), not paid when due (without regard
to any notice and/or cure provisions contained in any of the Loan Documents),
including principal becoming due by reason of acceleration by Lender of the
entire unpaid balance of this note, shall bear interest from the due date
thereof until paid at the Default Rate. As used herein, "Default Rate" means the
lower of a rate equal to the Interest Rate plus 5% per annum or the maximum rate
permitted by law.
No provision of this note shall require the payment or permit the
collection of interest, including any fees paid which are construed under
applicable law to be interest, in excess of the maximum permitted by law. If any
such excess interest is collected or herein provided for, or shall be
adjudicated to have been collected or be so provided for herein, the provisions
of this paragraph shall govern, and Borrower shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law. Any such excess collected shall, at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.
Notwithstanding any provision contained herein or in the Lien
Instrument to the contrary, if Lender shall take action to enforce the
collection of the indebtedness evidenced hereby or secured by the Lien
Instrument (collectively, the "Indebtedness"), its recourse shall, except as
provided below, be limited to the Property or the proceeds from the sale of the
Property and the proceeds realized by Lender in exercising its rights and
remedies (i) under the Absolute Assignment (as defined in the Lien Instrument),
(ii) under separate guarantees, if any, (iii) under any of the other Loan
Documents (as defined in the Lien Instrument) subject to such similar
limitations as are provided in such Loan Documents, and (iv) in any other
collateral securing the Indebtedness. If such proceeds are insufficient to pay
the Indebtedness, Lender will never institute any action, suit, claim or demand
in law or in equity against Borrower or Borrower's shareholders, directors,
officers, employees or agents for or on account of such deficiency; provided,
however, that the provisions contained in this paragraph
(i) shall not in any way affect or impair the validity or
enforceability of the Indebtedness or the Lien Instrument; and
(ii) shall not prevent Lender from seeking and obtaining a judgment
against Borrower, and Borrower shall be personally liable, for
the Recourse Obligations; and
-4-
<PAGE> 27
(iii) shall not be applicable in the event of a violation of any of
the provisions of the Lien Instrument following the captions
entitled "Due on Sale" or "Other Liens" (i.e., Borrower shall
be personally liable for all of the Indebtedness in the event
of such violation).
As used herein, the term "Recourse Obligations" means
(a) rents and other income from the Property received by Borrower or
its agents after a date (the "Pre-Default Date") which is thirty-five
(35) days prior to the occurrence of an Event of Default (as defined in
the Lien Instrument) which remains uncured on the date of the
foreclosure sale of the Property pursuant to the Lien Instrument or the
conveyance of the Property to Lender in lieu of foreclosure, which
rents and other income have not been applied to (i) the payment of
principal and interest on this note, (ii) the reasonable operating
expenses (including real estate taxes) of the Property, or (iii) with
respect to capital expenditures and tenant improvements with respect to
the Property, payments required to be made under or in connection with
leases of the Property and contracts and agreements relating thereto,
in effect on the Pre-Default Date (in the case of this clause (iii)
only),
(b) amounts necessary to repair any damage to the Property caused by
waste or abuse of, or gross negligence or willful misconduct affecting,
the Property by Borrower or its agents,
(c) insurance loss and condemnation award proceeds released to Borrower
but not applied in accordance with any agreement between Borrower and
Lender as to their application,
(d) amounts necessary to pay costs of investigation and clean-up of
hazardous materials and toxic substances on or affecting the Property
to the extent required under the Environmental Indemnity Agreement of
even date herewith from Borrower and Cornerstone Properties Inc. to
Lender,
(e) damages suffered by Lender as a result of fraud or
misrepresentation in connection with the Indebtedness by Borrower or
any other person or entity acting on behalf of Borrower,
(f) except to the extent the same have been deposited with Lender in
escrow pursuant to the Lien Instrument, amounts necessary to pay real
estate taxes, special assessments and insurance premiums with respect
to the Property, either paid by Lender and not reimbursed prior to, or
remaining due or delinquent on the date (the "Transfer Date"), which is
the earlier of either (i) the later of (A) the date on which title
vests in the purchaser at the foreclosure sale of the Property pursuant
to the Lien Instrument or (B) the date on which Borrower's statutory
right of redemption shall expire or be waived or (ii) the date Borrower
tenders a deed conveying the Property to Lender in lieu of foreclosure
free and clear of liens and encumbrances subordinate to the Lien
Instrument other than such liens and encumbrances as shall be permitted
under the Loan Documents or consented to by Lender; provided that if
prior to the Transfer Date a receiver has been appointed for the
Property to collect rents or Lender has collected any rents from the
Property, Borrower shall receive a credit against any amounts which may
become due under this clause (f) to the extent such rents are applied
to the Indebtedness and not to the operating expenses of the Property,
and
-5-
<PAGE> 28
(g) tenant security deposits which have not been turned over to Lender
upon foreclosure of the Property.
Borrower and Lender agree that:
(a) This note amends and restates the Existing Note, and the
indebtedness evidenced by the Existing Note shall not be released or impaired
and shall continue as the same indebtedness on the terms and conditions herein
contained.
(b) The manner and timing of payment and the other terms, covenants,
agreements and provisions of the Existing Note are hereby modified, amended and
restated in their entirety so that henceforth the terms, provisions, covenants
and agreements thereof shall be as set forth herein, and in the event of any
conflict between the terms, provisions, covenants or agreements of the Existing
Note with the terms, provisions, covenants or agreements of this note, the
terms, provisions, covenants and agreements of this note shall prevail.
(c) This note shall be controlled by, and construed in accordance with,
the laws of the State of New York.
CSTONE - NEW YORK INC., a Delaware corporation
By: _________________________________
Name: Kevin P. Mahoney
Title: Vice President
By: _________________________________
Name: Scott M. Dalrymple
Title: Vice President
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
a Wisconsin corporation
By: _________________________________
Name: Ralph A. Pelton
Title: Vice President
-6-
<PAGE> 29
Exhibit A
-7-
<PAGE> 1
EXHIBIT 10.61
DEED OF TRUST AND SECURITY AGREEMENT
<PAGE> 2
DEED OF TRUST AND SECURITY AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Payment of Indebtedness ................................................................ 7
2. Covenants of Title ..................................................................... 7
3. Usury .................................................................................. 8
4. Impositions ............................................................................ 8
5. Escrow Deposits ........................................................................ 9
6. Change in Taxes ........................................................................ 12
7. Insurance .............................................................................. 13
8. Insurance/Condemnation Proceeds ........................................................ 14
9. Restoration Following Fire and Other Casualty or Condemnation .......................... 16
10. Disposition of Condemnation or Insurance Proceeds ...................................... 22
11. Fire and Other Casualty; Self-Help ..................................................... 24
12. Rent Insurance Proceeds ................................................................ 25
13. Intentionally omitted .................................................................. 25
14. Repair; Alterations; Waste; Environmental .............................................. 25
15. Intentionally Omitted .................................................................. 30
16. Independence of Security ............................................................... 30
17. No Other Liens; Secondary Financing .................................................... 31
18. Management ............................................................................. 35
19. Intentionally omitted .................................................................. 36
20. Sidewalks, Municipal Charges ........................................................... 36
21. Ground Lease ........................................................................... 36
22. Future Leases .......................................................................... 44
23. Intentionally Omitted .................................................................. 47
24. Leases; Foreclosure .................................................................... 47
25. One-Time Transfer of Ownership ......................................................... 47
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
26. Events of Default ...................................................................... 52
27. Remedies Upon Default .................................................................. 54
28. Acceleration Interest .................................................................. 58
29. Late Charge ............................................................................ 59
30. Waiver of Statutory Rights ............................................................. 59
31. Security Interest ...................................................................... 60
32. Right of Entry ......................................................................... 61
33. Estoppel Certificate ................................................................... 61
34. Annual Statements ...................................................................... 61
35. Rights Cumulative ...................................................................... 63
36. Subrogation ............................................................................ 63
37. No Waiver .............................................................................. 63
38. Deed of Trust Extension ................................................................ 63
39. Indemnification ........................................................................ 64
40. Nonrecourse ............................................................................ 64
41. Attorneys' Fees ........................................................................ 67
42. Administrative Fees .................................................................... 67
43. Trustee's Costs and Expenses; Governmental Charges ..................................... 68
44. Protection of Security; Costs and Expenses ............................................. 68
45. Notices ................................................................................ 70
46. Release ................................................................................ 71
47. Applicable Law ......................................................................... 71
48. Intentionally Omitted .................................................................. 71
49. Invalidity ............................................................................. 72
50. Captions ............................................................................... 72
51. Modifications .......................................................................... 72
52. Bind and Inure ......................................................................... 72
53. Replacement of Notes ................................................................... 72
54. Time of the Essence .................................................................... 73
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
55. Approvals and Consents ................................................................. 73
EXHIBIT A - LEGAL DESCRIPTION ............................................................................ 78
Exhibit B - Form of Subordination, Nondisturbance and Attornment Agreement ............................... 82
</TABLE>
-iii-
<PAGE> 5
DEED OF TRUST AND SECURITY AGREEMENT
THIS DEED OF TRUST is made as of July 23, 1996, by 1700 LINCOLN
LIMITED, a Colorado limited partnership whose general partners are ARICO-Denver,
Inc., and 1700 Lincoln, Inc., having its principal place of business at 126 East
56th Street, New York, New York, 10022 (herein referred to as "Grantor") to the
Public Trustee of the City and County of Denver, Colorado (herein referred to as
"Trustee") for the benefit of CONNECTICUT GENERAL LIFE INSURANCE COMPANY a
Connecticut corporation having its principal place of business at 900 Cottage
Grove Road, Bloomfield, Connecticut 06002 ("CGLIC"), AMERICAN GENERAL LIFE
INSURANCE COMPANY, a Texas corporation having its principal place of business at
2929 Allen Parkway, Houston, Texas 77019 ("AG") and MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY, a Massachusetts corporation, having its principal place of
business at 1295 State Street, Springfield, Massachusetts 01111 ("Mass Mutual")
(CGLIC, AG and Mass Mutual are hereinafter referred to collectively as
"Beneficiary").
WITNESSETH:
THAT, to secure (i) payment to Beneficiary of the aggregate principal
indebtedness of Ninety-Eight Million Dollars ($98,000,000) together with
interest thereon, as evidenced by (a) that certain promissory note in the
original principal amount of Thirty-two Million Six Hundred Sixty-Six Thousand,
Six Hundred Sixty-Six and No/100 Dollars ($32,666,666) (hereinafter referred to
as the "CGLIC Note") of even date herewith, and any renewals, extensions or
modifications thereof, given by Grantor to CGLIC and made payable to the order
of CGLIC, with the final payment being due and payable on August 1, 2001, in and
by which CGLIC Note the Grantor promises to pay the said principal indebtedness
and interest at the rate and in installments as provided in the CGLIC Note, (b)
that certain promissory note in the original principal amount of Thirty-two
Million Six Hundred Sixty-Seven Thousand, Six Hundred Sixty-Seven and No/100
Dollars ($32,666,667) (hereinafter referred to as the "AG Note") of even date
herewith, and any renewals, extensions or modifications thereof, given by
Grantor to AG and made payable to the order of AG, with the final payment being
due and payable on August 1, 2001, in and by which AG Note the Grantor promises
to pay the said principal indebtedness and interest at the rate and in
installments as provided in the AG Note, and (c) that certain promissory note in
the original principal amount of Thirty-two Million Six Hundred Sixty-Seven
Thousand, Six Hundred Sixty-Seven and No/100 Dollars ($32,666,667) (hereinafter
referred to as the "Mass Mutual Note") of even date herewith, and any renewals,
extensions or modifications thereof,
<PAGE> 6
given by Grantor to Mass Mutual and made payable to the order of Mass Mutual,
with the final payment being due and payable on August 1, 2001, in and by which
Mass Mutual Note the Grantor promises to pay the said principal indebtedness and
interest at the rate and in installments as provided in the Mass Mutual Note,
(the CGLIC Note, the AG Note and the Mass Mutual Note are sometimes hereinafter
referred to collectively as the "Notes" and individually as a "Note") (ii) the
performance of the covenants herein contained and the payment of any monies
expended by the Beneficiary in accordance with its rights hereunder, (iii) the
payment of all obligations and the performance of all covenants of Grantor under
any other loan documents, agreements or instruments between Grantor and
Beneficiary given in connection with or related to this Deed of Trust or the
Notes, and (iv) any and all additional advances made by Beneficiary to protect
or preserve the Security or the security interest created hereby on the
Security, or for taxes, assessments, or insurance premiums as hereinafter
provided or for performance of any of Grantor's obligations hereunder or for any
other purpose provided herein (whether or not the original Grantor remains the
owner of the Security at the time of such advances) (all of the aforesaid
indebtedness and obligations of Grantor being herein called the "Indebtedness",
and all of the documents, agreements and instruments between Grantor and
Beneficiary now or hereafter evidencing or securing the repayment of, or
otherwise pertaining to, the Indebtedness being herein collectively called the
"Loan Documents"), the Grantor does hereby mortgage, grant, bargain, sell,
assign, pledge, transfer, and convey unto Trustee and to Trustee's successors
and assigns, in trust, with power of sale and right of entry and possession, all
of the following described land, improvements, real and personal property and
rents and leases and all of Grantor's estate, right, title and interest therein
(hereinafter collectively called the "Security"):
The land described in Exhibit A attached hereto and made a part hereof
situate, lying and being in the City and County of Denver, and State of Colorado
(the "Land");
TOGETHER with all buildings and other improvements now or hereafter
located on said Land or any part thereof, including but not limited to, all
extensions, betterments, renewals, renovations, substitutes and replacements of,
and all additions and appurtenances to the Security (the "Improvements");
-2-
<PAGE> 7
TOGETHER with all of the right, title and interest of Grantor in and to
the land lying in the bed of any street, road, highway or avenue in front of or
adjoining the Land to the center lines thereof;
TOGETHER with all of Grantor's right, title, and interest in, to, and
under that certain Lease dated February 5, 1981 (recorded February 9, 1981 in
Book 2322 at Page 182) between Lincoln Building Corporation and Grantor, as
amended (the "Ground Lease"), the entire interest in the Ground Lease, both as
to the lessor and the lessee thereunder, being held by Grantor;
TOGETHER with the right to use in connection with the operation of the
Security the name "One Norwest Center" and any other name similar thereto to the
extent that Grantor has the right to assign and pledge such right hereunder;
-3-
<PAGE> 8
TOGETHER with all easements now or hereafter located on or appurtenant
to the Land and/or the Improvements or under or above the same or any part
thereof, rights-of-way, licenses, permits, approvals and privileges, belonging
or in any way appertaining to the Land and/or Improvements including without
limitation (i) any drainage ponds or other like drainage areas not located on
the Land which may be required for water run-off, (ii) any easements necessary
to obtain access from the Land to such drainage areas, or to any other location
to which Grantor has a right to drain water or sewage (iii) any land required to
be maintained as undeveloped land by the zoning rules and regulations applicable
to the Land, and (iv) any easements and agreements which are or may be
established to allow satisfactory ingress to, egress from and operation of the
Land and/or the Improvements;
TOGETHER with any and all awards heretofore made and hereafter to be
made by any governmental, municipal or State authorities to the present and all
subsequent owners of the Security for the taking of all or any portion of the
Security by power of eminent domain, including, without limitation, awards for
damage to the remainder of the Security and any awards for any change or changes
of grade of streets affecting the Security, which said awards are hereby
assigned to Beneficiary, and Beneficiary, at its option, is hereby authorized,
directed and empowered, subject to the terms of this Deed of Trust, to collect
and receive the proceeds of any such awards from the authorities making the same
and to give proper receipts and acquittances therefor, and to apply the same
toward the payment of the Indebtedness, notwithstanding the fact that such
amount may not then be due and payable; and Grantor hereby covenants and agrees
to and with Beneficiary, upon request by Beneficiary, subject to the terms of
this Deed of Trust, to make, execute and deliver, at Grantor's expense, any and
all assignments and other instruments sufficient for the purpose of assigning
the aforesaid awards to Beneficiary, free, clear and discharged of any and all
encumbrances of any kind or nature whatsoever (all of the foregoing Land,
Improvements, rights, easements,
-4-
<PAGE> 9
leasehold interests, rights-of-way, licenses, privileges, and awards,
collectively, the "Real Property");
TOGETHER with all proceeds, insurance or otherwise, paid for the damage
done to any of the Security and all proceeds of the conversion, voluntarily or
involuntarily, of any of the Security into cash or liquidated claims;
TOGETHER with all fixtures, machinery, equipment, goods, and every
other article of personal property, tangible or intangible, now or hereafter
attached to or used in connection with the Real Property, or placed on any part
thereof and whether or not attached thereto, appertaining or adapted to the use,
management, operation or improvement of the Real Property, insofar as the same
and any reversionary right thereto may now or hereafter be owned or acquired by
Grantor, including, but without limitation: all partitions; screens; awnings;
shades; blinds; floor coverings; hall and lobby equipment; heating, lighting,
plumbing, ventilating, refrigerating, incinerating, elevator, escalator, air
conditioning and communication plants or systems with appurtenant fixtures;
vacuum cleaning systems; call systems; sprinkler systems and other fire
prevention and extinguishing apparatus and materials; all equipment, manual,
mechanical and motorized, for the construction, maintenance, repair and cleaning
of, and removal of snow from, parking areas, walks, underground ways, truck
ways, driveways, common areas, roadways, highways and streets; all equipment,
manual, mechanical and motorized, for the transportation of customers or
employees to and from the store facilities on the Real Property; all telephone,
computers and other electronic equipment and appurtenances thereto, including
software; and all other machinery, pipes, poles, appliances, equipment, wiring,
fittings, panels and fixtures; and any proceeds therefrom, any replacements
thereof or additions or accessions thereto; and all building materials, supplies
and other property delivered to the Real Property for incorporation into the
Improvements thereon, all of which are declared to be a part of the realty and
covered by the lien hereof,
-5-
<PAGE> 10
but said lien shall not cover any fixture, machinery, equipment or article of
personal property which is owned by a tenant or third party manager;
TOGETHER with all of Grantor's books of accounts and records relating
to the Security, including all computers and software relating thereto.
TOGETHER with all contracts for sale and leases in the nature of sales
of the Real Property, or any portion thereof, now and hereafter entered into and
all right, title and interest of Grantor thereunder, including, without
limitation, cash or securities deposited thereunder to secure performance by the
lessees or contract purchasers; all proceeds and revenue arising from or out of
the Real Property or any part thereof; all licenses, permits, franchises,
governmental approvals and all sanitary sewer, drainage, water and utility
service agreements benefiting the Real Property or any part thereof, together
with all accounts, general intangibles, documents, instruments and chattel paper
arising from or in connection with the Real Property, including all books and
records in connection therewith; and all rights of Grantor under any leases,
covenants, agreements, easements, restrictions or declarations recorded with
respect to, or as an appurtenance to, the Real Property or any part thereof (all
of the tangible and intangible personal property described in this and the
previous two paragraphs, collectively, the "Personal Property"), and Grantor's
interest, as lessee, under any lease of property included within the description
of Personal Property above;
TOGETHER with all of the right, title and interest of Grantor in and to
all and singular the tenements, hereditaments and appurtenances thereunto
belonging to or in any way pertaining to the Security; all the estate, right,
title and claim whatsoever of Grantor, either in law or in equity, in and to the
Security; and any and all other, further or additional title, estate, interest
or right which may at any time be acquired by Grantor in or to the Security, and
if Grantor shall at any time acquire any further estate or
-6-
<PAGE> 11
interest in or to Security, the lien of this Deed of Trust shall attach, extend
to, cover and be a lien upon such further estate or interest automatically
without further instrument or instruments, and Grantor, upon request of
Beneficiary, shall execute such instrument or instruments as shall reasonably be
requested by Beneficiary to confirm such lien, and Grantor hereby irrevocably
appoints Beneficiary as Grantor's attorney-in-fact (which appointment is coupled
with an interest) to execute all such instruments if Grantor shall fail to do so
within ten (10) days after demand;
TO HAVE AND TO HOLD the Security, and each and every part thereof, unto
the Trustee and its successors and assigns in trust, for the purposes and uses
herein set forth.
AND, Grantor hereby further covenants, agrees and warrants as follows:
1. Payment of Indebtedness. Grantor will pay the principal indebtedness
and interest thereon in accordance with the provisions of the Notes and all
prepayment charges, late charges and fees required thereunder, and all
extensions, renewals, modifications, amendments and replacements thereof, and
will keep and perform all the covenants, promises and agreements and pay all
sums provided in, (i) each of the Notes or any other promissory note or notes at
any time hereafter issued to evidence the Indebtedness, (ii) this Deed of Trust
and (iii) any and all other Loan Documents, all in the manner herein or therein
set forth. Subject to Section 40 hereof, each of the persons and/or entities
constituting Grantor hereunder shall be fully liable for such payment and
performance, and such liability shall be joint and several.
2. Covenants of Title. Grantor has good and indefeasible title to the
entire Real Property in fee simple, has absolute unencumbered title to the
Personal Property, and has good right and full power to sell, mortgage and
-7-
<PAGE> 12
convey the same; the Security is free and clear of easements, restrictions,
liens, leases and encumbrances, except those easements, restrictions, liens,
leases and encumbrances listed on Schedule B of the policy or policies of title
insurance delivered to Beneficiary as of the recordation of this Deed of Trust
(the "Permitted Encumbrances"), to which this Deed of Trust is expressly
subject, or which may hereafter be created in accordance with the terms hereof;
and Grantor will warrant and defend title to the Security against all claims and
demands whatsoever except the Permitted Encumbrances. Beneficiary shall have the
right, at its option and at such time or times as it, in its sole discretion,
shall deem necessary, to take whatever action it may deem necessary to defend or
uphold the lien of this Deed of Trust or otherwise enforce any of the rights of
Beneficiary hereunder or any obligation secured hereby, including without
limitation, the right to institute appropriate legal proceedings for such
purposes.
3. Usury. In no event shall Grantor be bound to pay interest of more
than the current legal limit for the use, forbearance or detention of the money
loaned pursuant to the Loan Documents, the right to demand any such excess being
hereby expressly waived by Beneficiary.
4. Impositions. Subject to the provisions of Section 5 hereof, Grantor
will pay, not later than fifteen (15) days before the last day on which the same
may be paid without penalty or interest, all real estate taxes, sewer rents,
water charges and all other municipal and governmental assessments, rates,
charges, impositions and liens (hereinafter referred to as "Impositions") which
now or hereafter are imposed by law upon the Security, whether relating directly
to the Security or to property adjoining or abutting the Security. If any
Imposition is not paid within the time hereinabove specified, Beneficiary shall
have the right to pay the same, together with any penalty and interest thereon,
and the amount or amounts so paid or advanced shall forthwith be payable by
Grantor to Beneficiary and shall be secured by
-8-
<PAGE> 13
the lien of this Deed of Trust. Grantor may in good faith contest, at Grantor's
own cost and expense, by proper legal proceedings, the validity or amount of any
Imposition, on the condition that Grantor first shall deposit with Beneficiary,
as security for the payment of such contested item, an amount equal to the
contested item plus all penalties and interest which would be payable if Grantor
is ultimately required to pay such contested item, and on the further condition
that no amount so contested may remain unpaid for such length of time as shall
permit the Security, or the lien thereon created by the item being contested, to
be sold for the nonpayment thereof, or as shall permit an action, either of
foreclosure or otherwise, to be commenced by the holder of any such lien.
Grantor will not claim any credit on, or make any deduction from the
Indebtedness by reason of the payment of any Imposition.
Grantor hereby assigns to Beneficiary all rights of Grantor now or
hereafter arising in and to the refund of any Imposition and any interest
thereon. If upon receipt of any such refund by Beneficiary, there exists no
Event of Default (as hereinafter defined) hereunder, then Beneficiary shall pay
over the same to Grantor promptly after such receipt; if there then exists an
Event of Default hereunder, Beneficiary may apply said refund in reduction of
the Indebtedness in whatever order Beneficiary may elect.
5. Escrow Deposits. Grantor shall deposit with Beneficiary or with an
escrow agent selected by Grantor and approved by Beneficiary, on the first day
of the calendar month immediately following the date of this Deed of Trust and
on the first day of each calendar month thereafter (each of which dates is
hereinafter called the "monthly escrow deposit date") until the payment in full
of the Indebtedness, an amount equal to one-twelfth of the sum of: (a) the
Impositions to be levied, charged, assessed or imposed upon or for the Security
within one year after said monthly tax deposit date, and (b) the total annual
insurance premiums for all insurance required to be maintained by
-9-
<PAGE> 14
Grantor under this Deed of Trust ("Insurance Premiums"). If on any monthly
escrow deposit date the amount of Impositions or Insurance Premiums to be
levied, charged, assessed or imposed within the ensuing one year period shall
not be fixed, such amount for the purpose of computing the deposit to be made by
Grantor hereunder, shall be estimated by Beneficiary, with appropriate
adjustment when the amount of such Impositions and Insurance Premiums is fixed.
The sums deposited by Grantor under this Section shall be held in an
interest bearing account with interest being retained by Beneficiary and free of
trust except to the extent, if any, that applicable law shall otherwise require
and applied in payment of such Impositions and Insurance Premiums when due.
Grantor shall give thirty (30) days prior written notice to Beneficiary in each
instance when an Imposition or Insurance Premium is due, specifying the
Imposition or Insurance Premium to be paid and the amount thereof, the place of
payment and the last day on which the same may be paid in order to be within the
time limit specified in Section 4 hereof entitled "Impositions" or the last day
before which an Insurance Premium becomes delinquent "Due Date".
Notwithstanding the foregoing provision and so long as Grantor holds
title to and controls the Security, Impositions and Insurance Premiums are paid
in full when due and there exists no uncured default for which notice is not
required nor any other uncured defaults with respect to which notice has
previously been given, the interest earned by such escrows, less reasonable
escrow costs, will be paid to Grantor on a quarterly basis.
If for any reason the sums on deposit with Beneficiary or escrow agent
under this Section shall not be sufficient to pay an Imposition or Insurance
Premium within the Due Date, then Grantor shall, within ten (10) days after
demand by Beneficiary, deposit a sum which, when added to all subsequent
deposits, to be made by Grantor hereunder prior to the Due Date will enable
-10-
<PAGE> 15
Beneficiary to pay such Imposition or Insurance Premium in full, together with
any penalty and interest thereon. Beneficiary may change its estimate of
Impositions and Insurance Premiums for any period, on the basis of a change in
an assessment or tax rate or equalization factor or on the basis of a prior
miscalculation or for any other reasonable cause, in which event Grantor shall
deposit with Beneficiary or escrow agent within ten (10) days after demand the
amount of any excess of the deposits which would theretofore have been payable
under the revised estimate over the sums actually deposited.
If any Imposition shall be levied, charged, assessed or imposed upon or
for the Security, or any portion thereof, and if such Imposition shall also be a
levy, charge, assessment or imposition upon or for any other premises not
covered by the lien of this Deed of Trust, then the computation of the amounts
to be deposited under this Section shall be based upon the entire amount of such
Imposition and Grantor shall not have the right to apportion any deposit with
respect to such Imposition.
Upon an assignment of this Deed of Trust, the Beneficiary shall have
the right to arrange to transfer all amounts deposited and still in its
possession to the assignee and Beneficiary shall thereupon be completely
released from all liability with respect to such deposit and the Grantor or
owner of the Security shall look solely to the assignee or transferee in
reference thereto.
Upon the payment in full by Grantor of the entire Indebtedness, any
sums then held by Beneficiary under this Section shall be refunded to Grantor.
All amounts deposited shall be held by Beneficiary as additional
security for the sums secured by this Deed of Trust, and Grantor hereby grants
to Beneficiary a security interest in such sums, and upon the occurrence of an
Event of Default hereunder Beneficiary may, in its sole and absolute discretion,
apply said amounts to the payment of the Indebtedness in whatever
-11-
<PAGE> 16
order Beneficiary may elect.
Immediately upon receipt of such by Grantor, Grantor shall deliver to
Beneficiary copies of all notices, demands, claims, bills, and receipts in
relation to the Impositions and Insurance Premiums.
Notwithstanding the foregoing provisions, Beneficiary will waive the
requirement for deposits as to that portion of Impositions payable directly to
the governmental or other authority by tenants under the terms of leases
approved by Beneficiary, provided satisfactory proof of payment is promptly
furnished to Beneficiary.
6. Change in Taxes. In the event any tax shall be due or become due and
payable to the United States of America, the State or any political subdivision
thereof with respect to the execution and delivery or recordation of this Deed
of Trust or any other Loan Document or the interest of the Beneficiary in the
Security, Grantor shall pay such tax at the time and in the manner required by
applicable law and Grantor shall hold Beneficiary harmless and shall indemnify
Beneficiary against any liability of any nature whatsoever as a result of the
imposition of any such tax. In the event of the enactment, after the date of
this instrument, of any law changing in any way the present law as to the
taxation of notes or debts secured by mortgages, for, Federal, State, or local
purposes, or the manner of collection of any Impositions, so as to affect this
Deed of Trust or the Notes secured hereby, then Grantor shall upon demand make
such payments to Beneficiary and take such other steps, as may be necessary in
Beneficiary's reasonable judgment, to place Beneficiary in the same financial
position as it was prior to any such enactment, failing which, or if Grantor is
not permitted by law to make such payments, the Indebtedness shall, at the
option of Beneficiary, immediately become due and payable.
-12-
<PAGE> 17
7. Insurance. Grantor shall at all times until the Indebtedness shall
be paid in full, keep the Security insured against loss or damage for its full
replacement cost (which cost may be reset from time to time at Beneficiary's
reasonable election, but not more frequently than once per year) under policies
of All Risk Replacement Cost Insurance with Agreed Amount Endorsement (including
risks of war and nuclear explosion, if available), and shall further provide
flood insurance (if the Security is situated in an area which is considered a
flood risk area by the federal government or any agency thereof), boiler and
machinery insurance, rent loss insurance in an amount sufficient to cover the
total of all rents accruing from the Security for a one year period,
comprehensive general liability insurance in a minimum amount of $1,000,000, and
excess or umbrella liability of at least $25,000,000, and during any period of
restoration, a policy or policies of builder's "all risk" insurance in an amount
not less than the full insurable value of the Security against such risks as
Beneficiary may reasonably request and such other appropriate insurance as
Beneficiary may reasonably require from time to time for hazards commonly
insured against by owners of properties similar to the Security, in such amounts
and with such companies as shall be approved by Beneficiary with a Best's rating
of A:XII or better, and will assign and deliver the original or a certified copy
of the policy or policies of such insurance to Beneficiary (or in the case of a
blanket policy, an Acord 27). Each such policy shall name Beneficiary as an
additional insured and each policy other than Grantor's commercial general
liability policy shall provide that all proceeds with respect to the Security
shall be payable to Beneficiary, that the same may not be cancelled or modified
except upon thirty (30) days prior written notice to Beneficiary, that no act or
thing done by Grantor shall invalidate the policy as against Beneficiary, shall
be endorsed with standard noncontributory mortgagee clauses in favor of and in
form acceptable to Beneficiary, and shall otherwise be in such form as shall be
reasonably acceptable to Beneficiary, so that at all times until the payment in
full of the Indebtedness, Beneficiary shall have and hold the said policy
-13-
<PAGE> 18
and policies as further collateral for the payment of all Indebtedness. If
Grantor shall fail to obtain any such policy or policies required by
Beneficiary, or shall fail to assign and deliver the same to Beneficiary, then
Beneficiary may obtain such insurance and pay the premium or premiums therefor,
in which event Grantor shall, on demand of Beneficiary, repay such premium or
premiums to Beneficiary and such repayment shall be secured by the lien of this
Deed of Trust. If Grantor fails to maintain the level of insurance required
under this Deed of Trust, then Grantor shall, subject to Section 40 hereof,
indemnify Beneficiary to the extent that a casualty occurs and insurance
proceeds would have been available had such insurance been maintained.
Grantor shall promptly provide to Beneficiary copies of any and all
notices (including notice of non renewal), claims, and demands which Grantor
receives from insurers of the Security.
Any insurance required to be provided by Grantor under this Section 7
may be provided by means of a blanket policy insuring the Security as well as
other properties of Grantor.
Effective from and after any Event of Default, Grantor hereby assigns
to Beneficiary all rights of Grantor in and to any unearned premiums on any
insurance policy required to be furnished by Grantor.
8. Insurance/Condemnation Proceeds. Grantor hereby assigns to
Beneficiary all proceeds of any insurance or condemnation awards which Grantor
may be entitled to receive for loss or damage or taking of to the Security. In
the event of loss or damage to, or a taking of, the Security, the proceeds of
said insurance or condemnation award shall be payable to Beneficiary alone and
Grantor hereby authorizes and directs any affected insurance company or
government agency to make payment of the insurance proceeds or condemnation
-14-
<PAGE> 19
awards directly to Beneficiary. In the event that any such insurance proceeds or
condemnation awards are paid directly to Grantor, Grantor shall make such
proceeds or awards available to Beneficiary within five (5) days of Grantor's
receipt thereof. No such loss or damage shall itself reduce the Indebtedness. No
settlement, adjustment, or compromise of any claim for a loss shall be effective
without Beneficiary's prior written approval. If Grantor fails to take
commercially reasonable action to settle, adjust, or compromise such loss or to
reasonably advise Beneficiary of the status of settlement negotiations, the
Beneficiary shall have the right, upon notice to Grantor, to adjust and
compromise such loss without the consent of the Grantor, to collect and receive
such proceeds or awards in the name of Beneficiary and Grantor and to endorse
the Grantor's name upon any check in payment thereof. Subject to the provisions
of Sections 9, 10, and 11 hereof, such proceeds or awards shall be applied first
toward reimbursement of all costs and expenses of the Beneficiary in collecting
said proceeds or awards, then toward payment of the Indebtedness or any portion
thereof, whether or not then due and payable, in whatever order Beneficiary may
elect, or the Beneficiary may, at its option, apply said insurance proceeds or
condemnation awards in whole or in part toward restoration of the Security for
which such insurance proceeds or condemnation awards shall have been paid.
In the event of foreclosure of this Deed of Trust or other transfer of
title to the Security and extinguishment, in whole or in part, of the
Indebtedness, all right, title, and interest of Grantor in and to any proceeds
or payments in satisfaction of claims then pending, shall pass to the purchaser
or grantee notwithstanding the amount of any bid at such foreclosure sale.
Nothing contained herein shall prevent the accrual of interest as provided in
the Notes on any portion of the principal balance due under the Notes until such
time as the insurance proceeds or condemnation awards are actually received and
applied to reduce the principal balance outstanding.
9. Restoration Following Fire and Other Casualty or Condemnation. In
-15-
<PAGE> 20
the event of damage to the Security by reason of fire or other hazard or
casualty, Grantor shall give prompt written notice thereof to Beneficiary and
shall proceed with reasonable diligence to perform repair, replacement and/or
rebuilding work (hereinafter referred to as the "Work") to restore the Security
to its condition prior to such damage in full compliance with all legal
requirements. In the event of a taking by power of eminent domain or conveyance
in lieu thereof ("condemnation"), if restoration is feasible as reasonably
determined by Beneficiary, then Grantor shall proceed with reasonable diligence
to perform such restoration (also referred to as the "Work"). Before commencing
the Work, Grantor shall comply with the following requirements:
(a) Grantor shall furnish to Beneficiary complete plans and
specifications for the Work, for Beneficiary's approval, which approval
shall not be unreasonably withheld. Beneficiary shall notify Grantor of
such approval or disapproval (and the reasons therefor) or its request
for additional information within fifteen (15) business days after the
receipt of such plans. Said plans and specifications shall bear the
signed approval thereof by an architect satisfactory to Beneficiary and
shall be accompanied by the architect's signed estimate, bearing the
architect's seal, of the entire cost of completing the Work. Anything
to the contrary provided in this Paragraph (a) notwithstanding, but
without limiting any provision or requirement under other Paragraphs
under this Section 9, Beneficiary shall not withhold its approval of
any restoration plans that provide for restoration of the Improvements
to substantially equivalent condition as existed prior to the
applicable casualty.
(b) Grantor shall furnish to Beneficiary certified copies of
all permits and approvals required by law in connection with the
commencement and conduct of the Work.
(c) If Beneficiary requires, Grantor shall furnish to
-16-
<PAGE> 21
Beneficiary, prior to the commencement of the Work, a surety bond for
or guaranty of completion of and payment for the Work, which bond or
guaranty shall be in form satisfactory to Beneficiary and shall be
signed by a surety or sureties, or guarantor or guarantors, as the case
may be, who are acceptable to Beneficiary, and in either case for an
amount not less than the architect's estimate of the entire cost of
completing the Work, less the amount of insurance proceeds or
condemnation award, if any, then held by Beneficiary and which
Beneficiary shall have elected or be required to apply toward
restoration of the Security as provided in Section 10 hereof. If, prior
to commencement of the Work, the insurance proceeds or condemnation
award has not yet been received, the amount of any surety bond required
hereunder shall be based on Beneficiary's estimate of the insurance
proceeds or condemnation award which will be forthcoming.
Grantor shall not commence any of the Work, until Grantor shall have
complied with the above requirements, and thereafter Grantor shall perform the
Work diligently and in good faith in accordance with the plans and
specifications referred to in subsection (a) above.
If, as provided in Section 10 hereof, Beneficiary shall have elected or
is required to apply any insurance proceeds or condemnation awards toward
restoration of the Security, then so long as the Work is being diligently
performed by Grantor in accordance with the provisions of this Deed of Trust,
Beneficiary shall disburse such insurance proceeds or condemnation awards to
Grantor from time to time during the course of the Work in accordance with the
following provisions:
A. The Work shall be in the charge of an experienced
construction manager or general contractor reasonably satisfactory to
Beneficiary with the consultation of an architect or engineer;
-17-
<PAGE> 22
B. Each request for payment shall not be made more often than
at thirty (30) day intervals on ten (10) business days prior notice to
Beneficiary, and shall be accompanied by a certificate, satisfactory to
Beneficiary, of the architect or engineer, dated not more than ten (10)
days prior to the application for withdrawal of funds, stating:
(i) that all of the Work for which payment is
being requested is in place and has been
completed in compliance with the approved
plans and specifications and all applicable
legal requirements;
(ii) that the sum then requested to be withdrawn
has been paid by Grantor and/or is justly
due to contractors, subcontractors,
materialmen, engineers, architects or other
persons (whose names and addresses shall be
stated) who have rendered or furnished
certain services or materials for the Work
and giving a brief description of such
services and materials and the principal
subdivisions or categories thereof and the
respective amounts so paid or due to each of
said persons in respect thereof and stating
the progress of the Work up to the date of
said certificate;
(iii) that the sum then requested to be withdrawn,
plus all sums previously withdrawn, does not
exceed the cost of the Work insofar as
actually accomplished up to the date of such
certificate;
(iv) that the remainder of the moneys held by
Beneficiary will be sufficient to pay in
full for the completion of the Work;
-18-
<PAGE> 23
(v) that no part of the cost of the services and
materials described in the foregoing
paragraph (ii) of this Clause B has been or
is being made the basis of the withdrawal of
any funds in any previous or then pending
application; and
(vi) that, except for the amounts, if any,
specified in the foregoing paragraph (ii) of
this Clause B to be due for services or
materials, there is no outstanding
indebtedness known, after due inquiry, which
is then due and payable for work, labor,
services or materials in connection with the
Work which, if unpaid, might become the
basis of a vendor's, mechanic's, laborer's
or materialman's statutory or other similar
lien upon the Security or any part thereof,
except amounts for which the Grantor
disputes and for which no lien has been
filed, or if a lien has been filed, for
which Grantor has provided bonding in an
amount approved by Beneficiary.
C. Grantor shall deliver to Beneficiary satisfactory evidence
that the Security and every part thereof, and all materials and all
property described in the certificate furnished pursuant to the
foregoing Clause B, are free and clear of all mortgages, liens, charges
or encumbrances, except (a) encumbrances, if any, securing indebtedness
due to persons (whose names and addresses and the several amounts due
them shall be stated) specified in said certificate furnished pursuant
to the foregoing Clause B, which encumbrances will be discharged upon
disbursement of the funds then being requested, and (b) this Deed of
Trust. Beneficiary shall accept as satisfactory evidence under this
-19-
<PAGE> 24
Clause C a certificate of a title insurance company acceptable to
Beneficiary or an endorsement to Beneficiary's existing loan title
policy insuring the lien of this Deed of Trust, dated as of the date of
the making of the disbursement, confirming the foregoing.
D. Prior to the first advance, Grantor shall deliver to
Beneficiary a survey of the Security dated as of a date within ten (10)
days prior to the making of the advance (or revised to a date within
ten days prior to the advance and periodically thereafter as
Beneficiary shall reasonably request) showing no encroachments other
than those, if any, acceptable to Beneficiary.
E. There shall be no Event of Default by Grantor under any of
the Notes or under any other of the Loan Documents, or any state of
facts existing which, with the passage of time or the giving of notice,
or both, would constitute an Event of Default.
Beneficiary at its option may waive any of the foregoing requirements.
Upon compliance by Grantor with the foregoing Clauses A, B, C, D, and E
(except for such requirements, if any, as Beneficiary at its option may have
waived), Beneficiary shall, to the extent of the insurance proceeds or
condemnation award, if any, which Beneficiary shall have elected or be required
hereunder to apply to restoration of the Security, pay or cause to be paid to
the persons named in the certificate furnished pursuant to the foregoing
paragraph (i) of Clause B, the respective amounts stated in said certificate to
be due them, less ten percent (10%) retainage, or such other retainage
percentage as Beneficiary may approve ("Retainage"), and shall pay to Grantor
the amounts stated in said certificate to have been paid by Grantor, less
Retainage.
-20-
<PAGE> 25
If upon completion of the Work there shall be insurance proceeds or
condemnation awards held by Beneficiary over and above the amounts withdrawn
pursuant to the foregoing provisions, plus Retainage, then Beneficiary shall, as
long as there shall exist no Event of Default under any of the Notes or under
any of the Loan Documents, or any state of facts existing which, with the
passage of time or the giving of notice, or both, would constitute an Event of
Default, pay over such proceeds to Grantor; or if such Event of Default or state
of facts exists, then Beneficiary, may retain such proceeds or awards and apply
the same in reduction of the Indebtedness, in whatever order Beneficiary may
elect.
Upon completion of Work, in addition to the requirements of the
foregoing Clauses A, B, C, D, and E Grantor shall promptly deliver to
Beneficiary:
(a) A written certificate of the architect or engineer that
the Work has been substantially completed (subject only to punch list
items) in a good and workmanlike manner in accordance with the approved
plans and specifications;
(b) A written report and policy of a title insurance company
acceptable to Beneficiary insuring the Security against mechanics' and
materialmen's liens;
(c) A certificate by Grantor in form and substance
satisfactory to Beneficiary, listing all costs and expenses in
connection with the completion of the Work and the amount paid by
Grantor with respect to the Work;
(d) A temporary certificate of occupancy and all other
applicable certificates, licenses, consents and approvals issued by
governmental agencies or authorities with respect to the Security and
by the
-21-
<PAGE> 26
appropriate Board of Fire Underwriters or other similar bodies acting
in and for the locality in which the Security is situated, provided
that within thirty (30) days after completion of the Work, Grantor
shall obtain and deliver to Beneficiary a permanent certificate of
occupancy for the Security.
Upon receipt of the foregoing items, Beneficiary shall pay any
Retainage held by Beneficiary for the benefit of Grantor.
10. Disposition of Condemnation or Insurance Proceeds. Subject to the
exceptions set forth below, Beneficiary, in its absolute discretion, may decide
whether and to what extent, if any, proceeds of insurance or condemnation will
be made available to Grantor for repair or restoration of the Security, but
Grantor shall effect such repair or restoration as provided above whether or not
Beneficiary makes any of such proceeds available for that purpose.
Notwithstanding the foregoing, Beneficiary agrees to make insurance or
condemnation proceeds available to Grantor for repair or restoration provided:
(i) Not more than 40% of the net rentable area of the
Real Property is rendered untenantable, and, in the
case of a condemnation, the portion of the Security
not taken by condemnation has not, in Beneficiary's
sole opinion, been rendered economically nonviable by
the taking;
(ii) There has been no Event of Default under the Loan
Documents for the twelve (12) months preceding the
damage or taking, and there does not then exist an
Event of Default, or any state of facts which, with
the passage of time or the giving of notice, or both,
would constitute an Event of Default;
-22-
<PAGE> 27
(iii) Grantor can demonstrate to Beneficiary's satisfaction
that Grantor has the financial ability to make all
scheduled payments when due under the Loan Documents
during repair or restoration;
(iv) Such damage or taking occurs prior to the last loan
year and the Work can be completed prior to the
Maturity Date;
(v) Annual income from leases in place and approved by
Beneficiary that will survive completion of the Work
provide coverage of at least 1.30 times the annual
debt service;
(vi) The Work will return the Improvements to
substantially the size, design, and utility as
existed immediately before the casualty; and
(vii) The proceeds are released under the
escrow/construction funding arrangements specified in
Section 9 hereof, provided, however, that if Grantor
can demonstrate to Beneficiary's reasonable
satisfaction that the insurance proceeds shall be
sufficient to restore and renovate the Security and
that the proceeds total less than $500,000, the
requirement of an escrow will be waived.
If Beneficiary is not required and does not elect to make the proceeds
available for the Work, then such proceeds shall be applied to reduce the
Indebtedness in whatever order Beneficiary may elect. Any application of such
proceeds to the principal indebtedness evidenced by the Notes shall be at par
and shall cause a pro rata reduction in payments of interest and, if applicable,
principal, under the Notes; provided, however, that if there exists an Event of
Default, the prepayment fee as provided in the Notes shall
-23-
<PAGE> 28
also be due.
11. Fire and Other Casualty; Self-Help. If within one hundred twenty
(120) days after the occurrence of any damage to the Security in excess of
$100,000 or the condemnation of any portion of the Security, Grantor shall not
have submitted to Beneficiary and received Beneficiary's approval of plans and
specifications for the Work or shall not have obtained approval of such plans
and specifications from all governmental authorities whose approval is required,
or if, after such plans and specifications are approved by Beneficiary and all
such governmental authorities, Grantor shall fail to promptly commence the Work,
or if thereafter Grantor fails to perform the Work diligently or is delinquent
in the payment to mechanics, materialmen or others of the costs incurred in
connection with the Work, or, in the case of any loss or damage not in excess of
$100,000.00, if Grantor shall fail to complete the Work promptly, then, in
addition to all other rights herein set forth, and after giving Grantor twenty
(20) days written notice of the nonfulfillment of one or more of the foregoing
conditions Beneficiary, or any lawfully appointed receiver of the Security may
at its respective option, perform or cause the Work to be performed, and may
take such other steps as it deems advisable to perform the Work, and may enter
upon the Security for any of the foregoing purposes, and Grantor hereby waives,
for Grantor and all others holding under Grantor, any claim against Beneficiary
or such receiver arising out of anything done by Beneficiary or such receiver
pursuant to this Section, and Beneficiary may apply insurance proceeds (without
the need to fulfill the requirements of Section 9 hereof) to reimburse
Beneficiary, and/or such receiver for all amounts expended or incurred by them,
respectively, in connection with the performance of the Work, and any excess
costs shall be paid by Grantor to Beneficiary upon demand, with interest at the
Default Rate (hereinafter defined), and such payment shall be secured by the
lien of this Deed of Trust.
-24-
<PAGE> 29
12. Rent Insurance Proceeds. If Grantor shall promptly commence and
diligently perform the Work, and there shall be no Event of Default under the
Loan Documents, then Beneficiary shall each month pay to Grantor out of the rent
insurance proceeds held by Beneficiary a sum equal to that amount, if any, of
the rent insurance proceeds paid by the insurer which is allocable to the rental
loss for the preceding month. Beneficiary at its option may waive any of the
foregoing conditions to the payment of rent insurance proceeds. If Grantor does
not fulfill the foregoing conditions entitling Grantor to monthly disbursements
of rent insurance proceeds, then such rent insurance proceeds shall be held by
Beneficiary until the earlier to occur of satisfaction of such condition or the
occurrence of an Event of Default and acceleration of the Indebtedness at which
time may be applied by Beneficiary, at Beneficiary's option, to the payment of
the Indebtedness in whatever order Beneficiary may elect.
13. Intentionally omitted.
14. Repair; Alterations; Waste; Environmental. Grantor shall keep all
of the Security in good and substantial repair, and expressly agrees that it
will neither permit nor commit any waste upon the Security nor do any other act
or suffer or permit any act to be done, whereby the Security will become less
valuable or the lien hereof may be impaired and shall comply with all zoning
laws, building codes, subdivision laws, environmental laws, and other laws,
ordinances, rules and regulations made or promulgated by any government or
municipality, or by any agency thereof or by any other lawful authority, which
are now or may hereafter become applicable to the Security. Grantor shall repair
or restore any building now or hereafter under construction on the Security and
complete the same within a reasonable period of time. Grantor agrees not to
initiate or acquiesce in any zoning variance or reclassification, without
Beneficiary's prior written consent. Grantor shall not construct any additional
building or buildings or make any other
-25-
<PAGE> 30
improvements on the Land nor alter, remove or demolish any building or other
Improvements on the Land, without the prior written consent of Beneficiary.
If Grantor suffers or permits any Event of Default to exist under this
Section, Beneficiary or a lawfully appointed receiver of the Security at its
option, from time to time, may perform, or cause to be performed, any and all
repairs and such other work as it deems necessary to bring the Security into
compliance with the provisions of this Section and may enter upon the Security
for any of the foregoing purposes, and Grantor hereby waives any claim against
Beneficiary and/or such receiver, arising out of such entry or out of any other
act carried out pursuant to this Section. Grantor shall upon demand repay to
Beneficiary and such receiver, with interest at the Default Rate, all amounts
expended or incurred by them, respectively, in connection with any action taken
pursuant to this Section, and such repayment shall be secured by the lien of
this Deed of Trust.
Grantor represents and warrants that there are and at all times will be
at least the greater of (a) .8 parking spaces per 100 square feet of net
rentable area or (b) sufficient parking spaces to comply with applicable
government regulations as part of the Security.
Grantor represents and warrants that Grantor has not used and will not
use and, to the best of Grantor's knowledge, no prior owner or current or prior
tenant, subtenant, or other occupant of all or any part of the Security has used
or is using Hazardous Materials (hereinafter defined) on, from or affecting the
Security in any manner that violates the Environmental Laws (hereinafter
defined), and that, no Hazardous Materials have been disposed of on the
Security, intentionally or unintentionally, directly or indirectly, by any
person whether related or unrelated to Grantor, nor have any Hazardous Materials
migrated onto the Security in either case, in violation of the Environmental
Laws.
-26-
<PAGE> 31
For purposes of this Deed of Trust, the following terms shall have the
definition set forth:
"Hazardous Materials" shall mean and include those elements, materials,
compounds, mixtures, wastes or substances which are contained in any list of
hazardous substances adopted by the United States Environmental Protection
Agency (the "EPA") or any list of toxic pollutants designated by Congress or the
EPA or which are defined as hazardous, toxic, pollutant, infectious, flammable
or radioactive by any of the Environmental Laws (hereinafter defined) and,
whether or not included in such lists, shall be deemed to include all products
or substances containing petroleum, asbestos, and polychlorinated biphenyls.
"Environmental Laws" shall mean and include any Federal, State, or
local statute, law, ordinance, code, rule, regulation, order, or decree
regulating or relating to protection of human health or the environment, or
regulating or imposing liability or standards of conduct concerning the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of any hazardous, toxic, or dangerous waste, substance,
element, compound, mixture or material, as now or at any time hereafter in
effect including, without limitation, Colorado Air Quality Control Act, C.R.S.
Sections 25-7-101 et seq.; the Colorado Hazardous Materials Transportation Act
of 1987, C.R.S. Sections 43-6-101 et seq.; the Colorado Nuclear Materials
Transportation Act of 1986, C.R.S. Sections 40-2.2-101 et seq.; the Colorado
Water Quality Control Act, C.R.S. Sections 25-8-101 et seq.; the Colorado
Underground Storage Tank Act, C.R.S. Sections 8-20-501 et seq., 8-20-601 et
seq., and 25-18-101 et seq.; the Colorado Hazardous Waste Act, C.R.S. Sections
25-15-101 et seq.; the Colorado Hazardous Materials Incident Act, C.R.S.
Sections 29-22-101 et seq. the Federal Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Sections 9601 et seq., the
Superfund Amendments and Reauthorization Act, 42 U.S.C. Sections 9601 et seq.,
the Federal Oil Pollution Act of 1990, 33 U.S.C. Sections 2701, et seq., the
Federal Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq., the
Federal Resource Conservation and Recovery Act as amended, 42 U.S.C. Sections
6901
-27-
<PAGE> 32
et seq., the Federal Hazardous Materials Transportation Act, 49 U.S.C. Sections
1801 et seq., the Federal Clean Air Act 42 U.S.C. Sections 7401 et seq., the
Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 et seq., the River
and Harbors Act of 1899, 33 U.S.C. Sections 401 et seq., the National Emission
Standard for Hazardous Air Pollutants for Asbestos, 40 C.F.R. Sections 61.140 et
seq., the OSHA Construction Standard, 29 C.F.R. Sections 1926.1001 et seq., and
all rules and regulations of the EPA, or any other state or federal department,
board, or agency, or any other agency or governmental board or entity having
jurisdiction over the Security, as any of the foregoing have been, or are
hereafter amended.
Grantor represents and warrants that, to the best of Grantor's
knowledge and belief, the Security does not contain, and has not in the past
contained, any asbestos-containing material in friable form and there is no
current or potential airborne contamination of the Security by asbestos fiber,
including any potential contamination that would be caused by maintenance or
tenant finish activities in the Security.
Grantor represents and warrants that it has not received any notice
that the soil, surface water, and ground water of or on the Security are not
free from any spills of oil or other solid or liquid waste, toxic or hazardous
substance or contaminant, and Grantor, after making reasonable inquiry, has no
knowledge of any such spill.
In the event that any investigation, site monitoring, containment,
clean-up, removal, restoration or other remedial work of any kind or nature (the
"Remedial Work") is reasonably necessary or desirable under any applicable
local, state or federal law or regulation, any judicial order, or by any
governmental entity because of, or in connection with, the current or future
presence, suspected presence, release or suspected release of a Hazardous
Material in or about the air, soil, ground water, surface water or soil vapor
at, on, about, under or within the Security (or any portion
-28-
<PAGE> 33
thereof), Grantor shall within thirty (30) days after written demand for
performance thereof by Beneficiary (or such shorter period of time as may be
required under any applicable law, regulation, order or agreement), commence and
thereafter diligently prosecute to completion, all such Remedial Work. All
Remedial Work shall be performed by contractors approved in advance by
Beneficiary which approval shall not be unreasonably withheld or delayed, and
under the supervision of a consulting engineer approved by Beneficiary. All
costs and expenses of such Remedial Work shall be paid by Grantor including,
without limitation, Beneficiary's reasonable attorneys' fees, paralegal fees and
costs incurred in connection with monitoring or review of such Remedial Work.
Such costs and expenses to be borne by Grantor shall not include those relating
to Beneficiary's employment of contractors and consulting engineers other than
those approved pursuant to the foregoing, unless such employment is reasonably
necessary and justifiable under the then existing circumstances. In the event
Grantor shall fail to timely prosecute to completion, such Remedial Work,
Beneficiary may, but shall not be required to, cause such Remedial work to be
performed and all costs and expenses thereof, or incurred in connection
therewith, shall become part of the Indebtedness.
Grantor shall provide Beneficiary with prompt written notice (a) upon
Grantor's becoming aware of any release or threat of release of any Hazardous
Materials upon, under or from the Security; (b) upon Grantor's receipt of any
notice from any federal, state, municipal or other governmental agency or
authority in connection with any Hazardous Materials located upon or under or
emanating from the Security; and (c) upon Grantor's obtaining knowledge of any
incurrence of expense by any governmental agency or authority in connection with
the assessment, containment or removal of any Hazardous Materials located upon
or under or emanating from the Security.
15. Intentionally Omitted.
-29-
<PAGE> 34
16. Independence of Security. Trustor shall not by act or omission
permit any building or other improvement on premises not subject to the lien of
this Deed of Trust to rely on the Security or any part thereof or any interest
therein to fulfill any municipal or governmental requirement, and Trustor hereby
assigns to Beneficiary any and all rights to give consent for all or any portion
of the Security or any interest therein to be so used. Similarly, no part of the
Security shall rely on any premises not subject to the lien of this Deed of
Trust or any interest therein to fulfill any governmental or municipal
requirement. Trustor shall not by act or omission impair the integrity of the
Security as a single zoning lot, and as one or more complete tax parcels,
separate and apart from all other premises. Any act or omission by Trustor which
would result in a violation of any of the provisions of this Section shall be
void. Trustor shall, if it has not already been accomplished, obtain a
separation of the Real Property from all other adjacent lands, and the same
shall be promptly accomplished, and evidenced in the appropriate public records.
In any event, if such separation is not accomplished and evidenced on the
completed assessment roll of the Denver County Assessor for the tax year 1996 as
and when such assessment roll is submitted by the Assessor to the Clerk of the
Board of Supervisors of said County, then Beneficiary may at its option, with or
without notice, declare all sums secured by this Deed of Trust to be immediately
due and payable and avail itself of any and all remedies provided for herein
upon the occurrence of an Event of Default; and further, Beneficiary may at its
option, in addition or in the alternative to the above, should Trustor fail to
pay the same before they become delinquent, advance the necessary monies to pay
all taxes, assessments, and other charges levied or assessed on or against the
Real Property and any other parcel or parcels adjacent thereto, whether or not
such other adjacent parcels be otherwise part of or subject to the terms and
conditions of this Deed of Trust, and all such monies so advanced shall be
secured by the lien of this Deed of Trust and shall be subject to the same terms
and conditions as provided herein.
-30-
<PAGE> 35
17. No Other Liens; Secondary Financing. Grantor shall not consent,
agree to, or permit any mortgage, lien, or security interest upon or affecting
the Security or any part thereof except as granted or permitted in this Deed of
Trust and any other lien or security interest granted to Beneficiary.
Notwithstanding the foregoing provisions, Grantor shall have the right
to borrow additional funds from another lender and further encumber the Real
Property with a secondary lien provided:
(i) at the time of Grantor's request and at the time of
the financing transaction closing there exists no
uncured default for which notice is not required nor
any other uncured default for which notice has been
previously given to Grantor;
(ii) the proposed secondary financing shall be from an
Institutional Investor;
(iii) the aggregate current Debt Service Coverage, as
hereinafter defined in Section 25, on the aggregate
amount of the Notes plus Beneficiary's proposed
additional financing exceeds 1.5 times;
(iv) the proposed secondary financing shall not be given
in satisfaction of, or to evidence, judgments or
claims against Grantor, nor shall any security
interest (mortgage) securing the proposed financing
be cross-defaulted or cross-collateralized with any
other security interest in any other property;
(v) at least 30 days prior to the closing of the proposed
-31-
<PAGE> 36
secondary financing Grantor shall provide Beneficiary
with all of the material provisions of such financing
including without limitation the proposed date of
closing and the name, background and address of the
proposed lender, and the principal amount, rate,
periodic payments, term and other salient features of
the financing;
(vi) the additional financing must not call for an accrual
of interest or additional principal and all payments
must be on a current pay basis, and interest on such
financing must be payable at a fixed rate or floating
rate (if subject to a maximum interest rate cap such
that the debt service coverage requirement under
subparagraph (iii) above will be satisfied at the
maximum rate);
(vii) the aggregate loan-to-value ratio of the aggregate
principal amount of the Notes and the proposed
secondary financing must not exceed 65%, and
Beneficiary shall be provided with such reasonable
information as Beneficiary may require to determine
the same;
(viii) Grantor shall pay for all of Beneficiary's costs and
expenses associated with such financing, including
without limitation, cost of the appraisal, attorneys'
fees charged by Beneficiary's staff counsel, special
counsel or outside counsel; and
(ix) the secondary lender shall enter into an
intercreditor agreement with Beneficiary to the
following effect:
(a) the secondary lender waives any right to
marshaling or
-32-
<PAGE> 37
to assert priority over future advances, if
any, provided for in the loan documents;
(b) the secondary lender agrees to be bound by
any extensions or modifications of the Loan
Documents;
(c) the secondary lender agrees that Beneficiary
shall in all cases be paid all sums then due
under the Loan Documents before the
secondary lender receives any sums then due
under the secondary financing;
(d) the secondary lender agrees to notify
Beneficiary of any default by Grantor under
such secondary financing loan documents and
further agrees not to accelerate or to
exercise any rights or remedies with respect
to the Real Property for a period of ninety
(90) days after Beneficiary's receipt of
such notice;
(e) the secondary lender agrees that it will not
transfer its interest without the prior
written consent of Beneficiary and that any
transferee will enter into and assume its
obligations under the intercreditor
agreement;
(f) the subordinate lender shall expressly
acknowledge the priority of the liens and
security interest of the Loan Documents over
the liens and security interests of the
secondary financing loan documents, and
shall agree to enter into non-disturbance
agreements with respect to all leases of
space in the Building entered into after the
date of such secondary lien, satisfactory in
form and substance to Beneficiary, which
shall be
-33-
<PAGE> 38
appropriately recorded; and
(g) the secondary lender will not take an
adverse position to Beneficiary in the event
of the bankruptcy or insolvency of Grantor.
(x) The Loan Documents will provide that any default
under the second mortgage shall constitute a default
under the Loan.
Notwithstanding the foregoing, no secondary financing shall be
permitted during any earnout period or prior to the time any additional
collateral, including without limitation any guarantee, letter of credit,
escrowed amounts (other than tax escrow), master leases by Grantor or any other
collateral posted by Grantor as security for the Deed of Trust has been released
or collected.
"Institutional Investor" is defined as any bank, savings and loan
association, trust company, insurance company, pension fund, investment
advisor, credit union, real estate investment trust or charitable
foundation actively engaged in acquiring or financing major commercial
real estate properties and approved by Beneficiary, such approval not
to be unreasonably withheld.
Grantor will promptly pay and discharge any and all amounts which are
now or hereafter become liens against the Security whether or not superior to
the lien hereof or to any assignment of rents and leases given to Beneficiary.
The covenants of this Section shall survive any foreclosure and sale of
the Security and any conveyance thereof by deed in lieu of foreclosure with
respect to any such liens in existence as of the date of transfer of title.
-34-
<PAGE> 39
18. Management. During the term of the loan secured hereby, Grantor
shall at all times retain a professional management company to operate and
manage the Security. A written management agreement shall be required and the
management company and the form and content of the management agreement shall be
subject to Beneficiary's approval, which shall not be unreasonably withheld or
delayed. No change in such management shall be made without the prior written
approval of Beneficiary which shall not be unreasonably withheld or delayed, and
any attempted change in management without such consent shall be void. The
management of the Security, including any wholly owned and controlled affiliate
of Grantor and any proposal for direct management by Grantor, must be
satisfactory to and approved by Beneficiary, provided, however, Beneficiary
shall not unreasonably withhold approval of any affiliate of Grantor or direct
management by Grantor. Beneficiary acknowledges that a proposed affiliate of
Grantor may not have managed or be managing other properties similar to the
Security and agrees that Beneficiary will not withhold its consent solely on
that basis if, in Beneficiary's sole judgment, such affiliate has adequate
resources and appropriately experienced employees to effectively manage the
Security. The management agreement must provide that it is subordinate to the
lien of this Deed of Trust or terminable without cause upon thirty (30) days'
prior written notice, and may not be modified or amended in any material manner
without Beneficiary's prior written approval. Management fees shall not
constitute a lien upon the Security and Beneficiary shall have no liability for
payment of such fees. The manager under the management agreement and under any
successor management agreement shall agree to termination thereof upon
foreclosure or upon Beneficiary's otherwise taking control of the Security.
Subject to Beneficiary's approval of the form of its management agreement,
Beneficiary hereby approves Hines Interests Limited Partnership as the manager
of the Security.
19. Intentionally omitted.
-35-
<PAGE> 40
20. Sidewalks, Municipal Charges. Grantor will promptly pay and
discharge any and all license fees and similar charges, with penalties and
interest thereon, which may be imposed by the municipality in which the Security
is situated, for the use of vaults, chutes, areas and other space beyond the lot
line and under or abutting the public sidewalks in front of or adjoining the
Security, and Grantor will promptly cure any violation of law and comply with
any order of such municipality respecting the repair, replacement or condition
of the sidewalk or curb in front of or adjoining the Security, and in default
thereof Beneficiary may, upon five (5) days notice to Grantor, pay any and all
such license fees or similar charges, with penalties and interest thereon, and
the charges of the municipality for such repair or replacement, and any amount
so paid or advanced by Beneficiary and all costs and expenses incurred in
connection therewith (including, without limitation, attorneys' fees), with
interest thereon at the default rate specified in the Notes, shall be a demand
obligation of Grantor to Beneficiary, and, to the extent permitted by law, shall
be added to the Indebtedness and shall be secured by the lien of this Deed of
Trust.
21. Ground Lease.
(a) Grantor hereby represents and warrants that it holds
all right, title, and interest in, to, and under the
Ground Lease, both as to the lessor and lessee
thereunder, and all representations, warranties, and
agreements made hereunder are being made by Grantor
in its capacity as both lessor and lessee. Grantor
hereby agrees that the Ground Lease, together with
all extensions, replacements, and modifications
thereof, are and at all times shall be subject and
subordinate to this Deed of Trust and all terms
hereof and, to the extent that any provisions of the
Ground Lease are in conflict with any provisions of
this Deed of Trust or any other Loan Documents,
-36-
<PAGE> 41
the provisions of this Deed of Trust and the other
Loan Documents shall control and prevail.
(b) Grantor shall at all times promptly and faithfully
keep, observe and perform in all material respects,
or cause to be kept, observed and performed in all
material respects, all the covenants, agreements and
conditions contained in the Ground Lease, to be kept,
observed and performed, and shall in all material
respects conform to and comply with the terms and
conditions of the Ground Lease, and Grantor shall not
do or permit any thing to be done, the doing of
which, or refrain from doing any thing, the omission
of which, would impair or tend to impair the security
of this Deed of Trust, or would be grounds for a
termination the Ground Lease or a declaration of a
forfeiture of any interest in the Ground Lease.
(c) Grantor shall not modify, change, supplement, alter
or amend the Ground Lease in any respect, either
orally or in writing, and Grantor shall not
terminate, cancel, sever or surrender, or suffer the
termination, cancellation, severance or surrender of,
the Ground Lease or the ground leasehold estate, and
shall not in any way release or discharge any party
to or under the Ground Lease, or any of its
successors or assigns, of or from any obligations,
covenants, conditions and agreements by said party to
be kept, observed or performed. Grantor hereby
expressly assigns, releases, relinquishes and
surrenders unto Beneficiary all its right, power and
authority to cancel, terminate, surrender, sever,
amend, modify or alter in any respect the terms and
provisions of the Ground Lease, the leasehold estate,
and any
-37-
<PAGE> 42
attempt on the part of Grantor to exercise any such
right without the prior written consent of
Beneficiary shall be void and of no force and effect.
(d) No release or forbearance of any of Grantor's
obligations under the Ground Lease pursuant to the
terms thereof, or otherwise, shall release Grantor of
its obligations under this Deed of Trust or any
instrument supplemental hereto.
(e) Grantor shall give Beneficiary immediate notice of
any default under the Ground Lease and Grantor shall
furnish to Beneficiary immediately any and all
information which Beneficiary may request concerning
the performance and observance of all covenants,
agreements and conditions contained in the Ground
Lease, observed and performed and concerning the
compliance with all terms and conditions of the
Ground Lease. Grantor hereby authorizes Beneficiary
or its representatives to make investigations and
examinations concerning such performance, observance
and compliance, and Grantor, upon request, shall
promptly deposit with Beneficiary any and all
documentary evidence relating to such performance,
observance and compliance and copies of any and all
notices, communications, plans, specifications or
other instruments or documents received or given by
Grantor in any way relating to or affecting the
Ground Lease which may concern or affect the estate
of the lessor or the lessee in or under the Ground
Lease or in the leased premises thereby demised.
(f) In the event of any failure by Grantor to keep,
observe or perform any covenant, agreement or
condition contained in the
-38-
<PAGE> 43
Ground Lease or to comply with the terms and
conditions of the Ground Lease, Beneficiary may, at
Beneficiary's option, perform, observe or comply with
the Ground Lease on behalf of Grantor, and any such
performance, observance or compliance by Beneficiary
shall not remove or waive, as between Grantor and
Beneficiary, the corresponding Event of Default under
the terms of this Deed of Trust. Any amount so
advanced by Beneficiary to effectuate such
performance, observance or compliance and all costs
and expenses incurred in connection therewith
(including, without limitation, attorneys' fees),
with interest thereon at the Default Rate, shall be a
demand obligation of Grantor to Beneficiary, and, to
the extent permitted by law, shall be added to the
Indebtedness and shall be secured by this Deed of
Trust.
(g) Grantor shall not, without Beneficiary's prior
written consent, elect to treat the Ground Lease or
the leasehold estate as terminated under Subsection
365(h)(1) of the Bankruptcy Code, after rejection or
disaffirmance of the Ground Lease by the lessor
thereunder, or its successors and assigns, or by any
trustee of any such party, and any such election made
without such consent shall be void and ineffective.
(h) Grantor hereby unconditionally assigns, transfers and
sets over unto Beneficiary all of Grantor's claims
and rights to the payment of damages that may
hereafter arise as a result of any rejection or
disaffirmance of the Ground Lease by the lessor
thereunder, or its successors and assigns, or by any
trustee of any such party pursuant to the Bankruptcy
Code. Beneficiary shall have and is hereby granted
the right to proceed, in its own name or in the name
of Grantor, in
-39-
<PAGE> 44
respect of any claim, suit, action or proceeding
relating to the rejection or disaffirmance of the
Ground Lease (including, without limitation, the
right to file and prosecute, to the exclusion of
Grantor, any proofs of claim, complaints, motions,
applications, notices and other documents) in any
case in respect of such lessor or any of its
successors and assigns, under the Bankruptcy Code.
This assignment constitutes a present, irrevocable
and unconditional assignment of the foregoing claims,
rights and remedies, and shall continue in effect
until all of the Indebtedness shall have been
satisfied and discharged in full. Any amounts
received by Beneficiary as damages arising out of any
such rejection or disaffirmance of a Ground Lease
shall be applied first to all costs and expenses of
Beneficiary (including, without limitation,
attorneys' fees) in connection with the exercise of
its rights under this subparagraph and then, in such
manner as Beneficiary shall determine, to the
reduction of the Indebtedness, whether or not then
due, and the balance, if any, shall then be paid to
Grantor.
(i) In the event, that, pursuant to Subsection 365(h)(2)
of the Bankruptcy Code, Grantor seeks to offset
against the rent or other payments payable under the
Ground Lease, the amount of any damages caused by the
nonperformance by the lessor thereunder, or its
successors and assigns, of such party's obligations
under the Ground Lease after rejection or
disaffirmance thereof under the Bankruptcy Code,
Grantor shall, prior to effecting such offset, notify
Beneficiary of Grantor's intent to do so, setting
forth the amounts proposed to be so offset and the
basis therefor. Beneficiary shall
-40-
<PAGE> 45
have the right to object to all or any part of such
offset, and, in the event of such objection, Grantor
shall not effect any offset of the amounts so
objected to by Beneficiary. If Beneficiary shall have
failed to object as aforesaid within ten (10)
business days after such notice, Grantor may proceed
to effect such offset in the amounts set forth in
such notice. Neither Beneficiary's failure to object
as aforesaid nor any objection or other communication
between Grantor and Beneficiary relating to such
offset shall constitute an approval by Beneficiary of
any such offset. Grantor shall indemnify and hold
Beneficiary harmless from and against any and all
claims, demands, actions, suits, proceedings,
damages, losses, costs and expenses of every nature
whatsoever (including, without limitation, attorneys'
fees) arising from or relating to any such offset by
Grantor.
(j) Grantor shall, promptly after obtaining knowledge
thereof, give written notice to Beneficiary of any
actual or contemplated filing by or against the
lessor under the Ground Lease, or its successors and
assigns, of a petition under the Bankruptcy Code, and
use its best efforts to give prompt oral notice to
Beneficiary of such actual or contemplated filing.
The aforesaid written notice shall set forth any
information available to Grantor concerning the date
on which such petition was filed or is expected to be
filed, and the relief sought therein. Grantor shall
promptly after receipt thereof, deliver to
Beneficiary any and all notices, summonses,
pleadings, applications and other documents received
by Grantor in connection with any such petition and
any proceedings relating thereto.
-41-
<PAGE> 46
(k) In the event that any action, proceeding, motion or
notice shall be commenced or filed in respect of
either party under the Ground Lease, or its
successors and assigns, or the leased premises, or
the Security or any part thereof, in connection with
any cause under the Bankruptcy Code, Beneficiary
shall have, and is hereby granted, the option, to the
exclusion of Grantor exercisable upon notice from
Beneficiary to Grantor, to conduct and control any
such litigation with counsel of Beneficiary's choice.
Beneficiary may proceed, in its own name or in the
name of Grantor, in connection with any such
litigation, and Grantor agrees to execute any and all
powers, pleadings, authorizations, consents and other
documents required by Beneficiary in connection
therewith. Notwithstanding the foregoing, Grantor
shall be entitled to participate in any such actions
or proceedings, at its own expense and with counsel
of its choice, if and so long as Beneficiary shall be
satisfied that Grantor's participation therein and
the positions asserted by Grantor in connection
therewith will not materially impair the security of
this Deed of Trust. Grantor shall, upon demand, pay
to Beneficiary all costs and expenses (including,
without limitation, attorneys' fees) paid or incurred
by Beneficiary in connection with the prosecution or
conduct of any such proceedings, together with
interest at the Default Rate, and, to the extent
permitted by law, such costs, expenses and interest
shall be added to the Indebtedness and shall be
secured hereby. Grantor shall not, without the prior
written consent of Beneficiary, commence any action,
suit, proceeding or case, or file any application or
make any motion, in respect of the Ground Lease in
any such case under the Bankruptcy Code.
-42-
<PAGE> 47
(l) In the event that a petition under the Bankruptcy
Code shall be filed by or against Grantor and Grantor
or any trustee of Grantor shall decide to reject or
disaffirm the Ground Lease pursuant to the Bankruptcy
Code, Grantor shall give Beneficiary at least ten
(10) business days prior written notice of the date
on which application shall be made to the court for
authority to reject or disaffirm the Ground Lease.
Beneficiary shall have the right, but not the
obligation, to serve upon Grantor or such trustee
within such ten (10) day period a notice stating that
(i) Beneficiary demands that Grantor or such trustee
assume and assign the Ground Lease to Beneficiary
pursuant to Section 365 of the Bankruptcy Code, and
(ii) Beneficiary covenants to cure, or provide
adequate assurance of prompt cure of, all defaults
and provide adequate assurance of future performance
under the Ground Lease. In the event that Beneficiary
serves such notice upon Grantor or such trustee,
neither Grantor nor such trustee shall seek to reject
or disaffirm the Ground Lease and Grantor and such
trustee shall comply with such demand within thirty
(30) days after such notice shall have been given,
subject to Beneficiary's performance of such
covenant.
(m) In the event that a petition under the Bankruptcy
Code shall be filed by or against Grantor, and if
within thirty (30) days after the date of filing of
such petition neither Grantor nor any trustee of
Grantor shall take any affirmative action to assume,
reject or disaffirm the Ground Lease pursuant to the
Bankruptcy Code, then Beneficiary shall have the
right, but not the obligation, to serve upon Grantor
or such trustee a notice stating that (i) Beneficiary
demands
-43-
<PAGE> 48
that Grantor or such trustee assume and assign the
Ground Lease to Beneficiary pursuant to Section 365
of the Bankruptcy Code, and (ii) Beneficiary
covenants to cure, or provide adequate assurance of
prompt cure of, all defaults and provide adequate
assurance of future performance under the Ground
Lease. In the event that Beneficiary serves such
notice upon Grantor or such trustee, either Grantor
or such trustee shall comply with such demand within
fifteen (15) days after such notice shall have been
given, subject to Beneficiary's performance of such
covenant.
(n) Grantor hereby assigns, transfers and sets over to
Beneficiary a nonexclusive right to apply to the
Bankruptcy Court under Subsection 365(d)(4) of the
Bankruptcy Code for an order extending the period
during which the Ground Lease may be rejected,
disaffirmed or assumed after the entry of any order
for relief in respect of Grantor under Chapter 7 of
the Bankruptcy Code.
22. Future Leases. Grantor will not hereafter make any lease to any
tenant, or amend, modify, terminate, renew or extend any lease (other than a
renewal to which a tenant is entitled under the terms of an existing lease or
contained in a lease that is subsequently approved by Beneficiary), affecting
the Security unless Beneficiary shall first consent in writing to the terms of
said lease and the form of the lease, which consent shall not be unreasonably
withheld.
Notwithstanding the above, office and retail leases, lease amendments,
modifications, terminations, renewals or extensions that satisfy all of the
following conditions shall be deemed to have been pre-approved by Beneficiary:
-44-
<PAGE> 49
(a) The lease shall be on the standard form approved by
Beneficiary except for reasonable negotiated changes;
and
(b) The gross leasable area of the space demised under
the lease shall be equal to or less than the square
footage on one full floor (approximately 25,000
s.f.); and
(c) The term of the lease shall be less than or equal to
11 years (including renewal or extension options);
and
(d) The effective rent is in compliance with a schedule
of rents previously approved, and from time to time
updated, in writing by Beneficiary; and
(e) The lease shall not grant an option or right of first
refusal with respect to purchase of all or any
portion of the Real Property; and
(f) With respect to any obligation to rebuild the
premises in the event of casualty, there has been no
modification to the provisions of the form lease
which conflicts with the provisions hereof regarding
repair and restoration after a casualty or
condemnation.
Provided that there exists no uncured default for which notice is not
required nor any other uncured default for which notice has been previously
given, Grantor may update the schedule of rents described in subparagraph (d),
above, from time to time with Beneficiary's approval, which approval shall not
be unreasonably withheld so long as the rents reflected in such schedule are
consistent with the fair market rental value for comparable space in the Denver
CBD.
-45-
<PAGE> 50
All leases must be subordinate to the lien of this Deed of Trust unless
Beneficiary otherwise specifies. Each lease must contain a provision that, upon
notice to tenant by Beneficiary, the lease shall become superior, in whole or in
part, to the lien of this Deed of Trust. Without limiting the foregoing,
Beneficiary hereby reserves the right to subordinate this Deed of Trust to any
lease subsequently made by recording with the Clerk and Recorder of the City and
County of Denver in which this Deed of Trust is recorded a declaration to that
effect, executed by Beneficiary, which declaration once so recorded shall be
binding upon the tenant under such lease and such tenant's successors and
assigns. Beneficiary may require a subordination, non-disturbance and attornment
agreement, in the form attached hereto as Exhibit B (or with such modifications
as Beneficiary may reasonably require) for each lease executed subsequent to the
Deed of Trust. Beneficiary agrees, upon Grantor's request, to enter into a
subordination, non-disturbance and attornment agreement on such form with any
tenant whose lease is approved by Lender and which covers more than 25,000
square feet of the Real Property.
Grantor will furnish to Beneficiary a true and complete copy of each
lease, amendment, modification, extension, or renewal of lease, hereafter made
by Grantor with respect to space in the Security within ten (10) days after
delivery of each such lease, amendment, modification, extension, or renewal by
the parties thereto. Grantor shall also furnish to Beneficiary an original
mortgagee attornment agreement executed by each tenant and an original estoppel,
addressed to Beneficiary, from each tenant in form and substance satisfactory to
Beneficiary.
Grantor will from time to time upon demand of Beneficiary, confirm in
writing the assignment to Beneficiary of any or all leases of the Land and space
in the Improvements, and such written confirmation shall be in such form as
Beneficiary shall require and as shall be necessary to make the same recordable.
-46-
<PAGE> 51
23. Intentionally Omitted.
24. Leases; Foreclosure. Any proceedings or other steps taken by
Beneficiary to foreclose this Deed of Trust, or otherwise to protect the
interests of Beneficiary hereunder, shall not operate to terminate the rights of
any present or future tenant of space in the Improvements, notwithstanding that
said rights may be subject and subordinate to the lien of this Deed of Trust,
unless Beneficiary specifically elects otherwise in the case of any particular
tenant. The failure to make any such tenant a defendant in any such foreclosure
proceeding and to foreclose such tenant's rights will not be asserted by Grantor
or any other defendant in such foreclosure proceeding and to foreclose such
tenant's rights will not be asserted by Grantor or any other defendant in such
foreclosure proceeding as a defense to any proceeding instituted by Beneficiary
to foreclose this Deed of Trust or otherwise protect the interests of
Beneficiary hereunder.
25. One-Time Transfer of Ownership. Notwithstanding the provisions of
Section 26 below, Grantor shall have the right to a one-time sale, transfer or
assignment in whole or in part of its interest in the Security to any party of
equal qualification and credit-worthiness provided:
(i) at the time of Grantor's request and at the time of
the transfer there exists no uncured default for
which notice is not required nor any other uncured
default for which notice has been previously given to
Grantor;
(ii) a property inspection by Beneficiary or Beneficiary's
designee shows that all reasonably necessary
maintenance on or damage or destruction to the Real
Property has been completed or repaired;
-47-
<PAGE> 52
(iii) the proposed transferee shall be a Qualified Real
Estate Investor;
(iv) the aggregate Debt Service Coverage on the Loan and
any applicable secondary financing exceeds 1.7 times;
(v) the proposed transferee (or any Affiliated Party of
such transferee) must own and manage a minimum of 3
million net rentable square feet of general purpose
office space including major downtown office
properties;
(vi) at least 30 days prior to such a transfer Grantor
must provide Beneficiary with all of the material
provisions of such transfer including without
limitation the proposed date of transfer, the name,
net worth, background and address of the proposed
transferee, financial statements for the proposed
transferee satisfactory to Beneficiary, and the
purchase price;
(vii) Omitted;
(viii) such transfer may only occur during the first four
years of the Term, or, if Grantor has elected to
extend the Term, as provided in that certain
Extension Option Agreement of even date herewith,
between Grantor and Beneficiary, only during the
first nine years of the Term;
(ix) such notice received under (vii) above shall be
accompanied by the payment of Beneficiary of a
non-refundable fee in the amount of .25% of the
outstanding loan balance in cash or
-48-
<PAGE> 53
certified check to be retained by Beneficiary in
order to induce Beneficiary to allow the proposed
transferee to assume the obligations of Grantor under
the loan documents, and such fee shall be returned to
Grantor if Beneficiary disapproves of such transfer;
(x) the loan-to-value ratio of the Mortgage based on a
then current appraisal obtained at Grantor's expense
and acceptable to Beneficiary must not exceed 60%;
(xi) Grantor shall provide Beneficiary with such evidence
as Beneficiary may require that such transfer shall
not affect or impair Beneficiary's security and
rights under the loan documents or under any tenant
leases;
(xii) Grantor shall pay for all of Beneficiary's costs and
expenses associated with the transfer, including
without limitation, attorney's fees charged by
Beneficiary's staff counsel, special counsel and
outside counsel;
(xiii) the proposed transferee, in addition to complying
with all of the other conditions contained herein,
must expressly assume all of the obligations and
liabilities of Grantor under the Loan (with the same
degree of recourse liability as Grantor and subject
to the same exculpatory provisions) that accrue after
the effective date of the permitted transfer; and
(xiv) Beneficiary receives an opinion of counsel acceptable
to Beneficiary and Beneficiary's counsel that
contains equivalent opinions to the extent applicable
with respect to
-49-
<PAGE> 54
the proposed transferee that were given with respect
to Grantor on the Loan Closing Date, that the
proposed transferee is duly formed and validly in
existence with applicable laws, and the proposed
transferee has duly authorized, executed and
delivered the agreement by which the transferee
assumes the loan pursuant to (xi) above and same is
valid and enforceable against the proposed transferee
and the Property.
Notwithstanding the foregoing, no transfer shall be permitted during
any earnout period, or prior to the time any additional collateral, including
without limitation any guarantee, letter of credit, escrowed amounts, master
lease by Grantor, or any other additional collateral posted by Grantor as
security for the Mortgage has been released or collected.
"Qualified Real Estate Investor" is defined as any reputable
corporation, partnership, joint venture, joint-stock company, trust or
individual with a minimum net worth of $150,000,000, real estate assets of
$100,000,000, a minimum current cash position of $5,000,000, based in the United
States and free from any bankruptcy, reorganization or insolvency proceedings or
any criminal charges or proceedings and shall not have been, at the time of
transfer or in the past, a litigant, plaintiff or defendant in any suit brought
against or by Beneficiary. Beneficiary agrees to be reasonable in the review of
such qualifications.
"Debt Service Coverage" is defined as the ratio, as determined by
Beneficiary, of (a) Net Operating Income from the Real Property for the
applicable period of time to (b) Total Annual Debt Service. "Net Operating
Income" is defined as gross income from operations of the Real Property for the
previous twelve (12)-month period from leases of space therein, parking
operations, concessions or licenses (to the extent Beneficiary reasonably
-50-
<PAGE> 55
projects such income will continue for the immediately succeeding twelve (12)
month period), subtracting therefrom all necessary and ordinary operating
expenses applicable to the Real Property for such period of time (both fixed and
variable to the extent reasonably projected by Beneficiary to continue for the
next succeeding a twelve (12) month period), including but not limited to,
utilities, administrative, cleaning, landscaping, security, repairs and
maintenance, ground rent payments, management fees, real estate and other taxes,
assessments and insurance, but excluding therefrom deductions for federal, state
and other income taxes, debt service expense, depreciation or amortization of
capital expenditures and other similar noncash items. Gross income shall not be
anticipated for any greater time period than that approved by generally accepted
accounting principles nor shall ordinary operating expenses be prepaid.
Documentation of Net Operating Income shall be certified by an officer of
Grantor with detail satisfactory to Beneficiary and shall be subject to the
approval of Beneficiary. "Total Annual Debt Service" shall mean the sum of (i)
the aggregate debt service payments (including principal and interest) on the
loan for the applicable time period, plus (ii) the aggregate debt service
payments (including principal and interest) on all other indebtedness secured by
a lien on all or part of the Real Property for the applicable time period.
Cornerstone Properties Inc., a Nevada corporation ("Cornerstone"), is
the parent company of each of the general partners of Grantor. Notwithstanding
the foregoing, the shares of Cornerstone that are publicly traded may be freely
transferred.
26. Events of Default. Each of the following shall constitute an "Event
of Default" hereunder and shall entitle the Beneficiary to exercise its remedies
hereunder and under any of the other Loan Documents or as otherwise provided by
law:
-51-
<PAGE> 56
(a) Any payment of any installment of principal or interest
due under the Notes, or payment of any escrow deposit under Section 5
of this Deed of Trust is not received by Beneficiary within five (5)
business days following the date when such payment was due, or any
other payment of money or indebtedness as required by this Deed of
Trust or any other Loan Document is not received when due and remains
unpaid for thirty (30) days or more after notice of such default by
Beneficiary to Grantor;
(b) Failure of the Grantor in the observance or performance of
any covenant, promise or agreement provided in this Deed of Trust or in
any other Loan Document other than relating to the payment of
indebtedness or money ("failure to perform") for thirty (30) days after
notice by Beneficiary to Grantor specifying the nature of the failure
to perform; provided, however, that if the nature of such failure to
perform is such that the same cannot be cured within such thirty (30)
day period, such failure to perform shall not be deemed an Event of
Default if Grantor shall within such period commence to cure that
failure to perform and thereafter diligently prosecute the cure to
completion, but in no event more than one hundred eighty (180) days in
the aggregate. Notwithstanding anything contained herein to the
contrary, the notice and cure period provided under this clause (b)
shall not be applicable to and shall not be in addition to any specific
notice and cure or notice to perform period provided under any other
provision of this Deed of Trust, and the specific notice and cure or
notice to perform period provided for in such provision shall control,
and a failure by Grantor to cure a default or comply by its performance
under such provision within the applicable cure or performance period
shall be an Event of Default under this Deed of Trust;
-52-
<PAGE> 57
(c) Any representation, warranty, or statement of Grantor or
the managing general partner of Grantor contained herein or in any of
the Loan Documents, or in any writing delivered to Beneficiary on or
before the execution and delivery of the Loan Documents including
without limitation the Environmental Indemnification Agreement, proves
to be untrue or inaccurate in any material respect as of the date when
made and the condition or state of facts rendering such representations
or warranty untrue or inaccurate is not remedied by Grantor within
thirty (30) days after notice by Beneficiary to Grantor;
(d) Grantor or the managing general partner of Grantor shall
(i) have an order for relief entered in a proceeding under Title 11,
United States Code, whether such order shall result from a voluntary or
involuntary petition, (ii) seek or consent to the appointment of a
receiver or trustee for itself or for any of the Security, (iii) file a
petition or initiate a proceeding under the bankruptcy, insolvency,
receivership, or similar laws of the United States, any state or any
jurisdiction, (iv) make a general assignment for the benefit of
creditors, or (v) be unable to pay its debts as they mature;
(e) A court shall enter an order, judgment or decree
appointing, without the consent of Grantor or the managing general
partner of Grantor, a receiver or trustee for it or for any of the
Security or approving a petition filed against Grantor which seeks
relief under the bankruptcy or other similar laws of the United States,
any state or any jurisdiction, and such order, judgment or decree shall
remain in force, undischarged or unstayed, sixty (60) days after it is
entered;
(f) Without the prior written consent of the Beneficiary or as
permitted by this Deed of Trust, (i) the Security or any portion
thereof, or interest therein, shall be mortgaged, encumbered, sold,
-53-
<PAGE> 58
assigned or otherwise transferred by the Grantor or by operation of law
(ii) if the Grantor is a partnership, joint venture, syndicate or other
group, all or any portion of the interest of any partner or member
thereof is sold, pledged, assigned or otherwise transferred.
(g) Any monetary default (or any nonmonetary default which is
not cured prior to expiration of any cure period thereunder) under any
secondary financing approved by Beneficiary in accordance with the
provisions of Section 10 hereof.
(h) Any default occurs under the Ground Lease.
27. Remedies Upon Default. Immediately upon the occurrence of any Event
of Default, the Trustee and Beneficiary shall have the option, in addition to
and not in lieu of or substitution for all other rights and remedies provided in
this Deed of Trust or any other Loan Document or provided by law or in equity,
and is hereby authorized and empowered by the Grantor, to do any or all of the
following:
(a) Declare without notice the entire unpaid amount of the
Indebtedness, immediately due and payable and, at the Beneficiary's
option, (i) to bring suit therefor, or (ii) to bring suit for any
delinquent payment of or upon the Indebtedness, or (iii) to take any
and all steps and institute any and all other proceedings at law or in
equity that the Beneficiary deems necessary to enforce payment of the
Indebtedness and performance of other obligations secured hereunder and
to protect the lien of this Deed of Trust.
(b) Commence foreclosure proceedings against the Security, in
a single parcel or in several parcels, through a sale by the Trustee or
by judicial proceedings, by advertisement or as otherwise provided by
law,
-54-
<PAGE> 59
at the option of the Beneficiary, pursuant to the statutes in such case
made and provided, and to sell the Security or to cause the same to be
sold at public sale, and to convey the same to the purchaser, in
accordance with said statutes in a single parcel or in several parcels
at the option of the Beneficiary.
(c) Proceed against the Personal Property in accordance with
Beneficiary's rights and remedies with respect to the Personal
Property, including the right to sell the Personal Property together
with the Real Property, separately and without regard to the remainder
of the Security in accordance with Beneficiary's rights and remedies
provided by the Colorado Uniform Commercial Code as well as other
rights and remedies available at law or in equity.
(d) Cause to be brought down to date a title examination and
tax histories of the Security, procure title insurance or title reports
or, if necessary, procure new abstracts and tax histories.
(e) Procure an updated or entirely new environmental audit of
the Security including building, soil, ground water and subsurface
investigations; have the Improvements inspected by an engineer or other
qualified inspector and procure a building inspection report; procure
an MAI or other appraisal of the Security or any portion thereof; enter
upon the Security at any time and from time to time to accomplish the
foregoing and to show the Security to potential purchasers and
potential bidders at foreclosure sale; make available to potential
purchasers and potential bidders all information obtained pursuant to
the foregoing and any other information in the possession of
Beneficiary regarding the Security.
(f) Either by itself or by its agent to be appointed by it for
-55-
<PAGE> 60
that purpose or by a receiver appointed by a court of competent
jurisdiction, as a matter of strict right, without notice and without
regard to the adequacy or value of any security for the Indebtedness or
the solvency of any party bound for its payment, to take possession of
and to operate the Security, Grantor hereby waiving any right Grantor
might have to object to or oppose any such possession and, whether or
not Beneficiary has taken possession of the Security, to collect and
apply the Rents, including those past due and unpaid, after payment of
all necessary charges and expenses, in reduction of the Indebtedness.
The receiver shall have all of the rights and powers permitted under
the laws of the State of Colorado. Except for damage caused by
Beneficiary's willful misconduct, Grantor hereby waives any claim
Grantor may have against Beneficiary for mismanagement of the Security
during Beneficiary's operation of the Security under this subparagraph
or as mortgagee in actual possession under applicable statutes.
(g) Beneficiary may, at its option, without waiving any Event
of Default, pay, perform or observe the same, and all payments made or
costs or expenses incurred by Beneficiary in connection therewith shall
be secured hereby and shall be, without demand, immediately repaid by
Grantor to Beneficiary with interest thereon at the default rate
provided in the Notes. Beneficiary shall be the sole judge of the
necessity for any such actions and of the amounts to be paid.
Beneficiary is hereby empowered to enter and to authorize others to
enter upon the Security or any part thereof for the purpose of
performing or observing any such defaulted term, covenant or condition
without hereby becoming liable to Grantor or any person in possession
holding under Grantor.
(h) Apply against the Indebtedness in such order as
Beneficiary shall determine any funds held for the benefit of Grantor
in escrow by
-56-
<PAGE> 61
Beneficiary or by any third-party escrow agent under any of the Loan
Documents, including without limitation any funds held under the escrow
established by Section 5 of this Deed of Trust.
(i) Upon any foreclosure sale, Beneficiary may bid for and
purchase the Security and shall be entitled to apply all or any part of
the Indebtedness as a credit to the purchase price. In the event of any
sale of the Security by foreclosure, through judicial proceedings, by
advertisement or otherwise, the proceeds of any such sale which are
applied in accordance with this Deed of Trust shall be applied in the
order following to: (i) all expenses incurred for the collection of the
Indebtedness and the foreclosure of this Deed of Trust, including
reasonable compensation to Trustee and Beneficiary, their agents and
attorneys; (ii) all sums expended or incurred by the Beneficiary and
Trustee directly or indirectly in carrying out the terms, covenants and
agreements of the Notes or notes evidencing the Indebtedness, of this
Deed of Trust and any other Loan Documents, together with interest
thereon as therein provided; (iii) all late payment charges, prepayment
fees, advances and other amounts due under any of the Loan Documents;
(iv) all accrued and unpaid interest upon the Indebtedness; (v) the
unpaid principal amount of the Indebtedness; and (vi) the surplus, if
any, to the person or persons legally entitled thereto.
In the event of any acceleration of the Indebtedness pursuant to the
first paragraph of this Section, Grantor shall pay to Beneficiary together with
the principal indebtedness and interest thereon an amount equal to the
prepayment fee provided for in the Notes and such fee shall be included as part
of the Indebtedness.
Failure to exercise any option to accelerate in the event of a default
or other circumstance permitting the exercise of such option, shall not
-57-
<PAGE> 62
constitute a waiver of the default or of the right to exercise such option at a
later time, or a waiver of the right to exercise such option in the event of any
other default or circumstance specified above.
28. Acceleration Interest. In addition to any late payment charge which
may be due under the Notes, Grantor shall pay interest on all sums due hereunder
at a rate (the "Default Rate") equal to the lesser of (i) the interest rate set
forth in the Notes plus four percent (4%) per annum, or (ii) the maximum rate
permitted by law, from and after the first to occur of the following events: if
Beneficiary elects to cause the acceleration of the Indebtedness; if a petition
under Title 11, United States Code, shall be filed by or against Grantor or if
Grantor shall seek or consent to the appointment of a receiver or trustee for
itself or for any of the Security, file a petition seeking relief under the
bankruptcy or other similar laws of the United States, any state or any
jurisdiction, make a general assignment for the benefit of creditors, or be
unable to pay its debts as they become due; if a court shall enter an order,
judgment or decree appointing, with or without the consent of Grantor, a
receiver or trustee for it or for any of the Security or approving a petition
filed against Grantor which seeks relief under the bankruptcy or other similar
laws of the United States, any state or any jurisdiction, and any such order,
judgment or decree shall remain in force, undischarged or unstayed, sixty (60)
days after it is entered; or if all sums due hereunder are not paid on the
Maturity Date as set forth in the Notes.
29. Late Charge. In the event any payment of principal or interest due
under any of the Notes, or any escrow payment due under Section 5 of this Deed
of Trust, are not paid by Grantor within five (5) business days following the
due date for such payment, Grantor shall pay to Beneficiary a late charge for
the month during which such payment is not made when due, and for each month or
fraction thereof that such sum remains unpaid, equal to the lesser of
-58-
<PAGE> 63
four percent (4%) of such installment or the maximum allowed by law, as the
reasonable estimate by Beneficiary and Grantor of a fair average compensation
for the loss that may be sustained by Beneficiary due to the failure of Grantor
to make timely payments, and such amount shall be secured hereby. Such late
charge shall be paid without prejudice to the right of Beneficiary to collect
any other amounts provided to be paid or to declare an Event of Default under
this Deed of Trust or any other Loan Document.
30. Waiver Of Statutory Rights. Grantor agrees, to the full extent
permitted by law, that in an Event of Default on the part of Grantor hereunder,
neither Grantor nor anyone claiming through or under Grantor will set up, claim,
or seek to take advantage of any moratorium, reinstatement, forbearance,
appraisement, valuation, stay, homestead, extension, exemption or redemption
laws now or hereafter in force, in order to prevent or hinder the enforcement or
foreclosure of this Deed of Trust, or the sale of the Security, or the delivery
of possession thereof immediately after such sale to the purchaser at such sale,
and Grantor, for itself and all who may at any time claim through or under it,
hereby waives to the full extent that it may lawfully do so, the benefit of all
such laws, and any and all rights to have the assets subject to the security
interest of this Deed of Trust marshaled upon any foreclosure or sale under the
power granted herein.
31. Security Interest. This Deed of Trust shall, as to any equipment
and other Personal Property covered hereby, be deemed to constitute a security
agreement, and Grantor, as debtor, hereby grants to Beneficiary, as secured
party, a security interest therein pursuant to the Colorado Uniform Commercial
Code. The Grantor agrees, upon request of the Beneficiary, to furnish an
inventory of Personal Property owned by the Grantor and subject to this Deed of
Trust and, upon request by the Beneficiary, to execute any supplements to this
Deed of Trust, any separate security agreement and any financing statements and
continuation statements in order to include specifically said
-59-
<PAGE> 64
inventory of Personal Property or otherwise to perfect the security interest
granted hereby. Upon any Event of Default, the Beneficiary shall have all of the
rights and remedies provided in said Code or otherwise provided by law or by
this Deed of Trust, including but not limited to the right to require the
Grantor to assemble such Personal Property and make it available to the
Beneficiary at a place to be designated by the Beneficiary which is reasonably
convenient to both parties, the right to take possession of such Personal
Property with or without demand and with or without process of law and the right
to sell and dispose of the same and distribute the proceeds according to law.
The parties hereto agree that any requirement of reasonable notice shall be met
if the Beneficiary sends such notice to the Grantor at least five (5) days prior
to the date of sale, disposition or other event giving rise to the required
notice, and that the proceeds of any disposition of any such Personal Property
may be applied by the Beneficiary first to the reasonable expenses in connection
therewith, including reasonable attorneys' fees and legal expenses incurred, and
then to payment of the Indebtedness. With respect to the Personal Property that
has become so attached to the Real Property that an interest therein arises
under the real property law of the State, this Deed of Trust shall also
constitute a financing statement and a fixture filing under the Colorado Uniform
Commercial Code.
32. Right Of Entry. Beneficiary and Beneficiary's representatives may
at all times and without notice to Grantor enter upon the Security and inspect
the same, or cause it to be inspected by agents, employees, or independent
contractors of Beneficiary, and show the same to others, but Beneficiary shall
not be obligated to make any such entry or inspection.
33. Estoppel Certificate. Grantor, within fifteen (15) days after
written request from Beneficiary, will furnish a signed statement in writing,
duly acknowledged, of the amount then due or outstanding hereunder and whether
or not any offsets or defenses exist against the Indebtedness, and if so,
-60-
<PAGE> 65
specifying such offsets and defenses. Upon request by Beneficiary, Grantor shall
exercise any right it may have to request an estoppel certificate for any or all
of the tenants on the Security within five (5) days following Beneficiary's
request.
34. Annual Statements. Grantor shall, within ninety (90) days after the
end of each fiscal year of Grantor, deliver to Beneficiary (a) annual statements
audited and certified by an independent certified public accountant reasonably
satisfactory to Beneficiary and prepared in accordance with generally accepted
accounting principles, showing in detail (l) a balance sheet for the Security as
of the last day of such fiscal year, (2) a statement of earnings from the
Security for such fiscal year showing, among other things, all rents and other
income therefrom and all expenses paid or incurred in connection with the
operation of the Security, (3) a cash flow statement for the Security; and (b) a
statement signed by Grantor listing all leases of space in the Improvements as
of the last day of such fiscal year, the respective areas demised thereunder,
the names of the tenants, the respective expiration dates of the leases, the
respective rentals provided for therein, and such other information as may
reasonably be requested by Beneficiary.
Notwithstanding anything herein to the contrary, for so long as title
to the Real Property remains with Grantor and there is no uncured default for
which notice is not required, nor any other uncured default for which notice has
been previously given under any of the Loan Documents, then in lieu of the
opinion from certified public accountants, Beneficiary will accept financial
statements containing the information set forth in the preceding paragraph, in
form and substance satisfactory to Beneficiary signed by Grantor's chief
financial officer or authorized general partner.
If Grantor omits to prepare and deliver promptly any report required by
this Section, Beneficiary may elect, in addition to exercising any remedy for
-61-
<PAGE> 66
an Event of Default as provided for in this Deed of Trust, to make an audit of
all books and records of Grantor and its beneficiaries, including without
limitation their bank accounts, which in any way pertain to the Security, and to
prepare the statement or statements which Grantor failed to procure and deliver.
Such audit shall be made and such statements shall be prepared by an independent
Certified Public Accountant to be selected by Beneficiary. Grantor shall pay all
expenses of the audit and other services, which expenses shall be secured hereby
as part of the Indebtedness and shall be immediately due and payable with
interest thereon at the Default Rate set forth herein.
Beneficiary shall afford any information received pursuant to this
Section the same degree of confidentiality that Beneficiary affords similar
information proprietary to Beneficiary; provided, however, that Beneficiary does
not in any way warrant or represent that such information received from Grantor
will remain confidential, and, provided further, that Beneficiary shall have the
unconditional right to disclose, as necessary, any such information in the event
Beneficiary sells, transfers, conveys, or assigns the Deed of Trust or any
portion of the Indebtedness.
35. Rights Cumulative. Each right and remedy of Beneficiary under this
Deed of Trust, the Notes and any other Loan Documents, shall be in addition to
every other right and remedy of Beneficiary and such rights and remedies may be
enforced separately or in any combination.
36. Subrogation. To the extent that proceeds of the Indebtedness are
used to pay any outstanding lien, charge or encumbrance affecting the Security,
such proceeds have been advanced by Beneficiary at Grantor's request, and
Beneficiary shall be subrogated to all rights, interest and liens owned or held
by any owner or holder of such outstanding liens, charges and encumbrances,
irrespective of whether such liens, charges or encumbrances are released of
record; provided, however, that the terms and provisions hereof
-62-
<PAGE> 67
shall govern the rights and remedies of Beneficiary and shall supersede the
terms, provisions, rights, and remedies under the lien or liens to which
Beneficiary is subrogated hereunder.
37. No Waiver. Any failure by Beneficiary or Trustee to insist upon the
strict performance by Grantor of any of the terms and provisions hereof shall
not be deemed to be a waiver of any of the terms and provisions hereof, and
Beneficiary, notwithstanding any such failure, shall have the right thereafter
to insist upon the strict performance by Grantor of any and all of the terms and
provisions hereof to be performed by Grantor.
38. Deed of Trust Extension. The lien hereof shall remain in full force
and effect during any postponement or extension of the time of payment of the
Indebtedness, or of any part thereof, and any number of extensions or
modifications hereof, or any additional notes taken by Beneficiary, shall not
affect the lien hereof or the liability of Grantor or of any subsequent obligor
to pay the Indebtedness unless and until such lien or liability be expressly
released in writing by Beneficiary.
39. Indemnification. Grantor shall indemnify and hold Beneficiary
harmless from and against all obligations, liabilities, losses, costs, expenses,
fines, penalties or damages (including attorneys' fees) which Beneficiary may
incur by reason of this Deed of Trust or with regard to the Security prior to
the exercise of any remedies under this Deed of Trust. Grantor shall defend
Beneficiary against any claim or litigation involving Beneficiary for the same,
and should Beneficiary incur such obligation, liability, loss, cost, expense,
fine, penalty or damage, then Grantor shall reimburse Beneficiary upon demand.
Any amount owed Beneficiary under this provision shall bear interest at the
Default Rate set forth herein and shall be secured hereby.
-63-
<PAGE> 68
40. Nonrecourse. Except as specifically provided in this Section 40 and
in Section 15 of the Notes, neither Grantor, Cornerstone, nor any of the general
or limited partners of Grantor nor any of their respective officers, directors,
shareholders, agents, employees or representatives (collectively the "Exculpated
Parties") shall be personally liable for the payment of any sums due hereunder
or the performance of any obligations of Grantor hereunder or under the other
Loan Documents. No judgment for the repayment of the Principal Indebtedness or
interest thereon or any other amount payable pursuant to any of the Loan
Documents, will be enforced against any of the Exculpated Parties personally or
any property of any of the Exculpated Parties other than the Security and any
other security now or hereafter expressly granted under the Loan Documents in
any action to foreclose this Deed of Trust or to otherwise realize upon any
security now or hereafter expressly granted under the Loan Documents or to
collect any amount payable hereunder.
Notwithstanding the foregoing:
(a) Nothing herein contained shall be construed as prohibiting
Beneficiary from exercising any and all remedies which the Loan
Documents permit, including the right to bring actions or proceedings
against Grantor, Cornerstone, and other Exculpated Parties and to enter
a judgment against Grantor, Cornerstone, and other Exculpated Parties,
so long as the exercise of any remedy does not extend to execution
against or recovery out of any property of Grantor, Cornerstone, or any
other Exculpated Party other than the security expressly granted under
the Loan Documents;
(b) Grantor and Cornerstone shall each be fully and personally
liable for, and the other Exculpated Parties (to the extent the other
Exculpated Parties would be liable outside of the provisions of this
paragraph), shall be fully and personally liable for, (i) misapplying
any condemnation awards or insurance awards attributable to the
-64-
<PAGE> 69
Security, to the full extent of such awards so misapplied, (ii)
misapplying any security deposits attributable to the Security, to the
full extent of such deposits so misapplied, (iii) collecting any rents
more than thirty (30) days in advance in violation of any covenant
contained in the Loan Documents, to the full extent of such rents so
collected in advance, (iv) committing fraud or intentional
misrepresentation in connection with the operation of the Security or
the making of the loan evidenced hereby, to the full extent of any
loss, damage, expense or costs (including reasonable attorneys' fees)
incurred by Beneficiary resulting from such fraud, misrepresentation or
waste, (v) failing to pay in order of priority: real estate taxes or
assessments, (or escrow accounts established therefor), operating and
maintenance expenses relating to the Real Property, other sums required
by the Loan Documents, deposits into a required reserve account,
capital expenditures, management fees, leasing fees and expenses,
marketing and advertising costs and debt service or other amounts due
on the Indebtedness, but only to the extent of any gross revenues from
the Security that were available to pay such expenses but were not so
used during the period beginning six (6) months prior to either (A)
Grantor's receipt of notice of default under the loan documents or (B)
the occurrence of a default under the loan documents that would not
require notice in order to ripen into an event of default, and
continuing through the date Beneficiary takes title to the Real
Property; (vi) the seizure or forfeiture of the Security due to the
criminal activity by Grantor or Cornerstone, any constituent partner of
Grantor or Cornerstone, or any of their respective shareholders,
partners, officers, employees or agents, in the full amount of the loss
incurred by Beneficiary as a result of such seizure or forfeiture.
(c) This paragraph shall impose no limitation on Grantor's,
Cornerstone's, or any other Exculpated Party's personal liability under
-65-
<PAGE> 70
and the exercise of any of Beneficiary's rights under any indemnity
from Grantor, Cornerstone, or any other Exculpated Party to Beneficiary
including but not limited to, the Environmental Indemnification
Agreement of even date herewith from Grantor and Cornerstone to Payee
with regard to the Security except as may be expressly set forth
therein;
(d) This paragraph shall impose no limitation on or prejudice
to the rights of Beneficiary to proceed against any entity or person
whatsoever, including Grantor, Cornerstone, and the other Exculpated
Parties, with respect to the enforcement of any guarantees of the
Principal Indebtedness or other sums due hereunder or under any of the
other Loan Documents or any part thereof, any master leases, or any
similar rights of payment that may be entered into after the date
hereof, except as may be expressly set forth in any such guarantee.
41. Attorneys' Fees. Any reference to "attorney fees", "attorneys'
fees", or "attorney's fees" in this document includes but is not limited to both
the fees, charges and costs incurred by Beneficiary or Trustee through
Beneficiary's or Trustee's retention of outside legal counsel and the reasonably
allocable fees, costs and charges for services rendered by Beneficiary's or
Trustee's in-house counsel. Any reference to "attorney fees", "attorneys' fees",
or "attorney's fees, shall also include but not be limited to those attorneys or
legal fees, costs and charges incurred by Beneficiary or Trustee in the
collection of any Indebtedness, the enforcement of any obligations hereunder,
the protection of the Security, the foreclosure of this Deed of Trust and
Security Agreement, the sale of the Security, the defense of actions arising
hereunder and the collection, protection or setoff of any claim the Beneficiary
may have in a proceeding under Title 11, United States Code. Attorneys Fees
provided for hereunder shall accrue whether or not Beneficiary has provided
notice of default or of an intention to exercise
-66-
<PAGE> 71
its remedies for such default.
42. Administrative Fees. Beneficiary shall have the right to charge
administrative fees during the term of the Notes as Beneficiary may determine,
in its sole reasonable discretion, in connection with any servicing requests
made by Grantor requiring Beneficiary's evaluation, preparation and processing
of any such requests. Administrative fees shall not be charged for routine
servicing matters contemplated by the Loan Documents including, without
limitation: processing payments; processing insurance and UCC continuation
documentation; processing escrow draws; review of tenant leases, subordination
non-disturbance and attornment agreements and tenant estoppels on standard forms
approved by Beneficiary without material modifications. Such administrative fees
shall apply without limitation to requests for matters not permitted or
contemplated by the Loan Documents (including, without limitation: requests for
transfers or assignments, requests for partial releases; requests for review of
new easements), and to requests, which, while contemplated by the Loan
Documents, because of the nature of the request, will require significantly more
time than an institutional lender, acting reasonably, would contemplate for such
request (including without limitation, requests for the approval of tenant
leases, tenant estoppels and tenant subordination, non-disturbance and
attornment agreements which contain material differences from Beneficiary's
standard forms). Beneficiary shall also be entitled to reimbursement for
professional fees it incurs for such administration, including without
limitation, those of architects, engineers and attorneys (whether (i) employed
by Beneficiary or its affiliate or (ii) engaged by Beneficiary or its affiliates
as independent contractors); provided, however, that the three lenders which
comprise Beneficiary shall act together in employing and engaging third parties
and in other matters which would result in administrative fees under this
Section 42 in order to avoid multiple or overlapping fees.
-67-
<PAGE> 72
43. Trustee's Costs and Expenses; Governmental Charges. Grantor shall
pay all costs, fees and expenses of Trustee, its agents and counsel in
connection with the performance of its duties hereunder, including without
limitation the cost of any trustee's sale guaranty or other title insurance
coverage ordered in connection with any foreclosure proceedings hereunder, and
shall pay all taxes (except federal and state income taxes) or other
governmental charges or impositions imposed by any governmental authority on
Trustee or Beneficiary by reason of their interest in the Loan Documents.
44. Protection of Security; Costs and Expenses. Grantor shall appear in
and defend any action or proceeding purporting to affect the security hereof or
the rights or powers of the Beneficiary or Trustee, and shall pay all costs and
expenses, including without limitation cost of evidence of title and reasonable
attorneys' fees, in any such action or proceeding in which Beneficiary or
Trustee may appear, and in any suit brought by Beneficiary to foreclose this
Deed of Trust or to enforce or establish any other rights or remedies of
Beneficiary hereunder. If Grantor fails to perform any of the covenants or
agreements contained in this Deed of Trust, or if any action or proceeding is
commenced which affects Beneficiary's or Trustee's interest in the Security or
any part thereof, including, but not limited to, eminent domain, code
enforcement, or proceedings of any nature whatsoever under any federal or state
law, whether now existing or hereafter enacted or amended, relating to
bankruptcy, insolvency, arrangement, reorganization or other form of debtor
relief, or to a decedent, then Beneficiary or Trustee may, but without
obligation to do so and without notice to or demand upon Grantor and without
releasing Grantor from any obligation hereunder, make such appearances, disburse
such sums and take such action as Beneficiary or Trustee deems necessary or
appropriate to protect Beneficiary's or Trustee's interest, including, but not
limited to, disbursement of reasonable attorneys' fees, entry upon the Security
to make repairs or take other action to protect the security hereof, and
payment, purchase, contest or compromise of any
-68-
<PAGE> 73
encumbrance, charge or lien which in the judgment of either Beneficiary or
Trustee appears to be prior or superior hereto. Grantor further agrees to pay
all reasonable expenses of Beneficiary or Trustee (including without limitation
fees and disbursements of counsel) incident to the protection of the rights of
Beneficiary hereunder, or to enforcement or collection of payment of the
Indebtedness, whether by judicial or non-judicial proceedings, or in connection
with any bankruptcy, insolvency, arrangement, reorganization or other debtor
relief proceeding of Grantor, or otherwise. Any amounts disbursed by Beneficiary
or Trustee pursuant to this Section shall be additional indebtedness of Grantor
secured by the Loan Documents as of the date of disbursement and shall bear
interest at the Default Rate. All such amounts shall be payable by Grantor
immediately without demand. Nothing contained in this Section shall be construed
to require Beneficiary or Trustee to incur any expense, make any appearance, or
take any other action.
45. Notices. Any notice, demand, request, statement or consent made
hereunder shall be in writing, signed by the party giving such notice, request,
demand, statement, or consent, and shall be deemed to have been properly given
when either delivered personally, delivered to a reputable overnight delivery
service providing a receipt or deposited in the United States mail, postage
prepaid and registered or certified return receipt requested, at the address set
forth below, or at such other address within the continental United States of
America as may have theretofore have been designed in writing. The effective
date of any notice given as aforesaid shall be the date of personal service, one
(1) business day after delivery to such overnight delivery service, or three (3)
business days after being deposited in the United States mail, whichever is
applicable. For purposes hereof, the addresses are as follows:
If to Beneficiary:
Connecticut General Life Insurance Company
-69-
<PAGE> 74
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, CT 06152-2319
Attn: Investment Services, S-319
American General Realty Advisors, Inc.
2929 Allen Pkwy., 34th Floor
Houston, TX 77019
Attn: Director, Mortgage Loans
And
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
Attn: ITS: Senior Managing Director of Real Estate
with a copy to:
CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, CT 06152-2215
Attn: Real Estate Division, S-215A
with a courtesy copy to:
Fairfield and Woods, P.C.
1700 Lincoln Street, Suite 2400
Denver, CO 80203
Attn: Thomas P. Kearns, Esq.
If to Grantor:
c/o Cornerstone Properties Inc.
126 East 56th Street
New York, New York 10022
Attn: Kevin Mahoney
with a courtesy copy to:
Sherman & Sterling
Citicorp Center
153 East 53rd Street
New York City, N.Y. 10022-4676
Attn: Timothy G. Little, Esq.
-70-
<PAGE> 75
Notwithstanding the foregoing agreement to provide a courtesy copy to
Grantor's attorneys, such copy shall be a courtesy copy only, and failure to
provide such courtesy copy shall have absolutely no effect or entitle Grantor to
any remedy whatsoever. Any notice duly given to Grantor shall be effective
whether or not the courtesy copy was given to Grantor's attorneys.
46. Release. Upon payment of all sums secured by this Deed of Trust,
Beneficiary shall cause Trustee to release this Deed of Trust and shall produce
for Trustee the Notes. Grantor shall pay all costs of recordation and shall pay
the statutory Trustee's fees.
47. Applicable Law. The provisions hereof shall be construed in
accordance with the laws of the State of Colorado (the "State").
48. Intentionally Omitted.
49. Invalidity. If any provision of this Deed of Trust shall be held
invalid or unenforceable, the same shall not affect in any respect whatsoever
the validity of the remainder of this Deed of Trust, except that if such
provision relates to the payment of a monetary sum, then the Beneficiary may, at
its option, declare the Indebtedness due and payable upon sixty (60) days prior
written notice to Grantor and, provided there exists no Event of Default
hereunder, without prepayment fee or premium.
50. Captions. The captions in this instrument are inserted only as a
matter of convenience and for reference, and are not and shall not be deemed to
be any part hereof.
51. Modifications. This Deed of Trust may not be changed or terminated
except in writing by both parties. The provisions of this Deed of Trust shall
extend and be applicable to all renewals, amendments, extensions,
-71-
<PAGE> 76
consolidations, and modifications, of the other Loan Documents, and any and all
references herein to the Loan Documents shall be deemed to include any such
renewals, extensions, amendments, consolidations, or modifications thereof.
52. Bind and Inure. The provisions of this Deed of Trust shall be
binding on the Grantor and its heirs, successors and assigns, and any subsequent
owners of the Security. The covenants of Grantor herein shall run with the land,
and this Deed of Trust and all of the covenants herein contained shall inure to
the benefit of the Beneficiary, its successors and assigns.
53. Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to Grantor of the loss, theft, destruction or mutilation of the
Notes, and in the case of any such loss, theft or destruction, upon delivery of
an indemnity agreement reasonably satisfactory to Grantor or, in the case of any
such mutilation, upon surrender and cancellation of the Notes, Grantor will
execute and deliver, in lieu thereof, a replacement Notes, identical in form and
substance to the Notes and dated as of the date of the Notes and upon such
execution and delivery all references in this Deed of Trust to the Notes shall
be deemed to refer to such replacement Notes.
54. Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Grantor under this Deed of
Trust, the Notes and any of the other Loan Documents.
55. Approvals and Consents. Except as otherwise hereinafter set forth,
AG, Mass Mutual and CGLIC hereby designate CGLIC to act for and on behalf of AG,
Mass Mutual and CGLIC with respect to all actions required or permitted to be
taken by them, as Beneficiary hereunder or under any of the other Loan Documents
(hereinafter referred to as an "Action"), including but
-72-
<PAGE> 77
not limited to, the right to respond to Grantor with respect to any Action, and
Grantor shall have the right to rely on any such communication; provided,
however, (i) all notices, requests and other communications to Beneficiary shall
be delivered to each of AG, Mass Mutual and CGLIC as set forth in Section 48
hereof, and (ii) AG, Mass Mutual and CGLIC may, at any time, change such
designee or terminate such designation by written notice thereof to Grantor
executed by AG, Mass Mutual and CGLIC. Notwithstanding the foregoing, each of
AG, Mass Mutual and CGLIC, or their respective successors or assigns, shall have
the right to receive all payments on their respective Notes, and neither this
Deed of Trust, the Notes or any of the other Loan Documents shall be modified,
amended or terminated without the joinder of AG, Mass Mutual and CGLIC.
IN WITNESS WHEREOF, the Grantor has duly executed this Deed of Trust as
of the date first above written, in the presence of:
GRANTOR:
1700 LINCOLN LIMITED
By: ARICO-Denver, Inc., general partner
By: ________________________________
Name: Kevin P. Mahoney
Title: Vice President
By: ________________________________
Name: Scott M. Dalrymple
Title: Vice President
By: 1700 Lincoln, Inc., general partner
By: ________________________________
-73-
<PAGE> 78
Name: Kevin P. Mahoney
Title: Vice President
By: __________________________________
Name: Scott M. Dalrymple
Title: Vice President
The undersigned, Cornerstone Properties Inc., hereby executes this Deed
of Trust and Security Agreement for the purpose of acknowledging its Agreement
to accept liability as set forth in Section 40 hereof.
CORNERSTONE PROPERTIES INC.
By: __________________________________
Name: K.P. Mahoney, S.M. Dalrymple
Title: Vice Presidents
-74-
<PAGE> 79
STATE OF __________ )
) ss.
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this ____ day of
July, 1996, by ___________________ as ____________________ of ARICO-Denver,
Inc., general partner of 1700 Lincoln Limited, a Colorado limited partnership.
WITNESS my hand and official seal.
My commission expires:
__________________________________
Notary Public
Address:
__________________________________
__________________________________
STATE OF_________ )
) ss.
COUNTY OF _____________ )
The foregoing instrument was acknowledged before me this ____ day of
July, 1996, by ___________________ as ____________________ of ARICO-Denver,
Inc., general partner of 1700 Lincoln Limited, a Colorado limited partnership.
WITNESS my hand and official seal.
My commission expires:
__________________________________
Notary Public
Address:
__________________________________
__________________________________
-75-
<PAGE> 80
STATE OF ________ )
) ss.
COUNTY OF _____________ )
The foregoing instrument was acknowledged before me this ____ day of
July, 1996, by ___________________ as ____________________ of 1700 Lincoln,
Inc., general partner of 1700 Lincoln Limited, a Colorado limited partnership.
WITNESS my hand and official seal.
My commission expires:
__________________________________
Notary Public
Address:
__________________________________
__________________________________
STATE OF_________ )
) ss.
COUNTY OF _____________ )
The foregoing instrument was acknowledged before me this ____ day of
July, 1996, by ___________________ as ____________________ of 1700 Lincoln,
Inc., general partner of 1700 Lincoln Limited, a Colorado limited partnership.
WITNESS my hand and official seal.
My commission expires:
__________________________________
Notary Public
Address:
__________________________________
__________________________________
-76-
<PAGE> 81
STATE OF_________ )
) ss.
COUNTY OF _____________ )
The foregoing instrument was acknowledged before me this ____ day of
July, 1996, by ___________________ as ____________________ of Cornerstone
Properties Inc., a Colorado corporation.
WITNESS my hand and official seal.
My commission expires:
__________________________________
Notary Public
Address:
__________________________________
__________________________________
-77-
<PAGE> 82
DEED OF TRUST AND SECURITY AGREEMENT
EXHIBIT A - LEGAL DESCRIPTION
Parcel A: (Highrise building site)
Lots 16 to 20 , inclusive Block 30, H.C. Brown's Addition to Denver, Colorado,
and the West one half of vacated alley lying East of and adjoining said lots
And
Lots 20 to 30, inclusive, Block 30, H.C. Brown's Addition to Denver, Colorado,
and the East one half of vacated alley lying West of and adjoining said lots
And
That portion of Lot 31, Block 30, H.C. Brown's Addition to Denver, Colorado, and
the vacated alley adjoining said lot, described as follows: Beginning at a point
on the South line of said Lot 31, from which the Southeast corner of said Lot 31
lies 101.83 feet Easterly; thence Northerly on a deflection angle of 89 degrees
52'00", and parallel to the East line of said Lot 31, a distance of 0.06 feet;
thence on a deflection angle to the right of 19 degrees 00'00", a distance of
4.25 feet to a point on the outside face on existing circular building
structure; thence Northwesterly along the face of said building structure on a
curve to the right, the chord of which deflects from the last mentioned course
at an angle of 83 degrees 31'27" to the left and the radius of which measures
49.00 feet, an arc length of 8.76 feet to a point of non-tangency, said point
also being on the face of said building structure; thence continuing along said
building face on a deflection angle to the left from the aforementioned chord 25
degrees 28'33", a distance of 24.65 feet to the center of the vacated 16.00 foot
alley adjacent to the West line of said Lot 31;
-78-
<PAGE> 83
thence on a deflection angle to the left of 90 degrees 00'00", and along the
centerline of said vacated 16.00 foot alley, a distance of 7.77 feet to the
point of intersection with the South line of said Lot 31 extended westerly;
thence on a deflection angle to the left of 89 degrees 52'00", a distance of
31.17 feet to the true point of beginning.
-79-
<PAGE> 84
Parcel B: (Parking garage site)
The South one half of Lot 10 and all of Lots 11 to 20, inclusive, Block 35, H.C.
Brown's Addition to Denver, Colorado, together with all of the Southerly 238.29
feet of the vacated alley adjacent thereto, Block 35, H.C. Brown's Addition to
Denver, Colorado, as vacated by ordinance No. 244, Series of 1981, recorded may
15, 1981 in Book 2375 at Page 460; Except the following parcel described in the
Deed from the Lincoln Building Corporation to the City and County of Denver,
recorded July 20, 1981 in Book 2415 at Page 159; A part of Lots 10 and 11 of
Block 35, H.C. Brown's Addition to Denver, City and County of Denver, State of
Colorado, being more particularly described as follows:
Beginning at a point on the West line of said Block 35, 247.35 feet North of the
Southwest corner of said Block 35; thence continuing Northerly along said West
line a distance of 16.00 feet to a point being on the centerline of said Lot 10;
thence on an interior angle left of 89 degrees 52'53" along said centerline of
said Lot 10, a distance of 125.08 feet to a point on the West line of the
existing 16 foot alley; thence on an interior angle left of 90 degrees 07'05"
along the West line of said alley a distance of 25.00 feet; thence on an
interior angle left of 89 degrees 52'55" a distance of 45.00 feet; thence on an
exterior angle right of 212 degrees 42'02" a distance of 16.66 feet; thence on
an exterior angle right of 147 degrees 17'58" a distance of 66.08 feet to the
point of beginning. City and County of Denver, State of Colorado
-80-
<PAGE> 85
TOGETHER WITH THOSE BENEFICIAL INTERESTS DESCRIBED AS FOLLOWS:
BENEFICIAL INTEREST NO. 1: (Underground tunnel - Sherman Street)
Beneficial interest appurtenant to Parcels A and B herein described, as set
forth in the revocable license or permit for underground tunnel in Sherman
Street, a public street, granted by ordinance No. 613, council Bill No. 668,
Series 1980, as recorded February 9, 1981 in Book 2322 at Page 176 of the
records of the City and County of Denver described as follows:
That part of Sherman Street being 18.00 feet in width and lying 9.00 feet on
each side of the centerline described as follows:
Beginning at a point on the East line of Block 30, H.C. Brown's Addition to
Denver, Colorado, said point being a distance of 125.12 feet North of the
Southeast corner thereof; thence Easterly perpendicular to said East line, a
distance of 90.00 feet to a point on the West line of Block 35, H.C. Brown's
Addition to Denver, Colorado and a point of terminus. City and County of Denver,
State of Colorado
BENEFICIAL INTEREST NO. 2: (Transformer vault - Sherman Street)
Beneficial interest appurtenant to Lots 21 to 25 of Block 30 of Parcel A herein
described, as set forth in the revocable license or permit to encroach with
transformer vault in Sherman Street, a public street, granted by Ordinance No.
612, Council Bill
-81-
<PAGE> 86
No. 667, Series 1980, as recorded February 9, 1981 in Book 2322 at Page 178 of
the records of the City and County of Denver described as follows:
Beginning at a point on the East line of Block 30, H.C. Brown's Addition to
Denver, Colorado, said point being a distance of 1.58 feet North of the
Southeast corner thereof; thence Easterly and parallel with the South line of
said Block 30 extended Easterly, a distance of 18.25 feet; thence Northerly and
parallel with the East line of said Block 30, a distance of 114.54 feet; thence
Westerly and parallel with the South line of said Block 30 extended Easterly, a
distance of 18.25 feet to a point on the East line of said Block 30; thence
Southerly along said East line, a distance of 114.54 feet to the point of
beginning. City and County of Denver, State of Colorado
BENEFICIAL INTEREST NO. 3: (Cassions - Sherman Street)
Beneficial interest appurtenant to Parcel A herein described, as set forth in
the revocable license or permit to encroach with caissons in Sherman Street, a
public street, granted by Ordinance No. 528, Council Bill No. 581, Series 1980
as recorded February 9, 1981 in Book 2322 at Page 174 of the records of the City
and County of Denver described as follows:
That part of Sherman Street described as follows: Beginning at a point on the
East line of Block 30, H.C. Brown's Addition to Denver, Colorado, said point
being 135.85 feet North of the Southeast corner of said Block 30; thence
Easterly and parallel with the South line of said Block 30 extended Easterly 1
-82-
<PAGE> 87
foot; thence Northerly and parallel with the East line of said Block 30, 95.67
feet; thence Westerly and parallel with the South line of said Block 30 extended
Easterly 1 foot to a point on the East line of said Block 30;
thence Southerly along said East line to the point of beginning. City and County
of Denver, State of Colorado
BENEFICIAL INTEREST NO. 4: (Overhead pedestrian bridge - Lincoln Street)
Beneficial interest appurtenant to Parcel A herein described, as set forth in
the revocable license or permit to encroach with an overhead bridge across
Lincoln Street, a public street, granted by ordinance No. 611, Council Bill No.
666, Series 1980, as recorded February 9, 1981 in Book 2322 at Page 180 of the
records of the City and County of Denver described as follows:
That part of Lincoln Street being 16.66 feet in width and lying 8.33 feet on
each side of the centerline described as follows:
Beginning at a point on the West line of Block 30, H.C. Brown's Addition to
Denver, Colorado, said point being 86.91 feet North of the Southwest corner
thereof; thence Westerly perpendicular to the said West line, a distance of
90.00 feet to a point on the East line of Block 3, H.C. Brown's Addition to
Denver, Colorado and a point of terminus. City and County of Denver, State of
Colorado
BENEFICIAL INTEREST NO. 5: (Principal bank property)
Those certain beneficial interests granted by Lincoln Building Corporation, a
Colorado
-83-
<PAGE> 88
corporation and by United Bank of Denver National Association, to 1700 Lincoln
Limited, a Colorado limited partnership, in instrument entitled Reciprocal
Easement Grant and Agreement recorded February 9, 1981 in Book 2322 at Page 323
of the records of the City and County of Denver, State of Colorado.
-84-
<PAGE> 89
DEED OF TRUST AND SECURITY AGREEMENT
Exhibit B - Form of Subordination, Nondisturbance and Attornment Agreement
Tenant Name: _______________________________
Trade Name: _______________________________
Room/Unit No.: _______________________________
THIS AGREEMENT is dated the _____ day of ____________________, 19__,
and is made by and among CONNECTICUT GENERAL LIFE INSURANCE COMPANY, having an
address of c/o CIGNA Investments, Inc., 900 Cottage Grove Road, Bloomfield,
Connecticut 06002, Attn: Real Estate Investment Services S-319; AMERICAN GENERAL
LIFE INSURANCE COMPANY, having an address of c/o American General Realty
Advisors, Inc., 2929 Allen Pkwy., 34th Floor, Houston, TX 77019; and
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, having an address of 1295 State
Street, Springfield, MA 01111 (collectively "Mortgagee"), _____________________
_________________________, d/b/a __________________________________________,
having an address of __________________________________________________________
("Tenant"), and _______________________________, having an address of _________
__________________________ ("Landlord).
RECITALS:
A. Tenant has entered into a lease ("Lease") dated _________________,
19___ with ____________________ as lessor ("Landlord"), covering the premises
known as ____________________ (the "Premises") within the property known as
____________________, more particularly described as shown on Exhibit A,
attached hereto (the "Real Property").
B. Mortgagee has agreed to make or has made a mortgage loan in the
amount of ____________________ to Landlord, secured by a mortgage of the Real
Property (the "Mortgage"), and the parties desire to set forth their agreement
herein.
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. The Lease and all extensions, renewals, replacements or
modifications thereof are and shall be subject and subordinate to the Mortgage
and all terms and conditions thereof insofar as it affects the Real Property of
which the Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof, to the full extent of
amounts secured thereby and interest thereon.
2. Tenant shall attorn to and recognize any purchaser at a foreclosure
sale under the Mortgage, any transferee who acquires the Premises by deed in
lieu of foreclosure, and the successors and assigns of such purchaser(s), as its
landlord for the unexpired balance (and any extensions, if exercised) of the
term of the Lease on the same terms and conditions set forth in the Lease.
3. If it becomes necessary to foreclose the Mortgage, Mortgagee shall
-85-
<PAGE> 90
neither terminate the Lease nor join Tenant in summary or foreclosure
proceedings so long as Tenant is not in default under any of the terms,
covenants, or conditions of the Lease.
4. If Mortgagee succeeds to the interest of Landlord under the Lease,
Mortgagee shall not be:
a. liable for any act or omission of any prior landlord (including
Landlord);
b. liable for the return of any security deposit unless such
deposit has been delivered to Mortgagee by Landlord or is in an escrow
fund available to Mortgagee;
c. subject to any offsets or defenses that Tenant might have
against any prior landlord (including Landlord);
d. bound by any rent or additional rent that Tenant might have paid
for more than the current month to any prior landlord (including
Landlord);
e. bound by any amendment, modification, or termination of the
Lease made without Mortgagee's consent;
f. personally liable under the Lease, Mortgagee's liability
thereunder being limited to its interest in the Real Property; or
g. bound by any notice of termination given by Landlord to Tenant
without Mortgagee's prior written consent thereto.
5. This Agreement shall be binding on and shall inure to the benefit of
the parties hereto and their successors and assigns.
6. Tenant shall give Mortgagee, by certified mail, return receipt
requested, or by commercial overnight delivery service, a copy of any notice of
default served on Landlord, at Mortgagee's address set forth above or at such
other address as to which Tenant has been notified in writing. If Landlord shall
have failed to cure such default within the time provided for in the Lease, then
Mortgagee shall have an additional ten (10) days within which to cure any
default capable of being cured by the payment of money and an additional thirty
(30) days within which to cure any other default or if such default cannot be
cured within that time, then such additional time as may be necessary to cure
such default shall be granted if within such thirty (30) days Mortgagee has
commenced and is diligently pursuing the remedies necessary to cure such default
(including, but not limited to, commencement of foreclosure proceedings, if
necessary to effect such cure), in which event the Lease shall not be terminated
while such remedies are being so diligently pursued.
7. Landlord has agreed under the Mortgage and other loan documents that
rentals payable under the Lease shall be paid directly by Tenant to Mortgagee
upon default by Landlord under the Mortgage. After receipt of notice from
Mortgagee to Tenant, at the address set forth above or at such other address as
to which Mortgagee has been notified in writing, that rentals under the
-86-
<PAGE> 91
Lease should be paid to Mortgagee, Tenant shall pay to Mortgagee, or at the
direction of Mortgagee, all monies due or to become due to Landlord under the
Lease. Tenant shall have no responsibility to ascertain whether such demand by
Mortgagee is permitted under the Mortgage, or to inquire into the existence of a
default. Landlord hereby waives any right, claim, or demand it may now or
hereafter have against Tenant by reason of such payment to Mortgagee, and any
such payment shall discharge the obligations of Tenant to make such payment to
Landlord.
8. Tenant declares, agrees and acknowledges that Mortgagee, in making
disbursements pursuant to any agreement relating to the Loan, is under no
obligation or duty to, nor has Mortgagee represented that it will, see to the
application of such proceeds by the person or persons to whom Mortgagee
disburses such proceeds, and any application or use of such proceeds for
purposes other than those provided for in such agreement shall not defeat the
subordination herein made in whole or in part.
IN WITNESS WHEREOF, the parties hereto have executed these presents\
as of the day and year first above written.
Mortgagee: CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: ________________________ By: ________________________
Its:________________________ Its:________________________
Date:_______________________ Date:_______________________
Mortgagee: AMERICAN GENERAL LIFE INSURANCE COMPANY
By: ________________________ By: ________________________
Its:________________________ Its:________________________
Date:_______________________ Date:_______________________
Mortgagee: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: ________________________ By: ________________________
Its:________________________ Its:________________________
Date:_______________________ Date:_______________________
Tenant: ____________________
By: ________________________ By: ________________________
Its:________________________ Its:________________________
Date:_______________________ Date:_______________________
Landlord: __________________
-87-
<PAGE> 92
By: ________________________ By: ________________________
Its:________________________ Its:________________________
Date:_______________________ Date:_______________________
-88-
<PAGE> 93
[CORPORATION]
[STATE OR COMMONWEALTH OF __________________] )
)ss.
[COUNTY OF _________________] )
On this, the ______ day of ___________________, before me, notary
public, the undersigned officer, personally appears _____________________, who
acknowledged himself to be the _______________________ of
________________________, a corporation, and the foregoing instrument for the
purposes therein contained, by signing the name of the corporation by himself as
such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal the day
and year aforesaid.
__________________________________
Notary Public
My Commission Expires:
[PARTNERSHIP]
STATE OF ___________ )
) ss.
COUNTY OF ___________ )
On this _________ day of _________________________ in the year _______
before me, _______________________, a Notary Public of said State, duly
commissioned and sworn, personally appeared _______________, known to me (or
proved to me on the oath of _____________________) to be a general partner of a
limited partnership that executed the within instrument, and acknowledged to me
that such partnership executed the same.
__________________________________
Notary Public
-89-
<PAGE> 94
[CII ON BEHALF OF CGLIC]
STATE OF CONNECTICUT )
) SS.
COUNTY OF HARTFORD )
On this __________ day of ____________________, 1996, personally
appeared __________________ who acknowledged himself to be the
______________________ and ______________________________ who acknowledged
himself to be the _______________________ of CIGNA Investments, Inc., a
corporation, duly authorized to sign on behalf of Connecticut General Life
Insurance Company, a corporation, and that each of them, being authorized so to
do, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
__________________________________
Notary Public
My Commission Expires:
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this ______ day of
_________, 1996, by ______________________ as Real Estate Investment Officer and
_______________________________ as Assistant Secretary of American General Life
Insurance Company, a Texas corporation.
WITNESS MY HAND AND SEAL
____________________________
Notary Public
My Commission Expires:
-90-
<PAGE> 95
EXHIBIT A
(SNDA-MTG)
Description of Premises
-91-
<PAGE> 96
Denver, Colorado
PROMISSORY NOTE
(MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY)
$32,666,667 July 23, 1996
FOR VALUE RECEIVED, 1700 Lincoln Limited (hereinafter referred to as
"Maker"), promises to pay to the order of Massachusetts Mutual Life Insurance
Company, a Massachusetts corporation, having its principal office at 1295 State
Street, Springfield, Massachusetts 01111 (the "Payee"), or such other place as
the Holder hereof may designate in writing (the legal holder from time to time
of this Note, including Payee as the initial holder, hereinafter referred to as
"Holder"), the principal sum of THIRTY-TWO MILLION SIX HUNDRED SIXTY-SIX
THOUSAND SIX HUNDRED SIXTY-SEVEN AND NO/100 DOLLARS ($32,666,667), or so much
thereof as may be advanced to or for the benefit of Maker by Holder (hereinafter
referred to as "Principal Indebtedness"), together with interest thereon at an
annual rate of seven and one-half percent (7.5%) (the "Interest Rate"), in
accordance with the provisions hereinafter set forth.
1. Terms of Payment. If the date on which Principal Indebtedness is
advanced to Maker ("the Advancement Date") is not the first day of a calendar
month, then Maker shall pay to Holder on the first day of the first calendar
month following the Advancement Date, interest only on the Principal
Indebtedness, at the Interest Rate, calculated on the basis of a 365-day year
and the number of days from and including the Advancement Date to and including
the last day of the calendar month in which the Advancement Date occurs. On the
first day of the second calendar month following the Advancement Date (or on the
first day of the first calendar month following the date of this Note, if the
date of this Note is the first day of a calendar month), and on the first day of
each calendar month thereafter (hereinafter called the "monthly payment dates")
until July 1, 2001, Maker shall pay to Holder the sum of $228,410.07
(hereinafter referred to as "monthly payments"), to be applied first to interest
on the Principal Indebtedness from time to time outstanding at the Interest Rate
and the balance to be applied in reduction of the Principal Indebtedness. The
interest component of the monthly payments shall be calculated and applied on
the basis of a 360-day year consisting of twelve 30-day months. On August 1,
2001 (the "Maturity
<PAGE> 97
Date"), subject to extension in accordance with that certain Extension Option
Agreement of even date herewith between Maker and Holder, Maker shall pay to
Holder the entire Principal Indebtedness then remaining unpaid, together with
accrued and unpaid interest thereon at the Interest Rate and any other charges
due under this Note, the Deed of Trust (hereinafter defined), and any other
documents evidencing or securing or pertaining to the advancement or
disbursement of the Principal Indebtedness (collectively, the "Loan Documents").
The period from and including the date hereof to the Maturity Date, as the same
may be extended, will be referred to hereinafter as the "Term".
2. Prepayment. The term "Loan Years" shall mean the consecutive 12-month
periods measured from the first day of the calendar month following the date of
this Note or, if the date of this Note is the first day of a calendar month,
then measured from the date of this Note. Except as specifically provided herein
or in the Deed of Trust, no prepayment of the Principal Indebtedness shall be
allowed during the first two (2) Loan Years (the "Closed Period"). Maker,
whether or not a debtor in a proceeding under Title 11, United States Code, may
prepay the Principal Indebtedness in full, but not in part, on any monthly
payment date after the Closed Period, provided Maker gives Holder forty-five
(45) days' prior written notice and pays a prepayment fee as described below.
After the Closed Period the prepayment fee shall be calculated as follows:
(a) Through the end of the fourth Loan Year, or, if the Term is
extended as provided in that certain Extension Option
Agreement of even date herewith between Maker and Holder,
through the end of the ninth Loan Year, the greater of:
(i) one percent (1%) of the then-existing balance of this
Note, or
(ii) Yield Maintenance as defined below.
-2-
<PAGE> 98
(b) For the first nine (9) months of the fifth Loan Year,
excluding any period after the Extension Notice, if any, and,
for the first nine months of the tenth Loan Year, if
applicable, Yield Maintenance as defined below.
The loan may be prepaid at par during the last three (3) months of the
Term, as the Term may be extended pursuant to the Extension Option Agreement
(the "Open Period"). The foregoing prepayment fee will be due when the loan is
prepaid after the Closed Period and prior to the Open Period, whether such
prepayment is voluntary or results from default, acceleration or any other
cause. Such prepayment fee will not be payable if such prepayment results from a
casualty or condemnation and the application of insurance proceeds or
condemnation awards to the loan.
In the event of a prepayment during the Closed Period resulting from an
acceleration by reason of Maker's default or any other reason, Maker shall pay
to Holder a default prepayment fee calculated as follows:
(a) 3% of the then-existing principal balance of this Note, plus
(b) Yield Maintenance as defined below:
Yield Maintenance: Yield Maintenance is defined as the sum of the present
values on the date of prepayment of each Monthly Interest Shortfall for the
remaining Term of the loan discounted to present value at one-twelfth of the sum
of the monthly Treasury Yield plus 50 basis points.
The Monthly Interest Shortfall is calculated for each monthly payment and
is the product of (i) the positive difference, if any, of the Semi-Annual
Equivalent Rate less an amount equal to the Treasury Yield plus 50 basis points,
divided by 12, times (ii) the principal balance of the loan that would have been
outstanding on each monthly payment date for which the calculation is made for
each full and partial month remaining in the Term, assuming that the loan had
not been prepaid, that all payments due on the Loan had been made
-3-
<PAGE> 99
on their respective due dates and that all such assumed payments had been
applied first to accrued interest and then to principal.
The present value for each Monthly Interest Shortfall amount is then
determined by discounting each Monthly Interest Shortfall to the present value
as of the date of prepayment of the Loan at one-twelfth the sum of the Treasury
Yield plus 50 basis points.
The "Semi-Annual Equivalent Rate" for this loan is 7.62%.
The "Treasury Yield" will be determined by reference to the Federal
Reserve Statistical Release H.15 (519) of Selected Interest Rates (or any
similar successor publication of the Federal Reserve) for the first week ending
not less than two full weeks prior to the prepayment date. If the remaining Term
is less than one year, the Treasury Yield will equal the yield for 1-Year
Treasury Constant Maturities. If the remaining Term is equal to one of the
maturities of the Treasury Constant Maturities (e.g., 1-year, 2-year, etc.),
then the Treasury Yield will equal the yield for the Treasury Constant Maturity
with a maturity equaling the remaining Term. If the remaining Term is longer
than one year, but does not equal one of the maturities of the Treasury Constant
Maturities, then the Treasury Yield will be interpolated on a straight-line
basis based on the Yields for the Treasury Constant Maturities with a maturity
closest to the remaining Term.
The aforementioned prepayment fee does not constitute a penalty, but
rather represents the reasonable estimate, agreed to between Maker and Payee, of
a fair compensation for the loss that may be sustained by Holder due to
prepayment of the Principal Indebtedness prior to the Maturity Date. Any
prepayment fee required pursuant to the preceding paragraphs shall be paid
without prejudice to the right of Holder to collect any of the amounts owing
under this Note or the Deed of Trust or otherwise, to enforce any of its rights
or remedies arising out of an Event of Default hereunder.
3. Security. This Note is secured by, among other things, a deed of trust
(hereinafter referred to as the "Deed of Trust") given by Maker for the
-4-
<PAGE> 100
benefit of Payee and others, of even date herewith, constituting a first lien on
real estate and a first priority security interest in personal property and any
leasehold in such personal property and an assignment of rents and leases
(hereinafter collectively referred to as the "Security"), in the City and County
of Denver, State of Colorado.
4. Location and Medium of Payments. The sums payable under this Note or
under the Deed of Trust shall be paid to Holder at its principal address
hereinabove set forth, or at such other place as Holder may from time to time
hereafter designate to Maker in writing, in legal tender of the United States of
America.
5. Acceleration of Maturity. At the option of Holder, which may be
exercised at any time after one or more of the following events (each being an
"Event of Default") shall have occurred, the whole of the Principal
Indebtedness, together with all interest and other charges due under any of the
Loan Documents, shall immediately become due and payable ("Acceleration of
Maturity"): (a) if any payment of any installment of the Principal Indebtedness,
and/or interest or of any other sum due hereunder is not received by Holder
within five business days following the date when such payment was due; or (b)
if a default or an Event of Default shall occur under the Deed of Trust or any
other of the Loan Documents, which is not cured within any applicable grace
period afforded therein, if any.
6. Late Charges; Interest Following Event of Default. If any payment of
principal or interest due under this Note or any escrow payment required under
Section 5 of the Deed of Trust is not paid when due, without regard to any cure
or grace period, Maker shall pay and Holder shall be entitled to collect a late
payment charge for each month or fraction thereof during which such payment is
not made when due and for each month thereafter that such sum remains unpaid,
equal to the lesser of four percent (4%) of such late payment, or the maximum
amount permitted by law, for the purpose of defraying the expense incurred by
Holder in handling and processing such delinquent payment, and such amount shall
be secured by the Deed of Trust.
-5-
<PAGE> 101
In addition to any late payment charge which may be due under this Note,
Maker shall pay interest on all sums due hereunder at a rate (the "Default
Rate") equal to the lesser of (i) the Interest Rate plus four percent (4%) per
annum, or (ii) the maximum rate permitted by law, from and after the first to
occur of the following events: if Holder elects to cause the Acceleration of
Maturity or if a petition under Title 11, United States Code, shall be filed by
or against Maker.
7. Collection and Enforcement Costs. Maker, upon demand, shall pay Holder
for all costs and expenses, including without limitation attorneys' fees, paid
or incurred by Holder in connection with the collection of any sum due
hereunder, or in connection with enforcement of any of Holder's rights or
Maker's obligations under this Note, the Deed of Trust or any of the other Loan
Documents.
8. Continuing Liability. The obligation of Maker to pay the Principal
Indebtedness, interest and all other sums due hereunder shall continue in full
force and effect and in no ways be impaired, until the actual payment thereof to
Holder, and in case of a sale or transfer of all or any part of the Security, or
in case of any further agreement given to secure the payment of this Note, or in
case of any agreement or stipulation extending the time or modifying the terms
of payment above recited, Maker shall nevertheless continue to be liable on this
Note, as extended or modified by any such agreement or stipulation, unless
released and discharged in writing by Holder.
9. Joint and Several Liability. If more than one person, corporation,
partnership or other entity shall execute this Note, then each person and entity
shall be fully liable for all obligations of Maker hereunder, and such
obligations shall be joint and several.
10. No Oral Changes; Waivers. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
a change is sought. The provisions of this Note shall extend and be applicable
to all renewals, amendments, extensions, consolidations, and modifications of
the Deed of Trust and/or the other Loan Documents, and any
-6-
<PAGE> 102
and all references herein to the Deed of Trust and/or the Loan Documents shall
be deemed to include any such renewals, amendments, extensions, consolidations,
or modifications thereof.
Maker and any future indorsers, sureties, and guarantors hereof, jointly
and severally, waive presentment for payment, demand, notice of nonpayment,
notice of dishonor, protest of any dishonor, notice of protest, and protest of
this Note, and all other notices in connection with the delivery, acceptance,
performance, default (except notice of default required hereby, if any), or
enforcement of the payment of this Note, and they agree that the liability of
each of them shall be unconditional without regard to the liability of any other
party and shall not be in any manner affected by any indulgence, extension of
time, renewal, waiver, or modification granted or consented to by the Holder;
and Maker and all future indorsers, sureties and guarantors hereof consent to
any and all extensions of time, renewals, waivers, or modifications that may be
granted by the Holder hereof with respect to the payment or other provisions of
this Note, and to the release of the collateral, or any part thereof, with or
without substitution, and agree that additional makers, indorsers, guarantors,
or sureties may become parties hereto without notice to them or affecting their
liability hereunder.
Holder shall not by any act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by Holder, and then only to the extent specifically set forth therein; a
waiver on one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event. The acceptance by Holder
of payment hereunder that is less than payment in full of all amounts due at the
time of such payment shall not without the express written consent of Holder:
(i) constitute a waiver of the right to exercise any of Holder's remedies at
that time or at any subsequent time, (ii) constitute an accord and satisfaction,
or (iii) nullify any prior exercise of any remedy.
No failure to cause an Acceleration of Maturity hereof by reason of an
Event of Default hereunder, acceptance of a past due installment, or indulgences
granted from time to time shall be construed (i) as a novation of
-7-
<PAGE> 103
this Note or as a reinstatement of the indebtedness evidenced hereby or as a
waiver of such right of acceleration or of the right of Holder thereafter to
insist upon strict compliance with the terms of this Note, or (ii) to prevent
the exercise of such right of acceleration or any other right granted hereunder
or by the laws of the State of Colorado; and, to the maximum extent permitted by
law, Maker hereby expressly waives the benefit of any statute or rule of law or
equity now provided, or which may hereafter be provided, which would produce a
result contrary to or in conflict with the foregoing.
To the maximum extent permitted by law, Maker hereby waives and renounces
for itself, its heirs, successors and assigns, all rights to the benefits of any
statute of limitations and any moratorium, reinstatement, marshalling,
forbearance, valuation, stay, extension, redemption, and appraisement now
provided, or which may hereafter be provided, by the Constitution and laws of
the United States of America and of any state thereof, both as to itself and in
and to all of its property, real and personal, against the enforcement and
collection of the obligations evidenced by this Note.
11. Bind and Inure. This Note shall bind and inure to the benefit of the
parties hereto and their respective legal representatives, heirs, successors and
assigns.
12. Applicable Law. The provisions of this Note shall be construed and
enforceable in accordance with the laws of the State of Colorado.
If any provision of this Note or the application hereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the remainder of this Note nor the application of such
provision to any other person or circumstance shall be affected thereby, but
rather the same shall be enforced to the greatest extent permitted by law,
except that if such provision would result in a reduction in the Interest Rate
or other material change in the payment of a monetary sum, then the Holder may,
at its option, declare the entire indebtedness evidenced hereby due and payable
upon sixty (60) days prior written notice to Maker and, provided no
-8-
<PAGE> 104
Event of Default is then continuing, without prepayment fee or premium.
13. Usury. In no event shall Maker be bound to pay interest in excess of
the limit for the use, forbearance or detention of the money loaned pursuant to
this Note; the right to demand any such excess being hereby expressly waived by
Holder.
14. Notice. Any notice, request, demand, statement or consent made
hereunder shall be in writing signed by the party giving such notice, request,
demand, statement or consent, and shall be deemed to have been properly given
when either delivered personally, delivered to a reputable overnight delivery
service providing a receipt or deposited in the United States Mail, postage
prepaid and registered or certified return receipt requested, at the address set
forth below, or at such other address within the continental United States of
America as may have theretofore been designated in writing. The effective date
of any notice given as aforesaid shall be the date of personal service, one (1)
business day after delivery to such overnight delivery service, or three (3)
business days after being deposited in the United States Mail, whichever is
applicable. For purposes hereof, the addresses are as follows:
If to Holder: Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
Telecopy No.: (413) 744-6123
Attn: ITS: Senior Managing Director of
Real Estate
With copies to: Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, CT 06152-2319
Attn: Investment Services, S-319
And
With a copy to: CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, CT 06152-2215
Attn: Real Estate Division, S-215A
-9-
<PAGE> 105
And
American General Realty Advisors, Inc.
2929 Allen Pkwy., 34th Floor
Houston, TX 77019
Telecopy No.: (713) 831-1033
Attn: Director, Mortgage Loans
With a courtesy
copy to: Fairfield and Woods, P.C.
1700 Lincoln Street, Suite 2400
Denver, Colorado 80203
Attn: Thomas P. Kearns, Esq.
If to Maker: Cornerstone Properties Inc.
126 East 56th Street
New York, New York 10022
Attn: Kevin P. Mahoney
With a courtesy
copy to: Shearman & Sterling
Citicorp Center
153 East 53rd Street
New York City, N.Y. 10022-4676
Attn: Timothy G. Little, Esq.
Notwithstanding the foregoing agreement to provide a courtesy copy to
Maker's attorneys, such copy shall be a courtesy copy only, and failure to
provide such courtesy copy shall have absolutely no effect or entitle Maker to
any remedy whatsoever. Any notice duly given to Maker shall be effective whether
or not the courtesy copy was given to Maker's attorneys.
15. Nonrecourse. Except as specifically provided hereinafter in this
Section 15 and in Section 40 of the Deed of Trust, neither Maker, Cornerstone
Properties Inc. ("Cornerstone"), nor any of the general or limited partners of
Maker nor any of their respective officers, directors, shareholders, agents,
employees or representatives (collectively the "Exculpated Parties") shall be
personally liable for the payment of any sums due hereunder or the performance
of any obligations of Maker hereunder or under the other Loan Documents. No
judgment for the repayment of the Principal Indebtedness or interest thereon or
any other amount payable pursuant to any of the Loan Documents, will be enforced
against any of the Exculpated Parties personally or any property of any of the
Exculpated Parties other than the Security and any other security
-10-
<PAGE> 106
now or hereafter expressly granted under the Loan Documents in any action to
foreclose the Deed of Trust or to otherwise realize upon any security now or
hereafter expressly granted under the Loan Documents or to collect any amount
payable hereunder. Notwithstanding the foregoing:
(a) Nothing herein contained shall be construed as prohibiting
Holder from exercising any and all remedies which the Loan Documents
permit, including the right to bring actions or proceedings against Maker,
Cornerstone, and other Exculpated Parties and to enter a judgment against
Maker, Cornerstone, and any other Exculpated Parties, so long as the
exercise of any remedy does not extend to execution against or recovery
out of any property of Maker, Cornerstone, or any other Exculpated Party
other than the security now or hereafter expressly granted under the Loan
Documents;
(b) Maker and Cornerstone shall each be fully and personally liable
for, and the other Exculpated Parties (to the extent the other Exculpated
Parties would be liable outside of the provisions of this section) shall
be fully and personally liable for, (i) misapplying any condemnation
awards or insurance awards attributable to the Security, to the full
extent of such awards so misapplied, (ii) misapplying any security
deposits attributable to the Security, to the full extent of such deposits
so misapplied, (iii) collecting any rents more than thirty (30) days in
advance in violation of any covenant contained in the Loan Documents, to
the full extent of such rents so collected in advance, (iv) committing
fraud or intentional misrepresentation in connection with the operation of
the Security or the making of the loan evidenced hereby, to the full
extent of any loss, damage, expense or costs (including reasonable
attorneys' fees) incurred by Holder resulting from such fraud,
misrepresentation or waste, (v) failing to pay in order of priority: real
estate taxes or assessments, (or escrow accounts established therefor),
operating and maintenance expenses relating to the Real Property, other
sums required by the Loan Documents, deposits into a required reserve
account, capital expenditures, management fees, leasing fees and expenses,
marketing and advertising costs and debt
-11-
<PAGE> 107
service or other amounts due on the Indebtedness, but only to the extent
of any gross revenues from the Security that were available to pay such
expenses but were not so used during the period beginning six (6) months
prior to either (A) Maker's receipt of notice of default under the loan
documents or (B) the occurrence of a default under the loan documents that
would not require notice in order to ripen into an event of default, and
continuing through the date Holder takes title to the Real Property; (vi)
the seizure or forfeiture of the Security due to the criminal activity by
Maker or Cornerstone any constituent partner of Maker or Cornerstone or
any of their respective shareholders, partners, officers, employees or
agents, in the full amount of the loss incurred by Holder as a result of
such seizure or forfeiture.
(c) This section shall impose no limitation on Maker's,
Cornerstone's, or any other Exculpated Party's personal liability under
and the exercise of any of Holder's rights under any indemnity from Maker,
Cornerstone, or any other Exculpated Party to Holder including but not
limited to, the Environmental Indemnification Agreement of even date
herewith from Maker and Cornerstone to Payee with regard to the Security
except as may be expressly set forth therein;
(d) This section shall impose no limitation on or prejudice to the
rights of Holder to proceed against any entity or person whatsoever,
including Maker, Cornerstone, and the other Exculpated Parties, with
respect to the enforcement of any guarantees of the Principal Indebtedness
or other sums due hereunder or under any of the other Loan Documents or
any part thereof, any master leases, or any similar rights of payment that
may be entered into after the date hereof, except as may be expressly set
forth in any such guarantee.
16. Time of the Essence. Time is of the essence in this Note and the other
Loan Documents.
17. Attorneys' Fees. Any reference to "attorney fees" in this document
includes but is not limited to both the fees, charges and costs
-12-
<PAGE> 108
incurred by Holder through its retention of outside legal counsel and the
reasonably allocable fees, costs and charges for services rendered by Holder's
in-house counsel. Any reference to "attorney fees" shall also include but not be
limited to those attorneys or legal fees, costs and charges incurred by Holder
in the collection of any Indebtedness, the enforcement of any obligations
hereunder, the protection of the Security, the foreclosure of the Deed of Trust,
the sale of the Security, the defense of actions arising hereunder and the
collection, protection or setoff of any claim the Holder may have in a
proceeding under Title 11, United States Code. Attorneys fees provided for
hereunder shall accrue whether or not Holder has provided notice of an Event of
Default or of an intention to exercise its remedies for such Event of Default.
18. Action by Maker. Unless otherwise required by law, Maker may not take
any action with respect to this Note, including, without limitation, any
election to prepay the Principal Indebtedness, unless Maker takes the same
action with respect to those two certain promissory notes of even date herewith
given by Maker to (a) Connecticut General Life Insurance Company in the original
principal amount of $32,666,666, and (b) American General Life Insurance Company
in the original principal amount of $32,666,667.
19. Waiver of Trial by Jury. Maker hereby waives its right to a trial by
jury as to any matter arising out of or concerning the subject matter of this
Note.
IN WITNESS WHEREOF, Maker has duly executed this Note as a sealed
instrument as of the day and year first above written.
MAKER:
1700 LINCOLN LIMITED
By: ARICO-Denver, Inc., general partner
By: ________________________________
Name: Kevin P. Mahoney
Title: Vice President
-13-
<PAGE> 109
By: ________________________________
Name: Scott M. Dalrymple
Title: Vice President
By: 1700 Lincoln, Inc., general partner
By: ________________________________
Name: Kevin P. Mahoney
Title: Vice President
By: ________________________________
Name: Scott M. Dalrymple
Title: Vice President
-14-
<PAGE> 110
Denver, Colorado
PROMISSORY NOTE
(CONNECTICUT GENERAL LIFE INSURANCE COMPANY)
$32,666,666 July 23, 1996
FOR VALUE RECEIVED, 1700 Lincoln Limited (hereinafter referred to as
"Maker"), promises to pay to the order of Connecticut General Life Insurance
Company, a Connecticut corporation, having its principal office at 900 Cottage
Grove Road, Bloomfield, Connecticut (the "Payee"), or such other place as the
Holder hereof may designate in writing (the legal holder from time to time of
this Note, including Payee as the initial holder, hereinafter referred to as
"Holder"), the principal sum of THIRTY-TWO MILLION SIX HUNDRED SIXTY-SIX
THOUSAND SIX HUNDRED SIXTY-SIX AND NO/100 DOLLARS ($32,666,666), or so much
thereof as may be advanced to or for the benefit of Maker by Holder (hereinafter
referred to as "Principal Indebtedness"), together with interest thereon at an
annual rate of seven and one-half percent (7.5%) (the "Interest Rate"), in
accordance with the provisions hereinafter set forth.
1. Terms of Payment. If the date on which Principal Indebtedness is
advanced to Maker ("the Advancement Date") is not the first day of a calendar
month, then Maker shall pay to Holder on the first day of the first calendar
month following the Advancement Date, interest only on the Principal
Indebtedness, at the Interest Rate, calculated on the basis of a 365-day year
and the number of days from and including the Advancement Date to and including
the last day of the calendar month in which the Advancement Date occurs. On the
first day of the second calendar month following the Advancement Date (or on the
first day of the first calendar month following the date of this Note, if the
date of this Note is the first day of a calendar month), and on the first day of
each calendar month thereafter (hereinafter called the "monthly payment dates")
until July 1, 2001, Maker shall pay to Holder the sum of $228,410.07
(hereinafter referred to as "monthly payments"), to be applied first to interest
on the Principal Indebtedness from time to time outstanding at the Interest Rate
and the balance to be applied in reduction of the Principal Indebtedness. The
interest component of the monthly payments shall be calculated and applied on
the basis of a 360-day year consisting of twelve 30-day months. On August 1,
2001 (the "Maturity
<PAGE> 111
Date"), subject to extension in accordance with that certain Extension Option
Agreement of even date herewith between Maker and Holder, Maker shall pay to
Holder the entire Principal Indebtedness then remaining unpaid, together with
accrued and unpaid interest thereon at the Interest Rate and any other charges
due under this Note, the Deed of Trust (hereinafter defined), and any other
documents evidencing or securing or pertaining to the advancement or
disbursement of the Principal Indebtedness (collectively, the "Loan Documents").
The period from and including the date hereof to the Maturity Date, as the same
may be extended, will be referred to hereinafter as the "Term".
2. Prepayment. The term "Loan Years" shall mean the consecutive 12-month
periods measured from the first day of the calendar month following the date of
this Note or, if the date of this Note is the first day of a calendar month,
then measured from the date of this Note. Except as specifically provided herein
or in the Deed of Trust, no prepayment of the Principal Indebtedness shall be
allowed during the first two (2) Loan Years (the "Closed Period"). Maker,
whether or not a debtor in a proceeding under Title 11, United States Code, may
prepay the Principal Indebtedness in full, but not in part, on any monthly
payment date after the Closed Period, provided Maker gives Holder forty-five
(45) days' prior written notice and pays a prepayment fee as described below.
After the Closed Period the prepayment fee shall be calculated as follows:
(a) Through the end of the fourth Loan Year, or, if the Term is
extended as provided in that certain Extension Option
Agreement of even date herewith between Maker and Holder,
through the end of the ninth Loan Year, the greater of:
(i) one percent (1%) of the then-existing balance of this
Note, or
(ii) Yield Maintenance as defined below.
-2-
<PAGE> 112
(b) For the first nine (9) months of the fifth Loan Year,
excluding any period after the Extension Notice, if any, and,
for the first nine months of the tenth Loan Year, if
applicable, Yield Maintenance as defined below.
The loan may be prepaid at par during the last three (3) months of the
Term, as the Term may be extended pursuant to the Extension Option Agreement
(the "Open Period"). The foregoing prepayment fee will be due when the loan is
prepaid after the Closed Period and prior to the Open Period, whether such
prepayment is voluntary or results from default, acceleration or any other
cause. Such prepayment fee will not be payable if such prepayment results from a
casualty or condemnation and the application of insurance proceeds or
condemnation awards to the loan.
In the event of a prepayment during the Closed Period resulting from an
acceleration by reason of Maker's default or any other reason, Maker shall pay
to Holder a default prepayment fee calculated as follows:
(a) 3% of the then-existing principal balance of this Note, plus
(b) Yield Maintenance as defined below:
Yield Maintenance: Yield Maintenance is defined as the sum of the present
values on the date of prepayment of each Monthly Interest Shortfall for the
remaining Term of the loan discounted to present value at one-twelfth of the sum
of the monthly Treasury Yield plus 50 basis points.
The Monthly Interest Shortfall is calculated for each monthly payment and
is the product of (i) the positive difference, if any, of the Semi-Annual
Equivalent Rate less an amount equal to the Treasury Yield plus 50 basis points,
divided by 12, times (ii) the principal balance of the loan that would have been
outstanding on each monthly payment date for which the calculation is made for
each full and partial month remaining in the Term, assuming that the loan had
not been prepaid, that all payments due on the Loan had been made
-3-
<PAGE> 113
on their respective due dates and that all such assumed payments had been
applied first to accrued interest and then to principal.
The present value for each Monthly Interest Shortfall amount is then
determined by discounting each Monthly Interest Shortfall to the present value
as of the date of prepayment of the Loan at one-twelfth the sum of the Treasury
Yield plus 50 basis points.
The "Semi-Annual Equivalent Rate" for this loan is 7.62%.
The "Treasury Yield" will be determined by reference to the Federal
Reserve Statistical Release H.15 (519) of Selected Interest Rates (or any
similar successor publication of the Federal Reserve) for the first week ending
not less than two full weeks prior to the prepayment date. If the remaining Term
is less than one year, the Treasury Yield will equal the yield for 1-Year
Treasury Constant Maturities. If the remaining Term is equal to one of the
maturities of the Treasury Constant Maturities (e.g., 1-year, 2-year, etc.),
then the Treasury Yield will equal the yield for the Treasury Constant Maturity
with a maturity equaling the remaining Term. If the remaining Term is longer
than one year, but does not equal one of the maturities of the Treasury Constant
Maturities, then the Treasury Yield will be interpolated on a straight-line
basis based on the Yields for the Treasury Constant Maturities with a maturity
closest to the remaining Term.
The aforementioned prepayment fee does not constitute a penalty, but
rather represents the reasonable estimate, agreed to between Maker and Payee, of
a fair compensation for the loss that may be sustained by Holder due to
prepayment of the Principal Indebtedness prior to the Maturity Date. Any
prepayment fee required pursuant to the preceding paragraphs shall be paid
without prejudice to the right of Holder to collect any of the amounts owing
under this Note or the Deed of Trust or otherwise, to enforce any of its rights
or remedies arising out of an Event of Default hereunder.
3. Security. This Note is secured by, among other things, a deed of trust
(hereinafter referred to as the "Deed of Trust") given by Maker for the
-4-
<PAGE> 114
benefit of Payee and others, of even date herewith, constituting a first lien on
real estate and a first priority security interest in personal property and any
leasehold in such personal property and an assignment of rents and leases
(hereinafter collectively referred to as the "Security"), in the County of
Denver, State of Colorado.
4. Location and Medium of Payments. The sums payable under this Note or
under the Deed of Trust shall be paid to Holder at its principal address
hereinabove set forth, or at such other place as Holder may from time to time
hereafter designate to Maker in writing, in legal tender of the United States of
America.
5. Acceleration of Maturity. At the option of Holder, which may be
exercised at any time after one or more of the following events (each being an
"Event of Default") shall have occurred, the whole of the Principal
Indebtedness, together with all interest and other charges due under any of the
Loan Documents, shall immediately become due and payable ("Acceleration of
Maturity"): (a) if any payment of any installment of the Principal Indebtedness,
and/or interest or of any other sum due hereunder is not received by Holder
within five business days following the date when such payment was due; or (b)
if a default or an Event of Default shall occur under the Deed of Trust or any
other of the Loan Documents, which is not cured within any applicable grace
period afforded therein, if any.
6. Late Charges; Interest Following Event of Default. If any payment of
principal or interest due under this Note or any escrow payment required under
Section 5 of the Deed of Trust is not paid when due, without regard to any cure
or grace period, Maker shall pay and Holder shall be entitled to collect a late
payment charge for each month or fraction thereof during which such payment is
not made when due and for each month thereafter that such sum remains unpaid,
equal to the lesser of four percent (4%) of such late payment, or the maximum
amount permitted by law, for the purpose of defraying the expense incurred by
Holder in handling and processing such delinquent payment, and such amount shall
be secured by the Deed of Trust.
-5-
<PAGE> 115
In addition to any late payment charge which may be due under this Note,
Maker shall pay interest on all sums due hereunder at a rate (the "Default
Rate") equal to the lesser of (i) the Interest Rate plus four percent (4%) per
annum, or (ii) the maximum rate permitted by law, from and after the first to
occur of the following events: if Holder elects to cause the Acceleration of
Maturity or if a petition under Title 11, United States Code, shall be filed by
or against Maker.
7. Collection and Enforcement Costs. Maker, upon demand, shall pay Holder
for all costs and expenses, including without limitation attorneys' fees, paid
or incurred by Holder in connection with the collection of any sum due
hereunder, or in connection with enforcement of any of Holder's rights or
Maker's obligations under this Note, the Deed of Trust or any of the other Loan
Documents.
8. Continuing Liability. The obligation of Maker to pay the Principal
Indebtedness, interest and all other sums due hereunder shall continue in full
force and effect and in no ways be impaired, until the actual payment thereof to
Holder, and in case of a sale or transfer of all or any part of the Security, or
in case of any further agreement given to secure the payment of this Note, or in
case of any agreement or stipulation extending the time or modifying the terms
of payment above recited, Maker shall nevertheless continue to be liable on this
Note, as extended or modified by any such agreement or stipulation, unless
released and discharged in writing by Holder.
9. Joint and Several Liability. If more than one person, corporation,
partnership or other entity shall execute this Note, then each person and entity
shall be fully liable for all obligations of Maker hereunder, and such
obligations shall be joint and several.
10. No Oral Changes; Waivers. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
a change is sought. The provisions of this Note shall extend and be applicable
to all renewals, amendments, extensions, consolidations, and modifications of
the Deed of Trust and/or the other Loan Documents, and any
-6-
<PAGE> 116
and all references herein to the Deed of Trust and/or the Loan Documents shall
be deemed to include any such renewals, amendments, extensions, consolidations,
or modifications thereof.
Maker and any future indorsers, sureties, and guarantors hereof, jointly
and severally, waive presentment for payment, demand, notice of nonpayment,
notice of dishonor, protest of any dishonor, notice of protest, and protest of
this Note, and all other notices in connection with the delivery, acceptance,
performance, default (except notice of default required hereby, if any), or
enforcement of the payment of this Note, and they agree that the liability of
each of them shall be unconditional without regard to the liability of any other
party and shall not be in any manner affected by any indulgence, extension of
time, renewal, waiver, or modification granted or consented to by the Holder;
and Maker and all future indorsers, sureties and guarantors hereof consent to
any and all extensions of time, renewals, waivers, or modifications that may be
granted by the Holder hereof with respect to the payment or other provisions of
this Note, and to the release of the collateral, or any part thereof, with or
without substitution, and agree that additional makers, indorsers, guarantors,
or sureties may become parties hereto without notice to them or affecting their
liability hereunder.
Holder shall not by any act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by Holder, and then only to the extent specifically set forth therein; a
waiver on one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event. The acceptance by Holder
of payment hereunder that is less than payment in full of all amounts due at the
time of such payment shall not without the express written consent of Holder:
(i) constitute a waiver of the right to exercise any of Holder's remedies at
that time or at any subsequent time, (ii) constitute an accord and satisfaction,
or (iii) nullify any prior exercise of any remedy.
No failure to cause an Acceleration of Maturity hereof by reason of an
Event of Default hereunder, acceptance of a past due installment, or indulgences
granted from time to time shall be construed (i) as a novation of
-7-
<PAGE> 117
this Note or as a reinstatement of the indebtedness evidenced hereby or as a
waiver of such right of acceleration or of the right of Holder thereafter to
insist upon strict compliance with the terms of this Note, or (ii) to prevent
the exercise of such right of acceleration or any other right granted hereunder
or by the laws of the State of Colorado; and, to the maximum extent permitted by
law, Maker hereby expressly waives the benefit of any statute or rule of law or
equity now provided, or which may hereafter be provided, which would produce a
result contrary to or in conflict with the foregoing.
To the maximum extent permitted by law, Maker hereby waives and renounces
for itself, its heirs, successors and assigns, all rights to the benefits of any
statute of limitations and any moratorium, reinstatement, marshalling,
forbearance, valuation, stay, extension, redemption, and appraisement now
provided, or which may hereafter be provided, by the Constitution and laws of
the United States of America and of any state thereof, both as to itself and in
and to all of its property, real and personal, against the enforcement and
collection of the obligations evidenced by this Note.
11. Bind and Inure. This Note shall bind and inure to the benefit of the
parties hereto and their respective legal representatives, heirs, successors and
assigns.
12. Applicable Law. The provisions of this Note shall be construed and
enforceable in accordance with the laws of the State of Colorado.
If any provision of this Note or the application hereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the remainder of this Note nor the application of such
provision to any other person or circumstance shall be affected thereby, but
rather the same shall be enforced to the greatest extent permitted by law,
except that if such provision would result in a reduction in the Interest Rate
or other material change in the payment of a monetary sum, then the Holder may,
at its option, declare the entire indebtedness evidenced hereby due and payable
upon sixty (60) days prior written notice to Maker and, provided no
-8-
<PAGE> 118
Event of Default is then continuing, without prepayment fee or premium.
13. Usury. In no event shall Maker be bound to pay interest in excess of
the limit for the use, forbearance or detention of the money loaned pursuant to
this Note; the right to demand any such excess being hereby expressly waived by
Holder.
14. Notice. Any notice, request, demand, statement or consent made
hereunder shall be in writing signed by the party giving such notice, request,
demand, statement or consent, and shall be deemed to have been properly given
when either delivered personally, delivered to a reputable overnight delivery
service providing a receipt or deposited in the United States Mail, postage
prepaid and registered or certified return receipt requested, at the address set
forth below, or at such other address within the continental United States of
America as may have theretofore been designated in writing. The effective date
of any notice given as aforesaid shall be the date of personal service, one (1)
business day after delivery to such overnight delivery service, or three (3)
business days after being deposited in the United States Mail, whichever is
applicable. For purposes hereof, the addresses are as follows:
If to Holder: Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, CT 06152-2319
Attn: Investment Services, S-319
With copies to: American General Realty Advisors, Inc.
2929 Allen Pkwy., 34th Floor
Houston, TX 77019
Telecopy No.: (713) 831-1033
Attn: Director, Mortgage Loans
And
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
Telecopy No.: (413) 744-6123
Attn: ITS: Senior Managing Director of
Real Estate
With a copy to: CIGNA Corporation
-9-
<PAGE> 119
Investment Law Department
900 Cottage Grove Road
Hartford, CT 06152-2215
Attn: Real Estate Division, S-215A
With a courtesy
copy to: Fairfield and Woods, P.C.
1700 Lincoln Street, Suite 2400
Denver, Colorado 80203
Attn: Thomas P. Kearns, Esq.
If to Maker: Cornerstone Properties Inc.
126 East 56th Street
New York, New York 10022
Attn: Kevin P. Mahoney
With a courtesy
copy to: Shearman & Sterling
Citicorp Center
153 East 53rd Street
New York City, N.Y. 10022-4676
Attn: Timothy G. Little, Esq.
Notwithstanding the foregoing agreement to provide a courtesy copy to
Maker's attorneys, such copy shall be a courtesy copy only, and failure to
provide such courtesy copy shall have absolutely no effect or entitle Maker to
any remedy whatsoever. Any notice duly given to Maker shall be effective whether
or not the courtesy copy was given to Maker's attorneys.
15. Nonrecourse. Except as specifically provided hereinafter in this
Section 15 and in Section 40 of the Deed of Trust, neither Maker, Cornerstone
Properties Inc. ("Cornerstone"), nor any of the general or limited partners of
Maker nor any of their respective officers, directors, shareholders, agents,
employees or representatives (collectively the "Exculpated Parties") shall be
personally liable for the payment of any sums due hereunder or the performance
of any obligations of Maker hereunder or under the other Loan Documents. No
judgment for the repayment of the Principal Indebtedness or interest thereon or
any other amount payable pursuant to any of the Loan Documents, will be enforced
against any of the Exculpated Parties personally or any property of any of the
Exculpated Parties other than the Security and any other security now or
hereafter expressly granted under the Loan Documents in any action to foreclose
the Deed of Trust or to otherwise realize upon any security now or
-10-
<PAGE> 120
hereafter expressly granted under the Loan Documents or to collect any amount
payable hereunder. Notwithstanding the foregoing:
(a) Nothing herein contained shall be construed as prohibiting
Holder from exercising any and all remedies which the Loan Documents
permit, including the right to bring actions or proceedings against Maker,
Cornerstone, and other Exculpated Parties and to enter a judgment against
Maker, Cornerstone, and any other Exculpated Parties, so long as the
exercise of any remedy does not extend to execution against or recovery
out of any property of Maker, Cornerstone, or any other Exculpated Party
other than the security now or hereafter expressly granted under the Loan
Documents;
(b) Maker and Cornerstone shall each be fully and personally liable
for, and the other Exculpated Parties (to the extent the other Exculpated
Parties would be liable outside of the provisions of this section) shall
be fully and personally liable for, (i) misapplying any condemnation
awards or insurance awards attributable to the Security, to the full
extent of such awards so misapplied, (ii) misapplying any security
deposits attributable to the Security, to the full extent of such deposits
so misapplied, (iii) collecting any rents more than thirty (30) days in
advance in violation of any covenant contained in the Loan Documents, to
the full extent of such rents so collected in advance, (iv) committing
fraud or intentional misrepresentation in connection with the operation of
the Security or the making of the loan evidenced hereby, to the full
extent of any loss, damage, expense or costs (including reasonable
attorneys' fees) incurred by Holder resulting from such fraud,
misrepresentation or waste, (v) failing to pay in order of priority: real
estate taxes or assessments, (or escrow accounts established therefor),
operating and maintenance expenses relating to the Real Property, other
sums required by the Loan Documents, deposits into a required reserve
account, capital expenditures, management fees, leasing fees and expenses,
marketing and advertising costs and debt service or other amounts due on
the Indebtedness, but only to the extent of any gross revenues from the
Security that were available to pay such
-11-
<PAGE> 121
expenses but were not so used during the period beginning six (6) months
prior to either (A) Maker's receipt of notice of default under the loan
documents or (B) the occurrence of a default under the loan documents that
would not require notice in order to ripen into an event of default, and
continuing through the date Holder takes title to the Real Property; (vi)
the seizure or forfeiture of the Security due to the criminal activity by
Maker or Cornerstone any constituent partner of Maker or Cornerstone or
any of their respective shareholders, partners, officers, employees or
agents, in the full amount of the loss incurred by Holder as a result of
such seizure or forfeiture.
(c) This section shall impose no limitation on Maker's,
Cornerstone's, or any other Exculpated Party's personal liability under
and the exercise of any of Holder's rights under any indemnity from Maker,
Cornerstone, or any other Exculpated Party to Holder including but not
limited to, the Environmental Indemnification Agreement of even date
herewith from Maker and Cornerstone to Payee with regard to the Security
except as may be expressly set forth therein;
(d) This section shall impose no limitation on or prejudice to the
rights of Holder to proceed against any entity or person whatsoever,
including Maker, Cornerstone, and the other Exculpated Parties, with
respect to the enforcement of any guarantees of the Principal Indebtedness
or other sums due hereunder or under any of the other Loan Documents or
any part thereof, any master leases, or any similar rights of payment that
may be entered into after the date hereof, except as may be expressly set
forth in any such guarantee.
16. Time of the Essence. Time is of the essence in this Note and the other
Loan Documents.
17. Attorneys' Fees. Any reference to "attorney fees" in this document
includes but is not limited to both the fees, charges and costs incurred by
Holder through its retention of outside legal counsel and the reasonably
allocable fees, costs and charges for services rendered by Holder's
-12-
<PAGE> 122
in-house counsel. Any reference to "attorney fees" shall also include but not be
limited to those attorneys or legal fees, costs and charges incurred by Holder
in the collection of any Indebtedness, the enforcement of any obligations
hereunder, the protection of the Security, the foreclosure of the Deed of Trust,
the sale of the Security, the defense of actions arising hereunder and the
collection, protection or setoff of any claim the Holder may have in a
proceeding under Title 11, United States Code. Attorneys fees provided for
hereunder shall accrue whether or not Holder has provided notice of an Event of
Default or of an intention to exercise its remedies for such Event of Default.
18. Action by Maker. Unless otherwise required by law, Maker may not take
any action with respect to this Note, including, without limitation, any
election to prepay the Principal Indebtedness, unless Maker takes the same
action with respect to those two certain promissory notes of even date herewith
given by Maker to (a) American General Life Insurance Company in the original
principal amount of $32,666,667, and (b) Massachusetts Mutual Life Insurance
Company in the original principal amount of $32,666,667.
19. Waiver of Trial by Jury. Maker hereby waives its right to a trial by
jury as to any matter arising out of or concerning the subject matter of this
Note.
IN WITNESS WHEREOF, Maker has duly executed this Note as a sealed
instrument as of the day and year first above written.
MAKER:
1700 LINCOLN LIMITED
By: ARICO-Denver, Inc., general partner
By: ________________________________
Name: Kevin P. Mahoney
Title: Vice President
By: ________________________________
Name: Scott M. Dalrymple
-13-
<PAGE> 123
Title: Vice President
By: 1700 Lincoln, Inc., general partner
By: ________________________________
Name: Kevin P. Mahoney
Title: Vice President
By: ________________________________
Name: Scott M. Dalrymple
Title: Vice President
-14-
<PAGE> 124
Denver, Colorado
PROMISSORY NOTE
(AMERICAN GENERAL LIFE INSURANCE COMPANY)
$32,666,667
July 23, 1996
FOR VALUE RECEIVED, 1700 Lincoln Limited (hereinafter referred to as
"Maker"), promises to pay to the order of American General Life Insurance
Company, a Texas corporation, having its principal office at 2929 Allen Parkway,
Houston, Texas 77019 (the "Payee"), or such other place as the Holder hereof may
designate in writing (the legal holder from time to time of this Note, including
Payee as the initial holder, hereinafter referred to as "Holder"), the principal
sum of THIRTY-TWO MILLION SIX HUNDRED SIXTY-SIX THOUSAND SIX HUNDRED SIXTY-SEVEN
AND NO/100 DOLLARS ($32,666,667), or so much thereof as may be advanced to or
for the benefit of Maker by Holder (hereinafter referred to as "Principal
Indebtedness"), together with interest thereon at an annual rate of seven and
one-half percent (7.5%) (the "Interest Rate"), in accordance with the provisions
hereinafter set forth.
1. Terms of Payment. If the date on which Principal Indebtedness is
advanced to Maker ("the Advancement Date") is not the first day of a calendar
month, then Maker shall pay to Holder on the first day of the first calendar
month following the Advancement Date, interest only on the Principal
Indebtedness, at the Interest Rate, calculated on the basis of a 365-day year
and the number of days from and including the Advancement Date to and including
the last day of the calendar month in which the Advancement Date occurs. On the
first day of the second calendar month following the Advancement Date (or on the
first day of the first calendar month following the date of this Note, if the
date of this Note is the first day of a calendar month), and on the first day of
each calendar month thereafter (hereinafter called the "monthly payment dates")
until July 1, 2001, Maker shall pay to Holder the sum of $228,410.07
(hereinafter referred to as "monthly payments"), to be applied first to interest
on the Principal Indebtedness from time to time outstanding at the Interest Rate
and the balance to be applied in reduction of the Principal Indebtedness. The
interest component of the monthly payments shall be calculated and applied on
the basis of a 360-day year consisting of twelve 30-day months. On August 1,
2001 (the "Maturity
<PAGE> 125
Date"), subject to extension in accordance with that certain Extension Option
Agreement of even date herewith between Maker and Holder, Maker shall pay to
Holder the entire Principal Indebtedness then remaining unpaid, together with
accrued and unpaid interest thereon at the Interest Rate and any other charges
due under this Note, the Deed of Trust (hereinafter defined), and any other
documents evidencing or securing or pertaining to the advancement or
disbursement of the Principal Indebtedness (collectively, the "Loan Documents").
The period from and including the date hereof to the Maturity Date, as the same
may be extended, will be referred to hereinafter as the "Term".
2. Prepayment. The term "Loan Years" shall mean the consecutive
12-month periods measured from the first day of the calendar month following the
date of this Note or, if the date of this Note is the first day of a calendar
month, then measured from the date of this Note. Except as specifically provided
herein or in the Deed of Trust, no prepayment of the Principal Indebtedness
shall be allowed during the first two (2) Loan Years (the "Closed Period").
Maker, whether or not a debtor in a proceeding under Title 11, United States
Code, may prepay the Principal Indebtedness in full, but not in part, on any
monthly payment date after the Closed Period, provided Maker gives Holder
forty-five (45) days' prior written notice and pays a prepayment fee as
described below.
After the Closed Period the prepayment fee shall be calculated as
follows:
(a) Through the end of the fourth Loan Year, or, if the
Term is extended as provided in that certain
Extension Option Agreement of even date herewith
between Maker and Holder, through the end of the
ninth Loan Year, the greater of:
(i) one percent (1%) of the then-existing
balance of this Note, or
(ii) Yield Maintenance as defined below.
- 2-
<PAGE> 126
(b) For the first nine (9) months of the fifth Loan Year,
excluding any period after the Extension Notice, if
any, and, for the first nine months of the tenth Loan
Year, if applicable, Yield Maintenance as defined
below.
The loan may be prepaid at par during the last three (3) months of the
Term, as the Term may be extended pursuant to the Extension Option Agreement
(the "Open Period"). The foregoing prepayment fee will be due when the loan is
prepaid after the Closed Period and prior to the Open Period, whether such
prepayment is voluntary or results from default, acceleration or any other
cause. Such prepayment fee will not be payable if such prepayment results from a
casualty or condemnation and the application of insurance proceeds or
condemnation awards to the loan.
In the event of a prepayment during the Closed Period resulting from an
acceleration by reason of Maker's default or any other reason, Maker shall pay
to Holder a default prepayment fee calculated as follows:
(a) 3% of the then-existing principal balance of this
Note, plus
(b) Yield Maintenance as defined below:
Yield Maintenance: Yield Maintenance is defined as the sum of the
present values on the date of prepayment of each Monthly Interest Shortfall for
the remaining Term of the loan discounted to present value at one-twelfth of the
sum of the monthly Treasury Yield plus 50 basis points.
The Monthly Interest Shortfall is calculated for each monthly payment
and is the product of (i) the positive difference, if any, of the Semi-Annual
Equivalent Rate less an amount equal to the Treasury Yield plus 50 basis points,
divided by 12, times (ii) the principal balance of the loan that would have been
outstanding on each monthly payment date for which the calculation is made for
each full and partial month remaining in the Term, assuming that the loan had
not been prepaid, that all payments due on the Loan had been made
- 3-
<PAGE> 127
on their respective due dates and that all such assumed payments had been
applied first to accrued interest and then to principal.
The present value for each Monthly Interest Shortfall amount is then
determined by discounting each Monthly Interest Shortfall to the present value
as of the date of prepayment of the Loan at one-twelfth the sum of the Treasury
Yield plus 50 basis points.
The "Semi-Annual Equivalent Rate" for this loan is 7.62%.
The "Treasury Yield" will be determined by reference to the Federal
Reserve Statistical Release H.15 (519) of Selected Interest Rates (or any
similar successor publication of the Federal Reserve) for the first week ending
not less than two full weeks prior to the prepayment date. If the remaining Term
is less than one year, the Treasury Yield will equal the yield for 1-Year
Treasury Constant Maturities. If the remaining Term is equal to one of the
maturities of the Treasury Constant Maturities (e.g., 1-year, 2-year, etc.),
then the Treasury Yield will equal the yield for the Treasury Constant Maturity
with a maturity equaling the remaining Term. If the remaining Term is longer
than one year, but does not equal one of the maturities of the Treasury Constant
Maturities, then the Treasury Yield will be interpolated on a straight-line
basis based on the Yields for the Treasury Constant Maturities with a maturity
closest to the remaining Term.
The aforementioned prepayment fee does not constitute a penalty, but
rather represents the reasonable estimate, agreed to between Maker and Payee, of
a fair compensation for the loss that may be sustained by Holder due to
prepayment of the Principal Indebtedness prior to the Maturity Date. Any
prepayment fee required pursuant to the preceding paragraphs shall be paid
without prejudice to the right of Holder to collect any of the amounts owing
under this Note or the Deed of Trust or otherwise, to enforce any of its rights
or remedies arising out of an Event of Default hereunder.
3. Security. This Note is secured by, among other things, a deed of
trust (hereinafter referred to as the "Deed of Trust") given by Maker for the
- 4-
<PAGE> 128
benefit of Payee and others, of even date herewith, constituting a first lien on
real estate and a first priority security interest in personal property and any
leasehold in such personal property and an assignment of rents and leases
(hereinafter collectively referred to as the "Security"), in the City and County
of Denver, State of Colorado.
4. Location and Medium of Payments. The sums payable under this Note or
under the Deed of Trust shall be paid to Holder at its principal address
hereinabove set forth, or at such other place as Holder may from time to time
hereafter designate to Maker in writing, in legal tender of the United States of
America.
5. Acceleration of Maturity. At the option of Holder, which may be
exercised at any time after one or more of the following events (each being an
"Event of Default") shall have occurred, the whole of the Principal
Indebtedness, together with all interest and other charges due under any of the
Loan Documents, shall immediately become due and payable ("Acceleration of
Maturity"): (a) if any payment of any installment of the Principal Indebtedness,
and/or interest or of any other sum due hereunder is not received by Holder
within five business days following the date when such payment was due; or (b)
if a default or an Event of Default shall occur under the Deed of Trust or any
other of the Loan Documents, which is not cured within any applicable grace
period afforded therein, if any.
6. Late Charges; Interest Following Event of Default. If any payment of
principal or interest due under this Note or any escrow payment required under
Section 5 of the Deed of Trust is not paid when due, without regard to any cure
or grace period, Maker shall pay and Holder shall be entitled to collect a late
payment charge for each month or fraction thereof during which such payment is
not made when due and for each month thereafter that such sum remains unpaid,
equal to the lesser of four percent (4%) of such late payment, or the maximum
amount permitted by law, for the purpose of defraying the expense incurred by
Holder in handling and processing such delinquent payment, and such amount shall
be secured by the Deed of Trust.
- 5 -
<PAGE> 129
In addition to any late payment charge which may be due under this
Note, Maker shall pay interest on all sums due hereunder at a rate (the "Default
Rate") equal to the lesser of (i) the Interest Rate plus four percent (4%) per
annum, or (ii) the maximum rate permitted by law, from and after the first to
occur of the following events: if Holder elects to cause the Acceleration of
Maturity or if a petition under Title 11, United States Code, shall be filed by
or against Maker.
7. Collection and Enforcement Costs. Maker, upon demand, shall pay
Holder for all costs and expenses, including without limitation attorneys' fees,
paid or incurred by Holder in connection with the collection of any sum due
hereunder, or in connection with enforcement of any of Holder's rights or
Maker's obligations under this Note, the Deed of Trust or any of the other Loan
Documents.
8. Continuing Liability. The obligation of Maker to pay the Principal
Indebtedness, interest and all other sums due hereunder shall continue in full
force and effect and in no ways be impaired, until the actual payment thereof to
Holder, and in case of a sale or transfer of all or any part of the Security, or
in case of any further agreement given to secure the payment of this Note, or in
case of any agreement or stipulation extending the time or modifying the terms
of payment above recited, Maker shall nevertheless continue to be liable on this
Note, as extended or modified by any such agreement or stipulation, unless
released and discharged in writing by Holder.
9. Joint and Several Liability. If more than one person, corporation,
partnership or other entity shall execute this Note, then each person and entity
shall be fully liable for all obligations of Maker hereunder, and such
obligations shall be joint and several.
10. No Oral Changes; Waivers. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
a change is sought. The provisions of this Note shall extend and be applicable
to all renewals, amendments, extensions, consolidations, and modifications of
the Deed of Trust and/or the other Loan Documents, and any
- 6 -
<PAGE> 130
and all references herein to the Deed of Trust and/or the Loan Documents shall
be deemed to include any such renewals, amendments, extensions, consolidations,
or modifications thereof.
Maker and any future indorsers, sureties, and guarantors hereof,
jointly and severally, waive presentment for payment, demand, notice of
nonpayment, notice of dishonor, protest of any dishonor, notice of protest, and
protest of this Note, and all other notices in connection with the delivery,
acceptance, performance, default (except notice of default required hereby, if
any), or enforcement of the payment of this Note, and they agree that the
liability of each of them shall be unconditional without regard to the liability
of any other party and shall not be in any manner affected by any indulgence,
extension of time, renewal, waiver, or modification granted or consented to by
the Holder; and Maker and all future indorsers, sureties and guarantors hereof
consent to any and all extensions of time, renewals, waivers, or modifications
that may be granted by the Holder hereof with respect to the payment or other
provisions of this Note, and to the release of the collateral, or any part
thereof, with or without substitution, and agree that additional makers,
indorsers, guarantors, or sureties may become parties hereto without notice to
them or affecting their liability hereunder.
Holder shall not by any act of omission or commission be deemed to
waive any of its rights or remedies hereunder unless such waiver be in writing
and signed by Holder, and then only to the extent specifically set forth
therein; a waiver on one event shall not be construed as continuing or as a bar
to or waiver of such right or remedy on a subsequent event. The acceptance by
Holder of payment hereunder that is less than payment in full of all amounts due
at the time of such payment shall not without the express written consent of
Holder: (i) constitute a waiver of the right to exercise any of Holder's
remedies at that time or at any subsequent time, (ii) constitute an accord and
satisfaction, or (iii) nullify any prior exercise of any remedy.
No failure to cause an Acceleration of Maturity hereof by reason of an
Event of Default hereunder, acceptance of a past due installment, or indulgences
granted from time to time shall be construed (i) as a novation of
- 7 -
<PAGE> 131
this Note or as a reinstatement of the indebtedness evidenced hereby or as a
waiver of such right of acceleration or of the right of Holder thereafter to
insist upon strict compliance with the terms of this Note, or (ii) to prevent
the exercise of such right of acceleration or any other right granted hereunder
or by the laws of the State of Colorado; and, to the maximum extent permitted by
law, Maker hereby expressly waives the benefit of any statute or rule of law or
equity now provided, or which may hereafter be provided, which would produce a
result contrary to or in conflict with the foregoing.
To the maximum extent permitted by law, Maker hereby waives and
renounces for itself, its heirs, successors and assigns, all rights to the
benefits of any statute of limitations and any moratorium, reinstatement,
marshalling, forbearance, valuation, stay, extension, redemption, and
appraisement now provided, or which may hereafter be provided, by the
Constitution and laws of the United States of America and of any state thereof,
both as to itself and in and to all of its property, real and personal, against
the enforcement and collection of the obligations evidenced by this Note.
11. Bind and Inure. This Note shall bind and inure to the benefit of
the parties hereto and their respective legal representatives, heirs, successors
and assigns.
12. Applicable Law. The provisions of this Note shall be construed and
enforceable in accordance with the laws of the State of Colorado.
If any provision of this Note or the application hereof to any person
or circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the remainder of this Note nor the application of such
provision to any other person or circumstance shall be affected thereby, but
rather the same shall be enforced to the greatest extent permitted by law,
except that if such provision would result in a reduction in the Interest Rate
or other material change in the payment of a monetary sum, then the Holder may,
at its option, declare the entire indebtedness evidenced hereby due and payable
upon sixty (60) days prior written notice to Maker and, provided no
- 8 -
<PAGE> 132
Event of Default is then continuing, without prepayment fee or premium.
13. Usury. In no event shall Maker be bound to pay interest in excess
of the limit for the use, forbearance or detention of the money loaned pursuant
to this Note; the right to demand any such excess being hereby expressly waived
by Holder.
14. Notice. Any notice, request, demand, statement or consent made
hereunder shall be in writing signed by the party giving such notice, request,
demand, statement or consent, and shall be deemed to have been properly given
when either delivered personally, delivered to a reputable overnight delivery
service providing a receipt or deposited in the United States Mail, postage
prepaid and registered or certified return receipt requested, at the address set
forth below, or at such other address within the continental United States of
America as may have theretofore been designated in writing. The effective date
of any notice given as aforesaid shall be the date of personal service, one (1)
business day after delivery to such overnight delivery service, or three (3)
business days after being deposited in the United States Mail, whichever is
applicable. For purposes hereof, the addresses are as follows:
If to Holder: American General Realty Advisors, Inc.
2929 Allen Pkwy., 34th Floor
Houston, TX 77019
Telecopy No.: (713) 831-1033
Attn: Director, Mortgage Loans
With copies to: Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, CT 06152-2319
Attn: Investment Services, S-319
And
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
Telecopy No.: (413) 744-6123
Attn: ITS: Senior Managing Director of
Real Estate
With a copy to: CIGNA Corporation
- 9 -
<PAGE> 133
Investment Law Department
900 Cottage Grove Road
Hartford, CT 06152-2215
Attn: Real Estate Division, S-215A
With a courtesy
copy to: Fairfield and Woods, P.C.
1700 Lincoln Street, Suite 2400
Denver, Colorado 80203
Attn: Thomas P. Kearns, Esq.
If to Maker: Cornerstone Properties Inc.
126 East 56th Street
New York, New York 10022
Attn: Kevin P. Mahoney
With a courtesy
copy to: Shearman & Sterling
Citicorp Center
153 East 53rd Street
New York City, N.Y. 10022-4676
Attn: Timothy G. Little, Esq.
Notwithstanding the foregoing agreement to provide a courtesy copy to
Maker's attorneys, such copy shall be a courtesy copy only, and failure to
provide such courtesy copy shall have absolutely no effect or entitle Maker to
any remedy whatsoever. Any notice duly given to Maker shall be effective whether
or not the courtesy copy was given to Maker's attorneys.
15. Nonrecourse. Except as specifically provided hereinafter in this
Section 15 and in Section 40 of the Deed of Trust, neither Maker, Cornerstone
Properties Inc. ("Cornerstone"), nor any of the general or limited partners of
Maker nor any of their respective officers, directors, shareholders, agents,
employees or representatives (collectively the "Exculpated Parties") shall be
personally liable for the payment of any sums due hereunder or the performance
of any obligations of Maker hereunder or under the other Loan Documents. No
judgment for the repayment of the Principal Indebtedness or interest thereon or
any other amount payable pursuant to any of the Loan Documents, will be enforced
against any of the Exculpated Parties personally or any property of any of the
Exculpated Parties other than the Security and any other security now or
hereafter expressly granted under the Loan Documents in any action to foreclose
the Deed of Trust or to otherwise realize upon any security now or
- 10 -
<PAGE> 134
hereafter expressly granted under the Loan Documents or to collect any amount
payable hereunder. Notwithstanding the foregoing:
(a) Nothing herein contained shall be construed as prohibiting
Holder from exercising any and all remedies which the Loan Documents
permit, including the right to bring actions or proceedings against
Maker, Cornerstone, and other Exculpated Parties and to enter a
judgment against Maker, Cornerstone, and any other Exculpated Parties,
so long as the exercise of any remedy does not extend to execution
against or recovery out of any property of Maker, Cornerstone, or any
other Exculpated Party other than the security now or hereafter
expressly granted under the Loan Documents;
(b) Maker and Cornerstone shall each be fully and personally
liable for, and the other Exculpated Parties (to the extent the other
Exculpated Parties would be liable outside of the provisions of this
section) shall be fully and personally liable for, (i) misapplying any
condemnation awards or insurance awards attributable to the Security,
to the full extent of such awards so misapplied, (ii) misapplying any
security deposits attributable to the Security, to the full extent of
such deposits so misapplied, (iii) collecting any rents more than
thirty (30) days in advance in violation of any covenant contained in
the Loan Documents, to the full extent of such rents so collected in
advance, (iv) committing fraud or intentional misrepresentation in
connection with the operation of the Security or the making of the loan
evidenced hereby, to the full extent of any loss, damage, expense or
costs (including reasonable attorneys' fees) incurred by Holder
resulting from such fraud, misrepresentation or waste, (v) failing to
pay in order of priority: real estate taxes or assessments, (or escrow
accounts established therefor), operating and maintenance expenses
relating to the Real Property, other sums required by the Loan
Documents, deposits into a required reserve account, capital
expenditures, management fees, leasing fees and expenses, marketing and
advertising costs and debt service or other amounts due on the
Indebtedness, but only to the extent of any gross revenues from the
Security that were available to pay such
- 11 -
<PAGE> 135
expenses but were not so used during the period beginning six (6)
months prior to either (A) Maker's receipt of notice of default under
the loan documents or (B) the occurrence of a default under the loan
documents that would not require notice in order to ripen into an event
of default, and continuing through the date Holder takes title to the
Real Property; (vi) the seizure or forfeiture of the Security due to
the criminal activity by Maker or Cornerstone Properties, Inc., any
constituent partner of Maker or Cornerstone Properties, Inc., or any of
their respective shareholders, partners, officers, employees or agents,
in the full amount of the loss incurred by Holder as a result of such
seizure or forfeiture.
(c) This section shall impose no limitation on Maker's,
Cornerstone's, or any other Exculpated Party's personal liability under
and the exercise of any of Holder's rights under any indemnity from
Maker, Cornerstone, or any other Exculpated Party to Holder including
but not limited to, the Environmental Indemnification Agreement of even
date herewith from Maker and Cornerstone to Payee with regard to the
Security except as may be expressly set forth therein;
(d) This section shall impose no limitation on or prejudice to
the rights of Holder to proceed against any entity or person
whatsoever, including Maker, Cornerstone, and the other Exculpated
Parties, with respect to the enforcement of any guarantees of the
Principal Indebtedness or other sums due hereunder or under any of the
other Loan Documents or any part thereof, any master leases, or any
similar rights of payment that may be entered into after the date
hereof, except as may be expressly set forth in any such guarantee.
16. Time of the Essence. Time is of the essence in this Note and the
other Loan Documents.
17. Attorneys' Fees. Any reference to "attorney fees" in this document
includes but is not limited to both the fees, charges and costs incurred by
Holder through its retention of outside legal counsel and the
- 12 -
<PAGE> 136
reasonably allocable fees, costs and charges for services rendered by Holder's
in-house counsel. Any reference to "attorney fees" shall also include but not be
limited to those attorneys or legal fees, costs and charges incurred by Holder
in the collection of any Indebtedness, the enforcement of any obligations
hereunder, the protection of the Security, the foreclosure of the Deed of Trust,
the sale of the Security, the defense of actions arising hereunder and the
collection, protection or setoff of any claim the Holder may have in a
proceeding under Title 11, United States Code. Attorneys fees provided for
hereunder shall accrue whether or not Holder has provided notice of an Event of
Default or of an intention to exercise its remedies for such Event of Default.
18. Action by Maker. Unless otherwise required by law, Maker may not
take any action with respect to this Note, including, without limitation, any
election to prepay the Principal Indebtedness, unless Maker takes the same
action with respect to those two certain promissory notes of even date herewith
given by Maker to (a) Connecticut General Life Insurance Company in the original
principal amount of $32,666,666, and (b) Massachusetts Mutual Life Insurance
Company in the original principal amount of $32,666,667.
19. Waiver of Trial by Jury. Maker hereby waives its right to a trial
by jury as to any matter arising out of or concerning the subject matter of this
Note.
IN WITNESS WHEREOF, Maker has duly executed this Note as a sealed
instrument as of the day and year first above written.
MAKER:
1700 LINCOLN LIMITED
By: ARICO-Denver, Inc., general partner
By: ________________________________
Name: Kevin P. Mahoney
Title: Vice President
- 13 -
<PAGE> 137
By: ________________________________
Name: Scott M. Dalrymple
Title: Vice President
By: 1700 Lincoln, Inc., general partner
By: ________________________________
Name: Kevin P. Mahoney
Title: Vice President
By: ________________________________
Name: Scott M. Dalrymple
Title: Vice President
- 14 -
<PAGE> 1
EXHIBIT 10.62
Mr. Robert I. Bain
Deutsche Morgan Grenfell
6 Bishopsgate
London EC2P 2AT
UNITED KINGDOM December 5, 1996
RE: CORNERSTONE $32.5 MILLION TERM LOAN
Dear Robert,
On November 22, 1996, Cornerstone placed $100 million of preferred stock with
the New York State Teacher's Retirement System. The stock is pari-passu with the
existing preferred stock currently held by Deutsche Bank. Consequently, per our
previous agreement, we are required to revise the terms of the above stated loan
as follows.
Cornerstone Properties agrees to change the payment schedule of the loan to
incorporate a fifteen year amortization schedule. The change will have no effect
on the existing maturity date of December 31, 2003. I have attached a copy of
the proposed schedule for your review.
We also agree that, at such time as the company completes an initial public
offering in the United States and is listed on the New York Stock Exchange, the
first available proceeds from such offering, after costs associated with such
offering, will be used to prepay the above stated loan in full, at par.
Should there be any further documentation required with regard to this matter,
please contact us. If not, please sign below your acceptance to the change in
terms of the above stated debt facility.
Sincerely,
- ------------------------- -------------------------
John S. Moody Kevin P. Mahoney
President Vice President and Treasurer
AGREED AND ACCEPTED
- --------------------------
Deutsche Bank AG London
P.O. Box 411
6 Bishopsgate
London EC2P 2AT
Enclosure
<PAGE> 1
EXHIBIT 10.63
CONVERTIBLE PROMISSORY NOTE
$12,925,976.48 As of January 1, 1996
FOR VALUE RECEIVED, the undersigned, CORNERSTONE PROPERTIES INC., a
Nevada corporation (together with its successors and assigns, hereafter referred
to as "CORNERSTONE" or "BORROWER"), promises to pay to the order of HINES
COLORADO LIMITED, a Colorado limited partnership (hereafter referred to as
"PAYEE"; Payee and/or any subsequent holder(s) hereof, hereafter referred to as
"HOLDER"), at Payee's address or at such other place as Holder shall designate
from time to time in writing, the principal sum of TWELVE MILLION NINE HUNDRED
TWENTY-FIVE THOUSAND NINE HUNDRED SEVENTY-SIX DOLLARS AND FORTY-EIGHT CENTS
($12,925,976.48) (which amount is hereinafter defined as the "PRINCIPAL SUM"),
together with interest thereon at the rates hereinafter set forth, on the
principal balance of this Note outstanding from time to time, together with all
other fees and charges hereinafter provided for, in same day funds and lawful
money of the United States of America that shall at the time of payment be legal
tender for the payment of all debts and dues, public and private.
SECTION 1. CERTAIN DEFINITIONS. In addition to the terms defined
elsewhere in this Note, as used herein the following terms shall have the
indicated definitions unless otherwise specifically defined herein:
"AFFILIATE" shall mean, with respect to any Person, any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition, the
term "control" (including the correlative meanings of the terms "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"APPLICABLE RATE" shall mean, with respect to each applicable
Interest Period, an annual interest rate equal to the lesser of (a) eight and
eleven one-hundredths percent (8.11%) and (b) the LIBOR Determined Rate.
"BASIS POINT" shall mean one one-hundredth (1/100th) of one
percentage point of interest.
"BORROWER" shall include the maker(s) of this Note and all
person(s) or entity(ies) now or hereafter liable with respect to this Note,
whether as maker, principal, surety, guarantor, endorser or otherwise, each of
whom shall be jointly and severally liable for all of the obligations of the
maker(s) hereunder.
"CLOSING PRICE" shall mean, on any day, the reported last sales
price on such day or, if such day is not a Trading Date, on the immediately
preceding Trading Date, or, in case no such sale takes place on the applicable
of such days, the average of the last reported closing bid and asked prices, in
each case on the Frankfurt Stock Exchange, or, if different, on the principal
securities exchange or Nasdaq National Market System on which Purchaser's
<PAGE> 2
2
Common Stock is then listed or admitted to trading, or, if not listed or
admitted to trading on any securities exchange or Nasdaq National Market System,
the average of the last closing bid and asked prices as furnished by any
broker/dealer selected in good faith from time to time by the Board of Directors
or the Administrative committee of the Board of Directors of Cornerstone for
that purpose.
"CONVERSION DATE" shall have the meaning ascribed to such term in
Section 5(c) hereof.
"CONVERSION PRICE" shall mean $14.30, as appropriately adjusted for
any stock split or other subdivision or consolidation of outstanding shares of
Purchaser's Common Stock, any declaration of a dividend or distribution payable
in shares of Purchaser's Common Stock, any capital reorganization or
reclassification or other transaction involving an increase, reduction or change
in the number of outstanding shares of Purchaser's Common Stock, or any
consolidation or merger of Borrower with another corporation or entity or the
adoption by Borrower of a plan of exchange affecting Purchaser's Common Stock or
any distribution to holder of Purchaser's Common Stock of securities or property
(other than (a) normal cash dividends and distributions and (b) stock dividends
or distributions previously referred to in this definition).
"INTEREST PERIOD" shall mean a period of time commencing on the
date following the expiration of each immediately preceding Interest Period and
ending on the date thirty (30) days following such commencement date; provided
that (a) in the case of the first Interest Period, such period shall commence on
the date hereof; and (b) if any Interest Period shall end on a day other than a
LIBOR Day, such Interest Period shall be extended to the next succeeding day
which is a LIBOR Day unless such succeeding day would fall in the next calendar
month, in which event such Interest Period shall end on the immediately
preceding LIBOR Day.
"LBC" shall mean Lincoln Building Corporation.
"LIBO RATE" shall mean the rate of interest per annum (expressed as
an annual rate rounded to the nearest one-hundredth of a Basis Point) equal to
the London interbank offered rate for deposits in U.S. dollars for a period
equal to the applicable Interest Period as of 1:00 p.m. local London time, three
LIBOR Days before the first day of such Interest Period. The applicable LIBO
Rate shall be determined by reference to the Telerate, Inc. display designated
as page 3750 -- "British Bankers Association Interest Settlement Rates" (or such
other page as may replace such page on the Telerate, Inc. service for the
purpose of displaying London interbank offered rates); provided, however, that
if Telerate, Inc. shall not publish or shall cease publication of such
information, the applicable LIBO Rate shall be determined by reference to the
highest rate shown on the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO page on
that service for the purpose of displaying London interbank offered rates of
major banks); and provided further that if Reuters Monitor Money Rates Service
shall not publish or shall cease publication of such information, the applicable
LIBO Rate shall be determined by reference to the rate at which deposits in U.S.
dollars are offered by the principal office of Deutsche Bank AG in the London
interbank market for the applicable Interest Period.
<PAGE> 3
3
"LIBOR DAY" shall mean any day of the year on which dealings are
carried on in the London interbank market and commercial banks are open for
business in London, England.
"LIBOR DETERMINED RATE" shall mean, with respect to any applicable
Interest Period, a rate per annum equal to the LIBO Rate plus fifty (50) Basis
Points.
"MATURITY DATE" shall mean the fifth (5th) anniversary of the date
hereof.
"MATURITY DATE EFFECTIVE PRICE" shall mean the lesser of (i) the
average of the Closing Price per share of Purchaser's Common Stock for the last
five (5) consecutive Trading Dates immediately preceding the date on which
Borrower delivers to Holder the notice described in Section 5(b) hereof, and, if
the Closing Prices are not quoted in U.S. dollars, with each such Closing Price
being converted to U.S. dollars using the average quoted currency to U.S. dollar
exchange rate published in The Wall Street Journal over the same such five (5)
consecutive Trading Dates and (ii) the Conversion Price.
"PERSON" shall mean any individual, partnership, corporation,
limited liability company, trust, unincorporated association or joint venture, a
government or any department or agency thereof, or any other entity.
"PRIME RATE" shall mean the rate of interest announced publicly in
New York, New York, from time to time, by Citibank, N.A., or its successor from
time to time, as its base lending rate.
"PURCHASE AGREEMENT" shall mean that certain Agreement for Purchase
and Sale of Partnership Interests in 1700 Lincoln Limited dated as of January
__, 1996 between Hines Colorado Limited, as Seller, and Cornerstone, as
Purchaser.
"PURCHASER'S COMMON STOCK" shall have the meaning ascribed to such
term in the Purchase Agreement.
"RENT NOTE" shall mean that certain Amended and Restated Promissory
Note, dated December 30, 1988, in the original principal amount of $10,000,000
made by Holder in favor of LBC, which note was subsequently (i) assigned by LBC
to Borrower pursuant to that certain Assignment of Note and Liens, dated
December 30, 1988, and (ii) modified pursuant to that certain Second Amended and
Restated Promissory Note, dated as of the date hereof, made by Holder in favor
of Borrower.
"SHARE LIMIT" shall mean the maximum (i) number of shares of
Purchaser's Common Stock or (ii) if greater, value of outstanding shares of
Purchaser's Common Stock, each as permitted to be held by Holder pursuant to the
Articles of Incorporation of Borrower, as in effect as of the date hereof;
provided, however, that if from time to time, in order to preserve Borrower's
status as a real estate investment trust under the Internal Revenue Code of
1986, as amended, the Board of Directors of Borrower shall adopt a resolution or
the shareholders of Borrower shall amend the Articles of Incorporation, which
resolution or amendment reduces the aforesaid maximum number or value of
outstanding shares permitted to be held by Holder, then, as used in this Note,
Share Limit shall mean the maximum (x)
<PAGE> 4
4
number of shares of Purchaser's Common Stock or (y) if greater, value of
outstanding shares of Purchaser's Common Stock, each as permitted to be held by
Holder pursuant to such resolution or amendment, as applicable, as in effect on
the Conversion Date or the Maturity Date, as applicable.
"STOCK PLEDGE" shall mean a pledge by Holder to Borrower of the
number of shares of Purchaser's Common Stock having a market value of no less
than 125% of the amount of principal and interest owing under the Rent Note on
the Conversion Date, in form and substance reasonably satisfactory to Borrower.
"TRADING DATE" shall mean a date on which the Frankfurt Stock
Exchange or other applicable securities exchange or market used for determining
the Closing Price is open for the transaction of business.
SECTION 2. INTEREST RATE. Subject to the terms and conditions
hereof, this Note shall bear interest on the Principal Sum at a floating rate of
interest from time to time equal to the Applicable Rate.
SECTION 3. PAYMENT OF PRINCIPAL AND INTEREST. (a) From the date
hereof up to and including the Maturity Date, interest on the Principal Sum at
the Applicable Rate shall be due and payable in consecutive monthly
installments, due on the first day of each and every calendar month, in arrears,
commencing on the first day of the first calendar month following the date of
this Note, and continuing on the first day of each month through the Maturity
Date. Each such installment of interest shall be accompanied by a written
statement prepared by Borrower setting forth in reasonable detail the
calculation of such installment, including Borrower's determination of the
Applicable Rate for the relevant Interest Period.
(b) Borrower shall pay in full to Holder the Principal Sum and all
accrued but unpaid interest thereon on the Maturity Date.
SECTION 4. COMPUTATIONS. All computations of interest on a day to
day basis shall be made by Holder on the basis of a year of 360 days and a month
of 30 days for the actual number of days elapsed in the period for which such
interest is payable.
SECTION 5. PAYMENTS. (a) All payments made under this Note shall be
applied, first, to fees and expenses due and payable by Borrower pursuant to
this Note, second, in reduction of accrued and unpaid interest, and, third, any
remaining amount in reduction of the Principal Sum. This Note may not be prepaid
except in accordance with the provisions of Section 5(c) hereof.
(b) Notwithstanding anything in the first paragraph of this Note to
the contrary and subject to Sections 5(e) and 5(f) hereof, Borrower may elect
(provided that Borrower has given Holder notice of such election in writing on a
date which is not earlier than ninety (90) days' prior to the Maturity Date and
not later than thirty (30) days' prior to said Maturity Date) to pay the
Principal Sum on, but not prior to, the Maturity Date by issuing and delivering
to Holder duly authorized, validly issued, fully paid and non-assessable shares
of Purchaser's Common Stock. In the event Borrower makes such election, the
number of shares of Purchaser's Common Stock issuable by Borrower to Holder on
the Maturity Date
<PAGE> 5
5
shall equal (i) the Principal Sum divided by (ii) the Maturity Date Effective
Price, rounded down to the nearest whole share with Holder receiving cash for
any fractional share resulting from such calculation. Borrower may not make the
election provided in this Section 5(b) if this Note is converted pursuant to
Section 5(c) below.
(c) At the option of Holder, this Note will be convertible, in
whole but not in part, at any time after the first anniversary of the date
hereof, into shares of Purchaser's Common Stock. In order to convert this Note
pursuant to this Section 5(c), Holder shall give Borrower no fewer than thirty
(30) days' prior written notice of the date upon which such conversion shall
occur ("CONVERSION DATE"). Subject to Section 5(f) hereof, the number of shares
of Purchaser's Common Stock issuable on the Conversion Date shall equal (i) the
Principal Sum, divided by (ii) the Conversion Price, rounded down to the nearest
whole share with Holder receiving cash for any fractional share resulting from
such calculation. In the event that any amounts remain outstanding under the
Rent Note as of the Conversion Date, Holder shall execute and deliver to
Borrower the Stock Pledge and shall deliver possession of the appropriate number
of shares to Borrower in accordance with the Stock Pledge. Holder may not
exercise its right to convert this Note pursuant to this Section 5(c) if
Borrower elects to pay the principal sum in shares of Purchaser's Common Stock
pursuant to Section 5(b) above.
(d) On the Maturity Date (if Borrower delivers to Holder the notice
described in Section 5(b) hereof) or the Conversion Date, as applicable,
Borrower shall issue and deliver or cause to be issued and delivered to Holder,
issued in the name of Holder or, if Holder shall request in writing, an
Affiliate of Holder, one or more certificates for the number of full shares of
Purchaser's Common Stock issuable on the Maturity Date or the Conversion Date
pursuant to Section 5(b) or 5(c), as applicable. Such issuance of shares and the
conversion of this Note shall be deemed effected as of the close of business on
the Maturity Date or the Conversion Date, as applicable, and the Person in whose
name any certificates for shares of Purchaser's Common Stock shall be issuable
upon such issuance and conversion shall be deemed to have become the holder of
record of the shares of Purchaser's Common Stock represented thereby on such
date.
(e) Borrower may elect to pay the Principal Sum by issuing and
delivering shares of Purchaser's Common Stock to Holder pursuant to Section 5(b)
only if the following conditions have been satisfied (and an officer of Borrower
certifies as to the satisfaction of such conditions) or waived in writing by
Holder; (i) the shares to be so issued to Holder in payment of Borrower's
obligations hereunder have been listed, and are tradeable, on the Frankfurt
Stock Exchange or on a national stock exchange or the Nasdaq National Market
System in the United States; and (ii) the representations and warranties in
Sections 3.02(a), 3.02(b), 3.02(c), 3.02(f) and 3.02(g) of the Purchase
Agreement are true and correct as of the date of such election and the date of
issuance of such shares.
(f) Notwithstanding anything herein to the contrary but subject to
Section 14 hereof, if the issuance of shares of Purchaser's Common Stock
pursuant to Section 5(b) or 5(c), as applicable, would result in Holder becoming
the owner of a number of shares of Purchaser's Common Stock exceeding the Share
Limit, then on the Maturity Date (if Borrower delivers to Holder the notice
described in Section 5(b) hereof) or the Conversion Date, as applicable,
Borrower shall:
<PAGE> 6
6
(A) issue and deliver to Holder a number of duly authorized,
validly issued, fully paid and nonassessable shares of Purchaser's
Common Stock equal to (1) the number of shares otherwise required to be
issued and delivered pursuant to Section 5(b) or 5(c), as applicable,
minus (2) the number of shares that would, if so issued, exceed the
Share Limit (such shares referred to in this clause (2), the "EXCESS
SHARES");
(B) in the event of an issuance of shares pursuant to Section
5(b) hereof, pay to Holder an amount in lawful money of the United
States of America equal to the product of (1) the Excess Shares,
multiplied by (2) the average of the Closing Price per share of
Purchaser's Common Stock for the last five (5) consecutive Trading
Dates immediately preceding the date on which Borrower delivers to
Holder the notice described in Section 5(b) hereof, and, if the Closing
Prices are not quoted in U.S. dollars, with each such Closing Price
being converted to U.S. dollars using the average quoted currency to
U.S. dollars exchange rate published in The Wall Street Journal over
the same such five (5) consecutive Trading Dates.
(C) in the event of an issuance of shares pursuant to Section
5(c) hereof, pay to Holder an amount in lawful money of the United
Stated of America equal to the product of (1) the Excess Shares,
multiplied by (2) the average of the Closing Price per share of
Purchaser's Common Stock for the last five (5) consecutive Trading
Dates immediately preceding the date on which Holder delivers to
Borrower the notice described in Section 5(c) hereof, and, if the
Closing Prices are not quoted in U.S. dollars, with each such Closing
Price being converted to U.S. dollars using the average quoted currency
to U.S. dollars exchange rate published in The Wall Street Journal over
the same such five (5) consecutive Trading Dates.
SECTION 6. INTEREST UPON DEFAULT. In the event that any payment of
principal, interest or late charges under this Note is not paid when due, such
failure shall constitute a default hereunder and the entire unpaid Principal Sum
under this Note shall bear interest from the due date thereof for so long as
such default remains uncured at the per annum rate which is two hundred (200)
Basis Points above the Prime Rate.
SECTION 7. RESERVATION OF SHARES OF PURCHASER'S COMMON STOCK.
Borrower shall at all times keep reserved, free from preemptive rights, out of
its authorized Purchaser's Common Stock, a number of shares of Purchaser's
Common Stock sufficient to provide for the conversion of this Note. Borrower
covenants that all shares of Purchaser's Common Stock issuable upon conversion
of this Note, upon issuance in accordance with this Note, will be duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights, stock transfer and other similar taxes payable by Borrower and liens
(except any liens created by Holder), and will not be subject to any
restrictions on voting or transfer except for any restrictions on voting or
transfer provided in Borrower's Articles of Incorporation or as otherwise
provided by law. If issuance or delivery of any of the shares of Purchaser's
Common Stock upon conversion of this Note requires registration with or consent
of any securities exchange or market or any governmental authority, then, unless
caused by reason of the failure of any of Holder's representations and
warranties in the Purchase Agreement to be true and correct as of the Conversion
Date or Maturity Date, as applicable, Borrower shall, in good faith and as
expeditiously as possible, endeavor to secure such registration or consent, as
the case may be; provided, however, that nothing in this Section 7 shall be
deemed to affect in
<PAGE> 7
7
any way the obligations of Borrower to issue shares of Purchaser's Common Stock
upon conversion of this Note as provided in Section 5. Without limiting the
generality of the foregoing, Borrower shall take such action as may be necessary
or appropriate to list the shares of Purchaser's Common Stock issuable pursuant
to this Note with the Frankfurt Stock Exchange, or, if different, on the
principal securities exchange or Nasdaq National Market System on which
Purchaser's Common Stock is listed or admitted to trading on the date of
issuance.
SECTION 8. MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. If, at any
time before the payment in full and discharge of this Note, Borrower shall (i)
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation in such consolidation or merger, (ii) permit any other
Person to consolidate or merge into Borrower and Borrower shall be the
continuing or surviving corporation but, in connection with such consolidation
or merger, Purchaser's Common Stock shall be changed into or converted into
stock, other securities or assets of any other Person, (iii) transfer all or
substantially all of its assets to any other Person or (iv) effect a capital
reorganization or reclassification of Purchaser's Common Stock, Borrower or such
successor, as the case may be, shall covenant in the constituent documents
effecting any of the foregoing transactions that Holder thereafter shall have
the right to obtain upon the exercise of its conversion rights pursuant to this
Note, in lieu of each share of Purchaser's Common Stock theretofore issuable
upon exercise of such conversion rights, the kind and amount of stock, other
securities or assets that it would have owned immediately after such
consolidation, merger, transfer, reorganization or reclassification if it had
converted this Note immediately before the effective date of such transaction.
The provisions of this Section 8 shall similarly apply to successive
consolidations, mergers, transfers or reclassifications.
SECTION 9. ATTORNEYS' FEES. If this Note is placed in the hands of
an attorney for collection or is collected through any legal or administrative
proceeding, including, without limitation, bankruptcy or insolvency proceedings,
following a default hereunder by Borrower, Borrower promises to pay, to the
extent permitted by law, reasonable attorneys' fees, including fees incurred for
trial and appellate proceedings.
SECTION 10. WAIVER. Borrower hereby waives presentment for payment,
demand, protest, notice of nonpayment, demand, default, dishonor and protest.
SECTION 11. FORBEARANCE. Holder shall not be deemed to have waived
any of Holder's rights or remedies under this Note unless such waiver is express
and in a writing signed by Holder, and no delay or omission by Holder in
exercising, or failure by Holder on any one or more occasions to exercise, any
of Holder's rights hereunder or at law or in equity, shall be construed as a
novation of this Note or shall operate as a waiver or prevent the subsequent
exercise of any or all of such rights. Acceptance by Holder of any portion or
all of any sum payable hereunder whether before, on or after the due date of
such payment, shall not be a waiver of Holder's right either to require prompt
payment when due of all other sums payable hereunder. A waiver of any right on
one occasion shall not be construed as a waiver of Holder's right to insist
thereafter upon strict compliance with the terms hereof without previous notice
of such intention being given to Borrower, and no exercise of any right by
Holder shall constitute or be deemed to constitute an election of remedies by
Holder precluding the subsequent exercise by Holder of any or all of the rights,
powers and remedies available to it hereunder or at law or in equity. Borrower
expressly waives the benefit of any
<PAGE> 8
8
statute or rule of law or equity now provided, or which may hereafter be
provided, which would produce a result contrary to, or in conflict with, the
foregoing. Borrower consents to any and all renewals and extensions in the time
of payment hereof without in any way affecting the liability of Borrower or any
person liable or to become liable with respect to any indebtedness evidenced
hereby. No expansion of the time for the payment of this Note or any installment
due hereunder, made by agreement with any person now or hereafter liable for the
payment of this Note shall operate to release, discharge, modify, change or
affect the original liability of Borrower under this Note, either in whole or in
part, unless Holder agrees otherwise in writing.
SECTION 12. APPLICABLE LAW. This Note shall be governed by,
enforced under and interpreted in accordance with the substantive laws of the
State of New York without regard to the choice of law doctrine of such state.
SECTION 13. JURISDICTION. At the option of Holder, an action may be
brought to enforce this Note in the appropriate court in the County and State of
New York, or in the United States District Court for the Southern District of
New York. Borrower and all signers or endorsers hereof consent to venue and
jurisdiction in such courts and Borrower hereby consents to service of process
in accordance with the applicable New York law.
SECTION 14. LIMIT ON INTEREST. If, from any circumstances
whatsoever, fulfillment of any provision of this Note, at the time performance
of such provision shall be due, shall involve transcending the limit on interest
presently prescribed by any applicable usury statute or any other applicable
law, with regard to obligations of like character and amount, then Holder may at
its option (a) declare the entire indebtedness evidenced hereby, including
interest, if any, and all other sums owing, immediately due and payable, (b)
reduce the obligations to be fulfilled to such limit on interest or (c) apply
the amount that would exceed such limit on interest to the reduction of the
outstanding principal balance of this Note, and not to the payment of interest,
with the same force and effect as though Borrower had specifically designated
such sums to be so applied to principal and Holder had agreed to accept such
extra payment(s) as a prepayment, so that in no event shall any exaction be
possible under this Note that is in excess of the applicable limit on interest.
It is the intention of Borrower and Holder not to create any obligation in
excess of the amount allowable by applicable law. The provisions of this
paragraph shall control every other provision of this Note.
SECTION 15. TIME OF ESSENCE. TIME IS OF THE ESSENCE in complying
with all of the terms, provisions and conditions of this Note.
SECTION 16. REMEDIES UPON DEFAULT. All obligations of Borrower to
Holder, direct or indirect, absolute or contingent, now existing or hereafter
arising under this Note, shall, at the option of Holder, become immediately due
and payable without further notice or demand, and Holder shall have and may
exercise any or all of the rights and remedies provided herein in the event of
any default in any (a) payment of the Principal Sum of this Note; (b) payment of
interest on this Note, which default remains uncured for a period of five (5)
days after receipt by Borrower of notice from Holder of such default; or (c)
performance of any non-monetary obligation contained in this Note, which default
is uncured for a period of thirty (30) days after receipt by Borrower of notice
from Holder that such performance is due.
<PAGE> 9
9
SECTION 17. ILLEGALITY. If any position in this Note shall be held
invalid, illegal or unenforceable in any jurisdiction, the validity, legality or
enforceability of any defective provision shall not affect the validity,
legality or enforceability of any other provision hereof, which shall remain in
full force and effect.
SECTION 18. NOTICES. All notices to Borrower or Holder given
hereunder shall be in writing and may be given or served by depositing the same
in the United States mail, postage prepaid, registered or certified and
addressed to the party to be notified, with return receipt requested; by
overnight courier to such party; or by delivering the same in person to such
party. If mailed as described above, notice shall be deemed received three days
after deposit in the United States mail. Notice given in any other manner shall
be effective only if and when actually received by the party to be notified. For
purposes of notice, the addresses of the parties shall, until changed as
hereinafter provided, be as follows:
If to Borrower:
Cornerstone Properties Inc.
31 West 52nd Street
Suite 1600
New York, New York 10019
Attention: President
with a copy to:
Shearman & Sterling
153 East 53rd Street
New York, New York 10022
Attention: Real Estate Notices
02189-00006/Timothy G. Little
If to Holder:
Hines Colorado Limited
Hines Interests Limited Partnership
Three First National Plaza
Suite 440
Chicago, Illinois 60602
Attention: Mr. David McGinnis
with a copy to:
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
Attention: James A. Taylor, Esq.
Either party may change its address for notices herein to any address within the
United States by notice delivered as provided above at least 15 days prior to
the effective date of such change. Each party may designate up to two additional
parties in the United States to whom
<PAGE> 10
10
copies of notices shall be delivered hereunder, by notice delivered as provided
above.
SECTION 19. AMENDMENT. This Note may not be waived, changed,
modified or discharged orally, except by an agreement in writing signed by the
party against whom the enforcement of waiver, change, modification or discharge
is sought.
SECTION 20. SEPARATE ACTIONS. Principal and interest owing on this
Note may be recovered in a separate action, or may be recovered in a single
action. Holder, or any person claiming by, through, or under Holder, shall have
the absolute right to seek one or more money judgments in each such cause of
action based on this Note.
SECTION 21. PARTIES BOUND. The singular shall include the plural
and vice versa. The obligations and liabilities hereunder are joint and several
and shall be binding upon the heirs, successors, legal representatives,
endorsers and assigns of the parties hereof.
SECTION 22. HEADINGS. The underlined words appearing at the
commencement of the paragraphs are included only as a guide to the contents
thereof and are not to be considered as controlling, enlarging or restructuring
the language or meaning of those paragraphs.
SECTION 23. SET-OFF. In the event that Holder shall default in its
obligations to make any payment of interest or principal due from time to time
under the Rent Note, then, in addition to and without limitation or impairment
of any rights, remedies or security that Borrower may otherwise have with
respect to the Rent Note, Borrower shall be entitled to offset against its
obligations under this Note all amounts then due and payable by Holder as maker
under the Rent Note.
SECTION 24. NO WAIVER; REMEDIES CUMULATIVE. No failure on the part
of Holder to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law. In particular, in the event Borrower
fails to deliver to Holder the shares of Purchaser's Common Stock that may be
required to be so delivered pursuant to Sections 5(b) or 5(c) hereof, Holder
shall be entitled to any and all remedies available hereunder, in law and/or in
equity with respect to such failure and shall not be limited to collection of
the Principal Sum and accrued interest thereon.
* * *
[SIGNATURES ON NEXT PAGE]
<PAGE> 11
11
SIGNED AND DELIVERED by Borrower on the date first hereinabove
written.
CORNERSTONE PROPERTIES INC.
By:_____________________________
Scott M. Dalrymple
Vice President
By:_____________________________
Kevin P. Mahoney
Vice President
<PAGE> 1
Exhibit 11.1
Statement of Computation of Earnings Per Share
for the twelve months ended December 31, 1996
<TABLE>
<CAPTION>
Earnings Per Share
------------------
Primary Fully Diluted
------------ -------------
<C> <C> <C>
1. Proceeds upon exercise of options $ 12,333,750 $ 12,333,750
2. Market price of shares
Closing: 12/31/96 $ - $ 15.30
Average: 9/30/96-12/31/96 $ 14.74 $ -
3. Treasury shares that could be repurchased (Options) 836,754 806,127
4. Option shares outstanding 862,500 862,500
5. Common stock equivalent shares (Excess 25,746 56,373
shares under option over Treasury
shares that could be repurchased)
6. Weighted average number of shares outstanding 20,411,004 20,467,377
7. Net income for the period $ 9,096,000 $ 9,096,000
8. Less: Dividends applicable to
the preferred stock $ (5,149,889) $ (5,149,889)
Plus: Interest expense on convertible note $ - $ -
9. Net income applicable to common shares $ 3,946,111 $ 3,946,111
10.Income per share $ 0.19 $ 0.19
11.Reported income per share $ 0.19 $ 0.19
</TABLE>
<PAGE> 1
EXHIBIT 21
CORNERSTONE PROPERTIES INC.
LIST OF SUBSIDIARIES
1. ARICO - Denver, Inc.
2. 1700 Lincoln Inc.
3. ARICO - Minneapolis, Inc.
4. ARICO - Seattle, Inc.
5. CStone - Boston, Inc.
6. CStone - New York, Inc.
7. CStone - Oakbrook, Inc.
8. CStone - Pittsburgh Trust
9. CORPRO Real Estate Management, Inc.
10. One United Realty Corporation
11. NWC Funding Corporation
12. TULP Funding Corporation
13. ARICO - Washington, Inc.
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Dr. Rolf-E. Breuer, a director of Cornerstone Properties Inc.
(the "Company"), do hereby constitute and appoint John S. Moody and Thomas P.
Loftus, and each of them, my true and lawful attorneys-in-fact and agents, to do
any and all acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable to enable the Company to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing under the said Securities
Exchange Act of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "Annual Report"), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign for, on behalf of and in the name of the undersigned as a director of the
Company, such Annual Report and any amendments thereto filed with the Securities
and Exchange Commission and any instrument or document filed as part of, an
exhibit to, or in connection with said Annual Report or amendments thereto; and
the undersigned does hereby ratify and confirm as his own act and deed all that
said attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 21st day of February, 1997.
/s/ Rolf-E. Breuer
-------------------------
Dr. Rolf-E. Breuer
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Cecil D. Conlee, a director of Cornerstone Properties Inc. (the
"Company"), do hereby constitute and appoint John S. Moody and Thomas P. Loftus,
and each of them, my true and lawful attorneys-in-fact and agents, to do any and
all acts and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable to enable the Company to comply with
the Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing under the said Securities Exchange Act of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(the "Annual Report"), including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for, on behalf of
and in the name of the undersigned as a director of the Company, such Annual
Report and any amendments thereto filed with the Securities and Exchange
Commission and any instrument or document filed as part of, an exhibit to, or in
connection with said Annual Report or amendments thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said
attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 21st day of February, 1997.
/s/ Cecil D. Conlee
-------------------------
Cecil D. Conlee
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, George Abbott Davis, a director of Cornerstone Properties Inc.
(the "Company"), do hereby constitute and appoint John S. Moody and Thomas P.
Loftus, and each of them, my true and lawful attorneys-in-fact and agents, to do
any and all acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable to enable the Company to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing under the said Securities
Exchange Act of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "Annual Report"), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign for, on behalf of and in the name of the undersigned as a director of the
Company, such Annual Report and any amendments thereto filed with the Securities
and Exchange Commission and any instrument or document filed as part of, an
exhibit to, or in connection with said Annual Report or amendments thereto; and
the undersigned does hereby ratify and confirm as his own act and deed all that
said attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 21st day of February, 1997.
/s/ George Abbott Davis
-------------------------
George Abbott Davis
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Blake Eagle, a director of Cornerstone Properties Inc. (the
"Company"), do hereby constitute and appoint John S. Moody and Thomas P. Loftus,
and each of them, my true and lawful attorneys-in-fact and agents, to do any and
all acts and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable to enable the Company to comply with
the Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing under the said Securities Exchange Act of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(the "Annual Report"), including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for, on behalf of
and in the name of the undersigned as a director of the Company, such Annual
Report and any amendments thereto filed with the Securities and Exchange
Commission and any instrument or document filed as part of, an exhibit to, or in
connection with said Annual Report or amendments thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said
attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 21st day of February, 1997.
/s/ Blake Eagle
-------------------------
Blake Eagle
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Dr. Karl-Ludwig Hermann, a director of Cornerstone Properties
Inc. (the "Company"), do hereby constitute and appoint John S. Moody and Thomas
P. Loftus, and each of them, my true and lawful attorneys-in-fact and agents, to
do any and all acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable to enable the Company to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing under the said Securities
Exchange Act of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "Annual Report"), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign for, on behalf of and in the name of the undersigned as a director of the
Company, such Annual Report and any amendments thereto filed with the Securities
and Exchange Commission and any instrument or document filed as part of, an
exhibit to, or in connection with said Annual Report or amendments thereto; and
the undersigned does hereby ratify and confirm as his own act and deed all that
said attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 21st day of February, 1997.
/s/ Karl-Ludwig Hermann
-------------------------
Karl-Ludwig Hermann
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Hans C. Mautner, a director of Cornerstone Properties Inc. (the
"Company"), do hereby constitute and appoint John S. Moody and Thomas P. Loftus,
and each of them, my true and lawful attorneys-in-fact and agents, to do any and
all acts and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable to enable the Company to comply with
the Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing under the said Securities Exchange Act of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(the "Annual Report"), including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for, on behalf of
and in the name of the undersigned as a director of the Company, such Annual
Report and any amendments thereto filed with the Securities and Exchange
Commission and any instrument or document filed as part of, an exhibit to, or in
connection with said Annual Report or amendments thereto; and the undersigned
does hereby ratify and confirm as his own act and deed all that said
attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 21st day of February, 1997.
/s/ Hans C. Mautner
-------------------------
Hans C. Mautner
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Gerald Rauenhorst, a director of Cornerstone Properties Inc.
(the "Company"), do hereby constitute and appoint John S. Moody and Thomas P.
Loftus, and each of them, my true and lawful attorneys-in-fact and agents, to do
any and all acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable to enable the Company to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing under the said Securities
Exchange Act of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "Annual Report"), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign for, on behalf of and in the name of the undersigned as a director of the
Company, such Annual Report and any amendments thereto filed with the Securities
and Exchange Commission and any instrument or document filed as part of, an
exhibit to, or in connection with said Annual Report or amendments thereto; and
the undersigned does hereby ratify and confirm as his own act and deed all that
said attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 21st day of February, 1997.
/s/ Gerald Rauenhorst
-------------------------
Gerald Rauenhorst
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Berthold T. Wetteskind, a director of Cornerstone Properties
Inc. (the "Company"), do hereby constitute and appoint John S. Moody and Thomas
P. Loftus, and each of them, my true and lawful attorneys-in-fact and agents, to
do any and all acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable to enable the Company to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing under the said Securities
Exchange Act of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "Annual Report"), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign for, on behalf of and in the name of the undersigned as a director of the
Company, such Annual Report and any amendments thereto filed with the Securities
and Exchange Commission and any instrument or document filed as part of, an
exhibit to, or in connection with said Annual Report or amendments thereto; and
the undersigned does hereby ratify and confirm as his own act and deed all that
said attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 21st day of February, 1997.
/s/ Berthold T. Wetteskind
--------------------------------
Berthold T. Wetteskind
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 114,803
<SECURITIES> 0
<RECEIVABLES> 40,063
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 121,634
<PP&E> 680,962
<DEPRECIATION> 198,686
<TOTAL-ASSETS> 766,180
<CURRENT-LIABILITIES> 33,138
<BONDS> 0
162,743
50,000
<COMMON> 160,577
<OTHER-SE> (32,037)
<TOTAL-LIABILITY-AND-EQUITY> 766,180
<SALES> 0
<TOTAL-REVENUES> 116,908
<CGS> 0
<TOTAL-COSTS> 106,646
<OTHER-EXPENSES> (2,759)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,345
<INCOME-PRETAX> 9,096
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,096
<DISCONTINUED> 0
<EXTRAORDINARY> 3,925
<CHANGES> 0
<NET-INCOME> 9,096
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
