<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996
REGISTRATION NO. 333-13969
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BRANDYWINE REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
16 CAMPUS BOULEVARD
NEWTOWN SQUARE, PENNSYLVANIA 19073
(610) 325-5600
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
GERARD H. SWEENEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
16 CAMPUS BOULEVARD
NEWTOWN SQUARE, PENNSYLVANIA 19073
(610) 325-5600
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copies to:
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MICHAEL H. FRIEDMAN, ESQ. STEVEN L. LICHTENFELD, ESQ.
PEPPER, HAMILTON & SCHEETZ BATTLE FOWLER LLP
3000 TWO LOGAN SQUARE PARK AVENUE TOWER
18TH & ARCH STREETS 75 EAST 55TH STREET
PHILADELPHIA, PENNSYLVANIA 19103-2799 NEW YORK, NEW YORK 10022
(215) 981-4563 (212) 856-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1996
PROSPECTUS
3,700,000 SHARES
BRANDYWINE REALTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
------------------
Brandywine Realty Trust (the "Company") is a self-administered,
self-managed and fully integrated real estate investment trust ("REIT") that
owns a portfolio of 23 office buildings and one industrial facility (the
"Initial Properties") containing an aggregate of approximately 1.3 million net
rentable square feet located primarily in the Suburban Philadelphia Office and
Industrial Market (as defined in the "Glossary" and also referred to as the
"Market"). In addition, the Company has entered into agreements to purchase 11
additional office buildings and two industrial facilities (the "Acquisition
Properties" and, together with the Initial Properties, the "Properties") that
contain an aggregate of approximately 700,000 net rentable square feet located
primarily in the Market. The Company also owns an interest in and operates a
commercial real estate management services company that as of September 30, 1996
managed approximately 2.0 million net rentable square feet (including 23 of the
Initial Properties). As of September 30, 1996, the Properties were approximately
94.3% leased.
All of the common shares of beneficial interest, par value $.01 per share,
of the Company (the "Common Shares") offered hereby are being sold by the
Company. The Company pays regular distributions to its shareholders and expects
to increase its quarterly distributions to shareholders following the closing of
the offering contemplated hereby (the "Offering") to $0.35 per share, beginning
with a pro rata distribution with respect to the quarter ending December 31,
1996. See "Distribution Policy."
Concurrent with the Offering and subject to certain conditions, the Company
is directly placing with: (i) a voting trust (the "SERS Voting Trust")
established for the benefit of the Commonwealth of Pennsylvania State Employees'
Retirement System ("SERS"), as advised by Radnor Advisors Inc. ("RAI"), $10.5
million of Common Shares at the price per Common Share sold in the Offering (the
"SERS Private Placement"); and (ii) two investment funds advised by Morgan
Stanley Asset Management Inc. $11.7 million of Common Shares at a price per
Common Share of $16.50 (the "Morgan Stanley Private Placement" and together with
the SERS Private Placement, the "Concurrent Investments"). The Underwriters will
not receive a discount or commission on the sale of Common Shares in the
Concurrent Investments. See "The Company -- The SERS Private Placement
and -- The Morgan Stanley Private Placement" and "Principal Shareholders." Nine
of the Acquisition Properties will be acquired from the SERS Voting Trust in
exchange for, among certain other consideration, $26.5 million of convertible
preferred shares which represents, assuming conversion of all such preferred
shares into Common Shares, an effective price per Common Share of $16.50. See
"The Company -- The SERS Transaction."
The Common Shares are traded on the American Stock Exchange (the "AMEX")
under the symbol "BDN." On November 6, 1996, the last reported sale price of the
Common Shares was $16.50 (adjusted to give effect to a one-for-three reverse
share split that will become effective immediately prior to the closing of the
Offering). See "Price Range of Common Shares and Distribution History." The
Company qualified as a REIT for federal income tax purposes commencing with its
taxable year ended December 31, 1986. To assist the Company in complying with
certain qualification requirements applicable to REITs, the Company's
Declaration of Trust will provide that no shareholder or group of affiliated
shareholders may actually or constructively own more than 9.8% in value of the
outstanding Common Shares, subject to certain exceptions. See "Description of
Shares of Beneficial Interest -- Restrictions on Transfer."
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON SHARES.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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PER SHARE.................... $ $ $
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TOTAL(3)..................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $3,000,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
555,000 additional Common Shares solely to cover over-allotments, if any.
See "Underwriting." If such option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively.
------------------
The Common Shares are being offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to certain conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that certificates for the Common Shares offered hereby will be
available for delivery on or about , 1996, at the offices of
Smith Barney Inc., 333 West 34th Street, New York, NY 10001.
------------------
SMITH BARNEY INC. LEGG MASON WOOD WALKER
INCORPORATED
, 1996
<PAGE> 3
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 4
TABLE OF CONTENTS
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PROSPECTUS SUMMARY..................... 1
The Company.......................... 1
Risk Factors......................... 3
Business and Growth Strategies....... 5
Recent Developments.................. 8
Business and Properties.............. 10
Structure of the Company............. 13
Benefits of the Offering to
Affiliates of the Company......... 13
The Offering and Concurrent
Investments....................... 14
Distribution Policy.................. 14
Tax Status of the Company............ 15
Summary Selected Financial Data...... 15
RISK FACTORS........................... 20
Limited Geographic Concentration..... 20
Redemption of Preferred Shares....... 20
Risks Associated with the Recent
Acquisition of Many of the
Company's Properties; Lack of
Operating History................. 20
Lack of Appraisals................... 21
Risks Relating to Distributions...... 21
Conflicts of Interests............... 21
Real Estate Investment
Considerations.................... 22
Risks Associated with Indebtedness... 24
Historical Losses.................... 25
Risk of Acquisition, Development, and
Renovation Activities............. 25
Tax Risks............................ 25
ERISA................................ 27
Possible Environmental Liabilities... 28
Uninsured Losses..................... 28
Risk of Third-Party Management,
Leasing, and Related Service
Business.......................... 29
Changes in Policies Without
Shareholder Approval.............. 29
Influence of Executive Officers,
Trustees and Principal
Shareholders...................... 29
Dependence on Key Personnel.......... 30
Limits on Changes in Control......... 30
Effect on Price of Shares Available
for Future Sale................... 31
Immediate Dilution................... 32
Effect on Holders of Common Shares
of an Issuance of Preferred
Shares............................ 32
Effect of Market Interest Rates on
Price of Common Shares............ 32
THE COMPANY............................ 33
General.............................. 33
The SSI/TNC Transaction.............. 35
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<S> <C>
The SERS Transaction................. 36
Other Pending Acquisitions........... 37
SERS Private Placement............... 37
Morgan Stanley Private Placement..... 37
The Management Company............... 37
BUSINESS AND GROWTH STRATEGIES......... 39
General.............................. 39
Management and Operating
Strategies........................ 39
Acquisition Strategies............... 40
Corporate Service Activities......... 41
Financing Policies................... 41
USE OF PROCEEDS........................ 42
DISTRIBUTION POLICY.................... 43
PRICE RANGE OF COMMON SHARES AND
DISTRIBUTION HISTORY................. 43
CAPITALIZATION......................... 44
DILUTION............................... 45
SELECTED FINANCIAL DATA................ 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 51
Overview............................. 51
Results of Operations................ 51
Liquidity and Capital Resources...... 54
Cash Flows........................... 56
Inflation............................ 56
Funds from Operations................ 57
SUBURBAN PHILADELPHIA ECONOMY AND
OFFICE
MARKETS.............................. 58
General.............................. 58
Suburban Philadelphia Office and
Industrial Market................. 60
BUSINESS AND PROPERTIES................ 64
General.............................. 64
Properties........................... 66
Tenants.............................. 68
Lease Expirations.................... 71
Historical Tenant Improvements and
Leasing Commissions............... 83
Historical Capital Expenditures...... 84
Potential Revenue Increase at
Replacement Cost Rents............ 84
Historical Occupancy................. 85
Submarkets and Property
Information....................... 90
Competition.......................... 100
</TABLE>
i
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<TABLE>
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Environmental Matters................ 100
Insurance............................ 102
Certain Property Tax Information..... 102
Employees............................ 102
Legal Proceedings.................... 102
Mortgage Debt and Credit Facility.... 102
Credit Facility...................... 104
Option Properties.................... 105
C&W Mid-Year Report and C&W Market
Analyses.......................... 107
STRUCTURE OF THE COMPANY............... 107
Operating Partnership................ 107
BRP.................................. 108
Ownership............................ 108
Management Company................... 109
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES........................... 109
Investment Policies.................. 109
Dispositions......................... 110
Financing Policies................... 110
Working Capital Reserves............. 111
Conflict of Interests Policies....... 111
Policies with Respect to Other
Activities........................ 111
MANAGEMENT............................. 113
Trustees and Executive Officers...... 113
Trustees of the Company.............. 113
Executive Officers................... 114
Other Key Officers................... 115
Committees of the Board of
Trustees.......................... 115
Compensation Committee Interlocks and
Insider Participation............. 115
Compensation of Trustees............. 115
Executive Compensation............... 116
Employment Agreements................ 116
Stock Options Granted to Executive
Officers During Last Fiscal
Year.............................. 117
Stock Options held by Certain
Executive
Officer at December 31, 1995...... 117
401(k) Plan.......................... 118
Indemnification...................... 118
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS......................... 118
SSI/TNC Transaction.................. 118
Partnership Agreement; Redemption
Rights............................ 119
Repayment of Certain Advances to
SSI............................... 119
Indemnification of Certain Limited
Partners.......................... 119
Partnership Agreement; General
Indemnity......................... 119
PAGE
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Termination of Standstill
Agreements........................ 120
Option Properties.................... 120
SSI Right of First Refusal on
Additional Financings............. 120
Lease with SSI Affiliate............. 120
Environmental Indemnity.............. 120
Employment Agreements; Award of
Warrants.......................... 120
Prior Involvement of Legg Mason...... 121
Investment by RMO Fund............... 121
Prior Involvement of LCOR............ 121
PRINCIPAL SHAREHOLDERS................. 122
DESCRIPTION OF SHARES OF BENEFICIAL
INTEREST............................. 124
General.............................. 124
Transfer Agent and Registrar......... 124
Shares............................... 124
Preferred Shares..................... 125
Reverse Share Split; Treatment of
Fractional Shares................. 126
Restrictions on Transfer............. 127
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S DECLARATION OF TRUST
AND BYLAWS........................... 129
Duration............................. 129
Board of Trustees.................... 129
Meetings of Shareholders............. 129
Preferred Shares..................... 129
Business Combinations................ 130
Control Share Acquisitions........... 130
Amendment to the Declaration of
Trust............................. 131
Termination of the Company and REIT
Status............................ 131
Transactions Between the Company and
its Trustees or Officers.......... 131
Limitation of Liability and
Indemnification................... 132
Maryland Asset Requirements.......... 132
FEDERAL INCOME TAX CONSIDERATIONS...... 133
General.............................. 133
Taxation of the Company as a REIT.... 133
Qualification of the Company as a
REIT.............................. 134
Income Tests......................... 135
Asset Tests.......................... 136
Annual Distribution Requirements..... 137
Failure to Qualify................... 138
Income Taxation of the Operating
Partnership, the Title Holding
Partnerships and Their Partners... 138
</TABLE>
ii
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Classification of the Operating
Partnership and Title Holding
Partnerships as Partnerships...... 138
Partnership Allocations.............. 139
Tax Allocations With Respect to
Contributed Properties............ 139
Depreciation......................... 140
Basis in Operating Partnership
Interest.......................... 140
Sale of Partnership Property......... 141
Taxation of Taxable Domestic
Shareholders...................... 141
Backup Withholding................... 142
Taxation of Tax-Exempt
Shareholders...................... 142
Taxation of Foreign Shareholders..... 143
Statement of Stock Ownership......... 144
Other Tax Consequences............... 144
Possible Federal Tax Developments.... 144
Real Estate Transfer Taxes........... 144
OPERATING PARTNERSHIP AGREEMENT........ 144
Management........................... 145
Classes of Partnership Interests;
Distributions to Partners......... 145
Tax Allocation....................... 145
Capital Contributions................ 146
Number, Class and Owner of Units..... 146
Additional Issuances of Class A
Units............................. 146
Cancellation of Class A Units........ 147
Redemption Rights.................... 147
PAGE
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Business Operations.................. 147
Registration Rights.................. 148
Amendments........................... 148
Tax Matters.......................... 148
Representations and Warranties....... 148
Term................................. 148
Indemnification...................... 148
BRP GENERAL PARTNERSHIP AGREEMENT...... 149
General.............................. 149
Management........................... 149
Amendments........................... 149
ERISA CONSIDERATIONS................... 149
Employee Benefit Plans, Tax-Qualified
Retirement Plans and IRAs......... 150
Status of the Company Under ERISA.... 150
SHARES AVAILABLE FOR FUTURE SALE....... 152
Registration Rights.................. 153
UNDERWRITING........................... 154
EXPERTS................................ 155
LEGAL MATTERS.......................... 155
TAX MATTERS............................ 155
AVAILABLE INFORMATION.................. 155
GLOSSARY............................... 157
INDEX TO FINANCIAL STATEMENTS.......... F-1
</TABLE>
CAUTIONARY STATEMENT
WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS PROSPECTUS
PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING,
BUT NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS" AND IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
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 PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS
OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
iii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information contained in this Prospectus assumes
that: (i) the Underwriters' over-allotment option is not exercised; (ii) no
outstanding options or warrants are exercised; (iii) the Company has combined
its Common Shares by means of a one-for-three reverse share split immediately
prior to the closing of the Offering (the "Reverse Split"); and (iv) the Company
will acquire all of the Acquisition Properties on or prior to the closing of the
Offering. Unless the context otherwise requires, all references in this
Prospectus to the "Company" shall mean Brandywine Realty Trust and its
subsidiaries and affiliated entities, including Brandywine Operating
Partnership, L.P. (the "Operating Partnership") and Brandywine Realty Services
Corporation (the "Management Company"), and, with respect to the period prior to
the Company's acquisition of the business of The Nichols Company ("TNC"), the
term "Company" shall also include the management and development operations of
TNC. See "Glossary" for the definitions of certain capitalized terms used in
this Prospectus.
THE COMPANY
The Company is a self-administered, self-managed and fully integrated real
estate investment trust ("REIT") engaged in the ownership, management, leasing,
acquisition and development of primarily suburban office properties. The Initial
Properties consist of 23 suburban office buildings and one industrial facility
containing an aggregate of approximately 1.3 million net rentable square feet
located primarily in the Suburban Philadelphia Office and Industrial Market. In
addition, the Company has entered into agreements to purchase, on or prior to
the closing of the Offering, the 13 Acquisition Properties, which contain an
aggregate of approximately 700,000 net rentable square feet located primarily in
the Market. Nine of the Acquisition Properties (the "SERS Properties") will be
acquired for an aggregate purchase price of approximately $30.3 million, payable
as follows: (i) by issuing preferred shares (the "Preferred Shares") that,
subject to certain conditions, are convertible into 1,606,060 Common Shares;
(ii) by making deferred payments aggregating $3.8 million in cash or Preferred
Shares; and (iii) by issuing two-year warrants to purchase 133,333 Common Shares
at an exercise price of $25.50 per share. See "The Company -- The SERS
Transaction." The purchase prices for the four remaining Acquisition Properties
aggregate $22.8 million in cash. The Company developed 19 of the Initial
Properties and will manage 36 of the Properties upon the closing of the
Offering. In addition, the Company manages approximately 575,000 net rentable
square feet at office properties on behalf of third parties and approximately
159,000 net rentable square feet at four other properties that are subject to a
purchase option held by the Company (the "Option Properties"). As of September
30, 1996, the Properties were approximately 94.3% leased to 222 tenants.
The Properties consist primarily of suburban office and industrial
buildings (36 of which are Class A properties). The Company considers Class A
suburban office and industrial properties to be those that have desirable
locations, are well maintained and professionally managed and have the potential
of achieving rental and occupancy rates that are typically at or above those
prevailing in their respective markets. The average age of the Properties is
approximately 10.8 years. The Company's 10 largest tenants (based on pro forma
annualized base rent at September 30, 1996) aggregate approximately 29.8% of the
Company's total base rent and approximately 27.5% of the Company's net rentable
square feet, and have a weighted average remaining lease term of approximately
7.8 years. As of September 30, 1996, no single tenant accounted for more than
8.7% of the Company's pro forma aggregate annualized base rent and only 30
tenants individually represented more than 1.0% of such aggregate annualized
base rent.
1
<PAGE> 8
Leases representing approximately 58.5% of the net rentable square footage
at the Properties were signed during the period January 1, 1993 through December
31, 1995, a time when management believes market rental rates were at or below
current market rental rates. This belief is supported by the fact that for the
nine months ended September 30, 1996: (i) renewal leases at the Initial
Properties were signed covering approximately 154,000 net rentable square feet
of office space at a weighted average rental rate of $13.25 per square foot,
compared to leases that expired for that space during such period with a
weighted average rental rate of $12.66 per square foot (representing a 4.7%
increase); and (ii) new leases at the Initial Properties were signed covering
approximately 264,000 net rentable square feet of office space at a weighted
average rental rate of $15.96 per square foot, compared to leases that expired
for that space during such period with a weighted average rental rate of $14.52
per square foot (representing a 9.9% increase). In all cases, weighted average
rental rates include expense recoveries, free rent and scheduled rent increases
that would be taken into account under generally accepted accounting principles.
The Company believes that the strength of its leasing department and tenant
retention capabilities should enable it to continue to capitalize on rental rate
differentials as the Company's leases expire.
The Company expects to focus its office and industrial building ownership
in submarkets located within the Suburban Philadelphia Office and Industrial
Market where it believes it can accumulate a critical mass of properties in
order to enhance operating efficiencies and, in turn, cash flow. The Company's
primary business objective is to realize and maximize growth in cash flow per
share and to increase shareholder value by:
- optimizing cash flow from the Properties through continued active
property management and prudent operating strategies;
- acquiring Class A suburban office and industrial properties and/or
portfolios of such properties located in the Market and surrounding areas
at prices that are below replacement cost and at yields which exceed the
Company's cost of capital;
- redeveloping and improving acquired properties and, to a lesser extent,
developing build-to-suit properties as opportunities arise;
- generating third party fee-related revenues; and
- operating within a conservative capital structure with financing policies
that allow for continued growth.
According to the Mid-Year 1996 Philadelphia Office Market Report and
Philadelphia Industrial Market Report (together, the "C&W Mid-Year Report")
prepared by Cushman & Wakefield of Pennsylvania, Inc. ("C&W"), the office and
industrial market located in the Philadelphia metropolitan area, which includes
the Suburban Philadelphia Office and Industrial Market, contains an aggregate of
approximately 383.3 million net rentable square feet. The Company believes that
the Suburban Philadelphia Office and Industrial Market has significant rental
growth potential due to declining vacancy rates, limited new construction, and
steady employment growth. Furthermore, the Company believes that the Market
contains opportunities to acquire Class A suburban office and industrial
properties at attractive yields and at prices which are significantly below
replacement costs. The Company's confidence in the Market is bolstered by the
fact that the Class A office direct vacancy rate in the six Pennsylvania
counties within the Market (Bucks, Chester, Delaware, Lehigh, Montgomery, and
Northampton) fell from approximately 16.4% at June 30, 1995 to approximately
9.1% at June 30, 1996, and the Class A office direct vacancy rate in the two New
Jersey counties within the Market (Burlington and Camden) fell from
approximately 18.4% at June 30, 1995 to approximately 11.3% at June 30, 1996,
according to the C&W Mid-Year Report. The overall vacancy rates within the
Market of 12.4% also compare favorably with the overall average national office
vacancy rate of 14.2% at June 30, 1996. In addition, the net absorption (i.e.,
the net change in occupied space for a given period of time, excluding sublet
space and preleasing) of office space for the Market was approximately 1.3
million net rentable square feet for the six-month period ended June 30, 1996
compared to negative net absorption of 80,000 net rentable square feet for the
six-month period ended June 30, 1995, according to the C&W Mid-Year Report.
The Company commenced its operations in 1986 as a finite life REIT that
owned eight properties. In October 1994, the Company's shareholders approved
amendments to the Company's Declaration of Trust
2
<PAGE> 9
that eliminated the Company's finite life status and increased the Company's
authorized capital. Since that time, the Company has sought to enhance the value
of its portfolio by: (i) actively managing its Properties; (ii) exploring
acquisitions of individual and portfolio properties in its submarkets; and (iii)
seeking financing transactions that could be used to fund future growth. These
efforts culminated in the August 1996 acquisition of substantially all of the
real estate holdings of Safeguard Scientifics, Inc. ("SSI") and SSI's real
estate affiliate, The Nichols Company ("TNC"), a private real estate development
and management services company operating in the Market (the "SSI/TNC
Transaction").
The SSI/TNC Transaction included the acquisition by the Company of 19
office and industrial properties containing approximately 958,000 net rentable
square feet with an occupancy rate of approximately 93.8% as of September 30,
1996 (the "SSI/TNC Properties") and an option to acquire the four Option
Properties, each of which is located within the Market. The SSI/TNC Transaction
also included the combination of the real estate management, marketing and
development functions of TNC with those of the Company. The Company believes
that the SSI/TNC Transaction has significantly enhanced its position as an owner
and operator of office and industrial properties in the Market.
Since 1982, TNC has operated exclusively in the Suburban Philadelphia
Office and Industrial Market and has been responsible for the development of
approximately 3.2 million net rentable square feet of office and industrial
properties in this Market, including the development of build-to-suit facilities
for GMAC (Mortgage Division former headquarters), Penn Mutual Life Insurance
Company (headquarters), Advanta Corp. (former headquarters), Sartomer Company,
Inc. (a U.S. subsidiary of TOTAL) (headquarters), General Accident Group,
General Electric, Ford Motor Company, and ARCO Chemical. In addition, TNC
acquired, developed, marketed, and managed nine corporate campuses.
The Company is led by an experienced management team, the senior members of
which include Anthony A. Nichols, Sr., Chairman of the Board and former
President of TNC, and Gerard H. Sweeney, President and Chief Executive Officer.
The Company's four senior executives have an average of approximately 22 years
of real estate experience. In aggregate, the Company's management team has been
responsible for the management of approximately 7.5 million net rentable square
feet and the development of approximately 3.2 million net rentable square feet
of office and industrial properties primarily within the Market.
RISK FACTORS
An investment in the Common Shares involves various risks, and investors
should carefully consider the matters discussed under "Risk Factors." Such risks
include, among others:
- the limited geographic concentration of the Properties, which increases
the risk of the Company being adversely affected by a downturn in the
Philadelphia economy;
- the possibility that the Preferred Shares to be issued in connection with
the acquisition of the SERS Properties (which will be convertible,
subject to certain conditions, into an aggregate of 1,606,060 Common
Shares) will become (i) entitled to receive distributions after July 1,
1997 equal to 120% of the distributions payable in respect to the number
of Common Shares into which such Preferred Shares are convertible and
(ii) subject to redemption after July 1, 1998 at the greater of: (a) the
fair market value of the number of the Common Shares into which the
Preferred Shares may be converted and (b) an amount equal to $16.50
multiplied by the number of Common Shares into which the Preferred Shares
may be converted plus an 8.0% return thereon, if prior to such respective
dates the shareholders do not approve the conversion of the Preferred
Shares into Common Shares, an event that would materially and adversely
effect the financial condition of the Company;
- risks associated with the acquisition of new properties, generally, and
with the Company's recent acquisition of many of the Properties and
contemplated acquisition of the Acquisition Properties, including risks
of acquiring properties over which the Company has had no control and
which may have characteristics or deficiencies unknown to the Company
affecting the value or revenue potential thereof; the risk that recently
acquired Properties or newly acquired properties will fail to perform as
expected; risks associated with integrating such acquisitions into the
Company's existing management
3
<PAGE> 10
structure; risks associated with the Company's lack of operating history
with regard to the most recently acquired Properties and the Acquisition
Properties; risks that certain types of losses could exceed the Company's
insurance coverage and the potential costs of compliance with the
Americans With Disabilities Act of 1990 (the "ADA");
- the lack of appraisals for the Properties, giving rise to the risk that
the combined value of the Common Shares, the Preferred Shares, and Units
in the Operating Partnership that are redeemable for Common Shares may be
greater than the aggregate fair market value of the Company's equity in
the Properties;
- the risk that the actual amount of Cash Available for Distribution will
be substantially below the Company's expectations, including the risk
that the actual Cash Available for Distribution will be insufficient to
permit the Company to sustain its expected increased quarterly
distribution rate;
- conflicts of interest between the Company and certain of its executive
officers and members of the Board of Trustees, all of which could lead to
decisions that do not reflect solely the interests of shareholders,
including: (i) conflicts associated with sales of, or prepayment of debt
secured by, the Properties that may arise due to the more adverse tax
consequences of such sales or prepayment to certain members of management
and of the Board of Trustees as holders of Units; and (ii) the possible
failure by the Company to enforce the material terms of its acquisition
agreements with SSI and TNC, particularly the indemnification provisions
for breaches of representations and warranties, even when such
enforcement would be in the best interests of the Company;
- risks generally associated with real estate investment and property
management, such as: (i) the need to renew leases or relet space upon
lease expirations on equal or more favorable terms and, at times, to pay
renovation and reletting costs in connection therewith; (ii) the effect
of economic and other conditions on office property cash flows and
values; (iii) the ability of tenants to make lease payments; (iv) the
ability of a property to generate revenue sufficient to meet operating
expenses, including future debt service; and (v) the illiquidity of real
estate investments, all of which may adversely affect the Company's
ability to make expected distributions to shareholders and its ability to
qualify as a REIT;
- risks associated with borrowing, including the uncertainty associated
with the ability of the Company to refinance mortgage indebtedness at
maturity dates ranging from June 1997 to April 2001, that indebtedness
might be refinanced at higher interest rates or otherwise on terms less
favorable to the Company, that interest rates might increase on variable
rate indebtedness (which is expected to equal approximately $4.1 million
upon completion of the Offering) and on any borrowings under the
Company's expected two-year $80.0 million secured revolving credit
facility (the "Credit Facility") (none of which is expected to be
outstanding as of the closing of the Offering), all of which could
adversely affect the Company's ability to make expected distributions to
shareholders and its ability to qualify as a REIT;
- the absence of any provision in the organizational documents of the
Company limiting the amount of indebtedness the Company may incur;
- the possibility that the Company will incur net losses in the future;
- taxation of the Company as a corporation if it fails to qualify as a
REIT, treatment of the Operating Partnership as an association taxable as
a corporation if it fails to qualify as a partnership for federal income
tax purposes (and the resulting failure of the Company to qualify as a
REIT), the Company's liability for federal, state and local income taxes
in such event and the resulting decrease in the Cash Available for
Distribution;
- possible environmental liabilities in connection with the Company's
ownership and/or operation of the Properties;
- risks associated with the business and ownership of the Company's
property management business (the "Management Company"), including
potential tax liabilities, lack of control over the Management Company
and the risk that most property management contracts are cancelable by
the property owners with 30 days' notice or upon a sale of the property
under management;
4
<PAGE> 11
- the possibility that the Board may in the future amend or revise the
investment, financing, borrowing and distribution policies of the Company
without a vote of shareholders;
- dependence on key personnel;
- anti-takeover effect of limiting actual or constructive ownership of
Common Shares by a single person to 9.8% of the outstanding shares,
subject to certain specified exceptions, and of certain other provisions
contained in the organizational documents of the Company, including the
authority of the Board to designate and issue one or more series of
preferred shares, without shareholder approval, which may discourage a
change in control and limit the opportunity for shareholders to receive a
premium over the then-current market price for their Common Shares;
- the immediate and substantial dilution in the net book value of the
Common Shares to be experienced by the purchasers of Common Shares in the
Offering;
- the preferential rights as to distributions, liquidation, and voting that
the Board has the authority to establish for the benefit of holders of
preferred shares including preferential liquidation distribution and
redemption rights that the Board will establish for the benefit of the
holders of the Preferred Shares to be issued in connection with the SERS
Transaction; and
- possible increase in market interest rates, which may lead prospective
purchasers of the Common Shares to expect a higher anticipated annual
yield from future distributions, and the possible issuance of additional
Common Shares, all of which may adversely affect the market price of
Common Shares.
BUSINESS AND GROWTH STRATEGIES
The Company's strategy is to focus its growth in the Suburban Philadelphia
Office and Industrial Market. The Company believes that certain economic
fundamentals in the Market provide an attractive environment for owning,
acquiring and operating Class A office and industrial properties. This belief is
supported by the following:
- The recent decline in vacancy rates within the Market: the Class A office
direct vacancy rate in the six Pennsylvania counties within the Market
fell from approximately 16.4% at June 30, 1995 to approximately 9.1% at
June 30, 1996, and the Class A office direct vacancy rate in the two New
Jersey counties within the Market fell from approximately 18.4% at June
30, 1995 to approximately 11.3% at June 30, 1996, according to the C&W
Mid-Year Report;
- The net absorption of office space within the Market during the six-month
period ended June 30, 1996 was approximately 1.3 million net rentable
square feet compared to a negative net absorption of 80,000 net rentable
square feet within the Market during the six-month period ended June 30,
1995, according to the C&W Mid-Year Report;
- The weighted average Class A office rental asking rate of $18.94 per
square foot within the Market as identified in the C&W Mid-Year Report,
compared to an average annualized rental rate of $15.15 per square foot
at the office Properties as of September 30, 1996; and
- The limited new construction of office buildings within the Market during
the 1990's, with construction primarily on a build-to-suit basis. As
reported by C&W, office development from January 1, 1995 through June 30,
1996 was limited to approximately 254,000 net rentable square feet in the
Market, which contained a total office inventory of approximately 43.7
million net rentable square feet as of June 30, 1996.
The Company further believes that, based on its evaluation of market
conditions, the growth rates attainable within the Suburban Philadelphia Office
and Industrial Market will improve overall occupancy levels and rental rates and
reduce owner leasing concessions.
The Company believes that the foundation of its growth will consist of: (i)
the quality and strategic location of the Properties; (ii) the strengthening
regional economy and real estate fundamentals of the
5
<PAGE> 12
Market; (iii) the knowledge and experience of its senior management team; (iv)
the limited new construction of office space in the Market; (v) the presence of
distressed sellers and inadvertent owners (through foreclosure or otherwise);
and (vi) the limited capital available to many of the Company's competitors for
acquisitions and capital improvements. The Company expects to focus its office
building ownership in submarkets located within the Market where it believes it
can accumulate a critical mass of properties in order to enhance operating
efficiencies and, in turn, cash flow.
The Company's primary business objective is to realize and maximize growth
in cash flow per share and to increase shareholder value by: (i) optimizing cash
flow from the Properties through continued active property management and
prudent operating strategies; (ii) acquiring quality suburban office and
industrial properties and/or portfolios of such properties located in the Market
and surrounding areas at prices that are below replacement cost and at yields
which exceed the Company's cost of capital; (iii) redeveloping and improving
acquired properties and, to a lesser extent, developing build-to-suit properties
as opportunities arise; (iv) generating third party fee-related revenues; and
(v) operating within a conservative capital structure with financing policies
that allow for continued growth.
MANAGEMENT AND OPERATING STRATEGIES
The Company expects to realize and maximize cash flow growth due to the
strength and experience of its management team through:
- Contractual Rental Rate Increases: As of September 30, 1996, 100 leases,
representing approximately 43.1% of the total leases at the Properties
and approximately 52.6% of the net rentable square feet at the
Properties, included built-in contractual rental rate increases. Between
September 30, 1996 and June 30, 2011, the contractual base rents received
by the Company under such leases are expected to increase by an aggregate
of approximately $11.8 million (not including increases attributable to
the transition from free or partial rent to full rent or rent increases
that are tied to indices such as the consumer price index (the "CPI"));
- Leasing Expiring/Vacant Space: The Company expects to experience cash
flow growth through the releasing of approximately 324,000 net rentable
square feet of space under 89 leases that expire at the Properties
between October 1, 1996 and December 31, 1997 and that have a weighted
average annual rental rate as of their expiration dates of $14.14 per
square foot. The Company believes that the majority of such leases are
currently at or below market rental rates. In addition, the Company
expects to realize additional cash flow through the potential leasing of
approximately 115,000 net rentable square feet of vacant space at the
Properties as of September 30, 1996 (approximately 5.7% of the Company's
total net rentable square feet). There can be no assurance, however, that
the Company will meet any of the foregoing expectations; and
- Tenant Services: The Company believes it has been able to provide tenants
with a high level of service as evidenced by the tenant retention rates
of the Initial Properties in 1993, 1994 and 1995 and the nine-month
period ended September 30, 1996 of 71.4%, 56.7%, 75.1% and 93.5%,
respectively, based on net rentable square footage renewed as a
percentage of the square footage of leases expiring during each period.
ACQUISITION STRATEGIES
The Company believes that it will be able to identify and capitalize on
acquisition opportunities through: (i) management's and the Board's significant
local market expertise; (ii) management's and the Board's relationships with
private and institutional real estate owners, potential sellers of individual
and portfolio properties, area real estate brokers and tenants; (iii) its
current market penetration in the Suburban Philadelphia Office and Industrial
Market; (iv) its access to capital as a public company, including, but not
limited to, proceeds available under the Company's $80 million Credit Facility
and the Operating Partnership's ability to exchange Units for interests in
properties, thereby permitting certain sellers to defer the tax gain associated
with the sale of such properties; and (v) its fully integrated real estate
operations, which allow the Company to respond quickly to acquisition
opportunities and enable it to provide real estate management
6
<PAGE> 13
services to third parties as a means of identifying such opportunities. The
Company's acquisition program will focus on both portfolio and individual
acquisitions. See "Business and Properties -- Credit Facility."
The Company will seek to acquire additional office and industrial
properties that meet one or more of the following investment criteria: (i) the
property is well designed, well constructed and well located within the Suburban
Philadelphia Office and Industrial Market; (ii) the property offers attractive
current yield and long-term growth potential based on its occupancy
characteristics, including lease structure, tenant credit and occupancy history;
(iii) the property can be acquired at a substantial discount to replacement
cost; and (iv) the property is located in a submarket that contains barriers to
entry and repositioning opportunities.
LibertyView Acquisition. As an example of these strategies, in July 1996,
the Company acquired the LibertyView Building, a 121,737 net rentable square
foot suburban office building built in 1990 and located in Cherry Hill, New
Jersey, for $10.6 million. This represents a purchase price of $87.07 per square
foot versus management's estimate of this Property's replacement cost of
approximately $150 per square foot. As of September 30, 1996, the LibertyView
Building was approximately 82.8% leased (up from 66.7% at the date of
acquisition). The LibertyView Building was acquired by the Company at a
capitalization rate of approximately 11.0% (calculated by dividing (a) the
expected net operating income (including the effect of straight line rents)
generated by the property based on annualized revenues from signed leases in
place and lease commitments at the date of acquisition by (b) the consideration
paid for the property after adjusting for the additional capital costs of new
leases). The Company estimates that the capitalization rate for this Property
would be approximately 12.9% upon the establishment of an occupancy level
greater than or equal to 95%, given current market rental rates, and after
adjusting for the anticipated additional capital costs required to achieve such
occupancy levels. There can be no assurance that the Company will achieve such
occupancy levels at prevailing market rates. In addition, there can be no
assurance that the Company will be successful in making acquisitions on
comparable terms in the future. The Company believes it could add, in addition
to the Acquisition Properties, a number of office properties to its existing
portfolio without requiring a material increase in management personnel due to
the Company's expertise, depth of current management, financial reporting
systems and the efficiencies created by its centralized management structure.
The Company also holds an option from an affiliate of TNC to purchase the
Option Properties containing approximately 159,000 net rentable square feet. The
Option Properties are located in the Market, are managed by the Company, and
were approximately 95.5% leased to 16 tenants as of September 30, 1996. There
can be no assurance that the Company will exercise its option to acquire any of
the Option Properties or, if it does, that it will be able to satisfy the
conditions relating to the exercise of such option. See "Business and
Properties -- Option Properties."
CORPORATE SERVICE ACTIVITIES
The Company, through the Management Company, managed, as of September 30,
1996, approximately 2.0 million net rentable square feet, including 575,000 net
rentable square feet of office properties on behalf of third parties and
approximately 159,000 net rentable square feet at the Option Properties. The
Company's services for such third parties include corporate tenant
representations, property management, leasing and brokerage and construction
management services. The Company typically provides a full range of real estate
services to companies that do not maintain in-house real estate departments. The
Company believes that these corporate service activities will help it to expand
its base of national tenants, further enhance property management economies of
scale and increase its market penetration. The Company also believes it will
benefit from the increasing tendency of institutional owners of real estate to
engage established real estate companies to handle their property and asset
management requirements. Third party clients of the Company include BetzDearborn
Inc., CompuCom Systems, Inc., Cambridge Technology Partners (Massachusetts),
Inc., Coherent Communications Systems Corporation, Integrated Systems Consulting
Group, Inc., Premier Solutions, Inc., and Sanchez Computer Associates, Inc.,
four of which are publicly-traded companies in which SSI maintains an ownership
interest. For the nine months ended September 30, 1996, the real estate
management services business had revenues of approximately $943,000. The
Company's management expects to continue its relationships with its corporate
clientele as well as to selectively market its services to corporate users of
commercial real estate and building owners.
7
<PAGE> 14
FINANCING POLICIES
As a general policy, following the closing of the Offering and the
Concurrent Investments, the Company intends, but is not obligated, to adhere to
a policy of maintaining a debt-to-total market capitalization ratio of no more
than 50%. This policy is intended to provide the Company with financial
flexibility to select the optimal source of capital (whether debt or equity)
with which to finance external growth. The Company's debt-to-total market
capitalization ratio immediately following the closing of the Offering and the
Concurrent Investments and the application of the net proceeds therefrom, will
be approximately 21.6% (approximately 20.5% if the Underwriters' over-allotment
option is exercised in full). Because such ratio is based upon the market values
of equity, it will fluctuate with changes in the price of Common Shares. See
"Policies with Respect to Certain Activities."
RECENT DEVELOPMENTS
RECENTLY COMPLETED ACQUISITIONS
- On August 22, 1996, the Company consummated the SSI/TNC Transaction in
which it acquired 19 of the Initial Properties in exchange for 258,333
Common Shares, warrants to purchase 258,333 Common Shares at an exercise
price of $19.50 per share and 540,159 Units (including Units which the
Operating Partnership is required to issue by no later than September
1999) that are convertible into 540,159 Common Shares. Such Units will be
subsequently reduced to 509,856 in connection with the repayment of debt
upon the closing of the Offering. See "Use of Proceeds." The 19 Initial
Properties were acquired subject to mortgage indebtedness aggregating
approximately $64.0 million as of the date of acquisition, a portion of
which will be repaid from the net proceeds of the Offering and the
Concurrent Investments. See "Use of Proceeds" and "The Company -- The
SSI/TNC Transaction." The Company completed the SSI/TNC Transaction for
the following reasons: (i) to increase the size and diversity of the
Company's asset base, providing for a more stable entity with which to
generate cash flow; (ii) to increase the Company's market capitalization,
which the Company believes enhances its access to the capital markets;
and (iii) to combine the real estate expertise of the Company and TNC,
resulting in an increase in the Company's senior management depth from
three to seven executives and total employees from six to 26.
- On July 19, 1996, the Company completed the acquisition of the
LibertyView Building, a 121,737 net rentable square foot suburban office
building located in Cherry Hill, New Jersey, for a purchase price of
approximately $10.6 million. See "-- Acquisition Strategies."
PENDING ACQUISITIONS
- The Company has entered into an agreement to purchase the SERS
Properties. The SERS Properties aggregate approximately 418,000 net
rentable square feet, have an average age of approximately 12 years and
are located within the Market. As of September 30, 1996, the SERS
Properties were approximately 92.4% leased to 62 tenants. The SERS
Properties will be acquired by the Company for an aggregate purchase
price of approximately $30.3 million, payable as follows: (i) by issuing
Preferred Shares that, subject to certain conditions, are convertible
into 1,606,060 Common Shares (which represents, assuming the conversion
of all such Preferred Shares into Common Shares, an effective price per
Common Share of $16.50); (ii) by making deferred payments aggregating
$3.8 million; and (iii) by issuing two-year warrants to purchase 133,333
Common Shares at an exercise price of $25.50 per share. See "The
Company -- The SERS Transaction."
- The Company has signed an agreement of sale to purchase the Delaware
Corporate Center (One Righter Parkway), a 104,828 net rentable square
foot office building located in New Castle County, Delaware, for $12.7
million in cash. The building was built in 1989 and was 100% leased as of
September 30, 1996. See "The Company -- Other Pending Acquisitions."
- The Company has signed an agreement of sale to purchase two buildings in
Horsham, Pennsylvania for an aggregate purchase price of $7.1 million in
cash. The buildings include 700 Business Center Drive, a
8
<PAGE> 15
30,773 net rentable square foot office building built in 1986 and 800
Business Center Drive, a 51,236 net rentable square foot office building
built in 1986. 700 and 800 Business Center Drive were each 100% leased as
of September 30, 1996. See "The Company -- Other Pending Acquisitions."
- The Company has signed an agreement of sale to purchase 8000 Lincoln
Drive, a 54,923 net rentable square foot office building built in 1983
and located in Evesham, New Jersey, for $3.0 million in cash. The
building was 100% leased as of September 30, 1996.
These pending acquisitions are subject to completion of customary closing
conditions (other than the completion of due diligence which has occurred) and,
as a result, no assurance can be given that these, or any other, acquisitions
will be completed. If these acquisitions are consummated, the Company's
portfolio will consist of 37 properties aggregating approximately 2.0 million
net rentable square feet.
CONCURRENT INVESTMENTS
- Concurrent with the closing of the Offering the SERS Voting Trust has
agreed, subject to certain conditions, to purchase $10.5 million of
Common Shares directly for the Company in a private placement at the
price per Common Share sold in the Offering. See "The Company -- The SERS
Private Placement."
- Concurrent with the closing of the Offering two investment funds (the
"Morgan Stanley Funds") advised by Morgan Stanley Asset Management Inc.
have agreed to purchase $11.7 million of Common Shares directly from the
Company in a private placement at a price per Common Share of $16.50. See
"The Company -- The Morgan Stanley Private Placement."
FINANCING TRANSACTION
Richard M. Osborne, an Ohio-based investor and Trustee of the Company, has
made investments in the Company resulting in his beneficial ownership of 213,718
Common Shares and warrants to purchase 34,118 Common Shares at an exercise price
of $19.50 per share. Approximately 179,600 of Mr. Osborne's Common Shares were
acquired in January 1996 from third parties for a weighted average purchase
price per share of approximately $15.03 and the balance of Mr. Osborne's Common
Shares was acquired from the Company on June 21, 1996 and August 23, 1996 at
$16.89 per share. In June 1996, an affiliate of Mr. Osborne invested
approximately $1.3 million in the Company by (i) loaning to the Company
approximately $1.0 million on an unsecured basis at the prime rate (the "Osborne
Loan") and (ii) by acquiring 19,983 paired units ("Paired Units") at a per unit
price of $16.89. Each Paired Unit included one Common Share and one six-year
warrant to purchase an additional Common Share at an exercise price of $19.50
per share. Immediately following the closing of the Offering, the Osborne Loan
will be repaid, pursuant to its terms, through the issuance of additional Paired
Units. The actual number of Paired Units so issued will equal the outstanding
balance of the Osborne Loan on the date of its repayment, including accrued
interest (which outstanding balance and interest aggregated approximately
$774,000 as of September 30, 1996) divided by $16.89 (or approximately 45,844
Paired Units as of September 30, 1996).
CREDIT FACILITY
The Company has received a commitment from a group of lenders to provide
the Company with a two-year, $80.0 million revolving Credit Facility. The Credit
Facility will be used, among other things, to finance the acquisition of
properties, provide funds for tenant improvements and capital expenditures and
provide for working capital and other general purposes. See "Business and
Properties -- Credit Facility."
REVERSE SHARE SPLIT
Immediately prior to the closing of the Offering, the Company will combine
the outstanding Common Shares by means of a one-for-three reverse share split.
As a result, the number of Common Shares issuable upon exercise of outstanding
options and warrants, including the per share exercise prices, and the number of
Common Shares issuable upon conversion of Units will be proportionately
adjusted. The Reverse Split will
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<PAGE> 16
result in certain shareholders owning fractional shares of the Company. The
Company will not issue fractional shares, but will instead aggregate and sell
any fractional shares and distribute the cash proceeds to shareholders who would
otherwise be entitled to receive fractional shares. See "Description of Shares
of Beneficial Interest -- Reverse Share Split; Treatment of Fractional Shares."
BUSINESS AND PROPERTIES
PROPERTIES
The Initial Properties are comprised of 23 office properties (22 of which
are Class A properties) totalling approximately 1.2 million net rentable square
feet and one Class A industrial property (1510 Gehman Road) totalling
approximately 152,000 net rentable square feet. Twenty-two of the Initial
Properties are located in the Market. Concurrently with the closing of the
Offering, the Company will acquire the Acquisition Properties. The Acquisition
Properties (all of which are Class A properties) are comprised of 11 office
properties totalling approximately 600,000 net rentable square feet and two
industrial facilities totalling approximately 100,000 net rentable square feet.
The Company generally considers Class A suburban office and industrial
properties to be those that have desirable locations, are well maintained and
professionally managed and have the potential of achieving rental and occupancy
rates that are typically at or above those prevailing in their respective
markets. As of September 30, 1996, the 34 office Properties and the three
industrial Properties were approximately 93.5% and 100% leased, respectively, by
222 tenants. The 34 office Properties are primarily one to three story suburban
office buildings containing an average of 51,000 net rentable square feet. All
of the Properties are in business parks or commercial business districts, and 19
of the Properties were developed by the Company.
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<PAGE> 17
The following table sets forth certain information with respect to the
Properties:
<TABLE>
<CAPTION>
AVERAGE TOTAL BASE
TOTAL BASE RENT RENT PLUS EXPENSE
FOR THE RECOVERIES PER
NET PERCENTAGE TWELVE MONTHS NET RENTABLE SQUARE
RENTABLE LEASED AS OF ENDED FOOT LEASED
INITIAL PROPERTIES: YEAR SQUARE SEPTEMBER 30, SEPTEMBER 30, 1996(2) SEPTEMBER 30,
SUBMARKET/PROPERTY BUILT FEET 1996(1) (000'S) 1996(3)
- --------------------------------------------- ----- --------- ------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
HORSHAM/WILLOW GROVE/JENKINTOWN, PA
650 Dresher Road............................ 1984 30,138 100.0% $ 329 $ 15.67
1155 Business Center Drive.................. 1990 51,388 99.4% 591 16.31
500 Enterprise Road......................... 1990 67,800 98.5% 674 13.74
One Progress Avenue......................... 1986 79,204 100.0% 563 9.54
SOUTHERN ROUTE 202 CORRIDOR, PA
456 Creamery Way............................ 1987 47,604 100.0% 336 7.15
486 Thomas Jones Way........................ 1990 51,500 50.9% 416 23.26
468 Creamery Way............................ 1990 28,934 100.0% 293 14.54
110 Summit Drive............................ 1985 43,660 67.6% 262 13.51
BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON,
PA
2240/50 Butler Pike......................... 1984 52,183 99.4% 560 15.82
120 West Germantown Pike.................... 1984 30,546 100.0% 421 19.16
140 West Germantown Pike.................... 1984 25,953 98.7% 297 16.56
2260 Butler Pike............................ 1984 31,892 100.0% 377 16.84
MAIN LINE, PA
16 Campus Boulevard......................... 1990 65,463 100.0% 430 9.94
18 Campus Boulevard......................... 1990 37,700 100.0% 410 15.01
LEHIGH VALLEY, PA
7310 Tilghman Street........................ 1985 40,000 99.0% 329 11.44
7248 Tilghman Street........................ 1987 42,863 93.8% 399 15.06
6575 Snowdrift Road......................... 1988 46,250 100.0% 300 9.06
LANSDALE, PA
1510 Gehman Road............................ 1990 152,625 100.0% 773 7.70
BURLINGTON COUNTY, NJ
One Greentree Centre........................ 1982 55,838 100.0% 869 16.97
Two Greentree Centre........................ 1983 56,075 100.0% 816 14.53
Three Greentree Centre...................... 1984 69,101 96.2% 1,049 16.51
CAMDEN COUNTY, NJ
457 Haddonfield Road (LibertyView).......... 1990 121,737 82.8% 1,160 16.34
OTHER MARKETS
168 Franklin Corner Road.................... 1976 32,000 54.5% 186 13.43
Lawrenceville, NJ
Twin Forks Office Park
Raleigh, NC
5910-6090 Six Forks......................... 1982 73,339 100.0% 1,008 13.83
--------- ----- ------- ------
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE
INITIAL PROPERTIES.......................... 1,333,793 93.8% 12,848 14.04(10)
========= ===== ======= ======
<CAPTION>
AVERAGE C&W RENTAL RATE TENANTS LEASING 10% OR
ANNUALIZED WEIGHTED INCREASE MORE OF RENTABLE
RENTAL AVERAGE POTENTIAL SQUARE FOOTAGE PER
RATE AS OF CLASS A UNTIL MARKET PROPERTY AS OF
INITIAL PROPERTIES: SEPTEMBER 30, RENTAL RATE IS SEPTEMBER 30, 1996
SUBMARKET/PROPERTY 1996(4) RATES(5) ACHIEVED(6) AND LEASE EXPIRATION DATE
- --------------------------------------------- ------------------ -------- ------------ -------------------------
<S> <<C> <C> <C> <C>
HORSHAM/WILLOW GROVE/JENKINTOWN, PA
650 Dresher Road............................ $16.50 $18.02 9.2% GMAC (100%) - 5/03
1155 Business Center Drive.................. 17.22 18.02 4.6% IMS (79%) - 3/06;
Motorola (14%) - 2/99
500 Enterprise Road......................... 15.03 14.50 (3.5)% Conti Mortgage
(80%) - 4/01;
Pioneer (19%) - 10/00
One Progress Avenue......................... 11.75 18.02 53.4% Reed Technologies
(100%) - 6/11
SOUTHERN ROUTE 202 CORRIDOR, PA
456 Creamery Way............................ 7.25(7) 7.89(8) 8.8% Neutronics (100%) - 1/03
486 Thomas Jones Way........................ 15.46 15.55 0.5% First American Real
Estate (20%) - 4/00
468 Creamery Way............................ 13.88 13.61 (1.9)% Franciscan Health
(82%) - 6/99;
American Day Treatment
(18%) - 6/00
110 Summit Drive............................ 7.20(8) 7.89(8) 9.6% Maris Equipment
(49%) - 4/99
BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON,
PA
2240/50 Butler Pike......................... 17.55 18.70 6.6% CoreStates (59%) - 4/06;
TWA Marketing
(33%) - 10/99
120 West Germantown Pike.................... 17.52 18.70 6.7% Clair O'Dell
(82%) - 7/01;
Kleinerts (13%) - 10/98
140 West Germantown Pike.................... 17.38 18.70 7.6% Healthcare, Inc.
(46%) - 9/99; Henkel
(29%) - 6/98; National
Health Equity
(20%) - 5/99
2260 Butler Pike............................ 17.82 18.70 4.9% Information Resources
(66%) - 12/00; Med
Resorts (26%) - 1/01
MAIN LINE, PA
16 Campus Boulevard......................... 13.58 20.27 49.3% New England Mutual
(52%) - 5/06; Atlantic
Employees C.U.
(35%) - 1/06
18 Campus Boulevard......................... 18.62 20.27 8.9% Prudential (25%) - 6/01;
Devco Mutual
(35%) - 1/01;
Scott Paper
(17%) - 11/97;
Marshall Dennehey
(18%) - 10/01
LEHIGH VALLEY, PA
7310 Tilghman Street........................ 8.89(8) 10.50(8) 18.1% AT&T (83%) - 12/96-8/98
7248 Tilghman Street........................ 14.76 15.34 3.9% IDS Financial
(29%) - 7/01;
Ohio Casualty
(46%) - 7/01;
Meridian Mortgage
(12%) - 6/99
6575 Snowdrift Road......................... 7.15(8) 10.50(8) 46.9% Corning Packaging
(100%) - 2/99
LANSDALE, PA
1510 Gehman Road............................ 4.72(8) 5.95(8) 26.1% Ford Electronics
(35%) - 6/98;
Nibco (65%) - 8/99
BURLINGTON COUNTY, NJ
One Greentree Centre........................ 16.07 19.30 20.0% American Executive
Centers (30%) - 1/06;
West Jersey (15%) - 4/01;
Temple Sports Med.
(18%) - 12/97
Two Greentree Centre........................ 16.02 19.30 20.5% Merrill Lynch
(23%) - 11/05;
ReMax Suburban
(12%) - 11/05
Three Greentree Centre...................... 16.41 19.30 17.6% Parker, McCay & Criscuolo
(39%) - 5/01;
Marshall Dennehey
(20%) - 5/97;
Olde Discounts
(12%) - 3/00;
Surety Title
(13%) - 11/03
CAMDEN COUNTY, NJ
457 Haddonfield Road (LibertyView).......... 18.63 21.81 17.1% HIP Health Plan
(31%) - 12/07
OTHER MARKETS
168 Franklin Corner Road.................... 15.55 18.00(9) 15.8% Dr. Belden (12%) - 5/01;
Lawrenceville, NJ Crawford & Co.
(14%) - 11/99
Twin Forks Office Park
Raleigh, NC
5910-6090 Six Forks......................... 14.25 15.50(9) 8.8% N/A
----- ----- -----
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE
INITIAL PROPERTIES.......................... $14.63(10) $16.83(10)(11) 15.0%
===== ===== =====
</TABLE>
11
<PAGE> 18
<TABLE>
<CAPTION>
AVERAGE TOTAL BASE
TOTAL BASE RENT RENT PLUS EXPENSE
FOR THE RECOVERIES PER
NET PERCENTAGE TWELVE MONTHS NET RENTABLE SQUARE
RENTABLE LEASED AS OF ENDED FOOT LEASED
ACQUISITION PROPERTIES: YEAR SQUARE SEPTEMBER 30, SEPTEMBER 30, 1996(2) SEPTEMBER 30,
SUBMARKET/PROPERTY BUILT FEET 1996(1) (000'S) 1996(3)
- ----------------------------------------------- ----- --------- ------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
HORSHAM/WILLOW GROVE/JENKINTOWN, PA
700 Business Center Drive(12)................. 1986 82,009 100.0% $ 793 $ 11.59
800 Business Center Drive(12)................. 1986 82,009 100.0% $ 793 $ 11.59
KING OF PRUSSIA, PA
500 North Gulph Road.......................... 1979 92,851 86.1% 1,387 15.02
BUCKS COUNTY, PA
2200 Cabot Boulevard.......................... 1979 55,081 100.0% 259 5.75
2250 Cabot Boulevard.......................... 1982 40,000 100.0% 170 5.22
2260 Cabot Boulevard(12)...................... 1984 29,638 100.0% 246 10.17
2270 Cabot Boulevard(12)...................... 1984 29,638 100.0% 246 10.17
3000 Cabot Boulevard.......................... 1986 34,640 83.9% 364 12.85
3329 Street Road -- Greenwood Sq.(12)......... 1985 165,929 92.1% 2,234 14.56
3331 Street Road -- Greenwood Sq.(12)......... 1986 165,929 92.1% 2,234 14.56
3333 Street Road -- Greenwood Sq.(12)......... 1988 165,929 92.1% 2,234 14.56
BURLINGTON COUNTY, NJ
8000 Lincoln Drive............................ 1983 54,923 100.0% 445 8.25
NORTHERN SUBURBAN WILMINGTON
One Righter Parkway........................... 1989 104,828 100.0% 2,044 19.50
--------- ----- ------- ------
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE
ACQUISITION PROPERTIES........................ 659,899 95.2% $ 7,942 $ 12.93
========= ===== ======= ======
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR ALL
PROPERTIES.................................... 1,993,692 94.3% $20,790 $ 13.67
========= ===== ======= ======
I,2
<CAPTION>
AVERAGE C&W RENTAL RATE TENANTS LEASING 10% OR
ANNUALIZED WEIGHTED INCREASE MORE OF RENTABLE
RENTAL AVERAGE POTENTIAL SQUARE FOOTAGE PER
RATE AS OF CLASS A UNTIL MARKET PROPERTY AS OF
ACQUISITION PROPERTIES: SEPTEMBER 30, RENTAL RATE IS SEPTEMBER 30, 1996
SUBMARKET/PROPERTY 1996(4) RATES(5) ACHIEVED(6) AND LEASE EXPIRATION DATE
- ----------------------------------------------- --------------- -------- ------------ -------------------------
<S> <<C> <C> <C> <C>
HORSHAM/WILLOW GROVE/JENKINTOWN, PA
700 Business Center Drive(12)................. $13.11 $18.02 37.5% Metpath (35%) - 1/12;
Sprint
(19%) - 3/01; Macro
(19%) -
800 Business Center Drive(12)................. $13.11 $18.02 37.5% 4/01; Advanta
(10%) - 6/99
KING OF PRUSSIA, PA
500 North Gulph Road.......................... 16.51 21.39 29.6% Transition Software
(16%) - 8/00, Strohl
Syst (12%) - 10/99
BUCKS COUNTY, PA
2200 Cabot Boulevard.......................... 4.40 4.50 2.3% Hussman Corp (38%), Nobel
Printing (38%) - 6/97;
McCaffrey Mgt
(24%) - 8/00
2250 Cabot Boulevard.......................... 3.50 4.50 28.6% Bucks County Nut (100%) -
7/99
2260 Cabot Boulevard(12)...................... 8.78 9.00 2.5% Sager Electrical (14%) -
10/98; Terminix Intrntnl
2270 Cabot Boulevard(12)...................... 8.78 9.00 2.5% (13%) - 11/96
3000 Cabot Boulevard.......................... 17.03 18.95 11.3% Geraghty & Miller (31%) -
11/97; Prudential Insur.
(21%) - 7/98;
Luigi Bormioli Co.
(11%) - 6/98
3329 Street Road -- Greenwood Sq.(12)......... 16.54 18.95 14.6%
3331 Street Road -- Greenwood Sq.(12)......... 16.54 18.95 14.6% Waste Management (27%) -
3333 Street Road -- Greenwood Sq.(12)......... 16.54 18.95 14.6% 3/97
BURLINGTON COUNTY, NJ
8000 Lincoln Drive............................ 17.13 19.30 $ 12.7% CSC (67%) - 11/01; Blue
Cross (33%) - 2/07
NORTHERN SUBURBAN WILMINGTON
One Righter Parkway........................... $ 19.30 20.50 6.2% Kimberly Clark (89%) -
12/05
----- ----- -----
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE
ACQUISITION PROPERTIES........................ $ 16.23(13) $19.01(11)(13) 17.2%
===== ===== =====
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR ALL
PROPERTIES.................................... $ 15.15(14) $17.54(11)(14) 15.8%
===== ===== =====
I,2
</TABLE>
- ---------------
(1) Calculated by dividing net rentable square feet included in leases dated on
or before September 30, 1996 by the aggregate net rentable square feet
included in the Property.
(2) "Total Base Rent" for the twelve months ended September 30, 1996 represents
base rents received during such period, excluding tenant reimbursements,
calculated in accordance with generally accepted accounting principles
determined on a straight-line basis. Tenant reimbursements generally
include payment of real estate taxes, operating expenses, and escalations
and common area maintenance and utility charges.
(3) Represents the Total Base Rent for the twelve months ended September 30,
1996, plus tenant reimbursements for the twelve months ended September 30,
1996, divided by the net rentable square feet leased.
(4) "Average Annualized Rental Rate" is calculated as follows: (i) for office
leases written on a triple net basis, the sum of the annualized contracted
base rental rates payable for all space leased as of September 30, 1996
(without giving effect to free rent or scheduled rent increases that would
be taken into account under generally accepted accounting principles) plus
the 1996 budgeted operating expenses excluding tenant electricity; and (ii)
for office leases written on a full service basis, the annualized
contracted base rate payable for all space leased as of September 30, 1996.
In both cases, the annualized rental rate is divided by the total square
footage leased as of September 30, 1996 without giving effect to free rent
or scheduled rent increases that would be taken into account under
generally accepted accounting principles.
(5) Represents the weighted average asking rates, as of June 30, 1996, of
directly competitive properties in the relevant submarket within the
Market, as identified by C&W.
(6) Represents the percentage by which the June 30, 1996 C&W weighted average
asking rate exceeds the September 30, 1996 average annualized rental rate
of the applicable Property.
(7) Property occupied by a single tenant under a triple net lease agreement,
pursuant to which the tenant subcontracts directly with third party
contractors for all building services.
(8) These rates represent triple net lease rates (leases under which tenants
are required to pay all real property taxes, insurance and expenses of
maintaining the leased space).
(9) Rental rates represent management's estimate of asking rental rates in
these markets for comparable properties.
(10) Excludes 1510 Gehman Road, which is an industrial Property.
(11) Represents the Class A weighted average rental rate for the submarkets in
which the Properties are located (weighted by Property net rentable square
footage) as compared to the Class A office weighted average asking rate of
$18.94 per square foot for the Market (weighted by Market net rentable
square footage)as identified in the C&W Mid-Year Report.
(12) The data reflected for these properties are presented on a consolidated
basis.
(13) Excludes 2200 Cabot Boulevard and 2250 Cabot Boulevard, which are
industrial properties.
(14) Excludes 1510 Gehman Road, 2200 Cabot Boulevard and 2250 Cabot Boulevard,
which are industrial properties.
<PAGE> 19
STRUCTURE OF THE COMPANY
As set forth under "Structure of the Company -- Ownership," the following
diagram depicts the ownership of the Company and the Operating Partnership upon
closing of the Offering:
LOGO
- ---------------
(1) The Operating Partnership holds controlling interests in each of the
property partnerships.
(2) The Operating Partnership owns all of the non-voting preferred stock and 5%
of the common stock of the Management Company and is entitled to receive 95%
of the dividends payable by the Management Company on its capital stock.
Four executive officers of the Company, Messrs. Nichols, Sweeney, Belcher
and Gallagher, are the partners in a general partnership that owns the
remaining 95% of the common stock of the Management Company. Ownership of
the Management Company was structured in a manner intended to comply with
REIT qualification requirements.
BENEFITS OF THE OFFERING TO AFFILIATES OF THE COMPANY
Certain affiliates of the Company will realize material benefits in
connection with the Offering, including the following:
- The Units that the Operating Partnership issued and committed to issue in
the SSI/TNC Transaction will, as a result of the Offering and pursuant to
their terms, be convertible into an equal number of Common Shares and,
accordingly, such Units will be more liquid as a result of the Offering;
- SSI and TNC, as holders of Units, will realize an immediate accretion in
the net tangible book value of their investment in the Company of
approximately $5.47 per Common Share;
13
<PAGE> 20
- Approximately $1.8 million of indebtedness secured by the Properties and
for which TNC and SSI are liable will be repaid from proceeds of the
Offering, thereby relieving TNC and SSI of such potential liability. In
addition, pursuant to the SSI/TNC Transaction, the Company will become
obligated to indemnify TNC and SSI against liability under approximately
$10.4 million of recourse indebtedness secured by four of the Properties;
- Approximately $764,000 of the proceeds of the Offering will be used to
repay in full loans made by SSI to the Operating Partnership;
- The Osborne Loan, having an outstanding balance, including accrued
interest, of approximately $774,000 as of September 30, 1996, will be
prepaid pursuant to its terms through the issuance of Paired Units. The
actual number of Paired Units issued in respect of the repayment of such
loan will be equal to the outstanding balance of the Osborne Loan on the
date of its, including accrued and unpaid interest, divided by $16.89
(45,844 Paired Units as of September 30, 1996); and
- Agreements imposing restrictions on the ability of each of SSI, Anthony
A. Nichols, Sr. and Richard M. Osborne and their respective affiliates to
transfer their Common Shares, and restricting the manner in which they
may vote such Common Shares, will terminate.
THE OFFERING AND CONCURRENT INVESTMENTS
All of the Common Shares offered hereby are being sold by the Company. None
of the Company's shareholders are selling any Common Shares in the Offering.
<TABLE>
<S> <C>
Common Shares offered hereby............................. 3,700,000
Common Shares offered in the Concurrent Investments...... 1,345,453
Common Shares outstanding after the Offering and the
Concurrent Investments................................. 8,118,399(1)
Use of Proceeds from the Offering and the Concurrent
Investments............................................ Repayment of certain indebtedness
related to the Properties, pay a
portion of the purchase prices of
the Acquisition Properties, fund
initial Credit Facility fees and
expenses and for working capital
purposes. See "Use of Proceeds."
AMEX Symbol.............................................. "BDN"
</TABLE>
- ---------------
(1) Includes: (i) 509,856 Common Shares reserved for issuance upon the
conversion of Units into Common Shares; (ii) 45,844 Common Shares to be
issued immediately following the Offering in connection with the prepayment
of the Osborne Loan; (iii) 1,606,060 Common Shares reserved for issuance
upon the conversion of the Preferred Shares into Common Shares; and (iv)
709,090 Common Shares issued to the Morgan Stanley Funds in the Morgan
Stanley Private Placement. Excludes: (i) 535,784 Common Shares reserved for
issuance, at an exercise price of $19.50 per share, upon the exercise of
warrants; (ii) 133,333 Common Shares reserved for issuance, at an exercise
price of $25.50 per share, upon the exercise of warrants; and (iii) 46,666
Common Shares reserved for issuance, at exercise prices of $14.31 and $6.21
per share, upon the exercise of options in respect of 33,333 and 13,333
Common Shares, respectively.
DISTRIBUTION POLICY
The Company has paid dividends on a regular basis since the beginning of
1994. See "Price Range of Common Shares and Distribution History." Following the
Offering, the Company intends to increase its quarterly distributions to $0.35
per share beginning with a pro rata distribution with respect to the period
commencing on the closing of the Offering and ending on December 31, 1996. On an
annualized basis, this would be $1.40 per share. Although the Company intends to
maintain the stated distribution rate, future
14
<PAGE> 21
distributions by the Company to holders of Common Shares will be made at the
discretion of the Board of Trustees. The Company currently expects that the
principal factors the Board will consider in setting distributions will be the
annual REIT distribution requirements (described below) and the Board's
determination of the relative benefits of distribution versus reinvestment in
the Company. The Board will also consider the actual cash flow of the Company,
the Company's financial condition and capital requirements, and such other
factors as the Board deems relevant. See "Risk Factors -- Risks Relating to
Distributions."
TAX STATUS OF THE COMPANY
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), and so long
as it remains qualified as a REIT, the Company generally will not be subject to
Federal income tax on that portion of its ordinary income or capital gains that
is currently distributed to shareholders so long as it distributes at least 95%
of its REIT taxable income each year. Based on the Company's pro forma results
from operations for the twelve months ended September 30, 1996, the Company
would have been required to distribute approximately $4.9 million or $0.64 per
share, in order to maintain its status as a REIT. REITs are subject to a number
of organizational and operational requirements. If the Company fails to qualify
as a REIT in any taxable year, the Company will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. See "Federal Income Tax Considerations -- Failure to
Qualify" for a more detailed discussion of the consequences of a failure of the
Company to remain qualified as a REIT. Even if the Company remains qualified as
a REIT, the Company may be subject to certain state and local taxes on its
income and property and to Federal income and excise taxes on its undistributed
income and certain other categories of income. The Management Company is subject
to Federal and state income tax on its taxable income at regular corporate
rates. See "Federal Income Tax Considerations."
SUMMARY SELECTED FINANCIAL DATA
The following tables set forth certain summary selected historical
financial and operating information and on a combined basis for the Company and
the SSI/TNC Properties and on a pro forma basis for the Company. The following
tables also set forth certain historical selected financial data for the Company
for each of the five years during the period ended December 31, 1995, and as of
and for the nine months ended September 30, 1995 and 1996. Such information
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The unaudited pro forma financial and operating information for the nine
months ended September 30, 1996 and for the year ended December 31, 1995 is
presented as if the following transactions had been consummated on September 30,
1996 for balance sheet purposes and at the beginning of the period presented for
purposes of the statements of operations: (i) the Company acquired the
Acquisition Properties and contributed them to the Operating Partnership; (ii)
the Company consummated the Concurrent Investments and contributed the net
proceeds therefrom to the Operating Partnership; and (iii) the Company
consummated the Offering and applied the net proceeds therefrom as set forth
under the caption "Use of Proceeds." The pro forma financial information is not
necessarily indicative of what the actual financial position or results of the
Company would have been as of and for the periods indicated, nor does it purport
to represent the Company's future financial position or results of operations.
15
<PAGE> 22
BRANDYWINE REALTY TRUST
COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------ ------------------------------------
COMBINED COMBINED HISTORICAL
HISTORICAL
----------------- PRO FORMA ------------------- PRO FORMA
1994 1995 1995 1995 1996 1996
------- ------- ---------- ------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue --
Base rents........................................ $12,209 $11,346 $ 18,813 $ 8,469 $ 9,122 $ 15,605
Tenant reimbursements............................. 3,130 2,961 3,946 2,207 2,717 3,255
Management fees................................... 946 617 -- 492 778 --
Other............................................. 79 86 86 54 169 169
------- ------- ------- ------- ------- ------
Total revenue............................... 16,364 15,010 22,845 11,222 12,786 19,029
------- ------- ------- ------- ------- ------
Expenses --
Interest.......................................... 7,877 6,648 3,396 5,015 4,664 2,573
Depreciation and amortization..................... 4,988 5,738 7,456 4,139 3,890 5,465
Property expenses................................. 5,897 5,032 10,129 3,618 4,698 8,027
General and administrative........................ 2,054 1,588 790 1,177 1,039 587
Provision for loss on real estate investments..... 5,400 202 -- -- -- --
------- ------- ------- ------- ------- ------
Total expenses.............................. 26,216 19,208 21,771 13,949 14,291 16,652
------- ------- ------- ------- ------- ------
Income (loss) before gains on sales of real estate
investments, minority interest and extraordinary
items............................................. (9,852) (4,198) 1,074 (2,727) (1,505) 2,377
Gains on sales of real estate investments........... 1,410 -- -- -- -- --
Equity income of management company................. -- -- 72 -- 54 244
Income (loss) before extraordinary items............ (2,807) (4,203) 984 (2,727) (1,451) 2,399
Income (loss) allocated to Common Shares............ (1,264 ) 713
Weighted average number of shares outstanding....... 6,008,540 6,007,577
Earnings per share:
Income (loss) before extraordinary items.......... $ 0.16 $ 0.40
Income (loss) allocated to Common Shares.......... $ (0.21 ) $ 0.12
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
HISTORICAL PRO FORMA
-------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net of accumulated
depreciation.................................... $98,818 $151,527
Total assets...................................... 106,183 161,726
Mortgages and notes payable....................... 83,020 36,839
Total liabilities................................. 86,116 39,614
Minority interest................................. 8,758 613
Convertible preferred shares...................... -- 26,444
Beneficiaries' equity............................. 11,309 95,055
</TABLE>
16
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- ------------------------------------
COMBINED COMBINED
HISTORICAL HISTORICAL
-------------------- PRO FORMA -------------------- PRO FORMA
1994 1995 1995 1995 1996 1996
-------- ------- --------- ------- -------- ---------
(IN THOUSANDS, EXCEPT FOR PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(a)........................ $ 645 $ 1,382 $ 7,131 $ 1,307 $ 2,661 $ 7,103
Cash flows provided by (used in):
Operating activities.......................... 1,534 1,886 (b) 1,575 1,710 (b)
Investing activities.......................... 7,844 (3,490) (b) (1,704) (11,409) (b)
Financing activities.......................... (10,171) 1,013 (b) (557) 11,126 (b)
Total cash distributions declared............... 3,680 1,021 -- 835 226 --
PROPERTY DATA:
Number of properties owned at period end........ 22 23 37 22 24 37
Gross net rentable square feet owned at period
end........................................... 1,180 1,212 1,994 1,181 1,334 1,994
</TABLE>
17
<PAGE> 24
BRANDYWINE REALTY TRUST
HISTORICAL SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------ ------ ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total operating revenue(c)................. $ -- $ -- $ -- $ 4,192 $ 3,666 $ 2,691 $ 4,599
Income from acquisition of limited partner
interests in Brandywine Specified
Property Investors Limited Partnership... -- -- 2,469 -- -- -- --
Provision for loss on real estate
investments.............................. (6,700) -- -- (5,400) -- -- --
Gain on sales of real estate investments... -- -- -- 1,410 -- -- --
Extraordinary item-gain on extinguishment
of debt.................................. -- -- -- 7,998 -- -- --
Net income (loss).......................... (6,705) (1) 2,468 7,567(b) (824) (592) (128)
Net income (loss) per share................ (10.83) -- 3.99 11.22 (1.32) (0.95) (0.19)
Cash distributions declared................ -- -- -- 2,914 1,021 835 226
Cash distributions per share(c)............ -- -- -- 4.71 1.65 1.35 0.36(d)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net of accumulated
depreciation.............................. $ -- $ -- $ -- $13,948 $13,709 $13,570 $ 98,818
Total assets................................ 2,128 2,123 4,604 17,873 17,105 17,225 106,183
Mortgages and notes payable(e).............. -- -- -- 6,899 8,931 8,957 83,020
Total liabilities........................... 58 55 68 8,684 9,761 9,463 86,116
Minority interest........................... -- -- -- -- -- -- 8,758
Beneficiaries' equity....................... 2,070 2,068 4,536 9,189 7,344 7,762 11,309
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------ ------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(a)..................... $ (5) $ (1) $ (1) $ (533) $ 537 $ 453 $ 837
Cash flows provided by (used in):
Operating activities....................... -- -- -- (628) 497 363 887
Investing activities....................... -- -- 2,469 9,559 (701) (943) (9,914)
Financing activities....................... -- -- -- (9,635) (722) (326) 10,046
PROPERTY DATA:
Number of properties owned at period end..... 7 7 7 4 4 4 24
Gross net rentable square feet owned at
period end................................. 546 546 546 255 255 255 1,334
</TABLE>
- ---------------
(a) Management generally considers Funds from Operations to be a useful measure
of the operating performance of an equity REIT because, together with net
income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt
and to fund acquisitions and other capital expenditures. Funds from
Operations does not represent net income or cash flows from operations as
defined by generally accepted accounting principles ("GAAP") and does not
necessarily indicate that cash flows will be sufficient to fund cash needs.
It
18
<PAGE> 25
should not be considered as an alternative to net income as an indicator of
the Company's operating performance or to cash flows as a measure of
liquidity. Funds from Operations does not measure whether cash flow is
sufficient to fund all of the Company's cash needs, including principal
amortization, capital improvements and distributions to shareholders. Funds
from Operations also does not represent cash flows generated from operating,
investing or financing activities as defined by GAAP. Further, Funds from
Operations as disclosed by other REITs may not be comparable to the
Company's calculation of Funds from Operations. The Company adopted the
NAREIT definition of Funds from Operations in 1996 and has used it for all
periods presented. Funds from Operations is calculated as net income (loss)
adjusted for depreciation expense attributable to real property,
amortization expense attributable to capitalized leasing costs, tenant
allowances and improvements, gains on sales of real estate investments and
extraordinary and nonrecurring items.
(b) Pro forma information relating to cash flows from operating, investing and
financing activities has not been included because management believes that
the information would not be meaningful due to the number of assumptions
required in order to calculate this information.
(c) Prior to 1994, the Company accounted for its investment in Brandywine Realty
Partners ("BRP") using the equity method of accounting and, accordingly,
received no rents and tenant reimbursements from its investment in BRP and
received allocated income from BRP totalling $148,000, $290,000, and
$568,000 for the years ended December 31, 1991, 1992, and 1993,
respectively. Subsequent to 1993, the Company acquired control of BRP and
consolidated this investment.
(d) Excludes a $0.21 per share distribution declared by the Company on November
1, 1996 relating to third quarter operations that is payable to shareholders
of record as of November 11, 1996.
(e) The Company paid $1,114,000 from escrowed cash reserves to its then mortgage
lender on December 28, 1994 in exchange for termination of its obligation to
make future participating interest payments to the lender.
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RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in the Prospectus before making a decision
to purchase Common Shares in the Offering.
LIMITED GEOGRAPHIC CONCENTRATION
Thirty-four of the 37 Properties are located in the Suburban Philadelphia
Office and Industrial Market. In addition, a fundamental element of the
Company's growth strategy is to acquire additional properties in the Market.
Consequently, the Company is dependent upon the demand for office and other
commercial space in the Market. The Company's revenue and the value of the
Properties may be affected by a number of factors in the Market, including the
local economic climate (which may be adversely impacted by business layoffs or
downsizing, industry slowdowns, changing demographics, and other factors) and
local real estate conditions (such as oversupply of, or reduced demand for,
office and other competing commercial properties). Therefore, the Company's
performance and its ability to make distributions to shareholders will likely be
dependent, to a large extent, on the economic conditions in the Market.
REDEMPTION OF PREFERRED SHARES
Prior to the occurrence of a Conversion Approval (as defined below), the
Preferred Shares will be convertible into up to 181,325 Common Shares, and
following the occurrence of a Conversion Approval, the Preferred Shares will be
convertible into an additional 1,424,735 Common Shares. A "Conversion Approval"
means approval of the unlimited conversion of the Preferred Shares into Common
Shares by a majority of the votes cast by holders of Common Shares at a meeting
of shareholders in which holders of the Preferred Shares have no right to vote.
In the event that a Conversion Approval has not occurred by July 1, 1997,
holders of the Preferred Shares will become entitled to receive distributions
equal to 120% of the distributions payable in respect of the number of Common
Shares into which such Preferred Shares are convertible (i.e., 1,606,160) (the
"Conversion Number"). In the event that a Conversion Approval has not occurred
by July 1, 1998, holders of the Preferred Shares will have the right to require
the Company to redeem their Preferred Shares at a price (the "Redemption Price")
equal to the greater of: (i) the product of (a) $16.50 plus an amount (the
"Return Amount") equal to 8.0% of $16.50 per annum from the date of issuance of
the Preferred Shares through the redemption date less an amount (not to exceed
the Return Amount) equal to distributions actually received by the holder on
account of such Preferred Shares and (b) the Conversion Number; and (ii) the
product of the market price of a Common Share and the Conversion Number. If the
Company is required to redeem the Preferred Shares, it is expected that the
Company would be required to significantly increase the leverage on its
portfolio or sell a significant number of Properties in order finance such
redemption, either of which events would likely materially and adversely affect
the Cash Available for Distribution and the market price for the Common Shares.
In addition, a mandatory redemption by the Company of the Preferred Shares could
require the Company, on its own behalf or through the Operating Partnership, to
borrow funds on a short-term basis to meet the distribution requirements,
applicable to REITs value tax code. In such instances, the Company, in order to
avoid the adverse tax consequences associated with loss of REIT status, might
need to: (i) borrow funds even if management believed that then prevailing
market conditions generally were not favorable for such borrowings or that such
borrowings would not be advisable in the absence of such tax considerations;
and/or (ii) liquidate certain of its investments on adverse terms. See "The
Company -- The SERS Transaction" and "Description of Shares of Beneficial
Interest -- Preferred Shares."
RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE COMPANY'S
PROPERTIES;
LACK OF OPERATING HISTORY
Twenty of the Company's 24 Initial Properties have been acquired within the
past six months, including 19 Properties acquired in the SSI/TNC Transaction.
These recently acquired Properties, as well as the 13 Acquisition Properties,
may have characteristics or deficiencies unknown to the Company affecting their
valuation or revenue potential, and it is also possible that the operating
performance of such Properties may decline under the Company's management.
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The Company is currently experiencing a period of rapid growth. Following
the SSI/TNC Transaction and after giving effect to the purchase of the
Acquisition Properties, the Company's property portfolio will have increased
from five properties, consisting of approximately 375,000 net rentable square
feet, to 37 properties, consisting of approximately 2.0 million net rentable
square feet. The Company's ability to manage its growth effectively will require
it to successfully integrate its new acquisitions into its existing management
structure. As the Company acquires additional properties, the Company will be
subject to risks associated with managing new properties, including lease-up and
tenant retention. No assurances can be given that the Company will be able to
succeed with such integration or effectively manage additional properties or
that newly acquired properties will perform as expected. In addition, the
Company's ability to manage its growth effectively will depend on whether the
integration of the TNC management team into its existing management structure
will, over time, prove to be successful. In connection with the SSI/TNC
Transaction, the Company added approximately 20 administrative, property
management, leasing, marketing, and related personnel previously employed by
TNC. There can be no assurance that the integration of these additional
employees into the Company's organization will be successful or that the Company
will manage the combined operations with TNC effectively.
LACK OF APPRAISALS
The Company did not obtain independent appraisals of the SSI/TNC
Properties, the SERS Properties, or the other Acquisition Properties recently
acquired or to be acquired by it, and has not obtained appraisals of any of the
Properties in connection with the Offering. There can be no assurance that the
consideration paid or payable by the Company for the Properties accurately
reflects their value and, specifically, that the combined value of the Common
Shares, Preferred Shares and Units may be greater than the aggregate fair market
value of the Company's equity in the Properties.
RISKS RELATING TO DISTRIBUTIONS
The Company pays regular distributions to its shareholders and expects to
increase its quarterly distribution rate following closing of the Offering to
$0.35 per share, beginning with a pro rata distribution with respect to the
quarter ending December 31, 1996. See "Distribution Policy." In addition, the
Common Shares issued in connection with the Offering, as well as any Common
Shares and Preferred Shares that will be issued in connection with the SERS
Transactions and the Concurrent Investments or may in the future be issued to
finance acquisitions, upon the conversion of Units or upon the exercise of
options or warrants or otherwise will further increase required Cash Available
for Distribution to make anticipated distributions to shareholders. In addition,
if the distribution preference payable on the Preferred Shares increases as a
result of the failure of a Conversion Approval to occur by July 1, 1997, such
event will also increase required cash available to distribution needed for the
Company to maintain its proposed new distribution rate. The Company's
determination to increase distributions as described above was based on the
Company's expectations with respect to pro forma Cash Available for Distribution
following the Offering. No assurance can be given, however, that actual Cash
Available for Distribution following the Offering will not be substantially
below the Company's expectations. In addition, the Company's ability to make
distributions will depend, in large part, on the performance of its Properties
and any other properties it may acquire in the future, including occupancy
levels, the Company's ability to enter into new leases upon expiration of
current leases and costs associated with the renewal or reletting of space,
expenditures with respect to existing and newly acquired properties, the amount
of the Company's debt and the interest rates thereon, default or bankruptcy by
tenants and other costs relating to the Properties, as well as the absence of
significant expenditures relating to environmental or other regulatory matters.
Most of these matters are beyond the control of the Company and any significant
difference between the Company's expectations with respect to these matters and
actual results could have a material adverse effect on the Company and its
ability to make or sustain distributions.
CONFLICTS OF INTERESTS
Tax Consequences Upon Sale or Refinancing of SSI/TNC Properties. Direct or
indirect holders of Units may suffer different and more adverse tax consequences
than the Company upon the sale or refinancing of any of the SSI/TNC Properties
and, therefore, such holders (including Mr. Nichols, the Company's Chairman of
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the Board, and Warren V. Musser, a Trustee of the Company and Chairman of the
Board of SSI) and the Company may have different objectives regarding the
appropriate pricing and timing of any sale or refinancing of such Properties.
While the Company, as the sole general partner of the Operating Partnership, has
the exclusive authority as to whether and on what terms to sell or refinance an
individual Property, those members of the Company's management and Board of
Trustees who directly or indirectly hold Units may influence the Company not to
sell or refinance the SSI/TNC Properties even though such sale might otherwise
be financially advantageous to the Company, or may influence the Company to
refinance such Properties with a high level of debt.
Failure to Enforce Terms of Acquisition Agreements. As shareholders and
members of TNC and its affiliates and recipients of Common Shares, Units and
warrants in the SSI/TNC Transaction, certain members of the Company's
management, including Messrs. Nichols, Belcher and Gallagher, will have a
conflict of interest with respect to their obligations as Trustees or executive
officers of the Company in enforcing the terms (including customary
representations and warranties as to ownership and operation) of the agreements
relating to the transfer to the Company of SSI/TNC Properties. The failure to
enforce the material terms of those agreements, particularly the indemnification
provisions for breaches of representations and warranties, could result in a
monetary loss to the Company, which loss could have a material adverse effect on
the Company's financial condition or results of operations. In addition, the
aggregate liability of SSI, TNC and certain of their affiliates under those
agreements is limited to the 497,895 Units issued to them. The Company will
therefore have no right of recovery as to any damages in excess of the value of
the Units that may result from breaches of such representations and warranties.
REAL ESTATE INVESTMENT CONSIDERATIONS
General. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend in large part
on the amount of income generated and expenses incurred. If the Properties do
not generate revenue sufficient to meet operating expenses, including debt
service, tenant improvements, leasing commissions, and other capital
expenditures, the Company may have to borrow additional amounts to cover fixed
costs and the Company's Cash Available for Distribution and ability to make
expected distributions to its shareholders will be adversely affected.
The Company's revenue and the value of its Properties may be adversely
affected by a number of factors, including the national economic climate; the
local economic climate; local real estate conditions; the perceptions of
prospective tenants of the attractiveness of the property; the ability of the
Company to manage and maintain the Properties and secure adequate insurance and
increased operating costs (including real estate taxes and utilities). In
addition, real estate values and income from properties are also affected by
such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing.
Significant Lease Expirations. The Company is subject to the risk that,
upon expiration, leases may not be renewed, the space may not be relet, or the
terms of renewal or reletting (including the cost of required renovations) may
be less favorable than the current lease terms. Leases accounting for
approximately 18% of the aggregate annualized base rents from the Properties as
of September 30, 1996 (representing approximately 16.2% of the net rentable
square feet at the Properties) expire without penalty or premium through the end
of 1997, and leases accounting for approximately 6.5% of aggregate annualized
base rent from the Properties as of September 30, 1996 (representing
approximately 7.2% of the net rentable square feet at the Properties) are
scheduled to expire in 1998. Other leases grant their tenants early termination
rights upon payment of a termination penalty. See "Business and
Properties -- General." The Company has estimated the expenditures for new and
renewal leases for 1997 and 1998 but no assurances can be given that the Company
has correctly estimated such expenses. Lease expirations will require the
Company to locate new tenants and negotiate replacement leases with such
tenants. Replacement leases typically require the Company to incur tenant
improvements, other tenant inducements and leasing commissions, in each case,
which may be higher than the costs relating to renewal leases. If the Company is
unable to promptly relet or renew leases for all or a substantial portion of
this space, if the rental rates upon such renewal or reletting are significantly
lower than expected or if the Company's reserves for these purposes prove
inadequate, the Company's Cash Available for Distribution and ability to make
expected distributions to shareholders could be adversely affected.
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Dependence on Key Tenants. The Company's 10 largest tenants (based on pro
forma base rent as of September 30, 1996) aggregate approximately 29.8% of the
Company's total base rent and approximately 27.5% of the Company's net rental
square feet and have a weighted average remaining lease term of approximately
7.8 years. As of September 30, 1996, the Company's largest tenant, Kimberly
Clark, represents approximately 8.7% of the pro forma aggregate annualized base
rent as of September 30, 1996 and 5.0% of the pro forma net rentable square feet
at the Properties. Although the Company believes that it has a good relationship
with each of its principal tenants, the Company's revenues and Cash Available
for Distribution to shareholders would be disproportionately and adversely
affected if any of these tenants did not renew their lease or leases with the
Company upon expiration or renewed their leases on terms less favorable to the
Company.
Financially Distressed Tenants. In the event of any default by a tenant,
the Company may experience delays in enforcing its rights as a landlord and may
incur substantial costs in protecting its investment. In addition, at any time a
tenant of the Properties may seek the protection of bankruptcy laws, which could
result in the rejection and termination of such tenant's lease and thereby cause
a reduction in Cash Available for Distribution to shareholders. Four of the
Company's tenants are currently in bankruptcy proceedings. Such tenants are
parties to leases providing for payments representing approximately $199,000 of
aggregate annualized base rent as of September 30, 1996. There can be no
assurance that these or other tenants will not reject their leases in a
bankruptcy proceeding or that the Company will not experience significant tenant
defaults in the future, each of which could have an adverse effect on the
Company's revenues and Cash Available for Distribution to shareholders.
Competition. The Company competes with a number of real estate developers,
operators, and institutions for tenants and acquisition opportunities. Many of
these competitors have significantly greater resources than the Company. No
assurances can be given that such competition will not adversely affect the
Company's revenues and Cash Available for Distribution to shareholders.
Illiquidity of Real Estate. Equity real estate investments are relatively
illiquid and therefore tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. In
addition, the Code limits the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell properties
without adversely affecting returns to shareholders.
Changes in Laws. Because increases in income and service taxes are
generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make expected
distributions to shareholders. The Properties are also subject to various
federal, state, and local regulatory requirements, such as requirements of the
ADA and state and local fire and safety requirements. Failure to comply with
these requirements could result in the imposition of fines by governmental
authorities or awards of damages to private litigants. The Company believes that
the Properties are currently in material compliance with all such requirements.
However, there can be no assurance that these requirements will not change or
that new requirements will not be imposed which would require significant
unanticipated expenditures by the Company and could have an adverse effect on
the Company's cash flow and ability to make distributions.
Compliance with Americans with Disabilities Act. Under the ADA, all public
accommodations and commercial facilities are required to meet certain federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers and noncompliance could result in imposition of fines
by the U.S. government or an award of damages to private litigants. Although the
Company believes that the Properties are in material compliance with these
requirements, the Company may incur additional costs to comply with the ADA.
Although the Company believes that such costs will not have a material adverse
effect on the Company, if required changes involved a greater expenditure than
the Company currently anticipates, the Company's ability to make expected
distributions could be adversely affected.
Risks Associated with Partnership and Joint Venture Property Ownership
Structures. The Company owns its interests in 23 of the Initial Properties
through the Operating Partnership and it expects that the 13 Acquisition
Properties will be held by the Operating Partnership. In addition, the Company
may also participate with other entities in property ownership through joint
ventures or partnerships in the future.
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Partnership or joint venture investments may, under certain circumstances,
involve risks not otherwise present, including the possibility that the
Company's partners or co-venturers might become bankrupt, that such partners or
co-venturers might at any time have economic or other business interests or
goals which are inconsistent with the business interests or goals of the Company
and that such partners or co-venturers may be in a position to take action
contrary to the Company's instructions or requests or contrary to the Company's
policies or objectives, including the Company's policy with respect to
maintaining its qualification as a REIT. The Company will, however, seek to
maintain sufficient control of such partnerships or joint ventures to permit the
Company's business objectives to be achieved. There is no limitation under the
Company's organizational documents as to the amount of funds that may be
invested in partnerships or joint ventures.
RISKS ASSOCIATED WITH INDEBTEDNESS
Debt Financing and Existing Debt Maturities. The Company will be subject
to risks normally associated with debt financing, including the risk that the
Company's cash flow will be insufficient to meet required payments of principal
and interest and, the risk that existing indebtedness on the Properties (which
in all cases will not have been fully amortized at maturity) will not be able to
be refinanced or that the terms of such refinancing will not be as favorable as
the terms of existing indebtedness. Upon the closing of the Offering and the
Concurrent Investments and the application of the net proceeds therefrom, the
Company expects to have outstanding indebtedness of approximately $36.8 million,
which will have principal repayments of $3.0 million, $13.6 million, $9.4
million, $2.7 million, and $7.9 million in 1997, 1998, 1999, 2000 and 2001,
respectively. In addition, upon the closing of the Offering, it is expected that
the Company will enter into the $80 million Credit Facility that will have a
term of two years. If principal payments due at maturity cannot be refinanced,
extended, or paid with the proceeds of other capital transactions, such as new
equity capital, the Company may not be able to pay distributions at expected
levels and to repay all such maturing debt. Furthermore, if prevailing interest
rates or other factors at the time of refinancing (such as the reluctance of
lenders to make commercial real estate loans) result in higher interest rates,
the interest expense relating to such refinanced indebtedness would increase,
which could adversely affect the Company's cash flow and its ability to make
expected distributions to its shareholders. In addition, if the Company is
unable to meet its obligations under any of its mortgage financings (including
the Credit Facility), the Properties securing such indebtedness could be
foreclosed on, which would have a material adverse effect on the Company and its
ability to make expected distributions and, depending on the number of
Properties foreclosed on, could threaten the continued viability of the Company.
See "Policies With Respect to Certain Activities -- Financing Policies."
Risk of Rising Interest Rates and Variable Rate Debt. Upon the closing of
the Offering and the Concurrent Investment and the application of the use of
proceeds therefrom, the Company will have outstanding approximately $4.1 million
of variable rate indebtedness. In addition, the Credit Facility will bear
interest at a variable rate. See "Business and Properties -- Credit Facility."
In addition, the Company may incur other variable rate indebtedness in the
future. Increases in interest rates on such indebtedness would increase the
Company's interest expense, which could adversely affect the Company's cash flow
and its ability to pay expected distributions to shareholders. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
No Limitation on Debt. Upon the closing of the Offering and the Concurrent
Investments and the application of the net proceeds therefrom, on a pro forma
basis the debt-to-total market capitalization ratio of the Company will be
approximately 21.6%. Although the Company has adopted a policy that limits the
debt-to-total market capitalization ratio of the Company to 50%, the
organizational documents of the Company do not contain any limitation on the
amount of indebtedness the Company may incur. Accordingly, the Board of Trustees
could alter or eliminate this policy. If this policy were changed, the Company
could become more highly leveraged, resulting in an increase in debt service
that could adversely affect the Company's cash flow and, consequently, Cash
Available for Distribution and could increase the risk of default on the
Company's indebtedness.
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HISTORICAL LOSSES
The Company had net losses of approximately $824,000 for the year ended
December 31, 1995 and approximately $128,000 for the nine-month period ended
September 30, 1996. The SSI/TNC Properties also experienced net losses of
approximately $2.2 million, $1.8 million, and $1.3 million for the years ended
December 31, 1993 and 1994, and the six months ended June 30, 1996,
respectively. These net losses reflect certain noncash charges such as
depreciation and amortization as well as the substantial interest expense
associated with the acquisition and development financing of the Initial
Properties. These historical results may not be indicative of future results.
Nonetheless, there can be no assurance that the Company will not incur net
losses in the future.
RISK OF ACQUISITION, DEVELOPMENT, AND RENOVATION ACTIVITIES
The Company intends to continue acquiring office and industrial properties.
See "Business and Growth Strategies." Acquisitions of office and industrial
properties entail risks that investments will fail to perform in accordance with
expectations. Estimates of renovation costs and costs of improvements to bring
an acquired property up to standards established for the market position
intended for that property may prove inaccurate. In addition, there are general
investment risks associated with any new real estate investment.
The Company anticipates that future acquisitions and renovations may be
financed through a combination of advances under the Credit Facility, other
lines of credit and other forms of secured or unsecured financing. If new
developments are financed through construction loans, there is a risk that, upon
completion of construction, permanent financing for newly developed properties
may not be available or may be available only on disadvantageous terms.
While the Company has generally limited its acquisition, development,
renovation, management, and leasing business primarily to the Market, it is
possible that the Company will in the future expand its business to new
geographic markets. The Company will not initially possess the same level of
familiarity with new markets outside of the Suburban Philadelphia Office and
Industrial Market, which could adversely affect its ability to acquire, develop,
manage, or lease properties in any new localities. Changing market conditions,
including competition from other purchasers of Class A suburban office and
industrial properties, may diminish the Company's opportunities for attractive
additional acquisitions.
The Company also intends to review from time to time the possibility of
developing and constructing office buildings and other commercial properties.
Risks associated with the Company's development and construction activities may
include: (i) abandonment of development opportunities; (ii) construction costs
of a property exceeding original estimates, possibly making the property
uneconomical; (iii) occupancy rates and rents at a newly completed property may
not be sufficient to make the property profitable; (iv) financing may not be
available on favorable terms for development of a property; and (v) construction
and lease-up may not be completed on schedule, resulting in increased debt
service expense and construction costs. In addition, new development activities,
regardless of whether they would ultimately be successful, typically require a
substantial portion of management's time and attention. Development activities
would also be subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy and other
required governmental permits and authorizations.
TAX RISKS
Consequences of Failure to Qualify as a REIT. Since 1986, the Company has
operated, and continues to operate, in such a manner as to qualify as a REIT
under the Code. Although the Company believes that it is currently organized and
will continue to operate so as to qualify as a REIT, no assurance can be given
that the Company will qualify or remain qualified as a REIT in the future.
Qualification as a REIT involves the application of highly technical and complex
Code provisions, many of which have only limited judicial or administrative
interpretations. The determination of various factual matters and circumstances
not entirely within the Company's control may affect its ability to qualify as a
REIT. For example, in order to qualify as a REIT, at least 95% of the Company's
gross income in any year must be derived from qualifying sources and the Company
must pay distributions to its shareholders aggregating at least 95% of its REIT
taxable income (excluding net capital gains). The complexity of these provisions
and of the applicable income tax regulations
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that have been promulgated under the Code is even greater in the case of a REIT
that holds its assets in partnership form. In addition, no assurance can be
given that future legislation, new regulations, administrative interpretations,
or court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the Federal income tax consequences of such
qualification. The Company is relying on the opinion of Arthur Andersen LLP, tax
advisor to the Company, regarding various issues affecting the Company's ability
to qualify, and retain qualification, as a REIT. Such tax opinion is based on
various assumptions and factual representations by the Company regarding the
Company's ability to meet the various requirements for qualification as a REIT,
and no assurance can be given that actual operating results will meet these
requirements. Such tax opinion is not binding on the IRS or any court. See
"Federal Income Tax Considerations."
One of the requirements for maintaining REIT status is that a REIT not own
more than 10% of the voting stock of a corporation other than the stock of a
qualified REIT subsidiary (of which the REIT is required to own all of such
stock) and stock in another REIT. The Operating Partnership owns 5% of the
voting common stock and all of the non-voting preferred stock of the Management
Company and, therefore, the Company believes it will comply with this rule.
However, the IRS could contend that the Operating Partnership's ownership of all
of the non-voting preferred stock of the Management Company should be viewed as
voting stock because of its substantial economic position in the Management
Company. If the IRS were to be successful in such a contention, the Company's
status as a REIT would be lost and the Company would become subject to Federal
corporate income tax on its net income, which would have a material adverse
affect on the Company's Cash Available for Distribution. See "Federal Income Tax
Considerations."
If in any taxable year the Company were to fail to qualify as a REIT, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at the
applicable corporate rate. In addition, unless it were entitled to relief under
certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. This disqualification would reduce the funds of the
Company available for investment or distribution to shareholders because of the
additional tax liability of the Company for the year or years involved. If the
Company were to fail to qualify as a REIT, it no longer would be subject to the
distribution requirements of the Code. To the extent that distributions to
shareholders would have been made in anticipation of the Company's qualifying as
a REIT, the Company might be required to borrow funds or to liquidate certain of
its investments to pay the applicable tax. Although the Company currently
intends to operate in a manner designed to allow it to qualify as a REIT, it is
possible that future economic, market, legal, tax, or other considerations may
cause the Board of Trustees to revoke the REIT election. See "Federal Income Tax
Considerations."
Required Distributions; Potential Requirement to Borrow. To obtain the
favorable tax treatment associated with qualification as a REIT, the Company
generally will be required each year to distribute to its shareholders at least
95% of its REIT taxable income (excluding net capital gain). In addition, the
Company will be subject to tax on its undistributed net taxable income and net
capital gain, and a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of 85% of its ordinary income plus 95% of its capital gain net income
for the calendar year, plus certain undistributed amounts from prior years.
The Company intends to make distributions to its shareholders to comply
with the distribution provisions of the Code and to avoid income and other
taxes. The Company's income will consist primarily of the Company's share of the
income of the Operating Partnership and the Properties it owns directly, and the
Company's cash flow will consist primarily of its share of distributions from
the Operating Partnership and cash flow from the Properties it owns directly.
Differences in timing between the receipt of income and the payment of expenses
in arriving at taxable income (of the Company or the Operating Partnership), the
effect of required debt amortization payments and the possible redemption by the
Company of the Preferred Shares could require the Company, on its own behalf or
through the Operating Partnership, to borrow funds on a short-term basis to meet
the distribution requirements in order to remain qualified as a REIT. In such
instances, the Company, in order to avoid adverse tax consequences, might need
to: (i) borrow funds even if
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management believed that then prevailing market conditions generally were not
favorable for such borrowings or that such borrowings would not be advisable in
the absence of such tax considerations; and/or (ii) liquidate investments on
adverse terms. For Federal income tax purposes, distributions paid to
shareholders may consist of ordinary income, capital gains, nontaxable return of
capital or a combination thereof. The Company will provide its shareholders with
an annual statement indicating the tax character of the distributions. See
"Federal Income Tax Considerations."
Distributions by the Company will be determined by the Board of Trustees
and will be dependent on a number of factors, including Cash Available for
Distribution, the Company's financial condition, any decision by the Board of
Trustees to reinvest funds rather than to distribute such funds, the Company's
capital expenditures, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Board of Trustees deems
relevant. Accordingly, there is no assurance that the Company will maintain its
distribution rate or continue to satisfy the annual distribution requirements so
as to qualify as a REIT.
Consequences of Failure of the Operating Partnership (or a Subsidiary
Partnership) to be Treated as a Partnership. The Company will receive an
opinion of Arthur Andersen LLP, tax advisor to the Company, stating that,
assuming that the Operating Partnership and each subsidiary partnership is being
operated in accordance with its respective organization documents, the Operating
Partnership and each of the subsidiary partnerships will be treated as a
partnership and not as an association taxable as a corporation, for federal
income tax purposes. Such opinion is not binding on the IRS. If the IRS were to
successfully challenge the tax status of the Operating Partnership or any of its
subsidiary partnerships for federal income tax purposes, the Operating
Partnership or the affected subsidiary partnership would be taxable as a
corporation. In such event, the Company would cease to qualify as a REIT for
federal income tax purposes. The imposition of a corporate tax on the Operating
Partnership or any of the subsidiary partnerships would also reduce the amount
of Cash Available for Distribution to the Company and its shareholders. See
"Federal Income Tax Considerations -- Income Taxation of the Operating
Partnership, the Title Holding Partnerships and Their Partners."
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be
subject to certain federal, state and local taxes on its income and property. In
addition, the Management Company generally is subject to federal and state
income tax at regular corporate rates on its net taxable income, which will
include the Management Company's management, leasing and related service
business. If the Company has net income from a prohibited transaction, such
income will be subject to a 100% tax. See "Federal Income Tax Considerations."
Real Estate Transfer Taxes. The transfers of 10 Properties to the
Operating Partnership or a subsidiary partnership have been structured as
transfers of 89% of the capital interests and 99% of the cash flow and profits
interests in the limited partnerships owning such Properties with the Residual
Interests to be acquired by the Operating Partnership not later than September
1999. This transaction structure is intended to comply with the provisions of
informal advice from the Pennsylvania Department of Revenue to the effect that
such transfers are not subject to Pennsylvania real estate transfer taxes.
However, the Company has not obtained a formal ruling from the Pennsylvania
Department of Revenue on this issue. If the Company desired or were required,
for financing purposes or otherwise, to acquire such Residual Interests within
such period, the Company could be required to pay real estate transfer taxes in
an amount aggregating approximately $640,000. Transfer of an eleventh Property
(16 Campus Boulevard) to the Operating Partnership was structured in a similar
manner in order to avoid certain transfer taxes, although a tenant in such
Property holds a 35% profits interest in the applicable partnership.
ERISA
Depending upon the particular circumstances of the plan, an investment in
Common Shares may be an appropriate investment for an ERISA Plan, a Qualified
Plan, or an IRA. In deciding whether to purchase Common Shares, a fiduciary of
an ERISA Plan, in consultation with its advisors, should carefully consider its
fiduciary responsibilities under ERISA, the prohibited transaction rules of
ERISA and the Code, and the effect of the "plan asset" regulations issued by the
U.S. Department of Labor. See "ERISA Considerations."
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POSSIBLE ENVIRONMENTAL LIABILITIES
General. Under various Federal, state and local laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or releases
at such property and may be held liable to a governmental entity or to third
parties for property damage and for investigation and clean-up costs incurred by
such parties in connection with contamination. The cost of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate such substances, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. In connection with the ownership (direct or
indirect), operation, management and development of real properties, the Company
may be considered an owner or operator of such properties or as having arranged
for the disposal or treatment of hazardous or toxic substances and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental fines and injuries to persons and
property. All of the Properties have been subject to a Phase I or similar
environmental site assessment (which involves general inspections without soil
sampling or groundwater analysis) completed by independent environmental
consultants. Except as indicated below with respect to the Whitelands Business
Park in Exton, Pennsylvania (the "Whitelands Property"), these environmental
site assessments have not revealed any significant environmental liability, nor
is the Company aware of any environmental liability with respect to the
Properties that the Company's management believes would have a material adverse
effect on the Company. An environmental assessment has identified environmental
contamination of potential concern with respect to the Whitelands Property.
Petroleum products, solvents and heavy metals were detected in the groundwater.
These contaminants are believed to be associated with debris deposited by third
parties in a quarry formerly located on the Whitelands Property. The Whitelands
Property previously appeared on the Comprehensive Environmental Response
Compensation and Liability Information System List, a list maintained by the
United States Environmental Protection Agency (the "EPA") of abandoned, inactive
or uncontrolled hazardous waste sites which may require cleanup. The EPA
conducted a preliminary assessment of the Property in 1984, and subsequently the
Whitelands Property was removed from the list. While the Company believes it is
unlikely that it will be required to undertake remedial action with respect to
such contamination, there can be no assurance in this regard. If the Company
were required to undertake remedial action on the Whitelands Property, it has
been indemnified through August 2001 against the cost of such remediation by
SSI, subject to a limitation of approximately $2.0 million. In the event SSI is
unable to fulfill its obligations under its indemnity agreement or the Company
is required to undertake remedial action after the expiration of the indemnity,
the costs associated with any remediation could materially and adversely impact
Cash Available for Distribution. Because the Company does not believe that any
remediation at the Whitelands Property is probable, no amounts have been accrued
for any such potential liability.
No assurance can be given that existing environmental studies with respect
to the Properties reveal all environmental liabilities or that any prior owner
of any such property did not create any material environmental condition not
known to the Company. Moreover, no assurance can be given that: (i) future laws,
ordinances or regulations will not impose any material environmental liability;
or (ii) the current environmental condition of the Properties will not be
affected by tenants and occupants of the Properties, by the condition of
properties in the vicinity of the Properties (such as the presence of
underground storage tanks) or by third parties unrelated to the Company.
UNINSURED LOSSES
The Company carries comprehensive liability, fire, flood (where
appropriate), extended coverage, and rental loss insurance for the Initial
Properties (and will carry such coverage for the Acquisition Properties), with
policy specification and insured limits which the Company believes are adequate
and appropriate under the circumstances. There are certain types of losses (such
as from nuclear accidents, wars, civil disturbances, and environmental matters)
that generally are not insured against because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of the
insured limits occur, the Company could lose both its investment in, and
anticipated future revenues and cash flow from, the affected Property and would
continue to be obligated in respect of any recourse mortgage indebtedness or
other financial
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obligations on such Property. Any such loss would adversely affect the Company.
Moreover, as the general partner of the Operating Partnership, the Company will
be liable for any of the Operating Partnership's unsatisfied obligations other
than the non-recourse obligations.
RISK OF THIRD-PARTY MANAGEMENT, LEASING, AND RELATED SERVICE BUSINESS
Possible Termination of Management Contracts. The Company intends to
selectively pursue the management of properties owned by third parties. Risks
associated with the management of properties owned by third parties include the
risk that the management contracts (which are generally cancelable upon 30 days'
notice or upon certain events, including sale of the property) will be
terminated by the property owner or will be lost in connection with a sale of
such property, that contracts may not be renewed upon expiration or may not be
renewed on terms consistent with current terms and that the rental revenues upon
which management fees are based will decline as a result of general real estate
market conditions or specific market factors affecting properties managed by the
Company, resulting in decreased management fee income.
Possible Adverse Consequences of Lack of Control Over the Business of the
Management Company. In order to satisfy certain technical requirements
applicable to REITs, certain of the executive officers, as partners of a general
partnership that holds 95% of the voting common stock of the Management Company,
and not the Company, have the ability to elect the board of directors of the
Management Company. The Company is not able to elect directors of the Management
Company and, consequently, the Company has no ability to influence the decisions
of such entity. As a result, the board of directors and management of the
Management Company may implement business policies or decisions that would not
have been implemented by persons controlled by the Company and that are adverse
to the interests of the Company or that lead to adverse financial results, which
would adversely affect the Company's ability to pay distributions to
shareholders.
CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL
The investment, financing, borrowing, and distribution policies of the
Company, and its policies with respect to all other activities, including its
growth, debt, capitalization, distributions, REIT status, and operating
policies, is determined by the Board of Trustees. Although the Board of Trustees
has no present intention to amend or revise any of these policies, these
policies may be amended or revised from time to time at the discretion of the
Board of Trustees without notice to or a vote of the shareholders of the
Company. See "Policies with Respect to Certain Activities." Accordingly,
shareholders may not have control over changes in policies of the Company and
changes in the Company's policies may not fully serve the interests of all
shareholders. A change in these policies could adversely affect the Company's
distributions, financial condition, results of operations or the market price of
Common Shares.
INFLUENCE OF EXECUTIVE OFFICERS, TRUSTEES AND PRINCIPAL SHAREHOLDERS
None of the Trustees, officers or other shareholders of the Company are
selling Common Shares in the Offering. Upon the closing of the Offering and the
Concurrent Investments, all Trustees and executive officers as a group will own
approximately 5.9% of the total issued and outstanding Common Shares (assuming
the conversion of all Preferred Shares to be issued in the SERS Transaction into
Common Shares and the conversion of all Units held by Trustees and executive
officers into Common Shares). Such ownership would increase to 9.5% if all
options and warrants held by them were exercised. Upon the closing of the
Offering and the Concurrent Investments, SERS will own 481,818 Preferred Shares
(convertible under certain circumstances into 1,606,060 Common Shares), 636,363
Common Shares, and warrants to purchase an additional 133,333 Common Shares
(representing 26.8% of the outstanding Common Shares assuming conversion of such
Preferred Shares and exercise of such warrants). Accordingly, such persons will
have substantial influence on the Company, which influence might not be
consistent with the interests of other shareholders, and may in the future have
a substantial influence on the outcome of any matters submitted to the
shareholders for approval. See "Principal Shareholders." In addition, the
Company's Declaration of Trust, subject to certain exceptions, authorizes the
Trustees to take such actions as are necessary and desirable to preserve its
qualification as a REIT and pursuant to such authority the Board of Trustees has
agreed to limit any person to direct or indirect ownership of no more than 9.8%
in value of the Company's outstanding
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shares of beneficial interest (the "Ownership Limit"). Excepted from the
Ownership Limit is SSI who will, immediately following completion of the
Offering (and assuming the conversion of all Preferred Shares to be issued in
the SERS Transaction into Common Shares), beneficially own 8.3% of the Common
Shares assuming the conversion of all Units held by SSI into Common Shares.
However, SERS is subject to a separate contractual ownership limitation of
14.75%. The ownership restrictions could have the effect of further solidifying
the control SSI has over the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Anthony A. Nichols, Sr. and Gerard H. Sweeney. While the Company
believes that it could find replacements for these key personnel, the loss of
their services could have an adverse effect on the operations of the Company.
Messrs. Nichols and Sweeney have entered into employment agreements with the
Company. However, these agreements do not restrict the ability of either Mr.
Nichols or Mr. Sweeney to become employed by a competitor of the Company
following termination of his employment with the Company. See
"Management -- Employment Agreements."
LIMITS ON CHANGES IN CONTROL
Certain provisions of the Declaration of Trust and bylaws (the "Bylaws")
may have the effect of delaying, deferring, or preventing a third party from
making an acquisition proposal for the Company and may thereby inhibit a change
in control of the Company. For example, such provisions may: (i) deter tender
offers for the Common Shares, which offers may be attractive to the
shareholders; or (ii) deter purchases of large blocks of Common Shares, thereby
limiting the opportunity for shareholders to receive a premium for their Common
Shares over then-prevailing market prices. See "Description of Shares of
Beneficial Interest" and "Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws." These provisions include the
following:
Ownership Limit Necessary to Maintain REIT Qualification. In order for the
Company to maintain its qualification as a REIT, not more than 50% in value of
the Company's outstanding Shares may be owned, actually or constructively, under
the applicable attribution rules of the Code, by five or fewer individuals (as
defined in the Code to include certain tax-exempt entities, other than, in
general, qualified domestic pension funds) at any time during the last half of
any taxable year (other than the first taxable year for which the election to be
taxed as a REIT has been made). In order to protect the Company against the risk
of losing REIT status due to the concentration of ownership among its
shareholders, the Ownership Limit adopted by the Board of Trustees pursuant to
the Declaration of Trust limits direct or indirect ownership to 9.8% in value of
the outstanding Shares, subject to certain exceptions. See "Description of
Shares of Beneficial Interest -- Restrictions on Transfer." The Board of
Trustees could waive this restriction with respect to a particular shareholder
if it were satisfied, based upon the advice of tax counsel, that ownership by
such shareholder in excess of the Ownership Limits would not jeopardize the
Company's status as a REIT and the Board of Trustees otherwise decided such
action would be in the best interests of the Company. Actual or constructive
ownership of Common Shares in excess of the Ownership Limits will cause the
violative transfer or ownership to be void with respect to the transferee or
owner as to that number of shares in excess of the Ownership Limits and such
shares will be automatically transferred to a trust for the benefit of a person
to whom an interest in the Common Shares may be permissably transferred. Such
transferee shall have no right to vote such shares or be entitled to
distributions with respect to such shares.
Preferred Shares. The Company's Declaration of Trust authorizes the Board
of Trustees to issue up to 5,000,000 preferred shares and to establish the
preferences, rights, and other terms (including the right to vote and the right
to convert into Common Shares) of any shares so issued. See "Description of
Shares of Beneficial Interest -- Shares -- Preferred Shares of Beneficial
Interest." In addition to the Preferred Shares to be issued in the SERS
Transaction, the Board of Trustees could establish a series of preferred shares
that could have the effect of delaying, deferring, or preventing a tender offer
or a change in control of the Company
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that might involve a premium price of the Common Shares or otherwise be in the
best interests of the shareholders.
Exemptions from the Maryland Business Combination Law. Under the Maryland
General Corporation Law, as amended ("MGCL"), as applicable to real estate
investment trusts, certain "business combinations" (including certain issuances
of equity securities) between a Maryland real estate investment trust and any
person who beneficially owns 10% or more of the voting power of the trust's
shares (an "Interested Shareholder") or an affiliate thereof are prohibited for
five years after the most recent date on which the Interested Shareholder
becomes an Interested Shareholder. Thereafter, any such business combination
must be recommended by the board of trustees and approved by two super-majority
shareholder votes unless, among other conditions, the trust's common
shareholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Shareholder for its shares. These provisions of the MGCL do
not apply, however, to business combinations that are approved or exempted by
the board of trustees prior to the time that the Interested Shareholder becomes
an Interested Shareholder. Pursuant to the statute, the Company has exempted any
business combination involving SSI, TNC, Gerard H. Sweeney and any affiliate or
associate of theirs from the business combination statute and, consequently, the
five-year prohibition and the super-majority vote requirements described above
will not apply to business combinations between any of them and the Company. As
a result, SSI, TNC, Mr. Sweeney, and affiliates and associates thereof
(including Mr. Nichols) may be able to enter into business combinations with the
Company, which may not be in the best interest of the shareholders, without
compliance by the Company with the super-majority vote requirements and other
provisions of the statute. In addition, the Company has exempted any business
combination involving SERS or the SERS Voting Trust and any of their respective
affiliates or associates, and Morgan Stanley Asset Management Inc. and the
Morgan Stanley Funds and any of the respective affiliates or associates from the
business combination statute. See "Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws -- Business Combinations."
Maryland Control Share Acquisition Statute. The MGCL, as applicable to
real estate investment trusts, provides that "control shares" of a Maryland real
estate investment trust acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquiror, by
officers or by trustees who are employees of the trust. If voting rights are not
approved at a meeting of shareholders, then, subject to certain conditions and
limitations, the issuer may redeem any or all of the control shares (except
those for which voting rights have previously been approved) for fair value. If
voting rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other shareholders may exercise appraisal rights. Pursuant to the statute, the
Company has exempted any and all acquisitions by SSI, TNC, and any current or
future affiliate or associate of theirs from the control shares statute. As a
result, SSI or TNC will be able to possess voting power not generally available
to other persons and the effect may be to further solidify their control of the
Company. In addition, pursuant to to the statute, the Company has exempted any
and all acquisitions by SERS and the SERS Voting Trust and any of their
respective affiliates or associates and Morgan Stanley Asset Management Inc. and
the Morgan Stanley Funds and any of the respective affiliates or associates from
the control shares statute. Common Shares beneficially owned by Richard M.
Osborne have not been exempted from the statute. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws -- Control
Share Acquisitions."
EFFECT ON PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of Common Shares, or the perception that such
sales could occur, could adversely affect prevailing prices for the Common
Shares. The Company has reserved: (i) 509,856 Common Shares for issuance upon
conversion of Units; (ii) 627,067 Common Shares for issuance upon exercise of
outstanding options and warrants (after giving effect to the 45,844 additional
warrants to be issued in connection with the prepayment of the Osborne Loan and
the 133,333 warrants to be issued in the SERS Transaction); and (iii) 1,606,060
Common Shares issuable upon conversion of the Preferred Shares. In addition, the
Company may issue additional equity securities in connection with future
acquisitions. Each of
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SSI, TNC, the SERS Voting Trust, the Trustees and executive officers of the
Company and certain of their respective affiliates have agreed, subject to
certain limited exceptions, not to sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase, or otherwise transfer or dispose
of, any Common Shares, or any securities convertible into or exercisable or
exchangeable for Common Shares, during the 180-day period after the effective
date of this Prospectus (the "Lock-Up Period") without the prior written consent
of Smith Barney Inc. The Company has also agreed with the Underwriters not to
offer, sell, contract to sell or issue Common Shares or securities convertible
into or exercisable for Common Shares (except in the Concurrent Investments or
pursuant to the conversion of outstanding Units or Preferred Shares, the
exercise of outstanding options or warrants, and the prepayment of the Osborne
Loan) during the Lock-up Period. See "Shares Available for Future Sale." At the
conclusion of such periods, the Common Shares issuable upon the exchange of
Units or Preferred Shares or the exercise of outstanding options or warrants may
be sold in the public market pursuant to the registration statement the Company
is obligated to file prior to 1997 or pursuant to any available exemptions from
registration. No prediction can be made regarding the effect that future sales
of Company securities will have on the market price of Common Shares.
IMMEDIATE DILUTION
As more fully set forth under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be
substantially less than the expected public offering price per share in the
Offering. Accordingly, shareholders acquiring Common Shares in the Offering will
experience an immediate dilution of $1.13 per share (based on an assumed public
offering price of $16.50, the last reported sale price of the Common Shares on
the AMEX on November 6, 1996 after giving effect to the Reverse Split) in the
net tangible book value of the Common shares.
EFFECT ON HOLDERS OF COMMON SHARES OF AN ISSUANCE OF PREFERRED SHARES
The Board of Trustees is empowered by the Company's Declaration of Trust to
designate and issue from time to time one or more classes or series of preferred
shares without shareholder approval. The Board of Trustees may determine the
relative rights, preferences, and privileges of each class or series of
preferred shares so issued. See "Description of Shares of Beneficial
Interest -- Shares -- Preferred Shares of Beneficial Interest." Because the
Board of Trustees has the power to establish the preferences and rights of each
class or series of Preferred Shares, it may afford the holders in any series or
class of preferred shares preferences, distributions, powers and rights, voting
or otherwise, senior to the rights of holders of Common Shares. The Company has
agreed to issue Preferred Shares to the SERS Voting Trust in the SERS
Transaction. See "The Company -- The SERS Transaction."
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES
One of the factors that influences the market price of the Common Shares in
the public market is the annual distribution rate on the shares. Increasing
market interest rates may lead prospective purchasers of the Common Shares to
demand a higher annual distribution rate from future distributions. Such an
increase in the required distribution may adversely affect the market price of
the Common Shares.
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THE COMPANY
GENERAL
The Company is a self-administered, self-managed and fully integrated REIT
engaged in the ownership, management, leasing, acquisition and development of
primarily suburban office properties. The Initial Properties consist of 23
suburban office buildings and one industrial facility containing an aggregate of
approximately 1.3 million net rentable square feet located primarily in the
Suburban Philadelphia Office and Industrial Market. In addition, the Company has
entered into agreements to purchase on or prior to the closing of the Offering,
the 13 Acquisition Properties, which contain an aggregate of approximately
700,000 net rentable square feet located primarily in the Market. The SERS
Properties (which account for nine of the 13 Acquisition Properties) will be
acquired for an aggregate purchase price of approximately $30.3 million, payable
as follows: (i) by issuing the Preferred Shares that, subject to certain
conditions, are convertible into 1,606,060 Common Shares; (ii) by agreeing to
make deferred payments aggregating $3.8 million in cash or Preferred Shares; and
(iii) by issuing to SERS two-year warrants to purchase 133,333 Common Shares at
an exercise price of $25.50 per share. See "-- The SERS Transaction." The
purchase prices for the four remaining Acquisition Properties aggregate $22.8
million in cash. The Company developed 19 of the Initial Properties and will
manage 36 of the Properties upon the closing of the Offering. In addition, the
Company manages approximately 575,000 net rentable square feet at office
properties on behalf of third parties and approximately 159,000 net rentable
square feet at the Option Properties. As of September 30, 1996, the Properties
were approximately 94.3% leased to 222 tenants.
The Properties consist primarily of suburban office and industrial
buildings (36 of which are Class A properties). The Company considers Class A
suburban office and industrial properties to be those that have desirable
locations, are well maintained and professionally managed and have the potential
of achieving rental and occupancy rates that are typically at or above those
prevailing in their respective markets. The average age of the Properties is
approximately 10.8 years. The Company's 10 largest tenants (based on pro forma
annualized base rents at September 30, 1996) aggregate approximately 29.8% of
the Company's total base rent and approximately 27.5% of the Company's net
rentable square feet and have a weighted average remaining lease term of
approximately 7.8 years. As of September 30, 1996, no single tenant accounted
for more than 8.7% of the Company's pro forma aggregate annualized base rent and
only 30 tenants individually represented more than 1.0% of such aggregate
annualized base rent.
Leases representing approximately 58.5% of the net rentable square footage
at the Properties were signed during the period January 1, 1993 through December
31, 1995, a time when management believes market rental rates were at or below
current market rental rates. This belief is supported by the fact that for the
nine months ended September 30, 1996: (i) renewal leases at the Initial
Properties were signed covering approximately 154,000 net rentable square feet
of office space at a weighted average rental rate of $13.25 per square foot,
compared to leases that expired for that space during such period with a
weighted average rental rate of $12.66 per square foot (representing a 4.7%
increase); and (ii) new leases at the Initial Properties were signed covering
approximately 264,000 net rentable square feet of office space at a weighted
average rental rate of $15.96 per square foot, compared to leases that expired
for that space during such period with a weighted average rental rate of $14.52
per square foot (representing a 9.9% increase). In all cases, weighted average
rental rates include expense recoveries, free rent and scheduled rent increases
that would be taken into account under generally accepted accounting principles.
The Company believes that the strength of its leasing department and tenant
retention capabilities should enable it to continue to capitalize on rental rate
differentials as the Company's leases expire.
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The Company expects to focus its office and industrial building ownership
in submarkets located within the Suburban Philadelphia Office and Industrial
Market where it believes it can accumulate a critical mass of properties in
order to enhance operating efficiencies and, in turn, cash flow. The Company's
primary business objective is to realize and maximize growth in cash flow per
share and to increase shareholder value by:
- optimizing cash flow from the Properties through continued active
property management and prudent operating strategies;
- acquiring Class A suburban office and industrial properties and/or
portfolios of such properties located in the Market and surrounding areas
at prices that are below replacement cost and at yields which exceed the
Company's cost of capital;
- redeveloping and improving acquired properties and, to a lesser extent,
developing build-to-suit properties as opportunities arise;
- generating third party fee-related revenues; and
- operating within a conservative capital structure with financing policies
that allow for continued growth.
According to the C&W Mid-Year Report, the office and industrial market
located in the Philadelphia metropolitan area, which includes the Suburban
Philadelphia Office and Industrial Market, contains an aggregate of
approximately 383.3 million net rentable square feet. In addition, the Company
believes that the Suburban Philadelphia Office and Industrial Market has
significant rental growth potential due to declining vacancy rates, limited new
construction and steady employment growth. Furthermore, the Company believes
that the Market contains opportunities to acquire Class A suburban office and
industrial properties at attractive yields and at prices which are significantly
below replacement costs. The Company's confidence in the Market is bolstered by
the fact that the Class A office direct vacancy rate in the six Pennsylvania
counties within the Market (Bucks, Chester, Delaware, Lehigh, Montgomery and
Northampton) fell from approximately 16.4% at June 30, 1995 to approximately
9.1% at June 30, 1996, and the Class A office direct vacancy rate in the two New
Jersey counties within the Market (Burlington and Camden) fell from
approximately 18.4% at June 30, 1995 to approximately 11.3% at June 30, 1996,
according to the C&W Mid-Year Report. The overall vacancy rates within the
Market of 12.4% also compare favorably with the overall average national office
vacancy rate of 14.2% at June 30, 1996. In addition, the net absorption of
office space for the Market was approximately 1.3 million net rentable square
feet for the six-month period ended June 30, 1996 compared to a negative net
absorption of 80,000 net rentable square feet for the six-month period ended
June 30, 1995, according to the C&W Mid-Year Report.
The Company commenced its operations in 1986 as a finite life REIT that
owned eight properties. In October 1994, the Company's shareholders approved
amendments to the Company's Declaration of Trust that eliminated the Company's
finite life status and increased the Company's authorized capital. Since that
time, the Company has sought to enhance the value of its portfolio by: (i)
actively managing its Properties; (ii) exploring acquisitions of individual and
portfolio properties in its submarkets; and (iii) seeking financing transactions
that could be used to fund future growth. These efforts culminated in the
SSI/TNC Transaction in which the Company acquired substantially all of the real
estate holdings of SSI, and SSI's real estate affiliate, TNC, a private real
estate development and management services company operating in the Market. SSI
is a publicly-traded company that invests in and actively supports
technology-driven growth companies. As of September 30, 1996, SSI owned
significant investments in more than 20 companies, including the following
publicly-traded companies: Novell, Inc., CompuCom Systems, Inc., Cambridge
Technology Partners (Massachusetts), Inc., Coherent Communications Systems
Corporation, USDATA Corporation and Integrated Systems Consulting Group, Inc.
The SSI/TNC Transaction included the acquisition by the Company of 19
office and industrial properties (containing approximately 958,000 net rentable
square feet with an occupancy rate of approximately 93.8% as of September 30,
1996) and an option to acquire the four Option Properties, each of which is
located in the Market. The SSI/TNC Transaction also included the combination of
the real estate
34
<PAGE> 41
management, marketing and development functions of TNC with those of the
Company. The Company believes that the SSI/TNC Transaction has significantly
enhanced its position as an owner and operator of office and industrial
properties in the Market.
Since 1982, TNC has operated exclusively in the Suburban Philadelphia
Office and Industrial Market and has been responsible for the development of
approximately 3.2 million square feet of office and industrial properties in the
Market, including the development of build-to-suit facilities for GMAC (former
Mortgage Division headquarters), Penn Mutual Life Insurance Company
(headquarters), Advanta Corp. (former headquarters), Sartomer Company, Inc. (a
U.S. subsidiary of TOTAL)(headquarters), General Accident Group, General
Electric, Ford Motor Company and ARCO Chemical. In addition, TNC acquired,
developed, marketed and managed nine corporate campuses.
The Company is led by an experienced management team, senior members of
which include Anthony A. Nichols, Sr., Chairman of the Board and former
President of TNC, and Gerard H. Sweeney, President and Chief Executive Officer.
The Company's four senior executives have an average of approximately 22 years
of real estate experience. In aggregate, the Company's management team has been
responsible for the management of approximately 7.5 million square feet and the
development of approximately 3.2 million square feet of office and industrial
properties primarily within the Market.
THE SSI/TNC TRANSACTION
On August 22, 1996, the Company completed the SSI/TNC Transaction pursuant
to which the Operating Partnership acquired: (i) directly, title to six suburban
office properties located in the Suburban Philadelphia Office and Industrial
Market; (ii) indirectly, through subsidiary limited partnerships (collectively,
the "Title Holding Partnerships"), controlling interests in 13 additional
suburban office properties located in the Market; and (iii) all of the
non-voting preferred stock and 5% of the voting common stock (which collectively
are entitled to receive 95% of the dividends) of the Management Company. The
Operating Partnership, together with a subsidiary of the Company, acquired two
Title Holding Partnerships that own two of the Initial Properties. The Operating
Partnership, together with a subsidiary of the Company, acquired an 89% capital
interest and a 99% cash flow and profits interest in 10 of the 13 Title Holding
Partnerships, and an 89% capital interest and a 64% cash flow and profits
interest in an eleventh Title Holding Partnership. Except as indicated below,
ownership of the Residual Interests in these Title Holding Partnerships was
retained by TNC and SSI in order to avoid the incurrence of transfer taxes in
connection with the Company's acquisition of the Properties owned by the Title
Holding Partnerships. A tenant in one of the Properties owned by a Title Holding
Partnership (16 Campus Boulevard, Newtown Square) holds a subordinated 35% cash
flow interest in such partnership. See "Structure of the Company -- Ownership."
The Company acquired its interests in the SSI/TNC Properties, together with
approximately $426,000 in cash, in exchange for: (i) 258,333 Common Shares; (ii)
a six-year warrant to purchase 258,333 Common Shares at an exercise price of
$19.50 per share; (iii) 495,837 Units, which are convertible into 495,837 Common
Shares and (iv) the obligation of the Operating Partnership to acquire by
September 1999 the Residual Interests in exchange for 44,322 Units, which are
convertible into 44,322 Common Shares, plus an amount equal to all distributions
that would have been payable in respect of such Units had they been issued as of
the closing of the SSI/TNC Transaction. The Units are redeemable for cash or, at
the option of the Company, for Common Shares. The SSI/TNC Properties were
conveyed to the Operating Partnership subject to approximately $64.0 million in
mortgage indebtedness as of the date of acquisition, a portion of which will be
repaid from the net proceeds of the Offering and the Concurrent Investments. See
"Use of Proceeds."
Pursuant to the terms of the SSI/TNC Transaction, if certain mortgage
indebtedness encumbering the Properties (as described below) is repaid at a
discount, 75% of the resulting increase in equity created would be allocated to
the original owners of such properties and 25% of such equity would be allocated
to the Company through the issuance of additional interests in the Operating
Partnership at the rate of one Unit for each $16.50 of additional equity so
created. Following the closing of the Offering and the Concurrent
35
<PAGE> 42
Investments and the application of the net proceeds therefrom, the mortgage
indebtedness that is subject to this provision will have an outstanding
principal balance of approximately $15.4 million and will encumber six of the
SSI/TNC Properties. See "Business and Properties -- Mortgage Debt and Line of
Credit."
In addition, in connection with the SSI/TNC Transaction, SSI made loans to
the Operating Partnership and a subsidiary in order to enable the Operating
Partnership to pay certain expenses in connection with such transaction, provide
working capital, make certain preferred distributions to the Company and finance
tenant improvements (collectively, the "SSI Loan"). As of September 30, 1996,
the outstanding balance of the SSI Loan, including accrued interest, was
approximately $774,000. Upon the closing of the Offering, the SSI Loan and
accrued interest thereon, will be repaid in full. See "Certain Relationships and
Related Transactions -- Repayment of Certain Advances to SSI."
Pursuant to the terms of the SSI/TNC Transaction, an affiliate of TNC
granted the Operating Partnership the right to acquire, during the two-year
period following the closing of the transaction (subject to two additional
one-year extensions), the four Option Properties. Exercise of the option is
subject to a right of first refusal in favor of, and the consent of, the holder
of the mortgage encumbering the Option Properties. There can be no assurance
that the Company will exercise its option or that the holder of such mortgage
will consent to the exercise of the option. See "Business and
Properties -- Option Properties: General."
In connection with the SSI/TNC Transaction, the Company entered into
two-year employment agreements with the Company's four executive officers and
the Company issued to these four executive officers six-year warrants to
purchase, in the aggregate, 220,000 Common Shares at an exercise price of $19.50
per share. See "Management -- Employment Agreements."
THE SERS TRANSACTION
The Company has entered into an agreement with RAI Real Estate Advisers,
Inc. (the "Voting Trustee"), as voting trustee of the SERS Voting Trust, to
purchase the SERS Properties. The SERS Properties aggregate approximately
418,000 net rentable square feet, have an average age of approximately 12 years
and are located in the Market. As of September 30, 1996, the SERS Properties
were approximately 92.4% leased to 62 tenants. The SERS Properties will be
acquired by the Company for an aggregate purchase price of $30.3 million,
payable as follows: (i) by issuing 481,818 Preferred Shares that, subject to
certain conditions, are convertible into 1,606,060 Common Shares; (ii) by
agreeing to make deferred payments aggregating $3.8 million (as described
below); and (iii) by issuing two-year warrants to purchase 133,333 Common Shares
at an exercise price of $25.50 per share. In addition, at the closing of the
SERS transaction, SERS will deposit approximately $1.3 million into an escrow
account to be used for tenant improvements and leasing commissions in the
Greenwood Square and 500 North Gulph Road Properties.
Each Preferred Share will entitle the holder to: (i) receive distributions
equal to the distributions payable in respect of a number of Common Shares equal
to the Conversion Number; (ii) vote, together with holders of Common Shares, as
a class, and to cast the number of votes equal to the Conversion Number; and
(iii) a liquidation preference equal to the greater of (a) the amount that would
have been payable with respect to the Common Shares into which such Preferred
Shares would have been convertible immediately prior to the liquidation had the
condition to convertibility been satisfied and (b) the product of $16.50
multiplied by the Conversion Number plus all declared but unpaid dividends. The
Company will be required to pay $2.5 million of the deferred purchase price on
June 30, 1998 and $1.3 million on December 31, 1999 in cash or, at the Company's
option, through the issuance of additional Preferred Shares that will be
convertible, subject to certain conditions, into a number of Common Shares equal
to the applicable amount of the deferred purchase price divided by the greater
of the Market Value Per Share or the Book Value Per Share (as such terms are
defined in the Glossary).
Prior to a Conversion Approval, Preferred Shares will be convertible into
up to 181,325 Common Shares. In the event that a Conversion Approval has not
occurred by July 1, 1997, holders of Preferred Shares will become entitled to
receive distributions equal to 120% of the distributions payable in respect of a
number of Common Shares equal to the Conversion Number. In the event that a
Conversion Approval has not occurred by July 1, 1998, holders of Preferred
Shares will have the right to require the Company to redeem their
36
<PAGE> 43
Preferred Shares at the Redemption Price. SSI and Richard M. Osborne have agreed
to vote Common Shares beneficially owned by them in favor of the unlimited
conversion. See "Risk Factors -- Redemption of Preferred Shares."
Concurrent with the closing of the Offering, the Company will issue to the
SERS Voting Trust $10.5 million of Common Shares. See "-- SERS Private
Placement" below.
OTHER PENDING ACQUISITIONS
- The Company has signed an agreement of sale to purchase the Delaware
Corporate Center (One Righter Parkway), a 104,828 net rentable square
foot office building located in New Castle County, Delaware for $12.7
million in cash. The building was built in 1989 and was 100% leased as of
September 30, 1996.
- The Company has signed an agreement of sale to purchase two buildings in
Horsham, Pennsylvania for an aggregate purchase price of $7.1 million in
cash. The buildings include: 700 Business Center Drive, a 30,773 net
rentable square foot office building built in 1986 and 800 Business
Center Drive, a 51,236 net rentable square foot office building built in
1986. 700 and 800 Business Center Drive were each 100% leased, as of
September 30, 1996.
- The Company has signed an agreement of sale to purchase 8000 Lincoln
Drive, a 54,923 net rentable square foot office building built in 1983
and located in Evesham, New Jersey, for $3.0 million in cash. The
building was 100% leased as of September 30, 1996.
These pending acquisitions are subject to completion of customary closing
conditions (other than the completion of due diligence, which has occurred) and,
as a result, no assurance can be given that these, or any other, acquisitions
will be completed. If these acquisitions are consummated, the Company's
portfolio will consist of 37 properties aggregating approximately 2.0 million
net rentable square feet.
SERS PRIVATE PLACEMENT
- Concurrent with the closing of the Offering the SERS Voting Trust has
agreed, subject to certain conditions, to purchase $10.5 million of
Common Shares directly from the Company in a private placement at the
price per Common Shares sold in the Offering. See "The Company -- The
SERS Private Placement."
MORGAN STANLEY PRIVATE PLACEMENT
- Concurrent with the closing of the Offering the Morgan Stanley Funds
advised by Morgan Stanley Asset Management Inc. have agreed to purchase
$11.7 million in Common Shares directly from the Company in a private
placement at a price per Common Share of $16.50. See "The Company -- The
Morgan Stanley Private Placement."
THE MANAGEMENT COMPANY
The Company conducts its real estate management services business through
the Management Company. The Company manages all but one of the Initial
Properties through the Management Company; the Twin Forks Building, located in
North Carolina, is managed for the Company by an unaffiliated third party. The
Company manages, through the Management Company, additional properties on behalf
of unaffiliated third parties. As of September 30, 1996, the Management Company
was managing properties containing an aggregate of approximately 2.0 million net
rentable square feet, of which approximately 1.3 million net rentable square
feet related to Initial Properties owned by the Company, 159,000 net rentable
square feet related to the Option Properties, and approximately 575,000 net
rentable square feet related to properties owned by unaffiliated third parties.
The Company will manage each Acquisition Property following its acquisition
through the Management Company. Through its ownership of 100% of the preferred
stock and 5%
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<PAGE> 44
of the common stock of the Management Company, the Operating Partnership is
entitled to receive 95% of amounts paid as dividends by the Management Company.
See "Structure of the Company -- Management Company."
The Company was organized as a Maryland real estate investment trust in
1986. The Company's principal executive offices are located at 16 Campus
Boulevard, Newtown Square, Pennsylvania 19073 and its telephone number is
610-325-5600.
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<PAGE> 45
BUSINESS AND GROWTH STRATEGIES
GENERAL
The Company's strategy is to focus its growth in the Suburban Philadelphia
Office and Industrial Market. The Company believes that certain economic
fundamentals in the Market provide an attractive environment for owning,
acquiring and operating Class A office and industrial properties. This belief is
supported by the following:
- The recent decline in vacancy rates within the Market: the Class A office
direct vacancy rate in the six Pennsylvania counties within the Market
fell from approximately 16.4% at June 30, 1995 to approximately 9.1% at
June 30, 1996, and the Class A office direct vacancy rate in the two New
Jersey counties within the Market fell from approximately 18.4% at June
30, 1995 to approximately 11.3% at June 30, 1996, according to the C&W
Mid-Year Report;
- The net absorption of office space within the Market during the six-month
period ended June 30, 1996 was approximately 1.3 million net rentable
square feet compared to a negative net absorption of 80,000 net rentable
square feet during the six-month period ended June 30, 1995, according to
the C&W Mid-Year Report;
- The weighted average Class A office rental asking rate of $18.94 per
square foot within the Market, as identified in the C&W Mid-Year Report,
compared to an average annualized rental rate of $15.15 per square foot
at the Properties as of September 30, 1996; and
- The limited new construction of office buildings within the Market during
the 1990's, with construction being primarily on a build-to-suit basis.
As reported by C&W, office development from January 1, 1995 through June
30, 1996 was limited to approximately 254,000 net rentable square feet in
the Market, which contained a total office inventory of approximately
43.7 million net rentable square feet as of June 30, 1996.
The Company further believes that, based on its evaluation of market
conditions, the growth rates attainable within the Suburban Philadelphia Office
and Industrial Market will improve overall occupancy levels and rental rates and
reduce owner leasing concessions.
The Company believes that the foundation of its growth will consist of: (i)
the quality and strategic location of the Properties; (ii) the strengthening
economy and real estate fundamentals of the Market; (iii) the knowledge and
experience of its senior management team; (iv) the limited new construction of
office space in the Market; (v) the presence of distressed sellers and
inadvertent owners (through foreclosure or otherwise); and (vi) the limited
capital available to many of the Company's competitors for acquisitions and
capital improvements. The Company expects to focus its office building ownership
in submarkets located within the Market where it believes it can accumulate a
critical mass of Properties in order to enhance operating efficiencies and, in
turn, cash flow.
The Company's primary business objective is to realize and maximize growth
in cash flow per share and to increase shareholder value by: (i) optimizing cash
flow from the Properties through continued active property management and
prudent operating strategies; (ii) acquiring quality suburban office and
industrial properties and/or portfolios of such properties located in the Market
and surrounding areas at prices that are below replacement cost and at yields
which exceed the Company's cost of capital; (iii) redeveloping and improving
acquired properties and, to a lesser extent, developing build-to-suit properties
as opportunities arise; (iv) generating third party fee-related revenues; and
(v) operating within a conservative capital structure with financing policies
that allow for continued growth.
MANAGEMENT AND OPERATING STRATEGIES
The Company expects to realize and maximize cash flow growth due to the
strength and experience of its management team through:
- Contractual Rental Rate Increases: As of September 30, 1996, 100 leases,
representing approximately 43.1% of the total leases at the Properties
and approximately 52.6% of the net rentable square feet at
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<PAGE> 46
the Properties, include built-in contractual rental rate increases. Between
September 30, 1996 and June 30, 2011, the contractual base rents under such
leases are expected to increase by an aggregate of approximately $11.8 million
(not including increases attributable to the transition from free or
partial rent to full rent or rent increases that are tied to indices such
as the CPI);
- Leasing Expiring/Vacant Space: The Company expects to experience cash
flow growth through the releasing of approximately 324,000 net rentable
square feet of space under 89 leases that expire at the Properties
between October 1, 1996 and December 31, 1997 and that have a weighted
average annual rental rate as of their expiration dates of $14.14 per
square foot. The Company believes that the majority of such leases are
currently at or below market rental rates. In addition, the Company
expects to realize additional cash flow through the potential leasing of
approximately 115,000 net rentable square feet of vacant space at the
Properties as of September 30, 1996 (approximately 5.7% of the Company's
total net rentable square feet). There can be no assurance, however, that
the Company will meet any of the foregoing expectations; and
- Tenant Services: The Company believes it has been able to provide tenants
with a high level of service as evidenced by the tenant retention rates
of the Initial Properties in 1993, 1994 and 1995 and the nine-month
period ended September 30, 1996 of 71.4%, 56.7%, 75.1% and 93.5%,
respectively, based on net rentable square footage renewed as a
percentage of the square footage of leases expiring during each period.
ACQUISITION STRATEGIES
The Company believes that it will be able to identify and capitalize on
acquisition opportunities through: (i) management's and the Board's significant
local market expertise; (ii) management's and the Board's relationships with
private and institutional real estate owners, potential sellers of individual
and portfolio properties, area real estate brokers and tenants; (iii) its
current market penetration in the Suburban Philadelphia Office and Industrial
Market; (iv) its access to capital as a public company, including but not
limited to proceeds available under the Company's expected two-year, $80.0
million secured revolving Credit Facility and the ability to exchange Units for
interests in properties, thereby permitting certain sellers to defer the tax
gain associated with sale of such properties; and (v) its fully integrated real
estate operations which allow the Company to respond quickly to acquisition
opportunities and enable it to provide real estate management services to third
parties as a means of identifying such opportunities. The Company's acquisition
program will focus on both portfolio and individual acquisitions. See "Business
and Properties -- Credit Facility."
The Company will seek to acquire additional office and industrial
properties that meet one or more of the following investment criteria: (i) the
property is well designed and well constructed and well located within the
Suburban Philadelphia Office and Industrial Market; (ii) the property offers
attractive current yield and long-term growth potential based on its occupancy
characteristics, including lease structure, tenant credit and occupancy history;
(iii) the property can be acquired at a substantial discount to replacement
cost; and (iv) the property is located in a submarket that contains barriers to
entry and repositioning opportunities.
LibertyView Acquisition. As an example of these strategies, in July 1996
the Company acquired the LibertyView Building, a 121,737 square foot net
rentable suburban office building built in 1990 and located in Cherry Hill, New
Jersey, for $10.6 million. This represents a purchase price of $87.07 per square
foot versus management's estimate of this Property's replacement cost of
approximately $150 per square foot. As of September 30, 1996, the LibertyView
Building was approximately 82.8% leased (up from 66.7% at the date of
acquisition). The LibertyView Building was acquired by the Company at a
capitalization rate of approximately 11.0% (calculated by dividing (a) the
expected net operating income (including the effect of straight line rents)
generated by the property based on annualized revenues from signed leases in
place and lease commitments at the date of acquisition by (b) the consideration
paid for the property). The Company estimates that the capitalization rate for
this Property would be approximately 12.9% upon the establishment of an
occupancy level greater than or equal to 95%, given current market rental rates,
and after adjusting for the anticipated additional capital costs required to
achieve such occupancy levels. There can be no assurances that the Company will
achieve such occupancy levels at prevailing market rates. In addition, there can
be no
40
<PAGE> 47
assurance that the Company will be successful in making acquisitions on
comparable terms in the future. The Company believes it could add a number of
office properties to its existing portfolio without requiring a material
increase in management personnel due to the Company's expertise, depth of
current management, financial reporting systems and the efficiencies created by
its centralized management structure.
The Company also holds an option from an affiliate of TNC to purchase the
Option Properties which contain approximately 159,000 net rentable square feet.
The Option Properties are located in the Market, are managed by the Company and
were approximately 95.5% leased to 16 tenants as of September 30, 1996. There
can be no assurance that the Company will exercise its option to acquire any of
the Option Properties or, if it does, that it will be able to satisfy the
conditions relating to the exercise of such option. See "Business and
Properties -- Option Properties: General."
The Company has obtained a commitment for an $80 million Credit Facility
from Smith Barney Mortgage Capital Group, Inc., and NationsBank, N.A. It is
expected that the Credit Facility will close concurrent with the Offering. It is
expected that the Credit Facility will have a two-year term and will be secured
by mortgages on 25 of the Properties. The Credit Facility will assist the
Company in executing targeted acquisition opportunities and expanding its market
presence.
CORPORATE SERVICE ACTIVITIES
The Company, through the Management Company, managed, as of September 30,
1996, approximately 2.0 million net rentable square feet, including 575,000 net
rentable square feet of office properties on behalf of third parties and
approximately 159,000 net rentable square feet at the Option Properties. The
Company's services for such third parties include corporate tenant
representations, property management, leasing and brokerage and construction
management services. The Company typically provides a full range of real estate
services to companies that do not maintain in-house real estate departments. The
Company believes that these corporate service activities will help it to expand
its base of national tenants, further enhance property management economies of
scale and increase its market penetration. The Company also believes it will
benefit from the increasing tendency of institutional owners of real estate to
engage established real estate companies for their property and asset management
requirements. Third party clients of the Company include BetzDearborn Inc.,
CompuCom Systems, Inc., Cambridge Technology Partners (Massachusetts), Inc.,
Coherent Communications Systems Corporation, Integrated Systems Consulting
Group, Inc., Premier Solutions, Inc. and Sanchez Computer Associates, Inc., four
of which are publicly-traded companies in which SSI maintains an ownership
interest. For the nine months ended September 30, 1996, the real estate
management services business had revenues of approximately $943,000. The
Company's management expects to continue its relationships with its corporate
clientele as well as to selectively market its services to corporate users of
commercial real estate and building owners.
FINANCING POLICIES
As a general policy, following the closing of the Offering and the
Concurrent Investments, the Company intends, but is not obligated, to adhere to
a policy of maintaining a debt-to-total market capitalization ratio (i.e., the
total consolidated debt of the Company as a percentage of the market value of
issued and outstanding Shares plus total consolidated debt) of no more than 50%.
This policy is intended to provide the Company with financial flexibility to
select the optimal source of capital (whether debt or equity) with which to
finance external growth. The Company's debt-to-total market capitalization ratio
immediately following the Offering and the Concurrent Investments and the
application of the net proceeds therefrom, will be approximately 21.6%
(approximately 20.5% if the Underwriters' over-allotment option is exercised in
full). Because such ratio is based upon the market values of equity, it will
fluctuate with changes in the price of Common Shares. See "Policies with Respect
to Certain Activities."
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<PAGE> 48
USE OF PROCEEDS
The net proceeds to the Company from the Offering and the Concurrent
Investments, after estimated underwriting discounts and commissions and
estimated expenses of the Offering, are expected to be approximately $75.4
million (approximately $83.9 million if the Underwriters' over-allotment option
is exercised in full), based on an assumed public offering price of $16.50 per
share. The Company will contribute $74.1 million of the net proceeds to the
Operating Partnership, which will use such contribution as follows: (i) to repay
approximately $48.4 million of mortgage debt secured by the Properties
(including prepayment premiums and penalties); (ii) to repay approximately
$800,000 of debt owed to SSI; (iii) to fund $24.1 million of the cash portion of
the purchase price and related expenses in connection with the purchase of the
Acquisition Properties; (iv) to pay $600,000 in fees and expenses relating to
the Credit Facility; and (v) for working capital purposes. The remaining $1.3
million of net proceeds will be obtained by the Company and will be used for
working capital purposes.
If the Underwriters' over-allotment option is exercised in full, the
Company expects to use the additional net proceeds to repay additional mortgage
debt or for working capital or to make additional acquisitions.
Pending the application of the net proceeds from the Offering and from the
Concurrent Investments, the Company will invest such portion of the net proceeds
in interest-bearing accounts and short-term, interest-bearing securities, which
are consistent with the Company's intention to qualify for taxation as a REIT.
The following table sets forth certain information regarding the debt to be
repaid upon completion of the Offering, which consists of mortgage debt
encumbering certain of the Properties. The mortgages and other indebtedness to
be repaid upon completion of the Offering had a weighted average interest rate
of approximately 7.8% (before additional interest relating to cash flow
participations) and a weighted average remaining term to maturity of
approximately 4.5 years as of September 30, 1996.
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
OUTSTANDING PREPAYMENT PREMIUMS INTEREST
SEPTEMBER 30, 1996 OR PENALTIES RATE MATURITY
PROPERTY (000'S)(1) (000'S) AT SEPTEMBER 30, 1996 DATE
- ------------------------------ ------------------ ------------------- --------------------- -------
<S> <C> <C> <C> <C>
1155 Business Center Drive.... $ 31,224(2) None 8.23%(3) 11/2000
500 Enterprise Road........... (2)
One Progress Avenue........... (2)
456 Creamery Way.............. (2)
16 Campus Boulevard........... (2)
18 Campus Boulevard........... (2)
1510 Gehman Road.............. (2)
168 Franklin Corner Road...... (2)
2240/50 Butler Pike........... 13,426(4) $ 500 7.125%(5) 7/2000
120 West Germantown Pike...... (4)
140 West Germantown Pike...... (4)
2260 Butler Pike.............. (4)
7248 Tilghman Street.......... 3,218 None(7) 7.0%(6) 6/2004
---------- ------
Total............... $ 47,868 $ 500
============== ================
</TABLE>
- ---------------
(1) Exact repayment amounts may differ due to amortization and exclusion of
accrued interest estimated to be approximately $300,000.
(2) All of these Properties secure a single loan.
(3) Interest rate is variable and equal to lender's composite commercial paper
rate plus 2.75% per annum.
(4) All of these Properties secure a single loan.
(5) Additional interest in an amount equal to 50% of cash flow (as defined in
the applicable loan documents) is also payable on such loan.
(6) Additional interest in an amount equal to 80% of cash flow (as defined in
the applicable loan documents) is also payable on such loan.
(7) Subject to a yield maintenance penalty if paid after December 2, 1996.
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<PAGE> 49
DISTRIBUTION POLICY
The Company has paid dividends on a regular basis since the beginning of
1994. See "Price Range of Common Shares and Distribution History." Following the
Offering, the Company intends to increase its regular quarterly distributions to
$0.35 per share beginning with a pro rata distribution with respect to the
period commencing on the closing of the Offering and ending on December 31,
1996. On an annualized basis, this would be $1.40 per share. The Company's
determination to increase distributions as described above was based on the
Company's expectations with respect to pro forma Cash Available for Distribution
following the Offering. Although the Company intends to maintain the stated
distribution rate, future distributions by the Company to holders of Common
Shares will be made at the discretion of the Board of Trustees. The Company
currently expects that the principal factors the Board will consider in setting
distributions will be the annual REIT distribution requirements (described
below) and the Board's determination of the relative benefits of distribution
versus reinvestment in the Company. The Board will also consider the actual cash
flow of the Company, the Company's financial condition and capital requirements
and such other factors as the Board deems relevant. See "Risk Factors -- Risks
Relating to Distributions."
Cash Available for Distribution may exceed the Company's earnings and
profits due to non-cash expenses, consisting primarily of depreciation.
Distributions by the Company to the extent of its current or accumulated
earnings and profits for federal income tax purposes will be taxable to
shareholders as ordinary dividend income. Distributions in excess of earnings
and profits generally will be treated as a non-taxable reduction of a
shareholder's basis in its Common Shares, to the extent of its basis, and
thereafter as taxable gain. Distributions treated as a non-taxable reduction of
basis will have the effect of deferring taxation until the shareholder's
disposition of the Common Shares. For additional discussion of the tax treatment
of distributions to the holders of Common Shares, see "Federal Income Tax
Consideration -- Taxation of Taxable Domestic Shareholders" and "Federal Income
Tax Considerations -- Taxation of Tax-Exempt Shareholders."
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares are traded on the AMEX under the symbol "BDN." On
November 1, 1996, there were approximately 335 holders of record of the Common
Shares. On November 6, 1996, the last reported sale price of the Common Shares
on the AMEX was $16.50 (adjusted to give effect to the Reverse Split). The
following table sets forth the quarterly high and low closing sale price per
share reported on the AMEX commencing with the quarter beginning January 1, 1994
and the distributions paid by the Company with respect to each such period after
giving effect to the Reverse Split.
<TABLE>
<CAPTION>
SHARE PRICE SHARE PRICE DISTRIBUTIONS
HIGH LOW DECLARED FOR QUARTER
----------- ----------- --------------------
<S> <C> <C> <C>
First Quarter 1994.................. $11 1/4 $ 5 1/16 $ 0.12
Second Quarter 1994................. $11 13/16 $ 9 3/8 $ 0.15
Third Quarter 1994.................. $18 $12 $ 2.19(1)
Fourth Quarter 1994................. $13 1/2 $10 7/8 $ 2.25(1)
----------- ----------- ------
First Quarter 1995.................. $14 1/4 $10 1/2 $ 1.20(1)
Second Quarter 1995................. $12 3/8 $10 11/16 $ 0.15
Third Quarter 1995.................. $11 13/16 $10 11/16 $ 0.15
Fourth Quarter 1995................. $11 1/4 $10 1/8 $ 0.15
----------- ----------- ------
First Quarter 1996.................. $16 5/16 $10 1/2 $ 0.18(2)
Second Quarter 1996................. $22 1/8 $15 15/16 $ 0.18(3)
Third Quarter 1996.................. $18 3/8 $17 1/16 $ 0.21(4)
----------- ----------- ------
</TABLE>
- ---------------
(1) Includes a regular dividend of $0.15 plus extraordinary dividends related to
the sale of Properties, in the case of 1994, and the refinancing of
Properties, in the case of 1995.
(2) On May 1, 1996, the Company declared a distribution of $0.18 per share
relating to first quarter operations that was paid to shareholders of record
as of May 10, 1996.
(3) On July 11, 1996, the Company declared a distribution of $0.18 per share
relating to second quarter operations that was paid to shareholders of
record as of July 26, 1996.
(4) On November 1, 1996, the Company declared a distribution of $0.21 per share
relating to third quarter operations that is payable to shareholders of
record as of November 11, 1996.
43
<PAGE> 50
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and on a pro forma basis as of that same date assuming the
closing of the SERS Transaction and the closing of the Offering and the
Concurrent Investments and the application of the net proceeds therefrom as
described under "Use of Proceeds." The information set forth in the table should
be read in conjunction with the financial statements of the Company and notes
thereto, the pro forma consolidating financial information and notes thereto and
the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------
HISTORICAL PRO FORMA
------------- ------------
<S> <C> <C>
Debt:
Mortgages and notes payable.......................... $ 83,020,000 $ 36,839,000(1)
Credit Facility...................................... -- --
Minority Interest in the Operating Partnership....... 8,758,000 613,000
Convertible Preferred Shares........................... -- 26,444,000(1)
Beneficiaries' Equity:
Preferred Shares of beneficial interest, $.01 par
value per share; 5,000,000 shares authorized; 0
historical and 481,818 pro forma convertible
preferred shares issued and outstanding........... -- --
Common Shares of beneficial interest, $.01 par value
per share; 25,000,000 shares authorized; 911,185
historical and 6,002,482 pro forma shares issued
and outstanding................................... 9,000 60,000(2)
Additional paid-in capital........................... 20,443,000 103,834,000
Share warrants....................................... 658,000(3) 962,000(4)
Accumulated deficit.................................. (9,801,000) (9,801,000)
----------- ------------
Total beneficiaries' equity....................... 11,309,000 95,055,000
----------- ------------
Total capitalization......................... $103,087,000 $158,951,000
=========== ============
</TABLE>
- ---------------
(1) Assumes the payment in cash by the Company of deferred payments aggregating
$3.8 million in connection with the SERS Transaction. The preferred shares
are convertible, subject to satisfaction of certain conditions, into
1,606,060 of Common Shares. See "The Company -- The SERS Transaction."
(2) Includes 45,844 Common Shares to be issued immediately following the
Offering in connection with the prepayment of the Osborne Loan. Excludes:
(i) 509,856 Common Shares reserved for issuance upon the conversion of Units
into Common Shares; (ii) 1,606,060 Common Shares reserved for issuance upon
the conversion of the Preferred Shares into Common Shares; (iii) 535,784
Common Shares reserved for issuance, at an exercise price of $19.50 per
share, upon the exercise of warrants; (iv) 133,333 Common Shares reserved
for issuance, at an exercise price of $25.50 per share, upon the exercise of
warrants; and (v) 46,666 Common Shares reserved for issuance, at exercise
prices of $14.31 and $6.21 per share, upon the exercise of options, in
respect of 33,333 and 13,333 Common Shares, respectively.
(3) Represents 19,983 warrants issued to the RMO Fund at a price of $2.10 per
warrant, 258,333 warrants issued to SSI at a price of $2.10 per warrant, and
14,135 warrants issued to the RMO Fund at a price of $5.19 per warrant.
(4) Represents, on a pro-forma basis, an additional 45,844 warrants issued to
the RMO Fund at a price of $5.40 per warrant and, together with the other
warrants issued to the RMO Fund, represents a total value of $248,000. In
addition, the Company issued 133,333 warrants to SERS for Common Shares at a
price of $0.42 per warrant in connection with the Preferred Shares.
44
<PAGE> 51
DILUTION
At September 30, 1996, the Company had a net tangible book value of $9.0
million, or $9.90 per outstanding Common Share. Without taking into account any
other changes in such net tangible book value after September 30, 1996, other
than to give effect to the sale by the Company of 3,700,000 Common Shares in
this Offering and 1,345,453 Common Shares in the Concurrent Investments and the
application of the net proceeds therefrom, the net tangible book value of the
Company at September 30, 1996 would have been $92.1 million, or $15.37 per
share. This amount represents an immediate increase in net tangible book value
per share of $5.47 to current shareholders and an immediate dilution in net
tangible book value per share to purchasers of Common Shares in the Offering of
approximately $1.13 per share. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per Common Share................... $ 16.50
Net tangible book value per Common Share before the
Offering(1)................................................. $ 9.90
Increase in net tangible book value per Common Share
attributable to the Offering(2)............................. 5.47
Net tangible book value per Common Share after the Offering(2)... $ 15.37
Dilution in net tangible book value per Common Share to new
investors(3)(4)................................................ $ 1.13
</TABLE>
- ---------------
(1) Net tangible book value per share before the Offering and the Concurrent
Investments is determined by dividing net tangible book value of the Company
(total assets of $106,183 less prepaid financing costs of $2,290, less total
liabilities of $86,116 and minority interests of $8,758 to holders of Units)
by the number of Common Shares outstanding.
(2) Based on an assumed public offering price of $16.50 per Common Share, and
after deducting Underwriters' discounts and commissions and estimated
Offering expenses. Includes 45,844 Common Shares to be issued immediately
following the Offering in prepayment of the Osborne Loan. Excludes: (i)
509,856 Common Shares reserved for issuance upon the conversion of Units
into Common Shares; (ii) 1,606,060 Common Shares reserved for issuance upon
the conversion of Preferred Shares into Common Shares; (iii) 535,784 Common
Shares reserved for issuance, at an exercise price of $19.50 per share, upon
the exercise of warrants; (iv) 133,333 Common Shares reserved for issuance,
at an exercise price of $25.50 per share, upon the exercise of warrants; and
(v) 46,666 Common Shares reserved for issuance, at exercise prices of $14.31
and $6.21 per share, upon the exercise of options in respect of 33,333 and
13,333 Common Shares, respectively.
(3) Dilution is determined by subtracting net tangible book value per Common
Share after the Offering and the Concurrent Investment from the assumed per
share public offering price of $16.50.
(4) Dilution in net tangible book value per Common Share to purchasers of Common
Shares would be $5.14 if the 509,856 Units were converted into Common Shares
and the Preferred Shares were converted into 1,606,060 Common Shares,
resulting in 8,118,399 total Common Shares outstanding.
The following table summarizes, on a pro forma basis giving effect to the
Offering, the number of Common Shares to be sold by the Company in the Offering
and the number of Units to be issued and convertible subsequent to the Offering,
the net tangible book value as of September 30, 1996 and the net tangible book
value per share based on total Common Shares and Units after the Offering.
<TABLE>
<CAPTION>
COMMON SHARES/ NET TANGIBLE NET TANGIBLE
UNITS BOOK VALUE BOOK VALUE
------------------ ------------------- --------------
NUMBER PERCENT $ PERCENT PER SHARE/UNIT
------ ------- ------- ------- --------------
(IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
New investors in the Offering.......... 3,700 56.8% $53,167 57.7% $16.50(1)
Concurrent Investments................. 1,345 20.7% $22,200 24.1% $16.50(1)
Common Shares and Units of Continuing
Investors............................ 1,467 22.5% $16,894(2) 18.2% $11.52
----- ------ ------- ------
Total........................ 6,512 100.0% $92,261 100.0%
===== ====== ======= ======
</TABLE>
- ---------------
(1) Before deducting underwriting discounts and commissions and estimated
expenses of the Offering.
(2) Based on the September 30, 1996 net book value of the assets of $92,261
(including financing costs of $2,794 and net of liabilities to be assumed of
$66,058 on a pro forma basis), and after minority interest of $613 assuming
all Units issued or issuable are converted into Common Shares.
(3) Excludes 1,606,060 Common Shares reserved for issuance upon the conversion
of 481,818 Preferred Shares at a pro-forma value of $26,444,000.
45
<PAGE> 52
SELECTED FINANCIAL DATA
The following tables set forth certain selected historical financial and
operating information on a combined basis for the Company and the SSI/TNC
Properties and on a pro forma basis for the Company. The selected combined
financial and operating information for the nine months ended September 30, 1996
and September 30, 1995 has been derived from the unaudited historical financial
statements of the Company and of the SSI/TNC Properties included elsewhere in
this Prospectus. The following tables also set forth certain selected historical
financial data for the Company for each of the five years during the period
ended December 31, 1995, and as of and for the nine months ended September 30,
1995 and 1996. Such information should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The unaudited pro forma financial and operating information for the nine
months ended September 30, 1996 and for the year ended December 31, 1995 is
presented as if the following transactions had been consummated on September 30,
1996, for balance sheet purposes and at the beginning of the period presented
for purposes of the statements of operations: (i) the Company acquired the
Acquisition Properties and contributed them to the Operating Partnership; (ii)
the Company consummated the Concurrent Investments and contributed the net
proceeds therefrom to the Operating Partnership; and (iii) the completion of
this Offering and the application of the net proceeds therefrom as set forth
under the caption "Use of Proceeds." The pro forma financial information is not
necessarily indicative of what the actual financial position or results of the
Company would have been as of and for the periods indicated, nor does it purport
to represent the Company's future financial position or results of operations.
46
<PAGE> 53
BRANDYWINE REALTY TRUST
COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
----------------------------- -----------------------------
COMBINED COMBINED
HISTORICAL HISTORICAL
----------------- PRO FORMA ----------------- PRO FORMA
1994 1995 1995 1995 1996 1996
------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue --
Base rents.............................................. $12,209 $11,346 $18,813 $ 8,469 $ 9,122 $15,605
Tenant reimbursements................................... 3,130 2,961 3,946 2,207 2,717 3,255
Management fees......................................... 946 617 -- 492 778 --
Other................................................... 79 86 86 54 169 169
------- ------- ------- ------- ------- ------
Total revenue..................................... 16,364 15,010 22,845 11,222 12,786 19,029
------- ------- ------- ------- ------- ------
Expenses --
Interest................................................ 7,877 6,648 3,396 5,015 4,664 2,573
Depreciation and amortization........................... 4,988 5,738 7,456 4,139 3,890 5,465
Property expenses....................................... 5,897 5,032 10,129 3,618 4,698 8,027
General and administrative.............................. 2,054 1,588 790 1,177 1,039 587
Provision for loss on real estate investments........... 5,400 202 -- -- -- --
------- ------- ------- ------- ------- ------
Total expenses.................................... 26,216 19,208 21,771 13,949 14,291 16,652
------- ------- ------- ------- ------- ------
Income (loss) before gains on sales of real estate
investments, minority interest and extraordinary
items................................................... (9,852) (4,198) 1,074 (2,727) (1,505) 2,377
Gains on sales of real estate investments................. 1,410 -- -- -- -- --
Equity income of management company....................... -- -- 72 -- 54 244
Income (loss) before extraordinary items.................. (2,807) (4,203) 933 (2,727) (1,451) 2,399
Income (loss) allocated to Common Shares.................. (1,264) 713
Weighted average number of shares outstanding............. 6,008,540 6,007,577
Earnings per share:
Income (loss) before extraordinary items................ $ 0.16 $ 0.40
Income (loss) Allocated to Common Shares................ $ (0.21) $ 0.12
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------
PRO
HISTORICAL FORMA
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net of accumulated
depreciation............................................ $98,818 $151,527
Total assets.............................................. 106,183 161,726
Mortgages and notes payable............................... 83,020 36,839
Total liabilities......................................... 86,116 39,614
Minority interest......................................... 8,758 613
Convertible preferred shares.............................. -- 26,444
Beneficiaries' equity..................................... 11,309 95,055
</TABLE>
47
<PAGE> 54
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- -------------------------------
COMBINED COMBINED
HISTORICAL HISTORICAL
-------------------- PRO FORMA ------------------- PRO FORMA
1994 1995 1995 1995 1996 1996
-------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(a)............................. $ 645 $ 1,382 $ 7,131 $ 1,307 $ 2,661 $ 7,103
Cash flows provided by (used in):
Operating activities............................... 1,534 1,886 (b) 1,575 1,710 (b)
Investing activities............................... 7,844 (3,490) (b) (1,704) (11,409) (b)
Financing activities............................... (10,171) 1,013 (b) (557) 11,126 (b)
Total cash distributions declared.................... 3,680 1,021 -- 835 226 --
PROPERTY DATA:
Number of properties owned at period end............. 23 23 37 22 24 37
Gross net rentable square feet owned at period end... 1,214 1,214 1,994 1,181 1,334 1,994
</TABLE>
48
<PAGE> 55
BRANDYWINE REALTY TRUST
HISTORICAL SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------ ------ ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total operating revenue(c)................... $ -- $ -- $ -- $ 4,192 $ 3,666 $ 2,691 $ 4,599
Income from acquisition of limited partner
interests in Brandywine Specified Property
Investors Limited Partnership.............. -- -- 2,469 -- -- -- --
Provision for loss on real estate
investments................................ (6,700) -- -- (5,400) -- -- --
Gain on sales of real estate investments..... -- -- -- 1,410 -- -- --
Extraordinary item-gain on extinguishment
of debt.................................... -- -- -- 7,998 -- -- --
Net income (loss)............................ (6,705) (1) 2,468 7,567(b) (824) (592) (128)
Net income (loss) per share.................. (10.83) -- 3.99 11.22 (1.32) (0.95) (0.19)
Cash distributions declared.................. -- -- -- 2,914 1,021 835 226
Cash distributions per share................. -- -- -- 4.71 1.65 35 0.36(d)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net of accumulated
depreciation............................... $ -- $ -- $ -- $13,948 $13,709 $13,570 $98,818
Total assets................................. 2,128 2,123 4,604 17,873 17,105 17,225 106,183
Mortgages and notes payable(e)............... -- -- -- 6,899 8,931 8,957 83,020
Total liabilities............................ 58 55 68 8,684 9,761 9,463 86,116
Minority interest............................ -- -- -- -- -- -- 8,758
Beneficiaries', equity....................... 2,070 2,068 4,536 9,189 7,344 7,762 11,309
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------ ------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(a)..................... $ (5) $ (1) $ (1) $ (533) $ 537 $ 453 $ 837
Cash flows provided by (used in):
Operating activities....................... -- -- -- (628) 497 363 887
Investing activities....................... -- -- 2,469 9,559 (701) (943) (9,914)
Financing activities....................... -- -- -- (9,635) (722) (326) 10,046
PROPERTY DATA:
Number of properties owned at period end..... 7 7 7 4 4 4 24
Gross net rentable square feet owned at
period end................................. 546 546 546 255 255 255 1,334
</TABLE>
- ---------------
(a) Management generally considers Funds from Operations to be a useful measure
of the operating performance of an equity REIT because, together with net
income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt
and to fund acquisitions and other capital expenditures. Funds from
Operations does not represent net income or cash flows from operations as
defined by generally accepted accounting principles ("GAAP") and does not
necessarily indicate that cash flows will be sufficient to fund cash needs.
It should not be considered as an alternative to net income as an indicator
of the Company's operating performance or to cash flows as a measure of
liquidity. Funds from Operations does not measure whether
49
<PAGE> 56
cash flow is sufficient to fund all of the Company's cash needs, including
principal amortization, capital improvements and distributions to
shareholders. Funds from Operations also does not represent cash flows
generated from operating, investing or financing activities as defined by
GAAP. Further, Funds from Operations as disclosed by other REITs may not be
comparable to the Company's calculation of Funds from Operations. The
Company adopted the NAREIT definition of Funds from Operations in 1996 and
has used it for all periods presented. Funds from Operations is calculated
as net income (loss) adjusted for depreciation expense attributable to real
property, amortization expense attributable to capitalized leasing costs,
tenant allowances and improvements, gains on sales of real estate
investments and extraordinary and nonrecurring items.
(b) Pro forma information relating to cash flows from operating, investing and
financing activities has not been included because management believes that
the information would not be meaningful due to the number of assumptions
required in order to calculate this information.
(c) Prior to 1994, the Company accounted for its investment in BRP using the
equity method of accounting and, accordingly, received no rents and tenant
reimbursements from its investment in BRP and received allocated income from
BRP totalling $148,000, $290,000 and $568,000 for the years ended December
31, 1991, 1992 and 1993, respectively. Subsequent to 1993, the Company
acquired control of BRP and consolidated this investment.
(d) Excludes a $0.21 per share distribution declared by the Company on November
1, 1996 relating to third quarter operations that is payable to shareholders
of record as of November 11, 1996.
(e) The Company paid $1,114,000 from escrowed cash reserves to its then mortgage
lender on December 28, 1994 in exchange for termination of its obligation to
make future participating interest payments to the lender.
50
<PAGE> 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with Selected
Financial Data and the financial statements appearing elsewhere in this
Prospectus. The results of operations, liquidity and capital resources and cash
flows of the Company include the historical results of operations of the four
Properties held by the Company prior to August 22, 1996. The combined historical
presentation includes the historical results of the Company and the SSI/TNC
Properties as if they were combined for the earliest period presented. The pro
forma presentation includes the historical results of the Company, the SSI/TNC
Properties, the acquisitions of the LibertyView Building, the Acquisition
Properties and the effects of the Offering. These effects are reflected in the
pro forma condensed consolidated financial statements located elsewhere in this
Prospectus.
The Company receives income primarily from rental revenue (including tenant
reimbursements) from the Properties and, to a lesser extent, from the management
of certain properties owned by third parties. In August 1996, the Company
consummated the SSI/TNC Transaction whereby the Company acquired the SSI/TNC
Properties which constitute 19 of the Company's 24 Initial Properties and 45.4%
of the Company's pro forma rental revenue (including tenant reimbursements) for
the nine months ended September 30, 1996. The SSI/TNC Transaction also included
the combination of real estate management, marketing and development functions
of TNC with those of the Company. The Company will continue to provide
management, leasing and other related services for the Properties and, in
addition, will selectively pursue providing such services to third parties, as
well as exploring acquisitions of individual and portfolios of properties in the
Market. In connection with the Company's pursuit of potential acquisitions of
additional real estate and third party debt investments, the Company has entered
into agreements to purchase 13 Acquisition Properties, which contain an
aggregate of approximately 700,000 net rentable square feet located primarily in
the Market. Nine of the 13 Acquisition Properties represent the "SERS
Properties" which will be acquired for an aggregate purchase price of
approximately $30.3 million, payable as follows: (i) by issuing Preferred Shares
that, subject to certain conditions, are convertible into an aggregate of
1,606,060 Common Shares; (ii) by making deferred payments aggregating $3.8
million in cash or Preferred Shares; and (iii) by issuing two-year warrants to
purchase 133,333 Common Shares at an exercise price of $25.50 per share. The
purchase prices for the four remaining Acquisition Properties aggregate $22.8
million and will be paid in cash. The Company expects that revenue growth in the
next two years will result primarily from additional acquisitions, as well as
from rent increases in its current portfolio. The Company believes that if the
commercial rental market within the Market continues to improve, then rental
rate increases will become a more substantial part of its revenue growth over
time.
RESULTS OF OPERATIONS
HISTORICAL OPERATING RESULTS OF THE COMPANY
Comparison of the Nine Months Ended September 30, 1996 to the Nine Months
Ended September 30, 1995. Rental revenue increased by approximately $1.9
million or 71.8% for the nine months ended September 30, 1996 compared to the
nine months ended September 30, 1995. This increase was primarily due to
increased revenue attributable to the Company's acquisitions of the LibertyView
Building and the SSI/TNC Properties during the third quarter of 1996.
Interest expense increased by $770,000 or 134.6% for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995. This
increase was primarily due to interest on increased debt attributable to the
Company's acquisitions of the LibertyView Building and the SSI/TNC Properties
during the third quarter of 1996. Depreciation and amortization expense
increased by $89,000 or 8.2% for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995. This increase was
primarily due to increased depreciation and amortization attributable to the
Company's acquisitions of the LibertyView Building and the SSI/TNC Properties
during the third quarter of 1996, offset by the non-recurring write-off of
approximately $254,000 in 1995 of deferred loan costs associated with
51
<PAGE> 58
refinancing of mortgage debt in April 1995. For the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995, utilities expense
increased by $94,000 or 23.7%, real estate taxes increased by $135,000 or 45.5%,
maintenance expense increased by $369,000 or 90.7%, management fees increased by
$64,000 or 145.5%, and other operating expenses increased by $17,000 or 39.5%.
Each of these increases was primarily due to increased expenses attributable to
the Company's acquisitions of the LibertyView Building and the SSI/TNC
Properties during the third quarter of 1996.
Equity in net income of the Management Company totalled $54,000 for the
nine months ended September 30, 1996 compared to zero for the nine months ended
September 30, 1995. This variance is a result of the Company's formation of the
Management Company in connection with the SSI/TNC Transaction during the third
quarter of 1996.
As a result of the foregoing, the Company's consolidated net loss for the
period January 1, 1996 to September 30, 1996 was $128,000 or $0.19 per share as
compared to a consolidated net loss of $592,000 or $0.95 per share for the
period January 1, 1995 to September 30, 1995.
Comparison of the Year Ended December 31, 1995 to the Year Ended December
31, 1994. Primarily as a result of the sales of three of the Company's
properties during 1994 as part of the Company's strategic decision to refocus
its efforts in the Market, rental revenues decreased by approximately $576,000
or 13.8% and property operating expenses decreased by approximately $494,000 or
23.5% for the year ended December 31, 1995 compared to the year ended December
31, 1994.
Depreciation and amortization expense remained relatively constant for the
year ended December 31, 1995 compared to the year ended December 31, 1994. This
was primarily due to the nonrecurring write-off of deferred loan fees in 1995
totaling approximately $354,000 resulting from: (i) the refinancing of mortgage
debt in April 1995; and (ii) the termination of a loan commitment, which was
offset by a comparable reduction in depreciation and amortization for the three
properties sold in 1994. Interest expense decreased by approximately $1.2
million or 59.6% for the year ended December 31, 1995 compared to the year ended
December 31, 1994 due to the overall reduced interest expense associated with
mortgage loans obtained from the Principal Financial Group in April 1995.
Administrative expense decreased by approximately $152,000 or 18.2% primarily
due to nonrecurring 1994 costs related to mortgage restructuring efforts. In the
first quarter of 1994, a writedown of $5.4 million was recorded to adjust the
carrying value of the then seven properties of the Company to the then estimated
net realizable value. Such writedown was recorded as a provision for loss on
real estate investments in the Company's 1994 financial statements. For the year
ended December 31, 1995, no such writedown was required to be recorded.
As a result of the foregoing, the Company's consolidated net loss was
approximately $824,000 or $1.32 per share for the year ended December 31, 1995
compared to consolidated net income of approximately $7.6 million or $11.22 per
share for the year ended December 31, 1994.
Comparison of the Year Ended December 31, 1994 to the Year Ended December
31, 1993. The Company's net income for 1994 was attributable to an
extraordinary gain of approximately $8.0 million upon extinguishment of debt
resulting from the January 1994 refinancing of the Company's four properties
owned at that time coupled with an approximately $1.4 million gain resulting
from the sales of three properties during 1994, offset primarily by the
approximately $1.1 million payment of all future additional interest (a 25%
participation right) to the then mortgage lender in December 1994. The Company's
1993 income was primarily attributable to the settlements which the Company
obtained with two of the limited partners of Brandywine Specified Property
Investors Limited Partnership, a partner in BRP, whereby the Company received
approximately $2.5 million in cash.
As a result of the foregoing, the Company's consolidated net income was
approximately $7.6 million or $11.22 per share for the year ended December 31,
1994 compared to net income of approximately $2.5 million or $3.99 per share for
the year ended December 31, 1993.
52
<PAGE> 59
COMBINED HISTORICAL OPERATING RESULTS OF THE COMPANY
Comparison of the Nine Months Ended September 30, 1996 to the Nine Months
Ended September 30, 1995. Total revenue, on a combined historical basis,
increased by approximately $1,564,000 or 13.9% for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995. Base
rental revenue accounted for approximately $653,000 of the increase and was
primarily due to the acquisition of the LibertyView Building coupled with
improved occupancy levels of certain of the Properties. Tenant reimbursements
accounted for approximately $510,000 of the increase and was primarily due to
the acquisition of the LibertyView Building coupled with increased tenant
recoveries resulting from increased operating expenses.
Interest expense, on a combined historical basis, decreased by
approximately $351,000 or 7.0% for the nine months ended September 30, 1996 as
compared to the nine months ended September 30, 1995. Such decrease was
primarily a result of a debt reduction in connection with an approximately $30.5
million debt refinancing in the fourth quarter of 1995 on certain of the SSI/TNC
Properties. Depreciation and amortization decreased by approximately $249,000 or
6.0% for the nine months ended September 30, 1996 compared to the nine months
ended September 30, 1995 primarily as a result of the non-recurring write-off of
approximately $254,000 in deferred loan costs associated with the April 1995
refinancing of mortgage debt. Property expenses increased by approximately
$1,080,000 or 29.9% for the nine months ended September 30, 1996 compared to the
nine months ended September 30, 1995 primarily due to increased maintenance
costs resulting from snow removal costs incurred during the winter of 1996 on
all of the Properties. General and administrative expenses decreased by
approximately $138,000 or 11.7% primarily due to reduced payroll costs.
As a result of the foregoing, on a combined historical basis, the net loss
before gains on sales of real estate, minority interest and extraordinary items
for the Company and the SSI/TNC Properties was approximately $1.5 million for
the nine months ended September 30, 1996 compared to approximately $2.7 million
for the nine months ended September 30, 1995.
Comparison of the Year Ended December 31, 1995 to the Year Ended December
31, 1994. Total revenue, on a combined historical basis, decreased by
approximately $1.4 million or 8.3% for the year ended December 31, 1995 compared
to the year ended December 31, 1994. Base rental revenue and tenant
reimbursements accounted for approximately $1.0 million of the decrease, which
was primarily due to the sale of three of the Company's properties during 1994,
interim vacancy from lease rollovers in certain of the SSI/TNC Properties and a
decrease in tenant reimbursements due, in part, to decreases in property
expenses in certain of the SSI/TNC Properties. Management fee revenue decreased
by approximately $329,000 or 34.8% for the year ended December 31, 1995 compared
to the year ended December 31, 1994 primarily as a result of discontinued
contracts on certain managed properties sold and fewer brokerage transactions.
Interest expense, on a combined historical basis, decreased by
approximately $1.2 million or 15.6% for the year ended December 31, 1995
compared to the year ended December 31, 1994. Such decrease was primarily a
result of significantly reduced interest expense in connection with the
Principal Financial Group mortgage loans obtained in April 1995 on the four
Properties owned by the Company at that time. Depreciation and amortization
increased by approximately $750,000 or 15.0% for the year ended December 31,
1995 compared to the year ended December 31, 1994. This increase was
attributable to additional tenant improvements completed in 1995 in certain of
the SSI/TNC Properties and the write-off of unamortized tenant improvements
associated with leases which terminated at certain of the SSI/TNC Properties.
Property expenses decreased by approximately $865,000 or 14.7% primarily due to
the sale of three of the Company's properties during 1994, as well as reductions
in property expenses of the SSI/TNC Properties, including reductions in real
estate taxes resulting from tax assessment appeals and reductions in building
operating expenses associated with occupancy levels. General and administrative
expenses decreased by $466,000 or 22.7% primarily due to staff reductions and
the elimination of certain non-recurring expenses. In the first quarter of 1994,
the Company recorded a writedown of $5.4 million to adjust the carrying value of
the seven properties owned by the Company to the then estimated net realizable
value. Such writedown was recorded as a provision for loss on real estate
investments in the Company's 1994 financial statements. For the year ended
December 31, 1995, a writedown of $202,000 was recorded in the fourth quarter to
adjust the carrying value of one of the SSI/TNC Properties to its then estimated
net realizable value.
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<PAGE> 60
As a result of the foregoing, on a combined historical basis, the net loss
before gains on sales of real estate, minority interest and extraordinary items
for the Company and the SSI/TNC Properties was approximately $4.2 million for
the year ended December 31, 1995 compared to approximately $9.9 million for the
year ended December 31, 1994.
PRO FORMA OPERATING RESULTS OF THE COMPANY
Comparison of the Nine Months Ended September 30, 1996 on a Pro Forma Basis
to the Nine Months Ended September 30, 1996 on a Historical Basis. Pro forma
total revenue was approximately $19.0 million for the nine months ended
September 30, 1996, representing an approximately $14.4 million or 313.8%
increase over historical results for this period, resulting primarily from an
increase in rental revenue associated with the Company's completed acquisitions
of the LibertyView Building and the SSI/TNC Properties and the pro forma
acquisitions of the Acquisition Properties in 1996.
The historical 1996 interest expense of approximately $1.3 million
increased to $2.6 million on a pro forma basis. Interest expense as a percentage
of total revenue decreased from 29.2% of total revenue in historical 1996 to
13.5% of total revenue on a pro forma basis. The net reduction of 15.7% was
attributable to the Company's acquisition of the SSI/TNC Properties which
reflected interest expense of 44.7% as a percentage of total revenue on a pro
forma basis for the nine months ended September 30, 1996, offset by a reduction
in interest expense based on the effects of the Offering.
On a pro forma basis, combined net income of the Company (before the impact
of the minority interest in the Operating Partnership) would have been
approximately $2.4 million for the nine months ended September 30, 1996
comparing positively to the historical net loss of approximately $128,000 for
the nine months ended September 30, 1996. This positive comparison results
primarily from a substantial increase in total revenue, due to the benefit of a
pro forma full nine months of revenue from the LibertyView Building and the
SSI/TNC Properties acquired and the Acquisition Properties to be acquired in
1996.
Comparison of the Year Ended December 31, 1995 on a Pro Forma Basis to the
Year Ended December 31, 1995 on a Historical Basis. Pro forma total revenue was
approximately $22.8 million for the year ended December 31, 1995, representing
an approximately $19.2 million or 523.2% increase over historical results for
this period, resulting primarily from an increase in rental revenue associated
with the completed acquisitions of the LibertyView Building and the SSI/TNC
Properties and the pro forma acquisition of the Acquisition Properties in 1996.
The historical 1995 interest expense of approximately $793,000 increased to
$3.4 million on a pro forma basis. Interest expense as a percentage of total
revenue decreased from 21.6% of total revenue for the historical year ended
December 31, 1995 to 14.9% of total revenue on a pro forma basis. The net
reduction of 6.7% was attributable to the Company's acquisition of the SSI/TNC
Properties which reflected interest expense of 51.6% as a percentage of total
revenue on a historical basis for the year ended December 31, 1995 offset by a
reduction in interest expense based on the effects of the Offering.
On a pro forma basis, combined net income of the Company (before the impact
of the minority interest in the Operating Partnership) would have been
approximately $1.1 million for the year ended December 31, 1995 comparing
positively to the historical net loss of approximately $824,000 for the year
ended December 31, 1995. This positive impact results primarily from a
substantial increase in total revenue, due to the benefit of a pro forma full
year of revenue from the LibertyView Building and the SSI/TNC Properties
acquired and the Acquisition Properties to be acquired in 1996.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Offering and the Concurrent Investments, the Company
expects to sell an additional 5,045,453 Common Shares and realize net proceeds
of approximately $75.4 million. The net proceeds to the Company from the
Offering and the Concurrent Investments after estimated underwriting discounts
and commissions and estimated expenses of the Offering, are expected to be
approximately $75.4 million (approximately $83.9 million if the Underwriter's
over-allotment option is exercised in full), based on
54
<PAGE> 61
an assumed public offering price of $16.50 per share. The Company will
contribute $74.1 million of the net proceeds to the Operating Partnership, which
will use such contribution as follows: (i) to repay approximately $48.4 million
of mortgage debt secured by the Properties (including prepayment premiums and
penalties); (ii) to repay approximately $800,000 of debt owed to SSI; (iii) to
fund $24.1 million of the cash portion of the purchase price and related
expenses in connection with the purchase of the Acquisition Properties; (iv) to
pay $600,000 in fees and expenses relating to the Credit Facility; and (v) and
the balance for working capital purposes. The remaining $1.3 million of net
proceeds will be retained by the Company and will be used for working capital
purposes.
As of September 30, 1996, and following the closing of the Offering, the
Company will have approximately $36.8 million of pro forma debt outstanding
consisting of nine mortgage notes totalling $33.6 million (which have a weighted
average interest rate of 8.4% and will mature between June 1997 and April 2001)
and $3.8 million in deferred payments owed to the seller of SERS Properties,
which amount has been discounted to $3.2 million based on its terms. The
mortgage note on 110 Summit Drive matures in June 1997, and totalled
approximately $1.6 million at September 30, 1996. The Company is currently
pursuing extending the maturity date or refinancing the mortgage. If the Company
does not extend or refinance this mortgage note, the Company could either repay
the debt using cash reserves or borrow on the Credit Facility. Based upon the
Company's total market capitalization at September 30, 1996 of approximately
$170.8 million, the Company's consolidated debt represents 21.6% of its total
market capitalization.
The Company and Operating Partnership have obtained a commitment from Smith
Barney Mortgage Capital Group, Inc. and NationsBank, N.A. for a two-year, $80
million secured revolving Credit Facility. The Credit Facility will be used to
refinance existing indebtedness, fund acquisitions and new development projects,
and for general working capital purposes, including capital expenditures and
tenant improvements. The amount available to be borrowed under the Credit
Facility will be reduced by the amount of the letters of credit issued by the
lenders for as long as such letters of credit are outstanding. The Credit
Facility will be recourse to the Company and the Operating Partnership and will
be secured by, among other items, cross-collateralized and cross-defaulted first
mortgage liens on approximately 25 Properties, owned directly or indirectly by
the Company, the Operating Partnership or the Subsidiaries.
The Credit Facility will bear interest at a per annum floating rate equal
to the 30, 60, or 90-day LIBOR, plus 175 basis points. The Credit Facility will
require monthly payments of interest only, with all outstanding advances and all
accrued but unpaid interest due two (2) years from the closing of the Credit
Facility. A fee equal to 0.75% of the maximum amount available under the Credit
Facility will be paid to the lenders in respect of the Credit Facility at
closing. In addition, a fee of 0.25% per annum (0.125% per annum until 4/1/97)
on the unused amount of the Credit Facility will be payable quarterly in
arrears. An annual fee in the amount of $35,000 will be payable annually in
advance to NationsBank, N.A. as compensation for administration of the Credit
Facility. The Credit Facility will carry minimum debt service coverage, fixed
charge, debt-to-tangible net worth ratios and other financial covenants and
tests, and will require payment of prepayment premiums in certain instances.
Closing of the Credit Facility is subject to satisfactory completion of
this offering, the negotiation and execution of a definitive Credit Facility
agreement and related documentation, and other customary closing conditions.
The Company's operating properties require periodic investments of capital
for tenant related capital expenditures and for general capital improvements.
For the years ended December 31, 1993, 1994 and 1995 and for the nine months
ended September 30, 1996, tenant related capital expenditures including related
leasing commissions totalled $1,259,000, $2,115,000, $2,833,000 and $1,537,000
respectively, for 23 of the 24 Initial Properties (including the 23 office
buildings and excluding the one industrial property). See "Business and
Properties -- Historical Tenant Improvements and Leasing Commissions." The
Company has estimated its next annual tenant related capital expenditures and
leasing commissions relating to the 37 properties including the Initial
Properties and the Acquisition Properties to be approximately $4.4 million.
Sources available to cover these costs include approximately $700,000 in
available lender financing pursuant to an existing commitment from the lender on
the LibertyView Building, approximately $800,000 in
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<PAGE> 62
cash reserves in connection with the Greentree Office and Twin Forks Properties
and approximately $1.4 million in funds that will be set aside by the seller for
the SERS Properties. The Company intends to fund the balance of these costs
through its rental revenues and operating expense reimbursements from tenants
and borrowings under the Credit Facility.
The Company's primary sources of Cash Available for Distribution will be
from rental revenues and operating expense reimbursements from tenants and the
management services income (and dividends) from providing services to the
Properties and for third parties. The Company intends to use these funds to pay
operating expenses, repay borrowings under the Credit Facility, pay debt
service, fund recurring capital expenditures, make acquisitions, fund tenant
allowances and pay regular quarterly distributions to shareholders.
Cash and cash equivalents were $840,000 and $3.3 million at December 31,
1995 and on a pro forma basis at September 30, 1996, respectively. The increase
in cash and cash equivalents primarily resulted from cash flows provided by
operating and financing activities in excess of cash used in investing
activities, including the impact of the Offering.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operations. The Company
believes that its net cash provided by operations will be sufficient to allow
the Company to make distributions necessary to enable the Company to continue to
remain qualified as a REIT. The Company also believes that the foregoing sources
of liquidity will be sufficient to fund its short-term liquidity needs for the
foreseeable future.
The Company expects to meet its long-term liquidity requirements such as
property acquisitions, scheduled debt maturities, renovations, expansions and
other non-recurring capital improvements through long-term secured and unsecured
indebtedness and the issuance of additional equity securities. The Company also
expects to use funds available under the Credit Facility to finance acquisitions
and capital improvements on an interim basis.
CASH FLOWS
Cash and cash equivalents were $840,000 and $3.3 million at December 31,
1995 and on a pro forma basis at September 30, 1996, respectively. The increase
in cash and cash equivalents primarily resulted from cash flows provided by
operating and financing activities in excess of cash used in investing
activities, including the impact of the Offering.
Net cash provided by operating activities increased in 1995 by $1.1 million
in comparison to 1994. The increase was primarily attributed to a decrease in
interest expense of approximately $1.2 million due to the overall reduced
interest expense associated with mortgage loans obtained from the Principal
Financial Group in April 1995, which refinanced 100% of the debt encumbering the
Company's properties.
Net cash used in investing activities decreased in 1995 by approximately
$10.3 million in comparison to 1994. The decrease was primarily attributable to
the net proceeds on sales of three properties in 1994 of $9.2 million.
Net cash used in financing activities decreased by $8.9 million in 1995 in
comparison to 1994. The decrease was primarily attributable to repayment of
mortgage indebtedness and distributions to shareholders arising from sales of
three properties in 1994.
INFLATION
Substantially all of the office leases provide for separate escalations of
real estate taxes and operating expenses either on a triple net basis or over a
base amount. In addition, many of the office leases provide for fixed base rent
increases or indexed escalations (based on the CPI or other measure). The
Company believes that inflationary increases in expenses will be offset by the
expense reimbursement and contractual rent increases.
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<PAGE> 63
FUNDS FROM OPERATIONS
Management generally considers Funds from Operations as one measure of REIT
performance. The Company adopted the NAREIT definition of Funds from Operations
in 1996 and has used this definition for all periods presented in this
Prospectus. Funds from Operations is calculated as net income (loss) adjusted
for depreciation expense attributable to real property, amortization expense
attributable to capitalized leasing costs, tenant allowances and improvements,
gains on sales of real estate investments and extraordinary and nonrecurring
items. Funds from Operations should not be considered as an alternative to net
income as an indication of the Company's performance or to cash flows as a
measure of liquidity.
Funds from Operations on a pro forma basis for the year ended December 31,
1995 and the nine months ended September 30, 1996 is summarized in the following
table (in thousands, except share data).
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------------
YEAR ENDED NINE MONTHS
DECEMBER 31, 1995 ENDED SEPTEMBER 30, 1996
----------------- ------------------------
<S> <C> <C>
Income before extraordinary items..................... $ 984 $ 2,399
Add:
Depreciation attributable to real property, net
of minority interest........................... 5,601 4,362
Amortization attributable to leasing costs,
tenant allowances and improvements, net of
minority interest.............................. 546 342
--------- ---------
Funds from Operations............................ $ 7,131 $ 7,103
========= =========
Weighted average Common Shares outstanding(1).... 7,614,600 7,613,637
========= =========
</TABLE>
- ---------------
(1) Includes 45,844 Common Shares to be issued immediately following the
Offering in connection with prepayment of the Osborne Loan and 1,606,060
Common Shares issuable upon the conversion of Preferred Shares. Excludes
509,856 Common Shares issuable upon the conversion of 509,856 Units and
715,784 Common Shares reserved for issuance upon the exercise of outstanding
warrants and options. See "Capitalization" and "Operating Partnership
Agreement -- Redemption Rights."
During 1995, the Company declared distributions totaling $1.65 per share.
On May 1, 1996, July 11, 1996, and November 1, 1996, the Company declared
distributions of $0.18, $0.18 and $0.21 per share, respectively.
57
<PAGE> 64
SUBURBAN PHILADELPHIA ECONOMY AND OFFICE MARKETS
GENERAL
The Company believes that current and projected economic trends in the
Market present a favorable economic climate for commercial real estate.
According to the C&W Mid-Year Report, there has been a marked decrease in the
Class A office direct vacancy rate in the six suburban Pennsylvania counties
(9.1% at June 30, 1996 compared to 16.4% at June 30, 1995) and in the two New
Jersey counties (11.3% at June 30, 1996 compared to 18.4% at June 30, 1995) in
the Market. In addition, according to the C&W Mid-Year Report, the net
absorption of office space (i.e., net change in occupied space for a given
period of time, excluding sublet space and preleasing) for the Market was
approximately 1.3 million net rentable square feet for the six-month period
ended June 30, 1996 compared to a negative net absorption of 80,000 net rentable
square feet for the six-month period ended June 30, 1995. In addition, leasing
activity for the six-month period ended June 30, 1996 of approximately 1.6
million net rentable square feet represented a 21.5% increase over the leasing
activity during the six-month period ended June 30, 1995. The Company believes
that the momentum in leasing and absorption that the Market is experiencing has
had a positive effect on rental rates within the Market. The Company believes
that the rollover of currently below market leases in its portfolio presents the
opportunity for internal growth and that increased leasing activity, coupled
with minimal new construction, creates an opportunity for future external growth
through the strategic acquisition of office and industrial properties in the
Market. As of June 30, 1996, the weighted average asking rental rate for Class A
office space in the Market was $18.94 per square foot, compared to the average
annualized rental rate of $15.15 in the Company's office portfolio as of
September 30, 1996.
Philadelphia is the nation's fourth largest metropolitan area and is
located at the center of the Northeast Corridor. In addition, according to the
Philadelphia Chamber of Commerce, the Philadelphia primary metropolitan
statistical area (including Bucks, Chester, Delaware and Montgomery counties in
Pennsylvania and Burlington, Camden, Gloucester, Mercer and Salem Counties in
New Jersey) (the "Philadelphia PMSA") is the fifth largest retail market in the
nation with total 1994 sales of approximately $43.0 billion. Philadelphia has a
diverse economic base, as evidenced by the presence of over 90.0% of all
standard industrial classifications. An important dynamic in the Philadelphia
regional economy has been the increasingly significant role played by small
business. According to the United States Department of Commerce, businesses with
fewer than 100 employees account for approximately 97.0% of the businesses in
the Philadelphia area. Furthermore, according to the United States Department of
Commerce, from 1973 to 1993, the number of small businesses grew by 62.0% within
the Philadelphia area. The Company believes that, due to the fact that small
business operators locate their business operations in those areas readily
accessible to and situated near residential areas, the growth of small
businesses can be expected to increase the demands for suburban office space.
According to C&W, the job growth that has recently occurred within the Market
comes from small to midsize technology-driven firms that tend to seek suburban
locations that are closer to their employees.
The Philadelphia metropolitan area is served by an excellent transportation
system. The combination of Interstate 95, Interstate 476 (referred to locally as
the "Blue Route") and the Pennsylvania Turnpike form an integrated roadway
system that loops the entire Philadelphia area and provides ready access, via
car, to all points in the Northeast Corridor, Midwest, and New England.
Philadelphia's Amtrak station is the second busiest station in the U.S., with
hourly trains reaching Washington, D.C. in less than two hours and New York City
in approximately one hour. In addition, the Philadelphia International Airport
is served by 24 national and international carriers flying to over 100 domestic
and 15 foreign destinations.
The Company's strategy is to operate in those submarkets located within the
Market that are experiencing, or are expected by the Company to experience,
economic growth in excess of that experienced and anticipated for the regional
economy as a whole and competitive with or better than the U.S. economy as a
whole. The Company believes that employment growth is a reliable indicator of
projected demand for both suburban office and industrial space. As indicated by
the table below, the suburban office markets in which the Company operates have
significantly outpaced, and are expected to continue to outpace, the population
growth rates experienced by the Philadelphia PMSA.
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POPULATION GROWTH (000'S)(1)
<TABLE>
<CAPTION>
1980 1990 % CHG 2000 % CHG 2010 % CHG
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Suburban
Philadelphia(2)........... 3,336 3,597 7.8% 3,875 7.7% 4,090 5.5%
Philadelphia Region(3).... 5,025 5,183 3.1% 5,437 4.9% 5,621 3.3%
</TABLE>
CUMULATIVE CHANGE 1980-1990
<TABLE>
<S> <C>
Suburban Philadelphia(2)............................................ 7.8%
Philadelphia Region(3).............................................. 3.1%
U.S. National Average............................................... 9.5%
</TABLE>
- ---------------
(1) 1980 and 1990 data were obtained from U.S. Census and population forecasts
were obtained from the Delaware Valley Regional Planning Commission.
(2) Defined as Bucks, Chester, Delaware and Montgomery Counties in Pennsylvania
and Burlington, Gloucester, Camden and Mercer Counties in New Jersey.
(3) Includes Philadelphia County.
As evidenced by the historic trend between 1980 and 1990, the population
growth rate in suburban Philadelphia was approximately 252% of the Philadelphia
regional average and approximately 82.1% of the national average. The following
table compares historic and projected employment growth in suburban Philadelphia
with the Philadelphia region.
EMPLOYMENT GROWTH (000'S)(1)
<TABLE>
<CAPTION>
1980 1990 % CHG 2000 % CHG 2010 % CHG
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Suburban
Philadelphia(2)........... 1,446 1,857 28.4% 2,001 7.7% 2,172 8.5%
Philadelphia Region(3).... 2,282 2,694 18.1% 2,849 5.7% 3,065 7.6%
</TABLE>
CUMULATIVE CHANGE 1980-1990
<TABLE>
<S> <C>
Suburban Philadelphia(2)............................................ 28.4%
Philadelphia Region(3).............................................. 18.1%
U.S. National Average............................................... 24.9%
</TABLE>
- ---------------
(1) 1980 and 1990 data were obtained from the U.S. Census and the employment
forecasts were obtained from the Delaware Valley Regional Planning
Commission.
(2) Defined as Bucks, Chester, Delaware and Montgomery Counties in Pennsylvania
and Burlington, Gloucester, Camden and Mercer Counties in New Jersey.
(3) Includes Philadelphia County.
The data set forth above indicate that employment growth has accompanied
population growth and that the suburban Philadelphia area has outpaced the
Philadelphia region as a whole and surpassed the national average for the
10-year period from 1980 to 1990 with respect to employment growth.
The Company's belief in the strong relationship between population and
employment growth is further supported by the following unemployment statistics
as of June 30, 1996.
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<PAGE> 66
HISTORICAL ANNUAL UNEMPLOYMENT RATES
<TABLE>
<CAPTION>
MEASUREMENT PERIOD MARKET AVER- PHILADELPHIA U.S. NATIONAL
(FISCAL YEAR COVERED) AGE COUNTY AVERAGE
<S> <C> <C> <C>
1993 6.1 8.1 7.0
1994 5.5 7.6 6.5
1995 5.1 7.0 5.5
1996 4.6 6.8 5.6
</TABLE>
The Company further believes that growth in the service sector will
increase the demand for office space in its submarkets. According to the
Delaware Valley Planning Commission, in 1990, the service sector (including the
financial, insurance and real estate segments) employed approximately 1.1
million employees within the Philadelphia PMSA which represented approximately
40.5% of regional employment. This sector is projected to create approximately
89,000 and 179,000 new jobs from 1990 to 2000 and 2010, respectively.
Other sectors that have contributed to office sector growth within the
Philadelphia PMSA include the biotechnology, pharmaceutical, healthcare and
education industries. During 1995, the approximately 120 biotechnology and
pharmaceutical companies that reside in the Philadelphia area generated over
$5.3 billion in revenue, representing an approximately 23.8% increase from 1994.
Drawing from a labor force of approximately 275,000 high-tech workers, 360,000
professional and 230,000 precision production workers, this industry works
closely with surrounding educational institutions and financial/venture capital
organizations. The Philadelphia area has the second largest concentration of
healthcare resources in the nation. More than 11.0% of the area's workforce is
employed in healthcare and the percentage of physicians engaged in research is
the highest of all metropolitan areas in the U.S. Philadelphia is home to 89
degree granting institutions which include six medical schools, 24 teaching
hospitals and five local law schools. The area annually graduates over 50,000
students including over 1,000 Ph.D.'s and 3,000 MBA's and more than 40.0% of the
region's graduates are in the field of science. The Company believes that growth
in these sectors will add to the demand for office space in the future.
A strong, regional financial services and venture capital industry has
financially supported the emergence of high-growth technology companies in the
suburban Philadelphia area. According to the 1995 annual report published by the
National Venture Capital Association, New Jersey ranked second in the nation and
Pennsylvania ranked eleventh for the amount of money venture capital investors
placed with companies within the two states. In terms of number of venture
capital transactions completed, Pennsylvania and New Jersey were respectively
ranked fourth and fifth in the nation.
SUBURBAN PHILADELPHIA OFFICE AND INDUSTRIAL MARKET
According to C&W, the total Philadelphia PMSA consists of approximately
383.3 million net rentable square feet of office and industrial space. This
space is comprised of approximately 83.3 million net rentable square feet of
office space and 300 million net rentable square feet of industrial space.
Office Market
According to C&W, the Pennsylvania counties within the Market contain
approximately 34.3 million net rentable square feet of office space which, as of
June 30, 1996, had a direct vacancy rate of approximately 9.5%, which is down
significantly from the direct vacancy rate of 15.7% as of June 30, 1995. The
June 30, 1996 direct vacancy rate for Class A buildings within the Pennsylvania
counties within the Market was 9.2%, which
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<PAGE> 67
compares favorably with the total direct vacancy rate in the Market of 11.2% as
of such date. The Market in Pennsylvania consists of the four counties that
immediately surround Philadelphia: Bucks, Chester, Delaware, and Montgomery and
also includes Lehigh and Northampton Counties in the Lehigh Valley area. The
Market in Pennsylvania is further divided into nine smaller submarkets. Vacancy
rates within these nine submarkets as of June 30, 1996 range from a high of
12.6% in the Southern Route 202 Corridor submarket to a low of 5.0% for the Blue
Bell/Plymouth Meeting/Fort Washington submarket. Vacancy rates for all nine
submarkets are lower than they were at June 30, 1995. During the six-month
period ended June 30, 1996, absorption for the Pennsylvania counties within the
Market was approximately 1.2 million square feet compared to a negative net
absorption of approximately 117,100 square feet at June 30, 1995. During the
six-month period ended June 30, 1996, leasing activity in the Pennsylvania
counties within the Market was approximately 1.6 million square feet, an
increase of 21.5% over leasing activity during the six-month period ended June
30, 1995.
The Company's target office market also includes Southern New Jersey. The
primary counties comprising this market are Burlington and Camden, which as of
June 30, 1996, consisted of approximately 173 buildings aggregating
approximately 9.4 million net rentable square feet. The direct vacancy rate for
Southern New Jersey as of June 30, 1996 was 17.5% as compared to 18.8% as of
June 30, 1995. Absorption of approximately 41,000 square feet for the six-month
period ended June 30, 1996 reflects a slight improvement over the absorption of
approximately 36,800 square feet for the six-month period ended June 30, 1995.
According to C&W, Southern New Jersey's high vacancy rate is the result of poor
Class B and Class C markets. Both Burlington and Camden Counties are
experiencing a lack of available Class A office space. The direct vacancy rate
for Class A space in Southern New Jersey was 11.3% as of June 30, 1996, as
compared to 18.4% as of June 30, 1995.
Four of the Company's Initial Properties are combination office/flex
facilities (500 Enterprise Road; 456 Creamery Way; 7310 Tilghman Street; and
6575 Snowdrift Road). The term "flex" signifies that the overall design of the
building is flexible in accommodating users with needs of between 10% and 100%
of the leased area finished as office area or laboratories or display use. Flex
buildings typically have lower ceiling heights than typically found in
traditional industrial properties and generally higher quality construction.
Throughout the four suburban counties that are adjacent to the City of
Philadelphia (Bucks, Montgomery, Chester and Delaware) and in which all of the
Company's flex buildings are located, there is an estimated 13.5 million net
rentable square feet of flex space. According to C&W, the vacancy rate for flex
space in those four counties was 10.6% as of June 30, 1996. This vacancy rate
represents a decline from the 12.0% vacancy rate as of June 30, 1995. One of the
Initial Properties, 1510 Gehman Road, is a combination office and industrial
facility.
HISTORICAL OVERALL OFFICE VACANCY
PENNSYLVANIA SUBURBS
LOGO
61
<PAGE> 68
The following table indicates the inventories and availabilities of office
properties in the Suburban Philadelphia Office and Industrial Market as of June
30, 1996.
SUBURBAN PHILADELPHIA
OFFICE MARKET STATISTICS
(EXCLUDES PHILADELPHIA COUNTY)
<TABLE>
<CAPTION>
LEASING
ACTIVITY C&W
OVERALL ABSORPTION (JANUARY 1, 1996 WEIGHTED
AVAILABLE DIRECT CLASS A (JANUARY 1, 1996 TO JUNE 30, AVERAGE
INVENTORY SPACE VACANCY VACANCY TO JUNE 30, 1996) 1996) RENTAL
SUBMARKET NAME (SQUARE FEET) (SQUARE FEET) RATE(1) RATE(2) (SQUARE FEET) (SQUARE FEET)(3) RATES(4)
- ---------------------------- ------------- ------------- -------- -------- ----------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Horsham/Willow Grove
/Jenkintown............... 3,275,323 394,888 11.4% 10.4% 140,801 187,550 $ 17.60
Southern Route 202
Corridor.................. 3,487,383 484,085 12.6% 13.8% 166,465 209,594 18.45
Blue Bell/Plymouth Mtg./
Ft. Washington ........... 4,911,211 340,587 5.0% 5.0% 136,984 158,412 18.14
Main Line................. 2,481,194 210,049 7.3% 8.3% 49,043 61,537 20.27
Lehigh & Northampton........ 4,370,024 505,529 11.6% 11.3% (2,799) 54,609 14.41
Bala Cynwyd................. 2,812,907 241,189 5.8% 4.5% 25,457 114,071 23.91
Conshohocken................ 1,094,018 70,777 5.9% 5.3% 90,994 154,953 22.36
King of Prussia/
Valley Forge.............. 9,303,771 1,001,867 10.4% 8.3% 439,237 586,438 21.39
Southern Bucks County....... 2,601,676 331,894 12.4% 12.8% 167,397 114,713 18.59
---------- --------- ---- ---- --------- --------- ------
TOTAL/WEIGHTED AVERAGE
PENNSYLVANIA SUBURBS...... 34,337,507 3,580,865 9.5% 9.1% 1,213,579 1,641,877 $ 18.77
========== ========= ==== ==== ========= ========= ======
Burlington County........... 4,581,772 883,008 17.2% 12.6% (87,589) 146,349 $ 20.23
Camden County............... 4,789,329 939,615 17.7% 9.0% 129,012 119,690 21.81
---------- --------- ---- ---- --------- --------- ------
TOTAL/WEIGHTED AVERAGE
SOUTHERN NEW JERSEY....... 9,371,101 1,822,623 17.5% 11.3% 41,423 266,039 $ 20.70
========== ========= ==== ==== ========= ========= ======
TOTAL/WEIGHTED AVERAGE
SUBURBAN PHILADELPHIA..... 43,708,608 5,403,488 11.2% 9.2% 1,255,002 1,907,916 $ 18.94
========== ========= ==== ==== ========= ========= ======
</TABLE>
Source: C&W.
- ---------------
(1) C&W defines "Direct Vacancy Rate" as the space available directly under
prime leases and relets divided by the inventory. Space in buildings under
construction or renovation is not included.
(2) C&W defines "Class A" as buildings that are well-leased, professionally
managed, attract high quality tenants and command upper tier rental rates.
(3) C&W defines "Leasing Activity" as the sum of all finished/closed
transactions for a given period of time including subleasing activity.
(4) C&W defines "Weighted Average Rental Rates" as the gross annual asking rates
of existing buildings.
Industrial Market
According to C&W, the Philadelphia industrial market consists of a total
estimated inventory of approximately 300 million net rentable square feet with
an overall vacancy rate of 13.1% as of June 30, 1996. Vacancy rates as of June
30, 1996 range from a high of 22.3% in Montgomery County to a low of 6.2% in
Camden County. The industrial market within the four Pennsylvania counties
adjacent to Philadelphia County (Bucks, Delaware, Chester and Montgomery)
aggregates approximately 130 million net rentable square feet. Sales and leasing
activity for the quarter ended June 30, 1996 totaled 2.1 million square feet, an
increase of 1.5 million square feet over the quarter ended March 31, 1996. The
overall available inventory in these counties was approximately 20.4 million net
rentable square feet as of June 30, 1996 and was characterized as 49%
warehouse/distribution space, 30% manufacturing space, 2% office service space
and 19% flex/other space. This represents an overall vacancy rate of 15.7%
within these counties.
62
<PAGE> 69
According to C&W, the industrial markets in Burlington and Camden Counties
include approximately 70.0 million net rentable square feet. Available inventory
decreased over 1.0 million square feet during the three-month period ended June
30, 1996, reducing the vacancy rate from 11.0% to 9.5% as of June 30, 1996.
According to C&W, as of June 30, 1996, the industrial market within the
Philadelphia PMSA had an overall vacancy rate of 13.1%. Within this market,
leasing activity was approximately 2.7 million net rentable square feet and
sales activity was approximately 1.8 million net rentable square feet for the
six-month period ended June 30, 1996.
The following table indicates availability of industrial space within the
Philadelphia PMSA as of June 30, 1996:
<TABLE>
<CAPTION>
ESTIMATED OVERALL ESTIMATED
INVENTORY AVAILABLE SPACE OVERALL
COUNTY NAME (SQUARE FEET) (SQUARE FEET) VACANCY RATE
------------------------------------------- ------------- --------------- ------------
<S> <C> <C> <C>
Philadelphia County........................ 100,000,000 12,330,129 12.3%
Montgomery County.......................... 40,000,000 8,905,479 22.3%
Bucks County............................... 37,000,000 6,228,141 16.8%
Chester County............................. 25,000,000 2,459,075 9.8%
Delaware County............................ 28,000,000 2,856,238 10.2%
Burlington County.......................... 15,000,000 3,227,307 21.5%
Camden County.............................. 35,000,000 2.158,308 6.2%
Gloucester County.......................... 20,000,000 1,279,992 6.4%
----------- ---------- ----
Total/Weighted Average........... 300,000,000 39,444,669 13.1%
=========== ========== ====
</TABLE>
HISTORICAL OVERALL INDUSTRIAL VACANCY
PHILADELPHIA PMSA
LOGO
63
<PAGE> 70
BUSINESS AND PROPERTIES
GENERAL
The Initial Properties include 23 suburban office buildings (22 of which
are Class A properties) totalling approximately 12 million net rentable square
feet and one Class A industrial facility (1510 Gehman Road) totalling
approximately 152,000 net rentable square feet. The Company developed 19 of the
Initial Properties and currently manages 23 of the Initial Properties, in
addition to managing approximately 575,000 net rentable square feet on behalf of
third parties and approximately 159,000 net rentable square feet at the four
Option Properties. In addition, the Company has entered into agreements to
purchase the 13 Acquisition Properties. The Properties are located in the
Market, with the exception of: (i) the Twin Forks Office Park located in
Raleigh, North Carolina, which was acquired by the Company in 1986 in connection
with the Company's formation; (ii) 168 Franklin Corner Road located in
Lawrenceville, New Jersey; and (iii) Delaware Corporate Center (an Acquisition
Property) located in New Castle County, Delaware. The Properties are easily
accessible from major thoroughfares and are in close proximity to numerous
amenities, including restaurants, retail shopping malls, hotels and banks. The
Properties contain an aggregate of approximately 2.0 million net rentable square
feet and, as of September 30, 1996, were approximately 94.3% leased to 222
tenants. The Company's tenants include many service sector employers, as well as
a large number of professional firms and local, national and foreign businesses.
The Company believes, based in part on recent engineering reports, that all of
its Properties are well maintained and do not require significant capital
improvements.
The Properties consist primarily of suburban and industrial buildings (36
of which are Class A properties). The Company considers Class A suburban office
and industrial properties to be those that have desirable locations, are well
maintained and professionally managed and have the potential of achieving rental
and occupancy rates that are typically at or above those prevailing in their
respective markets. The average age of the Properties is approximately 10.8
years. The Company's 10 largest tenants (based on pro forma annualized base rent
at September 30, 1996) aggregate approximately 29.8% of the Company's total base
rent and approximately 27.5% of the Company's net rentable square feet and have
a weighted average remaining lease term of approximately 7.8 years. As of
September 30, 1996 and on a pro forma basis assuring the acquisition properties
had been acquired on such date, no single tenant accounted for more than
approximately 8.7% of the Company's aggregate pro forma annualized base rent and
only 30 tenants individually represented more than 1.0% of such aggregate
annualized base rent.
Leases representing approximately 58.5% of the net rentable square footage
at the Properties were signed during the period January 1, 1993 through December
31, 1995, a time when management believes market rental rates were at or below
current market rental rates. This belief is supported by the fact that for the
nine months ended September 30, 1996: (i) renewal leases at the Initial
Properties were signed covering approximately 154,000 net rentable square feet
of office space at a weighted average rental rate of $13.25 per square foot,
compared to leases that expired for that space during such period with a
weighted average rental rate of $12.66 per square foot (representing a 47%
increase); and (ii) new leases at the Initial Properties were signed covering
approximately 264,000 net rentable square feet of office space at a weighted
average rental rate of $15.96 per square foot, compared to leases that expired
for that space during such period with a weighted average rental rate of $14.52
per square foot (representing a 9.9% increase). In all cases, weighted average
rental rates include expense recoveries, free rent and scheduled rent increases
that would be taken into account under generally accepted accounting principles.
The Company believes that the strength of its leasing department and tenant
retention capabilities should enable it to continue to capitalize on rental rate
differentials as the Company's leases expire.
The Company's leases are typically structured for terms of three, five,
seven or ten years. Due to conditions within the Market, the Company utilizes
two primary lease structures: (i) triple net leases (which represented
approximately 75.0% of the aggregate net rentable leased square footage at the
Initial Properties as of September 30, 1996 and under which tenants are required
to pay all real property taxes, insurance and expenses of maintaining the leased
space); and (ii) full service gross leases (which represented approximately
25.0% of the aggregate leased net rentable square footage as of September 30,
1996 and under which the tenants typically pay for all real estate taxes and
operating expenses above those for an established base year).
64
<PAGE> 71
Under the Company's leases at the Initial Properties, the landlord is
generally responsible for structural repairs. Most leases do not permit early
termination; however, approximately 12 leases at the Initial Properties
(covering an aggregate of approximately 184,000 net rentable square feet and
having a weighted average base rental rate of approximately $11.53) permit the
tenant to terminate the lease prior to its initial term (excluding rights
pursuant to casualty, condemnation, eminent domain and changes in zoning
classifications) (generally upon six to twelve months' notice and generally
after the end of the third year of a five year lease or the fifth year of a 10
year lease, subject to the tenant's obligation to pay a fixed termination
penalty, typically consisting of unamortized tenant improvements, leasing
commissions plus an additional negotiated payment). Approximately eight leases
at the Acquisition Properties (covering an aggregate of approximately 94,000 net
rentable square feet and having a weighted average base rental rate of
approximately $14.10) similarly permit the tenant to terminate the lease prior
to its initial term.
The Company's asset management strategy is designed to efficiently balance
the sound business and reporting fundamentals necessary for a public company
with the operating efficiency of a responsive market-oriented real estate
organization.
The Properties will be financially and operationally managed under active
central control. All financial reporting, administration (including the
formation and implementation of policies and procedures), marketing, leasing,
capital expenditure and construction decisions are administered at the Company's
corporate office. The Company employs asset managers to oversee and direct the
ongoing property operations, as well as the on-site personnel which may include
a property manager, leasing agent and other necessary staff. The asset managers
actively participate with the executive officers in the formation of the
Company's policies and procedures. In addition, the Company's financial and
property management reporting systems are designed to ensure operational
compliance with the Company's policies and procedures. On-site staffing for each
Property is determined by the Property's size, tenant profile and location
relative to other Properties. The Company has an active tenant relations program
and a maintenance staff to ensure that all of the Properties are maintained in
accordance with the Company's standard of excellence. The Company also contracts
with third parties for cleaning services, day porters, landscaping, engineering
and other service personnel necessary to operate each Property.
65
<PAGE> 72
PROPERTIES
The following table sets forth certain information with respect to the
Properties:
<TABLE>
<CAPTION>
AVERAGE TOTAL BASE
TOTAL BASE RENT RENT PLUS EXPENSE
FOR THE RECOVERIES PER
NET PERCENTAGE TWELVE MONTHS NET RENTABLE SQUARE
RENTABLE LEASED AS OF ENDED FOOT LEASED
INITIAL PROPERTIES: YEAR SQUARE SEPTEMBER 30, SEPTEMBER 30, 1996(2) SEPTEMBER 30,
SUBMARKET/PROPERTY BUILT FEET 1996(1) (000'S) 1996(3)
- --------------------------------------------- ----- --------- ------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
HORSHAM/WILLOW GROVE/JENKINTOWN, PA
650 Dresher Road............................ 1984 30,138 100.0% $ 329 $ 15.67
1155 Business Center Drive.................. 1990 51,388 99.4% 591 16.31
500 Enterprise Road......................... 1990 67,800 98.5% 674 13.74
One Progress Avenue......................... 1986 79,204 100.0% 563 9.54
SOUTHERN ROUTE 202 CORRIDOR, PA
456 Creamery Way............................ 1987 47,604 100.0% 336 7.15
486 Thomas Jones Way........................ 1990 51,500 50.9% 416 23.26
468 Creamery Way............................ 1990 28,934 100.0% 293 14.54
110 Summit Drive............................ 1985 43,660 67.6% 262 13.51
BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON,
PA
2240/50 Butler Pike......................... 1984 52,183 99.4% 560 15.82
120 West Germantown Pike.................... 1984 30,546 100.0% 421 19.16
140 West Germantown Pike.................... 1984 25,953 98.7% 297 16.56
2260 Butler Pike............................ 1984 31,892 100.0% 377 16.84
MAIN LINE, PA
16 Campus Boulevard......................... 1990 65,463 100.0% 430 9.94
18 Campus Boulevard......................... 1990 37,700 100.0% 410 15.01
LEHIGH VALLEY, PA
7310 Tilghman Street........................ 1985 40,000 99.0% 329 11.44
7248 Tilghman Street........................ 1987 42,863 93.8% 399 15.06
6575 Snowdrift Road......................... 1988 46,250 100.0% 300 9.06
LANSDALE, PA
1510 Gehman Road............................ 1990 152,625 100.0% 773 7.70
BURLINGTON COUNTY, NJ
One Greentree Centre........................ 1982 55,838 100.0% 869 16.97
Two Greentree Centre........................ 1983 56,075 100.0% 816 14.53
Three Greentree Centre...................... 1984 69,101 96.2% 1,049 16.51
CAMDEN COUNTY, NJ
457 Haddonfield Road (LibertyView).......... 1990 121,737 82.8% 1,160 16.34
OTHER MARKETS
168 Franklin Corner Road.................... 1976 32,000 54.5% 186 13.43
Lawrenceville, NJ
Twin Forks Office Park
Raleigh, NC
5910-6090 Six Forks......................... 1982 73,339 100.0% 1,008 13.83
--------- ----- ------- ------
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE
INITIAL PROPERTIES.......................... 1,333,793 93.8% 12,848 14.04(10)
========= ===== ======= ======
<CAPTION>
AVERAGE C&W RENTAL RATE TENANTS LEASING 10% OR
ANNUALIZED WEIGHTED INCREASE MORE OF RENTABLE
RENTAL AVERAGE POTENTIAL SQUARE FOOTAGE PER
RATE AS OF CLASS A UNTIL MARKET PROPERTY AS OF
INITIAL PROPERTIES: SEPTEMBER 30, RENTAL RATE IS SEPTEMBER 30, 1996
SUBMARKET/PROPERTY 1996(4) RATES(5) ACHIEVED(6) AND LEASE EXPIRATION DATE
- --------------------------------------------- ------------------ -------- ------------ -------------------------
<S> <<C> <C> <C> <C>
HORSHAM/WILLOW GROVE/JENKINTOWN, PA
650 Dresher Road............................ $16.50 $18.02 9.2% GMAC (100%) - 5/03
1155 Business Center Drive.................. 17.22 18.02 4.6% IMS (79%) - 3/06;
Motorola (14%) - 2/99
500 Enterprise Road......................... 15.03 14.50 (3.5)% Conti Mortgage
(80%) - 4/01;
Pioneer (19%) - 10/00
One Progress Avenue......................... 11.75 18.02 53.4% Reed Technologies
(100%) - 6/11
SOUTHERN ROUTE 202 CORRIDOR, PA
456 Creamery Way............................ 7.25(7) 7.89(8) 8.8% Neutronics (100%) - 1/03
486 Thomas Jones Way........................ 15.46 15.55 0.5% First American Real
Estate (20%) - 4/00
468 Creamery Way............................ 13.88 13.61 (1.9)% Franciscan Health
(82%) - 6/99;
American Day Treatment
(18%) - 6/00
110 Summit Drive............................ 7.20(8) 7.89(8) 9.6% Maris Equipment
(49%) - 4/99
BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON,
PA
2240/50 Butler Pike......................... 17.55 18.70 6.6% CoreStates (59%) - 4/06;
TWA Marketing
(33%) - 10/99
120 West Germantown Pike.................... 17.52 18.70 6.7% Clair O'Dell
(82%) - 7/01;
Kleinerts (13%) - 10/98
140 West Germantown Pike.................... 17.38 18.70 7.6% Healthcare, Inc.
(46%) - 9/99; Henkel
(29%) - 6/98; National
Health Equity
(20%) - 5/99
2260 Butler Pike............................ 17.82 18.70 4.9% Information Resources
(66%) - 12/00; Med
Resorts (26%) - 1/01
MAIN LINE, PA
16 Campus Boulevard......................... 13.58 20.27 49.3% New England Mutual
(52%) - 5/06; Atlantic
Employees C.U.
(35%) - 1/06
18 Campus Boulevard......................... 18.62 20.27 8.9% Prudential (25%) - 6/01;
Devco Mutual
(35%) - 1/01;
Scott Paper
(17%) - 11/97;
Marshall Dennehey
(18%) - 10/01
LEHIGH VALLEY, PA
7310 Tilghman Street........................ 8.89(8) 10.50(8) 18.1% AT&T (83%) - 12/96-8/98
7248 Tilghman Street........................ 14.76 15.34 3.9% IDS Financial
(29%) - 7/01;
Ohio Casualty
(46%) - 7/01;
Meridian Mortgage
(12%) - 6/99
6575 Snowdrift Road......................... 7.15(8) 10.50(8) 46.9% Corning Packaging
(100%) - 2/99
LANSDALE, PA
1510 Gehman Road............................ 4.72(8) 5.95(8) 26.1% Ford Electronics
(35%) - 6/98;
Nibco (65%) - 8/99
BURLINGTON COUNTY, NJ
One Greentree Centre........................ 16.07 19.30 20.0% American Executive
Centers (30%) - 1/06;
West Jersey (15%) - 4/01;
Temple Sports Med.
(18%) - 12/97
Two Greentree Centre........................ 16.02 19.30 20.5% Merrill Lynch
(23%) - 11/05;
ReMax Suburban
(12%) - 11/05
Three Greentree Centre...................... 16.41 19.30 17.6% Parker, McCay & Criscuolo
(39%) - 5/01;
Marshall Dennehey
(20%) - 5/97;
Olde Discounts
(12%) - 3/00;
Surety Title
(13%) - 11/03
CAMDEN COUNTY, NJ
457 Haddonfield Road (LibertyView).......... 18.63 21.81 17.1% HIP Health Plan
(31%) - 12/07
OTHER MARKETS
168 Franklin Corner Road.................... 15.55 18.00(9) 15.8% Dr. Belden (12%) - 5/01;
Lawrenceville, NJ Crawford & Co.
(14%) - 11/99
Twin Forks Office Park
Raleigh, NC
5910-6090 Six Forks......................... 14.25 15.50(9) 8.8% N/A
----- ----- -----
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE
INITIAL PROPERTIES.......................... $14.63(10) $16.83(10)(11) 15.0%
===== ===== =====
</TABLE>
66
<PAGE> 73
<TABLE>
<CAPTION>
AVERAGE TOTAL BASE
TOTAL BASE RENT RENT PLUS EXPENSE
FOR THE RECOVERIES PER
NET PERCENTAGE TWELVE MONTHS NET RENTABLE SQUARE
RENTABLE LEASED AS OF ENDED FOOT LEASED
ACQUISITION PROPERTIES: YEAR SQUARE SEPTEMBER 30, SEPTEMBER 30, 1996(2) SEPTEMBER 30,
SUBMARKET/PROPERTY BUILT FEET 1996(1) (000'S) 1996(3)
- ----------------------------------------------- ----- --------- ------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
HORSHAM/WILLOW GROVE/JENKINTOWN, PA
700 Business Center Drive(12)................. 1986 82,009 100.0% $ 793 $ 11.59
800 Business Center Drive(12)................. 1986
KING OF PRUSSIA, PA
500 North Gulph Road.......................... 1979 92,851 86.1% 1,387 15.02
BUCKS COUNTY, PA
2200 Cabot Boulevard.......................... 1979 55,081 100.0% 259 5.75
2250 Cabot Boulevard.......................... 1982 40,000 100.0% 170 5.22
2260 Cabot Boulevard(12)...................... 1984 29,638 100.0% 246 10.17
2270 Cabot Boulevard(12)...................... 1984
3000 Cabot Boulevard.......................... 1986 34,640 83.9% 364 12.85
3329 Street Road -- Greenwood Sq.(12)......... 1985
3331 Street Road -- Greenwood Sq.(12)......... 1986 165,929 92.1% 2,234 14.56
3333 Street Road -- Greenwood Sq.(12)......... 1988
BURLINGTON COUNTY, NJ
8000 Lincoln Drive............................ 1983 54,923 100.0% 445 8.25
NORTHERN SUBURBAN WILMINGTON
One Righter Parkway........................... 1989 104,828 100.0% 2,044 19.50
--------- ----- ------- ------
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE
ACQUISITION PROPERTIES........................ 659,899 95.2% $ 7,942 $ 12.93
========= ===== ======= ======
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR ALL
PROPERTIES.................................... 1,993,692 94.3% $20,790 $ 13.67
========= ===== ======= ======
<CAPTION>
AVERAGE C&W RENTAL RATE TENANTS LEASING 10% OR
ANNUALIZED WEIGHTED INCREASE MORE OF RENTABLE
RENTAL AVERAGE POTENTIAL SQUARE FOOTAGE PER
RATE AS OF CLASS A UNTIL MARKET PROPERTY AS OF
ACQUISITION PROPERTIES: SEPTEMBER 30, RENTAL RATE IS SEPTEMBER 30, 1996
SUBMARKET/PROPERTY 1996(4) RATES(5) ACHIEVED(6) AND LEASE EXPIRATION DATE
- ----------------------------------------------- --------------- -------- ------------ -------------------------
<S> <<C> <C> <C> <C>
HORSHAM/WILLOW GROVE/JENKINTOWN, PA
700 Business Center Drive(12)................. $13.11 $18.02 37.5% Metpath (35%) - 1/12;
Sprint
(19%) - 3/01; Macro
(19%) -
800 Business Center Drive(12)................. 4/01; Advanta
(10%) - 6/99
KING OF PRUSSIA, PA
500 North Gulph Road.......................... 16.51 21.39 29.6% Transition Software
(16%) - 8/00, Strohl
Syst (12%) - 10/99
BUCKS COUNTY, PA
2200 Cabot Boulevard.......................... 4.40 4.50 2.3% Hussman Corp (38%), Nobel
Printing (38%) - 6/97;
McCaffrey Mgt
(24%) - 8/00
2250 Cabot Boulevard.......................... 3.50 4.50 28.6% Bucks County Nut (100%) -
7/99
2260 Cabot Boulevard(12)...................... 8.78 9.00 2.5% Sager Electrical (14%) -
10/98; Terminix Intrntnl
2270 Cabot Boulevard(12)...................... (13%) - 11/96
3000 Cabot Boulevard.......................... 17.03 18.95 11.3% Geraghty & Miller (31%) -
11/97; Prudential Insur.
(21%) - 7/98;
Luigi Bormioli Co.
(11%) - 6/98
3329 Street Road -- Greenwood Sq.(12).........
3331 Street Road -- Greenwood Sq.(12)......... 16.54 18.95 14.6% Waste Management (27%) -
3/97
3333 Street Road -- Greenwood Sq.(12).........
BURLINGTON COUNTY, NJ
8000 Lincoln Drive............................ 17.13 19.30 $ 12.7% CSC (67%) - 11/01; Blue
Cross (33%) - 2/07
NORTHERN SUBURBAN WILMINGTON
One Righter Parkway........................... $ 19.30 20.50 6.2% Kimberly Clark (89%) -
12/05
----- ----- -----
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE
ACQUISITION PROPERTIES........................ $ 16.23(13) $19.01(11)(13) 17.2%
===== ===== =====
CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR ALL
PROPERTIES.................................... $ 15.15(14) $17.54(11)(14) 15.8%
===== ===== =====
</TABLE>
- ---------------
(1) Calculated by dividing net rentable square feet included in leases dated on
or before September 30, 1996 by the aggregate net rentable square feet
included in the Property.
(2) "Total Base Rent" for the twelve months ended September 30, 1996 represents
base rents received during such period, excluding tenant reimbursements,
calculated in accordance with generally accepted accounting principles
determined on a straight-line basis. Tenant reimbursements generally
include payment of real estate taxes, operating expenses, and escalations
and common area maintenance and utility charges.
(3) Represents the Total Base Rent for the twelve months ended September 30,
1996, plus tenant reimbursements for the twelve months ended September 30,
1996, divided by the net rentable square feet leased.
(4) "Average Annualized Rental Rate" is calculated as follows: (i) for office
leases written on a triple net basis, the sum of the annualized contracted
base rental rates payable for all space leased as of September 30, 1996
(without giving effect to free rent or scheduled rent increases that would
be taken into account under generally accepted accounting principles) plus
the 1996 budgeted operating expenses excluding tenant electricity; and (ii)
for office leases written on a full service basis, the annualized
contracted base rate payable for all space leased as of September 30, 1996.
In both cases, the annualized rental rate is divided by the total square
footage leased as of September 30, 1996 without giving effect to free rent
or scheduled rent increases that would be taken into account under
generally accepted accounting principles.
(5) Represents the weighted average asking rates, as of June 30, 1996, of
directly competitive properties in the relevant submarket within the
Market, as identified by C&W.
(6) Represents the percentage by which the June 30, 1996 C&W weighted average
asking rate exceeds the September 30, 1996 average annualized rental rate
of the applicable Property.
(7) Property occupied by a single tenant under a triple net lease agreement,
pursuant to which the tenant subcontracts directly with third party
contractors for all building services.
(8) These rates represent triple net lease rates (leases under which tenants
are required to pay all real property taxes, insurance and expenses of
maintaining the leased space).
(9) Rental rates represent management's estimate of asking rental rates in
these markets for comparable properties.
(10) Excludes 1510 Gehman Road, which is an industrial Property.
(11) Represents the Class A weighted average rental rate for the submarkets in
which the Properties are located (weighted by Property net rentable square
footage) as compared to the Class A office weighted average asking rate of
$18.94 per square foot for the Market (weighted by Market net rentable
square footage)as identified in the C&W Mid-Year Report.
(12) The data reflected for these properties are presented on a consolidated
basis.
(13) Excludes 2200 Cabot Boulevard and 2250 Cabot Boulevard, which are
industrial properties.
(14) Excludes 1510 Gehman Road, 2200 Cabot Boulevard and 2250 Cabot Boulevard,
which are industrial properties.
67
<PAGE> 74
TENANTS
Initial Properties. The Initial Properties are leased to approximately 146
tenants that are engaged in a variety of businesses. The following table sets
forth information regarding the Company's leases with its 20 largest tenants
based upon annualized base rent for the Initial Properties as of September 30,
1996:
<TABLE>
<CAPTION>
PERCENTAGE OF
REMAINING AGGREGATE NET PERCENTAGE OF ANNUALIZED AGGREGATE
NUMBER OF LEASE TERM RENTABLE SQUARE AGGREGATE LEASED BASE RENT ANNUALIZED
TENANT NAME LEASES IN MONTHS FEET LEASED SQUARE FEET (000'S) BASE RENT
- ---------------------- --------- ------------- --------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Reed Technology....... 1 178 79,204 5.9% $ 733 5.1%
Conti Mortgage........ 1 56 53,906 4.0% 596 4.2%
IMS................... 1 115 40,774 3.1% 494 3.5%
HIP Health Plan of
NJ.................. 1 136 37,515 2.8% 463 3.2%
Clair O'Dell Agency... 1 59 25,177 1.9% 441 3.1%
CoreStates............ 1 116 30,359 2.2% 410 2.9%
Nibco, Inc............ 1 36 98,725 7.4% 395 2.8%
Parker, McKay &
Criscuolo........... 1 57 25,905 1.9% 388 2.7%
GMAC.................. 1 81 30,138 2.3% 354 2.5%
Neutronics............ 1 77 47,604 3.6% 346 2.4%
Corning Packaging..... 1 30 46,250 3.5% 331 2.3%
Ford Motor Co......... 1 22 53,900 4.0% 327 2.3%
Marshall, Dennehey.... 2 (a) 19,633 1.5% 321 2.2%
New England Mutual.... 1 117 31,907 2.4% 320 2.2%
AT&T Communications... 3 (b) 32,774 2.5% 288 2.0%
Information
Resources........... 1 52 21,008 1.6% 284 2.0%
American Executive
Centers............. 1 114 16,853 1.3% 279 2.0%
Devco Mutual.......... 1 54 13,332 1.0% 230 1.6%
Ohio Casualty......... 1 59 19,877 1.5% 229 1.6%
Franciscan Health
Systems............. 1 34 23,588 1.8% 225 1.6%
--
---- ------- ---- ----- ----
Consolidated
Total/
Weighted
Average..... 23 75 748,429 56.1% $ 7,457 52.3%
== ==== ======= ==== ===== ====
</TABLE>
- ---------------
(a) Consists of two leases: a lease representing 12,971 square feet that expires
in May 1997 and a lease representing 6,662 square feet that expires in
October 2001.
(b) Consists of three leases: a lease representing 11,000 square feet that
expires in August 1998; a lease representing 13,107 square feet that expires
in December 1996 and a lease representing 8,667 square feet that expires in
November 1997.
68
<PAGE> 75
Acquisition Properties. The Acquisition Properties are leased to
approximately 76 tenants that are engaged in a variety of businesses. The
following table sets forth information regarding leases with the 20 largest
tenants at the Acquisition Properties based upon annualized base rent for the
Acquisition Properties as of September 30, 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF
REMAINING AGGREGATE NET PERCENTAGE OF ANNUALIZED AGGREGATE
NUMBER OF LEASE TERM RENTABLE SQUARE AGGREGATE LEASED BASE RENT ANNUALIZED
TENANT NAME LEASES IN MONTHS FEET LEASED SQUARE FEET (000'S) BASE RENT
- ---------------------- --------- ------------- --------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kimberly Clark........ 1 112 93,014 14.1% $ 1,814 20.1%
Waste Management...... 1 6 45,764 6.9% 715 8.0%
CSC................... 1 63 36,830 5.6% 626 6.9%
Blue Cross............ 1 126 18,093 2.7% 315 3.5%
FPA Corporation....... 1 6 16,453 2.5% 280 3.1%
Prudential............ 2 (a) 13,945 2.1% 271 3.0%
Sprint................ 1 55 15,348 2.3% 253 2.8%
Metpath............... 1 185 28,475 4.3% 249 2.8%
Macro................. 1 56 15,425 2.3% 231 2.6%
Transition Software... 1 48 15,101 2.3% 227 2.5%
KWS&P................. 1 31 22,706 3.4% 212 2.4%
Nason Cullen Inc...... 1 59 12,566 1.9% 201 2.2%
Strohl Systems........ 1 38 11,277 1.7% 186 2.1%
Nextel
Communication....... 1 56 11,004 1.7% 182 2.0%
Geraghty & Miller..... 1 15 10,840 1.6% 173 1.9%
Outdoor World Corp.... 1 20 9,579 1.5% 153 1.7%
Bucks County Nut...... 1 35 40,000 6.1% 140 1.6%
Advanta............... 1 34 8,339 1.3% 129 1.4%
Orbital Engineer...... 1 53 7,468 1.1% 117 1.3%
First American........ 1 39 6,258 0.9% 114 1.3%
--
---- ------- ---- ----- ----
Consolidated
Total/Weighted
Average..... 21 65 432,227 65.5% $ 6,474 72.2%
== ==== ======= ==== ===== ====
</TABLE>
- ---------------
(a) Consists of two leases: a lease representing 7,445 square feet that expires
in July 1998, and a lease representing 6,500 square feet that expires in
November 1996.
69
<PAGE> 76
Properties. On a combined basis, the Properties are leased to 222 tenants
that are engaged in a variety of businesses. The following table sets forth
information, on a combined basis, regarding leases at the Properties with the 20
largest tenants based upon annualized base rent from the Properties as of
September 30, 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF
REMAINING AGGREGATE NET PERCENTAGE OF ANNUALIZED AGGREGATE
NUMBER OF LEASE TERM RENTABLE SQUARE AGGREGATE LEASED BASE RENT ANNUALIZED
TENANT NAME LEASES IN MONTHS FEET LEASED SQUARE FEET $ (000'S) BASE RENT
- ---------------------- --------- ------------- --------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kimberly Clark........ 2 (a) 99,238 5.0% $ 2,013 8.7%
Waste Management...... 1 6 45,764 2.3% 752 3.2%
Reed Technology....... 1 178 79,204 4.0% 733 3.1%
CSC................... 1 63 36,830 1.9% 626 2.7%
Conti Mortgage........ 1 56 53,906 2.7% 596 2.6%
IMS................... 1 115 40,774 2.0% 495 2.1%
HIP Health Plan NJ.... 1 136 37,515 1.9% 463 2.0%
Clair O'Dell Agency... 1 59 25,177 1.3% 441 1.9%
CoreStates............ 1 116 30,359 1.5% 410 1.8%
Nibco, Inc............ 1 36 98,725 5.0% 395 1.7%
Parker, McKay &
Criscuolo........... 1 57 25,905 1.3% 389 1.7%
GMAC.................. 1 81 30,138 1.5% 355 1.5%
Neutronics............ 1 77 47,604 2.4% 346 1.5%
Corning Packaging..... 1 30 46,250 2.3% 331 1.4%
Ford Electronics...... 1 22 53,900 2.7% 327 1.4%
Marshall, Dennehey.... 2 (b) 19,633 1.0% 321 1.4%
New England Mutual.... 1 117 31,907 1.6% 320 1.4%
Blue Cross............ 1 126 18,093 0.9% 315 1.4%
AT&T
Communications...... 3 (c) 32,774 1.6% 288 1.2%
Information
Resources........... 1 52 21,008 1.1% 284 1.2%
--
---- ------- ---- ---------- ----
Consolidated
Totals/
Weighted
Average..... 24 76 874,704 43.9% $10,200 43.8%
== ======= ==== ========== ====
</TABLE>
- ---------------
(a) Consists of two leases: a lease representing 93,014 square feet that expires
in December 2005, and a lease representing 6,224 square feet that expires in
November 1997.
(b) Consists of two leases: a lease representing 12,971 square feet that expires
in May 1997 and a lease representing 6,662 square feet that expires in
October 2001.
(c) Consists of three leases: a lease representing 11,000 square feet that
expires in August 1998; a lease representing 13,107 square feet that expires
in December 1996 and a lease representing 8,667 square feet that expires in
November 1997.
70
<PAGE> 77
LEASE EXPIRATIONS
Initial Properties. The following table sets forth detailed lease
expiration information for the Initial Properties for leases in place as of
September 30, 1996, assuming that none of the tenants exercise renewal options
or termination rights, if any, at or prior to the scheduled expirations:
<TABLE>
<CAPTION>
PERCENTAGE
OF
TOTAL
RENTABLE FINAL
NUMBER OF SQUARE FINAL ANNUALIZED ANNUALIZED
LEASES FOOTAGE FINAL BASE RENT PER BASE
EXPIRING SUBJECT TO ANNUALIZED SQUARE FOOT RENT UNDER
YEAR OF LEASE EXPIRATION DECEMBER WITHIN THE EXPIRING BASE RENT UNDER UNDER EXPIRING CUMULATIVE
31 YEAR(1) LEASES EXPIRING LEASES EXPIRING LEASES(1) LEASES TOTAL
- ----------------------------------- ---------- ---------- --------------- ------------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996(2)............................ 15 54,004 $ 676,134 $12.52 4.4% 4.4%
1997............................... 42 115,886 1,701,924 14.69 11.1% 15.5%
1998............................... 20 100,621 (3) 977,905(3) 9.72 6.4% 21.9%
1999............................... 28 296,212 (3) 2,495,062(3) 8.42 16.3% 38.2%
2000............................... 10 62,670 874,483 13.95 5.7% 45.5%
2001............................... 20 212,726 2,970,875 13.97 19.4% 63.3%
2002............................... 1 8,912 169,328 19.00 1.1% 64.4%
2003............................... 7 109,336 1,361,239 12.45 8.9% 73.3%
2004............................... 1 9,262 185,240 20.00 1.2% 74.5%
2005............................... 2 19,387 365,564 18.86 2.4% 76.9%
2006............................... 6 145,449 1,942,732 13.36 12.7% 89.6%
2007 and thereafter................ 2 116,719 1,580,118 13.54 10.4% 100.0%
--- --------- ----------- ------ ------ ----
Consolidated Total/Weighted
Average.......................... 154 1,251,184 $15,300,602 $12.23 100.0% 100.0%
=== ========= =========== ====== ====== ====
</TABLE>
- ---------------
(1) "Final Annualized Base Rent" for each lease scheduled to expire represents
the cash rental rate of base rents, excluding tenant reimbursements, in the
final month prior to expiration multiplied by 12. Tenant reimbursements
generally include payments on account of real estate taxes, operating
expense escalations and common area utility charges.
(2) Represents lease expirations from September 30, 1996 through December 31,
1996.
(3) Includes 152,625 net rentable square feet and $780,711 of final annualized
base rent ($5.12 per net rentable square foot) associated with 1998 and 1999
lease expirations on the Company's sole industrial property included in the
Initial Properties.
71
<PAGE> 78
Acquisition Properties. The following table sets forth detailed lease
expiration information for the Acquisition Properties for leases in place as of
September 30, 1996, assuming none of the tenants exercise renewal options or
termination rights, if any, at or prior to the scheduled expirations:
<TABLE>
<CAPTION>
PERCENTAGE
OF
TOTAL
RENTABLE FINAL
NUMBER OF SQUARE FINAL ANNUALIZED ANNUALIZED
LEASES FOOTAGE FINAL BASE RENT PER BASE
EXPIRING SUBJECT TO ANNUALIZED SQUARE FOOT RENT UNDER
YEAR OF LEASE EXPIRATION DECEMBER WITHIN THE EXPIRING BASE RENT UNDER UNDER EXPIRING CUMULATIVE
31 YEAR(1) LEASES EXPIRING LEASES EXPIRING LEASES(1) LEASES TOTAL
- ----------------------------------- ---------- ---------- --------------- ------------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996(2)............................ 7 23,245 $ 334,950 $14.41 3.4% 3.4%
1997............................... 18 130,449 1,866,640 14.31 19.0% 22.4%
1998............................... 14 42,303 659,835 15.60 6.7% 29.1%
1999............................... 20 143,085 1,605,792 11.22 16.3% 45.4%
2000............................... 4 35,008 445,238 12.72 4.5% 49.9%
2001............................... 10 108,623 1,849,219 17.02 18.8% 68.7%
2002............................... 1 4,433 82,764 18.67 0.8% 69.5%
2003............................... -- -- -- -- -- 69.5%
2004............................... -- -- -- -- -- 69.5%
2005............................... 1 93,014 2,252,799 24.22 22.9% 92.4%
2006............................... -- -- -- -- -- 92.4%
2007 and thereafter................ 3 48.069 742,447 15.45 7.6% 100.0%
--- -------- - ----------- ------ ------
Consolidated Total/Weighted
Average.......................... 78 628,229 $ 9,839,684 $15.66 100.0% 100.0%
=== ========= =========== ====== ======
</TABLE>
- ---------------
(1) "Final Annualized Base Rent" for each lease scheduled to expire represents
the cash rental rate of base rents, excluding tenant reimbursements, in the
final month prior to expiration multiplied by 12. Tenant reimbursements
generally include payments on account of real estate taxes, operating
expense escalations and common area utility charges.
(2) Represents lease expirations from September 30, 1996 through December 31,
1996.
72
<PAGE> 79
Properties. The following table sets forth detailed lease expiration
information for the Properties on a combined basis for leases in place as of
September 30, 1996, assuming that none of the tenants exercise renewal options
or termination rights, if any, at or prior to the scheduled expirations:
<TABLE>
<CAPTION>
PERCENTAGE
OF
TOTAL
RENTABLE FINAL
NUMBER OF SQUARE FINAL ANNUALIZED ANNUALIZED
LEASES FOOTAGE FINAL BASE RENT PER BASE
EXPIRING SUBJECT TO ANNUALIZED SQUARE FOOT RENT UNDER
YEAR OF LEASE EXPIRATION DECEMBER WITHIN THE EXPIRING BASE RENT UNDER UNDER EXPIRING CUMULATIVE
31 YEAR(1) LEASES EXPIRING LEASES EXPIRING LEASES(1) LEASES TOTAL
- ----------------------------------- ---------- ---------- --------------- ------------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996(2)............................ 22 77,249 $ 1,011,084 $13.09 4.0% 4.0%
1997............................... 60 246,335 3,568,563 14.49 14.2% 18.2%
1998............................... 34 142,924 (3) 1,637,739(3) 11.46 6.5% 24.7%
1999............................... 48 439,297 (3) 4,100,854(3) 9.34 16.3% 41.0%
2000............................... 14 97,678 1,319,720 13.51 5.3% 46.3%
2001............................... 30 321,349 4,820,094 15.00 19.2% 65.5%
2002............................... 2 13,345 252,092 18.89 1.0% 66.5%
2003............................... 7 109,336 1,361,239 12.45 5.4% 71.9%
2004............................... 1 9,262 185,240 20.00 0.7% 72.6%
2005............................... 3 112,401 2,618,363 23.29 10.4% 83.0%
2006............................... 6 145,449 1,942,732 13.36 7.7% 90.7%
2007 and thereafter................ 5 164,788 2,322,565 9.24 9.3% 100.0%
--- --------- ----------- ------ ------
Consolidated Total/
Weighted Average................. 232 1,879,413 $25,140,286 $13.38 100.0% 100.0%
=== ========= =========== ====== ======
</TABLE>
- ---------------
(1) "Final Annualized Base Rent" for each lease scheduled to expire represents
the cash rental rate of base rents, excluding tenant reimbursements, in the
final month prior to expiration multiplied by 12. Tenant reimbursements
generally include payments on account of real estate taxes, operating
expense escalations and common area utility charges.
(2) Represents lease expirations from September 30, 1996 through December 31,
1996.
(3) Includes 152,625 net rentable square feet and $780,711 of final annualized
base rent ($5.12 per net rentable square foot) associated with 1998 and 1999
lease expirations on the Company's sole industrial property included in the
Initial Properties.
73
<PAGE> 80
LEASING EXPIRATIONS -- PROPERTY BY PROPERTY
The following table sets forth detailed lease expiration information for
each of the Properties for leases in place as of September 30, 1996, assuming
that none of the tenants exercise renewal options or termination rights, if any,
at or prior to the scheduled expirations.
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES:
HORSHAM/WILLOW GROVE/
JENKINTOWN, PA
650 Dresher Road
Square Footage of Expiring Leases..... -- -- -- -- -- -- --
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- -- --
Number of Leases Expiring............. -- -- -- -- -- -- --
1155 Business Center Drive
Square Footage of Expiring Leases..... -- -- 1,023 6,988 2,298 -- --
Percentage of Total Leased Square
Feet................................. -- -- 2.0% 13.7% 4.5% -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- $11,253 $97,622 $29,070 -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- $11.00 $13.97 -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- 1.7% 14.4% 4.3% -- --
Number of Leases Expiring............. -- -- 1 1 1 -- --
500 Enterprise Road
Square Footage of Expiring Leases..... -- -- -- -- 12,845 53,906 --
Percentage of Total Leased Square
Feet................................. -- -- -- -- 19.2% 80.8% --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- $122,028 $595,661 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- $9.50 $11.05 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- 17.0% 83.0% --
Number of Leases Expiring............. -- -- -- -- 1 1 --
One Progress Avenue
Square Footage of Expiring Leases..... -- -- -- -- -- -- --
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- -- --
Number of Leases Expiring............. -- -- -- -- -- -- --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- ---------- ---------- -----------
<S> <C<C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES:
HORSHAM/WILLOW GROVE/
JENKINTOWN, PA
650 Dresher Road
Square Footage of Expiring Leases..... 30,138 -- -- -- -- 30,138
Percentage of Total Leased Square
Feet................................. 100.0% -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... $403,849 -- -- -- -- $403,849
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $13.40 -- -- -- -- $13.40
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 100.0% -- -- -- -- 100.0%
Number of Leases Expiring............. 1 -- -- -- -- 1
1155 Business Center Drive
Square Footage of Expiring Leases..... -- -- -- 40,774 -- 51,083
Percentage of Total Leased Square
Feet................................. -- -- -- 79.8% -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- $538,217 -- $676,162
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- $13.20 -- $13.24
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 79.6% -- 100.0%
Number of Leases Expiring............. -- -- -- 1 -- 4
500 Enterprise Road
Square Footage of Expiring Leases..... -- -- -- -- -- 66,751
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $717,689
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $10.75
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 2
One Progress Avenue
Square Footage of Expiring Leases..... -- -- -- -- 79,204 79,204
Percentage of Total Leased Square
Feet................................. -- -- -- -- 100.0 % 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- $967,873 $967,873
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- $12.22 $12.22
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- 100.0 % 100.0%
Number of Leases Expiring............. -- -- -- -- 1 1
</TABLE>
- ---------------
Footnotes appear on page 82.
74
<PAGE> 81
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
SOUTHERN ROUTE
202 CORRIDOR, PA
456 Creamery Way
Square Footage of Expiring Leases..... -- -- -- -- -- -- --
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- -- --
Number of Leases Expiring............. -- -- -- -- -- -- --
486 Thomas Jones Way
Square Footage of Expiring Leases..... 2,676 3,895 8,612 10,086 961 -- --
Percentage of Total Leased Square
Feet................................. 10.2 % 14.9% 32.8% 38.5% 3.7%
Final Annual Base Rent Under
Expiring Leases(2)................... $30,774 $46,935 $99,944 $113,468 $11,532 -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $11.50 $12.05 $11.61 $11.25 $12.00 -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 0 0 33.0% 37.5% 3.8%
Number of Leases Expiring............. 1 1 3 1 1 -- --
468 Creamery Way
Square Footage of Expiring Leases..... -- -- -- 23,588 5,346 -- --
Percentage of Total Leased Square
Feet................................. -- -- -- 81.5% 18.5% -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- $224,086 $67,627 -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- $9.50 $12.65 -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 76.8% 23.2% -- --
Number of Leases Expiring............. -- -- -- 1 1 -- --
110 Summit Drive
Square Footage of Expiring Leases..... 2,600 -- -- 26,920 -- -- --
Percentage of Total Leased Square
Feet................................. 8.8 % 91.2%
Final Annual Base Rent Under
Expiring Leases(2)................... $22,646 -- -- $191,110 -- -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $8.71 -- -- $7.10 -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 10.6 % 89.4%
Number of Leases Expiring............. 1 -- -- 2 -- -- --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
SOUTHERN ROUTE
202 CORRIDOR, PA
456 Creamery Way
Square Footage of Expiring Leases..... 47,604 -- -- -- -- 47,604
Percentage of Total Leased Square
Feet................................. 100.0% -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... $357,030 -- -- -- -- $357,030
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $7.50 -- -- -- -- $7.50
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 100.0% -- -- -- -- 100.0%
Number of Leases Expiring............. 1 -- -- -- -- 1
486 Thomas Jones Way
Square Footage of Expiring Leases..... -- -- -- -- -- 26,230
Percentage of Total Leased Square
Feet................................. 100.00%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $302,652
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $11.54
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 100.00%
Number of Leases Expiring............. -- -- -- -- -- 7
468 Creamery Way
Square Footage of Expiring Leases..... -- -- -- -- -- 28,934
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $291,713
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $10.08
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 2
110 Summit Drive
Square Footage of Expiring Leases..... -- -- -- -- -- 29,520
Percentage of Total Leased Square
Feet................................. 100.00%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $213,756
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $7.24
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 100.00%
Number of Leases Expiring............. -- -- -- -- -- 3
</TABLE>
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<PAGE> 82
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
BLUE BELL/PLYMOUTH MEETING/ FORT WASHINGTON, PA
2240/50 Butler Pike
Square Footage of Expiring Leases..... -- -- 4,430 17,080 -- -- --
Percentage of Total Leased Square
Feet................................. -- -- 8.5% 33.0% -- -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- $56,483 $187,880 -- -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- $12.75 $11.00 -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- 8.1% 27.0% -- -- --
Number of Leases Expiring............. -- -- 1 1 -- -- --
120 West Germantown Pike
Square Footage of Expiring Leases..... -- -- 1,450 -- -- 29,096 --
Percentage of Total Leased Square
Feet................................. 4.8% 95.2%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- $17,400 -- -- $510,427 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- $12.00 -- -- $17.54 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- 3.3% 96.7%
Number of Leases Expiring............. -- -- 1 -- -- 2 --
140 West Germantown Pike
Square Footage of Expiring Leases..... -- -- 7,460 16,900 1,264 -- --
Percentage of Total Leased Square
Feet................................. -- -- 29.1% 66.0% 4.9% -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- $125,701 $215,059 $16,432 -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- $16.85 $12.73 $13.00 -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- 35.2% 60.2% 4.6% -- --
Number of Leases Expiring............. -- -- 1 2 1 -- --
2260 Butler Pike
Square Footage of Expiring Leases..... -- -- -- 3,041 21,008 7,843 --
Percentage of Total Leased Square
Feet................................. 9.5% 65.9% 24.6%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- $41,662 $283,608 $98,038 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- $13.70 $13.50 $12.50 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 9.8% 67.0% 23.2% --
Number of Leases Expiring............. -- -- -- 1 1 1 --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
BLUE BELL/PLYMOUTH MEETING/ FORT WASHI
2240/50 Butler Pike
Square Footage of Expiring Leases..... -- -- -- 30,359 -- 51,869
Percentage of Total Leased Square
Feet................................. -- -- -- 58.5% -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- $450,831 -- $695,194
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- $14.85 -- $13.40
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 64.9% -- 100.0%
Number of Leases Expiring............. -- -- -- 1 -- 3
120 West Germantown Pike
Square Footage of Expiring Leases..... -- -- -- -- -- 30,546
Percentage of Total Leased Square
Feet................................. 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $527,827
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $17.28
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 100.0%
Number of Leases Expiring............. -- -- -- -- -- 3
140 West Germantown Pike
Square Footage of Expiring Leases..... -- -- -- -- -- 25,624
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $357,192
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $13.94
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 4
2260 Butler Pike
Square Footage of Expiring Leases..... -- -- -- -- -- 31,892
Percentage of Total Leased Square
Feet................................. 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $423,307
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $13.27
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 3
</TABLE>
- ---------------
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76
<PAGE> 83
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
MAIN LINE, PA
16 Campus Boulevard
Square Footage of Expiring Leases..... -- -- -- -- -- 8,000 --
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 12.2% --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $96,000 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $12.00 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 13.4% --
Number of Leases Expiring............. -- -- -- -- -- 1 --
18 Campus Boulevard
Square Footage of Expiring Leases..... -- 6,224 -- 2,042 -- 29,434 --
Percentage of Total Leased Square
Feet................................. -- 16.5% -- 5.4% -- 78.1% --
Final Annual Base Rent Under
Expiring Leases(2)................... -- $78,360 -- $26,546 -- $447,354 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- $12.59 -- $13.00 -- $15.20 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- 14.2% -- 4.8% -- 81.0% --
Number of Leases Expiring............. -- 1 -- 1 -- 3 --
LEHIGH VALLEY, PA
7310 Tilghman Street
Square Footage of Expiring Leases..... 13,107 8,667 11,000 3,829 -- 2,980 --
Percentage of Total Leased Square
Feet................................. 33.1 % 21.9% 27.8% 9.7% -- 7.5% --
Final Annual Base Rent Under
Expiring Leases(2)................... $108,788 $86,670 $92,950 $34,461 -- $29,055 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $8.30 $10.00 $8.45 $9.00 -- $9.75 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 30.9 % 24.6% 26.4% 9.8% -- 8.3% --
Number of Leases Expiring............. 1 1 1 1 -- 1 --
7248 Tilghman Street
Square Footage of Expiring Leases..... -- 5,327 -- 2,695 -- 32,180 --
Percentage of Total Leased Square
Feet................................. -- 13.2% -- 6.7% -- 80.1% --
Final Annual Base Rent Under
Expiring Leases(2)................... -- $59,929 -- $30,993 -- $348,540 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- $11.25 -- $11.50 -- $10.83 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- 13.6% -- 7.1% -- 79.3% --
Number of Leases Expiring............. -- 1 -- 1 -- 2 --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
MAIN LINE, PA
16 Campus Boulevard
Square Footage of Expiring Leases..... -- -- -- 57,463 -- 65,463
Percentage of Total Leased Square
Feet................................. -- -- -- 87.8% -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- $620,837 -- $716,837
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- $10.80 -- $10.95
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 86.6% -- 100.0%
Number of Leases Expiring............. -- -- -- 3 -- 4
18 Campus Boulevard
Square Footage of Expiring Leases..... -- -- -- -- -- 37,700
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $552,260
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $14.65
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 5
LEHIGH VALLEY, PA
7310 Tilghman Street
Square Footage of Expiring Leases..... -- -- -- -- -- 39,583
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $351,924
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $8.89
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 5
7248 Tilghman Street
Square Footage of Expiring Leases..... -- -- -- -- -- 40,202
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $439,461
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $10.93
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 4
</TABLE>
- ---------------
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<PAGE> 84
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
6575 Snowdrift Road
Square Footage of Expiring Leases..... -- -- -- 46,250 -- -- --
Percentage of Total Leased Square
Feet................................. -- -- -- 100.0% -- -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- $330,688 -- -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- $7.15 -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 100.0% -- -- --
Number of Leases Expiring............. -- -- -- 1 -- -- --
LANSDALE, PA
1510 Gehman Road
Square Footage of Expiring Leases..... -- -- 53,900 98,725 -- -- --
Percentage of Total Leased Square
Feet................................. -- -- 35.3% 64.7% -- -- --
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- $361,130 $419,581 -- -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- $6.70 $4.25 -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- 46.3% 53.7% -- -- --
Number of Leases Expiring............. -- -- 1 1 -- -- --
BURLINGTON COUNTY, NJ
One Greentree Centre
Square Footage of Expiring Leases..... 3,701 15,394 5,172 4,415 -- 10,303 --
Percentage of Total Leased Square
Feet................................. 6.6 % 27.6% 9.3% 7.9% -- 18.5% --
Final Annual Base Rent Under
Expiring Leases(2)................... $60,813 $247,192 $84,954 $78,366 -- $182,038 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $16.43 $16.06 $16.43 $17.75 -- $17.67 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 6.2 % 25.1% 8.6% 8.0% -- 18.5% --
Number of Leases Expiring............. 2 6 3 1 -- 2 --
Two Greentree Centre
Square Footage of Expiring Leases..... 5,680 18,838 3,732 3,183 -- -- --
Percentage of Total Leased Square
Feet................................. 10.1 % 33.6% 6.7% 5.7% -- -- --
Final Annual Base Rent Under
Expiring Leases(2)................... $99,400 $283,350 $43,853 $50,928 -- -- --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $17.50 $15.04 $11.75 $16.00 -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 10.3 % 29.2% 7.2% 5.3% -- -- --
Number of Leases Expiring............. 1 5 2 1 1 -- --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
6575 Snowdrift Road
Square Footage of Expiring Leases..... -- -- -- -- -- 46,250
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $330,688
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $7.15
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 1
LANSDALE, PA
1510 Gehman Road
Square Footage of Expiring Leases..... -- -- -- -- -- 152,625
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $780,711
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $5.12
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 2
BURLINGTON COUNTY, NJ
One Greentree Centre
Square Footage of Expiring Leases..... -- -- -- 16,853 -- 55,838
Percentage of Total Leased Square
Feet................................. -- -- -- 30.2% -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- $332,847 -- $986,210
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- $19.75 -- $17.66
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 33.8% -- 100.0%
Number of Leases Expiring............. -- -- -- 1 -- 15
Two Greentree Centre
Square Footage of Expiring Leases..... 5,255 -- 19,387 -- -- 56,075
Percentage of Total Leased Square
Feet................................. 9.4% -- 34.5% -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... $99,845 -- $365,564 -- -- $942,940
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $19.00 -- $18.86 -- -- $16.82
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 10.3% -- 37.7% -- -- 100.0%
Number of Leases Expiring............. 1 -- 2 -- -- 12
</TABLE>
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78
<PAGE> 85
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
Three Greentree Centre
Square Footage of Expiring Leases..... -- 17,676 -- -- 13,150 26,430 --
Percentage of Total Leased Square
Feet................................. -- 26.6% -- -- 19.8% 39.8% --
Final Annual Base Rent Under
Expiring Leases(2)................... -- $317,173 -- -- $242,155 $450,885 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- $17.94 -- -- $18.41 $17.06 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- 26.9% -- -- 20.5% 38.2% --
Number of Leases Expiring............. -- 3 -- -- 2 2 --
CAMDEN COUNTY, NJ
457 Haddonfield Road
Square Footage of Expiring Leases..... 11,521 -- 7,233 5,798 6,978 8,912
Percentage of Total Leased Square
Feet................................. 11.4% -- 7.2% 5.6% 6.9% 8.8%
Final Annual Base Rent Under
Expiring Leases(2)................... $184,682 -- $105,819 $102,032 $144,134 $169,328
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $16.03 -- $14.63 $17.60 $20.66 $19.00
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 10.4% -- 6.0% 5.8% 8.1% 9.6%
Number of Leases Expiring............. 1 -- 1 2 3 1
OTHER MARKETS
168 Franklin Corner Road,
Lawrenceville, NJ
Square Footage of Expiring Leases..... 8,467 550 -- 4,504 -- 3,902 --
Percentage of Total Leased Square
Feet................................. 48.6 % 3.2% -- 25.8% -- 22.4% --
Final Annual Base Rent Under
Expiring Leases(2)................... $106,041 $7,150 -- $62,200 -- $39,020 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $12.52 $13.00 -- $13.81 -- $10.00 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 49.5 % 3.3% -- 29.0% -- 18.2% --
Number of Leases Expiring............. 3 1 -- 1 -- 1 --
5910-6090 Six Forks, Raleigh, NC
Square Footage of Expiring Leases..... 17,773 27,794 3,842 18,733 -- 1,674 --
Percentage of Total Leased Square
Feet................................. 24.2 % 37.9% 5.2% 25.6% -- 2.3% --
Final Annual Base Rent Under
Expiring Leases(2)................... $247,672 $390.483 $58,175 $286,723 -- $26,784 --
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. 13.94 14.05 15.14 15.31 -- 16.00 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 23.2 % 36.5% 5.4% 26.8% -- 2.5% --
Number of Leases Expiring............. 6 22 5 10 -- 1 --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES (CONTINUED):
Three Greentree Centre
Square Footage of Expiring Leases..... 9,226 -- -- -- -- 66,482
Percentage of Total Leased Square
Feet................................. 13.9% -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... $170,681 -- -- -- -- $1,180,890
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $18.50 -- -- -- -- $17.76
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 14.5% -- -- -- -- 100.0%
Number of Leases Expiring............. 1 -- -- -- -- 8
CAMDEN COUNTY, NJ
457 Haddonfield Road
Square Footage of Expiring Leases..... 13,589 9,262 -- -- 37,515 100,808
Percentage of Total Leased Square
Feet................................. 13.5% 9.2% -- -- 37.2 % 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... $269,926 $185,240 -- -- $612,245 $1,773,406
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. $19.86 20.00 -- -- $16.32 $17.59
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 15.2% 10.5% -- -- 34.5 % 100.0%
Number of Leases Expiring............. 2 1 -- -- 1 12
OTHER MARKETS
168 Franklin Corner Road,
Lawrenceville, NJ
Square Footage of Expiring Leases..... -- -- -- -- -- 17,423
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... -- -- -- -- -- $214,411
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. -- -- -- -- -- $12.31
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 6
5910-6090 Six Forks, Raleigh, NC
Square Footage of Expiring Leases..... 3,524 -- -- -- -- 73,340
Percentage of Total Leased Square
Feet................................. 4.8% -- -- -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)................... $59,908 -- -- -- -- $1,069,744
Final Annual Base Rent per Square Foot
Under Expiring Leases(3)............. 17.00 -- -- -- -- 14.59
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 5.6% -- -- -- -- 100.0%
Number of Leases Expiring............. 1 -- -- -- -- 45
</TABLE>
- ---------------
Footnotes appear on page 82.
79
<PAGE> 86
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED TOTALS FOR INITIAL
PROPERTIES
Square Footage of Expiring Leases.... 57,002 115,886 100,621 296,212 62,670 212,726 8,912
Percentage of Total Leased Square
Feet............................... 4.6 % 9.2% 8.0% 23.6% 5.0% 17.0% .7%
Total Annual Base Rent Under Expiring
Leases(2).......................... $733,246 $1,701,924 $977,905 $2,495,062 $874,483 $2,970,875 $169,328
Total Annual Base Rent per Square
Feet Under Expiring Leases(3)...... $12.86 $14.69 $9.72 $8.42 $13.95 $13.97 $19.00
Percentage of Total Final Annual Base
Rate Represented by Expiring
Leases............................. 4.8 % 11.0% 6.4% 16.2% 5.7% 19.3% 1.1%
Number of Leases Expiring............ 15 42 20 28 10 20 1
<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- ---------- ---------- -----------
<S> <C<C> <C> <C> <C> <C> <C>
CONSOLIDATED TOTALS FOR INITIAL
PROPERTIES
Square Footage of Expiring Leases.... 109,336 9,262 19,387 145,449 116,719 1,251,184
Percentage of Total Leased Square
Feet............................... 8.7% 0.8% 1.5% 11.6% 9.3 % 100.0%
Total Annual Base Rent Under Expiring
Leases(2).......................... $1,361,239 $185,240 $365,564 $1,942,732 $1,580,118 $15,300,615
Total Annual Base Rent per Square
Feet Under Expiring Leases(3)...... $12.45 $20.00 $18.86 $13.36 $13.54 $12.23
Percentage of Total Final Annual Base
Rate Represented by Expiring
Leases............................. 8.9% 1.2% 2.4% 12.7% 10.3 % 100.0%
Number of Leases Expiring............ 7 1 2 6 2 154
</TABLE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ACQUISITION PROPERTIES:
HORSHAM/WILLOW GROVE/JENKINTOWN PA
700/800 Business Center Drive
Square Footage of Expiring Leases..... -- -- -- 22,761 -- 30,773 --
Percentage of Total Leased Square
Feet................................. -- -- -- 27.8% -- 37.5% --
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- $348,223 -- $499,965 --
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- $15.30 -- $16.25 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 27.5% -- 39.5% --
Number of Leases Expiring............. -- -- -- 3 -- 2 --
KING OF PRUSSIA, PA
500 North Gulph Road
Square Footage of Expiring Leases..... 2,362 8,214 6,617 35,085 15,101 12,566 --
Percentage of Total Leased Square
Feet................................. 3.0 % 10.3% 8.3% 43.9% 18.9% 15.7% --
Final Annual Base Rent Under Expiring
Leases(2)............................ $43,697 $133,067 $123,521 $608,010 $286,919 $226,188 --
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. $18.50 $16.20 $18.67 $17.33 $19.00 $18.00 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 3.1 % 9.4% 8.7% 42.8% 20.2% 15.9% --
Number of Leases Expiring............. 1 1 3 5 1 1 --
Bucks County, PA
2200 Cabot Boulevard
Square Footage of Expiring Leases..... -- 20,700 -- 21,000 13,381 -- --
Percentage of Total Leased Square
Feet................................. -- 37.6% -- 38.1% 24.3% -- --
Final Annual Base Rent Under Expiring
Leases(2)............................ -- $108,054 -- $80,850 $53,524 -- --
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- $5.22 -- $3.85 $4.00 -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- 44.6% -- 33.3% 22.1% -- --
Number of Leases Expiring............. -- 1 -- 1 1 -- --
2250 Cabot Boulevard
Square Footage of Expiring Leases..... -- -- -- 40,000 -- -- --
Percentage of Total Leased Square
Feet................................. -- -- -- 100.0% -- -- --
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- $140,000 -- -- --
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- $3.50 -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- 100.0% -- -- --
Number of Leases Expiring............. -- -- -- 1 -- -- --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- ---------- ---------- -----------
<S> <C<C> <C> <C> <C> <C> <C>
ACQUISITION PROPERTIES:
HORSHAM/WILLOW GROVE/JENKINTOWN PA
700/800 Business Center Drive
Square Footage of Expiring Leases..... -- -- -- -- 28,475 82,009
Percentage of Total Leased Square
Feet................................. -- -- -- -- 34.7 % 100.0%
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- -- $418,583 $1,266,770
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- $14.70 $15.45
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- 33.0 % 100.0%
Number of Leases Expiring............. -- -- -- -- 1 6
KING OF PRUSSIA, PA
500 North Gulph Road
Square Footage of Expiring Leases..... -- -- -- -- -- 79.945
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- -- -- $1,421,402
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- -- $17.78
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 12
Bucks County, PA
2200 Cabot Boulevard
Square Footage of Expiring Leases..... -- -- -- -- -- 55,081
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- -- -- $242,428
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- -- $4.40
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 3
2250 Cabot Boulevard
Square Footage of Expiring Leases..... -- -- -- -- -- 40,000
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- -- -- $140,000
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- -- $3.50
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 1
</TABLE>
- ---------------
Footnotes appear on page 82.
80
<PAGE> 87
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ACQUISITION PROPERTIES (CONTINUED):
2260/2270 Cabot Boulevard
Square Footage of Expiring Leases..... 11,283 7,356 8,203 -- 2,796 -- --
Percentage of Total Leased Square
Feet................................. 38.1 % 24.8% 27.7% -- 9.4% -- --
Final Annual Base Rent Under Expiring
Leases(2)............................ $94,613 $72,021 $70,782 -- $34,111 -- --
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. $8.39 $9.79 $8.63 -- $12.20 -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 34.9 % 26.5% 26.1% -- 12.6% -- --
Number of Leases Expiring............. 3 4 3 -- 1 -- --
3000 Cabot Boulevard
Square Footage of Expiring Leases..... 1,900 10,840 11,378 4,933 -- -- --
Percentage of Total Leased Square
Feet................................. 6.5 % 37.3% 39.2% 17.0% -- -- --
Final Annual Base Rent Under Expiring
Leases(2)............................ $34,200 $173,440 $203,048 $84,101 -- -- --
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. $18.00 $16.00 $17.85 $17.05 -- -- --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 6.9 % 35.1% 41.1% 17.0% -- -- --
Number of Leases Expiring............. 1 1 2 2 -- -- --
GREENWOOD SQUARE
Square Footage of Expiring Leases..... 6,500 80,658 16,105 11,373 3,730 28,454 4,433
Percentage of Total Leased Square
Feet................................. 4.3 % 52.8% 10.6% 7.5% 2.4% 18.6% 2.9%
Final Annual Based Rent Under Expiring
Leases(2)............................ $141,440 $1,334,481 $262,484 $193,957 $70,684 $460,126 $82,764
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. $21.76 $16.54 $16.30 $17.05 $18.95 $16.17 $18.67
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... 5.6 % 52.4% 10.3% 7.6% 2.8% 18.1% 3.2%
Number of Leases Expiring............. 1 10 6 5 1 6 1
Burlington County, NJ
8000 Lincoln Drive
Square Footage of Expiring Leases..... -- -- -- -- -- 36,830 --
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 67.1% --
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- -- -- $662,940 --
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- -- $18.00 --
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 67.2% --
Number of Leases Expiring............. -- -- -- -- -- 1 --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------------- ---------- -------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION PROPERTIES (CONTINUED):
2260/2270 Cabot Boulevard
Square Footage of Expiring Leases..... -- -- -- -- -- 29,638
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- -- -- $271,527
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- -- $9.16
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 11
3000 Cabot Boulevard
Square Footage of Expiring Leases..... -- -- -- -- -- 29,051
Percentage of Total Leased Square
Feet................................. -- -- -- -- -- 100.0%
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- -- -- $494,789
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- -- $17.03
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- -- 6
GREENWOOD SQUARE
Square Footage of Expiring Leases..... -- -- -- -- 1,501 152,754
Percentage of Total Leased Square
Feet................................. -- -- -- -- 1.0 % 100.0%
Final Annual Based Rent Under Expiring
Leases(2)............................ -- -- -- -- -- $2,545,938
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- -- $16.67
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- -- 100.0%
Number of Leases Expiring............. -- -- -- -- 1 31
Burlington County, NJ
8000 Lincoln Drive
Square Footage of Expiring Leases..... -- -- -- -- 18,093 54,923
Percentage of Total Leased Square
Feet................................. -- -- -- -- 32.9 % 100.0%
Final Annual Base Rent Under Expiring
Leases(2)............................ -- -- -- -- $323,865 $986,805
Final Annual Base Rent per Square Foot
under Expiring Leases(3)............. -- -- -- -- $17.90 $17.97
Percentage of Total Final Annual Base
Rent Represented by Expiring
Leases............................... -- -- -- -- 32.8 % 100.0%
Number of Leases Expiring............. -- -- -- -- 1 2
</TABLE>
- ---------------
Footnotes appear on page 82.
81
<PAGE> 88
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Northern Suburban Wilmington
One Righter Parkway
Square Footage of Expiring
Leases......................... 1,200 2,681 -- 7,933 -- -- --
Percentage of Total Leased
Square Feet.................... 1.1% 2.6% -- 7.6% -- -- --
Final Annual Base Rent Under
Expiring Leases(2)............. $21,000 $45,577 -- $150,651 -- -- --
Final Annual Base Rent per
Square Foot under Expiring
Leases(3)...................... $17.50 $17.00 -- $18.99 -- -- --
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases................ 0.9% 1.9% -- 6.1% -- -- --
Number of Leases Expiring....... 1 1 -- 3 -- -- --
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C<C> <C> <C> <C> <C> <C>
Northern Suburban Wilmington
One Righter Parkway
Square Footage of Expiring
Leases......................... -- -- 93,014 -- -- 104,828
Percentage of Total Leased
Square Feet.................... -- -- 88.7% -- -- 100.0%
Final Annual Base Rent Under
Expiring Leases(2)............. -- -- $2,252,799 -- -- $2,470,027
Final Annual Base Rent per
Square Foot under Expiring
Leases(3)...................... -- -- $24.22 -- -- $23.56
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases................ -- -- 91.2% -- -- 100.0%
Number of Leases Expiring....... -- -- 1 -- -- 6
</TABLE>
- ---------------
(1) Represents lease expirations from September 30, 1996 to December 31, 1996.
(2) Represents annual base rent for the final annual period in accordance with
lease terms.
(3) Calculated by dividing the annual base rent for the final annual period by
the net rentable square feet subject to such leases.
CONSOLIDATED TOTALS FOR ACQUISITION PROPERTIES
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Square Footage of Expiring
Leases......................... 23,245 130,449 42,303 143,085 35,008 108,623 4,433
Percentage of Total Leased
Square Feet.................... 3.7% 20.8% 6.7% 22.8% 5.6% 17.2% 0.7%
Final Annual Base Rent Under
Expiring Leases(2)............. $334,950 $1,866,640 $659,835 $1,605,792 $445,238 $1,849,219 $82,764
Final Annual Base Rent per
Square Foot under Expiring
Leases(3)...................... $14.41 $14.31 $15.60 $11.22 $12.72 $17.02 $18.67
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases................ 3.4% 19.0% 6.7% 16.3% 4.5% 8.8% 0.8%
Number of Leases Expiring....... 7 18 14 20 4 10 1
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C<C> <C> <C> <C> <C> <C>
Square Footage of Expiring
Leases......................... -- -- 93,014 -- 48,069 628,229
Percentage of Total Leased
Square Feet.................... -- -- 14.8% -- 7.7 % 100.0%
Final Annual Base Rent Under
Expiring Leases(2)............. -- -- $2,252,799 -- $742,447 $9,839,684
Final Annual Base Rent per
Square Foot under Expiring
Leases(3)...................... -- -- $24.22 -- $15.45 $15.66
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases................ -- -- 22.9% -- 7.6 % 100.0%
Number of Leases Expiring....... -- -- 1 -- 3 78
</TABLE>
- ---------------
(1) Represents lease expirations from September 30, 1996 to December 31, 1996.
(2) Represents annual base rent for the final annual period in accordance with
lease terms.
(3) Calculated by dividing the annual base rent for the final annual period by
the net rentable square feet subject to such leases.
CONSOLIDATED TOTALS FOR ALL PROPERTIES
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Square Footage of Expiring
Leases......................... 77,249 246,335 142,924 439,297 97,678 321,349 13,345
Percentage of Total Leased
Square Feet.................... 4.1% 13.1% 7.6% 22.8% 5.2% 17.1% 0.7%
Final Annual Base Rent Under
Expiring Leases(2)............. $1,011,084 $3,568,563 $1,637,739 $4,100,854 $1,319,720 $4,820,094 $252,092
Final Annual Base Rent per
Square Foot under Expiring
Leases(3)...................... $13.09 $14.49 $11.46 $9.34 $13.51 $15.00 $18.89
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases................ 4.0% 14.2% 6.5% 16.3% 5.3% 19.2% 1.0%
Number of Leases Expiring....... 22 60 34 48 14 30 2
<CAPTION>
2007 AND
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL
- -------------------------------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C<C> <C> <C> <C> <C> <C>
Square Footage of Expiring
Leases......................... 109,336 9,262 112,401 145,449 164,788 1,879,413
Percentage of Total Leased
Square Feet.................... 5.8% 0.5% 6.0% 7.7% 8.8 % 100.0%
Final Annual Base Rent Under
Expiring Leases(2)............. $1,361,239 $185,240 $2,618,363 $1,942,732 $2,322,565 $25,140,286
Final Annual Base Rent per
Square Foot under Expiring
Leases(3)...................... $12.45 $20.00 $23.29 $13.36 $9.24 $13.38
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases................ 5.4% 0.7% 10.4% 7.7% 9.3 % 100.0%
Number of Leases Expiring....... 7 1 3 6 5 232
</TABLE>
- ---------------
(1) Represents lease expirations from September 30, 1996 to December 31, 1996.
(2) Represents annual base rent for the final annual period in accordance with
lease terms.
(3) Calculated by dividing the annual base rent for the final annual period by
the net rentable square feet subject to such leases.
82
<PAGE> 89
HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS
The following table sets forth certain historical information regarding
tenant improvements ("TI") and leasing commission ("LC") costs attributable to
leases that commenced (i.e., the date the renewal or replacement tenant began to
pay rent) for the Initial Properties during each of the periods presented. TI
and LC costs for commenced leases during a particular period do not equal the
cash paid during such period due to the timing of payments. The following
results for the nine-month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the full fiscal year.
Historical TI and LC data relating to the Acquisition Properties was not made
available to the Company.
<TABLE>
<CAPTION>
JANUARY 1 TO TOTAL/WEIGHTED
1993 1994 1995 SEPTEMBER 30, 1996 AVERAGE
-------- -------- -------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
NEW TENANTS(1)(2)
Number of Leases........... 21 8 31 17 77
Square feet of re-tenanted
space.................... 91,590 52,312(2) 168,618 160,863 473,383
TI per square foot......... $ 7.01 $ 22.72(2) $ 4.26 $ 3.88 $ 6.70
LC per square foot......... $ 2.87 $ 2.67 $ 2.19 $ 1.42 $ 2.11
-------- -------- -------- ------------------ --------------
Total TI and LC per
square foot........... $ 9.88 $ 25.39(2) $ 6.45 $ 5.30 $ 8.81
======== ======== ======== ============== ===========
RENEWAL/EXPANSION LEASES(1)
Number of Leases........... 24 29 32 20 105
Square feet of
Renewals/Expansions...... 72,961 122,178 308,331 148,309 651,779
TI per square foot......... $ 4.21 $ 4.31 $ 4.88 $ 3.46 $ 4.38
LC per square foot......... $ .64 $ 2.13 $ 0.79 $ 1.14 $ 1.10
-------- -------- -------- ------------------ --------------
Total TI and LC per
square foot........... $ 4.85 $ 6.44 $ 5.67 $ 4.60 $ 5.48
======== ======== ======== ============== ===========
TOTAL NEW TENANTS AND
RENEWAL/EXPANSION
LEASES(1)(2)
Number of Leases........... 45 37 63 37 182
Square feet................ 164,551 174,490 476,949 309,172 1,125,162
TI per square foot......... $ 5.77 $ 9.83 $ 4.66 $ 3.68 $ 5.36
LC per square foot......... $ 1.88 $ 2.29 $ 1.28 $ 1.29 $ 1.52
-------- -------- -------- ------------------ --------------
Total TI and LC per
square foot........... $ 7.65 $ 12.12 $ 5.94 $ 4.97 $ 6.88
======== ======== ======== ============== ===========
</TABLE>
- ---------------
(1) Includes TI and LC costs relating to the 23 Initial Properties that are
office buildings and excludes the one industrial property.
(2) Represents costs associated with conversion of approximately 44,000 net
rentable square feet of warehouse/laboratory space to office space.
83
<PAGE> 90
HISTORICAL CAPITAL EXPENDITURES
The following table sets forth information relating to the combined
historical capital expenditures (excluding those expenditures which are
recoverable from tenants) of the 23 Initial Properties that are office
buildings. Historical capital expenditure data relating to the Acquisition
Properties was not made available to the Company.
<TABLE>
<CAPTION>
JANUARY 1 TO
SEPTEMBER 30,
1993 1994 1995 1996
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Number of Net Rentable Square Feet(1).... 1,027,431 1,027,431 1,032,764 1,082,257
Capital Expenditures Incurred............ $ -- $ 46,060 $ 78,601 $ 126,738
Capital Expenditures per net rentable
square foot............................ $ -- $ 0.04 $ 0.08 $ 0.12
Annual Weighted Average per square foot
(January 1, 1993 to September 30, 1996)............................................ $ 0.07
</TABLE>
- ---------------
(1) Net net rentable square feet are weighted to reflect the acquisitions of 168
Franklin Corner Road in November 1995 and the LibertyView Building (457
Haddonfield Road) in July 1996. In all instances the one industrial property
(1510 Gehman Road) included in the Initial Properties and the Acquisition
Properties are excluded from the calculations.
POTENTIAL REVENUE INCREASE AT REPLACEMENT COST RENTS
The Company believes that the SSI/TNC Properties, the Acquisition
Properties and LibertyView have been purchased at substantial discounts to
replacement cost and have the potential for significant internal revenue growth
as rental rates for office properties in their respective submarkets recover to
levels that would provide a reasonable return on investment to a developer of a
new Class A multi-tenant office building ("Replacement Cost Rents").
ESTIMATED REPLACEMENT COST RENT ANALYSIS
MULTI-TENANT OFFICE BUILDINGS
(PER NET RENTABLE SQUARE FOOT)
<TABLE>
<CAPTION>
SUBURBAN MARKET(1)
-------------------
LOW HIGH
------- -------
<S> <C> <C>
Total Construction (Replacement) Costs(1)................ $135.00 $145.00
Estimated Replacement Cost Rents(1)...................... $ 22.00 $ 24.00
Weighted Average Class A Rental Rates(2)................. $ 18.94 $ 18.94
------- -------
Increase in Class A Rental Rates Necessary to Reach
Replacement Cost Rents................................. $ 3.06 $ 5.06
Percentage Increase in Class A Rental Rates Necessary to
Reach Replacement Cost Rents........................... 16.2 % 26.7 %
</TABLE>
- ---------------
(1) Replacement cost data obtained from C&W Market Analyses. C&W consulted the
Marshall Valuation Service, a nationally recognized construction cost
manual, which indicated that the total cost of development ranges from
approximately $135 to $145 per square foot. This cost includes land, both
direct and indirect costs of construction, a contingency for initial leasing
expenses and an allowance for overhead. This Replacement Cost Rents data
excludes any provision for developers' profit.
(2) Market estimate, provided by C&W.
The Company believes that large corporate users of Class A office space are
beginning to face a shortage of large contiguous blocks of Class A space. This
is illustrated by the fact that, according to C&W, there has been extremely
limited office development for the period from January 1, 1995 to June 30, 1996
(approxi-
84
<PAGE> 91
mately 255,000 net rentable square feet of new office development out of a total
inventory of approximately 43.7 million square feet of office space in the
submarkets where the Properties are located).
HISTORICAL SQUARE FEET UNDER CONSTRUCTION
PHILADELPHIA MSA
LOGO
HISTORICAL OCCUPANCY
The table below sets forth the average occupancy rates, based on square
feet leased, of the Initial Properties at the indicated dates. Historical
occupancy data relating to the Acquisition Properties was not made available to
the Company.
<TABLE>
<CAPTION>
AGGREGATE RENTABLE PERCENTAGE LEASED
DATE SQUARE FEET(1) AT PERIOD END(2)
-------------------------------------------- ------------------ -----------------
<S> <C> <C>
September 30, 1996.......................... 1,333,794 93.8%
December 31, 1995........................... 1,212,056 89.7%
December 31, 1994........................... 1,180,056 94.0%
December 31, 1993........................... 1,180,056 92.1%
December 31, 1992........................... 1,180,056 91.4%
December 31, 1991........................... 1,180,056 83.8%
</TABLE>
- ---------------
(1) The Properties at 168 Franklin Corner Road and 457 Haddonfield Road
(LibertyView) are excluded from the data for these years because the Company
acquired such Properties subsequent to the applicable period. 168 Franklin
Corner Road was acquired in November 1995 and, at that time, was 54% leased.
457 Haddonfield Road was acquired in July 1996, and at that time was 67%
leased.
(2) Percentage leased for four of the Initial Properties (One, Two and Three
Greentree Centre and Twin Forks Office Park) is as of January 31. The
Company does not believe that percentages at December 31 for such Properties
are materially different than the percentages at January 31.
85
<PAGE> 92
OCCUPANCY AND RENTAL RATES -- PROPERTY BY PROPERTY
The following table sets forth the occupancy rates, average annual
effective rental rate per leased square foot and total annual rental revenue for
each of the Initial Properties during the periods specified. Historical
occupancy data and average annual effective rental rates relating to the
Acquisition Properties were not made available to the Company.
<TABLE>
<CAPTION>
AS OF AND
FOR THE
PERIOD
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
HORSHAM/WILLOW GROVE/
JENKINTOWN, PA
650 DRESHER ROAD
Percentage Leased at Period
End.......................... 100% 100% 100% 100% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 17.39 $ 17.39 $ 17.09 $ 16.89 $ 15.23 $ 16.50
Total Annual Rental Revenue
(2).......................... $ 524,000 $ 524,000 $ 515,000 $ 509,000 $ 306,000 --
1155 BUSINESS CENTER DRIVE
Percentage Leased at Period
End.......................... 99% 100% 96% 97% 100% 99%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 16.43 $ 16.68 $ 17.14 $ 16.51 $ 16.50 $ 17.22
Total Annual Rental Revenue
(2).......................... $ 751,000 $ 854,000 $ 863,000 $ 813,000 $ 827,000 --
500 ENTERPRISE ROAD
Percentage Leased at Period
End.......................... 74% 74% 74% 93% 84% 98%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 11.92 $ 12.80 $ 13.70 $ 11.55 $ 13.13 $ 15.03
Total Annual Rental Revenue
(2).......................... $ 471,000 $ 638,000 $ 683,000 $ 626,000 $ 813,000 --
ONE PROGRESS AVENUE
Percentage Leased at Period
End.......................... 100% 100% 100% 100% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 12.64 $ 12.06 $ 11.88 $ 12.56 $ 11.45 $ 11.75
Total Annual Rental Revenue
(2).......................... $1,001,000 $ 955,000 $ 941,000 $ 995,000 $ 907,000 --
SOUTHERN ROUTE 202
CORRIDOR, PA
456 CREAMERY WAY
Percentage Leased at Period
End.......................... 100% 100% 100% 100% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 8.82 $ 5.13 $ 7.71 $ 7.18 $ 7.12 $ 7.25
Total Annual Rental Revenue
(2).......................... $ 420,000 $ 244,000 $ 367,000 $ 342,000 $ 339,000 --
486 THOMAS JONES WAY
Percentage Leased at Period
End.......................... 66% 66% 88% 88% 86% 50.9%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 14.91 $ 15.18 $ 14.75 $ 14.74 $ 14.58 $ 15.46
Total Annual Rental Revenue
(2).......................... $ 416,000 $ 517,000 $ 646,000 $ 669,000 $ 649,000 --
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
AS OF AND
FOR THE
PERIOD
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
468 CREAMERY WAY
Percentage Leased at Period
End.......................... 100% 100% 100% 100% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 12.44 $ 12.96 $ 13.00 $ 13.31 $ 12.89 $ 13.88
Total Annual Rental Revenue
(2).......................... $ 360,000 $ 375,000 $ 376,000 $ 385,000 $ 373,000 --
110 SUMMIT DRIVE
Percentage Leased at Period
End.......................... 79% 90% 100% 100% 87% 68%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 8.30 $ 10.13 $ 9.42 $ 9.60 $ 8.46 $ 7.20
Total Annual Rental Revenue
(2).......................... $ 314,000 $ 356,000 $ 377,000 $ 419,000 $ 360,000 --
BLUE BELL/PLYMOUTH MEETING/FORT
WASHINGTON, PA
2240/50 BUTLER PIKE
Percentage Leased at Period
End.......................... 79% 100% 100% 100% 100% 99%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 17.66 $ 17.66 $ 16.69 $ 16.50 $ 16.27 $ 17.55
Total Annual Rental Revenue
(2).......................... $ 819,000 $ 842,000 $ 871,000 $ 861,000 $ 849,000 --
120 WEST GERMANTOWN PIKE
Percentage Leased at Period
End.......................... 100% 100% 100% 100% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 19.28 $ 20.26 $ 20.66 $ 20.43 $ 18.73 $ 17.52
Total Annual Rental Revenue
(2).......................... $ 589,000 $ 619,000 $ 631,000 $ 624,000 $ 563,000 --
140 WEST GERMANTOWN PIKE
Percentage Leased at Period
End.......................... 100% 72% 96% 100% 100% 99%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 16.65 $ 16.86 $ 16.19 $ 15.34 $ 15.61 $ 17.38
Total Annual Rental Revenue
(2).......................... $ 432,000 $ 367,000 $ 365,000 $ 394,000 $ 405,000 --
2260 BUTLER PIKE
Percentage Leased at Period
End.......................... 100% 100% 75% 75% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 16.23 $ 16.62 $ 18.42 $ 17.30 $ 16.76 $ 17.82
Total Annual Rental Revenue
(2).......................... $ 497,000 $ 530,000 $ 455,000 $ 416,000 $ 436,000 --
MAIN LINE, PA
16 CAMPUS BOULEVARD
Percentage Leased at Period
End.......................... 100% 100% 100% 100% 0% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 16.57 $ 17.53 $ 18.68 $ 18.15 $ 17.22 $ 13.58
Total Annual Rental Revenue
(2).......................... $1,122,000 $1,187,000 $1,265,000 $1,229,000 $1,069,000 --
18 CAMPUS BOULEVARD
Percentage Leased at Period
End.......................... 35% 77% 77% 82% 82% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 18.33 $ 16.94 $ 17.69 $ 17.56 $ 17.14 $ 18.62
Total Annual Rental Revenue
(2).......................... $ 224,000 $ 350,000 $ 513,000 $ 524,000 $ 532,000 --
</TABLE>
87
<PAGE> 94
<TABLE>
<CAPTION>
AS OF AND
FOR THE
PERIOD
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
LEHIGH VALLEY, PA
7310 TILGHMAN STREET
Percentage Leased at Period
End.......................... 78% 90% 82% 82% 93% 99%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 10.26 $ 10.91 $ 11.85 $ 11.99 $ 11.23 $ 8.89
Total Annual Rental Revenue
(2).......................... $ 366,000 $ 350,000 $ 402,000 $ 395,000 $ 393,000 --
7248 TILGHMAN STREET
Percentage Leased at Period
End.......................... 96% 96% 83% 92% 92% 94%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 12.68 $ 12.66 $ 13.82 $ 14.22 $ 13.81 $ 14.76
Total Annual Rental Revenue
(2).......................... $ 439,000 $ 522,000 $ 537,000 $ 549,000 $ 557,000 --
6575 SNOWDRIFT ROAD
Percentage Leased at Period
End.......................... 100% 100% 100% 100% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 7.82 $ 7.98 $ 8.09 $ 8.52 $ 7.35 $ 7.15
Total Annual Rental Revenue
(2).......................... $ 315,000 $ 369,000 $ 374,000 $ 394,000 $ 340,000 --
1510 GEHMAN ROAD
Percentage Leased at Period
End.......................... 50% 85% 85% 100% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 5.53 $ 5.82 $ 7.47 $ 7.27 $ 7.21 $ 4.72
Total Annual Rental Revenue
(2).......................... $ 419,000 $ 676,000 $ 969,000 $1,082,000 $1,101,000 --
BURLINGTON COUNTY, NJ
ONE GREENTREE CENTRE
Percentage Leased at Period End
(3).......................... 81% 97% 100% 93% 91% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 16.82 $ 14.96 $ 15.53 $ 15.80 $ 18.42 $ 16.07
Total Annual Rental Revenue
(2).......................... $ 815,000 $ 744,000 $ 855,000 $ 854,000 $ 949,000 --
TWO GREENTREE CENTRE
Percentage Leased at Period End
(3).......................... 83% 84% 79% 75% 100% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 16.74 $ 17.78 $ 18.49 $ 16.18 $ 13.60 $ 16.02
Total Annual Rental Revenue
(2).......................... $ 794,000 $ 832,000 $ 845,000 $ 698,000 $ 666,000 --
THREE GREENTREE CENTRE
Percentage Leased at Period End
(3).......................... 100% 95% 100% 74% 99% 96%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 17.77 $ 17.77 $ 18.35 $ 15.94 $ 15.78 $ 16.41
Total Annual Rental Revenue
(2).......................... $1,226,000 $1,194,000 $1,234,000 $ 957,000 $ 942,000 --
</TABLE>
88
<PAGE> 95
<TABLE>
<CAPTION>
AS OF AND
FOR THE
PERIOD
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
CAMDEN COUNTY, NJ
457 HADDONFIELD ROAD
(LIBERTYVIEW)
Percentage Leased at Period End
(4).......................... -- -- -- -- 63% 83%
Average Annual Effective Rental
Rate Per Leased Square Foot
(4).......................... -- -- -- -- -- $ 18.63
Total Annual Rental Revenue
(4).......................... -- -- -- -- -- --
OTHER MARKETS
168 FRANKLIN CORNER ROAD,
LAWRENCEVILLE, NJ
Percentage Leased at Period End
(5).......................... -- -- -- -- 55% 55%
Average Annual Effective Rental
Rate Per Leased Square Foot
(5).......................... -- -- -- -- $ 15.95 $ 15.55
Total Annual Rental Revenue
(5).......................... -- -- -- -- $ 23,000 --
5910-6090 SIX FORKS, RALEIGH, NC
Percentage Leased at Period End
(3).......................... 92% 93% 97% 100% 97% 100%
Average Annual Effective Rental
Rate Per Leased Square Foot
(1).......................... $ 11.16 $ 12.37 $ 11.22 $ 13.13 $ 14.27 $ 14.25
Total Annual Rental Revenue
(2).......................... $ 630,000 $ 833,000 $ 779,000 $ 944,000 $1,026,000 --
</TABLE>
- ---------------
(1) For the years ended December 31, 1991 through 1995, represents annual rental
revenue divided by the average occupancy level. For the nine-month period
ended September 30, 1996, represents: (i) for office leases written on a
triple net lease basis, the sum of the annualized contracted base rental
rates payable for all space leased as of September 30, 1996 without giving
effect to free rent or scheduled rent increases that would be taken into
account under generally accepted accounting principles plus the 1996
budgeted operating expense excluding tenant electricity; and (ii) for office
leases written on a full service basis, the annualized contracted base
rental rate payable for all space leased as of September 30, 1996 without
giving effect to free rent or scheduled rent increases that would be taken
into account under generally accepted accounting principles. In both cases,
the annualized rental is divided by the total square footage leased as of
September 30, 1996.
(2) Represents rental revenue including tenant reimbursements, determined on a
straight-line basis in accordance with generally accepted accounting
principles. Tenant reimbursements generally include payment of real estate
taxes, operating expenses and escalations and common area maintenance and
utility charges.
(3) Percentage leased for four of the Properties (One, Two and Three Greentree
Centre and Twin Forks Office Park) is as of January 31. The Company does not
believe that percentages at December 31 for such Properties are materially
different than the percentages at January 31.
(4) Property acquired in July 1996.
(5) Property acquired in November 1995.
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<PAGE> 96
SUBMARKETS AND PROPERTY INFORMATION
The Properties owned and operated by the Company contain an aggregate of
approximately 2.0 million net rentable square feet. Thirty-five of the
Properties are located in the Market. The C&W Mid-Year Report divides the six
Pennsylvania counties included within the Market into nine submarkets. While the
Company considers all nine of these Pennsylvania submarkets and the two southern
New Jersey counties within the Market as its primary market, its currently owned
Properties are concentrated in several key submarket areas. These submarkets are
discussed below. Unless otherwise indicated, the market data contained in the
following discussion have been derived from the C&W Mid-Year Report and from
nine additional market analyses prepared by C&W at the request of the Company
(the "C&W Market Analyses").
HORSHAM/WILLOW GROVE/JENKINTOWN
The Company owns four Initial Properties and will acquire two Properties in
the Horsham/Willow Grove/Jenkintown submarket. This submarket contains, as of
June 30, 1996, approximately 3.3 million net rentable square feet of commercial
office space. As of June 30, 1996, total vacancy was approximately 12.1%, down
from 15.6% as of June 30, 1995. Demand for office space in this submarket has
historically come from the movement of users outward from Philadelphia and from
the formation of new high-tech/service oriented businesses.
HORSHAM BUSINESS CENTER
Horsham Business Center is a business park developed by the Company and
consists of 16 Class A suburban office buildings aggregating approximately
600,000 net rentable square feet. Horsham Business Center is located on the
northwestern side of the Philadelphia metropolitan area in Montgomery County,
Pennsylvania.
As of June 30, 1996, the direct competition to the Company's Properties
within this submarket consisted of approximately 1.1 million net rentable square
feet of existing Class A office space (in 22 buildings), with an overall vacancy
rate of 8.9%, as compared to 17.2% as of June 30, 1995. The weighted average
asking rental rate in directly competitive properties is $18.02 per square foot
compared to the average existing rental rates of $16.50 and $17.22 in the
Company's two buildings as of September 30, 1996.
650 Dresher Road
650 Dresher Road is a one story office building completed in 1984.
This Property contains 30,138 net rentable square feet and is situated on
4.2 acres. This Property is constructed of structural steel framing with a
brick exterior. As of September 30, 1996, this Property was 100% leased to
GMAC Mortgage Corporation at an average annualized existing base rent of
$11.75 per leased square foot. After factoring in 1996 projected operating
expense recoveries, the annualized existing rental rate at the building as
of August 31, 1996 excluding tenant utilities was $16.50 per leased square
foot. The lease is scheduled to expire in May 2003 and is structured on a
triple net basis which allows for a complete pass through of all property
operating expenses.
1155 Business Center Drive
1155 Business Center Drive is a two story office building completed in
1990. This Property contains 51,388 net rentable square feet and is
situated on 5 acres. This Property is constructed of structural steel
framing with a brick exterior. As of September 30, 1996, this Property was
99.4% leased to four tenants with an average annualized existing base rent
of $12.37 per leased square foot. After factoring in 1996 projected
operating expense recoveries, the average annualized existing rental rate
at the building as of September 30, 1996 excluding tenant utilities was
$17.22 per leased square foot. The largest tenant in this property is IMS
(International Mill Service) occupying 40,774 square feet or 79.4% of the
total net rentable square feet, with a lease scheduled to expire in March
2006. There are no existing leases at this property that are scheduled to
expire in 1996 or 1997.
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<PAGE> 97
700/800 Horsham Business Center Drive (Acquisition Properties)
700/800 Business Center Drive is a two building, one and two story
office complex completed in 1986. These buildings aggregate 82,009 net
rentable square feet and are situated on 13.2 acres. The buildings are
constructed of structural steel framing with a brick exterior. As of
September 30, 1996, the buildings were 100% leased to five tenants. After
factoring in 1996 projected operating expense recoveries, the average
annualized existing rental rate at the buildings as of September 30, 1996
excluding tenant utilities was $14.60 per leased square foot. The primary
tenant, is Metpath, which occupies 28,475 net rentable square feet,
expanding to 51,236 net rentable square feet in July 1999, under a lease
scheduled to expire in January 2012.
KEITH VALLEY BUSINESS CENTER
Keith Valley Business Center contains two office buildings, and is located
in Horsham, Montgomery County, Pennsylvania. Keith Valley Business Center is
located several miles from, and is within the same submarket as, Horsham
Business Center.
500 Enterprise Road
500 Enterprise Road is a one story office/flex building completed in
1990. This Property contains 67,800 net rentable square feet and is
situated on 7.4 acres. This Property is constructed of structural steel
framing with a brick exterior. As of September 30, 1996, this Property was
98.5% leased to two tenants, with an average annualized existing base rent
per leased square foot of $10.75. After factoring in 1996 projected
operating expense recoveries, the average annualized existing rental rate
at this Property as of September 30, 1996 excluding tenant utilities was
$15.03 per leased square foot. Conti Trade Services Corporation, a wholly
owned subsidiary of Continental Grain, leases 53,906 square feet
(representing 79.6% of the net rentable square feet) under a lease
scheduled to expire in April 2001, provided that Conti Trade Services
Corporation may terminate the lease in April 2000 with a penalty payment.
The other lessee (constituting 12,845 net rentable square feet) at this
Property is Pioneer Technologies, under a lease scheduled to expire in
October 2000. This property competes for tenants in the same office
submarket as the Properties in the Horsham Business Center.
One Progress Drive
One Progress Drive is a two story office building completed in 1986.
This Property contains 79,204 net rentable square feet and is constructed
of structural steel framing with a brick exterior. As of September 30,
1996, this Property was 100% leased to Reed Technology at an average
existing base rent per leased square foot of $9.25. After factoring in 1996
projected operating expense recoveries, the annualized existing rental rate
at the building as of September 30, 1996, excluding tenant utilities, is
$11.75 per leased square foot. Reed Technology is a wholly-owned subsidiary
of Reed Elsevier, and the lease is scheduled to expire in June 2011. In
connection with this tenancy, the interior of the building was
substantially renovated at the tenant's expense. The lease contains the
following two early termination provisions: in July 2001 the tenant may
terminate the lease upon one year's prior written notice to the Company and
by making a termination payment of $3.2 million; in July 2006 the tenant
may terminate the lease upon one year's written notice and by making a
termination payment of $840,000. According to C&W, One Progress Drive
competes for tenants in the same office submarket as the Horsham Business
Center properties. The tenant has a right of first offer to purchase this
Property during the term of its lease.
SOUTHERN ROUTE 202 CORRIDOR
The Company owns four Properties in the Southern Route 202 Corridor
submarket. This submarket contains, as of June 30, 1996, approximately 3.5
million net rentable square feet of commercial office space and an additional
approximately 2.6 million net rentable square feet of flex space. As of June 30,
1996, total vacancy for commercial office space in this submarket was
approximately 13.9%, down from 22.9% as of
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<PAGE> 98
June 30, 1995. Over the 18-month period ended June 30, 1996, net absorption of
office space in this submarket averaged 39,800 square feet per quarter or
approximately 160,000 square feet per annum. Leasing activity during this period
averaged approximately 100,000 square feet per quarter or 400,000 square feet
per annum. As of June 30, 1996, total vacancy for flex space in this submarket
was approximately 2.8%, down from 8.5% at the end of the first quarter of 1995.
The Company's Properties in this submarket are located in two separate
business complexes: Whitelands Business Park and Oaklands Corporate Center, in
which the Company developed a total of seven buildings. Of these seven
buildings, four were build-to-suit and were sold to the occupant. The buildings
were constructed between 1987 and 1990, contain an aggregate of 171,698 net
rentable square feet and are situated on 17.6 acres.
OAKLANDS BUSINESS CENTER
456 Creamery Way
456 Creamery Way is a single story office/flex building completed in
1987. This Property contains 47,604 net rentable square feet and is
situated on 5.2 acres and is currently 100% leased to Neutronics, Inc.
under a lease scheduled to expire in January 2003 at an existing rental
rate of $7.25 per square foot. This lease is written on a triple net basis
and, pursuant to its terms, the tenant contracts directly with third
parties that provide building services, including landscaping, janitorial
service and snow removal.
486 Thomas Jones Way
486 Thomas Jones Way is a two story office building completed in 1990.
This Property contains 51,500 net rentable square feet and is situated on
4.6 acres. This Property is constructed of steel framing with a brick
exterior. As of September 30, 1996, this Property was 50.93% leased to
seven tenants at an average annualized existing rental rate of $11.54 per
square foot. After factoring in 1996 projected operating expense
recoveries, the average annualized existing rental rate at this Property as
of September 30, 1996 excluding tenant utilities was $15.46 per leased
square foot. The primary tenant at this Property is First American Real
Estate, which occupies 10,086 square feet under a lease scheduled to expire
in December 1999.
468 Creamery Way
468 Creamery Way is a single story office building completed in 1990.
This Property contains 28,934 net rentable square feet and is situated on
2.6 acres. As of September 30, 1996, this Property was 100% leased to two
tenants at an average annualized existing rental rate of $10.08 per square
foot. After factoring in 1996 projected operating expense recoveries, the
average annualized existing rental rate at this Property as of September
30, 1996 excluding tenant utilities was $13.88 per leased square foot. The
primary tenant at this Property is Franciscan Health System, which occupies
23,588 square feet under a lease scheduled to expire in June 1999.
WHITELANDS BUSINESS CENTER
110 Summit Drive
110 Summit Drive is a single story office building completed in 1985.
This Property contains 43,660 net rentable square feet and is situated on
5.2 acres. As of September 30, 1996, this Property was 67.6% leased to
three tenants at an average existing base rent of $7.20 per square foot.
The primary tenant is Maris Equipment, which occupies 21,580 square feet
under a lease scheduled to expire in April 1999.
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BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON
The Company owns four Properties in the Blue Bell/Plymouth Meeting/Fort
Washington submarket. As of June 30, 1996, this submarket contains approximately
4.9 million square feet of commercial office space. As of June 30, 1996, total
vacancy for commercial office space was approximately 6.9%, down from 11.8% as
of June 30, 1995. As of September 30, 1996, there were no projects under
construction. Absorption of office space in this submarket has averaged 55,000
square feet per quarter or 218,000 square feet annually during the 18-month
period ended June 30, 1996. Leasing activity has averaged approximately 95,000
square feet per quarter or 380,000 square feet per annum during the 18-month
period ended June 30, 1996.
MEETINGHOUSE BUSINESS CENTER
Meetinghouse Business Center was developed by the Company and consists of
five office buildings aggregating approximately 140,000 net rentable square
feet. This complex is located on the northeastern side of the Philadelphia
metropolitan area in Montgomery County, Pennsylvania. The buildings were
completed in 1984 and are situated on 20.5 acres. The buildings are one and two
story, with structural steel framing and stone and stucco exteriors. This
complex was developed consistent with the requirements of the Meetinghouse
historical district. The complex is at the interchange of the Pennsylvania
Turnpike (both East-West and Northeast Extension) and Interstate 476, which is
the largest interchange on the Pennsylvania Turnpike.
Meetinghouse Business Center competes for tenants in the Blue Bell/Plymouth
Meeting/Fort Washington submarket which consists of approximately 4.9 million
square feet. As of June 30, 1996, total vacancy in this marketplace was 6.9%,
which represents a significant decline from 11.8% as of June 30, 1995. C&W
identified five other buildings which directly compete with Meetinghouse
Business Center. These buildings aggregate 443,000 net rentable square feet, and
as of June 30, 1996 were less than 1.9% vacant. Average annual asking rental
rates for this direct competition range from $18.00 to $19.00 per square foot
while existing tenants at this Property were paying $15.45 to $18.60 per square
foot as of September 30, 1996.
2240/50 Butler Pike
2240/50 Butler Pike is a one story office building completed in 1984.
This Property contains 52,183 net rentable square feet and is situated on
7.5 acres. As of September 30, 1996, this Property was 99.4% leased to
three tenants. The primary tenant is CoreStates Bank, which occupies 30,359
net rentable square feet (representing 59% of the aggregate net rentable
square feet at the Property) at an existing annualized rental rate of
$13.50 per square foot under a lease scheduled to expire in April 2006. The
other major tenant in this Property is Worldwide Marketing, which occupies
17,080 net rentable square feet (representing 33% of the net rentable
square feet at the Property) at an existing annualized rental rate of
$11.00 per square foot under a lease scheduled to expire in October 1999.
After factoring in 1996 projected operating expense recoveries, the annual
average existing rental rate for this Property as of September 30, 1996
(excluding tenant utilities) was $17.55 per leased square foot.
120 W. Germantown Pike
120 W. Germantown Pike is a two story office building completed in
1984. This Property contains 30,546 net rentable square feet and is
situated on 3.2 acres. As of September 30, 1996, this Property was 100%
leased to three tenants. The primary tenant is Clair O'Dell, a regional
insurance agency, which occupies 25,177 net rentable square feet
(representing 82% of the net rentable square feet at the Property) under a
lease scheduled to expire in July 2001 at an existing annualized rental
rate of $17.50 per square foot. After factoring in 1996 projected operating
expense recoveries, the average annual existing rental rate for this
Property as of September 30, 1996 excluding tenant utilities was $17.52 per
leased square foot.
140 W. Germantown Pike
140 W. Germantown Pike is a two story office building completed in
1984. This Property contains 25,953 net rentable square feet and is
situated on 3.6 acres. As of September 30, 1996, this Property was
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98.7% leased to four tenants. The primary tenant is Healthcare, Inc., which
occupies 11,822 net rentable square feet (representing 46% of the net
rentable square feet at the Property) under a lease scheduled to expire in
September 1999 at an average annualized existing rental rate of $12.50
square foot. After factoring in 1996 projected operating expense
recoveries, the annual existing rental rate for all tenants at this
Property as of September 30, 1996 (excluding tenant utilities) was $17.38
per leased square foot.
2260 Butler Pike
2260 Butler Pike is a one story office building completed in 1984.
This Property contains 31,892 net rentable square feet and is situated on
6.2 acres. As of September 30, 1996, this Property was 100% leased to three
tenants. The primary tenant is Information Resources, which occupies 21,008
net rentable square feet (representing 66% of the net rentable square feet
at the Property) under a lease scheduled to expire in December 2000 at an
existing annualized rental rate of $13.50 per square foot. After factoring
in 1996 projected operating expense recoveries, the annual existing rental
rate for all tenants at this Property as of September 30, 1996 (excluding
tenant utilities) was $17.82 per leased square foot.
MAIN LINE
The Company owns two Properties in the Main Line submarket. This submarket
contains, as of June 30, 1996, approximately 2.5 million square feet of
commercial office space. As of June 30, 1996, the total vacancy rate was
approximately 8.5%, down from 14.5% at June 30, 1995. Over the 18-month period
ended June 30, 1996, net absorption of office space in this submarket totalled
approximately 150,000 square feet, while leasing activity exceeded 315,000
square feet. The Company's Properties in this submarket are located in the
Newtown Square Corporate Campus.
NEWTOWN SQUARE CORPORATE CAMPUS
According to C&W, as of June 30, 1996, there were 21 buildings aggregating
approximately 2.3 million net rentable square feet that are in direct
competition to the Company's Newtown Square Properties. The vacancy rate in
these directly competitive properties was 7.2% as of June 30, 1996. As a result,
vacancy rates in these directly competitive properties compare favorably to the
8.5% vacancy rate in the overall Main Line office submarket area as of June 30,
1996. Rental rates in the directly comparable properties range from $18.00 per
square foot full service (which includes a pro rata share of all costs of
operating the property) to $24.00 per square foot plus tenant electricity. On a
gross rental rate basis, excluding tenant utilities, existing tenants in 16 and
18 Campus Boulevard were paying from $11.49 to $17.60 and from $16.50 to $17.95,
respectively, per leased square foot plus electricity as of September 30, 1996.
16 Campus Boulevard
16 Campus Boulevard is a three story office building completed in
1990. This Property contains 65,463 net rentable square feet and is
situated on 14.6 acres. This Property is constructed of structural steel
framing with a brick exterior. As of September 30, 1996, this Property was
100% leased to four tenants at an average annualized base rent per leased
per square foot of $9.43. The largest tenant at this Property, New England
Mutual Life, occupies 31,907 net rentable square feet under a lease
scheduled to expire in 2006. 16 Campus Boulevard also is the headquarters
building of the Company. After factoring in 1996 projected operating
expense recoveries, the average annual existing rental rate for the
building as of September 30, 1996 (excluding tenant utilities) was $13.58
per square foot. A tenant at this Property has a right of first offer to
purchase this Property during the term of its lease, which is scheduled to
expire in June 2006.
18 Campus Boulevard
18 Campus Boulevard is a two story office building completed in 1990.
This Property contains 37,700 net rentable square feet and is situated on
6.4 acres. This Property is constructed of structural steel framing with a
brick exterior. This Property is currently 100% leased to tenants at an
average existing annualized base rent per square foot of $14.62. The major
tenant at the Property, Devco Mutual, occupies 13,332 net rentable square
feet under a lease expiring in January 2001, provided, that, Devco may
terminate the lease at January 1998 with a penalty payment. There are no
existing leases that are
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scheduled to expire in 1996. The aggregate net rentable square footage of
leases expiring in 1997 represent 14.2% of this Property's total net
rentable square feet. After factoring in 1996 projected operating expense
recoveries, the annual existing rental rate for this Property as of
September 30, 1996 (excluding tenant utilities) was $18.62 per leased
square foot.
LEHIGH VALLEY
The Company owns three Properties in the Lehigh Valley submarket. This
submarket contains approximately 4.4 million square feet of commercial office
space. As of June 30, 1996, total vacancy in this submarket was approximately
11.6% down from 15.4% at June 30, 1995. Over the 18-month period ended June 30,
1996, absorption of office space in this submarket was approximately 37,000
square feet per quarter or 148,000 square feet per year.
In addition to competing in the office market within this submarket,
certain of the Properties compete in the industrial/flex market sector.
According to C&W, as of June 30, 1996 there was an estimated 19.1 million net
rentable square feet of industrial space located in 12 business parks throughout
this market sector. As of June 30, 1996, the vacancy rate in this market sector
was 9.9%. Included in this market sector was an estimated 1.7 million square
feet of flex space as of June 30, 1996. As of that date, the vacancy rate for
flex space was only 14.2%. C&W identified seven flex complexes aggregating
629,000 net rentable square feet that are in direct competition with the
Properties located within this submarket. Such competing properties had an
overall vacancy rate of 5.2% as of June 30, 1996, compared to 36.7% as of June
30, 1995. Average asking rents in these competing properties ranged from $3.75
to $10.50 per square foot.
IRON RUN CORPORATE CENTER
The Company owns three Properties in the Iron Run Corporate Center, a 725
acre business park located in Allentown, Pennsylvania. The park contains 37
buildings containing over 3 million net rentable square feet. The Company
developed five buildings in the park totalling over 326,000 net rentable square
feet. Two buildings, aggregating 200,000 net rentable square feet, were
build-to-suit for an end user and a life insurance company. The Company's three
Iron Run Corporate Center buildings aggregate 129,113 net rentable square feet
and are both office and office/flex buildings.
7310 Tilghman Street
7310 Tilghman Street is a one story office building completed in 1985.
This Property contains 40,000 net rentable square feet and is situated on
5.2 acres. The structural steel framed building has a brick exterior and an
interior ceiling height capability of 18 feet. As of September 30, 1996,
this Property was 99% leased to three tenants at an average annualized
existing base rent of $8.89 per square foot. The primary tenant is AT&T,
which occupies 32,774 net rentable square feet under three leases scheduled
to expire as follows: December 1996 (13,107 net rentable square feet);
November 1997 (8,667 net rentable square feet); and August 1998 (11,000 net
rentable square feet).
7248 Tilghman Street
7248 Tilghman Street is a one story office/flex building completed in
1987. This Property contains 42,863 net rentable square feet and is
situated on 4.2 acres. As of September 30, 1996, this Property was 94%
leased to four tenants. The primary tenant is Ohio Casualty, which occupies
19,877 net rentable square feet under a lease scheduled to expire in July
2001. After factoring in 1996 projected operating expense recoveries, the
annual existing rental rate for this Property as of September 30, 1996
excluding tenant utilities was 14.76 per leased square foot.
According to C&W, these properties compete for office tenants in the Lehigh
Valley area which contains of 4.3 million net rentable square feet and, as of
June 30, 1996, had a total vacancy of 11.6%, down from 15.4% at June 30, 1995.
The average asking rental rate for properties directly competing with the
Properties in this submarket ranges between $8.75 to $13.50 per square foot on a
triple net basis.
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6575 Snowdrift Road
6575 Snowdrift Road is a one story office/flex building completed in
1989. This Property contains 46,250 net rentable square feet and is
situated on 6.3 acres. As of September 30, 1996, this Property was 100%
leased to Corning Packaging under a lease scheduled to expire in February
1999 at an average annual rental rate of $7.15 per leased square foot.
LANSDALE
The Company has a warehouse/distribution facility located in Lansdale,
Pennsylvania, which is located along the Northeast Extension of the Pennsylvania
Turnpike between Plymouth Meeting and Allentown, Pennsylvania. C&W indicated
that, in the four suburban Pennsylvania counties that are adjacent to the City
of Philadelphia, there were an estimated 67.5 million net rentable square feet
of warehouse/distribution space with a vacancy rate of 13.5% as of June 30,
1996. C&W has indicated that the Company's Property in this submarket competes
within the Western Montgomery County area submarket. Within this submarket,
there are approximately 4.5 million net rentable square feet of
warehouse/distribution space with a vacancy rate as of June 30, 1996 of 15.0%.
During the 18-month period ended June 30, 1996, the vacancy rate for warehouse
space in the Western Montgomery County market area was highly variable, with a
rate as low as 11.4% and as high as 16.3%. During such period, leasing activity
amounted to over 700,000 square feet which equated to 120,000 square feet per
quarter.
1510 Gehman Road
1510 Gehman Road is a warehouse/flex building located in northern
Montgomery County completed in 1990 and situated in a park that contains
three buildings that were developed by the Company. Two of the buildings
were build-to-suit for a user and the other facility was sold to an
institutional investor in 1992. This Property contains 152,625 net rentable
square feet and is situated on 14.8 acres. This Property is constructed of
structural steel framing, insulated metal panels and exterior masonry units
with an interior ceiling height of 24 feet. This Property consists of 65%
warehouse space and 35% finished space. As of September 30, 1996, this
Property was 100% leased to two tenants with an average annualized existing
base rent per leased square foot of $4.72. Nibco, Inc. occupies 98,725 net
rentable square feet as warehouse space under a lease scheduled to expire
in August 1999 at an existing rate of $4.00 per net rentable square foot.
Ford Electronics occupies 53,900 net rentable square feet utilized as
design space under a lease scheduled to expire in June 1998 at an existing
rental rate of $6.05 per net rentable square foot. Ford has contractual
right to acquire the 1510 Gehman Road property provided Ford occupies
greater than 50% of the building. As of November 7, 1996, Ford occupied 35%
of the building and the balance was occupied by Nibco, Inc.
BUCKS COUNTY OFFICE AND INDUSTRIAL MARKET
Eight of the Acquisition Properties are located in the Bucks County Office
and Industrial market. This submarket contains, as of June 30, 1996
approximately 37 million net rentable square feet of industrial space and 2.6
million net rentable square feet of office space. As of June 30, 1996, the
vacancy rate in this submarket was approximately 16.8% for industrial properties
and 12.8% for office properties, down from 18.4% at January 1, 1996.
As of June 30, 1996, the average rental rate for Class A office space was
$18.95 (full service), per net rentable square foot. Office leasing activity
during the past few years has averaged approximately 150,000 to 200,000 net
rentable square feet per year while net absorption of office space has averaged
approximately 75,000 to 200,000 net rentable square feet per year.
The average rental rate for industrial space in this submarket was $3.37
per square foot for the six-month period ended June 30, 1996, but varies between
$3.00 to $5.00 per net rentable square foot depending on tenant size, percentage
of office and special finishes. The average rental rate for office/flex space
was $6.45 per net rentable square foot for the six month period ended June 30,
1996 but was between $6.00 and $10.00 per net rentable square foot depending on
tenant size, percentage of office and special finishes. Leasing activity
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in this submarket during the six month period ended June 30, 1996 was
approximately 353,000 net rentable square feet.
2200 Cabot Boulevard (an Acquisition Property)
2200 Cabot Boulevard is a one story industrial building completed in
1979. This Property contains 55,081 net rentable square feet and is
situated on 3.98 acres. This Property is constructed of structural steel
framing with a brick and glass exterior. As of September 30, 1996, this
Property was 100% leased to three tenants with an average annualized
existing base rent of $4.40 per square foot. The largest tenants in this
Property are Hussman and Noble Printing, occupying 21,000 and 20,700 square
feet, respectively, with leases scheduled to expire in March 1999 and May
1997, respectively, provided, that, Hussman may terminate the lease at
September 1997 with a penalty payment.
2250 Cabot Boulevard (an Acquisition Property)
2250 Cabot Boulevard is a one story industrial building completed in
1982. This Property contains 40,000 net rentable square feet and is
situated on 3.3 acres. This Property is constructed of structural steel
framing with a brick and glass exterior. As of September 30, 1996, this
Property was 100% leased to one tenant with an average annualized existing
base rent of $3.50 per square foot. This tenant, Bucks County Nut, occupies
40,000 square feet under a lease scheduled to expire in July 1999.
2260/2270 Cabot Boulevard (Acquisition Properties)
2260/2270 Cabot Boulevard consists of two one story office/flex
buildings completed in 1984. This Property contains an aggregate of 29,638
net rentable square feet and is situated on 2.1 acres. This Property is
constructed of structural steel framing with a brick and glass exterior. As
of September 30, 1996, this Property was 100% leased to 12 tenants with an
average annualized existing base rent of $8.54 per square foot. The largest
tenant in this Property, Sager Electrical, occupies 4,238 square feet under
a lease scheduled to expire in October 1998.
3000 Cabot Boulevard (an Acquisition Property)
3000 Cabot Boulevard is a one story office building completed in 1986.
This Property contains 34,640 net rentable square feet and is situated on
4.9 acres. This Property is constructed of structural steel framing with a
brick and glass exterior. As of September 30, 1996, this Property was 83.8%
leased to six tenants with an average annualized existing base rent of
$17.03 per square foot. The largest tenant in this Property, Geraghty
Miller, occupies 10,840 square feet under a lease scheduled to expire in
November 1997.
3333, 3331, 3329 Street Road -- Greenwood Square (Acquisition Properties)
The Greenwood Square Property consists of three multi-story office
buildings completed from 1985 through 1988. 3333 Street Road is a three
story office building, containing 60,408 net rentable square feet situated
on 3.4 acres; 3331 Street Road is a four story office building, containing
80,521 net rentable square feet situated on 4.5 acres; and 3329 Street Road
is a two story office building, containing 25,000 net rentable square feet
situated on 1.5 acres. All three buildings are constructed of structural
steel with brick and glass exteriors. As of September 30, 1996 this
Property was 92.1% leased to 30 tenants with an average annualized existing
gross rent of $16.54 per square foot. The largest tenant in this Property,
Waste Management, occupies 45,764 net rentable square feet under a lease
scheduled to expire in March 1997.
KING OF PRUSSIA/VALLEY FORGE MARKET
The Company is acquiring one building in the King of Prussia/Valley Forge
market. As of June 30, 1996, this submarket contained approximately 9.3 million
square feet of office space. As of June 30, 1996, vacancy in this submarket was
approximately 10.8%, down from 17.6% at June 30, 1995. Leasing activity in this
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submarket for the six months ended June 30, 1996 was 586,438 net rentable square
feet. Absorption in this submarket for the six months ended June 30, 1996 was
939,237 net rentable square feet compared to 167,504 net rentable square feet
for the comparable period during 1995.
500 North Gulph Road (an Acquisition Property)
500 North Gulph Road is a five story office building completed in
1979. This Property contains 92,851 net rentable square feet and is
situated on 5.3 acres. This Property is constructed of structural steel
framing with a pre-cast concrete exterior. As of September 30, 1996, this
Property was 86.1% leased to 13 tenants with an average annualized existing
gross rent of $16.51 per square foot. The largest tenants in this Property
are Strohl Systems and Transition Software, which are related companies and
occupy 26,378 net rentable square feet under two separate leases scheduled
to expire in October 1999 and September 2000.
SOUTHERN NEW JERSEY
The Southern New Jersey market is divided into two principal submarket
areas: Burlington County and Camden County.
BURLINGTON COUNTY SUBMARKET
The Company owns three Initial Properties and will acquire one Property in
Burlington County. This submarket contains approximately 4.6 million net
rentable square feet of commercial office space. As of June 30, 1996, total
office vacancy was 19.3% down from 21.2% as of June 30, 1995 in this submarket.
However, the vacancy rate of Class A space as of June 30, 1996 was 12.6%
compared to the market average of 19.3%. Leasing activity within the Burlington
County market was approximately 93,000 square feet per quarter or 371,000 square
feet per annum during the 18-month period ended June 30, 1996.
One Greentree Centre
One Greentree Centre is a three story midrise office building
completed in 1982. This Property contains 55,838 net rentable square feet
and is situated on 4.2 acres. This Property is constructed of structural
steel framing with a brick exterior. The lobby in this Property was
renovated in 1996. As of September 30, 1996, this Property was 100% leased
to fourteen tenants at an average annualized base rent per leased square
foot of $16.07 full service. The largest tenant in this Property is
American Executive Centers, which occupies 16,853 square feet under a lease
scheduled to expire in January, 2006. Aggregate square footage of leases
scheduled to expire in 1996, 1997 and 1998 represent 7%, 28% and 9% of this
Property's total net rentable square footage.
Two Greentree Centre
Two Greentree Centre is a three story midrise office building
completed in 1983. This Property contains 56,075 net rentable square feet
and is situated on 4.2 acres. This Property is a sister building to One
Greentree Center and is constructed of structural steel framing with a
brick exterior. The lobby was renovated in 1996. As of September 30, 1996,
this Property was 100% leased to eleven tenants at an average annualized
base rent per lease square foot of $16.02 full service. The largest tenant
in this Property is Merrill, Lynch, Pierce, Fenner and Smith, which
occupies 12,672 net rentable square feet under a lease scheduled to expire
in November 2005. Aggregate square footage of leases scheduled to expire in
1996, 1997 and 1998 represent 0%, 30%, and 5%, respectively, of this
Property's total net rentable square feet.
Three Greentree Centre
Three Greentree Centre is a four story midrise office building
completed in 1984. This Property contains 69,101 net rentable square feet
and is situated on 5.4 acres. This Property is constructed of structural
steel framing with a brick and dryvit exterior. The two story lobby was
renovated in 1996. As of
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September 30, 1996, this Property was 96% leased to eight tenants at an
average annualized base rent per lease square foot of $16.41 full service.
The largest tenant at the Property is Parker, McKay, Criscuolo &
Associates, a regional law firm, which occupies 25,905 net rentable square
feet under a lease scheduled to expire in May 2001. Aggregate square
footage of leases scheduled to expire in 1996, 1997 and 1998 represent 0%,
25% and 0%, respectively, of this Property's total net rentable square
feet.
8000 Lincoln Drive (an Acquisition Property)
8000 Lincoln Drive is a five story office building completed in 1983.
This Property contains 54,923 net rentable square feet and is situated on
7.5 acres. This Property is constructed of structural steel framing with a
pre-cast concrete exterior. As of September 30, 1996, this Property was
100% leased for occupancy by January 1997 to two tenants with an average
annualized existing base rent of $17.13 per square foot. The largest tenant
in this Property will be Computer Science Corp. occupying 36,830 net
rentable square feet under a lease scheduled to expire in November 2001,
provided that, Computer Science may terminate the lease at November 1999
with a penalty payment.
C&W identified 15 office buildings aggregating approximately 1.3 million
net rentable square feet that, as of June 30, 1996, compete directly with the
Greentree Centre Properties. As of June 30, 1996, these competing properties
were approximately 22% vacant, with rental rates ranging from $19.50 to $22.00,
per square foot for leases with full operating expenses included.
CAMDEN COUNTY SUBMARKET
The Company owns one Property in Camden County. This submarket contains
approximately 4.8 million net rentable square feet of commercial office space.
At June 30, 1996, the vacancy rate was approximately 20%. This high vacancy rate
is primarily attributable to vacancy rates of 18.4% and 21% on Class B and Class
C space, respectively. At June 30, 1996, the vacancy rate for Class A office
space was 9.0%. While there has been negative absorption in this submarket in
the 18-month period ended June 30, 1996, C&W has reported that during the
three-month period ended June 30, 1996, absorption has been a positive 112,572
square feet. In addition, during the 18-month period ended June 30, 1996,
leasing activity in this submarket has approximated 70,000 square feet per
quarter or 280,000 square feet annually.
457 Haddonfield Road
457 Haddonfield Road (known as the LibertyView Building) is a seven
story midrise office building completed in 1990. This Property contains
121,737 net rentable square feet and is situated on approximately 7 acres.
This Property features a structural steel framing, reinforced concrete
footings with an exterior of precast panels with reflective glass. Key
features in this Property include a two story marble lobby, working
balconies on the upper floors, permanent neon lighting and dramatic views
of Center City Philadelphia. As of September 30, 1996, this Property was
83% leased to twelve tenants at an average annualized existing rental rate
of $18.63 per square foot. The largest tenant of this Property is HIP
Health of N.J., which occupies 37,515 net rentable square feet under a
lease scheduled to expire in December 2007.
NORTHERN SUBURBAN WILMINGTON
New Castle County Delaware
The Company is acquiring one building in the Northern Suburban
Wilmington submarket. As of June 30, 1996 the subtotal market contained
approximately 3.0 net rentable million square feet of commercial office
space, with a vacancy rate of 12.6% which is down from 15.7% at June 30,
1995. C&W has identified eleven Class A Buildings aggregating approximately
1.2 million net rentable square feet which are directly competitive with
the Company's Property in this submarket. As of June 30, 1996, vacancy in
the competitive submarket product was approximately 3.7%. The average
rental rate for comparable properties in the submarket for Class A space is
$20.50 per net rentable square foot. Leasing
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activity in the submarket during the eighteen months period ended June 30,
1996 has averaged 544,000 net rentable square feet on an annualized basis,
while annual net absorption of office space has averaged approximately
350,000 net rentable square feet.
One Righter Parkway -- Delaware Corporate Center I (an Acquisition
Property)
Delaware Corporate Center I is a three story office building completed
in 1989. This Property contains 104,828 net rentable square feet and is
situated on 3 acres. This Property is constructed of structural steel
framing and precast concrete exterior. As of September 30, 1996, this
Property was 100% leased to six tenants with an average annualized existing
base rent of $19.30 per square foot. The largest tenant in this Property,
Kimberly Clark, occupies 93,014 net rentable square feet under a lease
scheduled to expire in December 2005. Delaware Corporate Center I is a
ground leased property. Fee ownership is held by Woodlawn Trustees,
Incorporated, and the ground lessee's interest will be acquired by the
Operating Partnership from the seller. Fifty-one years remain on the
original term of the ground lease and the ground lessee has the option to
extend the term for two consecutive ten-year terms. The ground lessee holds
a right of first refusal to acquire the fee interest in the property. The
property is ground leased on a triple-net basis, with the ground lessee
assuming all carrying charges respecting the property, in addition to
payment of base rent.
OTHER MARKETS
168 Franklin Corner Road
168 Franklin Corner Road is located in Lawrenceville, Mercer County,
New Jersey and was completed in 1976. This Property contains 32,000 net
rentable square feet. As of September 30, 1996, this Property was 55%
leased to six tenants at an average annualized existing rental rate of
$12.31 per leased square foot.
Twin Forks Office Park
Twin Forks Office Park is located in Raleigh, North Carolina. This
Property was completed in 1982 and contains 73,339 net rentable square
feet. As of September 30, 1996 this Property was 100% leased to 46 tenants
at an average annualized existing rental rate of $14.25 per leased square
foot. The primary tenant in this Property is GE Mortgage, occupying 19,373
square feet (26% of the total net rentable square feet at the Property)
under a lease that expired in October 1996. GE Mortgage has announced its
intention to vacate and to relocate its Raleigh operations to Cherry Hill,
NJ. Since this announcement the Company has actively been marketing this
space and, as of September 30, 1996, has re-leased 8,801 of the total
19,373 square feet to three tenants at an annualized existing rental rate
of $15.25 per square foot.
COMPETITION
The Company competes with other owners and developers that have greater
resources and more experience than the Company. Within the Suburban Philadelphia
Office and Industrial Market, the Company's office and industrial Properties
compete generally with properties owned by other real estate developers and
institutions principally on the basis of price, property quality and location,
especially proximity to major area highways, suburban residential areas, and
access to the central Philadelphia business district and the northeast corridor
business communities of New York, Baltimore and Washington. The Company's
industrial Properties compete principally with buildings owned by other local
developers largely on the basis of services provided and access to
transportation, both highway and rail, and access to Northeast corridor and
national markets.
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of certain hazardous or toxic
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substances on, in or under such property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. The costs of remediation or
removal of such substances may be substantial, and the presence of such
substances, or the failure to promptly remediate such substances, may adversely
affect the owner's or operator's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic wastes may be liable for the costs of removal
or remediation of such wastes at the disposal or treatment facility, regardless
of whether such facility is owned or operated by such person. Certain other
federal, state and local laws, ordinances and regulations may impose liability
on an owner of real property where on-site contamination discharges into waters
of the state, including groundwater, or otherwise affects the beneficial use of
such waters. Other federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in the
event of demolition or certain renovations or remodeling and also govern
emissions of asbestos fibers in the air. The operation and subsequent removal of
certain underground storage tanks are also regulated by federal, state and local
laws, ordinances and regulations. In connection with its ownership and operation
of the Properties, the Company could be held liable for the costs of remedial
action with respect to contamination, asbestos-containing materials or tanks or
related claims.
All of the Properties have been subjected to either Phase I environmental
site assessments, or updates of earlier assessments, performed by independent
third parties. Phase I environmental site assessments are intended to evaluate
the environmental condition of, and potential environmental liabilities
associated with, the Property and include a site visit and review of public and
historical records, but involve no soil or groundwater sampling or subsurface
investigation. Such assessments generally consist of an investigation of
environmental conditions of the Properties, including a preliminary
investigation of the Properties and identification of publicly known conditions
concerning properties in the vicinity of the Properties, an investigation as to
the presence of polychlorinated biphenyls and aboveground and underground
storage tanks at the Properties and the preparation and issuance of written
reports. The primary focus of the recent Phase I environmental site assessments
and updates of earlier assessments conducted on the Properties was to identify
any "recognized environmental conditions." These are conditions arising from the
presence or likely presence of hazardous substances or petroleum products that
would present a risk of harm to the public health or environment or that would
be the subject of an enforcement action if brought to the attention of
appropriate governmental agencies, or of third party actions.
Except as discussed below with respect to the Whitelands Property, the
environmental site assessments have not revealed any significant environmental
liability, nor is the Company aware of any environmental liability with respect
to the Properties that the Company's management believes would have a material
adverse effect on the Company. An environmental assessment has identified
environmental contamination of potential concern with respect to the Whitelands
Property. Petroleum products, solvents and heavy metals were detected in the
groundwater. These contaminants are believed to be associated with debris
deposited by others in a quarry formerly located on the Whitelands Property. The
quarry previously appeared on the Comprehensive Environmental Response
Compensation and Liability Information System List, a list maintained by the
United States Environmental Protection Agency (the "EPA") of abandoned, inactive
or uncontrolled hazardous waste sites which may require cleanup. The EPA
conducted a preliminary assessment in 1984 with the result that no further
action was taken. Subsequently, the quarry was removed from the list. While the
Company believes it is unlikely that the Operating Partnership will be required
to undertake remedial action with respect to such contamination, there can be no
assurance in this regard. If the Operating Partnership were required to
undertake remedial action on the Whitelands Property, it has been indemnified
against the cost of such remediation by the seller, SSI, subject to a maximum of
$2,018,000. The term of SSI's indemnity agreement expires on August 22, 2001. If
SSI is unable to fulfill its obligations under its indemnity agreement or if the
Operating Partnership is required to undertake remedial action after the
expiration of the five-year term of the agreement, the costs of such remediation
could be substantial. Because the Company does not believe that any remediation
at the Whitelands Property is probable, no amounts have been accrued for any
such potential liability.
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No assurance can be given that existing environmental studies with respect
to the Properties reveal all environmental liabilities or that any prior owner
of any such property did not create any material environmental condition not
know to the Company. Moreover, no assurance can be given that: (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Properties will not be
affected by tenants and occupants of the Properties, by the condition of
properties in the vicinity of the Properties (such as the presence of
underground storage tanks) or by third parties unrelated to the Company.
INSURANCE
The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company believes are adequate and
appropriate under the circumstances. There are, however, certain types of losses
that are not generally insured because they are either uninsurable or not
economically feasible to insure. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in the
Property, as well as the anticipated future revenues from the Property and, in
the case of debt which is with recourse to the Company, would remain obligated
for any mortgage debt or other financial obligations related to the Property.
Any such loss would adversely affect the Company. Moreover, the Company will
generally be liable for any unsatisfied obligations other than non-recourse
obligations. Company management believes that the Properties are adequately
insured. No assurance can be given that material losses in excess of insurance
proceeds will not occur in the future.
CERTAIN PROPERTY TAX INFORMATION
The aggregate real estate property tax obligations paid by the Company
(with or without tenant reimbursement) for calendar 1995 were approximately
$391,000. The aggregate real estate property tax obligations paid by SSI and TNC
(with or without tenant reimbursement) for calendar 1995 with respect to the
SSI/TNC Properties were approximately $968,000. These amounts do not include
real estate property taxes paid directly by tenants. On a pro forma basis, more
than 95.3% of the aggregate annualized base rent at the Properties as of
September 30, 1996 is generated by leases which contain provisions requiring
tenants to pay as additional rent their proportionate share of any real estate
taxes or increases in real estate taxes over base amounts.
EMPLOYEES
As of September 30, 1996, the Company employed 26 persons, including four
executive officers.
LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation nor, to
the Company's knowledge, is any material litigation currently threatened against
the Company, other than routine litigation arising in the ordinary course of
business, substantially all of which is expected to be covered by liability
insurance.
MORTGAGE DEBT AND CREDIT FACILITY
Mortgage Indebtedness
The following table sets forth the Company's mortgage indebtedness that
will remain outstanding after the closing of the Offering and the Concurrent
Investments and the application of the use of proceeds therefrom. In addition to
mortgage indebtedness listed below, the Credit Facility is expected to be
secured by
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cross-collateralized mortgages and assignments and rents on all Properties,
except for those set forth in the table below.
<TABLE>
<CAPTION>
PROPERTIES -- INDEBTEDNESS
(DOLLARS IN THOUSANDS)
PRINCIPAL BALANCE INTEREST
AS OF RATE AT ANNUAL DEBT MATURITY PREPAYMENT
PROPERTY/LOCATION SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 SERVICE(1) DATE PREMIUMS
- --------------------------- ------------------ ------------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Horsham Business Center
Horsham, PA
650 Dresher Road(2)...... $ 2,500 8.0% $ 200 8/1998 None
After
2/1/97
Oaklands Corporate Center
Exton, PA
486 Thomas Jones Way(3)..
468 Creamery Way(3)...... 6,427 8.00% 637 2/1998 None
Whitelands Business Park
Exton, PA
110 Summit Drive(4)...... 1,583 9.25% 220 4/1997 None
Iron Run Industrial Park
Allentown, PA
7310 Tilghman Street..... 2,533 9.25% 255 3/2000 (9)
6575 Snowdrift Road...... 2,348 8.00% 230 2/1998 None
Greentree Centre
Marlton, New Jersey
One Greentree
Centre(5)(6)
Two Greentree
Centre(5)(6)
Three Greentree
Centre(5)(6) 6,147 9.00% 628 4/2001 (10)
LibertyView
Cherry Hill, NJ
457 Haddonfield
Road(7)(8)............ 8,461 8.00 % 339 1/1999 (11)
910 8.00 % 0 12/1997
None
Twin Forks Office Park
Raleigh, NC
5910-6090 Six (12)
Forks(6)(7)........... $ 2,704 9.00 % $ 276 4/2001
------
TOTAL MORTGAGE
INDEBTEDNESS............. $ 33,613 $ 2,785
======
</TABLE>
- ---------------
(1) "Annual Debt Service" is calculated for the twelve-month period ending
December 31, 1996. For loans that bear interest at a variable rate, the
rates in effect at September 30, 1996 have been assumed to remain constant
for the balance of 1996.
(2) On July 31, 1996, this loan was refinanced by paying the former mortgage
lender $2.4 million in full satisfaction thereof with the partial proceeds
of a new loan from GMAC in the principal amount of $2.5 million. The new
mortgage loan matures on August 1, 1998, bears interest at a variable rate
equal to LIBOR plus 250 basis points and provides for principal
amortization of $4,000 per month during the period September 1, 1997
through July 1, 1998.
(3) Both of these properties secure a single loan.
(4) Interest rate is variable and equal to the prime rate plus 1.0%.
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<PAGE> 110
(5) These properties secure two loans payable to a single lender. The interest
rate was fixed at 9.0% through October 15, 1996 and is currently fixed at
9.31% through April 15, 1998. After April 15, 1998, the interest rate is
reset based upon the mortgage lender's evaluation of such factors as
financial performance and projected risk of the Properties securing such
loan. The mortgage loans are due on April 15, 2001, and the lender has the
right to call the loans at par on April 15, 1998.
(6) The Company has made an application to the lender that, if accepted, would
result in (i) an increase in the principal amount of the Greentree Centre
loan to $7.3 million and the Twin Forks loan to $2.7 million, (ii) a fixed
interest rate of 7.6%, (iii) a maturity date of 5 years from closing, and
(iv) a 20-year amortization of principal.
(7) The $8,461 debt was incurred as a result of the acquisition of the Property
on July 19, 1996 and the amount of debt service reflects debt service from
July 19, 1996 through December 31, 1996. Pursuant to the terms of this
loan, the Company has the right to borrow up to approximately $1.3 million
to fund tenant improvements and leasing commissions.
(8) The $910,000 of debt was incurred as a result of the acquisition of the
Property on July 19, 1996. The mortgage note payable is in the principal
amount of $1.0 million, is due in December 1997 and does not bear interest.
The Company recorded a $104,000 adjustment to the purchase price and a
corresponding reduction in debt to reflect the fair value of the note
payable to the seller and will accrue interest expense to the date of
maturity.
(9) Four percent through December 31, 1996, which prepayment penalty is reduced
by 1% for each subsequent year through 1999.
(10) This loan may not be prepaid unless the Twin Forks loan is also prepaid.
The prepayment penalty equals greater of 1% of principal amount prepaid or
a yield maintenance premium.
(11) One percent of any portion of the original acquisition portion of the loan
being prepaid.
(12) This loan may be prepaid without prepayment of the loan secured by One
Greentree Centre, Two Greentree Centre and Three Greentree Centre, provided
certain loan-to-value ratios and coverage tests with regard to the
Greentree Centre loan are satisfied and upon payment of a premium equal to
the greater of 1% of the principal amount prepaid or a yield maintenance
premium.
CREDIT FACILITY
The Company and Operating Partnership have obtained a commitment from Smith
Barney Mortgage Capital Group, Inc. and NationsBank, N.A. for a two year, $80
million secured revolving Credit Facility. The Credit Facility will be used to
refinance existing indebtedness, fund acquisitions and new development projects,
and for general working capital purposes, including capital expenditures and
tenant improvements. The amount available to be borrowed under the Credit
Facility will be reduced by the amount of the letters of credit issued by the
lenders for as long as such letters of credit are outstanding. The Credit
Facility will be recourse to the Company and the Operating Partnership and will
be secured by, among other items, cross-collateralized and cross-defaulted first
mortgage liens on approximately 25 Properties, owned directly or indirectly by
the Company, the Operating Partnership or their representative subsidiaries.
The Credit Facility will bear interest at a per annum floating rate equal
to the 30, 60, or 90-day LIBOR, plus 175 basis points. The Credit Facility will
require monthly payments of interest only, with all outstanding advances and all
accrued but unpaid interest due 2 years from the closing of the Credit Facility.
A fee equal to 0.75% of the maximum amount available under the Credit Facility
will be paid to the lenders in respect of the Credit Facility at closing. In
addition, a fee of 0.25% per annum (0.125% per annum until 4/1/97) on the unused
amount of the Credit Facility will be payable quarterly in arrears. An annual
fee in the amount of $35,000 will be payable annually in advance to NationsBank,
N.A. as compensation for administration of the Credit Facility. The Credit
Facility will carry minimum debt service coverage, fixed charge,
debt-to-tangible net worth ratios and other financial covenants and tests, and
will require payment of prepayment premiums in certain instances.
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<PAGE> 111
Closing of the Credit Facility is subject to satisfactory completion of
this Offering, the negotiation and execution of a definitive Credit Facility
agreement and related documentation, and other customary closing conditions.
OPTION PROPERTIES
At the closing of the SSI/TNC Transaction, the Operating Partnership
acquired an option from an affiliate of TNC (C/N Horsham Towne Limited
Partnership) entitling the Company to acquire, at its discretion, the four
Option Properties at any time during the two-year period ending August 22, 1998
(subject to two extensions of one year each). The Operating Partnership may not
exercise its option for less than all of the Option Properties. The parties have
agreed that the purchase price payable by the Operating Partnership upon
exercise of its option will consist of $1.00 in excess of the mortgage debt
encumbering the Option Properties at the time of exercise (which, as of
September 30, 1996, aggregated $20.0 million, including approximately $3.3
million of accrued debt and unpaid interest). The right of the Operating
Partnership to exercise its option to acquire the Option Properties is
conditioned on receipt of consent of the mortgage lender for the Option
Properties. As of the date hereof, no lender consent has been requested, and no
determination to seek any such consent has been made. There can be no assurance
that any of the Option Properties will be acquired.
The following table summarizes certain information with respect to the
Option Properties:
<TABLE>
<CAPTION>
AVERAGE TOTAL
TOTAL BASE RENT
PERCENTAGE BASE RENT PLUS EXPENSE
LEASED AS OF FOR THE TWELVE RECOVERIES PER
NET SEPTEMBER MONTHS ENDED RENTABLE SQUARE
YEAR RENTABLE 30, SEPTEMBER 30, 1996 FOOT LEASED AT
PROPERTY/LOCATION BUILT SQUARE FEET 1996(1) (000'S)(2) SEPTEMBER 30, 1996(3)
- ---------------------------------------- ----- ----------- ------------ --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
HORSHAM BUSINESS CENTER HORSHAM, PA
255 Business Center Drive............. 1987 50,616 100% $ 492 $ 17.03
355 Business Center Drive............. 1987 26,637 87% 137 15.70
455 Business Center Drive............. 1988 51,505 93.9% 396 17.12
555 Business Center Drive............. 1988 30,122 98% 310 16.33
-------- ------------
158,880 $ 1,335
======= ====
<CAPTION>
TENANTS LEASING 10% OR MORE
OF RENTABLE SQUARE FOOTAGE PER
PROPERTY AS OF SEPTEMBER 30,
PROPERTY/LOCATION 1996 AND LEASE EXPIRATION DATE
- ---------------------------------------- ------------------------------
<S> <<C>
HORSHAM BUSINESS CENTER HORSHAM, PA
255 Business Center Drive............. Stroehmann (38%) - 6/99;
Great Expectations
(23%) - 3/97;
GMAC (13%) - 9/97-9/01;
Buckman Van Buren (21%) - 2/97
355 Business Center Drive............. Anthem Electronic
(34%) - 9/01;
Seimens Printing Sys.
(22%) - 8/98;
GE Capital (16%) - 9/01
455 Business Center Drive............. Astea (65%) - 10/02;
Letven/Diccicco (29%) - 7/00
555 Business Center Drive............. GMAC (77%) - 9/99;
First American Home Care
(13%) - 4/00
</TABLE>
- ---------------
(1) Based on all leases dated on or before September 30, 1996.
(2) "Total Base Rent" for the twelve months ended June 30, 1996 represents base
rents excluding tenant reimbursements calculated in accordance with
generally accepted accounting principles determined on a straight-line
basis. Tenant reimbursements generally include payment of real estate taxes,
operating expenses and escalations and common area maintenance and utility
charges.
(3) Represents Total Base Rent for the twelve months ended September 30, 1996,
plus tenant reimbursements for the twelve months ended September 30, 1996,
divided by net rentable square feet leased.
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<PAGE> 112
AGGREGATE TAX BASIS -- INITIAL PROPERTIES
The following table sets forth the aggregate tax basis of the Initial
Properties as of December 31, 1995 for federal income tax purposes:
<TABLE>
<CAPTION>
31.5 19
AGGREGATE 40 YEAR 39 YEAR YEAR YEAR 19 YEAR 18 YEAR 7 YEAR 5 YEAR
SUBMARKET/PROPERTY TAX BASIS LAND MACRS(1) MACRS(1) MACRS(1) ACRS(2) STRAIGHT-LINE STRAIGHT-LINE MACRS(3) ACRS(2)
- ------------------- --------- ------ ------- ------- ------- ------ ------------- ------------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HORSHAM/WILLOW
GROVE/JENKINTOWN,
PA
650 Dresher
Road........... $ 2,702 $ 413 -- -- -- $1,158 -- $ 967 $ 120 $ 44
1155 Business
Center Drive... 5,434 943 -- $4,491 -- -- -- -- -- --
500 Enterprise
Road........... 4,981 814 -- 4,167 -- -- -- -- -- --
One Progress
Avenue......... 3,687 803 -- 2,884 -- -- -- -- -- --
SOUTHERN ROUTE 202
CORRIDOR, PA
456 Creamery
Way............ 1,865 311 -- 1,554 -- -- -- -- -- --
486 Thomas Jones
Way............ 4,607 467 -- 322 $3,818 -- -- -- -- --
468 Creamery
Way............ 2,370 253 -- 118 1,999 -- -- -- -- --
WHITELANDS BUSINESS
PARK
110 Summit
Drive.......... 2,727 343 -- -- 183 888 1,039 -- 265 9
BLUE BELL/PLYMOUTH
MEETING/FORT
WASHINGTON, PA
2240/50 Butler
Pike........... 4,995 448 -- -- 275 903 -- 2,693 548 128
120 West
Germantown
Pike........... 3,558 379 -- -- 97 2,794 -- -- 283 5
140 West
Germantown
Pike........... 2,867 318 -- -- 509 1,723 -- -- 292 25
2260 Butler
Pike........... 3,023 381 -- -- 496 1,962 -- -- 159 25
MAIN LINE, PA
16 Campus
Boulevard...... 6,178 1,082 -- 5,096 -- -- -- -- -- --
18 Campus
Boulevard...... 3,414 692 -- 2,722 -- -- -- -- -- --
LEHIGH VALLEY, PA
7310 Tilghman
Street......... 2,788 213 -- -- 413 1,701 -- -- 437 24
7248 Tilghman
Street......... 2,519 371 -- -- 2,148 -- -- -- -- --
6575 Snowdrift
Road........... 3,184 245 -- 245 2,694 -- -- -- -- --
1510 Gehman
Road........... 4,998 526 -- 4,472 -- -- -- -- -- --
BURLINGTON COUNTY,
NJ
One Greentree
Centre......... 7,436 751 401 -- 617 5,667 -- -- -- --
Two Greentree
Centre......... 8,030 744 897 -- 594 5,795 -- -- -- --
Three Greentree
Centre......... 10,170 987 1,134 -- 423 7,626 -- -- -- --
CAMDEN COUNTY, NJ
457 Haddonfield
Road(4)........ 0 -- -- -- -- -- -- -- -- --
OTHER MARKETS
168 Franklin
Corner Road,
Lawrenceville,
NJ............. 3,199 481 -- 2,718 -- -- -- -- -- --
Twin Forks Office
Park
5910-6090 Six
Forks
Raleigh, NC...... 7,779 2,487 961 -- 537 3,794 -- -- -- --
</TABLE>
- ---------------
(1) Modified accelerated cost recovery system -- straight line.
(2) Accelerated cost recovery system.
(3) Modified accelerated cost recovery system -- accelerated.
(4) Acquired in July 1996.
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<PAGE> 113
C&W MID-YEAR REPORT AND C&W MARKET ANALYSES
The C&W Market Analyses were prepared for the Company by Cushman &
Wakefield of Pennsylvania, Inc., which is a real estate service firm with
significant experience and expertise relating to the Suburban Philadelphia
Office and Industrial Market and the various submarkets therein. The information
in the C&W Mid-Year Report and C&W Market Analyses reflect data available at
June 30, 1996 and August 1, 1996, respectively, and do not reflect data or
changes subsequent to those dates. The information contained in the C&W Mid-Year
Report and C&W Market Analyses have been gathered by C&W from sources assumed to
be reliable, including publicly available records. Because records of all
transactions are not readily available, the information contained in the C&W
Mid-Year Report and C&W Market Analyses may not reflect all transactions
occurring in the geographic area discussed in the C&W Mid-Year Report and C&W
Market Analyses. In addition, transactions that are reported may not be
described accurately or completely in the publicly available records. C&W shall
not be responsible for and does not warrant the accuracy or completeness of any
such information derived from such publicly available records (or information
relating to transactions that were not reported).
In connection with the C&W Mid-Year Report and C&W Market Analyses, C&W
made numerous assumptions with respect to industry performance, general business
and economic conditions, and other matters. Any estimates or approximations
contained therein could reasonably be subject to different interpretations by
other parties. Because predictions of future events are inherently subject to
uncertainty, none of C&W, the Company or any other person can assume that such
predicted rental rates, absorption or other events will occur as outlined or
predicted in the C&W Mid-Year Report or C&W Market Analyses. Reported asking
rental rates of properties, replacement cost rents or estimated replacement
costs do not purport to necessarily reflect the rental rates at which properties
may actually be rented, actual rents required to support new development or the
actual cost of replacement. In many instances, asking rents and actual rental
rates differ significantly.
Changes in local, national and international economic conditions will
affect the markets described in the C&W Mid-Year Report and C&W Market Analyses.
Therefore, C&W can give no assurance that occupancy and absorption levels and
rental rates as of the date of the C&W Mid-Year Report or C&W Market Analyses
will continue or that such occupancy levels and rental rates will be attained at
any time in the future. Forecasts of absorption rates, rental activity,
replacement cost rents and replacement costs are C&W's estimates as of the dates
of the C&W Mid-Year Report and C&W Market Analyses. Actual future market
conditions may differ materially from the forecasts and projections contained
therein.
C&W is a part of a national network of affiliated companies providing real
estate services. As such, from time to time, C&W and its affiliates have
provided and in the future may provide real estate related services, including
brokerage and leasing agent services, to the Company or its principals, or may
represent the Company, its principals or others doing business with the Company.
C&W received compensation of $21,000 from the Company in connection with C&W's
preparation of the C&W Market Analyses.
STRUCTURE OF THE COMPANY
The Company carries on its activities directly and through subsidiaries, as
described below. Currently, the Company holds fee title to one of the Initial
Properties and holds interests in two partnerships (the Operating Partnership
and BRP) that, in turn, either own Initial Properties in fee or hold interests
in partnerships that own Initial Properties in fee. In addition, the Company
intends to contribute the Acquisition Properties and $74.1 million net proceeds
from the Offering and the Concurrent Investments to the Operating Partnership in
exchange for 6,470,576 GP Units.
OPERATING PARTNERSHIP
The Operating Partnership owns fee title to six of the Initial Properties
and owns partnership interests in partnerships that own 17 Initial Properties.
The Company is the sole general partner of the Operating Partnership, which was
formed in connection with the SSI/TNC Transaction as a vehicle to: (i)
consolidate
107
<PAGE> 114
the Company's real estate holdings with those of SSI and TNC; (ii) facilitate
future acquisitions; (iii) enable the Company to comply with certain
requirements under the Code relating to REITs; and (iv) preserve certain tax
advantages to SSI and TNC.
As the sole general partner of the Operating Partnership, the Company
generally has the exclusive power under the Partnership Agreement to manage and
conduct the business of the Operating Partnership, subject to certain
limitations. See "Operating Partnership Agreement -- Management."
The Company's interest in the Operating Partnership will entitle it to
share in cash distributions from, and in profits and losses of, the Operating
Partnership. On a pro forma basis, the Company will hold 7,242,576 GP Units and
will be issued an additional 85,400 GP Units automatically in August 1997 in
respect of the BRP Partnership, the operating partnership it does not own
currently, and the limited partners of the Operating Partnership will hold
509,856 Class A Units (after giving effect to the issuance of 44,322 Units in
exchange for the Residual Interests). Each of the Class A Units will be
redeemable for cash or, at the option of the Company, will be convertible into
one Common Share. With each conversion of Class A Units into Common Shares, the
Company's percentage interest in the Operating Partnership will increase. See
"Operating Partnership Agreement -- Number, Class and Owner of Units."
BRP
BRP is a general partnership that holds fee title to four of the Initial
Properties. The Company, the Operating Partnership and a third party are the
general partners of BRP, although the Company and the Operating Partnership
collectively hold a 98% interest in the profits and a 70% interest in the
capital of BRP. In addition, the Company and the Operating Partnership have the
exclusive power under the BRP Partnership Agreement to manage and conduct the
business of BRP. See "BRP General Partnership Agreement -- Management."
OWNERSHIP
The Company owns the Initial Properties directly and through its interests
in general and limited partnerships, as described below.
Fee title to the Property at 457 Haddonfield Road (LibertyView) is held by
the Company.
Fee title to each of One Greentree Centre, Two Greentree Centre and Three
Greentree Centre and Twin Forks Office Park is held by BRP.
Fee title to the Property at 108 Franklin Corner Road is held by a limited
partnership owned by the Operating Partnership and a subsidiary of the Company.
Fee title to the Properties at each of 7248 Tilghman, 6575 Snowdrift Road, One
Progress Avenue, 500 Enterprise Road, 1510 Gehman Road, 120 West Germantown
Pike, 18 Campus Boulevard, 456 Creamery Way, 468 Creamery Way and 486 Thomas
Jones Way is held by limited partnerships in which a subsidiary of the Company
and the Operating Partnership collectively own a 99% interest in the cash flow
and profits and an 89% interest in the capital in such partnership. The
Operating Partnership will be obligated to acquire the residual 1% cash flow and
profits interest and 11% capital interest in such partnership by September 1999
in exchange for 44,322 Units. Fee title to the Property at 16 Campus Boulevard
is held by a limited partnership (the "Newtech Partnership") in which a
subsidiary of the Company and the Operating Partnership collectively own a 64%
interest in the cash flow and profits and an 89% interest in the capital in such
partnership. The Operating Partnership will be required to acquire an additional
1% cash flow and profits interest and 11% capital interest by September 1999. An
affiliate of a tenant, N.E. Leasing, is a limited partner in Newtech Partnership
and is entitled to 35% of the residual cash flow of Newtech Partnership.
"Residual Cash Flow" means (i) with respect to operating cash flow, cash flow
remaining after the payment of debt service, the establishment of reserves and
payment of a 10% return on invested equity and (ii) with respect to cash flow
from the sale of 16 Campus Boulevard, the cash remaining after the payment of
all debt, the establishment of reserves, payment of a 10% return on invested
equity and return of the invested equity.
108
<PAGE> 115
Fee title to the Properties at each of 650 Dresher Road, 7310 Tilghman
Street, 2240/50 Butler Pike, 2260 Butler Pike, 140 West Germantown Pike and 110
Summit Drive is held directly by the Operating Partnership. Fee title to the
Property at 1155 Business Center Drive is held by a limited partnership
indirectly owned by the Operating Partnership and a wholly-owned subsidiary of
the Company.
MANAGEMENT COMPANY
The Company conducts its real estate management services business through
the Management Company. The Company manages all of the Initial Properties
located within the Market through the Management Company; the Twin Forks
Building, located in North Carolina, is managed for the Company by an
unaffiliated third party. Through the Management Company, the Company also
manages properties on behalf of unaffiliated third parties. As of September 30,
1996, the Management Company managed properties containing an aggregate of
approximately 2.0 million net rentable square feet, of which approximately 1.3
million net rentable square feet related to Initial Properties owned by the
Company, 159,000 net rentable square feet related to the Option Properties and
approximately 575,000 net rentable square feet related to office properties
managed on behalf of third parties. The Company, through the Management Company,
will manage each Acquisition Property following its acquisition thereof. Through
its ownership of preferred stock and common stock of the Management Company, the
Operating Partnership is entitled to receive 95% of amounts paid as dividends by
the Management Company.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Trustees and may be amended or revised from time to time by the Board
of Trustees without a vote of shareholders. No assurance can be given that the
Company's investment objectives will be attained or that the value of the
Company will not decrease.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. The primary
business objective of the Company is to realize and maximize cash flow and to
increase shareholder value by: (i) optimizing cash flow from the Properties
through continued active property management and prudent operating strategies;
(ii) acquiring Class A suburban office and industrial properties and/or
portfolios of such properties located in the Market and surrounding areas at
prices that are below replacement cost and at yields which exceed the Company's
cost of capital; (iii) redeveloping and improving acquired properties and, to a
lesser extent, developing build-to-suit properties as opportunities arise; (iv)
generating third party fee-related revenue; and (v) operating within a
conservative capital structure with financing policies that allow for continued
growth. For a discussion of the Properties and the Company's acquisition and
other strategic objectives, see "The Company," "Business and Growth Strategies"
and "Business and Properties."
Thirty-four of the 37 Properties are located in the Suburban Philadelphia
Office and Industrial Market, and the Company expects that future developments
and acquisitions are likely to continue to be made primarily in the Market. The
Company may, however, develop or acquire properties elsewhere if the Board of
Trustees determines that such developments or acquisitions would be desirable.
Future investments are not limited by property type, although the Company
expects that it will invest principally in suburban office and industrial
properties. The Company will not have any limit on the amount or percentage of
its assets invested in one property.
The Company may develop, purchase or lease income-producing properties for
long-term investment, expand and improve the Properties presently owned or other
properties purchased, or sell such properties, in whole or in part, when
circumstances warrant. Although there is no limitation on the types of
development activities that the Company may undertake, the Company expects that
its development activities will generally be on a build-to-suit basis for
particular tenants, or where a significant portion of the building is pre-leased
before construction begins. The Company may also participate with other entities
in property ownership
109
<PAGE> 116
through joint ventures or other types of co-ownership. Equity investments may be
subject to existing or future mortgage financing and other indebtedness that
will have priority over the equity interests in the Company.
Securities of or Interests in Entities Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification, the Company also may
invest in securities of other REITs, other entities engaged in real estate
activities or securities of other issuers. The Company may enter into joint
ventures or partnerships for the purpose of obtaining an equity interest in a
particular property in accordance with the Company's investment policies. The
Company does not currently intend to invest in the securities of other issuers
except in connection with acquisitions of indirect interests in properties
(normally limited partnership interests in special purpose partnerships owning
properties).
Investments in Real Estate Mortgages. While the Company's current
portfolio consists of, and the Company's business objectives emphasize, equity
investments in commercial real estate, the Company may, in the discretion of the
Board of Trustees, invest in other types of equity real estate investments,
mortgages and other real estate interests. The Company does not presently intend
to invest to a significant extent in mortgages or deeds of trust, but may invest
in participating or convertible mortgages if the Company concludes that it may
benefit from the cash flow or any appreciation in the value of the property.
Investment through the Operating Partnership. The Company has made no
determination to conduct all of its activities through the Operating
Partnership. As of the date hereof, the Company owns one Property, the
LibertyView Building, directly and owns the balance of the Initial Properties
indirectly both through the Operating Partnership and through its residual
interest in BRP (which residual interest will be automatically transferred to
the Operating Partnership on August 23, 1997). Although the Partnership
Agreement of the Operating Partnership contains no provision restricting the
Company's ability to acquire additional properties outside the Operating
Partnership, the Partnership Agreement provides that if the Company acquires
additional properties outside the Operating Partnership, the percentage of
administrative fees of the Company allocated to the Operating Partnership will
be reduced to an amount that is fair and equitable under the circumstances, as
determined by the Company with the consent of the holders of a majority of the
outstanding Units. An inability of the Company and holders of Units to agree
upon such an allocation would be subject to resolution through the arbitration
provisions included within the Partnership Agreement. It is expected that the
Operating Partnership will hold title to all of the Acquisition Properties.
DISPOSITIONS
The Company does not currently intend to dispose of any of the Properties,
although it reserves the right to do so if, based upon management's periodic
review of the Company's portfolio, the Board of Trustees determines that such
action would be in the best interests of the Company. The tax consequences of
the disposition of the Properties may, however, influence the decision of
certain Trustees and executive officers of the Company who hold Units as to the
desirability of a proposed disposition. See "Risk Factors -- Conflicts of
Interest."
FINANCING POLICIES
Upon the closing of the Offering and the Concurrent Investments and the
application of the net proceeds therefrom, the debt-to-total market
capitalization ratio (i.e., the total consolidated debt of the Company as a
percentage of the market value of issued and outstanding Common Shares,
Preferred Shares and Units plus total consolidated debt) of the Company will be
approximately 21.6% (20.5% if the Underwriters' over-allotment option is
exercised in full). This ratio will fluctuate with changes in the price of the
Common Shares (and the issuance of additional Common Shares) and differs from
the debt to book capitalization ratio, which is based upon book values. As the
debt to book capitalization ratio may not reflect the current income potential
of a company's assets and operations, the Company believes that the
debt-to-total market capitalization ratio provides a more appropriate indication
of leverage for a company whose assets are primarily income-producing real
estate.
110
<PAGE> 117
The Company has adopted a policy to operate with a conservative ratio of
debt-to-total market capitalization of not more than 50%. The Company's
Declaration of Trust and Bylaws do not, however, limit the amount or percentage
of indebtedness that the Company may incur. In addition, the Company may from
time to time modify its debt policy in light of current economic conditions,
relative costs of debt and equity capital, market values of its properties,
general conditions in the market for debt and equity securities, fluctuations in
the market price of its Common Shares, growth opportunities and other factors.
Accordingly, the Company may increase or decrease its debt-to-market
capitalization ratio beyond the limits described above. To the extent that the
Board of Trustees decides to obtain additional capital, the Company may raise
such capital through additional equity offerings (including offerings of senior
or convertible securities), debt financings or retention of cash flow (subject
to provisions in the Code concerning taxability of undistributed REIT income),
or a combination of these methods. Borrowing may be unsecured or secured by any
or all of the assets of the Company, the Operating Partnership or any existing
or new property-owning partnership and may have full or limited recourse to all
or any portion of the assets of the Company, the Operating Partnership or any
existing or new property-owning partnership. Indebtedness incurred by the
Company may be in the form of bank borrowing, purchase money obligations to
sellers of the properties, publicly or privately placed debt instruments or
financing from institutional investors or other lenders. The proceeds from any
borrowing by the Company may be used for working capital, to refinance existing
indebtedness, to finance acquisition, expansion or development of new properties
and for the payment of distributions. The Company has not established any limit
on the number or amount of mortgages that may be placed on any single property
or on its portfolio as a whole.
The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets. The Company has used total market capitalization because it believes
that the book value of its assets (which to a large extent is the depreciated
value of real property, the Company's primary tangible asset) does not
accurately reflect its ability to borrow and to meet debt service requirements.
The market capitalization of the Company, however, is more variable than book
value, and does not necessarily reflect the fair market value of the underlying
assets of the Company at all times. The Company will also consider factors other
than market capitalization in making decisions regarding the incurrence of
indebtedness, such as the purchase price of properties to be acquired with debt
financing, the estimated market value of its properties upon refinancing and the
ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service.
WORKING CAPITAL RESERVES
The Company will maintain working capital reserves (and when not
sufficient, access to borrowings) in amounts that the Board of Trustees
determines to be adequate to meet normal contingencies in connection with the
Company's business and investments.
CONFLICT OF INTERESTS POLICIES
Trustees and officers of the Company may be subject to certain conflicts of
interests in fulfilling their responsibilities to the Company. See "Risk
Factors -- Conflicts of Interest." The Company has not adopted any formal or
informal policies intended to eliminate the influence of conflicts of interest.
Under the Company's Declaration of Trust, a transaction effected by the Company
or any entity controlled by the Company in which a Trustee or officer has a
financial interest may only be consummated if the transaction is first approved
by a majority of the Trustees who have no interest in the transaction.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer Common Shares, preferred shares, senior
securities or other capital stock or options to purchase shares in exchange for
property and, to the extent permitted by applicable law, to repurchase or
otherwise acquire its Common Shares or other securities in the open market or
otherwise and may engage in such activities in the future. The Board of Trustees
has no present intention of causing the Company to repurchase any Common Shares.
The Company expects (but is not obligated) to issue Common Shares to holders of
Units in the Operating Partnership upon exercise of their redemption rights. The
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Company may issue Preferred Shares from time to time, in one or more series, as
authorized by the Board of Trustees without the need for shareholder approval.
The Company has agreed to issue Series A Preferred Shares in the SERS
Transaction. The Series A Preferred Shares so issued will be convertible, under
certain circumstances, into up to 1,606,060 Common Shares and will be subject to
redemption under certain circumstances upon demand of the holder. See "The
Company -- The SERS Transaction" and "Description of Shares of Beneficial
Interest -- Preferred Shares." The Company has not engaged in trading,
underwriting or agency distribution or sale of securities of issuers, nor has
the Company invested in the securities of issuers (other than the Operating
Partnership and its subsidiaries) for the purposes of exercising control, and
does not intend to do so. The Company intends to operate in a manner that will
not subject it to regulation as an investment company under the Investment
Company Act. At all times, the Company intends to make investments in such a
manner as to qualify as a REIT, unless because of circumstances or changes in
the Code (or the Treasury Regulations), the Board of Trustees determines that it
is no longer in the best interest of the Company to qualify as a REIT. The
Company has not made any loans to third parties, although it may in the future
make loans to third parties, including, without limitation, to joint ventures in
which it participates. The Company's policies with respect to such activities
may be reviewed and modified or amended from time to time by the Company's Board
of Trustees without a vote of the shareholders.
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MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Trustees and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- ------------------------------------------------
<S> <C> <C>
Anthony A. Nichols, Sr. ........... 57 Chairman of the Board and Trustee
Gerard H. Sweeney.................. 40 President, Chief Executive Officer and Trustee
Joseph L. Carboni.................. 60 Trustee
Richard M. Osborne................. 51 Trustee
Warren V. Musser................... 69 Trustee
Walter D'Alessio................... 62 Trustee
Charles P. Pizzi................... 46 Trustee
Brian F. Belcher................... 45 Executive Vice President -- Marketing and
Development
John P. Gallagher.................. 56 Executive Vice President -- Finance
</TABLE>
Each Trustee has been elected to serve for a one-year term expiring at the
1997 annual meeting of shareholders and until the election and qualification of
his successor.
TRUSTEES OF THE COMPANY
The following are biographical summaries of the Trustees of the Company:
ANTHONY A. NICHOLS, SR., Chairman of the Board and Trustee. Mr. Nichols was
elected a Trustee upon the closing of the SSI/TNC Transaction in August 1996.
Mr. Nichols founded TNC through a corporate joint venture with SSI, and has been
its President and Chief Executive Officer since 1982. From 1968 to 1982, Mr.
Nichols was Senior Vice President of Colonial Mortgage Service Company (now GMAC
Mortgage Corporation), a subsidiary of CoreStates Bank, N.A. Mr. Nichols has
been a member of the National Association of Real Estate Investment Trusts
("NAREIT"), a member of the Board of Governors of the Mortgage Banking
Association and Chairman of the Income Loan Committee of the regional Mortgage
Bankers Association. Mr. Nichols also serves on the Board of Directors of
CenterCore Inc. and is a member of the National Association of Industrial and
Office Parks, the Philadelphia Board of Realtors, and the Urban Land Institute.
GERARD H. SWEENEY, President, Chief Executive Officer and Trustee. Mr.
Sweeney was elected a Trustee on February 9, 1996. Mr. Sweeney has served as
President and Chief Executive Officer of the Company since August 8, 1994 and as
President since November 9, 1989. Prior to August 8, 1994, Mr. Sweeney served as
Vice President of LCOR, Incorporated ("LCOR"), a real estate development firm.
Mr. Sweeney was employed by The Linpro Company (a predecessor of LCOR) from 1983
to 1994 and served in several capacities, including Financial Vice President and
General Partner. During this period, Mr. Sweeney had operational and financial
responsibility for a portfolio of office and industrial properties located in
the Market that aggregated approximately 3.9 million net rentable square feet.
These responsibilities encompassed marketing, financing, leasing, and property
and construction management. Mr. Sweeney is a member of NAREIT, the Urban Land
Institute, the American Institute of Certified Public Accountants and the
Pennsylvania Institute of Certified Public Accountants.
JOSEPH L. CARBONI, Trustee. Mr. Carboni was elected a Trustee on May 14,
1991 and served as Chairman of the Board from October 11, 1994 until the closing
of the SSI/TNC Transaction in August 1996. Mr. Carboni has served as President
of JLC Associates, Inc., a commercial and real estate consulting firm since
1990. Prior to 1990, Mr. Carboni was a Senior Vice President of BNE Realty
Credit Corporation.
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RICHARD M. OSBORNE, Trustee. Mr. Osborne was elected a Trustee on February
9, 1996. Mr. Osborne is President and Chief Executive Officer of OSAIR, Inc., a
property developer and manufacturer of industrial gases for pipeline delivery.
Mr. Osborne is a director of Great Lakes Bank, Mentor, Ohio.
WARREN V. MUSSER, Trustee. Mr. Musser was elected a Trustee upon the
closing of the SSI/TNC Transaction in August 1996. He has served as Chairman and
Chief Executive Officer of SSI since 1953. Mr. Musser also serves as the
Chairman of the Board of Directors of Cambridge Technology Partners, Inc., and
is a director of Coherent Communications Systems Corporation and CompuCom
Systems, Inc. Mr. Musser also serves on a variety of civic, educational, and
charitable Boards of Directors, including the Franklin Institute and the Board
of Overseers of the Wharton School of the University of Pennsylvania. He also
serves as Vice President/Development, Cradle of Liberty Council, Boy Scouts of
America and as Vice Chairman of the Technology Council of the Philadelphia
metropolitan area.
WALTER D'ALESSIO, Trustee. Mr. D'Alessio was elected a Trustee upon the
closing of the SSI/TNC Transaction in August 1996. He has served as President
and Chief Executive Officer of Legg Mason Real Estate Services, Inc., a mortgage
banking firm headquartered in Philadelphia, Pennsylvania since 1982. Legg Mason
Real Estate Services, Inc. is a wholly-owned subsidiary of Legg Mason, Inc., the
parent corporation of Legg Mason Wood Walker, Incorporated, one of the
Underwriters of the Offering. Previously, Mr. D'Alessio served as Executive Vice
President of the Philadelphia Industrial Development Corporation and Executive
Director of the Philadelphia Redevelopment Authority. He also serves on the
Board of Directors of the Philadelphia Electric Company, Pennsylvania Blue
Shield and Independence Blue Cross, the Philadelphia Private Industry Council
and the Greater Philadelphia Chamber of Commerce.
CHARLES P. PIZZI, Trustee. Mr. Pizzi was elected a Trustee upon the closing
of the SSI/TNC Transaction in August 1996. Mr. Pizzi has served as President of
the Greater Philadelphia Chamber of Commerce since 1989. Mr. Pizzi also serves
on a variety of civic, educational and charitable Boards of Directors including
the American Chamber of Commerce Executives, Boy Scouts of America (Philadelphia
Council), Drexel University, Greater Philadelphia Chamber of Commerce,
Independence Blue Cross, Pennsylvania Academy of the Fine Arts, Philadelphia
Convention & Visitors Bureau, Temple University School of Business Management,
United Way of Southeastern Pennsylvania, University of Pennsylvania Graduate
School of Education Board of Overseers and the Urban League of Philadelphia.
EXECUTIVE OFFICERS
The following are biographical summaries of the executive officers of the
Company who are not Trustees of the Company:
BRIAN F. BELCHER, Executive Vice President -- Marketing and Development.
Mr. Belcher became an executive of the Company upon the closing of the SSI/TNC
Transaction in August 1996. Mr. Belcher joined TNC in 1982 as Vice President of
Marketing and, from 1986 until completion of the SSI/TNC Transaction, served as
its Executive Vice President. From 1978 to 1982, Mr. Belcher was a marketing
specialist for Evans-Pitcairn Corporation, a real estate development firm. Prior
to that time, Mr. Belcher was a real estate broker with Cushman & Wakefield, a
national real estate firm, in the Philadelphia metropolitan area. Mr. Belcher
previously served as President of the Delaware Valley Chapter of the National
Association of Industrial and Office Parks, and is currently a member of the
Philadelphia Board of Realtors.
JOHN P. GALLAGHER, Executive Vice President -- Finance. Mr. Gallagher
became an executive of the Company upon the closing of the SSI/TNC Transaction
in August 1996. Mr. Gallagher served as Chief Financial Officer of TNC from 1989
until completion of the SSI/TNC Transaction. From 1983 until 1989, Mr. Gallagher
was employed by Pitcairn Financial Management Group, where he served in various
capacities, including Vice President of Finance, Senior Vice President and
Director. Prior to that time, he was Vice President of Finance for
Evans-Pitcairn Corporation, a real estate development firm. Mr. Gallagher was
associated with Price Waterhouse from 1964 until 1972. Mr. Gallagher is a
certified public accountant and a member of the American Institute of Certified
Public Accountants and the Institute of Management Accountants.
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OTHER KEY OFFICERS
JOHN M. ADDERLY, JR., Vice President -- Operations. Mr. Adderly has served
as an officer of the Company since January 1995. Mr. Adderly was employed by the
Rodin Group, a Philadelphia-based real estate development, management and
brokerage firm from 1982 until 1995, where he served as Vice President and Chief
Financial Officer from 1986 until 1995, and as Corporate Controller from 1982
until 1986.
FRANCINE M. HAULENBEEK, Vice President, Secretary and Treasurer. Ms.
Haulenbeek has served as an executive of the Company since October 1994 and
previously from February 1991 through January 1993. Since January 1993, Ms.
Haulenbeek has served as President of Francine M. Haulenbeek & Company, a
certified public accounting firm. Prior to January 1993, Ms. Haulenbeek was an
employee of LCOR, Incorporated, and, prior to April, 1992, Ms. Haulenbeek was an
employee of The Linpro Company, a real estate development firm. During this time
period, Ms. Haulenbeek served in several capacities, including Regional
Controller and Assistant Financial Vice President. Ms. Haulenbeek is a member of
the American Institute of Certified Public Accountants, the Pennsylvania
Institute of Certified Public Accountants and the New Jersey Society of
Certified Public Accountants.
ANTHONY A. NICHOLS, JR., Vice President -- Marketing. Mr. Nichols became an
officer of the Company upon the closing of the SSI/TNC Transaction in August
1996. Previously Mr. Nichols was employed at TNC which he joined in 1989 as a
marketing representative. In 1992 Mr. Nichols became an Assistant Vice
President -- Property Management of TNC and in 1995 he became Vice
President -- Marketing. Mr. Nichols is the son of Anthony A. Nichols, Sr., the
Company's Chairman of the Board.
COMMITTEES OF THE BOARD OF TRUSTEES
Audit Committee. The audit committee of the Board of Trustees (the "Audit
Committee") currently consists of Messrs. Carboni, D'Alessio and Pizzi. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
Compensation Committee. The compensation committee of the Board of
Trustees (the "Compensation Committee"), established in August 1996, currently
consists of Messrs. Carboni, D'Alessio and Pizzi. The Compensation Committee
determines compensation for the Company's executive officers and, pursuant to
the employment agreements between the Company and its executive officers, will
establish an incentive compensation program for the Company's employees.
Executive Committee. The executive committee of the Board of Trustees (the
"Executive Committee"), established in August 1996, currently consists of
Messrs. Nichols, the Chairman of the Executive Committee, Mr. Musser, Mr.
Osborne and Mr. Sweeney. The Executive Committee has been delegated all powers
of the Board of Trustees except the power to: (i) declare dividends or other
distributions on Shares; (ii) elect trustees; (iii) issue Shares (other than as
permitted by the By-Laws as in effect from time to time); (iv) recommend to
shareholders any action that requires shareholder approval; (v) amend the Bylaws
of the Company; or (vi) approve any merger or share exchange which does not
require shareholder approval.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the completion of the SSI/TNC Transaction, the Board of Trustees
had not established a separate compensation committee. No executive officer of
the Company serves on the Compensation Committee that was established by the
Board of Trustees in August 1996.
COMPENSATION OF TRUSTEES
The Company intends to pay its Trustees who are not officers of the Company
fees for their services as Trustees. Trustees will receive annual compensation
of $5,000 and a fee of $500 plus expenses for attendance
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in person at each meeting of the Board of Trustees or committee thereof and $500
for participation in each telephonic meeting of the Board of Trustees or
committee thereof.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid to the Company's President and Chief Executive Officer for the
years ended December 31, 1995, 1994 and 1993. No information is presented in the
table for the Company's other executive officers, Messrs. Nichols, Belcher or
Gallagher, because none of them became employees of the Company until completion
of the SSI/TNC Transaction on August 22, 1996. The terms of their compensation
are summarized below. See "-- Employment Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
SALARY($) SECURITIES
----------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS(#)
------------------------------------------------- ---- -------- ---------------
<S> <C> <C> <C>
Gerard H. Sweeney, President
and Chief Executive Officer...................... 1995 $130,000 -0-
1994 $ 55,000(1) 46,666
1993 (1) -0-
</TABLE>
- ---------------
(1) Prior to August 8, 1994, the date on which Mr. Sweeney became employed by
the Company, Mr. Sweeney's salary and bonus were paid to him by LCOR,
pursuant to his employment agreement with that firm. In February 1994, the
Company paid LCOR $110,000, and LCOR in turn used $60,000 of this amount to
pay Mr. Sweeney a bonus in recognition of his contribution to the Company's
January 1994 debt restructuring and its sale of the Lincoln Centre property
in February 1994.
(2) Amount reflects fully vested options to purchase 33,333 and 13,333 Common
Shares at excise prices of $14.31 and $6.21 per share, respectively.
EMPLOYMENT AGREEMENTS
On August 22, 1996, each of Messrs. Nichols, Sweeney, Belcher and Gallagher
entered into a two-year employment agreement with the Management Company. With
the consent of the Company's executives, these employment agreements were
subsequently assigned to the Company. These employment agreements established
annual base salaries for each of Messrs. Nichols, Sweeney, Belcher and Gallagher
at $141,500, $141,500, $125,500 and $104,500, respectively, which compensation
may be increased by the Board of Trustees in its discretion.
In the event the Company were to terminate the employment of any of the
foregoing executives without cause, or were to elect not to renew the applicable
employment agreement on the second anniversary of the date it was entered into,
the Company would be obligated to provide the applicable executive with
severance for the greater of the remaining term under his employment agreement
or 12 months at a rate equal to his then effective salary. In addition, in the
event the particular executive were to terminate his employment with the Company
following a change in control, the Company would be obligated to provide the
applicable executive with the severance payments described in the preceding
sentence. The term "change in control," as defined in the employment agreements,
means the acquisition by any person (other than the Company and its affiliates)
of a majority of the outstanding Common Shares or voting securities of the
Company.
At the time each of the foregoing individuals entered into their employment
agreements, each received from the Company non-transferable warrants exercisable
for a six-year period at a price of $19.50 per share. The number of Common
Shares for which such warrants are exercisable are 40,000, 100,000, 40,000, and
40,000, for the warrants held by Messrs. Nichols, Sweeney, Belcher and
Gallagher, respectively.
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In furtherance of the Company's efforts to preserve its REIT status and
ensure that not more than 50% in value of its outstanding Shares is owned,
directly or indirectly, by five or fewer individuals in the last half of any
taxable year, the warrants issued to the executives give the Company the right
to refuse to issue Common Shares upon the exercise thereof if the issuance of
such Common Shares would result in the Company being "closely held" within the
meaning of Section 856(h) of the Code or would bring the number of Common Shares
beneficially owned by the holder in excess of the ownership limit applicable to
such holder contained in the Declaration of Trust. If the Company were to
exercise such right, it would be required to pay to the holder an amount in cash
equal to the excess, if any (the "Spread"), of the current market price of a
Common Share over the exercise price in respect of each Common Share as to which
exercise had been sought but was denied. Upon such payment, the number of Common
Shares covered by the warrant would be automatically reduced. In addition, each
warrant includes a provision voiding the warrant ab initio if the issuance
thereof would, but for such provision, cause the Company to be "closely held"
and providing that, upon such a voiding, the warrant will be replaced with a
share appreciation right giving the Company the option, upon exercise thereof,
either to deliver cash in an amount equal to the Spread or Common Shares having
an aggregate market price equal to the Spread. Any such share appreciation right
would have the same term, and be exercisable in respect of the same number of
Common Shares, as the warrant it replaced.
Section 162(m) of the Code provides that a publicly-held corporation may
not deduct compensation paid to any one of certain specified officers in excess
of $1 million per year unless such compensation qualifies as "performance-based"
compensation within the meaning of that Section. Neither the options nor the
warrants granted by the Company qualify as performance-based compensation under
Section 162(m) of the Code. Therefore, if the aggregate taxable income
recognized in any year by certain of the executive officers of the Company,
including any income recognized upon the exercise of options or warrants and any
bonuses, exceeds $1 million, the excess will not be deductible by the Company
unless it qualified as performance-based compensation.
The Company has filed a registration statement covering the Common Shares
issuable upon exercise of the warrants awarded to each of the foregoing
executives under the Securities Act so that, subject to restrictions arising
under the Securities Act applicable to "affiliates" of the Company, such Common
Shares may be publicly sold.
STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS DURING LAST FISCAL YEAR
No options were granted by the Company to executive officers during 1995.
During 1996, as indicated above, the Company granted warrants exercisable for an
aggregate of 220,000 Common Shares to its executive officers. Each warrant has a
six-year term expiring in August 2002 and has an exercise price per share of
$19.50.
STOCK OPTIONS HELD BY CERTAIN EXECUTIVE OFFICER AT DECEMBER 31, 1995
The following table sets forth certain information regarding options for
the purchase of Common Shares that were exercised and/or held by the Trust's
President and Chief Executive Officer at December 31, 1995.
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No other executive officer of the Trust held options for the purchase of Common
Shares at any time during 1995.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED
DECEMBER 31, 1995 AND 1995 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FY-END(#) FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE
- ------------------------ --------------- ----------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Gerard H. Sweeney N/A N/A 40,000/6,666 $30,000(2)/$30,000(3)
President and Chief
Executive Officer
</TABLE>
- ---------------
(1) Does not include outstanding warrants.
(2) Amount reflects the market value of 6,666 Common Shares in respect of vested
options that were in the money at year-end ($10.69 per share) minus the
exercise price of $6.21 per share. The remaining options to purchase 33,333
Common Shares have an exercise price of $14.31 per share and were not in the
money at year-end.
(3) Amount reflects the market value of 6,666 Common Shares in respect of vested
options that were in the money at year-end ($10.69 per share) minus the
exercise price of $6.21 per share.
401(K) PLAN
TNC established a Section 401(k) and Profit Sharing Plan (the "401(k)
Plan") to cover its eligible employees and other designated affiliates. It is
anticipated that the Company will also adopt the 401(k) Plan for the benefit of
all of its eligible employees.
The 401(k) Plan will permit eligible employees of the adopting employers
(the "Participating Companies") to defer up to a designated percentage of their
annual compensation, subject to certain limitations imposed by the Code. The
employees' elective deferrals are immediately vested and non-forfeitable upon
contribution to the 401(k) Plan. Each Participating Company reserves the right
to make matching contributions or discretionary profit sharing contributions in
the future.
The 401(k) Plan is designed to qualify under section 401 of the Code so
that contributions by employees or by the Participating Companies to the 401(k)
Plan, and income earned on plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by the
Participating Companies, if any, will be deductible by them when made.
INDEMNIFICATION
For a description of the limitation of liability and indemnification rights
of the Company's Trustees and officers, see "Certain Provisions of Maryland Law
and of the Company's Declaration of Trust and Bylaws -- Limitation of Liability
and Indemnification."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SSI/TNC TRANSACTION
The terms of the acquisition of interests in the SSI/TNC Properties by the
Operating Partnership are described under "The Company -- The SSI/TNC
Transaction" and "Structure of the Company."
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PARTNERSHIP AGREEMENT; REDEMPTION RIGHTS
In connection with the SSI/TNC Transaction, the Company entered into the
Partnership Agreement with SSI, TNC and 11 other persons (collectively, the
"Limited Partners"). The number of Units issued by the Operating Partnership to
the Limited Partners at the closing of the SSI/TNC Transaction (495,837) plus
the number of additional Units that the Operating Partnership will be required
to issue to the Limited Partners by September 1999 (44,322) were and will be
issued in exchange for direct and indirect interests of the Limited Partners in
the 19 SSI/TNC Properties contributed to the Operating Partnership. The
Partnership Agreement provides, among other things, for the Limited Partners to
have the right to cause the Company to redeem their Units for cash, at a per
Unit price based on the average closing price of the Common Shares for the five
consecutive trading days prior to such determination (or, at the option of the
Company, Common Shares on a one Common Share per Unit basis, subject to
customary antidilution adjustments), at any time after the occurrence of an
equity offering meeting certain targets (a "Qualified Offering"). Because each
of the SERS Transaction and the Offering will constitute a Qualified Offering,
the Limited Partners will have the right to exercise the foregoing redemption
right at any time after the closing of the SERS Transaction or the Offering. See
"Operating Partnership Agreement -- Exchange Rights." In addition, as a result
of the $500,000 prepayment penalty associated with the payoff of the debt
encumbering 2240/2250 Butler Pike, 120 West Germantown Pike, 140 West Germantown
Pike and and 2260 Butler Pike, approximately 30,003 units held by Limited
Partners will be cancelled by the Operating Partnership. See "Operating
Partnership Agreement -- Cancellation of Class A Units."
REPAYMENT OF CERTAIN ADVANCES TO SSI
In connection with the SSI/TNC Transaction, SSI agreed to loan the
Operating Partnership an aggregate of $400,000 on account of transaction
expenses and agreed to advance the Operating Partnership up to $700,000 to
provide it with working capital for the operation of certain of the Properties.
SSI also agreed to advance funds to the Operating Partnership to enable it to
make certain preferred distributions to the Company. These advances bear
interest at the prime rate. In addition, in June 1996, SSI provided a second
mortgage loan in the amount of $460,000 to a subsidiary of the Operating
Partnership to fund the cost of tenant improvements at one of the Properties
(650 Dresher Road). This loan also bears interest at prime rate. As of September
30, 1996, an aggregate of $364,000, excluding accrued interest, was owed to SSI
by the Operating Partnership, all of which, by its terms, shall become due and
payable upon completion of the Offering. See "The Company -- The SSI/TNC
Transaction" and "Use of Proceeds."
INDEMNIFICATION OF CERTAIN LIMITED PARTNERS
The Partnership Agreement obligates the Company either to contribute
sufficient proceeds from the Offering to the Operating Partnership to enable it
to repay or refinance the mortgage debt (approximately $63.7 million as of
September 30, 1996) encumbering the SSI/TNC Properties, in lieu thereof, either
obtain general releases from the holders of such mortgages indebtedness
releasing the Limited Partners from all liability with respect thereto or make
other arrangements satisfactory to such Limited Partners to indemnify them
against such liability. Following the Offering, approximately $13.6 million of
such mortgage debt will remain outstanding, of which $8.6 million constitutes
recourse debt. Accordingly, the Company will indemnify the Limited Partners who
are liable on such recourse debt against liability thereon.
PARTNERSHIP AGREEMENT; GENERAL INDEMNITY
In the Partnership Agreement, SSI and TNC made customary representations
and warranties, on a several basis, in favor of the Company. The Company also
made customary representations and warranties in favor of SSI and TNC. In the
event the Company were to suffer a loss as a result of the inaccuracy of any of
the representations and warranties made in its favor, the recourse of the
Company against SSI and TNC is limited to the 497,896 Units issued to them in
the SSI/TNC Transaction. "See Risk Factors -- Conflicts of Interest -- Failure
to Enforce Terms of Acquisition Agreements."
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TERMINATION OF STANDSTILL AGREEMENTS
Each of SSI and Richard M. Osborne, a Trustee of the Company, is a party to
an agreement with the Company which, by its terms, will terminate upon
completion of the Offering. In its respective agreement, each of SSI and Mr.
Osborne agreed generally to vote its or his Common Shares in accordance with the
recommendation of a majority of the Board of Trustees on any matter submitted to
a vote of shareholders and to refrain from disposing of its or his Common Shares
other than in transactions under Rule 144, in certain private transactions and
in certain extraordinary transactions such as a third party tender offer or
merger. Following the Offering, neither SSI nor Mr. Osborne will hold Common
Shares subject to any contractual restrictions imposed by the Company.
Notwithstanding the termination of the standstill agreements, each of Mr.
Osborne and Warren V. Musser, Chairman and Chief Executive Officer of SSI, will
continue as Trustees of the Company.
OPTION PROPERTIES
At the closing of the SSI/TNC Transaction, the Operating Partnership
acquired an option from an affiliate of TNC entitling it to acquire, in the
Operating Partnership's discretion, the four Option Properties at any time
during the two-year period ending August 22, 1998 (subject to two extensions of
one year each). The parties have agreed that the purchase price payable by the
Operating Partnership upon exercise of its option will consist of $1.00 in
excess of the mortgage debt encumbering the Option Properties at the time of
exercise (which as of September 30, 1996, aggregated $20.0 million, including
approximately $3.3 million of accrued debt and unpaid interest). The right of
the Operating Partnership to exercise its option to acquire the Option
Properties is conditioned on receipt of consent of the mortgage lender for the
Option Properties, of which there can be no assurance. As of the date hereof, no
lender consent has been requested, and no determination to seek any such consent
has been made. See "Business and Properties -- Option Properties: General."
SSI RIGHT OF FIRST REFUSAL ON ADDITIONAL FINANCINGS
The Partnership Agreement provides that any time the Operating Partnership
proposes to issue any additional partnership interests for cash, it shall first
offer SSI the right to acquire such interests on terms no less favorable to SSI
than those on which the Operating Partnership proposes to issue such additional
interests to other persons. This right of first refusal will terminate upon the
consummation of the SERS Transaction or the Offering.
LEASE WITH SSI AFFILIATE
Approximately 21,580 net rentable square feet is leased by the Company to
an affiliate of SSI at an average rental rate of $9.66 per square foot under a
lease that expires in April 1999. The Company believes that this is the
prevailing market rate for comparable space.
ENVIRONMENTAL INDEMNITY
SSI has agreed to indemnify the Operating Partnership against the cost of
remediation that may be required to be undertaken on account of certain
environmental conditions at one of the SSI/TNC Properties acquired subject to an
aggregate maximum of approximately $2.0 million. The term of the SSI indemnity
agreement expires on August 22, 2001. See "Business and
Properties -- Environmental Matters."
EMPLOYMENT AGREEMENTS; AWARD OF WARRANTS
At the closing of the SSI/TNC Transaction, each of Messrs. Nichols,
Sweeney, Belcher and Gallagher entered into a two year employment agreement with
the Management Company. These employment agreements were, with the consent of
such executives, subsequently assigned to and assumed by the Company. In order
to induce each such executive to enter into such employment agreements, Messrs.
Nichols, Sweeney, Belcher and Gallagher were awarded warrants to purchase
40,000, 100,000, 40,000 and 40,000 Common Shares, respectively, at an exercise
price of $19.50 per share. See "Management -- Employment Agreements."
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PRIOR INVOLVEMENT OF LEGG MASON
One of the Underwriters, Legg Mason Wood Walker, Incorporated ("Legg
Mason"), served as financial advisor to the Company in connection with the
SSI/TNC Transaction. In connection with the SSI/TNC Transaction, Legg Mason
delivered to the Board of Trustees its opinion to the effect that, as of July
12, 1996, the SSI/TNC Transaction was fair to the Company's shareholders from a
financial point of view. The Company paid Legg Mason a $100,000 fee for its
advisory services and reimbursed it $10,000 for expenses. Legg Mason is the
parent of Legg Mason Real Estate Services, a mortgage banking firm of which
Walter D'Alessio, a member of the Company's Board of Trustees and Compensation
Committee, is President.
INVESTMENT BY RMO FUND
On June 21, 1996 (the "Investment Date"), Turkey Vulture Fund XIII, Ltd.
(the "RMO Fund"), a company controlled by Richard M. Osborne, a Trustee of the
Company, invested approximately $1.3 million in the Company, by: (i) making the
Osborne Loan to the Company and (ii) by acquiring 19,983 Paired Units at a per
unit price of $16.89. Under certain circumstances following the issuance by the
Company of additional Common Shares, the Company is obligated to issue
additional Paired Units, valued at $16.89 each, as a mandatory prepayment of the
Osborne Loan. Immediately following the closing of the SSI/TNC Transaction, the
Company issued to the RMO Fund an additional 14,135 Paired Units and thereby
reduced the outstanding balance of the Osborne Loan by approximately $239,000.
The Osborne Loan matures on the third anniversary of the Investment Date.
Pursuant to the terms of the Osborne Loan, upon completion of the Offering, the
outstanding balance thereof, including accrued interest (which was approximately
$774,000 as of September 30, 1996) will become due and payable and will be
repaid through the issuance by the Company of additional Paired Units. The
actual number of Paired Units so issued will equal the outstanding balance of
the Osborne Loan on the date of its repayment including accrued interest,
divided by $16.89. The Company has agreed to provide the RMO Fund with
registration rights covering the Common Shares issued and issuable as part of
its investment. See "Shares Available For Future Sale -- Registration Rights."
PRIOR INVOLVEMENT OF LCOR
Approximately 40 individual partners operating through more than 350
different limited partnerships, joint ventures and corporations (collectively,
the "Linpro Entities") were originally doing business under the name "The Linpro
Company". Central administrative and management functions for The Linpro
Entities are currently conducted by LCOR. Since its formation and through
February 1, 1995, the Company directly and, through its investment in BRP,
indirectly entered into several transactions with Linpro Entities.
Administration. Administrative and management functions for the Company
were performed by LCOR, Incorporated through August 8, 1994. Beginning in 1993
and continuing through August 8, 1994, the Company reimbursed LCOR up to
$100,000 per year for certain administrative expenses directly attributable to
the Company, consisting, in part, of a portion of the salaries for certain
personnel provided by LCOR. During 1994, this reimbursement totaled $75,000.
During 1995, no such reimbursement was made. Effective February 1, 1995, the
Company assumed management of three of the four Properties owned by BRP and
entered into a management agreement with an unrelated party for management of
the fourth.
BRP Property Management. In connection with the acquisition of each
Property owned by BRP in 1986, BRP entered into management agreements with the
Linpro Entities engaged in the property management business pursuant to which
the property manager provided leasing and property management services. During
1994, six of the then seven remaining Properties owned by BRP were operated
under a management agreement with a Linpro Entity and one of the Properties was
operated under a management agreement with an entity which is not a Linpro
Entity. For the period from January 1, 1995 through January 31, 1995, three of
the four Properties currently owned by BRP were operated under an agreement with
a Linpro entity and one of the BRP Properties was operated under a management
agreement with an entity which is not a Linpro Entity.
For their services rendered pursuant to the management agreements, the
property managers were entitled to reimbursement for certain expenses incurred
in connection with their management of the BRP Properties
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and were paid a management fee monthly in arrears equal to 5% of the rental
income of the BRP Properties. Such management fees paid to Linpro Entities
during 1995 and 1994 amounted to $10,000 and $187,000, respectively. In
addition, during 1994 and through January 31, 1995, the management companies
received a 50% override in leasing commissions payable to third party brokers
and a full market commission on non-brokered transactions. Such leasing
commissions paid to the Linpro Entities during 1995 and 1994 amounted to $47,000
and $56,000, respectively. For the BRP Properties operated under a management
agreement with a Linpro Entity, during this same period, LCOR absorbed an amount
equal to 2% of gross rents and 40% of a defined commission structure
representing administrative costs, which costs would otherwise have been borne
by the Company. Such amounts absorbed by LCOR representing administrative costs,
which would otherwise have been borne by the Company, totaled $23,000 in 1995
and $92,000 in 1994.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Shares (and Common Shares for which Units and Preferred
Shares may be exchanged) by each Trustee, by each executive officer, by all
Trustees and executive officers as a group, and by each person known to the
Company to be the beneficial owner of 5% or more of the outstanding Common
Shares immediately following the completion of the Offering and assuming the
issuance of Units in exchange for the Residual Interests. Except as indicated
below, to the Company's knowledge, all of such Common Shares are owned directly,
and the indicated person has sole voting and investment power. Share amounts
have been adjusted to reflect the Reverse Split.
<TABLE>
<CAPTION>
NAME AND BUSINESS NUMBER OF PERCENTAGE OF
ADDRESS OF BENEFICIAL OWNER(1) COMMON SHARES COMMON SHARES(2)
----------------------------------------------------- ------------- ----------------
<S> <C> <C>
RAI Real Estate Advisers, Inc.(3).................... 951,022 15.05%
Morgan Stanley Institutional Fund, Inc. -- U.S. Real
Estate Portfolio(4)................................ 425,454 7.09
Morgan Stanley SICAV Subsidiary S.A.(4).............. 283,636 4.73
Safeguard Scientifics Inc.(5)........................ 738,756 11.37
The Nichols Company.................................. 199,078 3.21
Anthony A. Nichols, Sr.(6)........................... 275,844 4.41
Joseph L. Carboni(7)................................. 166 *
Richard M. Osborne(8)................................ 339,525 5.58
Gerard H. Sweeney(9)................................. 146,934 2.39
Warren V. Musser(10)................................. 0 *
Walter D'Alessio(11)................................. 0 *
Charles P. Pizzi(12)................................. 0 *
John P. Gallagher(13)................................ 239,078 3.83
Brian F. Belcher(14)................................. 246,324 3.94
All Trustees and Executive Officers
as a Group (9 persons)............................. 849,714 12.94%
------ ------
</TABLE>
- ---------------
* Less than one percent.
(1) Unless indicated otherwise, the business address of each person listed is
16 Campus Boulevard, Newtown Square, Pennsylvania 19073.
(2) Assumes that all Units and Preferred Shares eligible for conversion held by
each named person or entity are converted into Common Shares. The total
number of Common Shares outstanding used in calculating the percentage of
Common Shares assumes that none of the Units or Preferred Shares eligible
for conversion held by other named persons or entities are converted into
Common Shares.
(3) The business address of RAI Real Estate Advisers, Inc. ("RAI") is 259
Radnor-Chester Road, Radnor, Pennsylvania 19087. Includes (a) 636,363
Common Shares, (b) 133,333 Common Shares issuable upon exercise of warrants
and (c) 181,325 Common Shares issuable upon conversion of Preferred Shares
prior to Conversion Approval. Does not include 1,424,735 Common Shares
issuable upon conversion of Preferred Share after Conversion Approval. RAI
serves as the voting trustee under the SERS Voting Trust established for
the benefit of SERS. RAI disclaims beneficial ownership of such shares in
which it has no pecuniary interest.
(4) Morgan Stanley Asset Management Inc. ("MSAM"), as investment adviser of the
Morgan Stanley Funds, and Morgan Stanley Group Inc., as the owner of all
the common stock of MSAM, are deemed to beneficially own the common shares
beneficially owned by such funds. Morgan Stanley SICAV Subsidiary S.A. (the
"SICAV Subsidiary") is a wholly owned subsidiary of Morgan Stanley SICAV,
an investment company with variable capital ("societe d investissement a
capital variable") incorporated with limited liability under the laws of
the Grand Duchy of Luxembourg, and Morgan Stanley SICAV, on behalf of its
U.S. Real Estate Securities Fund (a sub-fund of Morgan Stanley SICAV), is
deemed to beneficially own all the common shares beneficially owned
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by the SICAV Subsidiary. Morgan Stanley Institutional Fund, Inc. and MSAM
maintain their principal office at 1221 Avenue of the Americas, New York,
New York 10020. Morgan Stanley SICAV and the SICAV Subsidiary maintain
their principal office at 6C route de Treves, L-2633 Senningerberg, Grand
Duchy of Luxembourg. Morgan Stanley Group Inc. maintains its principal
office at 1585 Broadway, New York, New York 10036.
(5) The business address of SSI is 800 The Safeguard Building, 435 Devon Park
Drive, Wayne, Pennsylvania 19087. Includes (a) 241,560 Common Shares, (b)
241,560 Common Shares issuable upon exercise of warrants and (c) 255,636
Units, convertible into Common Shares.
(6) Includes (a) 16,773 Common Shares, (b) 56,773 Common Shares issuable upon
exercise of warrants and (c) 199,078 Units held by TNC, in which Mr.
Nichols, Mr. Gallagher and Mr. Belcher have shared investment voting power
and of which Mr. Nichols is a 44.2% stockholder and disclaims beneficial
ownership of the remaining 55.8% of such shares in which he has no
pecuniary interest. All of such 16,773 Common Shares and warrants to
purchase an additional 16,773 Common Shares were acquired by Mr. Nichols,
as a joint tenant with his spouse, from SSI on November 5, 1996 at a price
per share and warrant of $16.89.
(7) The business address of Mr. Carboni is Two Greentree Centre, Marlton, New
Jersey 08053.
(8) The business address of Mr. Osborne is 7001 Center Street, Mentor, Ohio
44060. Includes (a) 179,600 Common Shares owned by The Richard M. Osborne
Trust (the "RMO Trust"), of which Mr. Osborne is the sole trustee and (b)
79,962 Common Shares and warrants exercisable for 79,962 Common Shares
included within Paired Units held by the RMO Fund (including Paired Units
that will be issued in repayment of the Osborne Loan immediately following
closing of the Offering). Mr. Osborne has advised the Company that he
possesses sole authority over the voting and disposition of Common Shares
owned by the RMO Fund.
(9) Includes (a) 267 Common Shares, (b) 46,666 Common Shares issuable upon the
exercise of options and (c) 100,000 Common Shares issuable upon the
exercise of warrants.
(10) The business address of Mr. Musser is 800 The Safeguard Building, 435 Devon
Park Drive, Wayne, Pennsylvania 19087.
(11) The business address of Mr. D'Alessio is 1735 Market Street, Philadelphia,
Pennsylvania 19103.
(12) The business address of Mr. Pizzi is 1234 Market Street, Philadelphia,
Pennsylvania 19107.
(13) Includes (a) 40,000 Common Shares issuable upon the exercise of warrants
and (b) 199,078 Units held by TNC, in which Mr. Gallagher, Mr. Nichols and
Mr. Belcher have shared investment and voting power and of which Mr.
Gallagher is a 25% stockholder and disclaims beneficial ownership of the
remaining 75% of such shares in which he has no pecuniary interest.
(14) Includes (a) 40,000 Common Shares issuable upon the exercise of warrants
and (b) 199,078 Units held by TNC, in which Mr. Gallagher, Mr. Nichols and
Mr. Belcher have shared investment and voting power and of which Mr.
Belcher is a 25% stockholder and disclaims beneficial ownership of the
remaining 75% of such shares in which he has no pecuniary interest and (c)
7,246 units convertible into Common Shares.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the terms of the shares of beneficial interest of
the Company does not purport to be complete and is subject to and qualified in
its entirety by reference to the Declaration of Trust, the Articles
Supplementary and the Bylaws of the Company, copies of which are exhibits to the
Registration Statement of which this Prospectus is a part. See "Available
Information."
GENERAL
The Declaration of Trust of the Company provides that the Company is
authorized to issue up to 80,000,000 shares of beneficial interest of the
Company ("Shares"), consisting of 75,000,000 common shares of beneficial
interest, par value $.01 per share ("Common Shares"), and 5,000,000 preferred
shares of beneficial interest, par value $.01 per share ("preferred shares").
Upon the closing of the Offering and after giving effect to the Reverse Split,
the Company will be authorized to issue up to 25,000,000 Common Shares and
5,000,000 preferred shares. Upon completion of the Offering (and after giving
effect to the closing of the SERS Transaction and the Concurrent Investments):
(i) 6,002,483 Common Shares will be issued and outstanding (6,557,483 Common
Shares if the Underwriters' over-allotment option is exercised in full),
including 45,844 Common Shares that will be issued in repayment of the Osborne
Loan and excluding Common Shares that may be issued upon the conversion of
Units; and (ii) 481,818 preferred shares (all of which will consist Preferred
Shares) will be issued and outstanding.
Both Maryland statutory law governing real estate investment trusts
organized under Maryland law (the "Maryland REIT Law") and the Company's
Declaration of Trust provide that no shareholder of the Company will be
personally liable, by reason of his status as a shareholder of the Company, for
any obligation of the Company. The Company's Bylaws further provide that the
Company shall indemnify each shareholder against any claim or liability to which
such shareholder may become subject by reason of his being or having been a
shareholder, and that the Company shall reimburse each shareholder who has been
successful, on the merits or otherwise, in the defense of a proceeding to which
he has been made a party by reason of his status as such for all reasonable
expenses incurred by him in connection with any such claim or liability. In
addition, it is a requirement of the Declaration of Trust that all written
contracts to which the Company is a party shall include a provision to the
effect that shareholders shall not be personally liable thereon.
The Declaration of Trust provides that, subject to the provisions of any
class or series of preferred shares then outstanding and to the mandatory
provisions of applicable law, the shareholders are entitled to vote only on the
following matters: (i) election or removal of Trustees; (ii) amendment of the
Declaration of Trust; (iii) a determination by the Trust to invest in
commodities contracts (other than interest rate futures intended to hedge the
Company against interest rate risk), engage in securities trading (as compared
to investment) activities or hold properties primarily for sale to customers in
the ordinary course of business; and (iv) a merger of the Company with another
entity. Except with respect to the foregoing, no action taken by the
shareholders of the Company at any meeting shall in any way bind the Board of
Trustees.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Bank of New York.
SHARES
Common Shares of Beneficial Interest
Each outstanding Common Share entitles the holder thereof to one vote on
all matters submitted to a vote of shareholders, including the election of
Trustees. There is no cumulative voting in the election of Trustees, which means
that, subject to such voting rights as may be granted by the Board of Trustees
in connection with future issuances of preferred shares, the holders of a
majority of the outstanding Common Shares can elect all of the Trustees then
standing for election. Subject to such preferential rights as may be granted by
the Board of Trustees of the Company in connection with the future issuance, if
any, of preferred
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shares, holders of Common Shares are entitled to such distributions as may be
declared from time to time by the Board of Trustees out of funds legally
available therefor.
Holders of Common Shares have no conversion, exchange, redemption or
preemptive rights to subscribe to any securities of the Company. All outstanding
Common Shares will be fully paid and nonassessable. In the event of any
liquidation, dissolution or winding-up of the affairs of the Company, subject to
such preferential rights as may be granted by the Board of Trustees of the
Company in connection with the future issuance, if any, of Preferred Shares,
holders of Common Shares will be entitled to share ratably in the assets of the
Company remaining after provision for payment of liabilities to creditors. All
Common Shares have equal dividend, distribution, liquidation and other rights.
Preferred Shares of Beneficial Interest
The preferred shares authorized by the Company's Declaration of Trust may
be issued from time to time in one or more series. Prior to the issuance of
preferred shares of each such series, the Board of Trustees is required by the
Maryland REIT Law and the Company's Declaration of Trust to set for each series
the terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms or conditions of
redemption, as are permitted by the Maryland REIT Law. Such rights, powers,
restrictions and limitations could include the right to receive specified
distributions and payments on liquidation prior to any such payments being made
to the holders of Common Shares. Under certain circumstances, the issuance of
preferred shares could have the effect of delaying, deferring or preventing a
change of control of the Company and may adversely affect the voting and other
rights of the holders of the Common Shares.
Classification or Reclassification of Preferred Shares
The Declaration of Trust authorizes the Trustees to classify or reclassify,
in one or more series, any unissued preferred shares by setting or changing the
number of shares constituting such series and the designation, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
distributions, qualifications or terms or conditions of redemption of such
shares.
PREFERRED SHARES
General
In connection with the SERS Transaction, the Company will establish and
issue 481,818 Preferred Shares, which shall be designated as Series A Preferred
Shares.
Dividends
In the event that the Company pays a dividend or makes any distribution
with respect to the Common Shares, regardless of the form of such distribution,
the holders of the Preferred Shares shall be entitled to participate with the
holders of the Common Shares in all such dividends and distributions, such that
the holders of the Preferred Shares shall receive, with respect to each such
Preferred Share held, an amount equal to the product of: (i) the dividend or
distribution payable with respect to each such Common Share multiplied by (ii)
the number of Common Shares into which such Preferred Share is convertible as of
the record date for such dividend or distribution or the payment date with
respect to such dividend or distribution, if there is no record date. In the
event that a Conversion Approval has not occurred by July 1, 1997, then the
holders of the Preferred Shares shall be entitled to receive, with respect to
each such Preferred Share held, an amount equal to the product of: (i) 120% of
the dividend or distribution payable with respect to each such Common Share
multiplied by (ii) the number of Common Shares into which such Preferred Share
is convertible as of the record date for such dividend or distribution or the
payment date with respect to such dividend or distribution, if there is no
record date.
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Liquidation Preference; Merger or Consolidation
In the event of any liquidation, dissolution or winding up of the Company
(a "Liquidation"), regardless of whether such event is voluntary or otherwise,
each Preferred Share will entitle the holder to receive, before any
distributions are made on Common Shares, an amount equal to the greater of: (i)
the amount as would have been payable with respect to the Common Shares into
which such Preferred Share would have been convertible immediately prior to the
Liquidation if a Conversion Approval had previously occurred and (ii) the
product of $16.50 multiplied by the Conversion Number plus all declared but
unpaid dividends. In determining whether a distribution (other than upon
voluntary or involuntary liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted under applicable law, amounts
that would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
Preferred Shares will not be added to the Company's total liabilities.
Upon a merger, consolidation or similar transaction involving the Company,
holders of Preferred Shares will be entitled to receive such payments as would
have been made with respect to the Common Shares into which such Preferred
Shares would have been convertible immediately prior to such event if a
Conversion Event had previously occurred.
Redemption
In the event that a Conversion Approval has not occurred by July 1, 1998,
each holder of Preferred Shares will have the right, at its option, to require
the Company to redeem all or a portion of the Preferred Shares held by it at a
price per share equal to the Redemption Price as defined and described under
"Risk Factors -- Redemption Preferred Shares."
Voting Rights
Except as otherwise provided by law and as indicated below, the holders of
Preferred Shares shall be entitled to vote on all matters as to which the
holders of Common Shares shall be entitled to vote, together with the holders of
Common Shares as a single class, and shall be entitled to cast a number of votes
equal to the Conversion Number. Holders of Preferred Shares will not be entitled
to vote on the unlimited convertibility of Preferred Shares into Common Shares.
Conversion Rights
Subject to the conditions set forth below, each holder of the Preferred
Shares shall have the right, at any time, at such holder's option, to convert,
without the payment of any additional consideration, each Preferred Share held
by such holder into that number of non-assessable Common Shares equal to the
Conversion Number. Until Conversion Approval has occurred, the number of Common
Shares that may be issued in respect of the conversion of Preferred Shares is
limited to 181,325 in the aggregate. After Conversion Approval, there are no
limitations on the convertibility of the Preferred Shares into Common Shares.
If, at any time, the Company: (i) pays a dividend or makes a distribution
on any of its Shares in Common Shares; (ii) subdivides its outstanding Common
Shares into a greater number of shares; (iii) combines outstanding Common Shares
into a smaller number of Shares; or (iv) issues Common Shares by
reclassification of any of its Shares, then the Conversion Number in effect
immediately prior to such action shall be adjusted such that the holders of
Preferred Shares may receive upon conversion the number of Common Shares that
such holders would have owned immediately following such action if the holders
had converted their Preferred Shares immediately prior to such action.
REVERSE SHARE SPLIT; TREATMENT OF FRACTIONAL SHARES
Immediately prior to closing of the Offering, each three outstanding Common
Shares will be combined into one Common Share of the Company. The purpose of the
Reverse Split is to increase the liquidity and marketability of the Common
Shares by increasing the trading price per Common Share and attracting investors
and analysts who would otherwise be reluctant to deal in a lower-priced stock.
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The Reverse Split will result in certain existing shareholders owning
fractional shares of the Company. The Company will not issue fractional shares,
but will instead distribute cash to such shareholders in redemption of such
fractional shares. To make such payments, fractional shares will be aggregated
into whole shares and a certificate evidencing those shares will be sold by an
independent agent in the open market on behalf of shareholders who otherwise
would be entitled to receive fractional shares. Those shareholders will receive
a cash payment in the amount of their pro rata share of the total sales
proceeds. The independent agent will make such sales at such times and in such
amounts and through broker-dealers selected in the sole discretion of the
independent agent. None of the independent agent's actions will be subject to
the control of the Company. As long as the distribution of cash in payment for
such fractional shares represents merely a mechanical rounding off of the
fractions in the exchange and is not a separately bargained-for consideration,
the payments will be treated as redemptions, which should result in the
recognition of capital gain or loss, and not ordinary income, to the
shareholders. Promptly after the occurrence of the Reverse Split, a letter of
transmittal will be mailed to shareholders (other than shareholders who acquired
Common Shares in the Offering) containing instructions relating to the surrender
of outstanding certificates representing Common Shares in exchange for
certificates representing post-Reverse Split Common Shares. SHARE CERTIFICATES
SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding Shares may be owned, directly or indirectly, by five or
fewer individuals (defined in the Code to include certain entities such as
qualified pension plans) during the last half of a taxable year and Shares must
be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of twelve months (or during a proportionate part of a shorter
taxable year).
Because the Board of Trustees believes it is at present essential for the
Company to continue to qualify as a REIT, the Declaration of Trust, subject to
certain exceptions, contains provisions that restrict the number of Shares that
a person may own and that are designed to safeguard the Company against an
inadvertent loss of REIT status. In order to prevent any shareholder from owning
Shares in an amount that would cause more than 50% in value of the outstanding
Shares to be held by five or fewer individuals, the Board, pursuant to authority
granted in the Declaration of Trust, has passed a resolution that, subject to
certain exceptions described below, provides that no person may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than
9.8% in value of the outstanding Shares, except for SSI who, pursuant to a
separate agreement with the Company, may own no more than 14.75% in value of the
outstanding shares (the "Ownership Limit"). The Board of Trustees, subject to
limitations, retains the authority to effect additional increases to, or
establish exemptions from, the Ownership Limit.
In addition, pursuant to the Declaration of Trust, no purported transfer of
Shares may be given effect if it would result in ownership of all of the
outstanding Shares by fewer than 100 persons (determined without any reference
to the rules of attribution) or result in the Company being "closely held"
within the meaning of Section 856(h) of the Code (the "Ownership Restrictions").
In the event of a purported transfer or other event that would, if effective,
result in the ownership of Shares in violation of the Ownership Limit or the
Ownership Restrictions, such transfer would be deemed void ab initio and such
Shares would automatically be exchanged for "Excess Shares" authorized by the
Declaration of Trust, according to rules set forth in the Declaration of Trust,
to the extent necessary to ensure that the purported transfer or other event
does not result in the ownership of Shares in violation of the Ownership Limit
or the Ownership Restrictions.
Holders of Excess Shares are not entitled to voting rights (except to the
extent required by law), dividends or distributions. If, after the purported
transfer or other event resulting in an exchange of Shares for Excess Shares and
prior to the discovery by the Company of such exchange, dividends or
distributions are paid with respect to Shares that were exchanged for Excess
Shares, then such dividends or distributions would be repayable to the Company
upon demand. While outstanding, Excess Shares would be held in trust by the
Company for the benefit of the ultimate transferee of an interest in such trust,
as described below. While Excess Shares are held in trust, an interest in that
trust may be transferred by the purported transferee or other purported holder
with respect to such Excess Shares only to a person whose ownership of the
Shares would not
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violate the Ownership Limit or the Ownership Restrictions, at which time the
Excess Shares would be automatically exchanged for Shares of the same type and
class as the Shares for which the Excess Shares were originally exchanged. The
Declaration of Trust contains provisions that are designed to ensure that the
purported transferee or other purported holder of the Excess Shares may not
receive in return for such a transfer an amount that reflects any appreciation
in the Shares for which such Excess Shares were exchanged during the period that
such Excess Shares were outstanding. Any amount received by a purported
transferee or other purported holder in excess of the amount permitted to be
received would be required to be turned over to the Company.
The Declaration of Trust also provides that Excess Shares shall be deemed
to have been offered for sale to the Company, or its designee, which shall have
the right to accept such offer for a period of 90 days after the later of: (i)
the date of the purported transfer or event which resulted in an exchange of
Shares for such Excess Shares; and (ii) the date the Board of Trustees
determines that a purported transfer or other event resulting in an exchange of
Shares for such Excess Shares has occurred if the Company does not receive
notice of any such transfer. The price at which the Company may purchase such
Excess Shares would be equal to the lesser of: (i) in the case of Excess Shares
resulting from a purported transfer for value, the price per share in the
purported transfer that caused the automatic exchange for such Excess Shares or,
in the case of Excess Shares resulting from some other event, the market price
of such Shares on the date of the automatic exchange for Excess Shares; or (ii)
the market price of such Shares on the date that the Company accepts such Excess
Shares. Any dividend or distribution paid to a proposed transferee on Excess
Shares prior to the discovery by the Company that such Shares have been
transferred in violation of the provisions of the Declaration of Trust shall be
repaid to the Company upon demand. If the foregoing restrictions are determined
to be void or invalid by virtue of any legal decision, statute, rule or
regulation, then the intended transferee or holder of any Excess Shares may be
deemed, at the option of the Company, to have acted as an agent on behalf of the
Company in acquiring or holding such Excess Shares and to hold such Excess
Shares on behalf of the Company.
The Trustees may waive the Ownership Restrictions if evidence satisfactory
to the Trustees and the Company's tax counsel or tax accountants is presented
showing that such waiver will not jeopardize the Company's status as a REIT
under the Code. As a condition of such waiver, the Trustees may require that an
intended transferee give written notice to the Company, furnish such opinions of
counsel, affidavits, undertakings, agreements and information as may be required
by the Trustees and/or an undertaking from the applicant with respect to
preserving the status of the Company. The Ownership Restrictions will not apply
if the Company determines that it no longer will attempt to qualify, or continue
to qualify, as a REIT. Any transfer of Shares or any security convertible into
Shares that would: (i) create a direct or indirect ownership of Shares in excess
of the Ownership Limit; or (ii) result in the violation of the Ownership
Restrictions will be void with respect to the intended transferee and will
result in Excess Shares as described above.
Neither the Ownership Restrictions nor the Ownership Limit will be
automatically removed even if the REIT provisions of the Code are changed so as
no longer to contain any ownership concentration limitation or if the ownership
concentration limitation is increased. Except as otherwise described above, any
change in the Ownership Restrictions would require an amendment to the
Declaration of the Trust. Amendments to the Declaration require the affirmative
vote of holders owning not less than a majority of the outstanding Shares
entitled to vote thereon. In addition to preserving the Company's status as a
REIT, the Ownership Restrictions and the Ownership Limit may have the effect of
precluding an acquisition of control of the Company without the approval of the
Board of Trustees.
All persons who own, directly or by virtue of the applicable attribution
provisions of the Code, more than 4.0% of the value of any class of outstanding
Shares, must file an affidavit with the Company containing the information
specified in the Declaration by January 31 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Company in writing
such information with respect to the direct, indirect and constructive ownership
of Shares as the Trustees deem necessary to comply with the provisions of the
Code applicable to REITs, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
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The Ownership Limit could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders of the Company.
All certificates representing Shares that are hereafter issued will bear a
legend referring to the restrictions and limitations described above.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and to the
Declaration of Trust and Bylaws, copies of which are exhibits to the
Registration Statement of which this Prospectus is a part. See "Available
Information."
DURATION
Under the Company's Declaration of Trust, the Company has a perpetual term
and will continue perpetually subject to the authority of the Board of Trustees
to terminate the Company's existence and liquidate its assets and subject to
termination pursuant to the Maryland REIT Law.
BOARD OF TRUSTEES
The Company's Declaration of Trust provides that the number of Trustees of
the Company shall not be less than three nor more than 15. Any vacancy
(including a vacancy created by an increase in the number of Trustees) will be
filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the Trustees (although less than a quorum). The
Trustees will each serve for a term of one year (except that an individual who
has been elected to fill a vacancy will hold office only until the next annual
meeting of shareholders and until his successor has been duly elected and
qualified).
The Declaration of Trust provides that a Trustee may be removed from office
only at a meeting of the shareholders called for that purpose, by the
affirmative vote of the holders of not less than a majority of the Shares
entitled to vote in the election of Trustees; provided, however, that in the
case of any Trustees elected solely by holders of a series of preferred shares,
such Trustees may be removed by the affirmative vote of a majority of the
preferred shares of that series then outstanding and entitled to vote in the
election of Trustees, voting together as a single class.
MEETINGS OF SHAREHOLDERS
The Declaration of Trust requires the Company to hold an annual meeting of
shareholders for the election of Trustees and the transaction of any other
proper business. Special meetings of shareholders may be called upon the written
request of shareholders holding at least 10% of the Common Shares. Special
meetings of shareholders may also be called by the holders of preferred shares
to the extent, if any, determined by the Board of Trustees in connection with
the establishment of a class or series of preferred shares. Any action required
or permitted to be taken by shareholders must be taken at a duly called annual
or special meeting of shareholders and may not be effected by any consent in
writing of shareholders.
PREFERRED SHARES
The Company's Declaration of Trust authorizes the Board of Trustees to
establish one or more series of preferred shares and to determine, with respect
to any series of preferred shares, the number of shares constituting such series
and the designation, preferences, rights and other terms of such series. See
"Description of Shares of Beneficial Interest -- Shares -- Preferred Shares of
Beneficial Interest." The Company believes that the ability of the Board of
Trustees to issue one or more series of preferred shares will provide the
Company with increased flexibility in structuring possible future financings and
acquisitions, and in meeting other trust needs which might arise. The authorized
Preferred Shares, as well as the authorized
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Common Shares, will be available for issuance without further action by the
Company's shareholders, unless such action is required by applicable law or the
rules of any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. In connection with the SERS Transaction, the
Company will issue 481,818 Preferred Shares that are convertible, under certain
circumstances, into 1,606,060 Common Shares. See "The Company -- The SERS
Transaction."
BUSINESS COMBINATIONS
Under the MGCL, as applicable to Maryland real estate investment trusts,
certain "business combinations" (including a merger, consolidation, share
exchange, or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland real estate investment
trust and any person who beneficially owns, directly or indirectly, 10% or more
of the voting power of the trust's shares (an "Interested Shareholder") must be:
(a) recommended by the trustees of such trust and (b) approved by the
affirmative vote of at least: (i) 80% of the votes entitled to be cast by
holders of outstanding voting shares of beneficial interest of the trust; and
(ii) two-thirds of the votes entitled to be cast by holders of outstanding
voting shares of beneficial interest other than shares held by the Interested
Shareholder with whom the business combination is to be effected, unless, among
other conditions, the trust's common shareholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Shareholder for its
shares. In addition, an Interested Shareholder or any affiliate thereof may not
engage in a "business combination" with the trust for a period of five years
following the most recent date on which the Interested Shareholder becomes an
Interested Shareholder. These provisions of the MGCL do not apply, however, to
business combinations that are approved or exempted by the board of trustees of
the trust prior to the time that the Interested Shareholder becomes an
Interested Shareholder. An amendment to a Maryland REIT's declaration of trust
electing not to be subject to the foregoing requirements must be approved by the
affirmative vote of at least 80% of the votes entitled to be cast by holders of
outstanding voting shares of beneficial interest of the trust, voting together
as a single voting group, and two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of beneficial interest other than shares of
beneficial interest held by Interested Shareholders. Any such amendment shall
not be effective until 18 months after the vote of shareholders and does not
apply to any business combination of the trust with an Interested Shareholder on
the date of the shareholder vote. The Board of Trustees has exempted any
business combinations involving SSI, TNC, Gerard H. Sweeney and their respective
affiliates from the business combination provisions of the MGCL and,
consequently, the five-year prohibition and the super-majority vote requirements
will not apply to business combinations between any of them and the Company. As
a result, SSI, TNC, Gerard H. Sweeney and their respective affiliates may be
able to enter into business combinations that may not be in the best interest of
the shareholders without compliance by the Company with the super-majority vote
requirements and the other provisions of the statute. In addition, the Company
has exempted any business combination involving SERS or the SERS Voting Trust
and any of their respective affiliates or associates and Morgan Stanley Asset
Management Inc. and the Morgan Stanley Funds and any of their respective
affiliates or associates from the business combination provisions of the MGCL.
The business combination statute could have the effect of delaying,
deferring or preventing offers to acquire the Company and of increasing the
difficulty of consummating any such offer.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, provides
that "control shares" of a Maryland real estate investment trust acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter by
shareholders, excluding shares owned by the acquiror, by officers or by trustees
who are employees of the trust in question. "Control shares" are voting shares
which, if aggregated with all other shares previously acquired by such acquiror,
would entitle the acquiror to exercise voting power in the election of trustees
within one of the following ranges of voting power: (a) one-fifth or more but
less than one-third, (b) one-third or more but less than a majority, or (c) a
majority or more of all voting power. Control shares do not include shares the
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acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the trust's board of trustees to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares, except those for which voting rights have previously been
approved, for fair value determined, without regard to the absence of voting
rights, as of the date of the last control share acquisition by the acquiror or
of any meeting of shareholders at which the voting rights of such shares are
considered and not approved. If voting rights for control shares are approved at
a shareholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other shareholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of such
appraisal rights may not be less than the highest price per share paid by the
acquiror in the control share acquisition, and certain limitations and
restrictions otherwise applicable to the exercise of dissenters' rights do not
apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by the declaration of trust
or bylaws of the trust. Pursuant to the statute, the Company has exempted any
and all acquisitions of Shares by SSI, TNC and any affiliate or associate of
theirs from the control share provisions of the MGCL. As a result, SSI or TNC
will be able to possess voting power not generally available to other persons
and the effect may be to further enhance their ability to control of the
Company. In addition, pursuant to the statute, the Company has exempted any and
all acquisitions of Shares by SERS and the SERS Voting Trust and any of their
respective affiliates or associates and Morgan Stanley Asset Management Inc. and
the Morgan Stanley Funds and any of their respective affiliates or associates
from the control share provisions of the MGCL.
The control share acquisition statute could have the effect of delaying,
deferring or preventing offers to acquire the Company and of increasing the
difficulty of consummating any such offer.
AMENDMENT TO THE DECLARATION OF TRUST
The Company's Declaration of Trust may be amended only by the affirmative
vote of the holders of not less than a majority of the Shares then outstanding
and entitled to vote thereon, except for the provisions of the Declaration of
Trust relating to the MGCL provisions on business combinations, amendment of
which require the affirmative vote of the holders of not less than 80% of the
Shares then outstanding and entitled to vote. In addition, in the event that the
Board of Trustees shall have determined, with the advice of counsel, that any
one or more of the provisions of the Company's Declaration of Trust (the
"Conflicting Provisions") are in conflict with the Maryland REIT Law, the Code
or other applicable Federal or state law(s), the Conflicting Provisions shall be
deemed never to have constituted a part of the Declaration of Trust, even
without any amendment thereof.
TERMINATION OF THE COMPANY AND REIT STATUS
Subject to the rights of any outstanding preferred shares and to the
provisions of the Maryland REIT Law, the Company's Declaration of Trust permits
the termination of the Company and the discontinuation of the election by the
Board of Trustees that the Company be taxed as a REIT.
TRANSACTIONS BETWEEN THE COMPANY AND ITS TRUSTEES OR OFFICERS
The Company's Declaration of Trust provides that any contract or
transaction between the Company and one or more Trustees or officers of the
Company must be approved by a majority of the disinterested Trustees.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by Maryland law.
The Company's Bylaws require it to indemnify (a) any present or former
Trustee, officer or shareholder who has been successful, on the merits or
otherwise, in the defense of a proceeding to which he was made a party by reason
of such status, against reasonable expenses incurred by him in connection with
the proceeding; (b) any present or former Trustee or officer against any claim
or liability to which he may become subject by reason of his status as such
unless it is established that (i) his act or omission was committed in bad faith
or was the result of active and deliberate dishonesty, (ii) he actually received
an improper personal benefit in money, property or services or (iii) in the case
of a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful; and (c) each shareholder or former shareholder against
any claim or liability to which he may be subject by reason of his status as a
shareholder or former shareholder. In addition, the Company's Bylaws require it
to pay or reimburse, in advance of final disposition of a proceeding, reasonable
expenses incurred by a present or former Trustee, officer or shareholder made a
party to a proceeding by reason of his status as a Trustee, officer or
shareholder provided that, in the case of a Trustee or officer, the Company
shall have received (i) a written affirmation by the Trustee or officer of his
good faith belief that he has met the applicable standard of conduct necessary
for indemnification by the Company as authorized by the Bylaws and (ii) a
written undertaking by or on his behalf to repay the amount paid or reimbursed
by the Company if it shall ultimately be determined that the standard of conduct
was not met. The Company's Bylaws also (i) permit the Company to provide
indemnification and payment or reimbursement of expenses to a present or former
Trustee, officer or shareholder who served a predecessor of the Company in such
capacity, and to any employee or agent of the Company or a predecessor of the
Company, (ii) provide that any indemnification or payment or reimbursement of
the expenses permitted by the Bylaws shall be furnished in accordance with the
procedures provided for indemnification and payment or reimbursement of expenses
under Section 2-418 of the MGCL for directors of Maryland corporations and (iii)
permit the Company to provide such other and further indemnification or payment
or reimbursement of expenses as may be permitted by the MGCL for directors of
Maryland corporations.
The Partnership Agreement also provides for indemnification by the
Operating Partnership of the Company, as general partner, and its Trustees and
officers for any costs, expenses or liabilities incurred by them by reason of
any act performed by them for or on behalf of the Operating Partnership or the
Company; provided that such person's actions were taken in good faith and in the
belief that such conduct was in the best interests of the Operating Partnership
and that such person was not guilty of fraud, willful misconduct or gross
negligence.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees and officers of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that, although
the validity and scope of the governing statute has not been tested in court, in
the opinion of the Securities Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material Federal income tax considerations
regarding the Offering is based on current Federal income tax law and is for
general information only and is not tax advice. In the opinion of Arthur
Andersen LLP, tax advisor to the Company (the "Tax Advisor") the discussion
below, insofar as it relates to Federal income tax matters, is correct in all
material respects, and fairly summarizes the federal income tax considerations
that are material to a shareholder. This discussion does not purport to deal
with all aspects of taxation that may be relevant to particular shareholders in
light of their personal investment or tax circumstances, or to certain types of
shareholders (including insurance companies, tax-exempt organizations, financial
institutions or broker dealers, foreign corporations and persons who are not
citizens or residents of the United States, except to the extent discussed under
"Taxation of Foreign Shareholders" below) subject to special treatment under the
Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Company first elected to be taxed as a REIT for its taxable year ended
December 31, 1986, and has operated and expects to continue to operate in such a
manner so as to qualify as a REIT for Federal income tax purposes. In the
opinion of the Tax Advisor, and based on certain representations made by the
Company relating to the organization and operation of the Company and the
Operating Partnership, the Company will continue to qualify as a REIT under the
Code. However, the opinion of the Tax Advisor is not binding upon the IRS and no
absolute assurance can be given that the Company will continue to operate in a
manner so as to remain qualified as a REIT.
The following is a general summary of the Code sections that govern the
Federal income tax treatment of a REIT and its shareholders. These sections of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof as currently in effect. There is no assurance that there
will not be future changes in the Code or administrative or judicial
interpretation thereof which could adversely affect the Company's ability to
continue to qualify as a REIT or adversely affect the taxation of holders of
Common Shares or which could further limit the amount of income the Company may
derive from the management, construction, development, leasing or sale of
properties owned by the Operating Partnership or by third parties or in
partnerships with third parties.
TAXATION OF THE COMPANY AS A REIT
An entity that qualifies for taxation as a REIT and distributes to its
shareholders at least 95% of its REIT taxable income is generally not subject to
Federal corporate income taxes on net income that it currently distributes to
shareholders. This treatment substantially eliminates the "double taxation" (at
the corporate and shareholder levels) that generally results from investment in
a corporation. However, the Company will be subject to Federal income tax as
follows:
(i) The Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
(ii) Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any.
(iii) If the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property
other than foreclosure property held primarily for sale to customers
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in the ordinary course of business) such income will be subject to a 100%
tax. See "-- Sale of Partnership Property."
(iv) If the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), and has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the
75% or 95% test, multiplied by a fraction intended to reflect the Company's
profitability.
(v) If the Company should fail to distribute during each calendar year
at least the sum of (1) 85% of its REIT ordinary income for such year, (2)
95% of its REIT capital gain net income for such year, and (3) any
undistributed taxable income from prior years, it would be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed.
(vi) If the Company has (1) net income from the sale or other
disposition of "foreclosure property" (which is, in general, property
acquired by the Company by foreclosure or otherwise or default on a loan
secured by the property) which is held primarily for sale to customers in
the ordinary course of business or (2) other nonqualifying income from
foreclosure property, it will be subject to tax on such income at the
highest corporate rate.
(vii) If the Company acquires any asset from a C corporation (i.e.,
generally a corporation subject to tax at the corporate level) in a
transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property)
in the hands of the C corporation, and the Company recognizes gain on the
disposition of such asset during the 10-year period (the "Restriction
Period") beginning on the date on which such asset was acquired by the
Company then, pursuant to guidelines issued by the IRS, the excess of the
fair market value of such property at the beginning of the applicable
Restriction Period over the Company's adjusted basis in such asset as of
the beginning of such Restriction Period will be subject to a tax at the
highest regular corporate rate. The results described above with respect to
the recognition of built-in gain assume that the Company will make an
election pursuant to IRS Notice 88-19 or applicable future administrative
rules or Treasury Regulations to avail itself of the benefits of the
Restriction Period.
QUALIFICATION OF THE COMPANY AS A REIT
The Code defines a REIT as a corporation, trust or association:
(1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(3) which would be taxable as a domestic corporation but for Sections
856 through 859 of the Code;
(4) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(5) which has the calendar year as its taxable year;
(6) the beneficial ownership of which is held by 100 or more persons;
(7) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
exempt organizations); and
(8) which meets certain income, asset and distribution tests,
described below.
Conditions (1) through (5), inclusive, must be satisfied during the
entire taxable year, and condition (6) must be satisfied during at least
335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. The Company has previously issued
Common Shares in sufficient proportions to allow it to satisfy requirements
(6) and (7) (the "100 Shareholder" and "five-or-
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fewer" requirements), respectively. In addition, the Company's Declaration
of Trust provides restrictions regarding the transfer of its Shares that
are intended to assist the Company in continuing to satisfy the share
ownership requirements described in (6) and (7) above. See "Description of
Shares of Beneficial Interest -- Restrictions on Transfer." However, these
restrictions may not ensure that the Company will, in all cases, be able to
satisfy the share ownership requirements described in (6) and (7) above. If
the Company fails to satisfy such share ownership requirements, the
Company's status as a REIT will terminate. See "-- Failure to Qualify."
A REIT is permitted to have a wholly-owned subsidiary (also referred to as
a "qualified REIT subsidiary"). A qualified REIT subsidiary is not treated as a
separate entity for Federal income tax purposes. Rather, all of the assets and
items of income, deductions and credit of a qualified REIT subsidiary are
treated as if they were those of the REIT. The Company may in the future form
one or more qualified REIT subsidiaries.
A REIT is deemed to own its proportionate share of the assets of a
partnership in which it is a partner and is deemed to receive its proportionate
share of the income of the partnership. Thus, the Company's proportionate share
of the assets and items of income of the Operating Partnership and each of the
Title Holding Partnerships will be treated as assets and items of income of the
Company for purposes of applying the requirements described herein, provided
that the Operating Partnership and the Title Holding Partnerships are treated as
partnerships for Federal income tax purposes. In addition, the character of the
assets and gross income of such partnerships shall retain the same character in
the hands of the REIT for purposes of the requirements applicable to REITs under
the Code including satisfying the income tests and the asset tests. See
" -- Income Taxation of the Operating Partnership, the Title Holding
Partnerships and Their Partners."
INCOME TESTS
To maintain qualification as a REIT, there are three gross income
requirements that must be satisfied annually. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and interest on obligations secured by a mortgage on real
property) or from "qualified temporary investment income" (described below).
Second, at least 95% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from investments
qualifying under the 75% test above, and from dividends, interest, and gain from
the sale or disposition of stock or securities or from any combination of the
foregoing. Third, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions, and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year. In applying these tests, the Company will
be treated as realizing its share of any income and bearing its share of any
loss of the Operating Partnership and the character of such income or loss, as
well as other partnership items, will be determined at the partnership level.
Rents received by the Company will qualify as "rents from real property"
for purposes of satisfying the 75% and 95% gross income tests only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" if the REIT, or an owner of 10% or more of
the REIT, directly or constructively owns 10% or more of such tenant (a "Related
Party Tenant"). Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an "independent contractor" who is adequately
compensated and from whom the REIT does not derive any income; provided,
however, that the Company may directly perform certain customary
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services (e.g., furnishing water, heat, light and air conditioning, and cleaning
windows, public entrances and lobbies) other than services which are considered
rendered to the occupant of the property (e.g., renting parking spaces on a
reserved basis to tenants).
It is expected that the Company's real estate investments, which include
its allocable share of income from the Operating Partnership, will give rise to
income that qualifies as "rents from real property" for purposes of the 75
percent and 95 percent gross income tests, other than rents received from Maris
Equipment, Inc., which is a Related Party Tenant. However, the Company has
represented that the rents received from Maris Equipment, Inc., in addition to
all other income which is not qualifying income for the 75 percent and 95
percent gross income tests, does not exceed five percent of the Company's gross
income, and therefore, the Company's status as a REIT should not be jeopardized.
The Company has represented that it does not and will not (i) charge rent
for any property that is based in whole or in part on the income or profits of
any person (other than being based on a percentage of receipts or sales); (ii)
receive rents in excess of a de minimis amount from Related Party Tenants; (iii)
derive rents attributable to personal property which constitute greater than 15%
of the total rents received under the lease; or (iv) perform services considered
to be rendered to the occupant of property, other than through an independent
contractor from whom the Company derives no income.
The Operating Partnership owns 5% of the voting common stock, and all of
the preferred stock of the Management Company, a corporation that is taxable as
a regular corporation. The Management Company performs management, development
and leasing services for the Operating Partnership and other real properties
owned in whole or in part by third parties. The income earned by and taxed to
the Management Company would be nonqualifying income if earned directly by the
Company. As a result of the corporate structure, the income will be earned by
and taxed to the Management Company and will be received by the Company only
indirectly as dividends. Although interest and dividends are generally
qualifying income under the 95% test, the IRS has announced a no-ruling policy
on this issue when the dividends and interest are earned in this manner.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its return, and
(iii) any incorrect information on the schedule was not due to fraud with intent
to evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of these relief provisions. As
discussed above in "Taxation of the Company as a REIT," even if these relief
provisions apply, a tax would be imposed with respect to the excess net income.
No similar mitigation provision applies to provide relief if the 30% income test
is failed, and in such case, the Company would cease to qualify as a REIT. See
"-- Failure to Qualify."
ASSET TESTS
In order for the Company to maintain its qualification as a REIT, at the
close of each quarter of its taxable year it must also satisfy three tests
relating to the nature of its assets. First, at least 75% of the value of the
Company's total assets must be represented by real estate assets (which for this
purpose include (i) its allocable share of real estate assets held by
partnerships in which the Company or a "qualified REIT subsidiary" of the
Company owns an interest and (ii) stock or debt instruments purchased with the
proceeds of a stock offering or a long-term (at least five years) debt offering
of the Company and held for not more than one year from the date the Company
receives such proceeds), cash, cash items, and government securities. Second,
not more than 25% of the Company's total assets may be represented by securities
other than those described above in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets, and the Company may not own more than 10% of any one issuer's
outstanding voting securities (excluding securities of a qualified REIT
subsidiary, of which the REIT is required to own all of such stock, or another
REIT).
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The Company anticipates that it will be able to comply with these asset
tests. The Company is deemed to hold directly its proportionate share of all
real estate and other assets of the Operating Partnership and should be
considered to hold its proportionate share of all assets deemed owned by the
Operating Partnership through its ownership of partnership interests in other
partnerships. As a result, the Company plans to hold more than 75% of its assets
as real estate assets. In addition, the Company does not plan to hold any
securities representing more than 10% of any one issuer's voting securities,
other than any qualified REIT subsidiary of the Company, nor securities of any
one issuer exceeding 5% of the value of the Company's gross assets (determined
in accordance with generally accepted accounting principles). As previously
discussed, the Company is deemed to own its proportionate share of the assets of
a partnership in which it is a partner so that the partnership interest, itself,
is not a security for purposes of this asset test.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests, and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance. However, there can be no assurance that such other action
will always be successful. If the Company fails to cure any noncompliance with
the asset test within such time period, its status as a REIT would be lost.
As noted above, one of the requirements for qualification as a REIT is that
a REIT not own more than 10 percent of the voting stock of a corporation other
than the stock of a qualified REIT subsidiary (of which the REIT is required to
own all of such stock) and stock in another REIT. The Operating Partnership will
own only approximately 5 percent of the voting stock and all of the non-voting
preferred stock of the Management Company and therefore will comply with this
rule. However, the IRS could contend that the Company's ownership, through its
interest in the Operating Partnership, of all of the non-voting preferred stock
in the Management Company should be viewed as voting stock because of its
substantial economic position in the Management Company. If the IRS were to be
successful in such a contention, the Company's status as a REIT would be lost
and the Company would become subject to federal corporate income tax on its net
income, which would have a material adverse affect on the Company's Cash
Available for Distribution. The Company does not have the ability to designate a
seat on the Board of Directors of the Management Company. The Company does not
believe that it will be viewed as owning in excess of 10 percent of the voting
stock of the Management Company.
ANNUAL DISTRIBUTION REQUIREMENTS
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its Shareholders in an amount
at least equal to (A) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and the REIT's net
capital gain) and (ii) 95% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax on the
undistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if the Company should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT net capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the Partnership Agreement
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution requirements.
It is possible that the Company, from time to
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time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement due primarily to the expenditure of cash for
nondeductible items such as principal amortization or capital expenditures and
for the redemption of the Preferred Shares if a Conversion Event has not
occurred prior to July 1, 1998. (See "The Company -- The SERS Transaction"). In
order to meet the 95% distribution requirement, the Company may borrow or may
cause the Operating Partnership to arrange for short-term or other borrowing to
permit the payment of required distributions or attempt to declare a consent
dividend, which is a hypothetical distribution to holders of Common Shares out
of the earnings and profits of the Company. The effect of such a consent
dividend (which, in conjunction with distributions actually paid, must not be
preferential to those holders who agree to such treatment) would be that such
holders would be treated for federal income tax purposes as if they had received
such amount in cash, and they then had immediately contributed such amount back
to the Company as additional paid-in capital. This would result in taxable
income to those holders without the receipt of any actual cash distribution but
would also increase their tax basis in their Common Shares by the amount of the
taxable income recognized.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year that may be included in the Company's
deduction for distributions paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay to the IRS interest based upon the
amount of any deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be deductible by the Company, nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable to them as ordinary income, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.
INCOME TAXATION OF THE OPERATING PARTNERSHIP, THE TITLE HOLDING PARTNERSHIPS AND
THEIR PARTNERS
The following discussion summarizes certain Federal income tax
considerations applicable to the Company's investment in the Operating
Partnership and its subsidiary partnerships (referred to herein as the "Title
Holding Partnerships").
CLASSIFICATION OF THE OPERATING PARTNERSHIP AND TITLE HOLDING PARTNERSHIPS AS
PARTNERSHIPS
The Company will hold a substantial part of its investments through the
Operating Partnership. The Company will be entitled to include in its income its
distributive share of the income and to deduct its distributive share of the
losses of the Operating Partnership (including the Operating Partnership's share
of the income or losses of the Title Holding Partnerships) only if the Operating
Partnership and the Title Holding Partnerships (collectively, the
"Partnerships") are classified for Federal income tax purposes as partnerships
rather than as associations taxable as corporations. An organization formed as a
partnership will be treated as a partnership for Federal income tax purposes
rather than as a corporation only if it has no more than two of the four
corporate characteristics that the Treasury Regulations use to distinguish a
partnership from a corporation for tax purposes. These four characteristics are
continuity of life, centralization of management, limited liability, and free
transferability of interests.
Neither the Operating Partnership nor any of the Title Holding Partnerships
has requested, nor do they intend to request, a ruling from the IRS that they
will be treated as partnerships for Federal income tax purposes. The Company
will receive an opinion of the Tax Advisor, which is not binding on the IRS,
that the
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Operating Partnership and the Title Holding Partnerships will each be treated as
partnerships for Federal income tax purposes and not as an association or
publicly traded partnership taxable as a corporation. The opinion of the Tax
Advisor is based on the provisions of the Partnership Agreement and the limited
partnership agreements of the Title Holding Partnerships, respectively, and
certain factual assumptions and representations described in the opinion. There
is no assurance that the IRS will not challenge the status of the Operating
Partnership or the Title Holding Partnerships as partnerships for federal income
tax purposes. If such challenge were sustained by a court, the Operating
Partnership and/or a Title Holding Partnership could be treated as a corporation
for federal income tax purposes.
If for any reason the Operating Partnership or a Title Holding Partnership
was classified as an association taxable as a corporation rather than as a
partnership for Federal income tax purposes, the Company would not be able to
satisfy the income and asset requirements for REIT status. See "-- Income Tests"
and "-- Asset Tests." In addition, any change in any such Partnership's status
for tax purposes might be treated as a taxable event, in which case the Company
might incur a tax liability without any related cash distribution. See
"-- Annual Distribution Requirements." Further, items of income and deduction of
any such Partnership would not pass through to its partners (e.g., the Company),
and its partners would be treated as shareholders for tax purposes. Any such
Partnership would be required to pay income tax at corporate tax rates on its
net income and distributions to its partners would constitute dividends that
would not be deductible in computing such Partnership's taxable income.
Recently proposed Treasury Regulations (the "Proposed Regulations") would
eliminate the four-factor test described above and instead permit a partnership
or limited liability company to elect to be taxed as a partnership for federal
income tax purposes without regard to the number of corporate characteristics
possessed by such entity. The Proposed Regulations would apply for tax periods
beginning on or after the date that such regulations are finalized. Until such
time, the existing regulations will continue to apply. The Proposed Regulations
would not permit the IRS to challenge the classification of an existing
partnership or limited liability company for tax periods to which the existing
Treasury Regulations apply if (1) the entity had a reasonable basis for its
claimed classification, (2) the entity claimed that same classification in all
prior years and (3) as of the date that the Proposed Regulations were published,
neither the entity nor any member of the entity had been notified in writing
that the classification of the entity is under examination by the IRS.
PARTNERSHIP ALLOCATIONS
Although a partnership agreement will generally determine the allocation of
income and losses among partners, such allocations will be disregarded for tax
purposes if they do not comply with the provisions of Section 704(b) and the
Treasury Regulations promulgated thereunder, which require that partnership
allocations respect the economic arrangement of the partners.
If an allocation is not recognized for Federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Operating Partnership's
allocations of taxable income and loss are intended to comply with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
The Company has represented that the fair market values of the Properties
contributed directly or indirectly to the Operating Partnership as part of the
SSI/TNC Transaction were higher than the tax basis of such Properties. Pursuant
to Section 704(c) of the Code, items of income, gain, loss, and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated for
Federal income tax purposes in a manner such that the contributor is charged
with or benefits from the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the
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adjusted tax basis of such property at the time of contribution (the
"Pre-Contribution Gain or Loss"). The partnership agreement of the Operating
Partnership requires allocations of income, gain, loss and deduction
attributable to such contributed property to be made in a manner that is
consistent with Section 704(c) of the Code. Thus, if the Operating Partnership
sells contributed property at a gain or loss, such gain or loss will be
allocated to the contributing partners, and away from the Company, generally to
the extent of the Pre-Contribution Gain or Loss.
The Treasury Department has issued final and temporary regulations under
Section 704(c) of the Code (the "Regulations") which give partnerships great
flexibility in ensuring that a partner contributing property to a partnership
receives the tax burdens and benefits of any Pre-Contribution Gain or Loss
attributable to the contributed property. The Regulations permit partnerships to
use any "reasonable method" of accounting for Pre-Contribution Gain or Loss. The
Regulations specifically describe three reasonable methods, including (i) the
"traditional method" under current law, (ii) the traditional method with the use
of "curative allocations" which would permit distortions caused by
Pre-Contribution Gain or Loss to be rectified on an annual basis, and (iii) the
"remedial allocation method" which is similar to the traditional method with
"curative allocations." The Partnership Agreement permits the Company, as a
general partner, to select one of these methods to account for Pre-Contribution
Gain or Loss.
DEPRECIATION
The Operating Partnership's assets other than cash consist largely of
appreciated property contributed by its partners. Assets contributed to a
partnership in a tax-free transaction generally retain the same depreciation
method and recovery period as they had in the hands of the partner who
contributed them to the partnership. Accordingly, the Operating Partnership's
depreciation deductions for its real property are based largely on the historic
tax depreciation schedules for the Properties prior to their contribution to the
Operating Partnership. The Properties are being depreciated over a range of 15
to 40 years using various methods of depreciation which were determined at the
time that each item of depreciable property was placed in service. Any real
property purchased by the Partnerships will be depreciated over at least 39
years. In certain instances where a partnership interest rather than real
property is contributed to the Partnership, the real property may not carry over
its recovery period but rather may, similarly, be subject to the lengthier
recovery period.
Section 704(c) of the Code requires that depreciation as well as gain and
loss be allocated in a manner so as to take into account the variation between
the fair market value and tax basis of the property contributed. Thus, because
most of the property contributed to the Operating Partnership is appreciated,
the Company will generally receive allocations of tax depreciation in excess of
its percentage interest in the Operating Partnership. Depreciation with respect
to any property purchased by the Operating Partnership subsequent to the
admission of its partners, however, will be allocated among the partners in
accordance with their respective percentage interests in the Partnerships.
As described above (see "-- Tax Allocations with Respect to Contributed
Properties"), the Treasury Department has recently issued Regulations which give
partnerships flexibility in ensuring that a partner contributing property to a
partnership receives the tax benefits and burdens of any Pre-Contribution Gain
or Loss attributable to the contributed property.
As described previously, the Company, as a general partner, may select any
permissible method to account for Pre-Contribution Gain or Loss. The use of
certain of these methods may result in the Company being allocated lower
depreciation deductions than if a different method were used. The resulting
higher taxable income and earnings and profits of the Company, as determined for
federal income tax purposes, should decrease the portion of distributions by the
Company which may be treated as a return of capital. See "-- Annual Distribution
Requirements."
BASIS IN OPERATING PARTNERSHIP INTEREST
The Company's adjusted tax basis in each of the partnerships in which it
has an interest generally (i) will be equal to the amount of cash and the basis
of any other property contributed to such partnership by the Company, (ii) will
be increased by (a) its allocable share of such partnership's income and (b) its
allocable
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share of any indebtedness of such partnership, and (iii) will be reduced, but
not below zero, by the Company's allocable share of (a) such partnership's loss
and (b) the amount of cash and the fair market value of any property distributed
to the Company and by constructive distributions resulting from a reduction in
the Company's share of indebtedness of such partnership.
If the Company's allocable share of the loss (or portion thereof) of any
partnership in which it has an interest would reduce the adjusted tax basis of
the Company's partnership interest in such partnership below zero, the
recognition of such loss will be deferred until such time as the recognition of
such loss (or portion thereof) would not reduce the Company's adjusted tax basis
below zero. To the extent that distributions from a partnership to the Company,
or any decrease in the Company's share of the nonrecourse indebtedness of a
partnership (each such decrease being considered a constructive cash
distribution to the partners), would reduce the Company's adjusted tax basis
below zero, such distributions (including such constructive distributions) would
constitute taxable income to the Company. Such distributions and constructive
distributions normally would be characterized as long-term capital gain if the
Company's interest in such partnership has been held for longer than the
long-term capital gain holding period (currently one year).
SALE OF PARTNERSHIP PROPERTY
Generally, any gain realized by a partnership on the sale of property held
by the partnership for more than one year will be long-term capital gain, except
for any portion of such gain that is treated as depreciation or cost recovery
recapture. However, under the requirements applicable to REITs under the Code,
the Company's share as a partner of any gain realized by the Operating
Partnership on the sale of any property held as inventory or other property held
primarily for sale to customers in the ordinary course of a trade or business
will be treated as income from a prohibited transaction that is subject to a
100% penalty tax. See "-- Taxation of the Company as a REIT." Such prohibited
transaction income will also have an adverse effect upon the Company's ability
to satisfy the income tests for REIT status. See "-- Income Tests." Under
existing law, whether property is held as inventory or primarily for sale to
customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. A safe harbor to avoid classification as a prohibited transaction
exists as to real estate assets held for the production of rental income by a
REIT for at least four years where in any taxable year the REIT has made no more
than seven sales of property or, in the alternative, the aggregate of the
adjusted bases of all properties sold does not exceed 10% of the adjusted bases
of all of the REIT's properties during the year and the expenditures includible
in a property's net sales price. The Company, as general partner of the
Operating Partnership, has represented that the Operating Partnership and the
Title Holding Partnerships intend to hold the Properties for investment with a
view to long-term appreciation, to engage in the business of acquiring,
developing, owning, and operating and leasing properties and to make such
occasional sales of the properties as are consistent with the Company's and the
Operating Partnership's investment objectives. No assurance can be given,
however, that every property sale by the Partnerships will constitute a sale of
property held for investment.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be dividends taxable
to such U.S. shareholders as ordinary income and will not be eligible for the
dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the shareholder has held its shares
of beneficial interest. However, corporate shareholders may be required to treat
up to 20% of certain capital gain dividends as ordinary income. Distributions in
excess of current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that distributions in excess of current and accumulated earnings
and profits exceed the adjusted basis of a shareholder's shares, such
distributions will be included in income as long-term capital gain (or
short-term capital gain if the shares have been held for one
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year or less) assuming the shares are a capital asset in the hands of the
shareholder. In addition, any distribution declared by the Company in October,
November or December of any year payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the shareholder on December 31 of such year, provided that the
distribution is actually paid by the Company during January of the following
calendar year. Shareholders may not include in their individual income tax
returns any losses of the Company.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent such
shareholder has received distributions from the Company required to be treated
as long-term capital gain.
Distributions from the Company and gain from the disposition of Common
Shares will not be treated as passive activity income and, therefore,
shareholders may not be able to apply any "passive losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital or capital gain dividends) and, on an elective basis, capital gain
dividends and gain from the disposition of Common Shares will generally be
treated as investment income for purposes of the investment income limitation.
BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
A shareholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to the Company. See "-- Taxation of Foreign
Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Distributions by the Company to a shareholder that is a tax-exempt entity
should not constitute "unrelated business taxable income" ("UBTI"), as defined
in Section 512(a) of the Code provided that the tax-exempt entity has not
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Code and the shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
In the case of a "qualified trust" (generally, a pension or profit-sharing
trust) holding shares in a REIT, the beneficiaries of such a trust are treated
as holding shares in the REIT in proportion to their actuarial interests in the
qualified trust, instead of treating the qualified trust as a single individual
(the "look-through exception"). A qualified trust that holds more than 10
percent of the shares of a REIT is required to treat a percentage of REIT
dividends as UBTI if the REIT incurs debt to acquire or improve real property.
This rule applies, however, only if (i) the qualification of the REIT depends
upon the application of the "look through" exception (described above) to the
restriction on REIT shareholdings by five or fewer individuals, including
qualified trusts (see "Description of Shares of Beneficial
Interest -- Restrictions on Transfer") and (ii) the REIT is "predominantly held"
by qualified trusts, i.e., if either (x) a single qualified trust holds more
than 25 percent by value of the interests in the REIT or (y) one or more
qualified trusts, each owning more than 10 percent by value, holds in the
aggregate more than 50 percent of the interests in the REIT. The percentage of
any dividend paid (or treated as paid) to such a qualified trust that is treated
as UBTI is equal to the amount of modified gross income (gross income less
directly connected expenses) from the unrelated trade or business of the REIT
(treating the REIT as if it were a qualified trust), divided by the total
modified gross income of the REIT. A de minimis exception applies where the
percentage is less than 5 percent.
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TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of Federal, state and local income tax laws with regard to an
investment in shares, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions will ordinarily be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However, if income from
the investment in the shares is treated as effectively connected with the
Non-U.S. Shareholder's conduct of a United States trade or business, the
Non-U.S. Shareholder generally will be subject to a tax at graduated rates, in
the same manner as U.S. shareholders are taxed with respect to such
distributions (and may also be subject to the 30% branch profits tax in the case
of a shareholder that is a foreign corporation). The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Shareholder unless (i) a lower treaty rate
applies or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is effectively connected income. Distributions in
excess of current and accumulated earnings and profits of the Company will not
be taxable to a shareholder to the extent that such distributions do not exceed
the adjusted basis of the shareholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's shares, such distributions will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares in the Company, as described
below. If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current and accumulated earnings and
profits, the distributions will be subject to withholding at the same rate as
dividends. However, amounts thus withheld are refundable if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
United States real property interests are taxed to a Non-U.S. Shareholder as if
such gain were effectively connected with a United States business. Non-U.S.
Shareholders would thus be taxed at the normal capital gain rates applicable to
U.S. shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate shareholder not entitled to treaty exemption.
The Company is required by applicable Treasury Regulations to withhold 35% of
any distribution that could be designated by the Company as a capital gains
dividend. The amount is creditable against the Non-U.S. Shareholder FIRPTA tax
liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the shares of beneficial interest was
held directly or indirectly by foreign persons. It is currently anticipated that
the Company will be a "domestically controlled REIT," and therefore the sale of
Shares will not be subject to taxation under FIRPTA. However, because the Common
Shares will be publicly traded, no assurance can be given that the Company will
continue to be a "domestically controlled REIT." Gain not subject to FIRPTA will
be taxable to a Non-U.S. Shareholder if (i) investment in the shares is
effectively connected with the Non-U.S. Shareholder's United States trade or
business, in which case the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain or (ii) the Non-U.S.
Shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale
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of Shares were to be subject to taxation under FIRPTA, the Non-U.S. Shareholder
would be subject to the same treatment as U.S. shareholders with respect to such
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals).
STATEMENT OF STOCK OWNERSHIP
The Company is required to demand annual written statements from the record
holders of designated percentages of its Shares disclosing the actual owners of
the Shares. The Company must also maintain, within the Internal Revenue District
in which it is required to file its federal income tax return, permanent records
showing the information it has received as to the actual ownership of such
Shares and a list of those persons failing or refusing to comply with such
demand.
OTHER TAX CONSEQUENCES
The Company, the Operating Partnership, the Title Holding Partnerships and
the Company's shareholders may be subject to state or local taxation in various
state or local jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company, the
Operating Partnership, the Title Holding Partnerships and the Company's
shareholders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Company.
POSSIBLE FEDERAL TAX DEVELOPMENTS
The rules dealing with Federal income taxation are constantly under review
by the IRS, the Treasury Department and Congress. New Federal tax legislation or
other provisions may be enacted into law or new interpretations, rulings,
Treasury Regulations or court decisions could be adopted, all of which could
adversely affect the taxation of the Company or of its shareholders. No
prediction can be made as to the likelihood of passage of any new tax
legislation or other provisions or court decisions either directly or indirectly
affecting the Company or its shareholders. Consequently, the tax treatment
described herein may be modified prospectively or retroactively by legislative,
judicial or administrative action.
REAL ESTATE TRANSFER TAXES
The transfer to the Operating Partnership of certain limited partnership
interests in Title Holding Partnerships as part of the SSI/TNC Transaction was
structured as transfers of 89% of the capital interests and 99% of the cash flow
and profit interests in the Title Holding Partnership owning such properties
with the Residual Interests to be acquired by the Operating Partnership on or
before September 1999. This transaction structure is intended to comply with
non-binding informal advice provided by the Pennsylvania Department of Revenue
to the effect that such transfers are not subject to Pennsylvania real estate
transfer taxes. However, the Company has not obtained a formal ruling from the
Pennsylvania Department of Revenue on this issue. If the Operating Partnership
desired or were required, for financing purposes or otherwise, to acquire such
Residual Interests before September 1999, or if the use of this structure
resulted in the imposition of Pennsylvania real estate transfer taxes, the
Operating Partnership could be required to pay such real estate transfer taxes,
which are estimated at $640,000.
OPERATING PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement, including the
descriptions of certain provisions set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. See "Available Information."
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MANAGEMENT
Brandywine Operating Partnership, L.P. (the "Operating Partnership") has
been organized as a Delaware limited partnership pursuant to the terms of an
agreement of limited partnership, as amended (the "Partnership Agreement").
Generally, pursuant to the Partnership Agreement, the Company, as the sole
general partner of the Operating Partnership, has full and complete power,
authority and discretion in the management and control of the Operating
Partnership and the limited partners of the Operating Partnership (the "Limited
Partners") will have no authority to transact business for, or participate in
the management activities or decisions of, the Operating Partnership.
CLASSES OF PARTNERSHIP INTERESTS; DISTRIBUTIONS TO PARTNERS
At the time of its formation in connection with the SSI/TNC Transaction,
the partnership interests issued by the Operating Partnership consisted of four
classes: (i) general partnership interests ("GP Units"); (ii) Class A Units
(referred to generally in this Prospectus as "Units"); (iii) Class B Units; and
(iv) Class C Units. All of the GP Units and Class B and Class C Units were
issued to the Company, and all of the Class A Units were issued to SSI, TNC and
11 other persons contributing interests in the SSI/TNC Properties to the
Operating Partnership.
Upon completion of the Offering or the SERS Transaction, the Class B Units
and the Class C Units will automatically convert into an equal number of GP
Units. Accordingly, upon completion of the Offering or the SERS Transaction, the
partnership interests in the Operating Partnership will consist of two classes:
GP Units (all of which will be owned by the Company) and Class A Units (all of
which will be owned by SSI, TNC and the other persons who contributed interests
in the SSI/TNC Properties as part of the SSI/TNC Transaction). References
elsewhere in this Prospectus to "Units" without any specific designation of
class are intended to refer to Class A Units.
Distributions made by the Operating Partnership following the Offering will
be made on a pro rata basis among holders of GP Units and Class A Units. The
Partnership Agreement provides that whenever the Operating Partnership makes a
distribution, it will be required to distribute to the holders of the Class A
Units, as a group, an amount equal to the product that results from multiplying
the total amount to be distributed by the ratio of: (i) the number of Class A
Units outstanding divided by; (ii) the sum of (x) the number of Class A Units
outstanding plus the number of outstanding Shares (other than Excluded Shares,
as defined below). The term "Excluded Shares" means any Shares issued by the
Company after May 1, 1996 the net proceeds of which issuance are not contributed
to the Operating Partnership. Immediately following closing of the Offering and
the Concurrent Investments and repayment of the Osborne Loan, an aggregate of
7,608,543 Common Shares will be issued and outstanding (assuming no Class A
Units are converted into Common Shares and assuming conversion of all
outstanding Preferred Shares into Common Shares), of which 286,136 will
constitute Excluded Common Shares. Immediately following the Offering 509,856
Class A Units (after taking into account the impact of 30,303 Units that will be
cancelled by the Operating Partnership in connection with the prepayment of
certain mortgage debt) will be outstanding or issuable no later than September
1999. On the basis of the foregoing, approximately 7% of distributions made by
the Operating Partnership would be allocated to holders of the Class A Units, as
a group, and the remaining amount would be distributed to the Company in respect
of its GP Units.
TAX ALLOCATION
Upon completion of the Offering, income, gain, loss and deduction of the
Operating Partnership will be allocated among the holders of the Class A Units
and the holders of GP Units in a manner consistent with such holders' rights to
receive distributions and applicable federal income tax principles. Thus, such
profits will generally be allocated to such partners, first, to eliminate
deficit capital accounts; second, to the extent necessary to cause the positive
capital account balances of such partners to be in proportion to their
percentage interests; and third, to such partners in proportion to their
percentage interests. Similarly, such losses, if any, will generally be
allocated, first, so as to cause the positive capital account balances of such
partners to be in proportion to their percentage interests; second, to each such
partner in proportion to its percentage interest
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until the capital account balances of the partners equal zero; and third, to the
partners in proportion to their percentage interests.
CAPITAL CONTRIBUTIONS
Although the Partnership Agreement does not obligate the Company to
contribute net proceeds of any equity offering to the Operating Partnership, the
Partnership Agreement provides that if the Company contributes proceeds of an
offering to the Operating Partnership, the Operating Partnership shall issue to
the Company that number of GP Units equal to the number of Common Shares issued
in respect of such Offering. Because the Company will contribute all of the net
proceeds of the Offering and the Concurrent Investments to the Operating
Partnership, the Operating Partnership will, in turn, issue to the Company a
number of GP Units equal to the number of Common Shares that produced such net
proceeds in the Offering. See "Use of Proceeds."
The Operating Partnership may in the future issue additional Class A Units
(or other newly-created classes of limited partnership interests) to third
parties in exchange for cash or other property. Any such newly-created classes
of limited partnership interests may have a priority as to distributions or upon
liquidation over any other class of partnership interest.
NUMBER, CLASS AND OWNER OF UNITS
The table below sets forth the number, class and holder of Units
outstanding immediately following the Offering, assuming the Operating
Partnership has issued an aggregate of 44,322 Units in exchange for the Residual
Interests:
UNITS FOLLOWING OFFERING
<TABLE>
<CAPTION>
NUMBER HOLDER
- ---------- -----------
<S> <C>
104,303 SSI(1)
363,290 TNC
42,263 Other(2)
7,242,576 Company(3)
</TABLE>
- ---------------
(1) SSI owns 40% of the capital stock of TNC. The number of Units shown as owned
by SSI does not include any Units owned by TNC and as to which SSI has an
indirect interest.
(2) "Other" consists of 11 other persons who contributed interests in the
SSI/TNC Properties as part of the SSI/TNC Transaction.
(3) Includes 6,470,576 GP Units to be issued to the Company in exchange for its
contribution to the Operating Partnership of the SERS Properties and the net
proceeds from the Offering and the Concurrent Investments. Also includes an
additional 85,400 GP Units that will be automatically issued to the Company
on August 23, 1997 in respect of the contribution of its interests in BRP to
the Operating Partnership.
ADDITIONAL ISSUANCES OF CLASS A UNITS
Under certain circumstances, the Operating Partnership will be required to
issue additional Class A Units on account of the contribution to it of certain
of the SSI/TNC Properties, as summarized below.
Repayment of Certain Mortgage Indebtedness at a Discount
The Partnership Agreement provides that in the event additional equity is
created in certain of the SSI/TNC Properties on account of the refinancing of
the indebtedness encumbering such Properties at a discount, additional Units
will be issued at the rate of one Unit for each $16.50 of additional equity so
created. Twenty-five percent of the additional Units (comprised of GP Units)
will be issued to the Company and 75%
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of the additional Units (comprised of Class A Units) will be issued to the
persons who contributed such Properties to the Operating Partnership. Following
the Offering, mortgage indebtedness having an aggregate outstanding balance of
approximately $15.4 million as of September 30, 1996 and secured by six of the
Properties will remain outstanding and subject to the foregoing provisions.
Acquisition of Residual Interests
The transfer to the Operating Partnership of certain limited partnership
interests in Title Holding Partnerships as part of the SSI/TNC Transaction was
structured as transfers of 89% of the capital interest and 99% of the cash flow
and profits interests in the Title Holding Partnership owning such Properties
(collectively, the "Residual Interests"). See "Structure of the
Company -- Ownership." This transaction structure is intended to comply with
non-binding informal advice provided by the Pennsylvania Department of Revenue
to the effect that such transfers are not subject to Pennsylvania real estate
transfer taxes. The Operating Partnership has the right to acquire, at any time,
and the obligation to acquire by September 1999, the Residual Interests (11%
capital and 1% cash flow and profits) in each of such Title Holding Partnerships
in exchange for an aggregate of 44,322 Class A Units. At the time the Operating
Partnership acquires the Residual Interests, it will be required to pay to each
person receiving Class A Units on account thereof the amount, if any, that is
equal to the excess of (i) the aggregate amount that would have been distributed
to them prior to such acquisition in respect of such Units had they been issued
on August 22, 1996 (the closing date of the SSI/TNC Transaction) over (ii) the
aggregate amount distributed in respect of the Residual Interests between the
closing date and the date of such acquisition.
CANCELLATION OF CLASS A UNITS
The Partnership Agreement provides for the forfeiture of Units upon the
repayment of indebtedness encumbering certain of the SSI/TNC Properties if a
"participation payment" is made to the lender in connection with such repayment.
The number of Units subject to forfeiture would be in the amount of the
participation payment divided by $16.50. In connection with the prepayment of
certain mortgage indebtedness encumbering the Initial Properties, a yield
maintenance penalty in the estimated amount of $500,000 will be paid from a
portion of the net proceeds of the Offering and the Concurrent Investments. As a
result of such payment, SSI and TNC have agreed to forfeit a number of Units
(estimated to be 30,303) equal to the amount of such penalty divided by $16.50.
Such forfeited Units will be cancelled.
REDEMPTION RIGHTS
At any time following the Offering, a holder of a Class A Unit may require
the Operating Partnership to redeem such Unit for cash. At its option, the
Company may assume the Operating Partnership's obligation to redeem any such
Unit and either pay the redemption price in cash or deliver one Common Share
(subject to antidilution adjustments). The Company presently anticipates that it
will elect to issue Common Shares in exchange for Units in connection with a
redemption request, rather than having the Operating Partnership pay cash.
BUSINESS OPERATIONS
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT and to avoid any Federal income or excise tax
liability.
The Partnership Agreement provides that following the Offering all fees and
other costs that the Company incurs for legal and accounting services provided
to it in connection with the preparation and maintenance of the Company's books
and records, financial statements, tax returns and reports to shareholders and
the Securities and Exchange Commission shall be allocated to the Operating
Partnership, provided that if the Company acquires properties that it holds
outside of the Operating Partnership (such as the LibertyView Building), such
fees and other costs will be allocated between the Company and the Operating
Partnership in a fair and equitable manner.
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REGISTRATION RIGHTS
For a description of certain registration rights held by holders of Class A
Units, see "Shares Available for Future Sale -- Registration Rights."
AMENDMENTS
The Partnership Agreement generally may be amended only with the consent of
holders of at least 75% of the Class A units then outstanding except to: (i) add
to the obligations of the general partner; (ii) reflect the issuance of
additional partnership interests in the Operating Partnership; and (iii) cure
ambiguities.
TAX MATTERS
The Company will be the tax matters partner of the Operating Partnership
and, as such, will have authority to make tax elections under the Code on behalf
of the Operating Partnership.
The net taxable income or net taxable loss of the Operating Partnership
will generally be allocated to the Company and the Limited Partners in
accordance with their percentage interests, subject to compliance with the
provisions of Sections 704(b) and 704(c) of the Code and the regulations
promulgated thereunder.
REPRESENTATIONS AND WARRANTIES
SSI and TNC made customary representations and warranties as part of the
SSI/TNC Transaction regarding the SSI/TNC Properties contributed directly and
indirectly to the Operating Partnership, including representations and
warranties relating to compliance with laws, environmental matters, title and
the absence of liens and encumbrances, tenant leases, litigation, contractual
obligations, absence of undisclosed liabilities and existence of insurance. The
Partnership Agreement provides that the representations and warranties
thereunder will survive the SSI/TNC Transaction, provided that no claim for
breach may be maintained by the Operating Partnership or the Company unless
notice shall have been delivered to SSI or TNC, as applicable, on or before
August 22, 1998. Recourse by the Company for a breach of such representations
and warranties is limited to the ownership interest of the breaching limited
partner in the Units issued to it and any Common Shares acquired by such limited
partner upon conversion of its Units into Common Shares.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2094 or until sooner dissolved upon the bankruptcy or the
dissolution of the Company (unless the Limited Partners elect to continue the
Operating Partnership), the election of the Company and the Limited Partners to
effect a dissolution, the entry of a dissolution decree by a court or the sale
or other disposition of all or substantially all of the assets of the Operating
Partnership.
INDEMNIFICATION
The Partnership Agreement provides for indemnification by the Operating
Partnership of the Company, as general partner, and its Trustees and officers
for any costs, expenses or liabilities incurred by them by reason of any act
performed by them for or on behalf of the Operating Partnership or the Company;
provided that such person's conduct was taken in good faith and in the belief
that such conduct was in the best interests of the Operating Partnership and
that such person was not guilty of fraud, willful misconduct or gross
negligence.
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BRP GENERAL PARTNERSHIP AGREEMENT
The following summary of the General Partnership Agreement, as amended, of
BRP (the "BRP Partnership Agreement") is qualified in its entirety by reference
to the BRP Partnership Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Available
Information."
GENERAL
The Company owns four of its Properties through BRP. The Operating
Partnership currently owns a 97% profits interest and a 49% capital interest in
BRP and the Company currently owns directly a 1% profits interest and a 21%
capital interest in BRP. On August 23, 1997, pursuant to the BRP Partnership
Agreement, the Operating Partnership will acquire the Company's profits and
capital interest in BRP in exchange for 85,400 GP Units, thereby giving the
Operating Partnership a 98% profits interest and a 70% capital interest in BRP.
The other partner in BRP is a limited partnership, Brandywine Specified Property
Investors Limited Partnership (the "Class B Partner").
MANAGEMENT
In the BRP Partnership Agreement, the Class B Partner waived any rights it
might have to vote on or approve any matter relating to the affairs of BRP, and
the Company has the full and complete power, authority and discretion in the
management and control of BRP, and the Class B Partner has no authority to
transact business for, or participate in the management activities or decisions
of, the Operating Partnership.
AMENDMENTS
The BRP Partnership Agreement confers on the Company complete power and
authority, without having to obtain the consent of the Class B Partner, to amend
any provisions of the BRP Partnership Agreement so long as no amendment has the
effect of requiring any capital contributions by the Class B Partner not
otherwise required by the BRP Partnership Agreement or which would affect any
right of the Class B Partner to receive distributions of cash or property or
allocations of taxable income, gain or loss under the BRP Partnership Agreement.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA
and the prohibited transaction provisions of Section 4975 of the Code that may
be relevant to a prospective purchaser (including, with respect to the
discussion contained in "Status of the Company under ERISA," to a prospective
purchaser that is not an employee benefit plan, another tax-qualified retirement
plan, or an individual retirement account (an "IRA")). This discussion does not
purport to deal with all aspects of ERISA or Section 4975 of the Code or, to the
extent not preempted, state law that may be relevant to particular employee
benefit plan shareholders (including plans subject to Title I of ERISA, other
retirement plans and IRAs subject to the prohibited transaction provisions of
Section 4975 of the Code and governmental plans or church plans that are exempt
from ERISA and Section 4975 of the Code but that may be subject to state law
requirements) in light of their particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN COMMON SHARES ON BEHALF OF A
PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX-QUALIFIED RETIREMENT PLAN OR
AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL
ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975
OF THE CODE AND (TO THE EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT TO THE
PURCHASE, OWNERSHIP OR SALE OF COMMON SHARES BY SUCH PLAN OR IRA.
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EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS
Each fiduciary of a pension, profit-sharing, or other employee benefit plan
subject to Title I of ERISA (an "ERISA Plan") should carefully consider whether
an investment in Common Shares is consistent with his fiduciary responsibilities
under ERISA. The fiduciary requirements of Part 4 of Title I of ERISA generally
require that an ERISA Plan's investments be (i) prudent and for the exclusive
benefit of the ERISA Plan, its participants and beneficiaries, (ii) diversified
in order to reduce the risk of large losses, unless it is clearly prudent not to
do so, and (iii) authorized under the terms of the governing documents of the
ERISA Plan. In determining whether any investment in Common Shares is prudent
for purposes of ERISA, the appropriate fiduciary of an ERISA Plan should
consider all of the facts and circumstances, including those matters described
under "Risk Factors."
Fiduciaries of IRAs, retirement plans for self-employed individuals ("Keogh
Plans") and other plans subject to Section 4975 of the Code but not subject to
ERISA (IRAs, Keogh Plans and such other plans are referred to herein as "IRC
Plans") should consider that an IRC Plan may only make investments that are
authorized by the appropriate governing documents and under applicable state
law.
Fiduciaries of ERISA Plans, as well as fiduciaries of IRC Plans, should
also consider in making their investment decision the application of the
prohibited transaction provisions of Section 406 of ERISA and Section 4975 of
the Code. Administrators of ERISA Plans and IRC Plans and individuals with IRAs
should consult their own legal advisors regarding potential prohibited
transaction issues and whether an exemption is applicable.
STATUS OF THE COMPANY UNDER ERISA
This section discusses certain principles that apply in determining whether
the fiduciary requirements of ERISA and the prohibited transaction provisions of
ERISA and the Code apply to an entity because one or more investors in the
entity's acquired interests is an ERISA Plan or an IRC Plan. This section also
identifies considerations that would be relevant in the unlikely event that the
ERISA fiduciary requirements were applicable to the Company's operation.
In certain circumstances, where equity interests in any entity are owned by
one or more ERISA Plans or IRC Plans, the investing plans will, for purposes of
ERISA and Section 4975, be considered to own not only the equity interest in the
entity, but a proportionate individual interest in the underlying assets of the
entity. In such a case, the underlying assets of the entity are deemed to be
"plan assets" and, as described below, ERISA's fiduciary requirements and the
excise tax under Section 4975 of the Code would be relevant to the operations of
the entity. As described below, the Company does not believe that its assets
will be considered "plan assets" of investing plans for these purposes.
The U.S. Department of Labor ("DOL"), which has certain administrative
responsibility with respect to ERISA Plans and certain IRC Plans, has issued a
regulation defining the term "plan assets" (the "DOL Regulation"). The DOL
Regulation generally provides that when an ERISA Plan or an IRC Plan acquires a
security that is an equity interest in an entity and that security is neither a
"publicly offered security" nor a security issued by an investment company
registered under the Investment Company Act of 1940, the ERISA Plan's or IRC
Plan's assets include both the equity interest and an undivided interest in each
of the underlying assets of the entity, unless it is established either that the
entity is an "operating company" or that equity participation in the entity by
benefit plan investors is not significant. The Company believes that its Common
Shares are a publicly offered security within the meaning of the DOL Regulation.
The DOL Regulation defines a publicly offered security as a security that
is "widely held," "freely transferable" and either part of a class of securities
registered under the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act") or sold pursuant to an effective registration
statement under the Securities Act (provided the class of securities of which
such security is part is registered under the Securities Exchange Act of 1934
within 120 days after the end of the fiscal year of the issuer during which the
offering occurred). The Common Shares are being issued pursuant to an effective
registration statement under the
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Securities Act and the class of securities of which Common Shares are part has
been registered under the Securities Exchange Act.
The DOL Regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely held"
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control. The
Company believes that the Common Shares are currently "widely held" and expects
the Common Shares to continue to be "widely held" upon completion of the
Offering.
The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulation further provides that where
a security is part of an offering in which the minimum investment is $10,000 or
less (as is the case with the Offering), certain restrictions ordinarily will
not, alone or in combination, affect a finding that such securities are freely
transferable. The restrictions on transfer enumerated in the DOL Regulation as
ordinarily not affecting that finding include: (i) any restriction on or
prohibition against any transfer or assignment that would result in a
termination or reclassification of the Company for Federal or state tax
purposes, or that would otherwise violate any state or Federal law or court
order, (ii) any requirement that advance notice of a transfer or assignment be
given to the Company, (iii) any requirement that either the transferor or the
transferee, or both, execute documentation setting forth representations as to
compliance with any restrictions on transfer that are among those enumerated in
the final DOL Regulation as not affecting free transferability, (iv) any
administrative procedure that establishes an effective date, or any event (such
as completion of the Offering) prior to which a transfer or assignment will not
be effective, and (v) any limitation or restriction on transfer or assignment
that is not imposed by the issuer or a person acting on behalf of the issuer.
The Company believes that the restrictions imposed under the Declaration of
Trust on the transfer of Common Shares are limited to restrictions on transfer
which, under the DOL Regulation, ordinarily do not affect a finding of free
transferability, and are unlikely to result in the failure of the Common Shares
to be considered "freely transferable" for purposes of the DOL Regulation. In
addition, the Company is not aware of any other facts or circumstances limiting
the transferability of the Common Shares that are not included among those
enumerated as not affecting their free transferability under the DOL Regulation,
and the Company does not expect or intend to impose in the future (or to permit
any person to impose on its behalf) any limitations or restrictions on transfer
that would not be among the enumerated permissible limitations or restrictions.
The DOL Regulation only establishes a presumption in favor of a finding of free
transferability, and no assurances can be given that the DOL, the Treasury
Department or a court will not reach a contrary conclusion.
Assuming that Common Shares will be "widely held" and that no other facts
and circumstances exist that restrict transferability of Common Shares, the
Company believes that the Common Shares should be treated as a "publicly offered
security" within the meaning of the DOL Regulation and, accordingly, that the
underlying assets of the Company should not be considered to be "plan assets" of
any ERISA Plan or IRC Plan investing in Common Shares.
If the assets of the Company were deemed to be "plan assets" under ERISA
and Section 4975 of the Code, (i) the prudence standards and other provisions of
Part 4 of Subtitle B of Title I of ERISA would be applicable to any transactions
involving the Company's assets, (ii) persons who exercise any authority or
control over the Company's assets, or who provide investment advice to the
Company, would (for purposes of the fiduciary responsibility provisions of ERISA
and Section 4975 of the Code) be fiduciaries of each ERISA Plan or IRC Plan that
acquires Common Shares, (iii) transactions involving the Company's assets
undertaken at the direction or pursuant to the advice of such fiduciaries might
be violative of their fiduciary responsibilities under ERISA, especially with
regard to conflicts of interest, (iv) a fiduciary exercising its investment
discretion over the assets of the ERISA Plan to cause it to acquire or hold
Common Shares could be liable under the aforementioned Part 4 of Subtitle B of
Title I of ERISA for transactions entered into by the Company that do not
conform to ERISA standards of prudence and fiduciary responsibility, (v) certain
transactions that the Company might enter into in the ordinary course of its
business and operations might constitute "prohibited transactions" under ERISA
and the Code, and (vi) fiduciaries of ERISA Plans may
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violate ERISA's prohibition against the improper delegation of control or
responsibility for "plan assets" and may be liable for breaches of ERISA's
fiduciary duties committed by co-fiduciaries.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offering and the Concurrent Investments, there will
be 6,002,483 Common Shares issued and outstanding 6,557,483 Common Shares if the
Underwriters' over-allotment option is exercised in full), including 45,844
Common Shares that will be issued in connection with the prepayment of the
Osborne Loan. In addition, (i) 509,856 Common Shares will be reserved for
issuance upon the conversion of Units into Common Shares, (ii) 761,628 Common
Shares will be reserved for issuance upon exercise of outstanding options and
warrants and (iii) 481,818 Preferred Shares will be outstanding and, prior to
the occurrence of a Conversion Event, will be convertible into 181,325 Common
Shares, and, following the occurrence of a Conversion Event, will be convertible
into an additional 1,424,735 Common Shares. All of the Common Shares issued in
the Offering will be freely tradable by persons other than "affiliates" of the
Company without registration or other restrictions under the Securities Act,
subject to limitations on ownership set forth in the Declaration of Trust. See
"Description of Shares of Beneficial Interest -- Restrictions on Transfer."
618,733 of the Common Shares outstanding prior to the Offering are also freely
tradeable by persons other than affiliates of the Company without registration
or other restriction under the Securities Act, subject to the above-referenced
limitations on ownership set forth in the Declaration of Trust. The remaining
292,452 Common Shares outstanding prior to the Offering; the Common Shares
issuable upon the conversion of Units; the Common Shares issuable upon
conversion of the Preferred Shares to be issued in the SERS Transaction; the
Common Shares issuable to the Voting Trust and the Morgan Stanley Funds in the
Concurrent Investments; and the Common Shares that will be issued in connection
with the prepayment of the Osborne Loan (collectively, "Restricted Shares"),
will be "restricted" securities within the meaning of Rule 144 under the
Securities Act and may be sold only pursuant to an effective registration
statement under the Securities Act or an applicable exemption, including an
exemption under Rules 144 and 144A under the Securities Act. The Company has
registered the issuance of 290,000 Common Shares upon the exercise of
outstanding options and warrants, and the resale of 266,666 of such Common
Shares, so that such securities may be freely sold by the holders, whether or
not affiliates of the Company, without registration or other restriction.
In general, under Rule 144, as currently in effect, if two years have
elapsed since the later of the date of the acquisition of Restricted Shares from
the Company or the date of acquisition of Restricted Shares from any "affiliate"
of the Company, as that term is defined in the Securities Act, the acquiror or
subsequent holder is entitled to sell within any three-month period a number of
Common Shares that does not exceed the greater of 1% of the then-outstanding
Common Shares or the average weekly trading volume of Common Shares on all
exchanges and reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain restrictions on the manner of sales, notice requirements
and the availability of current public information about the Company. If three
years have elapsed since the date of acquisition of Restricted Shares from the
Company or from any "affiliate" of the Company, and the acquiror or subsequent
holder thereof is deemed not to have been an affiliate of the Company at any
time during the 90 days preceding a sale, such person would be entitled to sell
such Common Shares in the public market under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements. As defined in Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer.
In connection with the Offering, the Company and the Trustees, officers,
and certain shareholders of the Company (including SSI, TNC, the Osborne Trust
and SERS) have agreed not to sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase or otherwise transfer or dispose
of any Common Shares or any securities convertible into or exchangeable or
exercisable for Common Shares until expiration of the 180-day period after the
effective date of this Prospectus, except for the issuance of Common Shares in
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connection with property acquisitions, the repayment of the Osborne Loan, the
exercise of outstanding options and warrants or the conversion of Units, without
the written consent of the Underwriters.
No prediction can be made as to the effect that future market sales of
Restricted Shares or the availability of such Restricted Shares for sale will
have on the market price of the Common Shares prevailing from time to time.
Sales of substantial amounts of Restricted Shares in the public market (or the
perception that such sales could occur) might adversely affect prevailing market
prices for the Common Shares. See "Risk Factors -- Effect on Price of Shares
Available for Future Sale."
REGISTRATION RIGHTS
The Company has entered into a registration rights agreement with each
holder of Units, with SSI and with the RMO Fund (the "Initial Registration
Rights Agreement") obligating the Company to register: (i) 258,333 Common Shares
initially issued to SSI; (ii) 258,333 Common Shares that may be issued upon the
exercise of warrants initially issued to SSI; (iii) Common Shares that may be
issued upon the conversion of Units; (iv) Common Shares issued to the RMO Fund
in connection with its investment in the Company in June 1996 or in repayment of
the Osborne Loan; and, pursuant to an amendment to the Initial Registration
Rights Agreement, additional Common Shares acquired in the open market by the
foregoing (collectively, "Registrable Securities"). The Initial Registration
Rights Agreement provides that, at the request of the holders of Registrable
Securities, the Company will, at its expense, register up to two underwritten
distributions of Common Shares and provide for an annual shelf registration of
such Common Shares for sale at the market through brokers' transactions and
thereafter with market makers; provided, however, that the Company will not be
obligated to pay the expenses of an underwritten offering during the period
ending August 22, 1997. The holders of Registrable Securities are also entitled
to "piggyback" on the Company's future registrations of its Common Shares, if
any. In connection with such registrations, the Company and the selling
shareholders will mutually indemnify each other against certain liabilities,
including liabilities under the federal securities laws. At the closings of the
SERS Transaction and the Morgan Stanley Private Placement, the Company will
enter into agreements with the Voting Trust and the Morgan Stanley Funds on
terms substantially similar to those in the Initial Registration Rights
Agreement obligating the Company to register the Common Shares to be issued in
the Concurrent Investments and the Common Shares issuable upon conversion or
exercise of the Series A Preferred Shares and warrants to be issued in the SERS
Transaction as well as additional Common Shares acquired in the open market by
or for SERS and the Morgan Stanley Funds (collectively, the "Additional
Registrable Securities"). In these registration rights agreements and an
amendment to the Initial Registration Rights Agreement, the Company will agree
to use commercially reasonable best efforts to register the resale of the
Registrable Securities and the Additional Registrable Securities no later than
the earlier of :(i) March 31, 1997 and (ii) 120 days following the consummation
of the Concurrent Investments.
The Company has filed a registration statement on Form S-8 registering the
issuance of an aggregate of 290,000 Common Shares upon the exercise of
outstanding options and warrants held by employees of the Company and the resale
of 266,666 of such Common Shares by persons who may be deemed to be affiliates
of the Company.
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UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter, the
number of Common Shares set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Smith Barney Inc.....................................................
Legg Mason Wood Walker, Incorporated.................................
Total...................................................... 3,700,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares offered hereby are
subject to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the Common
Shares offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Legg Mason Wood Walker,
Incorporated are acting as the Representatives, propose to offer part of the
shares directly to the public at the public offering price set forth on the
cover page of this Prospectus and part of the shares to certain dealers at a
price which represents a concession not in excess of $ . per share under
the public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ . per share to certain other
dealers. After the offering of the shares to the public, the public offering
price and such concessions may be changed by the Representatives. The
Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm any sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 555,000
additional Common Shares at the price to public set forth on the cover page of
this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
In connection with the Offering, the Company and the Trustees, officers,
and certain shareholders of the Company (including SSI, TNC, the Osborne Trust
and SERS) have agreed not to sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase or otherwise transfer or dispose
of any Common Shares or any securities convertible into or exchangeable or
exercisable for Common Shares until expiration of the 180-day period after the
effective date of this Prospectus, except for the issuance of Common Shares in
connection with property acquisitions, the repayment of the Osborne Loan, the
exercise of outstanding options and warrants or the conversion of Units, without
the written consent of the Underwriters.
At the request of the Company, the Underwriters have reserved up to 50,000
Common Shares for sale at the public offering price to certain Trustees and
employees of the Company, their business affiliates and related parties who have
expressed an interest in purchasing shares. Such purchases will be made under
the same terms and conditions as will be offered by the Underwriters in the
public offering.
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The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933.
The Company has agreed to pay to Smith Barney Inc. and Legg Mason Wood
Walker, Incorporated an advisory fee equal to 1.70% of the gross proceeds of the
Offering (including any exercise of the Underwriters' over-allotment option) for
advisory services rendered by them in connection with the evaluation, analysis
and structuring of the Offering.
Smith Barney Mortgage Capital Group, Inc. an affiliate of Smith Barney
Inc., is the syndication agent for the Credit Facility. In connection with the
closing of the Credit Facility, the Company will pay Smith Barney Mortgage
Capital Group, Inc. a fee of $300,000. In addition, Smith Barney Mortgage
Capital Group, Inc. is entitled to receive a pro rata portion of the fee on the
unused portion of the Credit Facility equal to 1/8% per annum from the date of
the closing of the Credit Facility through March 31, 1997, and 1/4% per annum
thereafter.
In connection with the SSI/TNC Transaction, Legg Mason Wood Walker,
Incorporated, one of the Representatives, rendered advisory services and
provided an opinion to the Board of Trustees of the Company for which it was
paid a total of $100,000. Walter D'Alessio, a member of the Company's Board of
Trustees, is President of Legg Mason Real Estate Services, a subsidiary of Legg
Mason Wood Walker, Incorporated.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The C&W Market Analyses were prepared for the Company by Cushman &
Wakefield of Pennsylvania, Inc., which is a real estate service firm with
significant experience and expertise relating to the Suburban Philadelphia
Office and Industrial Market. C&W is a part of a national network of affiliated
companies providing real estate related services. The statistical and other
information from the C&W Mid-Year Report and C&W Market Analyses appearing in
this Prospectus and the Registration Statement have been included herein in
reliance on C&W's expertise as a real estate service firm, with respect to the
Suburban Philadelphia Office and Industrial Market.
LEGAL MATTERS
The validity of the Common Shares offered hereby, as well as certain legal
matters relating to the Company, will be passed upon for the Company by Pepper,
Hamilton & Scheetz, Philadelphia, Pennsylvania. Certain legal matters related to
the Offering will be passed upon for the Underwriters by Battle Fowler LLP.
Pepper, Hamilton & Scheetz and Battle Fowler LLP will rely on Ballard Spahr
Andrews & Ingersoll as to certain matters of Maryland law.
TAX MATTERS
The statements in this Prospectus under the caption "Federal Income Tax
Considerations" and the other statements herein relating to the Company's
qualification as a REIT and the taxation of the Company's shareholders, are
based upon the opinion of Arthur Andersen LLP.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"), pursuant to the Exchange
Act. The Registration Statement, as well as such reports, proxy statements and
other information filed by the Company with the Commission, may be examined
without charge at, or copies obtained upon payment of
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prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and are also
available for inspection and copying at the regional offices of the Commission
located at Seven World Trade Center, New York, New York 10048 and at Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Such
material can also be inspected and copied at the offices of the American Stock
Exchange, Inc., 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act of 1933, as amended (the "Securities Act"), and
the rules and regulations promulgated thereunder, with respect to the Common
Shares offered pursuant to this Prospectus. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and financial schedules thereto. For
further information concerning the Company and the Common Shares offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith, which may be examined without charge at, or copies obtained
upon payment of prescribed fees from, the Commission and its regional offices at
the locations listed above. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"AMEX" means American Stock Exchange, Inc.
"Average Annualized Rental Rate" means (i) for office leases written on a
triple net basis, the sum of the annualized contracted base rental rates payable
for all space leased as of September 30, 1996 without giving effect to free rent
or scheduled rent increases that would be taken into account under generally
accepted accounting principles plus the 1996 budgeted operating expenses
excluding tenant electricity; and (ii) for office leases written on a full
service basis, the annualized rental rate is divided by the total square footage
leased as of September 30, 1996 without giving effect to free rent or scheduled
rent increases that would be taken into account under generally accepted
accounting principles.
Acquisition Properties" means, collectively, the SERS Properties and the
four additional office buildings that the Company will acquire prior to or
concurrent with the closing of the Offering.
"Board of Trustees" means the Board of Trustees of the Company.
Book Value Per Share" means, as of any date: (i) the total beneficiaries'
equity as shown on the Company's consolidated balance sheet as of the fiscal
quarter end immediately prior to the applicable date (with appropriate
adjustments for any material events subsequent thereto) prepared in accordance
with rules and regulations of the SEC and GAAP applied on a consistent basis (as
adjusted to reflect the consideration received by the Company upon the Exercise
(defined below) of any Convertible Securities (defined below) which are included
in the computation in (ii) below), divided by (ii) the sum of the number of
Common Shares outstanding on such date plus the number of Common Shares issuable
upon the exercise, conversion or exchange (collectively, "Exercise") of
outstanding options, warrants, Preferred Shares and other convertible securities
or similar rights (collectively, "Convertible Securities") to the extent that
the consideration payable upon the exercise of such Convertible Securities is
less than the Market Value Per Share of the Common Shares issuable upon such
Exercise.
"BRP" means Brandywine Realty Partners, a general partnership that owns the
four BRP Properties.
"BRP Partnership Agreement" means the General Partnership Agreement, as
amended, of BRP.
"BRP Properties" means the following four Properties owned by BRP: One
Greentree Centre, Two Greentree Centre, Three Greentree Centre and Twin Forks.
"Bylaws" means the Bylaws of the Company.
"C&W" means Cushman & Wakefield of Pennsylvania, Inc.
"C&W Market Analyses" means the 10 market analyses prepared for the Company
by C&W.
"C&W Mid-Year Report" means the Mid-Year 1996 Philadelphia Office Market
Report and Philadelphia Industrial Market Report prepared by C&W.
"Cash Available for Distribution" means Funds from Operations adjusted for
principal amortization payments and reserves for capital expenditures.
"Class A Units" means the limited partnership interests of the Operating
Partnership that will remain outstanding upon completion of the Offering and
that will be exchangeable for Common Shares.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the common shares of beneficial interest, par value
$.01 per share, of the Company.
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"Company" means Brandywine Realty Trust, a Maryland real estate investment
trust, and those entities over which Brandywine Realty Trust has control or of
which it owns a majority of the economic interests, unless the context otherwise
indicates.
"Concurrent Investments" means, collectively, the Morgan Stanley Private
Placement and the SERS Private Placement.
"Conflicting Provisions" means provisions of the Company's Declaration of
Trust which are in conflict with the Maryland REIT Law, the Code or other
applicable federal or state law(s).
"Conversion Approval" means approval of the unlimited conversion of Series
A Preferred Shares into Common Shares by a majority of the votes cast by holders
of Common Shares at a meeting of shareholders in which holders of Preferred
Shares have no right to vote.
"Conversion Number" means the number of Common Shares into which a
Preferred Share is, or Preferred Shares are, convertible.
"CPI" means the consumer price index.
"Credit Facility" means the $80 million, two-year revolving line of credit
for which the Company has obtained a commitment from a group of lenders.
"Declaration of Trust" means the Declaration of Trust of the Company, as
amended.
"Employment Agreements" means the two-year employment agreements dated July
31, 1996 entered into by the Company with its Chief Executive Officer and its
three other executive officers.
"EPA" means Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means a pension, profit-sharing, or other employee benefit
plan subject to Title 1 of ERISA.
"Excluded Common Shares" means any Common Shares issued by the Company
after May 1, 1996, the net proceeds of which issuance are not contributed to the
Operating Partnership.
"Final Annualized Base Rent" means the base rental rate payable under the
applicable lease in the month that the lease expires multiplied by twelve.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"Funds from Operations" means net income (loss) adjusted for depreciation
expense attributable to real property, amortization expense attributable to
capitalized leasing costs, tenant allowances and improvements, gains on sales of
real estate investments and extraordinary nonrecurring items.
"GAAP" means generally accepted accounting principles.
"Initial Properties" means, collectively, the BRP Properties, the SSI/TNC
Properties and the LibertyView Building.
"Interested Shareholder" means any person, or an affiliate thereof, who
beneficially owns 10% or more of the voting power of a Maryland real estate
investment trust's outstanding shares.
"Investment Date" means June 21, 1996.
"IRA" means individual retirement account.
"IRS" means the United States Internal Revenue Service.
"LCOR" means LCOR Incorporated, a real estate development firm.
""Legg Mason" means Legg Mason Wood Walker, Incorporated.
"LibertyView Building" means the Property at 457 Haddonfield Road, Cherry
Hill, New Jersey.
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"Limited Partners" means the limited partners of the Operating Partnership.
"Linpro Entities" means the more than 350 different limited partnerships,
joint ventures and corporations which were originally doing business under the
name "The Linpro Company".
"Lock-up Period" means the 180-day period after the effective date of this
Prospectus.
"Management Company" means Brandywine Realty Services Corporation, the
Company's property management subsidiary.
"Market" means the Suburban Philadelphia Office and Industrial Market.
"Market Value Per Share" means, as of any date (the "Valuation Date"), the
average of the closing per share sale price(s) of the Common Shares for the
period of 20 consecutive trading days ending on the trading date immediately
preceding the Valuation Date as such prices are reported by the principal United
States securities exchange on which the Common Shares are then traded or, if the
Common Shares are not then traded on any such exchange, the closing per share
sale price (or the average of the quoted per share closing bid and asked prices
if no sale is reported) as reported by the National Association of Securities
Dealers, Inc. ("NASD"), Automated Quotation System ("NASDAQ") or any comparable
system or, if the Common Shares are not then quoted on NASDAQ or any comparable
system, the average of the closing per share bid and asked prices as furnished
by any member of the NASD selected by the Board of Trustees.
"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland.
"MGCL" means the Maryland General Corporation Law.
"Morgan Stanley Funds" means the two investment funds managed by Morgan
Stanley Asset Management Inc. that have agreed to purchase Common Shares in the
Morgan Stanley Private Placement.
"Morgan Stanley Private Placement" means the private placement by the
Company of 709,091 Common Shares to the Morgan Stanley Funds at a price per
share of $16.50 (representing an aggregate purchase price of $11.7 million) to
be consummated concurrent with the closing of the Offering.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"Net Operating Income" means the total property gross income less operating
expenses exclusive of interest expense, income taxes and all non-cash charges.
"Newtech Partnership" means the limited partnership which holds fee title
to the Property at 16 Campus Boulevard.
"Non-ERISA Plan" means a qualified retirement plan not subject to Title 1
of ERISA because it is a governmental or church plan or because it does not
cover common law employees.
"Non-U.S. Shareholders" means nonresidential alien individuals, foreign
corporations, foreign partnerships and foreign trusts and estates.
"Offering" means the offering of Common Shares to the public by the
Underwriters pursuant to this Prospectus.
"Operating Partnership" means Brandywine Operating Partnership, L.P., a
limited partnership organized under the laws of Delaware.
"Option Properties" means the four properties that the Company acquired
options to purchase in the SSI/TNC Transaction.
"Osborne Loan" means the loan made by the RMO Fund to the Company on June
21, 1996 in the original principal amount of approximately $990,000.
"Owners" means SSI, TNC and the 11 other persons who contributed interests
in the 19 SSI/TNC Properties to the Operating Partnership as part of the SSI/TNC
Transaction.
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"Ownership Limits" means the Company's Declaration of Trust provisions
prohibiting, subject to certain exceptions, any shareholder or group of
affiliated shareholders from owning more than 9.8% in value of the Common
Shares.
"Ownership Restrictions" means the provisions of the Declaration of Trust
prohibiting any transfer of Common Shares if, as a result of such transfer, the
Common Shares would be held by fewer than 100 persons or results in the Company
being "closely held" within the meaning of Section 856(h) of the Code.
"Paired Unit" means a unit comprised of one Common Share and a six-year
warrant exercisable for one additional Common Share at the exercise price of
$19.50 per share (subject to customary antidilution adjustments).
"Partnership Agreement" means the agreement of limited partnership, as
amended, of the Operating Partnership.
"Phase I" means an environmental site assessment performed by independent
third parties to evaluate the environmental condition of, and potential
environmental liabilities associated with, the Properties.
"Philadelphia PMSA" means Philadelphia primary metropolitan statistical
area.
"Preferred Shares" means the Series A preferred shares of beneficial
interest, par value $.01 per share, of the Company issued to the SERS Voting
Trust in connection with the SERS Transaction.
"Properties" means, collectively, the Initial Properties and the
Acquisition Properties.
"Qualified Offering" means a public or private sale of equity securities
generating at least $35 million of net proceeds to the Company at a price per
share at least equal to the per share book value of the Common Shares as of the
end of the most recently preceding quarter preceding the sale or at least $25
million of net proceeds, but less than $35 million of net proceeds, at a price
per share of at least $16.50 (subject to adjustment in the event of stock
dividends, stock splits or reverse stock splits).
"RAI" means Radnor Advisors Inc.
"Redemption Price" means, in respect of a Preferred Share, the greater of:
(i) the product of (a) $16.50 plus an amount (the "Return Amount") equal to 8.0%
of $16.50 per annum from the date of issuance of such Series A Preferred Share
to the redemption date thereof less an amount (not to exceed the Return Amount)
equal to distributions actually received by the holder of account of such Share
and (b) the Conversion Number and (ii) the product of the market price of a
Common Share and the Conversion Number.
"Registration Rights Agreement" means the agreement among the Company, SSI,
each holder of Class A Units and the RMO Fund obligating the Company to register
Common Shares issued and issuable to such person under certain circumstances.
"REIT" means a real estate investment trust as defined by Sections 856
through 860 of the Code and applicable Treasury regulations.
"Replacement Cost Rents" the rental rate that would provide a reasonable
return on investment to a developer of a new Class A multi-tenant office
building.
"Residual Interests" means the residual 11% capital and 1% cash flow and
profits interest in certain of the Title Holding Partnerships that the Operating
Partnership has the obligation to acquire by September 1999.
"Reverse Split" means the combination of outstanding Common Shares by means
of a one-for-three reverse share split immediately prior to the closing of the
Offering.
"RMO Fund" means Turkey Vulture Fund XIII, Ltd.
"RMO Trust" means the Richard M. Osborne Trust.
"Rule 144" means the rule promulgated under the Securities Act that permits
holders of restricted securities as well as affiliates of an issuer of
securities, pursuant to certain conditions and subject to certain restrictions,
to sell their securities publicly without registration under the Securities Act.
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"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"SERS" means the Pennsylvania State Employes' Retirement System and its
subsidiaries.
"SERS Private Placement" means the private placement by the Company of
$10.5 million of Common Shares to the SERS Voting Trust at a price per share
equal to the public offering price that will be consummated concurrent with the
closing of the Offering.
"SERS Properties" means the nine Acquisition Properties that the Company
will acquire from SERS pursuant to the SERS Transaction on or prior to closing
of the Offering.
"SERS Transaction" means the transaction in which the Company will acquire
the SERS Properties.
"SERS Voting Trust" means the voting trust established for the benefit of
SERS, as shareholder, and of which RAI Real Estate Advisers, Inc. is the voting
trustee.
"Shares" means, collectively, the up to 30,000,000 shares of beneficial
interest of the Company.
"SSI" means Safeguard Scientifics, Inc.
"SSI Loan" means the several loans by SSI to the Operating Partnership or a
subsidiary in the aggregate principal amount of $539,000, as of September 30,
1996, to finance certain expenses in connection with the SSI/TNC Transaction,
provide working capital, finance certain preferred distributions to the Company
and finance tenant improvements.
"SSI/TNC Properties" means the 19 Properties, either individually or in
combination, acquired by the Operating Partnership in the SSI/TNC Transaction.
"SSI/TNC Transaction" means the transactions pursuant to which the Company
acquired interests in the SSI/TNC Properties."
"Suburban Philadelphia Office and Industrial Market" means the areas
comprised of the following counties: Bucks, Chester, Delaware, Lehigh,
Montgomery and Northampton in Pennsylvania and Burlington and Camden in New
Jersey.
"Title Holding Partnerships" means the Company's partnership subsidiaries
holding fee title to certain of the Properties.
"TNC" means The Nichols Company and its affiliates.
"Total Base Rent" for the twelve months ended September 30, 1996 means base
rents received during such period, excluding tenant reimbursements calculated on
a straight-line basis in accordance with generally accepted accounting
principles. Tenant reimbursements generally include payment of real estate
taxes, operating expenses and escalations and common area maintenance and
utility charges.
"Treasury Regulations" means the income tax regulations that have been
promulgated under the Code.
"Trustees" means the Trustees of the Company.
"Underwriters" means the underwriters named in this Prospectus, for whom
Smith Barney Inc. and Legg Mason Wood Walker, Incorporated are acting as
representatives.
"Underwriting Agreement" means the Underwriting Agreement between the
Company and the Underwriters.
"United States" means the United States of America (including the District
of Columbia), its territories, possessions and other areas subject to its
jurisdiction.
"Units" means Class A Units of limited partnership interests of the
Operating Partnership.
"Whitelands Property" means the Whitelands Business Park in Exton,
Pennsylvania.
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"Witmer Properties" means the eight Properties held by a subsidiary of the
Operating Partnership and that secure repayment of a mortgage loan made by
General Electric Credit Corporation. The following Properties are the Witmer
Properties: 1155 Business Center Drive; One Progress Avenue; 500 Enterprise
Road; 1510 Gehman Road; 168 Franklin Corner Road; 16 Campus Boulevard; 18 Campus
Boulevard; and 456 Creamery Way.
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BRANDYWINE REALTY TRUST
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
- Pro Forma Condensed Consolidating Balance Sheet as of September 30,
1996.................................................................. F-4
- Pro Forma Condensed Consolidating Statements of Operations for the
Year Ended December 31, 1995, and the Nine-Months Ended September 30,
1996.................................................................. F-5
- Notes and Management's Assumptions to Unaudited Pro Forma Condensed
Consolidating Financial Statements.................................... F-7
II. BRANDYWINE REALTY TRUST
- Report of Independent Public Accountants.............................. F-14
- Consolidated Balance Sheets as of December 31, 1994 and 1995 (audited)
and September 30, 1996 (Unaudited)...................................... F-15
- Consolidated Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 (audited) and for the Nine-Months Ended September
30, 1995 and 1996 (Unaudited)......................................... F-16
- Consolidated Statements of Beneficiaries' Equity for the Years Ended
December 31, 1993, 1994 and 1995 (audited), and for the Nine-Months
Ended September 30, 1996 (Unaudited).................................. F-17
- Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 (audited), and for the Nine-Months Ended September
30, 1995 and 1996 (Unaudited)......................................... F-18
- Notes to Consolidated Financial Statements............................ F-19
III. SSI/TNC PROPERTIES
- Report of Independent Public Accountants.............................. F-35
- Combined Balance Sheets as of December 31, 1994 and 1995 (audited) and
June 30, 1996 (Unaudited)............................................. F-36
- Combined Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 (audited), and for the Six-Months Ended June 30,
1995 and 1996 (Unaudited)............................................. F-37
- Combined Statements of Owners' Deficit for the Years Ended December
31, 1993, 1994 and 1995 (audited), and for the Six-Months Ended June 30,
1996 (Unaudited)...................................................... F-38
- Combined Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 (audited), and for the Six-Months Ended June 30,
1995 and 1996 (Unaudited)............................................. F-39
- Notes to Combined Financial Statements................................ F-40
IV. LIBERTYVIEW BUILDING
- Report of Independent Public Accountants.............................. F-46
- Statements of Revenue and Certain Expenses for the Year Ended December
31, 1995, and Six-Months Ended June 30, 1996 (Unaudited)................ F-47
- Notes to Financial Statements......................................... F-48
</TABLE>
F-1
<PAGE> 170
<TABLE>
<S> <C> <C>
V. SERS PROPERTIES
- Report of Independent Public Accountants.............................. F-50
- Statements of Revenue and Certain Expenses for the Year Ended December
31, 1995, and Nine-Months Ended September 30, 1995 and 1996
(Unaudited)........................................................... F-51
- Notes to Financial Statements......................................... F-52
VI. DELAWARE CORPORATE CENTER I
- Report of Independent Public Accountants.............................. F-53
- Statements of Revenue and Certain Expenses for the Year Ended December
31, 1995, and Nine-Months Ended September 30, 1995 and 1996
(Unaudited)........................................................... F-54
- Notes to Financial Statements......................................... F-55
VII. 700/800 BUSINESS CENTER DRIVE
- Report of Independent Public Accountants.............................. F-57
- Statements of Revenue and Certain Expenses for the Year Ended December
31, 1995, and Nine-Months Ended September 30, 1995 and 1996
(Unaudited)........................................................... F-58
- Notes to Financial Statements......................................... F-59
VIII. FINANCIAL STATEMENT SCHEDULE
- Schedule III -- Real Estate and Accumulated Depreciation -- December
31, 1995.............................................................. F-60
</TABLE>
F-2
<PAGE> 171
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following sets forth the pro forma condensed consolidating balance
sheet of Brandywine Realty Trust ("the Company) as of September 30, 1996, and
the pro forma condensed consolidating statements of operations for the year
ended December 31, 1995 and the nine-month period ended September 30, 1996.
The unaudited pro forma condensed consolidating financial information is
presented as if the following transactions had been consummated on September 30,
1996, for balance sheet purposes, and at the beginning of the period presented,
for purposes of the statements of operations:
- The Company consummated the Offering and applied the net proceeds
therefrom as described under "Use of Proceeds". This pro forma condensed
consolidating financial information should be read in conjunction with
the historical financial statements of the Company, the SSI/TNC
Properties, the LibertyView Building, and the Acquisition Properties
(defined below) and the related notes thereto included elsewhere herein.
In management's opinion, all adjustments necessary to reflect the effects
of the transactions to be consummated have been made.
- The Company issued 3,700,000 Common Shares at $16.50 per share, the last
reported sales price of the Common Shares on the AMEX on November 6,
1996.
- The $774,000 loan from the RMO Fund was satisfied by the Company by the
issuance of 45,844 Paired Units to the RMO Fund.
- The Company acquired its partnership interests in the Operating
Partnership.
- The Operating Partnership acquired the 19 SSI/TNC Properties in
connection with the SSI/TNC transaction.
- The Company acquired the LibertyView Building.
- In conjunction with the Offering the Company acquired the SERS
Properties, Delaware Corporate Center I, 700/800 Business Center Drive,
and 8000 Lincoln Drive (hereinafter referred to as the "Acquisition
Properties") for $26,444,000 of Preferred Shares, $3,225,000 of deferred
payments, $56,000 of warrants and $24,059,000 of cash.
- The Company will contribute $54.0 million of net proceeds from the
Offering to the Operating Partnership in exchange for 3,519,062 general
partnership units.
- The Company will issue 636,363 Common Shares at $16.50 per share to SERS
Voting Trust, as advised by RAI in exchange for $10.5 million and
contribute such proceeds to the Operating Partnership in exchange for
636,363 general partnership units.
- Following the Offering and the application of the net proceeds therefrom,
the Operating Partnership will repay $47,868,000 of indebtedness secured
by the Properties, $764,000 of loans made by SSI to the Operating
Partnership and a $500,000 prepayment penalty.
- The Company will issue 709,090 Common Shares at $16.50 per share in the
Morgan Stanley Private Placement and contribute the proceeds to the
Operating Partnership in exchange for 709,090 general partnership units.
The pro forma condensed consolidating financial information is unaudited
and is not necessarily indicative of what the actual financial position would
have been at September 30, 1996, nor does it purport to represent the future
financial position and the results of operations of the Company.
F-3
<PAGE> 172
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1996 (NOTES 1 AND 2)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
BRANDYWINE
REALTY TRUST PRO FORMA
HISTORICAL ACQUISITION OFFERING PRO FORMA
CONSOLIDATED(A) PROPERTIES(B) ADJUSTMENTS CONSOLIDATED
--------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Real estate investments, net................. $ 98,818 $ 52,709 $ -- $151,527
Cash and cash equivalents.................... 1,859 (24,059) 25,459(C) 3,259
Escrowed cash................................ 966 1,265 (145)(D) 2,086
Deferred costs, net.......................... 2,290 -- 504(E) 2,794
Other assets................................. 2,250 (190) -- 2,060
-------- ------- ------- --------
Total assets......................... $ 106,183 $ 29,725 $ 25,818 $161,726
======== ======= ======= ========
LIABILITIES:
Mortgages and notes payable.................. $ 83,020 $ 3,225 $ (49,406)(F) $ 36,839
Other liabilities............................ 3,096 -- (321)(G) 2,775
-------- ------- ------- --------
Total liabilities.................... 86,116 3,225 (49,727) 39,614
-------- ------- ------- --------
MINORITY INTEREST.............................. 8,758 -- (8,145)(H) 613
-------- ------- ------- --------
Convertible Preferred Shares................... -- 26,444 -- 26,444
-------- ------- ------- --------
BENEFICIARIES' EQUITY:
Common shares of beneficial interest......... 9 -- 51(I) 60
Additional paid-in capital................... 20,443 -- 83,391(J) 103,834
Stock warrants............................... 658 56 248(K) 962
Accumulated equity (deficit)................. (9,801) -- -- (9,801)
-------- ------- ------- --------
Total beneficiaries' equity.......... 11,309 56 83,690 95,055
-------- ------- ------- --------
Total liabilities and beneficiaries'
equity............................. $ 106,183 $ 29,725 $ 25,818 $161,726
======== ======= ======= ========
</TABLE>
The accompanying notes and management assumptions are an integral part of these
statements.
F-4
<PAGE> 173
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 (NOTES 1 AND 3)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
ADJUSTED
SSI/TNC
PROPERTIES
BRANDYWINE AND
REALTY LIBERTYVIEW TOTAL
TRUST BUILDING ADJUSTED
HISTORICAL COMBINED ACQUISITION PRO FORMA TOTAL PRO
CONSOLIDATED HISTORICAL PROPERTIES OFFERING FORMA
(A) (B) (C) ADJUSTMENT CONSOLIDATED
------------ ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Base rents........................... $ 3,517 $ 8,948 $ 6,348 $ -- $ 18,813
Tenant reimbursements................ 66 3,430 450 -- 3,946
Other................................ 83 3 -- -- 86
------ ------- ------ ------- -------
Total revenue................ 3,666 12,381 6,798 -- 22,845
------ ------- ------ ------- -------
Operating expenses:
Interest............................. 793 6,700 258 (4,355)(D) 3,396
Depreciation and amortization........ 1,402 4,090 1,687 277(E) 7,456
Property expenses.................... 1,608 4,222 3,408 891(G) 10,129
General and administrative........... 682 670 -- (562)(H) 790
------ ------- ------ ------- -------
Total operating expenses..... 4,485 15,682 5,353 (3,749) 21,771
------ ------- ------ ------- -------
Income (loss) before minority
interest................... (819) (3,301) 1,445 3,749 1,074
Minority interest in income (loss)..... 5 (1,182) -- 1,339(F) 162
------ ------- ------ ------- -------
Income (loss) before uncombined entity
and extraordinary items.............. (824) (2,119) 1,445 2,410 912
Equity income of management company.... -- 179 -- (107)(I) 72
------ ------- ------ ------- -------
Income (loss) before extraordinary
items................................ (824) (1,940) 1,445 2,303 984
Income allocated to Preferred Shares... -- -- -- 2,248(J) 2,248
------ ------- ------ ------- -------
Income (loss) allocated to
Common Shares........................ $ (824) $(1,940) $ 1,445 $ 55 $ (1,264)
====== ======= ====== ======= =======
Earnings (loss) per share before
extraordinary items:.................
Income (loss) before extraordinary
items............................. $ (1.32) $ 0.16
====== =======
Income (loss) allocated to Common
Shares............................ $ (1.32) $ (0.21)
====== =======
Weighted average number of shares
outstanding including share
equivalents.......................... 624,791 6,008,540
====== =======
</TABLE>
The accompanying notes and management assumptions are an integral part of these
statements.
F-5
<PAGE> 174
BRANDYWINE REALTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (NOTES 1 AND 3)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
ADJUSTED
SSI/TNC
PROPERTIES
BRANDYWINE AND
REALTY LIBERTYVIEW TOTAL
TRUST BUILDING ADJUSTED
HISTORICAL COMBINED ACQUISITION PRO FORMA TOTAL PRO
CONSOLIDATED HISTORICAL PROPERTIES OFFERING FORMA
(A) (B) (C) ADJUSTMENT CONSOLIDATED
------------ ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Base rents........................... $ 4,063 $ 5,714 $ 5,828 $ -- $ 15,605
Tenant reimbursements................ 467 2,511 277 -- 3,255
Other................................ 69 100 -- -- 169
------- ------- ------ ------- ---------
4,599 8,325 6,105 -- 19,029
------- ------- ------ ------- ---------
Operating expenses:
Interest............................. 1,342 3,783 194 (2,746)(D) 2,573
Depreciation and amortization........ 1,173 2,819 1,265 208(E) 5,465
Property expenses.................... 1,867 2,831 2,724 605(G) 8,027
General and administrative........... 439 715 -- (567)(H) 587
------- ------- ------ ------- ---------
Total operating expenses..... 4,821 10,148 4,183 (2,500) 16,652
------- ------- ------ ------- ---------
Income (loss) before minority
interest................... (222) (1,823) 1,922 2,500 2,377
Minority interest in income (loss)..... (40) (513) (--) 775(F) 222
------- ------- ------ ------- ---------
Income (loss) before uncombined entity
and extraordinary items.............. (182) (1,310) 1,922 1,725 2,155
Equity income of management company.... 54 75 (--) 115(I) 244
------- ------- ------ ------- ---------
Income (loss) before extraordinary
items................................ $ (128) $(1,235) $ 1,922 $ 1,840 $ 2,399
Income (loss) allocated to Preferred
Shares............................... -- -- -- 1,686(J) 1,686(I)
------- ------- ------ ------- ---------
Income (loss) allocated to Common
Shares............................... $ (128) $(1,235) $ 1,922 $ 154 $ 713
======= ======= ====== ======= =========
Earnings per common share before
extraordinary items..................
Income (loss) before extraordinary
items............................. $ (0.19) $ 0.40
======= =========
Income (loss) allocated to Common
Shares............................ $ (0.19) $ 0.12
======= =========
Weighted average number of shares
outstanding.......................... 676,801 6,007,577(K)
======= =========
</TABLE>
The accompanying notes and management assumptions are an integral part of these
statements.
F-6
<PAGE> 175
BRANDYWINE REALTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
Brandywine Realty Trust (the "Company") is a Maryland real estate
investment trust. As of September 30, 1996, the Company owned interests in 24
properties, consisting of 23 suburban office buildings in three states and one
industrial property. The Company is the sole general partner and has an
approximately 59% interest in Brandywine Operating Partnership, L.P. (the
"Operating Partnership"). The minority interests in the Operating Partnership
include TNC and other owners, and SSI, which have ownership interests of 31% and
10%, respectively.
These pro forma financial statements should be read in conjunction with the
historical financial statements and notes thereto of the Company, the SSI/TNC
Properties, the LibertyView Building and the Acquisition Properties included
elsewhere herein. In management's opinion, all adjustments necessary to reflect
the effects of the Offering and the Concurrent Investments, the acquisitions of
the SSI/TNC Properties, the LibertyView Building and the Acquisition Properties
by the Company have been made.
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET:
(A) Reflects the historical consolidated balance sheet of the Company as of
September 30, 1996.
Acquisition Properties
(B) Reflects the combined balance sheets of the acquisitions of the
Acquisition Properties as follows:
<TABLE>
<CAPTION>
DELAWARE 700/800
CORPORATE BUSINESS 8000
SERS CENTER CENTER LINCOLN
PROPERTIES(I) I(II) DRIVE(II) DRIVE(II) COMBINED
------------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Real estate investments, net........ $29,352 $ 12,954 $ 7,313 $ 3,090 $ 52,709
Cash and cash equivalents........... (892) (12,839) (7,263) (3,065) (24,059)
Other assets........................ -- (115) (50) (25) (190)
Escrowed cash....................... 1,265 -- -- -- 1,265
Total assets.............. $29,725 $ -- $ -- $ -- $ 29,725
======= ======== ======= ======= ========
Liabilities:
Mortgages and notes payable....... $ 3,225 $ -- $ -- $ -- $ 3,225
------- -------- ------- ------- --------
Total liabilities......... 3,225 -- -- -- 3,225
------- -------- ------- ------- --------
Convertible Preferred Shares........ 26,444 -- -- -- 26,444
------- -------- ------- ------- --------
Total beneficiaries'
equity.................. 56 -- -- -- 56
------- -------- ------- ------- --------
Total liabilities and
beneficiaries' equity... $29,725 $ -- $ -- $ -- $ 29,725
======= ======== ======= ======= ========
</TABLE>
- ---------------
(i) The purchase price for the SERS Properties consists of: (i) 481,818 Series A
Preferred Shares, convertible, under certain circumstances, into 1,606,060
Common Shares; (ii) two year warrants to purchase 133,333 Common Shares at
an exercise price of $25.50 per share and based on a $.42 per warrant value
(based on a modified Black Scholes calculation); and (iii) deferred payments
aggregating $3.8 million, of which $2.5 million is payable in June 1998 and
$1.3 million is due in December 1999. The Company recorded a $575 adjustment
to the purchase price to reflect the fair value of the deferred payments. In
addition, closing costs of $892 have been capitalized to real estate
investments, net.
F-7
<PAGE> 176
(ii) Reflects the Company's acquisition of these properties based upon the
purchase price plus closing costs as follows:
<TABLE>
<CAPTION>
PURCHASE CLOSING
PRICE COSTS TOTAL
-------- ------- -------
<S> <C> <C> <C>
Delaware Corporate Center I............................. $ 12,700 $ 254 $12,954
700/800 Business Center Drive........................... $ 7,100 $ 213 $ 7,313
8000 Lincoln Drive...................................... $ 3,000 $ 90 $ 3,090
</TABLE>
Offering
(C) Pro forma cash and cash equivalents were determined as follows:
<TABLE>
<S> <C> <C>
- Net proceeds from this Offering after underwriting discounts and
commissions and estimated Offering expenses of $7,883............. $ 53,167
- Net proceeds from the Morgan Stanley Private Placement............ 11,700
- Net proceeds from issuance of common shares to SERS Voting
Trust............................................................. 10,500
- Repayment of mortgages and notes payable including related
costs............................................................. (49,132)
- Payment of commitment fee on the Credit Facility.................. (600)
Other cash activities --
- Release of escrowed cash resulting from the repayment of mortgage
notes payable....................................................... 145
- Payment of accrued interest....................................... (321)
- Net increase in cash and cash equivalents......................... $ 25,459
(D) Release of escrowed cash resulting from the repayment of mortgage
notes payable....................................................... $ (145)
(E) Reflects the increase in deferred financing costs as follows:
- Credit Facility................................................... $ 600
- Repayment of mortgage notes....................................... (96)
$ 504
(F) Reflects the net decrease in mortgages and notes payable:
- Repayment of mortgages and notes payable from net proceeds of this
Offering.......................................................... $(48,632)
- Payment of the note payable to the RMO Fund through the issuance
of Paired Units..................................................... (774)
$(49,406)
(G) Reflects the payment of accrued interest in connection with the
repayment of mortgages and notes payable............................ $ (321)
(H) Reflects the reduction of minority interest upon the Company's
equity contribution of $54 million of net proceeds from the Offering
to the Operating Partnership and $22.2 million of net proceeds from
the private placement and the issuance of Common Shares. Upon making
this contribution, the Company will receive 6,470,576 GP units which
will increase its ownership percentage to 93%....................... $ (8,145)
(I) Par value of the Common Shares to be issued......................... $ 51
</TABLE>
F-8
<PAGE> 177
<TABLE>
<S> <C> <C>
(J) Reflects (i) the issuance of 3,700,000 Common Shares, par value of $.01 per
share, at an assumed offering price of $16.50 per share the last reported
sales price of the Common Shares on the AMEX on November 6, 1996; (ii) the
issuance of 709,090 Common Shares, at per share in the Morgan Stanley private
placement; (iii) the issuance of 636,364 Common Shares at an assumed Offering
Price of $16.50 per share to SERs Voting Trust; and (iv) the issuance of
45,844 Paired Units to the RMO Fund. The following table sets forth the
adjustments to additional paid-in capital:
- Net proceeds from the Offering of Common Shares after
underwriting discounts and commissions and Offering
expenses................................................. $53,167
Less: Adjusted par value of Common Shares at $.01 par...... (37) $53,130
-------
- Net proceeds from the Concurrent Investments net of par
value of $13............................................... 22,187
- Write-off of deferred financing costs.................... (96)
- Additional capital contribution to the Operating
Partnership.............................................. 8,145
- Prepayment of note payable to the RMO Fund, net of par
value of $1................................................ 525
- Other.................................................... (500)
-------
Net increase in additional paid-in capital................. $83,391
=======
(K) Reflects the issuance of 45,844 warrants to the RMO Fund,
based on a $5.40 per warrant value (based on a modified
Black Scholes calculation)................................. $ 248
=======
</TABLE>
3. ADJUSTMENTS TO PRO FORMA CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS:
(A) Reflects the historical consolidated operations of the Company.
SSI/TNC Transaction and LibertyView Building Acquisition
(B) Reflects the adjusted historical operations of the SSI/TNC Properties
which were acquired on August 22, 1996 and LibertyView Building which
was acquired on July 19, 1996. The historical operations of the
SSI/TNC Properties exclude the extraordinary gains on restructuring
of debt of $5,559 and $494 for the year ended December 31, 1995 and
the nine-month period ended September 30, 1996, respectively.
F-9
<PAGE> 178
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
TOTAL ADJUSTED
SSI/TNC
PROPERTIES
AND
SSI/TNC LIBERTYVIEW
PROPERTIES LIBERTYVIEW BUILDING
HISTORICAL BUILDING PRO FORMA COMBINED
COMBINED HISTORICAL ADJUSTMENTS HISTORICAL
---------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Revenue:
Base rents............................... $ 7,829 $1,119 $ -- $ 8,948
Tenant reimbursements.................... 2,895 535 -- 3430
Management fees.......................... 617 -- (617)(iv) --
Other.................................... 3 -- -- 3
---------- ------------ ----------- --------------
Total revenue......................... 11,344 1,654 (617) 12,381
---------- ------------ ----------- --------------
Operating expenses:
Interest................................. 5,855 -- 845(i) 6,700
Depreciation and amortization............ 4,336 -- (246)(ii) 4,090
Property expenses........................ 3,424 798 -- 4,222
General and administrative............... 1,108 -- (438)(iv) 670
---------- ------------ ----------- --------------
Total operating expenses.............. 14,723 798 161 15,682
Income (loss) before minority
interest............................ (3,379) 856 (778) (3,301)
Minority interest in income (loss)......... -- -- (1,182)(iii) (1,182)(iii)
---------- ------------ ----------- --------------
Income (loss) before uncombined entity and
extraordinary items...................... (3,379) 856 404 (2,119)
Equity income of management company........ -- -- 179 179
---------- ------------ ----------- --------------
Income (loss) before extraordinary items... $ (3,379) $ 856 $ 583 $ (1,940)
======= ========= ========= ===========
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
TOTAL
ADJUSTED
SSI/TNC
SSI/TNC PROPERTIES AND
PROPERTIES LIBERTYVIEW LIBERTYVIEW
HISTORICAL PROPERTY BUILDING
COMBINED HISTORICAL PRO FORMA COMBINED
THRU 8/22/96 THRU 7/19/96 ADJUSTMENTS HISTORICAL
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Revenue:
Base rents............................. $ 5,059 $ 655 $ -- $ 5,714
Tenant reimbursements.................. 2,250 261 -- 2,511
Management fees........................ 778 -- (778)(iv) --
Other.................................. 100 -- -- 100
------------ ------ ----------- --------------
Total revenue....................... 8,187 916 (778) 8,325
------------ ------ ----------- --------------
Operating expenses:
Interest............................... 3,322 -- 461(i) 3,783
Depreciation and amortization.......... 2,717 -- 102(ii) 2,819
Property expenses...................... 2,831 -- -- 2,831
General and administrative............. 599 399 (283)(iv) 715
------------ ------ ----------- --------------
Total operating expenses............ 9,469 399 280 10,148
Income (loss) before minority
interest.......................... (1,282) 517 (1,058) (1,823)
Minority interest in income (loss)....... -- -- (513)(iii) (513)
------------ ------ ----------- --------------
Income (loss) before uncombined entity
and extraordinary items................ (1,282) 517 (545) (1,310)
Equity income of management company...... -- -- 75(iv) 75
------------ ------ ----------- --------------
Income (loss) before extraordinary
items.................................. $ (1,282) $ 517 $ (470) $ (1,235)
========= ========= ========= ==========
</TABLE>
F-10
<PAGE> 179
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1, 1996
TO THE
FOR THE RESPECTIVE
YEAR ENDED ACQUISITION
DECEMBER 31, 1995 DATE
----------------- ---------------
<C> <S> <C> <C> <C>
(i) Reflects the increase in interest expense resulting
from:
- the Note payable to SSI (which bears interest at
prime) assuming a prime rate of 8.25%................. $ 33 $ 21
- the Mortgage and notes payable of the LibertyView
Building, with effective rates of 8% per annum........ 750 406
- the Note payable to the RMO fund (which bears interest
at prime) assuming a prime rate of 8.25%.............. 62 34
------- ------
$ 845 $ 461
============= ===========
(ii) Reflects the (decrease) increase in depreciation and
amortization as follows:
- Depreciation of capitalized costs from the SSI/TNC
Transaction included in real estate investments....... $ 33 $ 24
- Depreciation of buildings acquired over a 25-year
useful life and tenant improvements and other
furniture, fixtures and equipment (FF&E) over five
years in general...................................... (563) (76)
- Depreciation of the LibertyView Building over a
35-year useful life................................... 244 132
- Amortization of deferred financing costs related to
the LibertyView Building.............................. 40 22
------- ------
$(246) $ 102
============= ===========
</TABLE>
(iii) Minority interest in income (loss) has been reflected in accordance
with the terms of the Operating Partnership Agreement. As of
September 30, 1996, the Company owns 59% of the Operating
Partnership. The remaining 41% of the Operating Partnership is owned
by TNC, SSI and the other owners whose interests are reflected as
minority interest. The adjustments to record the income effect of
minority interest share of loss for the periods ended December 31,
1995, and September 30, 1996, in the pro forma statements of
operations were computed as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED NINE-MONTHS
DECEMBER 31, ENDED
1995 SEPTEMBER 30, 1996
------------ ------------------
<S> <C> <C>
SSI/TNC Properties loss before Minority
Interest............................... $ (3,379) $ (1,282)
Impact of pro forma adjustments.......... 497 31
------- -------
Total loss..................... $ (2,882) $ (1,251)
======= =======
Pro forma minority interest in loss
(41%).................................. $ (1,182) $ (513)
======= =======
</TABLE>
(iv) Reflects the results of operations of the Management Company from
third party management services as accounted for using the equity
method.
Acquisition Properties
(C) Reflects the combined pro forma statements of operations of the
Acquisition Properties for the year ended December 31, 1995 and the
nine months ended September 30, 1996, respectively.
F-11
<PAGE> 180
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DELAWARE 700/800
SERS CORPORATE BUSINESS 8000 LINCOLN PRO FORMA COMBINED
PROPERTIES(I) CENTER I(I) CENTER DRIVE(I) DRIVE(I) ADJUSTMENTS(II) TOTAL
------------- ----------- ---------------- ------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Base rents................ $ 4,366 $ 410 $567 $1,005 $ -- $6,348
Tenant reimbursements..... 238 -- 188 24 -- 450
------ ----- ---- ---- -------- ------
4,604 410 755 1,029 -- 6,798
------ ----- ---- ---- -------- ------
Operating expenses:
Interest.................. -- -- -- -- 258(ii) 258
Depreciation and
amortization............ -- -- -- -- 1,687(iii) 1,687
Property expenses......... 2,236 502 305 365 -- 3,408
------ ----- ---- ---- -------- ------
Total operating
expenses.............. 2,236 502 305 365 1,945 5,353
------ ----- ---- ---- -------- ------
Income (loss) before
minority interest..... $ 2,368 $ (92) $450 $ 664 $(1,945) $1,445
====== ===== ==== ==== ======== ======
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DELAWARE 700/800
SERS CORPORATE BUSINESS 8000 LINCOLN PRO FORMA COMBINED
PROPERTIES(I) CENTER I(I) CENTER DRIVE(I) DRIVE(I) ADJUSTMENTS(II) TOTAL
------------- ----------- ---------------- ------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Base rents................ $ 3,435 $ 1,666 $533 $194 $ -- $5,828
Tenant reimbursements..... 213 -- 62 2 -- 277
------ ----- ---- ---- -------- ------
3,648 1,666 595 196 -- 6,105
------ ----- ---- ---- -------- ------
Operating expenses:
Interest.................. -- -- -- -- 194(ii) 194
Depreciation and
amortization............ -- -- -- -- 1,265(iii) 1,265
Property expenses......... 1,862 452 221 189 -- 2,724
------ ----- ---- ---- -------- ------
Total operating
expenses.............. 1,862 452 221 189 1,459 4,183
------ ----- ---- ---- -------- ------
Income (loss) before
minority interest..... $ 1,786 $ 1,214 $374 $ 7 $(1,459) $1,922
====== ===== ==== ==== ======== ======
</TABLE>
- ---------------
(i) Reflects the historical operations of the Acquisition Properties, excluding
certain expenses such as interest, depreciation and amortization,
professional costs, and other costs not directly related to the future
operations of the Acquisition Properties.
(ii) Reflects the interest on the note payable to the Seller of the SERS
Properties using an effective rate of 8%.
(iii) Reflects the depreciation of the Acquisition Properties using a 25-year
useful life.
F-12
<PAGE> 181
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE
DECEMBER NINE-MONTHS
31, ENDED
1995 SEPTEMBER 30, 1996
----------- ------------------
<S> <C> <C> <C>
Offering
(D) Reflects the net reduction of interest expense
associated with the mortgages and notes payable
assumed to be repaid using net proceeds from the
Offering. ....................................... $(4,355) $ (2,746)
----------- ----------
(E) Reflects the net increase in amortization of
deferred financing costs related to the mortgage
notes paid off and the new Credit Facility. ..... $ 277 $ 208
----------- ----------
(F) Reflects adjustment for minority interest in the
Operating Partnership of 7%. .................... $ 1,339 $ 775
----------- ----------
(G) To record management fees charged by the
Management Company. ............................. $ 891 $ 605
----------- ----------
(H) To transfer general and administrative expenses
to the Management Company. ...................... $ (562) $ (567)
----------- ----------
(I) To record share of income (loss) from the
Management Company............................... $ (107) $ 115
----------- ----------
(J) To record dividends on 481,818 Preferred Shares
at an annual rate of $4.67. ..................... $ 2,248 $ 1,686
----------- ----------
(K) Reflects the weighted average number of Common
Shares outstanding including share equivalents.
If all Units (509,856) were converted as of
January 1, 1995, the weighted average number of
shares outstanding would have been 6,517,433 and
6,517,433, respectively. ........................
</TABLE>
F-13
<PAGE> 182
After giving effect to the reverse share split discussed in Note 16, we
would be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
Philadelphia, PA,
March 4, 1996 (except with respect
to the matters discussed in Note 16,
as to which the date is October 7, 1996)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Beneficiaries of
Brandywine Realty Trust:
We have audited the consolidated balance sheets of Brandywine Realty Trust
(a Maryland corporation) as of December 31, 1994 and 1995, and the related
consolidated statements of operations, beneficiaries' equity and cash flows for
each of the three years in the period ended December 31, 1995. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule 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 Brandywine
Realty Trust as of December 31, 1994 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
F-14
<PAGE> 183
BRANDYWINE REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS
Operating properties, at adjusted cost................... $21,335 $21,823 $ 106,744
Accumulated depreciation................................. (7,387) (8,114) (7,926)
------- ------- --------
13,948 13,709 98,818
CASH AND CASH EQUIVALENTS.................................. 1,766 840 1,859
ESCROWED CASH.............................................. 1,114 1,155 966
DEFERRED COSTS net of accumulated amortization of $519 in
1994 and $507 in 1995 and $588 at September 30, 1996
(unaudited).............................................. 813 1,027 2,290
DUE FROM AFFILIATE......................................... -- -- 222
ACCOUNTS RECEIVABLE........................................ 207 261 1,102
INVESTMENT IN AFFILIATE.................................... -- -- 117
OTHER ASSETS............................................... 25 113 809
------- ------- --------
Total assets..................................... $17,873 $17,105 $ 106,183
======= ======= ========
LIABILITIES AND BENEFICIARIES' EQUITY
MORTGAGE NOTES PAYABLE..................................... $ 6,899 $ 8,931 $ 81,482
NOTES PAYABLE TO SHAREHOLDERS.............................. -- -- 1,538
ACCRUED MORTGAGE INTEREST.................................. 57 33 529
TENANT SECURITY DEPOSITS AND DEFERRED RENTS................ 207 250 715
ACCOUNTS PAYABLE AND ACCRUED EXPENSES...................... 222 454 1,852
DISTRIBUTIONS PAYABLE...................................... 1,299 93 --
------- ------- --------
Total liabilities................................ 8,684 9,761 86,116
------- ------- --------
MINORITY INTEREST.......................................... -- -- 8,758
COMMITMENTS AND CONTINGENCIES
BENEFICIARIES' EQUITY
Shares of beneficial interest, $0.01 par value, 5,000,000
preferred shares, authorized, none outstanding;
25,000,000 common shares authorized, 618,733 shares
issued and outstanding at December 31, 1994 and 1995
and 911,184 at September 30, 1996, respectively....... 6 6 9
Additional paid-in capital............................... 16,785 16,785 20,443
Stock warrants........................................... -- -- 658
Cumulative deficit....................................... (2,262) (3,086) (3,214)
Cumulative distributions................................. (5,340) (6,361) (6,587)
------- ------- --------
Total beneficiaries' equity...................... 9,189 7,344 11,309
------- ------- --------
Total liabilities and beneficiaries' equity...... $17,873 $17,105 $ 106,183
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-15
<PAGE> 184
BRANDYWINE REALTY TRUST
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE NINE-MONTH PERIOD
---------------------------------------------------------
HISTORICAL PRO FORMA CONSOLIDATED CONSOLIDATED ENDED SEPTEMBER 30,
1993 CONSOLIDATED 1994 1995 -------------------------
------------ 1993 ------------ ------------ 1995 1996
------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rents and tenant reimbursements... $ -- $ 5,451 $ 4,159 $ 3,583 $ 2,637 $ 4,530
Income from acquisition of limited
partner interests in Brandywine
Specified Property Investors
Limited Partnership............. 2,469 2,469 -- -- -- --
Allocated income from Brandywine
Realty Partners................. 568 -- -- -- -- --
Other income...................... 25 106 33 83 54 69
---------- ---------- ---------- ---------- ---------- ----------
Total revenue............... 3,062 8,026 4,192 3,666 2,691 4,599
---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Interest.......................... -- 2,400 1,962 793 572 1,342
Depreciation and amortization..... 1 1,949 1,370 1,402 1,084 1,173
Utilities......................... -- 762 607 531 397 491
Real estate taxes................. -- 721 498 391 297 432
Maintenance....................... -- 910 783 586 407 776
Management fee.................... -- 264 144 47 44 108
Other operating expenses.......... -- 223 70 53 43 60
Administrative expenses........... 593 1,053 834 682 439 439
Provision for loss on real estate
investments..................... -- -- 5,400 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total expenses.............. 594 8,282 11,668 4,485 3,283 4,821
---------- ---------- ---------- ---------- ---------- ----------
(LOSS) INCOME BEFORE GAIN ON SALES
OF REAL ESTATE INVESTMENTS,
MINORITY INTEREST AND
EXTRAORDINARY ITEM................ 2468 (256) (7,476) (819) (592) (222)
GAIN ON SALES OF REAL ESTATE
INVESTMENTS....................... -- -- 1,410 -- -- --
MINORITY INTEREST IN INCOME (LOSS)
OF AFFILIATES..................... -- (2,724) (5,635) 5 -- (40)
EQUITY IN NET INCOME OF MANAGEMENT
COMPANY........................... -- -- -- -- -- 54
---------- ---------- ---------- ---------- ---------- ----------
(LOSS) INCOME BEFORE EXTRAORDINARY
ITEM.............................. 2,468 2,468 (431) (824) (592) (128)
EXTRAORDINARY ITEM: GAIN ON
EXTINGUISHMENT OF DEBT (NET OF
$20,109 ALLOCATED TO MINORITY
INTEREST)......................... -- -- 7,998 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)................... $ 2,468 $ 2,468 $ 7,567 $ (824) $ (592) $ (128)
========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share of beneficial
interest
Primary
(Loss) income before
extraordinary item............ $ 3.99 $ 3.99 $ (.64) $ (1.32) $ (.95) $ (.19)
Extraordinary item.............. 0.00 0.00 11.86 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
Net income...................... $ 3.99 $ 3.99 $ 11.22 $ (1.32) $ (.95) $ (.19)
========== ========== ========== ========== ========== ==========
Weighted average number of shares
outstanding including share
equivalents..................... 618,733 618,733 674,327 624,791 624,953 676,801
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE> 185
BRANDYWINE REALTY TRUST
CONSOLIDATED STATEMENTS OF BENEFICIARIES' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
COMMON
SHARES
OF CAPITAL
BENEFICIAL PAR IN EXCESS STOCK CUMULATIVE CUMULATIVE
INTEREST VALUE OF PAR VALUE WARRANTS DEFICIT DISTRIBUTIONS
-------- ----- ------------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993............. 618,733 $ 6 $ 16,785 $ -- $(12,297) $(2,426)
Net income......................... -- -- -- -- 2,468 --
--------
- -- -
------- --- ------- -------
BALANCE, December 31, 1993........... 618,733 6 16,785 -- (9,829) (2,426)
Net income......................... -- -- -- -- 7,567 --
Distributions ($4.71 per share).... -- -- -- -- -- (2,914)
--------
- -- -
------- --- ------- -------
BALANCE, December 31, 1994........... 618,733 6 16,785 -- (2,262) (5,340)
Net loss........................... -- -- -- -- (824) --
Distributions ($1.65 per share).... -- -- -- -- -- (1,021)
--------
- -- -
------- --- ------- -------
BALANCE, December 31, 1995........... 618,733 6 16,785 -- (3,086) (6,361)
Net loss........................... -- -- -- -- (128) --
Contributions...................... 292,451 3 3,658 658 -- --
Distributions ($0.36 per share).... -- -- -- -- -- (226)
--------
- -- -
------- --- ------- -------
BALANCE, September 30, 1996
(Unaudited)........................ 911,184 $ 9 $ 20,443 $658 $ (3,214) $(6,587)
========= === ======= === ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE> 186
BRANDYWINE REALTY TRUST
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------- FOR THE NINE MONTH PERIOD
PRO FORMA
HISTORICAL CONSOLIDATED CONSOLIDATED CONSOLIDATED ENDED SEPTEMBER 30,
1993 1993 1994 1995 -------------------------
---------- ------------ ------------ ------------ 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME.......................... $ 2,468 $ 2,468 $ 7,567 $ (824) $ (592) $ (128)
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Extraordinary gain on extinguishment of
debt (net of $20,109 allocated to
minority interest).................... -- -- (7,998) -- -- --
Gain on sales of real estate
investments........................... -- -- (1,410) -- -- --
Minority interest in income (loss) of
affiliates............................ -- (2,724) (5,635) 5 -- (40)
Income from acquisitions of limited
partner interests in Brandywine
Specified Property Investors Limited
Partnership........................... (2,469) (2,469) -- -- -- --
Depreciation and amortization........... 1 1,949 1,370 1,402 1,084 1,173
Equity in net income of management
company............................... -- -- -- -- -- (54)
Provision for loss on real estate
investments........................... -- -- 5,400 -- -- --
Changes in assets and liabilities
(Increase) decrease in accounts
receivable.......................... -- (140) 483 (54) (25) (452)
Decrease (increase) in other assets... (13) 166 (194) 13 (124) 77
(Decrease) increase in other
liabilities......................... 13 81 (211) (45) 20 311
------ ------ ------ ------ ---- ----
Net cash provided by (used in)
operating activities.............. -- (669) (628) 497 363 887
------ ------ ------ ------ ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of SSI/TNC Properties, net of
cash acquired........................... -- -- -- -- -- 287
Acquisitions of LibertyView Building...... -- -- -- -- -- (9,809)
Cash from Brandywine Realty Partners...... -- 2,110 -- -- --
Capital expenditures and leasing
commissions paid........................ -- (620) (493) (660) (371) (715)
Decrease (increase) in escrowed cash...... -- -- (1,114) (41) (572) 323
Net proceeds from real estate and other
assets sold............................. -- -- 9,223 -- -- --
Cash received from acquisitions of limited
partner interests in
Brandywine Specified Property Investors
Limited Partnership................... 2,469 2,469 -- -- -- --
Sales commission paid to related party.... -- -- (167) -- -- --
------ ------ ------ ------ ---- ----
Net cash (used in) provided by investing
activities............................ 2,469 1,849 9,559 (701) (943) (9,914)
------ ------ ------ ------ ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock and
warrants................................ -- -- -- -- -- 1,003
Distributions paid to shareholders........ -- -- (1,615) (2,227) (2,134) (319)
Minority Partner contributions............ -- 51 49 -- -- --
Minority Partner distributions............ -- (34) (7) (5) -- (7)
Proceeds from note payable to
shareholder............................. -- -- -- -- -- 1,392
Proceeds from mortgage notes payable...... -- -- 10,000 9,000 9,000 8,574
Repayment of mortgage notes payable....... -- -- (16,301) (6,968) (6,942) (350)
Costs associated with refinancing
transactions............................ -- -- (1,604) (250) (250) (128)
Costs associated with new ventures and
financing commitments................... -- -- (100) (221) -- (198)
Refundable deposit associated potential
financing commitments................... -- -- -- (95) -- --
Tenant security deposits and other
financing activities.................... -- 175 (57) 44 -- 79
------ ------ ------ ------ ---- ----
Net cash (used in) provided by financing
activities............................ -- 192 (9,635) (722) (326) 10,046
------ ------ ------ ------ ---- ----
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS.......................... 2,469 1,372 (704) (926) (906) 1,019
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR......................... 1 3,208 2,470 1,766 1,766 840
------ ------ ------ ------ ---- ----
CASH AND CASH EQUIVALENTS AT END OF YEAR.... $ 2,470 $ 4,580 $ 1,766 $ 840 $ 860 $ 1,859
====== ====== ====== ====== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 187
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND NATURE OF OPERATIONS:
Brandywine Realty Trust (the "Company") was formed on February 26, 1986 as
a Maryland real estate investment trust. On July 31, 1986, the Company sold
through an initial public offering 618,733 shares of beneficial interest, the
net proceeds of which were $17,168,000. On July 31, 1986, the Company acquired a
68% general partner interest in Brandywine Realty Partners ("Brandywine"), at a
total cost of $16,787,000. As of December 31, 1995, the partners of Brandywine
and their percentage ownership were as follows:
<TABLE>
<CAPTION>
% OWNERSHIP
-----------
<S> <C>
Brandywine Realty Trust, a Maryland real estate investment
trust.......................................................... 70%
Brandywine Specified Property Investors Limited Partnership
("BSPI"), a Pennsylvania limited partnership................... 30%
---
100%
===
</TABLE>
At December 31, 1995, the Company's portfolio was comprised of four
commercial real estate projects (the "Specified Projects"). The Specified
Projects are leased for office purposes. As of December 31, 1995, the overall
occupancy rate of the Specified Projects was 97% as compared to 86% one year
earlier. As of December 31, 1995, existing leases totaling 95,000 square feet or
37% of the total square feet, were scheduled to expire during 1996. However,
subsequent to year end, three different leases were renewed for 17,000, 8,000
and 5,000 square feet, respectively, for terms of ten, five and three years,
respectively. As of June 30, 1996, the overall occupancy rate of the Specified
Projects was 96%.
The Specified Projects held on December 31, 1995 are located in the greater
Philadelphia, Pennsylvania and Raleigh, North Carolina metropolitan areas. Each
of these markets is competitive, with the principal methods of competition
consisting in each case of rental rates (including rental concessions such as
initial periods of free occupancy), location, level of leasehold improvements
and building amenities. The Specified Projects compete for tenants with other
properties which may have competitive advantages.
On July 19, 1996, the Trust acquired a 122,000 square foot office building
(the "LibertyView Building") in Cherry Hill, New Jersey. On August 22, 1996, the
Company closed on the acquisition of 19 additional properties (the "SSI/TNC
Properties") and in the transaction (the "SSI/TNC Transaction") the Company
became the sole general partner of and obtained a 59% interest in Brandywine
Operating Partnership, L.P. (the "Operating Partnership") (see Note 5).
The financial statements as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996, are unaudited and have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of the
Company, all adjustments (consisting of normal recurring adjustments except for
the adjustments to record the effects of the acquisitions by the Company of the
LibertyView Building and the SSI/TNC Properties) necessary to present fairly the
financial position of the Company as of September 30, 1996, and the results of
its operations for the nine months ended September 30, 1995 and 1996 and its
cash flows for the nine months ended September 30, 1995 and 1996 have been
included. The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
F-19
<PAGE> 188
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
Since the Company gained control of Brandywine during 1994, the Company
consolidates the accounts of Brandywine with the Company and reflects the BSPI
investment as minority interest. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company consolidates the accounts of Brandywine and the Operating
Partnership and reflects the remaining interests in Brandywine and the Operating
Partnership as Minority Interest. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CAPITALIZATION OF COSTS
The Company has capitalized as deferred costs certain expenditures related
to the financing and leasing of the Specified Projects. Capitalized loan fees
are being amortized over the six-year term of the loan and leasing commissions
are being amortized over the term of the related leases.
As of December 31, 1995, the Company had incurred $357,000 in costs
associated with its pursuit of potential acquisitions of additional real estate
and third party equity and debt investments. Such costs are included in deferred
costs on the Company's balance sheet as of December 31, 1995. Further, in
connection with the Company's pursuit of potential acquisitions of additional
real estate and third party debt investments, as of December 31, 1995 and
September 30, 1996, the Company had deposited $95,000 and $225,000,
respectively, with several unrelated parties. Such deposits are included in
prepaid expenses and other assets on the balance sheets as of December 31, 1995
and September 30, 1996.
DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight-line method. Estimated useful
lives are 30 years for buildings and improvements and five years for personal
property. Amortization of tenant improvements is provided over the shorter of
the lease term or the life of the assets.
INVESTMENT IN BRANDYWINE
Until January 1994, the Company had a 68% partnership interest in
Brandywine which was previously accounted for using the equity method.
Summarized financial information for this investment for the year ended December
31, 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
<S> <C>
Total assets................................................. $39,994
Total revenue................................................ $ 5,532
Net loss..................................................... $(2,156)
Allocated income from Brandywine............................. $ 568
</TABLE>
F-20
<PAGE> 189
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT IN MANAGEMENT COMPANY
Investment in Brandywine Realty Services Corporation (the "Management
Company") in which the Operating Partnership owns all of the nonvoting Preferred
Stock and 5% of the Common Stock is accounted for by the equity method.
FEDERAL INCOME TAXES
The Company has elected to qualify as a real estate investment trust under
Sections 856-860 of the Internal Revenue Code and intends to remain so
qualified. Accordingly, no provision is made for Federal income taxes on any
real estate investment trust taxable income which has been or will be
distributed to shareholders within the prescribed time limits.
Taxable income (loss) for the years ended December 31, 1993, 1994 and 1995,
totaled ($926,000), $0 and ($652,000), respectively. In 1994 and 1995 the
differences between taxable income (loss) and net income (loss) as reported in
the financial statements were primarily due to differences between the
allocation of Brandywine's net income and loss for financial reporting purposes
and for tax reporting purposes. In 1993, the difference was primarily due to the
temporary difference related to the recognition of income from the settlements
with two limited partners of BSPI (see Note 8). For financial reporting
purposes, this item was recorded as income in 1993, while for tax reporting
purposes, it was deferred to 1994.
Under current law, the Company is subject to a 4% Federal excise tax if it
does not distribute a sufficient amount of its taxable income within the
prescribed time limits. The excise tax equals 4% of the amount, if any, by which
the sum of (a) 85% of the Company's ordinary income and (b) 95% of the Company's
capital gain net income (which was zero in each year since the Company's
inception) for the year exceeds cash distributions during the year and certain
taxes paid by the Company, if any. No excise tax was incurred in 1993, 1994 or
1995.
Total assets of the Company for tax purposes amounted to $15,348,000 and
$12,497,000, respectively as of December 31, 1994 and 1995 as compared to total
assets for financial reporting purposes which amounted to $17,873,000 and
$17,105,000, respectively.
REVENUE RECOGNITION
Rental income from tenants is recognized on a straight-line basis
regardless of when payments are due. Accrued rental income included in the
balance sheets with accounts receivable reflects such rental income due as
follows:
<TABLE>
<S> <C>
1996.............................................................. $ 32,000
1997.............................................................. 36,000
1998.............................................................. 29,000
1999.............................................................. 35,000
2000.............................................................. 36,000
2001 and thereafter............................................... 2,000
--------
Total............................................................. $170,000
========
</TABLE>
During 1995, Parker, McCay & Criscuolo represented 10% of the Company's
total rental revenue and American Executive Center represented 10% of the
Company's total rental revenue. No tenant represented 10% or more of the
Company's rental revenue in 1993 and 1994.
RECLASSIFICATIONS
Certain 1993 and 1994 amounts have been reclassified to conform to the
current year presentation.
F-21
<PAGE> 190
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated based upon the weighted average
shares outstanding which were 618,733 in 1993, 674,327 in 1994 and 624,791 in
1995 and 624,953 and 676,801 for the nine months ended September 30, 1995 and
1996, respectively. Earnings per share for 1994, 1995 and 1996 have been
computed by considering any share equivalents applying the "treasury stock"
method and assuming that all options were exercised on date of issue. The
proceeds obtained from the exercise of any options would be utilized to purchase
outstanding shares at the average market price for the primary earnings per
share calculation and at the higher of the average market price or the closing
market price as of December 31, 1994 and December 31, 1995, respectively, for
the fully diluted earnings per share calculation for the years ended December
31, 1994 and 1995 and as of September 30, 1995 and 1996, respectively, for the
nine months ended September 30, 1995 and 1996. No such options have been
exercised as of December 31, 1995 and as of September 30, 1996. If these options
had been exercised, the per share results would not be materially different from
the primary earnings per share presented.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less. At December 31, 1994 and 1995 and September 30, 1996, cash and cash
equivalents totaling $1,766,000, $840,000 and $1,859,000, respectively, included
tenant escrow deposits of $155,000, $198,000 and $616,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents reported in the
consolidated balance sheets approximate the fair value of those assets. The fair
values for mortgage notes payable also approximate the carrying costs of those
liabilities.
3. REAL ESTATE INVESTMENTS:
Real estate investments are carried at the lower of adjusted cost or
estimated net realizable value. On January 31, 1994, the outstanding mortgage
indebtedness totaling approximately $43 million was extinguished in exchange for
the payment of $14 million resulting, after costs, in an extraordinary gain of
approximately $28 million in the first quarter of 1994. Of the total
extraordinary gain, $20,109,000 was allocable to the Minority Interest partner.
The closing of this transaction resulted in management's determination that the
aggregate carrying value of the then owned seven Specified Projects exceeded the
estimated net realizable value of approximately $22 million. Management based
its estimate primarily upon third-party appraisals (reviewing each appraisal in
relation to the current real estate market) and a $10 million nonrecourse
mortgage. In the first quarter of 1994, a writedown of $5.4 million was recorded
to adjust the carrying value of the Specified Projects to the estimated net
realizable value.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed of." This statement requires that long-lived
assets to be held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the Company
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss should be recognized. Measurement of an impairment
loss for these assets should be based on the fair market value of the asset. On
January 1, 1996, the Company adopted this statement. There was no effect from
adopting this statement on the Company's financial position or results of
operations.
F-22
<PAGE> 191
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SALES OF REAL ESTATE INVESTMENTS:
On February 28, 1994, the Lincoln Centre project was sold for a net sales
price equal to its adjusted carrying value of approximately $2,300,000. Of the
total net proceeds, $1,500,000 was deposited with the mortgage lender as
escrowed cash reserves available for capital improvements, tenant improvements
and leasing commissions associated with the remaining Specified Projects and the
balance of net proceeds was maintained for general liquidity needs.
On August 8, 1994, the Academy Downs project was sold for a net sales price
of approximately $4,500,000. As a result, a net gain on the sale of $1,116,000
was recorded during the third quarter of 1994. Of the total net proceeds,
Brandywine paid the mortgage lender $2,497,000 as principal and $366,000 as
Additional Interest. After the required payments to the lender, eighty-five
percent of the balance of net proceeds or $1,355,000 was distributed to the
Company's shareholders as distributions totaling $2.19 per share.
On December 15, 1994, the Iron Run project was sold for a net sales price
of approximately $2,400,000. As a result, a net gain on the sale of $294,000 was
recorded during the fourth quarter of 1994. Of the total net proceeds,
Brandywine paid the mortgage lender $604,000 as principal and $436,000 as
Additional Interest. After the required payments to the lender, the Company, on
December 22, 1994, declared eighty-five percent of the balance of net proceeds
or approximately $1,207,000 as a distribution payable on February 2, 1995 to the
Company's shareholders of record as of January 24, 1995. Such distribution
totaled $1.95 per share.
The following unaudited pro forma financial information for the year ended
December 31, 1994 of Brandywine Realty Trust gives effect to the above sales of
the three Specified Projects as if the events had occurred on January 1, 1994.
The pro forma financial information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the transactions
had been consummated at the beginning of the period presented, nor does it
purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 (UNAUDITED IN THOUSANDS)
-------------------------------------------------------------------
<S> <C>
Pro forma total revenue............................................ $ 3,479
Pro forma total expenses........................................... 10,763
-------
Pro forma loss before minority interest, gain on sales of real
estate investments and extraordinary item........................ (7,284)
Pro forma minority interest in loss of Brandywine Realty
Partners......................................................... (5,635)
Pro forma extraordinary item: gain on extinguishment of debt (net
of $20,109 allocated to minority interest)....................... 7,998
-------
Pro forma net income............................................... $ 6,349
=======
Pro forma earnings per share:
Pro forma loss before extraordinary item......................... $ (2.43)
Pro forma extraordinary item..................................... 11.85
-------
Pro forma net income per share................................... $ 9.42
=======
</TABLE>
5. ACQUISITIONS (UNAUDITED):
On July 19, 1996, the Trust acquired the LibertyView Building, for $10.7
million, of which $9.8 million was paid at the closing and the remainder is due
to the seller between July 1997 and December 1997. The effect of the acquisition
was to increase real estate investments by $10.7 million, including costs
associated with the acquisition and to increase mortgage indebtedness by $9.5
million.
On August 22, 1996, the Company closed on the acquisition of substantially
all of the real estate holdings of Safeguard Scientifics, Inc. ("SSI") and SSI's
real estate affiliate, The Nichols Company ("TNC"), a
F-23
<PAGE> 192
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
private real estate development and management services company. In the SSI/TNC
Transaction, the Company acquired 19 properties at a purchase price of $75.5
million subject to related mortgage debt of $63.6 million.
Upon the August 22, 1996 closing (the "Closing") of the SSI/TNC
Transaction, the Company became the sole general partner of and holds a 59%
interest in the Operating Partnership. The following is a summary of the
Operating Partnership units issued SSI/TNC Transaction:
<TABLE>
<CAPTION>
TRUST TNC SSI TOTAL
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
General Partner interest.............. 61(1) -- -- 61
Limited Partner interests:
Class A units....................... -- 405,553(2) 134,606(2) 540,159
Class B units....................... 238,606(1) -- -- 238,606
Class C units....................... 533,333(3)(4) -- -- 533,333
--------- --------- ------- ---------
772,000 405,553 134,606 1,312,159
--------- --------- ------- ---------
Ownership interest.................... 59%(4) 31% 10% 100%
--------- --------- ------- ---------
</TABLE>
- ---------------
(1) The Company issued 258,333 common shares of beneficial interest of the
Company, par value $0.01 per share ("Common Shares") and Warrants for an
additional 258,333 Common Shares to SSI in exchange for SSI's ownership
interest in the certain of the SSI/TNC Properties and $426,250 in cash. The
Company contributed this investment (other than the cash) to the Operating
Partnership and obtained the general partnership interest and all of the
Class B limited partnership interest (238,606 Units) in the Operating
Partnership. The Company issued 233,096 Common Shares and Warrants in
exchange for the SSI Ownership Interest at a value of $3,937,000. The $16.89
per Common Share and Warrant value is based on the range of trading prices
of the Common Shares at the time the SSI/TNC Transaction was announced
($4 7/8 and $4 7/16 being the high and low sales prices on March 27, 1996,
the last full trading day prior to the public announcement) and based on a
$2.10 per warrant value (based on a modified Black Scholes calculation). The
Company issued 25,237 Common Shares and Warrants at the same $16.89 per unit
in exchange for $426,250 in cash.
(2) Units issued to TNC, other owners and SSI resulting from the sale to the
Operating Partnership by TNC, SSI and other owners of substantially all of
their ownership interest in the SSI/TNC Properties. The 540,159 Class A
Units include 44,322 Units to be issued by September 1999 in exchange for
residual interests in the SSI/TNC Properties (of which 41,076 will be issued
to TNC and other Owners and 3,247 will be issued to SSI). SSI owns 40% of
the capital stock of TNC.
(3) Units issued to the Company at Closing in exchange for the contribution to
the Operating Partnership of a majority of the Company's general partnership
interest in Brandywine.
(4) On August 23, 1997, it is expected that the Company will contribute its
remaining general partnership interest in Brandywine in exchange for an
additional 85,400 Class C Units.
The costs associated with the acquisition and the issuance of Common Shares
and other equity interests totaled $1,700,000. The costs associated with the
acquisition totaled $935,000 and have been capitalized to real estate
investments. The remaining costs attributed to issuing Common Shares to SSI and
other equity interests of the Company have been recorded as a $620,000 reduction
of additional paid-in capital and a $145,000 reduction of minority interest. The
acquisition of the SSI/TNC Properties by the Company in exchange for 540,159
Class A Units at $16.50 per unit ($8,913,000) and 238,606 Class B Units at
$16.50 per unit ($3,937,000) for a total consideration value at $12,850,000 was
recorded by the Company based upon fair
F-24
<PAGE> 193
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
value of the real estate assets and other assets received net of total
liabilities encumbering the SSI/TNC Properties as of August 22, 1996 as follows
(in thousands):
<TABLE>
<S> <C> <C>
Real estate investments acquired at fair value................... $74,903
Other assets acquired............................................ 2,723
Mortgage notes................................................... (63,576)
Other liabilities................................................ (1,200)
-------
(64,776)
--------
Total equity consideration............................. $12,850
========
</TABLE>
The SSI/TNC Transaction included the consolidation of the managements of
the Company and TNC and the expansion of the Company's Board of Trustees to
include designees of SSI and TNC. The new management company responsible for the
managing, leasing and developing of the Company's Properties is owned by the
Operating Partnership and a partnership comprised of four officers of the
Company. In addition, employment agreements were executed with four key
executives and provide for compensation aggregating $513,000 annually through
August 22, 1998 and the issuance of six-year warrants for an aggregate of
220,000 Common Shares at a per share price of $19.50.
6. INVESTMENT IN MANAGEMENT COMPANY
The investment in management company was acquired by the Operating
Partnership through an initial contribution totalling $25,000 on August 22, 1996
and consists of a 100% ownership interest in the preferred stock and a 5%
ownership interest in the common stock of Brandywine Realty Services Company
(the "Management Company"). The Management Company is responsible for the
managing, leasing and developing of the Company's Properties. Total management
fees paid by the Company's Properties to the Management Company are included in
management fee expense in the accompanying statements of operations and amounted
to $76,000 for the period August 22, 1996 (inception) to September 30, 1996. The
Management Company also receives reimbursements of certain direct costs
attributable to the operation of the Properties. Such reimbursements are
included in maintenance expense in the accompanying statements of operations and
amounted to $36,000 for the period August 22, 1996 (inception) to September 30,
1996.
Summary unaudited financial information for the Management Company as of
September 30, 1996 and for the period from August 22, 1996 (inception) through
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
<S> <C>
Total assets................................................ $266,000
Total revenue............................................... $164,000
Net income.................................................. $ 97,000
Allocated net income from Management Company, net
of $38,000 allocated to minority interest................. $ 54,000
</TABLE>
7. MORTGAGE NOTES PAYABLE:
On April 21, 1995, the Company refinanced its then existing mortgage loan
with proceeds of mortgage loans totaling $6,250,000 and $2,750,000,
respectively, and providing for a fixed rate of interest. The mortgage loans are
cross-collateralized by the Specified Projects. The mortgage loans are due on
April 15, 2001, and the lender has the right to call the loans at par on April
15, 1998. Monthly payments of interest and principal are due based on a 25 year
amortization schedule for the period April 21, 1995 through April 15, 1998.
After April 15, 1998, monthly payments of interest and principal are due based
on a 22 year amortization schedule. The interest rate will be set at 8.75%
through April 15, 1996, 9.0% for the period from April 16, 1996 through October
15, 1996 and 9.31% for the period from October 16, 1996 through April 15, 1998.
After April 15, 1998
F-25
<PAGE> 194
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the loan rate is reset based upon the mortgage lender's evaluation, at that
time, of, among other factors, the financial performance and projected risk of
the Specified Projects, the financial status of the Company and the then
outstanding balance of the loans. For the year ended December 31, 1995, the
difference between the interest calculated at a weighted average rate of 9.19%
and the rate at which the interest was paid has been accrued as deferred
interest. Deferred interest at December 31, 1995 totaled $27,000 and is included
in accrued expenses. The mortgage loans provide for prepayment upon certain
conditions, including, among others, the payment of a Make Whole Premium,
defined as the greater of 1% of the principal amount to be prepaid or the
positive difference between the present value of the mortgage (or part of the
mortgage being prepaid) discounted at 9% through May 15, 1998 and U.S. Treasury
yields, thereafter, netted against the amount of prepaid proceeds. At December
31, 1995, principal repayments on the outstanding mortgage loans are as follows:
<TABLE>
<S> <C>
1996............................................................. $ 107,000
1997............................................................. 111,000
1998............................................................. 122,000
1999............................................................. 134,000
2000............................................................. 147,000
2001............................................................. 8,310,000
----------
$8,931,000
==========
</TABLE>
The loan is generally nonrecourse to the Company as to interest and
principal, except in the event of a sale or encumbrance of the mortgaged
premises, or in the event of fraud or willful misrepresentation in connection
with the loan. In addition, the Company has agreed to be responsible to the
lender for certain other liabilities, including (i) environmental liabilities,
(ii) waste relating to the mortgaged premises, (iii) misapplication or
misappropriation of certain reserves and other amounts held in connection with
the operation of the mortgaged premises, (iv) failure to pay certain expenses
relating to the mortgage premises, including utilities, operating and
maintenance, taxes, assessments, and insurance, but only to the extent that the
Company received rents or other proceeds from the mortgaged premises during the
eighteen month period prior to an event of default under the loan documents, or
after the occurrence thereof, and (v) certain other enumerated liabilities.
The lender is entitled to hold escrow cash reserves for real estate taxes
and capital requirements in two interest-bearing accounts. On April 21, 1995, an
initial deposit of $1,559,000 was made into this account. Deposits to the real
estate tax escrow account are required to be made on a monthly basis. Ongoing
deposits to the capital escrow account are required of $10,000 per month during
the first year of the loans and $25,000 per month over the remainder of the term
of the loans. Amounts held in the capital escrow account may be advanced, from
time to time and subject to certain conditions, to pay for capital improvements,
tenant improvements and leasing commissions associated with the Projects and
distributions to Shareholders of the Company. The capital escrow account held by
the lender does not constitute additional collateral for the mortgage loans. At
December 31, 1995 and September 30, 1996, the principal balance of the loans
totaled $8,931,000 and $81,482,000, respectively, and the capital and real
estate tax escrow accounts totaled $1,155,000 and $905,000, respectively.
At December 31, 1994, the mortgage note payable totaled $6,899,000, was
non-recourse and was secured by first mortgages on the Specified Projects. The
mortgage loan was scheduled to mature on January 31, 1999 upon which date the
full outstanding principal balance would have been due. Minimum interest was
payable monthly at a floating rate equal to 4.25% per annum in excess of the
composite rate on the lender's United States commercial paper, adjusted monthly.
At December 31, 1994, the rate of minimum interest was set at 9.59%. During the
year ended December 31, 1994, the weighted average interest rate of minimum
interest and
F-26
<PAGE> 195
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Additional Interest on the loan was 10.8% exclusive of the payment, discussed
below, of $1,114,000 made from escrowed cash to the mortgage lender on December
28, 1994.
The Company was also required to escrow cash reserves as additional
security for the repayment of the mortgage loan in non-interest bearing accounts
held by the lender. The lender held $125,000 as a deposit, escrowed real estate
tax payments with respect to the Specified Projects and escrowed cash reserves
to pay for capital improvements, tenant improvements and leasing commissions
associated with the Specified Projects. At December 31, 1994, total escrow cash
reserves held by the lender amounted to $1,114,000. In connection with the
refinancing, discussed above, these cash reserves were released to the Company.
During 1994, in connection with the sales of Academy Downs and Iron Run,
the Company repaid $3,101,000 of the mortgage loan balance as required under the
loan documents, representing 115% of the allocable share of the original loan
balance attributable to Academy Downs and Iron Run.
Further, the lender was entitled to receive as additional interest
("Additional Interest") (i) a 25% participation in the net cash flow of the
Specified Projects (other than the Lincoln Centre property) (the "Additional
Interest Projects") to be paid monthly; (ii) a 25% participation in the net
proceeds of any sale of an Additional Interest Project in excess of the
allocable basis of the Additional Interest Project; (iii) a 25% participation in
any proceeds of a refinancing relating to an Additional Interest Project in
excess of the allocable basis of the Additional Interest Project; and (iv) a 25%
participation at maturity, in the balance of the escrow account described above
in excess of $2,040,000 less funds deposited into the escrow account by
Brandywine pursuant to any sale or refinancing of an Additional Interest
Project. The sale and refinancing participations described in (ii) and (iii)
above were subject to a $1 million aggregate minimum payment. During 1994 in
connection with sales of Academy Downs and Iron Run, the Company paid the
mortgage lender $802,000, representing Additional Interest which Additional
Interest was applied against the $1 million aggregate minimum payment amount. On
December 28, 1994, the Company paid the mortgage lender $1,114,000 from escrowed
cash reserves. In return for receiving this payment, the mortgage lender agreed
to waive any future rights to receive Additional Interest from the Specified
Projects and to open the mortgages to prepayment without penalty or premium. As
a result of the lender receiving prepayment of Additional Interest, the option
agreement granted to the lender, described below, was terminated. Further, the
lender agreed to extend the commitment date on the Company's $26 million secured
credit facility, described below, and to reduce that facility's pay rate by 125
basis points.
On January 31, 1994, the Company granted the mortgage lender an option,
exercisable for the greater of 375,000 Common Shares or 15% of the outstanding
shares, which amount was subject to reduction to the extent of certain
Additional Interest paid to the lender in connection with a sale or refinancing
of a Specified Project. As a result of the sales of Academy Downs and Iron Run
and the related payments of principal and Additional Interest to the lender, the
number of Shares underlying the option was reduced from 375,000 to 274,000. The
option, priced at $1.875 per Share, was exercisable only upon the new lender's
release of its right to receive Additional Interest, from and after the date of
such exercise. As a result of the mortgage lender receiving $1,114,000 as
prepayment of Additional Interest on December 28, 1994, this option was
terminated.
During 1994, the Company obtained a $26 million commitment from the
mortgage lender to provide nonrecourse financing for the acquisition of
additional real estate properties. At December 31, 1994, no amounts were
borrowed against the commitment. At December 31, 1995, such commitment had been
terminated and $100,000 of associated deferred costs have been expensed.
During the years ended December 31, 1994 and 1995, mortgage interest paid
totaled $3,056,000 and $784,000 respectively. On a pro forma consolidated basis
(unaudited), mortgage interest paid for the year ended December 31, 1993 totaled
$2,230,000.
At December 31, 1995, the Company's mortgage loans totaled $8.9 million and
were cross collateralized by the Company's Properties. The mortgage loans were
obtained through a refinancing on April 21, 1995.
F-27
<PAGE> 196
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Such loans are due on April 15, 2001 and provide for a fixed rate of interest
which, as of December 31, 1995 and September 30, 1996, was set at 8.75% and
9.00%, respectively. As of September 30, 1996, such mortgage loans total $8.9
million.
In connection with the Company's acquisition of the LibertyView Building on
July 19, 1996, the Company obtained two mortgage loans which at September 30,
1996 aggregate $9.4 million. Of these mortgage loans, $8.4 million bears
interest at a fixed rate of 8% per annum and matures on January 1, 1999. The
second mortgage loan totaling $1.0 million was provided by the seller with no
interest payable and principal payments due between July 1997 and December 1997.
The Company recorded a $104,000 adjustment to the purchase price to reflect the
fair value of the note payable to the seller. Both mortgage loans are secured by
the LibertyView Building.
In connection with the SSI/TNC Transaction, the Company acquired 19
properties encumbered by mortgage debt totaling $63.6 million. As of September
30, 1996, such mortgage loans aggregate $63.3 million and are due between July
1997 and June 2004. The mortgage notes are collateralized by the SSI/TNC
Properties and the assignment of rents and generally require monthly principal
and interest payments. Of these mortgage notes payable, mortgage notes
aggregating $30.5 million at September 30, 1996, bear fixed annual interest
ranging from 7% to 9.25%. One mortgage note payable encumbering one of the
SSI/TNC Properties totals $1.6 million at September 30, 1996 and bears interest
at a variable rate of interest based upon prime plus 1%. Further one mortgage
note payable encumbering certain of the SSI/TNC Properties totals $31.2 million
and bears interest at a variable rate of interest based upon the lender's
commercial paper rate plus 2.75%. Interest payments are due monthly through
maturity, November 30, 2000, and minimum monthly principal payments are equal to
1/12 of 0.5% of the principal balance outstanding on the first day of each loan
year beginning December 1, 1996. Additional principal payments are due monthly
based on 100% of net cash flow from the Properties, as defined, including, among
other items, the deduction of $354,000 as a preference to the Company. No
principal payments were made from these participating interest in cash flows
during the nine months ended September 30, 1996. The loans are
cross-collateralized and cross-defaulted. The loan is further secured by a $1.5
million letter of credit provided by SSI, which security is scheduled to expire
in November 1996. The loans are subject to certain prepayment penalties, as
defined. As additional consideration, the lender may receive additional
contingent interest, as defined, at scheduled maturity or upon early loan
repayment. The percentage used to compute the additional contingent interest may
vary based upon the level of any additional drawdowns under the loan and was 25%
at September 30, 1996. No additional contingent interest was paid during the
nine months ended September 30, 1996.
Guarantees by SSI, TNC and certain other Class A Unit holders against
certain mortgage debt totaled $10,527,000 as of September 30, 1996. Further, at
September 30, 1996, two mortgage notes totaling $13,426,000 and $3,218,000, are
entitled to receive additional interest in the form of 50% and 80%,
respectively, of the cash flows, as defined. During the nine months ended
September 30, 1996, no additional interest expense was incurred.
The weighted average interest rate on the Company's mortgage loans for the
nine months ended September 30, 1996 and September 30, 1995, was 8.2% and 9.4%
respectively.
8. ISSUANCE OF STOCK AND WARRANTS AND NOTE PAYABLE TO SHAREHOLDER:
On June 21, 1996, an entity (the "RMO Fund") controlled by Richard M.
Osborne, a shareholder and Trustee of the Company, made an investment in the
Company in the aggregate amount of $1,330,000 (the "Aggregate Investment"). The
Company issued 19,983 Paired Units (each consisting of one Common Share and one
six-year warrant to purchase an additional Common Share at an exercise price of
$19.50 per share) in exchange for $338,000 of the Aggregate Investment. Of the
$338,000 total equity investment, the stock warrants totaled $42,000 and were
recorded based on a $2.10 per warrant value (based on a modified Black Scholes
calculation). Of the Aggregate Investment, the balance of $992,000 was made in
the form of a loan
F-28
<PAGE> 197
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(the "Loan") that will be subject to prepayment, under certain circumstances,
through the issuance by the Company of additional Paired Units. Proceeds of the
investment were used by the Company in its acquisition of the LibertyView
Building on July 19, 1996. (See Note 5.)
The Loan is unsecured and under its terms, the principal sum outstanding
from time to time will bear interest at an annual rate equal to the prime rate
of interest, and interest will be payable quarterly in arrears, provided that
the Company will have the right to have such accrued interest added to the
principal balance of the Loan. Principal and accrued interest will be payable in
full on the third anniversary of the date of the Loan. Under certain
circumstances, the Company will be required to repay principal plus accrued
interest on the Loan by delivering to the RMO Fund additional Paired Units at
$16.89 per unit. In connection with the SSI/TNC Transaction, the Company was
required to pay down principal on the Loan totaling $239,000 through the
issuance of 14,135 units (each consisting of one Common Share and one warrant
exercisable for six years for an additional Common Share at an initial exercise
price of $19.50). Of the $239,000 equity issuance, the stock warrants totaled
$73,000 and were recorded based on $5.19 per warrant value (based on a modified
Black Scholes calculation). As of September 30, 1996, the remaining Loan totaled
$774,000, including accrued interest of $20,000.
In connection with the SSI/TNC Transaction, SSI advanced to the Operating
Partnership $400,000 to pay for a portion of the expenses incurred by the
Operating Partnership in connection with the SSI/TNC Transaction. As of
September 30, 1996, $400,000 was outstanding on such loan. Further in connection
with the SSI/TNC Transaction, SSI committed to loan the Operating Partnership
$700,000 to fund working capital requirements of the Operating Partnership,
subject to certain limitations. SSI's commitment will remain in effect until the
earlier of: (1) January 31, 1998; (ii) a qualified offering by the Company;
(iii) a refinancing by the Operating Partnership of indebtedness secured by one
or more of the SSI/TNC Properties which results in net proceeds sufficient to
repay amounts loaned to the Operating Partnership by SSI; or (iv) a liquidation
of the Operating Partnership. As of September 30, 1996, no amount was
outstanding on such loan. Each of the above loans bear interest at prime with
payments of interest only due quarterly. Further, the loans mature on the
earliest to occur of (i) the completion of a secondary stock offering by the
Company; (ii) a refinancing by the Operating Partnership of indebtedness secured
by one or more of the SSI/TNC Properties which results in net proceeds
sufficient to repay amounts loaned to the Operating Partnership by SSI; or (iii)
a liquidation of the Operating Partnership; (iv) July 31, 1999, if the Operating
Partnership has sufficient funds for repayment; or (v) December 31, 2001.
Certain tenant improvements and leasing costs associated with one of the
SSI/TNC Properties have been financed by a loan from SSI which is secured by a
second mortgage on the property. The loan provides for an aggregate balance of
$460,000 of which $364,000 was outstanding as of September 30, 1996. The loan
requires interest payable monthly at the prime rate and matures on the earlier
of: (i) the completion of a secondary stock offering by the Company; (ii) a sale
or refinance of the property providing sufficient funds to satisfy all other
priority debts of the property; or (iii) July 31, 1999.
9. MINORITY INTEREST AND BENEFICIARIES' EQUITY:
MINORITY INTEREST
Under the terms of the Brandywine Partnership Agreement, contributions and
distributions and allocations of income (loss) were as follows:
Cash Contributions/Deficit Restoration Obligations
At December 31, 1993 BSPI, through its limited partners, had an
obligation to restore deficits in its capital account upon liquidation of
Brandywine to a maximum of $12,961,000 in accordance with the
F-29
<PAGE> 198
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Brandywine Partnership Agreement. This maximum obligation in the event of
liquidation would have been primarily available for distribution to the
Company.
In connection with the January 1994 refinancing of the Specified
Projects in order to obtain the requisite approvals for the refinancing,
the Company and Brandywine achieved a settlement (the "BSPI Settlement") of
the deficit restoration obligations contingently owed by BSPI to
Brandywine, which settlement was approved by holders of 93% of BSPI's
limited partner units. Under the terms of the BSPI Settlement, effective
January 1, 1994, the Company and Brandywine released BSPI and its limited
partners from any current or future obligation to restore deficit balances
in BSPI's capital account in Brandywine. In exchange, among other things,
the Company's participation in Brandywine's operating cash flow was
increased to 98% and BSPI waived certain voting rights in Brandywine. In
connection with the BSPI Settlement, Brandywine National transferred its
interest in Brandywine to the Company and the Company was designated as
Brandywine's new administrative partner. Further, the Company's 25.83%
interest in BSPI was transferred to a subsidiary of BSPI's general partner
and retired.
During the first quarter of 1994, in order to provide the cash
necessary to complete the January 1994 refinancing of the Specified
Projects, the Company contributed cash of $2,466,000 to Brandywine. This
contribution increased the Company's Unrecovered Capital, originally
defined in accordance with the Brandywine Partnership Agreement as an
amount equal to $18,562,000 to $21,028,000. Such Unrecovered Capital
represents the amount due to the Company as a first preference upon capital
events related to the Specified Projects. At December 31, 1994 and 1995,
the Company's Unrecovered Capital totaled $18,467,000 and $17,817,000,
respectively, in accordance with the Brandywine Partnership Agreement.
Cash Distributions
Effective January 1, 1994, distributions of cash flow from operations
are due first to the Company and BSPI, for reimbursement of administrative
expenses; and second to the Company, 98% of remaining cash flow; and to
BSPI, 2% of remaining cash flow. Distributions from capital events are due
first to the Company, up to its Unrecovered Capital as defined in the
Brandywine Partnership Agreement.
Brandywine made cash distributions in 1993, first to the Company, in
an amount equal to the Company's administrative expenses, and second to
BSPI, in an amount equal to BSPI's administrative expenses. During 1993 no
other cash distributions were made.
Allocation of Net Income (Losses) from Operations
During 1994 and 1995, for financial reporting purposes, income is
first allocated to the Company and BSPI in an amount equal to cash
distributions made to each partner. Thereafter, net losses are allocated to
BSPI to the extent of its positive capital account balance and its share of
Brandywine's "minimum gain" (as defined in the applicable United States
Treasury Department regulations). Remaining net income and net losses are
allocated to the Company.
During 1993, in accordance with the Brandywine Partnership Agreement,
net income (losses) from operations were allocated as follows:
- First, income to the Company and BSPI in an amount equal to cash
distributions made to such partner;
- Second, losses to Brandywine National in an amount equal to 1% of
Brandywine's gross rental income;
- Third, Net losses to BSPI to the extent of its positive capital
account balance, capital account deficit restoration obligation, and
its share of Brandywine's "minimum gain" (as defined in the applicable
United States Treasury Department regulations).
F-30
<PAGE> 199
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH DISTRIBUTIONS
For the years ended December 31, 1994 and 1995, the Company declared
distributions totaling $4.71 and $1.65 per share, respectively. The Company
determined that 100% of 1995 distributions or $1.65 per share represented a
return of capital to the recipient. Further, the Company determined that 45% of
1994 distributions or $2.10 per share paid in 1995 represented a return of
capital while the remaining 55% of 1994 distributions or $2.61 per share paid in
1994 represented ordinary income to the recipient.
No distributions were declared by the Company during 1993.
For the nine months ended September 30, 1996, the Company declared
distributions totaling $0.36 per share. On November 1, 1996, the Company
declared a distribution of $0.21 per share payable on November 22, 1996 to
shareholders of record as of November 11, 1996.
10. STOCK OPTIONS:
In 1994, the Board of Trustees adopted a stock option compensatory plan
benefiting an executive officer of the Company covering 46,667 Common Shares.
The plan includes options to purchase 33,333 shares at an exercise price of
$19.50 per share. Of the remaining 13,333 shares subject to options, options
covering 6,667 shares vested on August 8, 1995 and options covering 6,667 shares
vest on August 8, 1996. The exercise price of the 13,333 options was set at
$11.40. The per share exercise price of the options covering all 46,667 shares
is subject to reduction as proceeds from the sale of, or refinancing of debt
secured by, any Specified Projects are distributed by the Company to
shareholders by an amount equal to the amount so distributed, from time to time,
on account of each share. Accordingly, the per share exercise prices of the
options have been reduced to $14.31 and $6.21, respectively, as a result of
distributions to shareholders from proceeds of the Academy Downs and Iron Run
sales and the April 21, 1995 mortgage refinancing.
During the nine months ended September 30, 1996, the Company issued
six-year warrants to the RMO Fund exercisable for an aggregate of 34,118 Common
Shares (see Note 8).
In connection with the SSI/TNC Transaction, the Company issued a six-year
warrant to SSI exercisable for an aggregate of 258,333 Common Shares at a per
share exercisable price of $19.50. Further, in connection with the employment
agreements entered into upon the SSI/TNC Transaction, six-year warrants were
granted to four executive officers exercisable for an aggregate of 220,000
Common Shares at a per share exercise price of $19.50 and additional six-year
warrants for an aggregate of 23,333 Common Shares at a per share exercise price
of $19.50 were granted to employees of the Company's affiliated management
company (see Note 5).
During 1994 and 1995 and the nine months ended September 30, 1996, there
were no options exercised, canceled or expired.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", which establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The statement encourages all entities to adopt a new method
of accounting to measure compensation cost of all employee stock compensation
plans based on the estimated fair value of the award at the date it is granted.
Companies are, however, allowed to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting, which only
requires footnote disclosures concerning this new accounting pronouncement.
Management of the Company has adopted the pro forma method of disclosure as
described above.
11. INCOME FROM ACQUISITION OF LIMITED PARTNER INTERESTS IN BSPI:
During 1993, the Company obtained settlements with two limited partners of
BSPI prior to the occurrence of any event that would have required the settling
limited partners to restore their negative capital
F-31
<PAGE> 200
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accounts in BSPI. In the settlements, the Company received $2,469,000 in cash
and the settling limited partners' 25.83% limited partner interests in BSPI. As
the successor to the settling limited partners, the Company assumed all rights
and obligations of the settling limited partners to BSPI, including the settling
limited partners' deficit restoration obligations totaling approximately
$3,086,000. The Company also received from BSPI the right to setoff any future
claims (direct or indirect) between the Company and BSPI, including the
Company's deficit restoration obligations. The amount of cash received in
conjunction with these settlements has been recorded as income in the
accompanying financial statements due to the Company having received the right
of setoff.
Effective January 1, 1994, the Company and Brandywine released BSPI and its
limited partners from any current or future obligation to restore deficit
balances in BSPI's capital account in Brandywine and the Company's 25.83%
interest in BSPI was transferred to a subsidiary of BSPI's general partner and
retired.
12. RELATED-PARTY TRANSACTIONS:
Through January 31, 1994, upon the sale of a Specified Project, certain
related parties were entitled to a commission equal to 1.5% of the sales price
of the Specified Project. During 1994 an amount of $167,000 was paid from a
prior sale.
Effective February 1, 1995, the Company assumed management of three of the
four Specified Projects and entered into a management agreement with an
unrelated party for the management of the fourth Specified Project. During the
years 1993 and 1994 and the period January 1, 1995 through January 31, 1995, all
of the Specified Projects, except Academy Downs, were managed by related
parties. For their services, these property managers received an amount equal to
5% of rental income (excluding tenant reimbursements), which amount totaled
$219,000, $187,000 and $10,000 in 1993, 1994 and 1995, respectively, and is
included in management fees in the accompanying statements of operations. During
1993, the property managers also received reimbursements of certain direct costs
attributable to the operation of the Specified Projects. Such reimbursements
amounted to $154,000. Further, for the period February 1, 1994 through January
31, 1995, for the Specified Projects operated under a management agreement with
related parties, one affiliate absorbed an amount equal to 2% of gross rents
representing administrative costs, which costs would otherwise be borne by the
Company. In 1994 and 1995, these amounts totaled $70,000 and $4,000,
respectively. For the years 1993 and 1994 and through the period January 1, 1995
through January 31, 1995, certain related parties or employees thereof were paid
leasing commissions with respect to leases obtained through them. Leasing
commissions paid to such related parties in 1993, 1994 and 1995 amounted to
$28,000, $56,000, and $47,000, respectively. Further, for the period February 1,
1994 through January 31, 1995, one affiliate absorbed an amount equal to 40% of
the defined commission structure representing administrative costs, which costs
would otherwise be borne by the Company. In 1994 and 1995, these amounts totaled
$22,000 and $19,000, respectively.
During 1993 and 1994 certain administrative and management functions for
the Company were performed by a related party. During 1993 and continuing
through August 8, 1994, the Company reimbursed the related party up to $100,000
per year for certain administrative expenses directly attributable to the
Company. Such reimbursements amounted to $100,000 in 1993 and $75,000 in 1994.
13. OPERATING LEASES:
The Company leases its properties to tenants under operating leases with
various expiration dates extending to the year 2006. At December 31, 1995,
leases covering 95,000 square feet or approximately 37% of the net leasable
space were scheduled to expire during 1996. Subsequent to year end, three leases
were
F-32
<PAGE> 201
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
renewed which total 30,000 square feet or 12% of the net leasable space. Gross
minimum future rentals on noncancelable leases at December 31, 1995 were:
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------- ----------
<S> <C>
1996................................................ $3,223,000
1997................................................ 2,400,000
1998................................................ 1,660,000
1999................................................ 1,522,000
2000................................................ 1,371,000
2001 and thereafter................................. 4,231,000
</TABLE>
The total minimum future rentals presented above do not include amounts
that may be received as tenant reimbursements for charges to cover increases in
certain operating costs. Excluding projects sold in each year, these tenant
reimbursements amounted to $148,000, $47,000 and $66,000 in 1993, 1994, and
1995, respectively.
14. SUBSEQUENT EVENTS (UNAUDITED):
The Company has filed a Form S-11 Registration Statement with the
Securities and Exchange Commission to register the offer and sale of Common
Shares (the "Offering"). The Company anticipates contributing the net proceeds
to the Operating Partnership, to repay debt and provide funds for acquisitions
and retain any excess for working capital needs. Costs associated with the
proposed Offering are included in deferred costs and other liabilities on the
Company's balance sheet as of September 30, 1996.
Subsequent to September 30, 1996, the Company entered into agreements to
purchase 13 properties "Acquisition Properties" which contain an aggregate of
approximately 700,000 net rentable square feet located in the suburban
Philadelphia markets. Nine of the properties will be acquired from an unrelated
party for an aggregate purchase price of $30.5 million, consisting of: (i)
1,606,060 Series A preferred shares of beneficial interest, par value $.01 per
share, of the Company ("Preferred Shares") that are convertible into Common
Shares, or a one-for-one basis, under certain circumstances; (ii) two-year
warrants to purchase 133,333 Common Shares at an exercise price of $25.50 per
share; and (iii) deferred payments aggregating $3.8 million. The purchase prices
for the other four properties aggregates $22.8 million and will be paid in cash
to unrelated parties. In connection with the Company's pursuit of these
acquisitions, as of September 30, 1996, the Company had deposited $190,000 with
the parties. Such deposits are included in prepaid and other assets on the
Company's balance sheet as of September 30, 1996.
F-33
<PAGE> 202
BRANDYWINE REALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. SUMMARY OF INTERIM RESULTS (UNAUDITED):
The following is a summary of unaudited interim financial information for
the Company for the years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1994
- -----
Operating revenue..................... $1,279 $ 1,092 $1,026 $ 795
Provision for loss on real estate
investments......................... $5,400(a) -- -- --
Gain on sales of real estate
investments......................... --(b) -- $1,116(d) $ 294(f)
Extraordinary gain on extinguishment
of debt............................. $7,998(c) -- -- --
Net income (loss)..................... $7,998(c) $ (188) $ 839(d) $(1,082)(e)(f)
Net income (loss) per share........... $11.85(c) $ (0.27) $ 1.23(d) $1.59(e)(f)
1995
- -----
Operating revenue..................... $ 927 $ 879 $ 885 $ 975
Net loss.............................. $ (70) $ (370)(g) $ (152) $ (232)(h)
Net loss per share.................... $(0.04) $ (0.20)(g) $(0.08) $ (0.12)(h)
</TABLE>
- ---------------
(a) During the first quarter of 1994, the Company recorded a write-down of
$5,400,000 to adjust the carrying value of the Specified Projects to
estimated net realizable value (see Note 3).
(b) During the first quarter of 1994, the Company sold the Lincoln Centre
project for a net sales price equal to its adjusted carrying value (see Note
4).
(c) During the first quarter of 1994, the Company extinguished mortgage
indebtedness totaling approximately $43 million resulting, after costs and
allocation to Minority Interest, in extraordinary gain to the Company of
$7,998,000 or $11.85 per share (see Note 3). Such extraordinary gain is
included in the Company's net income for the first quarter of 1994.
(d) During the third quarter of 1994, the Company sold the Academy Downs project
resulting in a net gain of $1,116,000 or $1.65 per share (see Note 4). Such
gain is included in the Company's net income for the third quarter of 1994.
(e) During the fourth quarter of 1994, the Company paid its then mortgage lender
$1,114,000 or $1.65 per share, which amount represented the prepayment of
Additional Interest and is included in the Company's net loss for the fourth
quarter of 1994 (see Note 5).
(f) During the fourth quarter of 1994, the Company sold the Iron Run project
resulting in a net gain of $294,000 or $0.45 per share (see Note 4). Such
gain is included in the Company's net loss for the fourth quarter of 1994.
(g) During the second quarter of 1995, the Company's net loss includes the
write-off of deferred loan fees totaling $254,000 or $0.42 per share as a
result of the Company's April 21, 1995 refinancing (see Note 5).
(h) During the fourth quarter of 1995, the Company's net loss includes the
write-off of deferred costs totaling $100,000 or $0.15 per share as a result
of the termination of the Company's $26 million commitment (see Note 5).
16. REVERSE SHARE SPLIT:
Immediately prior to this Offering, the Company effected a one- for -three
reverse share split of its Common Shares. All share and per share amounts have
been retroactively restated for all years presented.
F-34
<PAGE> 203
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners and Owners of the SSI/TNC Properties:
We have audited the accompanying combined balance sheets of the SSI/TNC
Properties, a nonlegal entity more fully described in Note 1, as of December 31,
1994 and 1995, and the related combined statements of operations, owners'
deficit, and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the SSI/TNC
Properties' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the SSI/TNC
Properties as of December 31, 1994 and 1995 and the combined results of their
operations and their combined cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA,
April 12, 1996
F-35
<PAGE> 204
SSI/TNC PROPERTIES
COMBINED BALANCE SHEETS (NOTE 1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31
---------------------
1994 1995
-------- -------- AS OF
JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate investments (Note 2) --
Operating properties, at cost...................... $ 75,577 $ 78,190 $ 79,563
Less- Accumulated depreciation..................... (17,858) (21,669) (23,571)
------- ------- -------
57,719 56,521 55,992
Cash (Note 2)......................................... 438 773 655
Escrowed cash (Note 2)................................ 504 519 513
Accounts receivable................................... 386 253 651
Accrued rental income (Notes 2 and 6)................. 1,313 902 785
Deferred costs, net (Note 2).......................... 1,526 1,884 2,145
Prepaid expenses and other assets..................... 393 400 140
------- ------- -------
$ 62,279 $ 61,252 $ 60,881
======= ======= =======
LIABILITIES AND OWNERS' DEFICIT
Mortgage notes payable (Note 3)....................... $ 70,515 $ 63,259 $ 63,322
Note payable (Note 7)................................. -- -- 364
Accrued interest payable.............................. 1,124 599 444
Tenant security deposits and other liabilities (Note
2)................................................. 729 947 1,320
------- ------- -------
72,368 64,805 65,450
COMMITMENTS AND CONTINGENCIES (Note 6)
OWNERS' DEFICIT......................................... (10,089) (3,553) (4,569)
------- ------- -------
$ 62,279 $ 61,252 $ 60,881
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE> 205
SSI/TNC PROPERTIES
COMBINED STATEMENTS OF OPERATIONS (NOTE 1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
SIX-MONTH
FOR THE YEAR ENDED PERIOD ENDED
DECEMBER 31 JUNE 30
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE (Note 4):
Base rents (Notes 2 and 6)................... $ 7,955 $ 8,050 $ 7,829 $ 3,960 $ 3,888
Tenant reimbursements........................ 2,754 3,130 2,895 1,381 1,870
Management operations (Note 2)............... 976 946 617 319 277
Other income................................. 2 46 3 -- 100
------- ------- ------- ------- -------
Total revenue........................ 11,687 12,172 11,344 5,660 6,135
------- ------- ------- ------- -------
OPERATING EXPENSES:
Interest (Note 3)............................ 5,807 5,915 5,855 3,051 2,581
Depreciation and amortization (Note 2)....... 3,568 3,618 4,336 1,923 2,103
Real estate taxes............................ 1,107 1,076 968 497 511
Building operating costs..................... 2,073 2,719 2,456 1,121 1,790
Selling, general and administrative (Note
5)........................................ 1,328 1,220 906 478 456
Provision for loss on real estate investments
(Note 2).................................. -- -- 202 -- --
------- ------- ------- ------- -------
Total operating expenses............. 13,883 14,548 14,723 7,070 7,441
------- ------- ------- ------- -------
LOSS BEFORE EXTRAORDINARY ITEMS................ (2,196) (2,376) (3,379) (1,410) (1,306)
EXTRAORDINARY ITEMS -- GAIN ON RESTRUCTURING OF
DEBT (Note 3)................................ -- 614 5,559 -- --
------- ------- ------- ------- -------
NET INCOME (LOSS).............................. $(2,196) $(1,762) $ 2,180 $(1,410) $(1,306)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE> 206
SSI/TNC PROPERTIES
COMBINED STATEMENTS OF OWNERS' DEFICIT (NOTE 1)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995,
AND THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE AT JANUARY 1, 1993....................................................... $(6,181)
Contributions.................................................................. 752
Net loss....................................................................... (2,196)
-------
BALANCE AT DECEMBER 31, 1993..................................................... (7,625)
Contributions.................................................................. 64
Distributions.................................................................. (766)
Net loss....................................................................... (1,762)
-------
BALANCE AT DECEMBER 31, 1994..................................................... (10,089)
Contributions.................................................................. 4,356
Net income..................................................................... 2,180
-------
BALANCE AT DECEMBER 31, 1995..................................................... (3,553)
Contributions (Unaudited)...................................................... 323
Distributions (Unaudited)...................................................... (33)
Net loss (Unaudited)........................................................... (1,306)
-------
BALANCE AT JUNE 30, 1996 (Unaudited)............................................. $(4,569)
=======
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE> 207
SSI/TNC PROPERTIES
COMBINED STATEMENTS OF CASH FLOWS (NOTE 1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX-MONTH
FOR THE YEAR ENDED PERIOD ENDED JUNE
DECEMBER 31 30
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $(2,196) $(1,762) $ 2,180 $(1,410) $(1,306)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities --
Extraordinary gain on extinguishment of
debt................................. -- (614) (5,559) -- --
Depreciation and amortization.......... 3,568 3,618 4,336 1,923 2,103
Provision for loss on real estate
investments.......................... -- -- 202 -- --
Changes in assets and
liabilities(Increase) decrease in --
Accounts receivable.................. (248) (14) 133 (64) (397)
Accrued rental income................ (72) 458 411 230 117
Prepaid expenses and other assets.... (52) 427 (7) 273 260
Increase (decrease) in --
Accrued interest payable............. 422 253 (525) 179 (155)
Tenant security deposits and other
liabilities.......................... 22 (204) 218 112 373
------- ------- ------- ------- -------
Net cash provided by operating
activities...................... 1,444 2,162 1,389 1,243 995
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and leasing
commissions paid....................... (908) (1,802) (2,774) (375) (1,783)
(Increase) decrease in escrowed cash...... (575) 87 (15) 82 6
------- ------- ------- ------- -------
Net cash used in investing
activities........................... (1,483) (1,715) (2,789) (293) (1,777)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions............................. $ 752 $ 64 $ 4,356 $ 287 $ 323
Distributions............................. -- (766) -- -- (33)
Repayments on mortgage notes payable...... (1,038) (874) (1,899) (531) (279)
Borrowings on mortgage notes payable...... 414 1,200 -- -- 342
Proceeds from note payable................ -- -- -- -- 364
Costs associated with financing........... 17 (160) (722) (33) (53)
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities............ 145 (536) 1,735 (277) 664
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH............. 106 (89) 335 673 (118)
CASH, BEGINNING OF PERIOD................... 421 527 438 438 773
------- ------- ------- ------- -------
CASH, END OF PERIOD......................... $ 527 $ 438 $ 773 $ 1,111 $ 655
------- ------- ------- ------- -------
SUPPLEMENTAL DISCLOSURE:
Interest paid............................. $ 5,411 $ 5,763 $ 6,254 $ 2,744 $ 2,736
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE> 208
SSI/TNC PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND BASIS OF COMBINATION:
The accompanying combined financial statements consist of the accounts of
the following properties and business operations:
The Property Management, Leasing, and Development
Operations of The Nichols Realty Services Company (the "Company")
The Nichols Company ("Nichols") Properties:
<TABLE>
<CAPTION>
PROPERTY SQUARE FOOTAGE
--------------------------------------------------------------- --------------
<S> <C>
456 Creamery Way, Exton, PA.................................... 47,600*
468 Creamery Way, Exton, PA.................................... 28,900
486 Thomas Jones Way, Exton, PA................................ 51,500
7248 Tilghman Street, Allentown, PA............................ 42,900
6575 Snowdrift Road, Allentown, PA............................. 46,250
1510 Gehman Road, Lansdale, PA................................. 152,600*
16 Campus Blvd., Newtown Square, PA............................ 67,700*
18 Campus Blvd., Newtown Square, PA............................ 37,700*
One Progress Avenue, Horsham, PA............................... 79,200*
1155 Business Center Drive, Horsham, PA........................ 51,400*
500 Enterprise Avenue, Horsham, PA............................. 67,800*
168 Franklin Corner Road, Lawrenceville, NJ.................... 32,000*
</TABLE>
- ---------------
* Included in the "Witmer Partnership".
Safeguard Scientifics, Inc. ("Safeguard") Properties:
<TABLE>
<CAPTION>
PROPERTY SQUARE FOOTAGE
--------------------------------------------------------------- --------------
<S> <C>
650 Dresher Road, Horsham, PA.................................. 30,100
7310 Tilghman Street, Allentown, PA............................ 40,000
2240-50 Butler Pike, Plymouth Meeting, PA...................... 52,200
2260 Butler Pike, Plymouth Meeting, PA......................... 31,900
120 Germantown Pike, Plymouth Meeting, PA...................... 30,500
140 Germantown Pike, Plymouth Meeting, PA...................... 25,900
110 Summit Drive, Exton, PA.................................... 43,700
</TABLE>
The SSI/TNC Properties listed above have common management and were
developed by an affiliated ownership group referred to collectively as "Nichols
Safeguard." Nichols Safeguard is engaged in the development and ownership of
commercial and industrial real estate in the Philadelphia/Delaware Valley Area
and provides management, leasing, and development services on a contractual
basis to the above properties and third parties.
The SSI/TNC Properties are intended to be acquired in a transaction with
Brandywine Realty Trust (the "Trust"), which intends to remain qualified as a
real estate investment trust under the Internal Revenue Code. These financial
statements have been prepared on a combined basis to present the financial
position and results of operations of the 19 properties and the related
management business of Nichols Safeguard as if the operations were managed as a
single predecessor business under common control. Accordingly, all inter-entity
accounts have been eliminated to reflect the combined results.
F-40
<PAGE> 209
SSI/TNC PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
The combined financial statements as of June 30, 1996, and for the six
months ended June 30, 1995 and 1996, are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the combined financial statements for the
interim periods have been included. The results for the interim periods are not
necessarily indicative of the results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Real Estate Investments
A summary of real estate investments, less accumulated depreciation and
amortization at December 31, 1994 and 1995, and June 30, 1996, follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- --------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Land......................................... $ 8,975 $ 9,275 $ 9,275
Buildings.................................... 52,263 53,761 53,821
Tenant improvements.......................... 14,299 15,107 16,420
Furniture, fixtures and equipment............ 40 47 47
-------- -------- --------
75,577 78,190 79,563
Accumulated depreciation..................... (17,858) (21,669) (23,571)
-------- -------- --------
$ 57,719 $ 56,521 $ 55,992
======== ======== ========
</TABLE>
Costs associated with the acquisition, development and construction of
these properties are capitalized. Properties are carried at the lower of
depreciated cost or net realizable value. For financial reporting purposes,
depreciation is computed on a straight-line basis over the estimated useful
lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings 31.5 years
Tenant improvements 5 to 10 years, which reflect the expected terms of the lease
Furniture, fixtures and
equipment 3 to 5 years
</TABLE>
Management reviews the net realizable value of the properties periodically
to determine whether an allowance for possible losses is necessary. The carrying
value of the properties is evaluated on an individual basis, and to the extent
management's estimate of the net realizable value of each investment is less
than its carrying value, a provision for loss on real estate investments is
recorded. During 1995, a $202,000 provision for loss on real estate investments
was recorded.
For federal income tax purposes, the Company utilizes straight-line and
accelerated methods of depreciation. As a result, accumulated depreciation for
tax purposes differs from accumulated depreciation for financial statement
purposes by approximately $1,072,000 and $(408,000) at December 31, 1994 and
1995, respectively.
F-41
<PAGE> 210
SSI/TNC PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of." This statement requires that long-lived
assets to be held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, management
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss should be recognized. Measurement of an impairment
loss for these assets should be based on the fair market value of the asset. On
January 1, 1996, the Company adopted this statement. The effect of adopting this
statement was not material to the SSI/TNC Properties' financial position or
results of operations.
Escrowed Cash
In accordance with the mortgage agreements of several properties, the
owners were required to place funds on deposit in interest-bearing accounts to
secure the payments of real estate taxes, debt service and other anticipated
capital expenditures.
Deferred Costs
Fees and costs associated with lease origination and costs incurred to
obtain long-term financing have been capitalized and are being amortized on a
straight-line basis, which approximates the interest method, over the terms of
the respective leases or debt. At December 31, 1994 and 1995, and June 30, 1996,
deferred costs include the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- --------
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Deferred financing costs......................... $ 349 $1,009 $1,061
Deferred leasing costs........................... 2,957 2,770 3,190
------ ------ ------
3,306 3,779 4,251
Less -- Accumulated amortization................. 1,780 1,895 2,106
------ ------ ------
$1,526 $1,884 $2,145
====== ====== ======
</TABLE>
Revenue Recognition
Rental income from tenants is recognized on a straight-line basis
regardless of when payments are due. Accrued rental income represents rental
income recognized in excess of payments currently due (see Note 6).
The Company provides management, leasing and development services. Fees for
such services are based on contracted rates, which are consistent with the
general marketplace. Management fees, leasing commissions, and developer fees
are recognized as income in the period earned.
Income Taxes
No federal or state income taxes are payable by Nichols Safeguard, and none
have been provided in the accompanying financial statements. The partners are
required to include their respective shares of partnership profits and losses in
their individual tax returns.
F-42
<PAGE> 211
SSI/TNC PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
Tenant Security Deposits
Cash consists of demand accounts and money market accounts. At December 31,
1994 and 1995, and June 30, 1996, cash includes unrestricted tenant security
deposits of $270,000, $350,000, and $353,000, respectively.
3. MORTGAGE NOTES PAYABLE:
Mortgage notes payable are collateralized by the properties and the
assignment of rents and generally require monthly principal and interest
payments. Mortgage notes payable totaling $31,092,000 at December 31, 1995, bear
fixed annual interest ranging from 7% to 9.25%. Nichols Safeguard also has two
mortgage notes payable totaling $30,523,000 and $1,644,000 at December 31, 1995,
which have variable rates of interest based on the lender's commercial paper
plus 2.75% and prime plus 1%, respectively. At December 31, 1995, these interest
rates were 8.6% and 9.5%, respectively. The weighted average interest rates on
the mortgage notes for the years ended December 31, 1993, 1994 and 1995, were
8.2%, 8.0%, and 8.6% respectively. Weighted average interest rates for the six
months ended June 30, 1995 and 1996, were 8.3% and 8.2%, respectively.
In November 1995, Nichols Safeguard refinanced certain mortgage notes on
the Witmer properties totaling $37,354,000 with proceeds of mortgage loans
totaling up to $32,211,600, including tenant improvement holdbacks of
$1,688,000, plus cash of $4,052,000 contributed by Safeguard. At June 30, 1996,
$342,000 of the tenant improvement holdbacks had been advanced to Nichols
Safeguard and is included in mortgage notes payable. In connection with the
refinancing, Nichols Safeguard acquired the Lawrenceville, New Jersey property
with outstanding debt of $3,200,000 from the lender. As a result of the debt
refinancing, Nichols Safeguard recorded an extraordinary gain of $5,559,000 in
1995.
Commencing January 1, 1996, through maturity, November 30, 2000, Nichols
Safeguard will make monthly principal and interest payments with interest based
on the lender's composite commercial paper plus 2.75% per annum. Minimum monthly
principal payments are equal to 1/12 of .5% of the principal balance outstanding
on the first day of each loan year beginning December 1. Additional principal
payments will be made monthly on the $30,523,000 principal outstanding as of
December 31, 1995, based on 100% of the net cash flow from the properties, as
defined. No principal payments were made from these participating interests in
cash flows during 1995 or the six months ended June 30, 1996. The loans are
cross-collateralized and cross-defaulted. The loan is further secured by a
$1,500,000 letter of credit provided by Safeguard. The loans are subject to
certain prepayment penalties as defined. As additional consideration, the lender
may receive additional contingent interest, as defined, at scheduled maturity or
upon early loan repayment. The percentage used to compute the additional
contingent interest may vary based upon the level of any additional drawdowns
under the loan and was 25% at December 31, 1995. No additional contingent
interest was paid in 1995 or during the six months ended June 30, 1996.
In July 1994, Nichols Safeguard negotiated with a lender to restructure a
mortgage note totaling $4,718,000. The principal amount of the loan was reset at
$4,100,000. Interest was reset from prime plus 1% to prime plus .5% retroactive
to January 1, 1994, and the maturity was extended to March 31, 1996. As a result
of the debt restructuring, Nichols Safeguard recorded an extraordinary gain of
$614,000 during 1994. This mortgage note was included in the November 1995
refinancing.
Mortgage notes are due between December 1996 and June 2004. At December 31,
1995, the carrying value of the mortgage notes payable approximates the fair
value as the debt bears interest at rates that
F-43
<PAGE> 212
SSI/TNC PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
approximate current market rates. The annual maturities of the mortgage notes
payable as of December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
RECOURSE NONRECOURSE TOTAL
-------- ----------- -------
<S> <C> <C> <C>
1996........................................ $ 233 $ 3,222 $ 3,455
1997........................................ 1,746 354 2,100
1998........................................ 8,548 368 8,916
1999........................................ -- 378 378
2000........................................ -- 45,192 45,192
Thereafter.................................. -- 3,218 3,218
------- ------- -------
$ 10,527 $52,732 $63,259
======= ======= =======
</TABLE>
At December 31, 1995, mortgage notes payable of $30,523,000 and $13,548,000
are also collateralized by outstanding letters of credit totaling $1,500,000 and
$500,000 which expire in November 1996 and July 1996, respectively.
Guarantees by the Company and certain other limited partners totaled
$10,527,000. Two mortgage notes totaling $13,548,000 and $3,219,000 at December
31, 1995, are entitled to receive additional interest in the form of 50% and
80%, respectively, of the cash flows, as defined. During 1993, 1994 and 1995,
additional interest expense recorded as a result of cash flow participation by
lenders totaled $0, $201,000 and $61,000, respectively. For the six months ended
June 30, 1995 and 1996, additional interest expense totaled $114,000 and $0,
respectively.
4. RELATED-PARTY TRANSACTIONS:
The Company provides management, leasing and development services for
certain affiliated partnerships. Management and leasing fees earned by the
Company related to these partnerships totaled $359,000, $420,000 and $171,000,
respectively, for the years ended December 31, 1993, 1994 and 1995, and are
included in management operations.
Nichols Safeguard occupied approximately 28,000 square feet of the
properties during 1993, 1994 and 1995. In addition, 4,600 square feet was
occupied by a Nichols Safeguard affiliate during 1994 and part of 1993. Base
rents from these affiliates for the years ended December 31, 1993, 1994 and
1995, were $230,000, $260,000 and $246,000, respectively. Base rents from these
affiliated partnerships for the six months ended June 30, 1995 and 1996, were
$126,000 and $117,000, respectively.
5. EMPLOYEE BENEFIT PLAN:
Employees of the Company participate in a profit sharing plan covering
substantially all employees. Annual contributions are determined at the
discretion of the employer. No contributions were made in 1993, 1994 and 1995,
respectively.
6. OPERATING LEASES:
Nichols Safeguard leases its properties to tenants under operating leases
with various expiration dates extending to the year 2006. During 1996, leases
covering 99,000 square feet or approximately 11% of the net leasable space are
scheduled to expire.
F-44
<PAGE> 213
SSI/TNC PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
Future minimum rentals on non-cancelable tenant leases at December 31,
1995, excluding tenant reimbursements for increases in operating expenses are as
follows (in thousands):
<TABLE>
<CAPTION>
RENTAL DECREASE
PAYMENTS IN ACCRUED MINIMUM
DUE RENTAL INCOME RENTAL INCOME
----------- ------------- -------------
<S> <C> <C> <C>
1996.............................. $ 7,122 $ 163 $ 6,959
1997.............................. 5,209 227 4,982
1998.............................. 4,498 147 4,351
1999.............................. 3,358 138 3,220
2000.............................. 2,262 135 2,127
Thereafter........................ 2,187 92 2,095
------- ---- -------
$24,636 $ 902 $23,734
======= ==== =======
</TABLE>
During 1993, 1994 and 1995, no tenants individually accounted for more than
10% of rental revenue.
7. SUBSEQUENT EVENTS (UNAUDITED):
On August 22, 1996, the Trust consummated its transaction with Nichols and
Safeguard. Upon Closing, the Trust obtained controlling ownership interests of
the SSI/TNC Properties and received $426,250 in cash. In the SSI/TNC
Transaction, the Trust issued 258,333 common shares of beneficial interest
("Common Shares") and a six-year warrant exercisable for an additional 258,333
common shares of beneficial interest at a per share exercise price of $19.50.
The balance of the consideration was in the form of limited partnership units
issued or issuable, and convertible under certain circumstances, up to 540,159
Common Shares, subject to certain potential adjustments.
In July 1996, Nichols Safeguard refinanced $2,894,000 of mortgage notes
that were due in December 1996. The notes were satisfied by the payment of
$2,400,000, which represents the partial proceeds of a new mortgage loan of
$2,500,000 which bears interest at Libor plus 250 basis points and provides for
principal amortization of $4,000 per month during the period September 1, 1997
through July 1, 1998 and a final balance due August 1, 1998. As a result of the
refinancing, Nichols Safeguard recorded an extraordinary gain of $494,000.
Certain tenant improvements and leasing commissions associated with the same
property, in the aggregate amount of $460,000 ($364,000 outstanding as of June
30, 1996) have been financed by a loan from Safeguard and is secured by a second
mortgage on the property. The loan requires interest payable monthly at the
prime rate and matures on the earlier of: (a) the completion of a secondary
stock offering by the Trust (b) a sale or refinance of the property providing
sufficient funds to satisfy all other priority debts of the property or (c) July
31, 1999.
F-45
<PAGE> 214
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brandywine Realty Trust:
We have audited the statement of revenue and certain expenses of the
LibertyView Building described in Note 1 for the year ended December 31, 1995.
This financial statement is the responsibility of the LibertyView Building's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
LibertyView Building's revenue and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses of the LibertyView
Building for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA,
June 14, 1996
F-46
<PAGE> 215
LIBERTYVIEW BUILDING
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
REVENUE:
Base rents (Note 2).............................................. $1,119,000 $605,000
Tenant reimbursements............................................ 535,000 241,000
---------- --------
Total revenue............................................ 1,654,000 846,000
---------- --------
CERTAIN EXPENSES:
Maintenance...................................................... 277,000 104,000
Utilities........................................................ 215,000 114,000
Real estate taxes................................................ 274,000 134,000
Other operating expenses......................................... 32,000 16,000
---------- --------
Total certain expenses................................... 798,000 368,000
---------- --------
REVENUE IN EXCESS OF CERTAIN EXPENSES.............................. $ 856,000 $478,000
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 216
LIBERTYVIEW BUILDING
NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1995
1. BASIS OF PRESENTATION:
The statements of revenue and certain expenses reflect the operations of
the LibertyView Office Building (the "LibertyView Building") located in New
Jersey, which will be acquired by Brandywine Realty Trust (the "Trust") from an
unaffiliated party by July 19, 1996. The LibertyView Building has an aggregate
net leasable area of approximately 121,700 square feet and is 63% leased as of
December 31, 1995.
The accounting records of the LibertyView Building are maintained on a
modified cash basis. Adjusting entries have been made to present the
accompanying financial statements in accordance with generally accepted
accounting principles. The accompanying financial statements exclude certain
expenses such as interest, depreciation and amortization, professional fees, and
other costs not directly related to the future operations of the LibertyView
Building or that may not be comparable to the expenses expected to be incurred
by the Trust.
The combined statements of revenue and certain expense s for the six months
ended June 30, 1996, are unaudited. In the opinion of management, all
adjustments consisting solely of normal recurring adjustments necessary for a
fair presentation of the financial statements for the interim period have been
included. The results for the interim period are not necessarily indicative of
the results for the full year.
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 expense during the reporting
period. Actual results could differ from those estimates.
2. OPERATING LEASES:
Base rents presented for the year ended December 31, 1995, and the
six-month period ended June 30, 1996, include straight-line adjustments for
rental revenue increases in accordance with generally accepted accounting
principles. The aggregate rental revenue increase resulting from the
straight-line adjustments for the year ended December 31, 1995, and the
six-month period ended June 30, 1996, was $127,000 and $12,000, respectively.
Tenants whose minimum rental payments equaled 10% or more of the total base
rents in 1995 were:
<TABLE>
<S> <C>
HIP Health Plan of NJ............................. $462,000
Shapiro and Kreisman.............................. 185,000
</TABLE>
In September 1995, the LibertyView Building entered into a 60-month lease
agreement with Sleepcare, a related party to the seller, of which $18,000 and
$27,000 of base rents for the year ended December 31, 1995, and the six-month
period ended June 30, 1996, respectively, is included in the statements of
revenue and certain expenses.
F-48
<PAGE> 217
LIBERTYVIEW BUILDING
NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES (CONTINUED)
The LibertyView Building is leased to tenants under operating leases with
expiration dates extending to the year 2007. Future minimum rentals under
noncancelable operating leases, excluding tenant reimbursements of operating
expenses as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996..................................................... $1,205,000
1997..................................................... 1,177,000
1998..................................................... 1,118,000
1999..................................................... 1,118,000
2000..................................................... 950,000
Thereafter............................................... 4,440,000
</TABLE>
Certain leases also include provisions requiring tenants to reimburse
management costs and other overhead up to stipulated amounts.
F-49
<PAGE> 218
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brandywine Realty Trust:
We have audited the combined statement of revenue and certain expenses of
the Commonwealth of Pennsylvania State Employes' Retirement System (SERS)
Acquisition Properties (the "SERS Properties") described in Note 1 for the year
ended December 31, 1995. This financial statement is the responsibility of
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The combined statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
Brandywine Realty Trust as described in Note 1 and is not intended to be a
complete presentation of the SERS Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses of the SERS
Properties for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Philadelphia, Pa.,
October 31, 1996
F-50
<PAGE> 219
SERS PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE-MONTH PERIODS ENDED
YEAR ENDED -------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Base rents (Note 2)................................ $4,366,000 $ 3,180,000 $ 3,435,000
Tenant reimbursements.............................. 238,000 221,000 213,000
---------- ---------- ----------
Total revenue.............................. 4,604,000 3,401,000 3,648,000
---------- ---------- ----------
CERTAIN EXPENSES:
Maintenance and other operating expenses........... 1,101,000 841,000 939,000
Utilities.......................................... 630,000 467,000 520,000
Real estate taxes.................................. 505,000 377,000 403,000
---------- ---------- ----------
Total certain expenses..................... 2,236,000 1,685,000 1,862,000
---------- ---------- ----------
REVENUE IN EXCESS OF CERTAIN EXPENSES................ $2,368,000 $ 1,716,000 $ 1,786,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 220
SERS PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1995
1. BASIS OF PRESENTATION:
The combined statement of revenue and certain expenses reflects the
operations of the Commonwealth of Pennsylvania State Employes' Retirement System
("SERS") Acquisition Properties (the "SERS Property") located in surburban
Philadelphia, Pennsylvania. These properties are expected to be acquired by
Brandywine Realty Trust (the "Company") from SERS in November 1996. The SERS
Properties have aggregate net rentable area of approximately 418,000 square feet
and were 83% leased as of December 31, 1995. This combined statement of revenue
and certain expenses is to be included in the Company's registration statement
on Form S-11 as the acquisition has been deemed significant pursuant to the
rules and regulations of the Securities and Exchange Commission.
The accounting records of the SERS Properties are maintained on a modified
cash basis. Adjusting entries have been made to present the accompanying
financial statements in accordance with generally accepted accounting
principles. The accompanying financial statements exclude certain expenses such
as interest, depreciation and amortization, professional fees, and other costs
not directly related to the future operations of the SERS Properties.
The combined statements of revenue and certain expenses for the nine months
ended September 30, 1996 and 1995, are unaudited. In the opinion of management,
all adjustments consisting solely of normal recurring adjustments necessary for
a fair presentation of the financial statements for the interim period have been
included. The results for the interim period are not necessarily indicative of
the results for the full year.
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 expense during the reporting
period. The ultimate results could differ from those estimates.
2. OPERATING LEASES:
Base rents presented for the year ended December 31, 1995, and the nine
months ended September 30, 1996 and 1995, include straight-line adjustments for
rental revenue increases in accordance with generally accepted accounting
principles. The aggregate rental revenue increase resulting from the
straight-line adjustments for the year ended December 31, 1995, and the nine
months ended September 30, 1996 and 1995, were $48,000, $7,000 (unaudited) and
$46,000 (unaudited), respectively.
Waste Management, Inc.'s minimum rental payments were $438,000 and were
greater than 10% of the total base rents in 1995.
The PASERS Acquisition Properties are leased to tenants under operating
leases with expiration dates extending to the year 2001. Future minimum rentals
under noncancelable operating leases, excluding tenant reimbursements of
operating expenses as of December 31, 1995, were as follows:
<TABLE>
<S> <C>
1996............................................................. $3,886,000
1997............................................................. 2,499,000
1998............................................................. 1,563,000
1999............................................................. 920,000
2000............................................................. 345,000
Thereafter....................................................... 147,000
</TABLE>
Certain leases also include provisions requiring tenants to reimburse the
Company for management costs and other operating expenses up to stipulated
amounts.
F-52
<PAGE> 221
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brandywine Realty Trust:
We have audited the combined statement of revenue and certain expenses of
the Delaware Corporate Center Acquisition Property (the "Delaware Corporate
Center") described in Note 1 for the year ended December 31, 1995. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The combined statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
Brandywine Realty Trust as described in Note 1 and is not intended to be a
complete presentation of the Delaware Corporate Center's revenue and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses of the Delaware
Corporate Center for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Philadelphia, Pa.,
October 31, 1996
F-53
<PAGE> 222
DELAWARE CORPORATE CENTER
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE-MONTH PERIODS ENDED
YEAR ENDED ---------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
UNAUDITED
<S> <C> <C> <C>
REVENUE:
Base rents (Note 2).............................. $410,000 $ 378,000 $ 1,666,000
------- ---------- -------
Total revenue............................ 410,000 378,000 1,666,000
------- ---------- -------
CERTAIN EXPENSES:
Maintenance and other operating expenses......... 122,000 72,000 146,000
Utilities........................................ 145,000 111,000 137,000
Real estate taxes................................ 126,000 91,000 87,000
Ground rent...................................... 109,000 82,000 82,000
------- ---------- -------
Total certain expenses................... 502,000 356,000 452,000
------- ---------- -------
REVENUE IN EXCESS OF CERTAIN EXPENSES.............. $(92,000) $ 22,000 $ 1,214,000
======= ========== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 223
DELAWARE CORPORATE CENTER
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1995
1. BASIS OF PRESENTATION:
The combined statement of revenue and certain expenses reflects the
operations of the Delaware Corporate Center (the "Delaware Corporate Center")
located in New Castle County, Delaware. This property is expected to be acquired
by Brandywine Realty Trust (the "Company") from Koll Investment Management, Inc.
in November, 1996. The Delaware Corporate Center has aggregate net rentable area
of approximately 105,000 square feet and was 11% leased as of December 31, 1995.
This combined statement of revenue and certain expenses is to be included in the
Trust's registration statement on Form S-11 as the acquisition has been deemed
significant pursuant to the rules and regulations of the Securities and Exchange
Commission.
The accounting records of the Delaware Corporate Center are maintained on
an accrual basis. The accompanying financial statement excludes certain expenses
such as interest, depreciation and amortization, professional fees, and other
costs not directly related to the future operations of the Delaware Corporate
Center.
The combined statement of revenue and certain expenses for the nine months
ended September 30, 1996 and 1995, are unaudited. In the opinion of management,
all adjustments consisting solely of normal recurring adjustments necessary for
a fair presentation of the financial statements for the interim period have been
included. The results for the interim period are not necessarily indicative of
the results for the full year.
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 expense during the reporting
period. Actual results could differ from those estimates.
2. OPERATING LEASES:
Base rents presented for the nine-month period ended September 30, 1996,
include straight-line adjustments for rental revenue increases in accordance
with generally accepted accounting principles. The aggregate rental revenue
increase resulting from the straight-line adjustment for the nine-month period
ended September 30, 1996, was $302,000 (unaudited).
Existing tenants whose minimum rental payments equaled 10% or more of the total
base rents in 1995 were:
<TABLE>
<S> <C>
Great Western Mortgage Corporation................................. $63,000
Federal Deposit Insurance Corporation.............................. 46,000
The Lubrizol Corporation........................................... 42,000
</TABLE>
The Delaware Corporate Center is leased to tenants under operating leases
with expiration dates extending to the year 1999. Future minimum rentals under
noncancelable operating leases excluding tenant reimbursements of operating
expenses as of December 31, 1995 were as follows:
<TABLE>
<S> <C>
1996.............................................................. $209,000
1997.............................................................. 159,000
1998.............................................................. 142,000
1999.............................................................. 58,000
</TABLE>
Certain leases also include provisions requiring tenants to reimburse the
Company for management costs and other operating expenses up to stipulated
amounts.
F-55
<PAGE> 224
DELAWARE CORPORATE CENTER
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (CONTINUED)
DECEMBER 31, 1995
Subsequent to December 31, 1995, a significant tenant (Kimberly Clark)
entered into an operating lease to occupy 93,000 square feet of the Delaware
Acquisition Property. This lease extends to the year 2005, and the Delaware
Corporate Center is 100% occupied as a result of this lease.
3. LAND LEASE:
The Delaware Corporate Center is the leasee under a land lease extending to
the year 2048. Annual ground rent payments under this lease are presently
$109,000. Payments under the lease will be adjusted in 1998 and at each five
year period thereafter, based on increases on the consumer price index.
F-56
<PAGE> 225
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brandywine Realty Trust:
We have audited the combined statement of revenue and certain expenses of
the Equivest Management, Inc. Acquisition Properties ("700/800 Business Center
Drive") described in Note 1 for the year ended December 31, 1995. This financial
statement is the responsibility of management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The combined statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
Brandywine Realty Trust as described in Note 1 and is not intended to be a
complete presentation of 700/800 Business Center Drive's revenue and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses of the 700/800
Business Center Drive for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Philadelphia, Pa.,
October 31, 1996
F-57
<PAGE> 226
700/800 BUSINESS CENTER DRIVE
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE-MONTH PERIODS ENDED
YEAR ENDED -------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
UNAUDITED
<S> <C> <C> <C>
REVENUE:
Base rents (Note 2)................................ $567,000 $ 416,000 $ 533,000
Tenant reimbursements.............................. 188,000 144,000 62,000
-------- -------- --------
Total revenue.............................. 755,000 560,000 595,000
-------- -------- --------
CERTAIN EXPENSES:
Maintenance and other operating expenses........... 154,000 108,000 118,000
Utilities.......................................... 40,000 26,000 20,000
Real estate taxes.................................. 111,000 83,000 83,000
-------- -------- --------
Total certain expenses..................... 305,000 217,000 221,000
-------- -------- --------
REVENUE IN EXCESS OF CERTAIN EXPENSES................ $450,000 $ 343,000 $ 374,000
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 227
700/800 BUSINESS CENTER DRIVE
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1995
1. BASIS OF PRESENTATION:
The combined statement of revenue and certain expenses reflect the
operations of the Equivest Management, Inc. Acquisition Properties ("700/800
Business Center Drive") located in Horsham, Pennsylvania, which are expected to
be acquired by Brandywine Realty Trust (the "Company") from Equivest Management,
Inc. in November, 1996. The Acquisition Properties have aggregate net rentable
area of approximately 82,000 square feet and were 62% leased as of December 31,
1995. This combined statement of revenue and certain expenses is to be included
in the Company's registration statement on Form S-11 as the acquisition has been
deemed significant pursuant to the rules and regulations of the Securities and
Exchange Commission.
The accounting records of 700/800 Business Center Drive are maintained on a
modified cash basis. Adjusting entries have been made to present the
accompanying financial statements in accordance with generally accepted
accounting principles. The accompanying financial statements exclude certain
expenses such as interest, depreciation and amortization, professional fees, and
other costs not directly related to the future operations of 700/800 Business
Center Drive.
The combined statements of revenue and certain expenses for the nine months
ended September 30, 1996 and 1995, are unaudited. In the opinion of management,
all adjustments consisting solely of normal recurring adjustments necessary for
a fair presentation of the financial statements for the interim period have been
included. The results for the interim period are not necessarily indicative of
the results for the full year.
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 expense during the reporting
period. The ultimate results could differ from those estimates.
2. OPERATING LEASES:
Base rents presented for the year ended December 31, 1995, and the nine
months ended September 30, 1996 and 1995, include straight-line adjustments for
rental revenue increases in accordance with generally accepted accounting
principles. The aggregate rental revenue increase resulting from the
straight-line adjustments for the year ended December 31, 1995, and the nine
months ended September 30, 1996 and 1995, were $68,000, $76,000 (unaudited) and
$45,000 (unaudited), respectively.
Tenants whose minimum rentals were equal to 10% or more of total base rents
in 1995 are as follows:
<TABLE>
<S> <C>
Metpath, Inc...................................................... $310,000
Macro Corporation................................................. 201,000
</TABLE>
700/800 Business Center Drive are leased to tenants under operating leases
with expiration dates extending to the year 2012. Future minimum rentals under
noncancelable operating leases, excluding tenant reimbursements of operating
expenses as of December 31, 1995, were as follows:
<TABLE>
<S> <C>
1996............................................................. $ 414,000
1997............................................................. 381,000
1998............................................................. 508,000
1999............................................................. 529,000
2000............................................................. 474,000
Thereafter....................................................... 7,056,000
</TABLE>
Certain leases also include provisions requiring tenants to reimburse the
Company for management costs and other operating expenses up to stipulated
amounts.
F-59
<PAGE> 228
SCHEDULE III
BRANDYWINE REALTY TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED
INITIAL COST
--------------------- NET IMPROVEMENTS DECEMBER 31, 1995 ACCUMULATED
BUILDINGS (RETIREMENTS) ------------------------------------ DEPRECIATION
ENCUMBRANCES AND SINCE BUILDINGS AT DECEMBER
PROPERTY AT DECEMBER IMPROVEMENTS ACQUISITION AND TOTAL (4)(5) 31, 1995
DESCRIPTION 31, 1995 LAND (2) (3) LAND IMPROVEMENTS & (6) (7)
- -------------- ------------ ------ ------------ ---------------- ------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Twin Forks $2,729(1) $2,442 $ 3,950 $ (532) $2,194 $ 3,666 $ 5,860 $ 1,736
Office
Raleigh, NC
One Greentree 6,202(1) 710 5,515 (1,562) 345 4,318 4,663 1,848
Office
Marlton, NJ
Two Greentree (1) 694 5,686 (1,496) 264 4,620 4,884 1,886
Office
Marlton, NJ
Three (1) 858 7,573 (2,015) 323 6,093 6,416 2,644
Greentree
Office
Marlton, NJ
------ ------ ------- ------- ------ ------- ------- ------
$8,391(1) $4,704 $ 22,724 $ (5,605) $3,126 $ 18,697 $ 21,823 $ 8,114
====== ====== ======= ======= ====== ======= ======= ======
<CAPTION>
PROPERTY DATE OF DATE DEPRECIATION
DESCRIPTION CONSTRUCTION ACQUIRED LIFE
- -------------- ------------ -------- ------------
<S> <C> <C> <C>
Twin Forks 1982 1986 30 years
Office
Raleigh, NC
One Greentree 1982 1986 30 years
Office
Marlton, NJ
Two Greentree 1983 1986 30 years
Office
Marlton, NJ
Three 1984 1986 30 years
Greentree
Office
Marlton, NJ
</TABLE>
- ---------------
(1) At December 31, 1995, there are two mortgage loans which total $8,391,000.
The loans are cross-collateralized and are secured by first mortgages on
each of these Properties.
(2) Amounts exclude equipment, furniture and fixtures and related accumulated
depreciation.
(3) Amounts include provisions for losses on real estate investments totaling
$7,891,000 recorded subsequent to acquisition.
(4) Acquisitions: All real estate investments were acquired in 1986 for cash,
subject to certain encumbrances which encumbrances were retired on January
31, 1994.
(5) The aggregate basis for Federal income tax purposes is $33,415,000 as of
December 31, 1995.
(6) Reconciliation of Real Estate:
The following table reconciles the real estate investments from January 1,
1995 to December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
REAL ESTATE
INVESTMENTS
-----------
<S> <C>
Balance at beginning of year $21,335
Additions during period:
Capital expenditures 630
Deletions during period:
Sales --
Retirements (142)
-----------
Balance at end of year $21,823
==========
</TABLE>
(7) Reconciliation of Accumulated Depreciation:
The following table reconciles the accumulated depreciation from January 1,
1995 to December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
REAL ESTATE
INVESTMENTS
-----------
<S> <C>
Balance at beginning of year $ 7,387
Additions during period:
Capital expenditures 869
Deletions during period:
Sales --
Retirements (142)
-----------
Balance at end of year $ 8,114
==========
</TABLE>
F-60
<PAGE> 229
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES,
OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFEROR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 20
The Company........................... 33
Business and Growth Strategies........ 39
Use of Proceeds....................... 42
Distribution Policy................... 43
Price Range of Common Shares and
Distribution History................ 43
Capitalization........................ 44
Dilution.............................. 45
Selected Financial Data............... 46
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 51
Suburban Philadelphia Economy and
Office Markets...................... 58
Business and Properties............... 64
Structure of the Company.............. 107
Policies With Respect to Certain
Activities.......................... 109
Management............................ 113
Certain Relationships and Related
Transactions........................ 118
Principal Shareholders................ 122
Description of Shares of Beneficial
Interest............................ 124
Certain Provisions of Maryland Law and
of the Company's Declaration of
Trust and Bylaws.................... 129
Federal Income Tax Considerations..... 133
Operating Partnership Agreement....... 144
BRP General Partnership Agreement..... 149
ERISA Considerations.................. 149
Shares Available for Future Sale...... 152
Underwriting.......................... 154
Experts............................... 155
Legal Matters......................... 155
Tax Matters........................... 155
Available Information................. 155
Glossary.............................. 157
Index to Financial Statements......... F-1
- --------------------------------------------
- --------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
3,700,000 COMMON SHARES
OF
BENEFICIAL INTEREST
OF
BRANDYWINE REALTY TRUST
------------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
LEGG MASON WOOD WALKER
INCORPORATED
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 230
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Company in
connection with the Offering of the Common Shares being registered. All the
amounts shown are estimates except the Securities and Exchange Commission (the
"SEC") registration fee, the National Association of Securities Dealers, Inc.
(the "NASD") filing fee and the American Stock Exchange listing fee.
<TABLE>
<S> <C>
SEC registration fee..................................................... $ 20,455
---------
NASD filing fee.......................................................... 8,263
---------
American Stock Exchange listing fee...................................... 17,500
Transfer agent's and registrar's fee..................................... 4,932
Printing and engraving fee............................................... 325,000
Legal fees and expenses (other than Blue Sky)............................ 575,000
Financial advisory fee................................................... 1,037,850
Accounting fees and expenses............................................. 515,000
Blue Sky fees and expenses (including fees of counsel)................... 500,000
Miscellaneous expenses................................................... 446,000
---------
Total.......................................................... $3,000,000
==========
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 31. SALES TO SPECIAL PARTIES.
See Item 32 below.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
The information presented below gives effect to the one-for-three reverse
share split to be effected by the Company immediately prior to the closing of
the Offering of Common Shares registered hereby.
On August 8, 1994, the Company awarded its President and Chief Executive
Officer, Gerard H. Sweeney, options to purchase 46,666 Common Shares. No
monetary consideration was paid to the Company for the options. All of such
options are currently exercisable. None of such options has been exercised as of
the date hereof.
On June 21, 1996, the Company sold 19,983 Common Shares and warrants
exercisable for an additional 19,983 Common Shares to Turkey Vulture Fund XIII,
Ltd. (the "RMO Fund"). The purchase price totalled $337,513 and was paid in
cash. The warrants are currently exercisable in full at a per share exercise
price of $19.50. The RMO Fund is controlled by Richard M. Osborne, a Trustee of
the Company.
On August 22, 1996, the Company sold 258,333 Common Shares and warrants
exercisable for an additional 258,333 Common Shares to Safeguard Scientifics,
Inc. ("SSI") in exchange for SSI's ownership interest in a limited partnership
owning real estate and $426,250 in cash. The warrants are currently exercisable
in full at a per share exercise price of $19.50.
On August 22, 1996, the Company awarded employees warrants exercisable for
an aggregate of 256,666 Common Shares, including warrants exercisable for
100,000 Common Shares awarded to the Company's President and Chief Executive
Officer and warrants exercisable for an aggregate of 130,000 Common Shares
awarded to three other executive officers of the Company. No monetary
consideration was paid to the Company for the warrants. The warrants are
currently exercisable in full at a per share exercise price of $19.50.
II-1
<PAGE> 231
On August 22, 1996, the Operating Partnership issued and committed to issue
an aggregate of 540,159 Units which are exchangeable for an equal number of
Common Shares. The Operating Partnership issued the Units in exchange for the
contribution to it of direct and indirect interests in 19 properties by SSI, TNC
and six other persons.
On August 23, 1996, the Company issued to the RMO Fund 14,135 units (each
of which consists of one Common Share and one warrant exercisable for an
additional Common Share). Each unit so issued effected a $16.89 prepayment of a
loan (the "Osborne Loan") made by the RMO Fund to the Company on June 21, 1996
in the original principal amount of $992,293.
On November 6, 1996 the Company entered into an agreement with the SERS
Voting Trust providing for an investment by the SERS Voting Trust of $10.5
million in exchange for Common Shares at a price equal to the price to the
public shown on the cover page of the Prospectus included within this
Registration Statement.
On November , 1996 the Company entered into an agreement with the Morgan
Stanley Funds providing for an investment by the Morgan Stanley Funds of $11.7
million in exchange for Common Shares at a price of $16.50 per share.
On November , 1996, the Company issued to the SERS Voting Trust 481,818
Series A Preferred Shares and warrants exercisable for 133,333 Common Shares.
The warrants are currently exercisable in full at a per share exercise price of
$25.50.
On November , 1996, the Company issued to the RMO Fund units (each of
which consists of one Common Share and one warrant exercisable for an additional
Common Share). Each Unit so issued effected a $16.89 prepayment of the Osborne
Loan.
No underwriter was involved in connection with any of the foregoing
securities issuances.
Each of the above transactions is exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as transactions not
involving public offerings.
ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by the Maryland law.
The Company's Bylaws require it to indemnify (a) any present or former
Trustee or officer who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of such status,
against reasonable expenses incurred by him in connection with the proceeding
and (b) any present or former Trustee or officer against any claim or liability
to which he may become subject by reason of his status as such unless it is
established that (i) his act or omission was committed in bad faith or was the
result of active and deliberate dishonesty, (ii) he actually received an
improper personal benefit in money, property or services or (iii) in the case of
a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful. In addition, the Company's Bylaws require it to pay or
reimburse, in advance of final disposition of a proceeding, reasonable expenses
incurred by a present or former Trustee or officer made a party to a proceeding
by reason of his status as a Trustee or officer provided that the Company shall
have received (i) a written affirmation by the Trustee or officer of his good
faith belief that he has met the applicable standard of conduct necessary for
indemnification by the Company as authorized by the Bylaws and (ii) a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
Company if it shall ultimately be determined that the standard of conduct was
not met. The Company's Bylaws also (i) permit the Company, with the approval of
its Trustees, to provide indemnification and payment or reimbursement of
expenses to a present or former Trustee or officer who served a predecessor of
the Company in such capacity, and to any employee or agent of the Company or a
predecessor of the Company, (ii) provide that any indemnification or payment or
reimbursement of the expenses permitted by the Bylaws shall be furnished in
accordance with the procedures provided for indemnification and payment or
reimbursement of expenses under Section 2-418 of the Maryland General
Corporation Law ("MGCL") for directors of
II-2
<PAGE> 232
Maryland corporations, and (iii) permit the Company to provide such other and
further indemnification or payment or reimbursement of expenses as may be
permitted by the MGCL for directors of Maryland corporations.
The Partnership Agreement of the Operating Partnership also provides for
indemnification by the Operating Partnership of the Company, as general partner,
and its trustees and officers for any costs, expenses or liabilities incurred by
them by reason of any act performed by them for or on behalf of the Operating
Partnership or the Company; provided that such person's conduct was taken in
good faith and in the belief that such conduct was in the best interests of the
Operating Partnership and that such person was not guilty of fraud, willful
misconduct or gross negligence.
The form of Underwriting Agreement to be filed as Exhibit 1.1 to this
Registration Statement will provide for the reciprocal indemnification by the
Underwriters of the Company, and its trustees, officers and controlling persons,
and by the Company of the Underwriters, and their respective directors, officers
and controlling persons, against certain liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees and officers of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that, although
the validity and scope of the governing statute has not been tested in court, in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In addition,
indemnification may be limited by state securities laws.
ITEM 34. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED.
The consideration to be received by the registrant for the Common Shares
registered will be credited to the appropriate capital share account.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<C> <S> <C>
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
- Pro Forma Condensed Consolidating Balance Sheet as of June 30, F-5
1996.............................................................
- Pro Forma Condensed Consolidating Statements of Operations for F-6
the Year Ended December 31, 1995, and the Six-Month Ended June 30,
1996.............................................................
- Notes and Management's Assumptions to Unaudited Pro Forma F-8
Condensed Consolidating Financial Statements.......................
II. BRANDYWINE REALTY TRUST
- Report of Independent Public Accountants......................... F-14
- Consolidated Balance Sheets as of December 31, 1994 and 1995 F-15
(audited) and June 30, 1996 (Unaudited)............................
- Consolidated Statements of Operations for the Years Ended F-16
December 31, 1993, 1994 and 1995 (audited) and for the Six-Months
Ended June 30, 1996 (Unaudited)..................................
- Consolidated Statements of Beneficiaries' Equity for the Years F-17
Ended December 31, 1993, 1994 and 1995 (audited), and for the Six
Months Ended June 30, 1996 and 1995 (Unaudited)..................
- Consolidated Statements of Cash Flows for the Years Ended F-18
December 31, 1993, 1994 and 1995 (audited), and for the Six Months
Ended June 30, 1996 (Unaudited)..................................
- Notes to Consolidated Financial Statements....................... F-19
III. SSI/TNC PROPERTIES
- Report of Independent Public Accountants......................... F-35
- Combined Balance Sheets as of December 31, 1994 and 1995 F-36
(audited) and June 30, 1995 and 1996 (Unaudited)...................
</TABLE>
II-3
<PAGE> 233
<TABLE>
<C> <S> <C>
- Combined Statements of Operations for the Years Ended December F-37
31, 1993, 1994 and 1995 (audited), and for the Six Months Ended
June 30, 1995 and 1996 (Unaudited)...............................
- Combined Statements of Owners' Deficit for the Years Ended F-38
December 31, 1993, 1994 and 1995 (audited), and for the
Six-Months Ended June 30, 1995 and 1996 (Unaudited)..............
- Combined Statements of Cash Flows for the Years Ended December F-39
31, 1993, 1994 and 1995 (audited), and for the Six-Months Ended
June 30, 1995 and 1996 (Unaudited)...............................
- Notes to Combined Financial Statements........................... F-40
IV. LIBERTYVIEW BUILDING
- Report of Independent Public Accountants......................... F-46
- Statements of Revenue and Certain Expenses for the Year Ended F-47
December 31, 1995, and Six Months Ended June 30, 1996
(Unaudited)......................................................
- Notes to Financial Statements.................................... F-48
V. SERS PROPERTIES
- Report of Independent Public Accountants......................... F-50
- Statements of Revenue and Certain Expenses for the Year Ended F-51
December 31, 1995, and Nine-Months Ended September 30, 1995 and
1996 (Unaudited).................................................
- Notes to Financial Statements.................................... F-52
VI. DELAWARE CORPORATE CENTER I
- Report of Independent Public Accountants......................... F-53
- Statements of Revenue and Certain Expenses for the Year Ended F-54
December 31, 1995, and Nine-Months Ended September 30, 1995 and
1996 (Unaudited).................................................
- Notes to Financial Statements.................................... F-55
VII. 700/800 BUSINESS CENTER DRIVE
- Report of Independent Public Accountants......................... F-57
- Statements of Revenue and Certain Expenses for the Year Ended F-58
December 31, 1995, and Nine-Months Ended September 30, 1995 and
1996 (Unaudited).................................................
- Notes to Financial Statements.................................... F-59
VIII. FINANCIAL STATEMENT SCHEDULE
- Schedule III -- Real Estate and Accumulated F-60
Depreciation -- December 31, 1995..................................
</TABLE>
(B) EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement between the Company and the
Representatives.
**3.1 Amended and Restated Declaration of Trust of the Company.
3.2 Form of Articles Supplementary to Declaration of Trust of the Company.
3.3 Amended and Restated Bylaws of the Company.
***4.1 Form of Common Share Certificate.
5.01 Opinion of Pepper, Hamilton & Scheetz regarding the validity of the
securities being registered.
5.02 Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of
the securities being registered.
*8.1 Opinion of Arthur Andersen LLP regarding tax matters.
****10.01 Brandywine Realty Partners General Partnership Agreement.
&10.02 Settlement Agreement with Mutual Release (among the Company, Brandywine,
BSPI, Brandywine National, Brandywine Enterprises and the BSPI limited
partners).
&10.03 Amendment to Brandywine Realty Partners General Partnership Agreement.
</TABLE>
II-4
<PAGE> 234
<TABLE>
<C> <S>
+10.04 Mutual Settlement and Release (among the Company, Brandywine, BSPI,
Brandywine National and Brandywine Enterprises).
+10.05 Purchase and Sale Agreement and Certain Related Documents (relating to
sale of Company's interest in BSPI).
***10.06 Purchase and Sale Agreement (relating to sale of Iron Run).
&&&10.07 Secured Promissory Notes, Security Agreements and Assignments of Leases
and Rents -- April 1995 refinancing.
&&&10.8 Indemnity Agreement -- April 1995 refinancing.
&&&10.9 Escrow Agreement -- April 1995 refinancing.
&&&&10.10 Agreement among the Company, Richard M. Osborne and the Richard M.
Osborne Trust.
+10.11 Loan and Securities Purchase Agreement, dated June 21, 1996, between
Turkey Vulture Fund XIII, Ltd. (the "RMO Fund") and the Company.
+10.12 Promissory Note, dated June 21, 1996, in the original principal amount of
$992,293 issued by the Company to the RMO Fund.
+10.13 Warrant to purchase Common Shares, dated June 21, 1996, issued by the
Company to the RMO Fund.
++10.14 Purchase and Sale Agreement between UM Real Estate Investment Company,
LLC ("UM") and the Company.
++10.15 First Amendment to Purchase and Sale Agreement between UM and the
Company.
++10.16 Second Amendment to Purchase and Sale Agreement between UM and the
Company.
++10.17 Third Amendment to Purchase and Sale Agreement between UM and the
Company.
++10.18 Promissory Note in the principal amount of $1,000,000 from the Company to
UM.
++10.19 Subordinated Mortgage from the Company to UM.
++10.20 Amended and Restated Loan Agreement between the Company and Summit Bank
("SB").
++10.21 Amended and Restated Promissory Note from the Company to SB.
++10.22 Amended and Restated Mortgage from the Company to SB.
+++10.23 Contribution Agreement among the Company, Safeguard Scientifics, Inc.
("SSI") and The Nichols Company ("TNC").
+++10.24 Share and Warrant Purchase Agreement between the Company and SSI.
+++10.25 Employment Agreement between the Company and Anthony A. Nichols, Sr.++
+++10.26 Employment Agreement between the Company and Gerard H. Sweeney.++
+++10.27 Employment Agreement between the Company and Brian F. Belcher.++
+++10.28 Employment Agreement between the Company and John P. Gallagher.++
**10.29 Agreement of Limited Partnership of Brandywine Operating Partnership,
L.P. (the "Operating Partnership").
10.30 Amendment No. 1 to Agreement of Limited Partnership of Operating
Partnership.
**10.31 Distribution Support and Loan Agreement between the Operating Partnership
and SSI.
**10.32 Agreement among the Company, SSI and Safeguard Scientifics (Delaware),
Inc.
**10.33 Registration Rights Agreement among the Company, SSI, TNC, the RMO Fund
and certain other persons.
**10.34 Warrant to purchase Common Shares issued by the Company to SSI.
**10.35 Third Amendment to Brandywine Realty Partners General Partnership
Agreement.
**10.36 Form of Warrant issued to Executive Officers.++
**10.37 Environmental Indemnity Agreement between the Company and SSI.
**10.38 Option Agreement between the Operating Partnership and C/N Horsham Towne
Limited Partnership the "Option Agreement").
10.39 Amendment No. 1 to the Option Agreement.
**10.40 Articles of Incorporation of Brandywine Realty Services Corporation, as
amended.
</TABLE>
II-5
<PAGE> 235
<TABLE>
<C> <S>
10.41 Contribution Agreement among the Company, Greenwood Square Corporation,
BCBC Holding Company, 500 North Gulph Road and RAI Real Estate Advisers,
Inc. ("RAI"), as voting trustee.
10.42 Securities Purchase Agreement between the Company and RAI, as voting
trustee.
10.43 Form of Warrant to purchase Common Shares in favor of RAI, as voting
trustee.
10.44 Form of Standstill Agreement between the Company and RAI, as voting
trustee.
10.45 Form of Registration Rights Agreement between the Company and RAI, as
voting trustee.
10.46 Form of Pledge Agreement between the Company and RAI, as voting trustee.
10.47 Form of Voting Agreement between the Company, RAI as voting trustee, and
certain other parties.
10.48 Purchase Agreement between the Company and K/B Fund II, ("K/B").
10.49 Reinstatement and First Amendment to Purchase Agreement between the
Company and K/B.
10.50 Real Estate Sale and Purchase Contract between the Company and Monumental
Life Insurance Company ("Monumental").
10.51 First Amendment to Real Estate Sale and Purchase Contract between the
Company and Monumental.
10.52 Second Amendment to Real Estate Sale and Purchase Contract between the
Company and Monumental.
10.53 Agreement for Purchase and Sale of Real Estate and Related Property
between the Company and Horsham Office Center Associates Limited
Partnership ("Horsham").
10.54 Amendment to Agreement for Purchase and Sale of Real Estate and Related
Property between the Company and Horsham.
10.55 Securities Purchase Agreement between the Company and Morgan Stanley
Funds.
10.56 Form of Registration Rights Agreement between the Company and Morgan
Stanley Funds.
10.57 Letter from Safeguard Scientifics, Inc. and subsidiary to the Company.
10.58 Letter from Richard M. Osborne and affiliates to the Company.
21.1 List of Subsidiaries of the Company.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of Cushman & Wakefield of Pennsylvania, Inc.
23.3 Consent of Pepper, Hamilton & Scheetz (contained in Exhibit 5.1).
*23.4 Consent of Arthur Andersen LLP regarding opinion of the tax matters
(continued in exhibit 8.1).
++++24.1 Powers of Attorney.
++++27.1 Financial Data Schedule.
</TABLE>
- ---------------
<TABLE>
<C> <S>
* To be filed by amendment.
** Previously filed as an exhibit to the Company's Form 8-K dated August 22, 1996 and
incorporated by reference as an exhibit to this registration statement.
*** Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1994 and incorporated by reference as an exhibit to this registration
statement.
**** Previously filed as an exhibit to the Company's Registration statement of Form S-11
(File No. 33-4175) and incorporated by reference as an exhibit to this registration
statement.
& Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated by reference as an exhibit to this registration
statement.
&& Compensatory Arrangement.
&&& Previously filed as an exhibit to the Company's Form 8-K dated April 21, 1995 and
incorporated by reference as an exhibit to this registration statement.
&&&& Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1995 and incorporated by reference as an exhibit to this registration
statement.
+ Previously filed as an exhibit to the Company's Form 8-K dated June 21, 1996 and
incorporated by reference as an exhibit to this registration statement.
</TABLE>
II-6
<PAGE> 236
++ Previously filed as an exhibit to the Company's Form 8-K dated July 19, 1996
and incorporated by reference as an exhibit to this registration statement.
+++ Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1996 and incorporated by reference as an exhibit to this
registration statement.
++++ Previously filed as an exhibit to this registration statement.
ITEM 36. UNDERTAKINGS.
The Company undertakes to provide to the Underwriters at the Closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to Trustees,
officers and controlling persons of the Registrant pursuant to the provisions
described under Item 33 above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 237
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on
November 7, 1996.
BRANDYWINE REALTY TRUST
By: /s/ GERARD H. SWEENEY
------------------------------------
Gerard H. Sweeney
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated and on November 7, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ----------------------------------
<C> <S> <C>
/s/ ANTHONY A. NICHOLS, SR. Chairman of the Board of Trustees
- ----------------------------------------
Anthony A. Nichols, Sr.
/s/ GERARD H. SWEENEY President, Chief Executive Officer
- ---------------------------------------- and Trustee (Principal Executive
Gerard H. Sweeney Officer)
/s/ JOHN P. GALLAGHER Executive Vice
- ---------------------------------------- President -- Finance (Principal
John P. Gallagher Financial and Accounting Officer)
* Trustee
- ----------------------------------------
Joseph L. Carboni
* Trustee
- ----------------------------------------
Richard M. Osborne
* Trustee
- ----------------------------------------
Warren V. Musser
* Trustee
- ----------------------------------------
Walter D'Alessio
* Trustee
- ----------------------------------------
Charles P. Pizzi
*By: /s/ GERARD H. SWEENEY
- ----------------------------------------
Gerard H. Sweeney
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 1
EXHIBIT 1.1
3,700,000 Shares
BRANDYWINE REALTY TRUST
Common Shares of Beneficial Interest
UNDERWRITING AGREEMENT
, 1996
SMITH BARNEY INC.
LEGG MASON WOOD WALKER, INCORPORATED
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Brandywine Realty Trust, a Maryland real estate investment trust (the
"Company"), proposes to issue and sell an aggregate of 3,700,000 shares (the
"Firm Shares") of its common shares, $0.01 par value per share (the "Common
Shares"), to you and to the other several Underwriters named in Schedule I
hereto (collectively, the "Underwriters") for whom you are acting as
representatives (the "Representatives"). The Company also proposes to sell to
the Underwriters, upon the terms and conditions set forth in Section 3 hereof,
up to an additional 555,000 Common Shares (the "Additional Shares"). The Firm
Shares and the Additional Shares are hereinafter collectively referred to as the
"Shares."
The Company and Brandywine Operating Partnership, L.P., a Delaware
limited partnership of which the Company is the sole General Partner (the
"Operating Partnership"), wish to confirm as follows their agreement with you
and the other several Underwriters on whose behalf you are acting, in connection
with the several purchases of the Shares by the Underwriters.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-11 (No. 333-13969) under the Act (the
"Initial Registration Statement"), including a prospectus subject to completion
relating to the Shares.
<PAGE> 2
The term "Registration Statement" as used in this Agreement means the Initial
Registration Statement (including all financial schedules and exhibits), as
amended at the time it becomes effective, and any registration statement filed
with the Commission pursuant to Rule 462(b) under the Act (the "Rule 462(b)
Registration Statement") or, if the Initial Registration Statement became
effective prior to the execution of this Agreement, as supplemented or amended
prior to the execution of this Agreement. If it is contemplated, at the time
this Agreement is executed, that a post-effective amendment to the Initial
Registration Statement or Rule 462(b) Registration Statement will be filed and
must be declared effective before the offering of the Shares may commence, the
term "Registration Statement" as used in this Agreement means the Initial
Registration Statement or Rule 462(b) Registration Statement as amended by said
post-effective amendment. The term "Prospectus" as used in this Agreement means
(X) if the Company relies on Rule 434 under the Act, the Term Sheet (as defined
below) relating to the Shares that is first filed pursuant to Rule 424(b)(7)
under the Act together with the Prepricing Prospectus (as defined below)
identified therein that such term sheet supplements, or (Y) if the Company does
not rely on Rule 434 under the Act, the prospectus in the form included in the
Registration Statement, or, if the prospectus included in the Registration
Statement omits information in reliance on Rule 430A under the Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information contained in the
prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the Initial Registration Statement at the
time of the initial filing of such registration statement with the Commission,
and as such prospectus shall have been amended from time to time prior to the
date of the Prospectus. The term "Term Sheet" means any term sheet that
satisfies the requirements of Rules 434 and 424(b) under the Act. Any reference
to the "date" of a Prospectus that includes a Term Sheet means the date of such
Term Sheet. Capitalized terms used, but not defined, herein shall have the
respective meanings ascribed thereto in the Prospectus.
2. Property Acquisitions. (a) Prior to the offering and sale of the Firm
Shares to the Underwriters, the Company, the Operating Partnership, Safeguard
Scientifics, Inc. ("SSI"), The Nichols Company ("TNC"), certain entities and
persons affiliated with SSI and/or TNC, and certain unaffiliated entities and
persons entered into and consummated a series of transactions collectively
described in the Prospectus, and referred to herein, as the "SSI/TNC
Transaction." The documents executed and delivered in connection with the
consummation of the SSI/TNC Transaction, including, without limitation, the
documents listed on Schedule 2(a) attached hereto, are hereinafter referred to
as the "SSI/TNC Documents."
(b) Following consummation of the SSI/TNC Transaction, the
Company owned interests in 23 suburban office buildings and one industrial
facility (which are collectively referred to in the Prospectus as the "Initial
Properties") as follows: (i) the Company owned one office property, (ii) the
Operating Partnership owned six office properties, (iii) Brandywine Realty
Partners, a Pennsylvania general partnership and a Subsidiary (as defined in
Section 2(h) below), owned 3 office properties and one industrial facility, and
(iv) [12] Subsidiary limited partnerships in which the Company and/or the
Operating Partnership own a controlling interest owned 13 office properties
(collectively, the "Initial Properties").
-2-
<PAGE> 3
(c) In addition to the SSI/TNC Transaction, [prior] to the
offering and sale of the Firm Shares to the Underwriters, the Company, RAI Real
Estate Advisors Inc. ("RAI"), as voting trustee of a voting trust dated
________, 1996 (the "SERS Voting Trust") executed by the Commonwealth of
Pennsylvania State Employees' Retirement System ("SERS") as shareholder and by
RAI as voting trustee, and certain affiliates of SERS, entered into and
consummated a series of transactions collectively described in the Prospectus,
and referred to herein, as the "SERS Transaction." In addition, pursuant to a
Securities Purchase Agreement, dated November__, 1996 between the Company and
RAI, as voting trustee, the SERS Voting Trust agreed to purchase, on the Closing
Date, Common Shares directly from the Company in a private placement at a price
per share equal to the Price to Public set forth on the cover page of the
Prospectus for an aggregate purchase price of $10,500,000. Such transaction is
described in the Prospectus, and is referred to herein, as the "SERS Private
Placement." The documents executed and delivered in connection with the
consummation of the SERS Transaction, including, without limitation, the
documents listed on Schedule 2(c)(1) attached hereto, are hereinafter referred
to as the "SERS Transaction Documents," and the documents executed and
delivered, and to be executed and delivered, in connection with the consummation
of the SERS Private Placement, including, without limitation, the documents
listed on Schedule 2(c)(2) attached hereto, are hereinafter referred to as the
"SERS Investment Documents," and together with the SERS Transaction Documents,
the "SERS Documents."
(d) Following consummation of the SERS Transaction, the
Company owned eight office properties and one industrial property (collectively,
the "SERS Properties") in addition to the Initial Properties.
(e) Pursuant to a [purchase agreement], dated November__, 1996
between the Company and [the Morgan Stanley Funds] (together, the "Morgan
Stanley Funds"), the Morgan Stanley Funds agreed to purchase, on the Closing
Date, Common Shares directly from the Company in a private placement at a price
per share equal to $5.50 per share for an aggregate purchase price of
$15,000,000. Such a transaction is described in the Prospectus, and is referred
to herein, as the "Morgan Stanley Private Placement." The documents executed and
delivered, and to be executed and delivered, in connection with the consummation
of the Morgan Stanley Private Placement, including, without limitation, the
documents listed on Schedule 2(e) attached hereto, are hereinafter referred to
as the "Morgan Stanley Investment Documents."
(f) In addition to the SSI/TNC Transaction and the SERS
Transaction, the Company and [certain unaffiliated third parties] have entered
into purchase agreements with respect to certain proposed transactions
collectively described in the Prospectus under the caption "The Company-Other
Pending Acquisitions", and referred to herein as the "Other Acquisition
Transactions," and together with the SSI/TNC Transaction, the SERS Transaction,
the SERS Private Placement, and the Morgan Stanley Private Placement, the
"Transactions." The documents executed and delivered in connection with the
consummation of the Other Acquisition Transactions, including, without
limitation, the documents listed on Schedule 2(f) attached hereto, are
hereinafter referred to as the "Other Acquisition Documents," and, together with
the SSI/TNC Documents, the SERS Documents, and the Morgan Stanley Investment
Documents, the "Transaction Documents."
-3-
<PAGE> 4
(g) Following consummation of the Other Acquisitions, the
Company will own four office properties (the "Other Acquisition Properties") in
addition to the Initial Properties and the SERS Properties. The Initial
Properties, the SERS Properties, and the Other Properties are herein
collectively referred to as the "Properties."
(h) For purposes of this Agreement, each of the Operating
Partnership and the corporations, partnerships and limited partnerships listed
on Schedule 2(h) attached hereto is deemed to be a "Subsidiary" of the Company.
3. Agreements to Sell and Purchase. The Company hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Operating Partnership herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $_.__ per Share (the "purchase price per share"), the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares increased as set forth in Section 11 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company and the Operating
Partnership herein contained and subject to all the terms and conditions set
forth herein, the Underwriters shall have the right to purchase from the
Company, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday,
on the next business day thereafter when the American Stock Exchange is open for
trading), up to an aggregate of 555,000 Additional Shares. Additional Shares may
be purchased only for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. Upon any exercise of the over-allotment
option, each Underwriter, severally and not jointly, agrees to purchase from the
Company the number of Additional Shares (subject to such adjustments as you may
determine in order to avoid fractional shares) which bears the same proportion
to the number of Additional Shares to be purchased by the Underwriters as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number of Firm Shares increased as set forth in
Section 11 hereof) bears to the aggregate number of Firm Shares.
4. Terms of Public Offering. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
5. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on , 1996 (the "Closing Date"). The place of closing
for the Firm Shares and the Closing Date may be varied by agreement between
you and the Company.
-4-
<PAGE> 5
Delivery to the Underwriters of and payment for any Additional Shares to
be purchased by the Underwriters shall be made at the aforementioned office of
Smith Barney Inc. at such time on such date (the "Option Closing Date"), which
may be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the Option
Closing Date for such Shares may be varied by agreement between you and the
Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor by wire transfer of immediately available funds to the Company.
6. Agreements of the Company and the Operating Partnership. The Company
and the Operating Partnership jointly and severally agree with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Company will endeavor to cause the Registration Statement or such
post-effective amendment to become effective as soon as possible and will advise
you promptly and, if requested by you, will confirm such advice in writing, when
the Registration Statement or such post-effective amendment has become
effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Initial Registration Statement, any Rule
462(b) Registration Statement, any Prepricing Prospectus or the Prospectus or
for additional information; (ii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Initial Registration Statement or any
Rule 462(b) Registration Statement or of the suspension of qualification of the
Shares for offering or sale in any jurisdiction or the initiation of any
proceeding for such purpose; and (iii) within the period of time referred to in
paragraph (h) below, of any change in the Company's condition (financial or
other), business, prospects, properties, net worth or results of operations, or
of the happening of any event, which makes any statement of a material fact made
in the Registration Statement or the Prospectus (as then amended or
supplemented) untrue or which requires the making of any additions to or changes
in the Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Act or the
regulations thereunder to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other
-5-
<PAGE> 6
law. If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
(c) The Company will furnish to you, without charge, three
signed copies of the Initial Registration Statement and of each amendment
thereto, including financial statements and all exhibits thereto, and any Rule
462(b) Registration Statement and will also furnish to you, without charge, such
number of conformed copies of the Initial Registration Statement and of each
amendment thereto, but without exhibits, and any Rule 462(b) Registration
Statement as you may request.
(d) The Company will not (i) file any amendment to the Initial
Registration Statement or any Rule 462(b) Registration Statement or make any
amendment or supplement to the Prospectus or the Term Sheet of which you shall
not previously have been advised or to which you shall object after being so
advised or (ii) so long as, in the opinion of counsel for the Underwriters, a
prospectus is required to be delivered in connection with sales by any
Underwriter or dealer, file any information, documents or reports pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), without
delivering a copy of such information, documents or reports to you, as
Representatives of the Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky or real estate syndication laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by dealers, prior
to the date of the Prospectus, of each Prepricing Prospectus so furnished by the
Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky or real estate syndication laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
all dealers to whom Shares may be sold, both in connection with the offering and
sale of the Shares and for such period of time thereafter as the Prospectus is
required by the Act to be delivered in connection with sales by any Underwriter
or dealer. If during such period of time any event shall occur that in the
judgment of the Company or in the opinion of counsel for the Underwriters is
required to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the Prospectus to comply with the Act or any
other law, the Company will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto, and will expeditiously furnish to the Underwriters and
dealers a reasonable number of copies thereof.
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<PAGE> 7
In the event that the Company and you, as Representatives of the several
Underwriters, agree that the Prospectus should be amended or supplemented, the
Company, if requested by you, will promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for
the Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or Blue Sky or real estate syndication laws of such jurisdictions
as you may designate and will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to service of process in suits, other
than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission, and (ii) from time
to time such other information concerning the Company as you may reasonably
request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 11 hereof or by notice given by you terminating
this Agreement pursuant to Section 11 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all
out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of
the Shares in accordance with the description set forth in the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file with the Commission the Prospectus pursuant to Rule 424(b) under the
Act and will advise you of the time and manner of such filing.
(m) If Rule 434 of the Act is employed, the Company will
timely file with the Commission a Term Sheet relating to the Shares, which shall
identify the Prepricing Prospectus that
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<PAGE> 8
it supplements, containing such information as is required or permitted by Rules
434, 430A and 424(b) under the Act.
(n) If Rule 462(b) of the Act is employed, the Company shall
both file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) and pay the applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00 p.m. New York city time on
the date of this Agreement and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(o) Except as provided in this Agreement, neither the Company
nor the Operating Partnership will sell, offer to sell, solicit an offer to buy,
contract to sell or otherwise transfer or dispose of any Common Shares or any
securities convertible into or exercisable or exchangeable for Common Shares
(whether through the issuance or granting of any options, warrants, commitments,
subscriptions, rights to purchase or otherwise) for a period of 180 days after
the date of the Prospectus, without the prior written consent of Smith Barney
Inc.; provided, however, that the foregoing shall not prohibit (i) the Company
or the Operating Partnership from issuing Common Shares, limited partner
interests in the Operating Partnership ("Units"), or other securities
exchangeable for Common Shares that are issued in connection with the
acquisition of any office or industrial property, or (ii) the Company from
issuing Common Shares upon the redemption of any Units issued in connection with
SSI/TNC Transaction as described in the Prospectus.
(p) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and trustees, five percent or greater shareholders, certain of
their respective affiliates, and certain other shareholders designated by you,
each of whom is identified on Schedule 6(p) hereto.
(q) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Shares to facilitate the sale or resale of the Shares.
(r) The Company will use its best efforts to have the Shares
listed, subject to notice of issuance, on the American Stock Exchange
concurrently with the effectiveness of the Registration Statement.
(s) The Company and the Operating Partnership in good faith
will enforce the terms of each of the Transaction Documents.
7. Representations and Warranties of the Company. The Company and the
Operating Partnership, jointly and severally, represent and warrant to each
Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
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<PAGE> 9
No stop order suspending the effectiveness of the Registration Statement or any
part thereof has been issued and no proceeding for that purpose has been
instituted or threatened by
the Commission or the securities authority of any state or other
jurisdiction.
(b) The Registration Statement in the form in which it became
or becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective, complied or will comply in all
material respects with the provisions of the Act and did not or will not at any
such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus or any Term Sheet that is a part
thereof and any supplement or amendment thereto when filed with the Commission
under Rule 424(b) or Rule 434 under the Act, complied or will comply in all
material respects with the provisions of the Act and did not or will not at any
such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the registration statement or the Prospectus
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein, which information is
described in its entirety in Section 13 below.
(c) The Company is duly formed and validly existing as a real
estate investment trust in good standing under the laws of the State of
Maryland, with full trust power and authority to own, lease, and operate its
properties, and to conduct its business as described in the Registration
Statement and the Prospectus, and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification.
(d) Each of the Subsidiaries is a corporation, limited
partnership, or general partnership duly incorporated or formed, as the case may
be, validly existing and in good standing under the laws of its jurisdiction of
incorporation or formation. Each such entity has full corporate or partnership
power and authority, to own, lease, and operate its properties, and to conduct
its business as described in the Registration Statement and the Prospectus. Each
such Subsidiary is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification.
(e) All the outstanding Common Shares of the Company have been
duly authorized and validly issued, are fully paid and nonassessable and are
free of any preemptive or similar rights; the Shares have been duly authorized
and, when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights that entitle or will
entitle any person or entity to acquire any Shares upon the issuance thereof by
the Company, and the capital stock of the Company conforms to the description
thereof in the Registration Statement and the Prospectus. Except as disclosed in
the Prospectus, there are no outstanding options, warrants or other rights
calling for the issuance of, or any commitment, plan or arrangement to issue,
any capital
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<PAGE> 10
stock of the Company or any security convertible into or exchangeable for
capital stock of the Company. As of the Closing Date, the Company will have
reserved a sufficient number of Common Shares for issuance upon (i) exercise of
the redemption of _____ outstanding Units held by certain investors who acquired
(or, as disclosed in the Prospectus, will acquire on or prior to _____________,
1997) outstanding Units in connection with the SSI/TNC Transaction, (ii) the
exercise of options for up to __________ Common Shares issued under the
Company's stock option plan, (iii) the exercise of warrants for up to __________
Common Shares and (iv) the conversion of Preferred Shares into up to 1,606,060
Common Shares.
(f) All of the outstanding Units of the Operating Partnership,
and shares of capital stock or partnership interests in each of the Subsidiaries
have been duly authorized and validly issued or created under the agreements
forming such entity, are fully paid and, in the case of Subsidiaries that are
corporations, nonassessable, and will be owned or be held by the persons and
entities in the percentage amounts set forth and in the manner described in the
Prospectus. Except as described in the Prospectus, all such Units, partnership
interests and shares of capital stock are owned by the Company directly, or
indirectly through the Operating Partnership or one of the other Subsidiaries,
free and clear of any lien, adverse claim, security interest, equity, or other
encumbrance, and the Company's percentage interest and ownership in the
Operating Partnership, and the Company's and the Operating Partnership's
percentage interest and ownership in each of the Subsidiaries, is as set forth
on Schedule 7(f) attached hereto. Except as described in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), there are
no outstanding options, warrants or other rights calling for the issuance of, or
any commitment, plan or arrangement to issue, any equity interests in any
Subsidiary, or any security convertible into, or exchangeable or exercisable or,
any such interests in any such Subsidiary. The terms of the Units conform in all
material to statements and descriptions thereof contained in the Prospectus. The
Company is the sole general partner of the Operating Partnership.
(g) The Company has no direct or indirect subsidiaries other
than the Subsidiaries. Other than the Subsidiaries, neither the Company nor the
Operating Partnership owns, directly or indirectly, securities of any
corporation, partnership, joint venture, limited liability company, association
or other business association.
(h) There are no actions, suits, proceedings pending or, to
the knowledge of the Company or the Operating Partnership, threatened against or
affecting the Company or any of the Subsidiaries, or any of their respective
partners, directors, trustees or officers in their capacity as such, or to which
the Company or any of the Subsidiaries or any of their respective partners,
directors, trustees or officers in their capacity as such, or to which any of
their respective properties is subject, that are required to be described in the
Registration Statement or the Prospectus but are not described as required, and
there are no agreements, contracts, indentures, leases or other instruments that
are required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement that are not described
or filed as required by the Act.
(i) Neither the Company nor any of the Subsidiaries is in
violation of its Declaration of Trust, certificate or articles of incorporation
or by-laws, partnership agreement or
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<PAGE> 11
other organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, or in default in any
material respect in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any agreement, indenture, lease or other instrument to which the Company or
any of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound.
(j) Neither the issuance and offer, and sale or delivery of
the Shares, the execution, delivery or performance of this Agreement or the
Transaction Documents, nor the consummation of the transactions contemplated
hereby or thereby by the Company or any Subsidiary, as applicable, (A) required
or requires any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
for the registration of the Shares under the Act and compliance with the
securities or Blue Sky laws of various jurisdictions, all of which have been or
will be effected in accordance with this Agreement), (ii) conflicted with,
conflicts or will conflict with or constituted, constitutes or will constitute a
breach of, or a default under, the Declaration of Trust, certificate or articles
of incorporation or bylaws, partnership agreement or other organizational
documents, of the Company or any of the Subsidiaries or under, any agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or any of their respective
properties may be bound, (iii) violated, violates or will violate any statute,
law, regulation or filing or judgment, injunction, order or decree applicable to
the Company or any of the Subsidiaries or any of their respective properties, or
(iv) resulted or will result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.
(k) All offers and sales of Units or other partnership
interests in the Operating Partnership, and the offer, sale or issuance by the
Company of Common Shares prior to the date hereof have been duly registered
under the Act, or were exempt from the registration requirements of the Act and
state securities and Blue Sky laws. The offer, sale and issuance by the Company
of Common Shares pursuant to each of the Morgan Stanley Private Placement and
the SERS Private Placement, and the offer, sale and issuance by the Company of
Preferred Shares in and pursuant to the SERS Private Placement, in each case,
were exempt from the registration requirements of the Act and state securities
and Blue Sky laws.
(l) The accountants, Arthur Andersen LLP, who have audited the
financial statements included in the Registration Statement and the Prospectus
(and any amendment or supplement thereto), are independent public accountants as
required by the Act.
(m) The financial statements, together with related schedules
and notes, included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in cash flows of the respective
entity, entities, property, or properties, as applicable, at the respective
dates or for the
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<PAGE> 12
respective periods to which they apply; such statements and related schedules
and notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, and comply with
the applicable accounting requirements of the Act (including, without
limitation, Rule 3-14 of Regulation S-X promulgated by the Commission). The
other financial and statistical information and data included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the relevant entity, entities,
property or properties, as applicable; the pro forma financial statements of the
Company included in the Registration Statement and the Prospectus comply in all
material respects with the applicable requirements of Rule 11-02 of Regulation
S-X of the Commission, and the pro forma adjustments have been made upon
management's reasonable good faith estimates of the pro forma adjustments and
have been properly applied to the historical amounts in the compilation of such
statements.
(n) The Company has all trust power and authority, and the
Operating Partnership has all partnership power and authority, to enter into
this Agreement and each Transaction Document to which it is a party, and, in the
case of the Company, to issue, sell and deliver the Shares to the Underwriters
as provided in the Underwriting Agreement, and each of the Underwriting
Agreement and each Transaction Document has been duly and validly authorized,
executed and delivered by the Company and the Operating Partnership, as
applicable, and, to the knowledge of the Company, each of the other parties
thereto, and is a valid, legal and binding agreement of each of the Company and
the Operating Partnership, as applicable, enforceable against each of the
Company and the Operating Partnership in accordance with its terms, except as
enforcement of rights to indemnity and contribution hereunder may be limited by
Federal or state securities laws or principles of public policy and subject to
the qualification that the enforceability of the Company's obligations hereunder
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally
and by general equitable principles.
(o) Each Subsidiary has all corporate or partnership power and
authority, as the case may be, to enter into each Transaction Document to which
it is a party, and each Transaction Document has been duly and validly
authorized, executed and delivered by each Subsidiary party thereto and is a
valid, legal and binding agreement of each such Subsidiary, enforceable against
such Subsidiary in accordance with its terms, except as enforcement of rights to
indemnity and contribution hereunder may be limited by Federal or state
securities laws or principles of public policy and subject to the qualification
that the enforceability of each such Subsidiary's obligations thereunder may be
limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally
and by general equitable principles.
(p) The relevant purchase agreements included in the [SERS
Transaction Documents] and the Other Acquisition Documents (the "Purchase
Agreements") give the Company (directly or as assignee) the right (subject only
to customary closing deliveries and other immaterial closing conditions), upon
payment of the amounts provided in such Purchase Agreements, to acquire the SERS
Properties and the Other Acquisition Properties, respectively. The Purchase
Agreements and all deeds, assignments, and other documents delivered or to be
delivered in connection therewith
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are legally sufficient to effect the sale to the Company of all right, title and
interest in and to the SERS Properties and the Other Acquisition Properties upon
payment of the amounts provided for in the Purchase Agreements. Upon the
consummation of the SERS Transaction and the Other Acquisition Transactions, the
Company (either directly or through a Subsidiary) will have, good and marketable
title in fee simple to each of the SERS Properties and the Other Acquisition
Properties, in each case, free and clear of all liens, charges, encumbrances,
claims, security interests, defects, and restrictions, other than those
described in the Registration Statement and the Prospectus and those which do
not and will not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries taken as a whole.
(q) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole.
(r) Each of the Company or the Operating Partnership (either
directly or through a Subsidiary) has, and after giving effect to the SERS
Transaction and the Other Acquisition Transactions will have, good and
marketable title to all property (real and personal) described in the Prospectus
as being or to be owned by it, free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the Registration
Statement and the Prospectus or in a document filed as an exhibit to the
Registration Statement and all the property described in the Prospectus as being
held under lease by each of the Company and the Subsidiaries is held by it under
valid, subsisting and enforceable leases.
(s) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.
(t) Each of the Company and each of the Subsidiaries has, and
after giving effect to the SERS Transaction and the Other Acquisition
Transaction will have, such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("permits") as are necessary to own its
respective properties and to conduct its business in the manner described in the
Prospectus; each of the Company and each of the Subsidiaries has fulfilled and
performed all its material obligations with respect to such permits and no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the holder of any such permit, subject in each case to such
qualification
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<PAGE> 14
as may be set forth in the Prospectus; and, except as described in the
Prospectus, none of such permits contains any restriction that is materially
burdensome to the Company or any of the Subsidiaries.
(u) The Company together with the Subsidiaries maintains and
will maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(v) Neither the Company nor any of its Subsidiaries nor any
employee or agent of the Company or any Subsidiary has made any payment of funds
of the Company or any Subsidiary or received or retained any funds in violation
of any law, rule or regulation, which payment, receipt or retention of funds is
of a character required to be disclosed in the Prospectus.
(w) The Company and each of the Subsidiaries have filed all
tax returns required to be filed, which returns are complete and correct, and
neither the Company nor any Subsidiary is in default in the payment of any taxes
which were payable pursuant to said returns or any assessments with respect
thereto.
(x) Except as described in the Prospectus, there is no holder
of any security of the Company, or the Operating Partnership or any other person
who has the right, contractual or otherwise, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, the Shares
or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the registration statement or sale of the Shares as contemplated by this
Agreement, to require registration under the Act of any Common Shares or other
securities of the Company.
(y) The Company and the Subsidiaries own or possess all
patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and neither the
Company nor the Operating Partnership is aware of any claim to the contrary or
any challenge by any other person to the rights of the Company and the
Subsidiaries with respect to the foregoing.
(z) None of the Company or any Subsidiary is now, and after
sale of the Shares to be sold by it hereunder and application of the net
proceeds from such sale as described in the Prospectus under the caption "Use of
Proceeds" will be, an "investment company," or entity "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
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<PAGE> 15
(aa) The Company has filed in a timely manner each document or
report required to be filed by it pursuant to the Exchange Act and the rules and
regulations thereunder; each such document or report at the time it was filed
conformed to the requirements of the Exchange Act and the rules and regulations
thereunder; and none or such documents or reports contained an untrue statement
of any material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(bb) The Company and its Subsidiaries are organized and
operate in the manner described in the Registration Statement so that the
Company meets the requirements for qualification as a real estate investment
trust under Sections 856 through 860 of the Code and the rules and regulations
thereunder as currently in effect. Each Subsidiary that is a partnership will be
treated as a partnership, and not as an association taxable as a corporation or
a publicly traded partnership, for federal income tax purposes.
(cc) The Shares are duly authorized for listing, subject to
official notice of issuance, on the American Stock Exchange.
(dd) Neither the Company nor any of its trustees, officers or
controlling persons has taken, directly or indirectly, any action intended, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
(ee) Except as described in the Prospectus, the mortgages and
deeds of trust encumbering the Properties will not be cross-defaulted or
cross-collateralized with any other property not owned directly or indirectly by
the Company or any of the Subsidiaries.
(ff) (1) Each of the Properties, the Company, and each of the
Subsidiaries (i) is, and as of the Closing Date will be, in compliance in all
material respects with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received, or will have received,
as of the Closing Date and upon consummation of the SERS Transaction and the
Other Acquisition Transactions, as the case may be, all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective business, and (iii) is, and will be as of the Closing Date in
material compliance with all terms and conditions of any such permit, license or
approval.
(2) Except as may be specifically disclosed in the
Phase I Environmental Site Assessment reports referred to in the Prospectus (the
"Environmental Reports"), the Company and the Subsidiaries have not at any time,
and, to the knowledge of the Company, no other party has at any time, handled,
buried, stored, retained, refined, transported, processed, manufactured,
generated, produced, spilled, allowed to seep, leak, escape or leach, or be
pumped, poured, emitted, emptied, discharged, injected, dumped, transferred or
otherwise disposed of or dealt with, Hazardous Materials (as hereinafter
defined) on, to or from the Properties. The Company and the Subsidiaries do not
intend to use the Properties or any subsequently acquired properties for the
purpose of handling, burying, storing, retaining, refining, transporting,
processing, manufacturing, generating,
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<PAGE> 16
producing, spilling, seeping, leaking, escaping, leaching, pumping, pouring,
emitting, emptying, discharging, injecting, dumping, transferring or otherwise
disposing of or dealing with Hazardous Materials.
(3) Except as disclosed in the Environmental Reports,
to the knowledge of the Company, there has been no seepage, leaking, escape,
leaching, discharge, injection, release, emission, spill, pumping, pouring,
emptying or dumping of Hazardous Materials into waters on or adjacent to the
Properties or onto lands from which such hazardous or toxic waste or substances
might seep, flow or drain into such waters.
(4) Except as disclosed in the Environmental Reports,
neither the Company nor any Subsidiary has received notice of any occurrence or
circumstance which, with notice or passage of time or both, would give rise to,
any claim under or pursuant to any Environmental Law pertaining to hazardous or
toxic waste or substances on or originating from the Properties or arising out
of the conduct of any such party, including, without limitation, pursuant to and
Environmental Law.
(5) No environmental engineering firm which prepared
the Environmental Reports (or amendments thereto) or physical condition
(engineering) reports with respect to the Properties was employed for such
purpose on a contingent basis or has any substantial interest in the Company or
any Subsidiary.
As used herein, "Hazardous Material" shall include, without
limitation, any flammable explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances or related materials,
asbestos or any material as defined by any Federal, state or local environmental
law, ordinance, rule, or regulation including, without limitation. The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et seq.) ("CERCLA"), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Section 9601, et seq.) The
New Jersey Industrial Site Recovery Act, N.J.S.A.Section 13:1K-6, et seq. or and
in the regulations adopted and publications promulgated pursuant to each of the
foregoing or by any Federal, state or local Governmental authority having or
claiming jurisdiction over the Properties as described in the Prospectus
(collectively, "Environmental Laws").
(gg) To the knowledge of the Company, all physical condition
(engineering) reports obtained for the Properties are materially true and
correct. Neither the Company nor any of the Subsidiaries is aware of any
material capital expenditures (other than expenditures for maintenance in the
ordinary course of business) which will be required in connection with any of
the Properties prior to the fifth anniversary of this Agreement.
(hh) As of the Closing Date and after giving effect to the
SERS Transaction and the Other Acquisition Transactions, the Company or the
Operating Partnership, as applicable, will have obtained ALTA Extended Coverage
Owner's Policies of Title Insurance from title insurers of recognized financial
responsibility on each of the SERS Properties and the Other Acquisition
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<PAGE> 17
Properties in amounts at least equal to the acquisition price of each such
property (and improvements located on such property), and such insurance shall
be in full force and effect.
(ii) The assets of the Company and the Subsidiaries do not,
and as of the Closing Date and after giving effect to the any of the
Transactions do not and will not constitute, "plan assets" under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(jj) The transfer of interests in the SERS Properties by SERS
and RAI to the Company in exchange for, among other things, Preferred Stock and
warrants to purchase Common Shares under the SERS Investment Documents relating
to such exchange does not constitute a prohibited transaction within the meaning
of section 406 of ERISA for which an exemption is not available.
8. Indemnification and Contribution. (a) The Company and the Operating
Partnership, jointly and severally, agree to indemnify and hold harmless each of
you and each other Underwriter, the directors, officers, employees and agents of
each Underwriter, and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith (which
information is described in its entirety in Section 13 below); provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the Company
has delivered the Prospectus to the several Underwriters in requisite quantity
on a timely basis to permit such delivery or sending within the time required by
the Act. The foregoing indemnity agreement shall be in addition to any liability
which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or the Operating Partnership, such
Underwriter or such controlling person shall promptly notify the Company or the
Operating Partnership, and the Company or the Operating Partnership shall assume
the defense thereof, including the employment of counsel and payment of all fees
and expenses. Such Underwriter or any such controlling person shall have the
right to employ separate
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<PAGE> 18
counsel in any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter or such controlling person unless (i) the Company and the
Operating Partnership have agreed in writing to pay such fees and expenses, (ii)
the Company and the Operating Partnership have failed to assume the defense and
employ counsel, or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such Underwriter or
such controlling person and the Company or the Operating Partnership and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and the Company or the Operating
Partnership by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing interests
between them (in which case the Company and the Operating Partnership shall not
have the right to assume the defense of such action, suit or proceeding on
behalf of such Underwriter or such controlling person). It is understood,
however, that the Company shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Underwriters and controlling persons not having actual or potential
differing interests with you or among themselves, which firm shall be designated
in writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The Company and the Operating Partnership shall
not be liable for any settlement of any such action, suit or proceeding effected
without its written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company and the Operating Partnership agree to indemnify and
hold harmless any Underwriter, to the extent provided in the preceding
paragraph, and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its trustees and officers who sign the
Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company and the Operating Partnership
to each Underwriter, but only with respect to losses, claims, damages,
liabilities and expenses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact set forth in the information
relating to such Underwriter furnished in writing by or on behalf of such
Underwriter through you expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto.
If any action, suit or proceeding shall be brought against the Company, any of
its directors or officers, or any such controlling person based on the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against any Underwriter pursuant to this paragraph (c), such Underwriter shall
have the rights and duties given to the Company and the Operating Partnership by
paragraph (b) above (except that if the Company or the Operating Partnership
shall have assumed the defense thereof such Underwriter shall not be required to
do so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such
Underwriter's expense), and the Company, its directors and officers, and any
such controlling person shall have the rights and duties given to the
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<PAGE> 19
Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Operating Partnership on the one hand and the Underwriters on
the other hand from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Operating Partnership on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Operating Partnership on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Operating
Partnership bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or by the Underwriters on the other hand
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Company and the Operating Partnership and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
8 were determined by a pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 8, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule I hereto (or such numbers of Firm Shares
increased as set forth in Section 11 hereof) and not joint.
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<PAGE> 20
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Operating Partnership set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company and its trustees or
officers, the Operating Partnership and its officers, or any person controlling
the Company or the Operating Partnership, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter or any person controlling any Underwriter, or to
the Company and its trustees or officers, the Operating Partnership and its
officers, or any person controlling the Company or the Operating Partnership,
shall be entitled to the benefits of the indemnity, contribution, and
reimbursement agreements contained in this Section 8.
9. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the registration
statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the registration statement or the prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth, or results of operations of the
Company or the Subsidiaries not contemplated by the Prospectus, which in your
opinion, as Representatives of the several Underwriters, would materially,
adversely affect the market for the Shares, or (ii) any event or development
relating to or involving the Company or any officer or director of the Company
or the Operating Partnership which makes any statement made in the Prospectus
untrue or which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the making of any addition to or change
in the Prospectus in order to state a
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<PAGE> 21
material fact required by the Act or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if amending or
supplementing the Prospectus to reflect such event or development would, in your
opinion, as Representatives of the several Underwriters, materially, adversely
affect the market for the Shares.
(c) You shall have received on the Closing Date, opinions of
Pepper, Hamilton & Scheetz counsel for the Company, the Operating Partnership
and the other Subsidiaries, dated the Closing Date and addressed to you, as
Representatives of the several Underwriters, in the form set forth on Exhibit
9(c) attached hereto.
In rendering their opinions as aforesaid, counsel may rely
upon an opinion or opinions, each dated the Closing Date, of other counsel
retained by them or the Company as to laws of any jurisdiction other than the
United States, the State of [New York], the Commonwealth of Pennsylvania and the
State of Delaware, provided that (1) each such local counsel is acceptable to
the Representatives, (2) such reliance is expressly authorized by each opinion
so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance, satisfactory to them and their
counsel, and (3) counsel shall state in their opinion that they believe that
they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of
Arthur Andersen LLP, special tax advisor to the Company, satisfactory in form
and substance to you, to the effect that (i) the descriptions of the Federal
income tax conclusions contained in the Prospectus under the caption "Federal
Income Tax Considerations" are correct in all material respects, and a
discussion contained therein fairly summarizes the Federal income tax
considerations that may be material to a holder of the common Shares; (ii)
assuming the Company is operated in accordance with the assumptions and
representations of management regarding its activities and intended activities,
the Company will continue to qualify as a REIT under the Code; and (iii) the
Operating Partnership and the Title Holding Partnerships will be treated for
Federal income tax purposes as partnerships and not as associations taxable as
corporations or as publicly-traded partnerships.
(e) You shall have received on the Closing Date, an opinion of
Arthur Andersen LLP, special tax advisor to the Company, dated the Closing Date
and addressed to you, as Representatives of the several Underwriters,
satisfactory in form and substance to you, to the effect that the Company will
not be considered to own more than ten percent of the outstanding voting
securities of Brandywine Realty Services Corp. at the close of the quarter
ending September 30, 1996.
(f) You shall have received on the Closing Date an opinion of
Battle Fowler LLP, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the Registration Statement, the Prospectus and this Agreement and such other
related matters as you may request.
(g) You shall have received comfort letters, including, but
not limited to, certain agreed upon procedures, addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Arthur Andersen LLP, independent public accountants,
substantially in the forms heretofore approved by you.
(h) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company or the
Underwriters, shall be contemplated by the Commission at or prior to the Closing
Date; (ii) there shall not have been any change in the capital stock of the
Company nor any material increase in the short-term or long-term debt of the
Company (other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or Supplement thereto); (iii) there shall not have been, since
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<PAGE> 22
the respective dates as of which information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), except as
may otherwise be stated in the Registration Statement and Prospectus (or any
amendment or supplement thereto), any material adverse change in the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Properties or the Company and the Subsidiaries taken as a
whole; (iv) the Company and the Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company and the Operating Partnership
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date and
signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 9(g) and in Section 9(i) hereof.
(i) On or prior to the Closing Date, the Representatives shall
have received the executed "lock-up" agreements referred to in Section 6(p).
(j) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(k) The Shares shall have been listed or approved for listing
upon notice of issuance on the American Stock Exchange.
(l) All of the Transaction Documents shall have been executed
and, if applicable, delivered contemporaneously with or prior to the sale of the
Firm Shares.
(m) Each of the SERS Transaction, the Other Acquisitions, the
Morgan Stanley Private Placement, and the SERS Private Placement shall have been
consummated contemporaneously with or prior to the sale of the Firm Shares
hereunder.
(n) The Company shall have delivered to the Underwriters
satisfactory evidence of the following with respect to each SERS Property and
Other Acquisition Property:
(i) a copy of an executed and recordable valid deed
therefor, naming the Company or the Operating Partnership, as applicable, as the
grantee thereunder;
(ii) an ALTA Extended Coverage Owner's Policy of Title
Insurance (or a commitment to issue such a policy) naming the Company or the
Operating Partnership, as applicable, as name insured and insuring (or
committing to insure) that the Company or a Subsidiary owns fee title to the
real property in an amount at least equal to the acquisition price of each such
property (and improvements located on such property), which policy (or
commitment) shall be issued by a title insurance company reasonably acceptable
to the Underwriters (any such person or persons, the "Title Company"), and
contain as exceptions to title only the exceptions described in
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<PAGE> 23
the Transaction Documents relating to the transfer of such Property in
connection with the applicable Transaction or which counsel for the Underwriters
shall have approved (the "Permitted Exceptions") and any such endorsements to
such policy as the Underwriters may reasonably require;
(iii) a survey of the Property in form satisfactory to the
Underwriters and the Title Company in connection with the issuance of an ALTA
Extended Coverage Owner's Policy of Title Insurance;
(iv) policies or certificates of insurance relating to
such Property evidencing coverages and in amounts customarily obtained by owners
of similar properties;
(v) copies of such affidavits, certificates and
instruments of indemnification as shall reasonably be required to induce the
Title Company to issue the policy (or commitment) contemplated in subparagraph
(ii) above;
(vi) a schedule or other written evidence of checks
payable to the appropriate public officials in payment of all recording costs
and transfer taxes (or checks or wire transfers to the Title Company in respect
of such amounts) due in respect of any recording of instruments in connection
with the applicable Transactions, together with a check or wire transfer for the
Title Company in payment of the Title Company's premium, search and examination
charges, survey costs and any other amounts due in connection with the issuance
of its policy;
(vii) if such Property is to remain subject after the
applicable Transaction to an existing indenture, mortgage, deed of trust, loan
agreement, bond debenture, note agreement or other evidence of indebtedness
("Existing Indebtedness"), an agreement dated not earlier than 30 days prior to
the Closing Date from the holder of such Existing Indebtedness together with any
other necessary party indicating such holder's consent to those Transactions
requiring its consent and effecting any required modifications to the documents
evidencing such Existing Indebtedness;
(viii) an engineering (structural) report from an engineer
or engineers and in a form reasonably satisfactory to you; and
(ix) such other agreements, documents, instruments,
reports, articles or evidences of payments properly executed, where applicable,
as may be required pursuant to the Transaction Documents to effect the transfer
of such Property in connection with the Transactions.
(o) All actions necessary to permit the Company to make
borrowings under the Credit Facility, as defined and described in the
Prospectus, shall have been taken.
(p) The Company shall have furnished or caused to be furnished
to you such further certificates and documents as you shall have requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
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<PAGE> 24
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 9, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (g) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c), (d), (e)
and (f) shall be revised to reflect the sale of Additional Shares.
10. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), any Rule 462(b) Registration Statements, each
Prepricing Prospectus, the Prospectus, and each amendment or supplement to any
of them; (ii) the printing (or reproduction) and delivery (including postage,
air freight charges and charges for counting and packaging) of such copies of
the registration statement, each Prepricing Prospectus, the Prospectus, and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the original issuance and sale of
the Shares; (iv) the printing (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares; (v) the registration of the Common Shares under the Exchange Act
and the listing of the Shares on the American Stock Exchange; (vi) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 6(g)
hereof (including the reasonable fees, expenses and disbursements of counsel for
the Underwriters relating to the preparation, printing or reproduction, and
delivery of the preliminary and supplemental Blue Sky Memoranda and such
registration and qualification); (vii) the filing fees and the fees and expenses
of counsel for the Underwriters in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.; (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Shares; (ix) the fees and expenses of the Company's accountants and the fees
and expenses of counsel (including local and special counsel) for the Company.
11. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several Underwriters, by notifying the
Company.
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<PAGE> 25
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Firm Shares which the
Underwriters are obligated to purchase on the Closing Date, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the number of
Firm Shares set forth opposite its name in Schedule I hereto bears to the
aggregate number of Firm Shares set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Firm Shares which such defaulting Underwriter or
Underwriters are obligated, but fail or refuse, to purchase. If any one or more
of the Underwriters shall fail or refuse to purchase Firm Shares which it or
they are obligated to purchase on the Closing Date and the aggregate number of
Firm Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Firm Shares which the Underwriters are obligated to
purchase on the Closing Date and arrangements satisfactory to you and the
Company for the purchase of such Firm Shares by one or more non-defaulting
Underwriters or other party or parties approved by you and the Company are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 11 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
12. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in the Common
Shares shall have been suspended by the Commission or the American Stock
Exchange, (ii) trading in securities generally on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market shall have been
suspended or materially limited, (iii) a general moratorium on commercial
banking activities in New York or Pennsylvania shall have been declared by
either federal or state authorities, or (iv) there shall have occurred any
outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is such as to make
it, in your judgment, impracticable or inadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on the
cover page of the Prospectus or to enforce contracts for the resale of the
Shares by the Underwriters. Notice of such termination may be given to the
Company by telegram, telecopy or telephone and shall be subsequently confirmed
by letter.
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<PAGE> 26
13. Information Furnished by the Underwriters. The Company and the
Operating Partnership acknowledge and agree that the statements set forth in the
last paragraph on the cover page, the stabilization legend on the inside cover
page, the list of Underwriters and their respective allotments appearing under
the caption "Underwriting" in the Prospectus and the statements in the first and
third paragraphs under the caption "Underwriting" in any Prepricing Prospectus
and in the Prospectus, constitute the only information furnished by or on behalf
of the Underwriters through you as such information is referred to in Sections
7(b) and 8 hereof.
14. Miscellaneous. Except as otherwise provided in Sections 6, 11 and
12 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company or the Operating
Partnership, at the office of the Company at 16 Campus Boulevard, Newtown
Square, Pennsylvania 19073, Attention: Gerard H. Sweeney, President and Chief
Executive Officer; or (ii) if to you, as Representatives of the several
Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its trustees and officers, the Operating
Partnership and the other controlling persons referred to in Section 8 hereof
and their respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns" as
used in this Agreement shall include a purchaser from any Underwriter of any of
the Shares in his status as such purchaser.
15. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
-26-
<PAGE> 27
Please confirm that the foregoing correctly sets forth the agreement
between the Company, the Operating Partnership and the several Underwriters.
Very truly yours,
BRANDYWINE REALTY TRUST
By
---------------------------------------
Gerard H. Sweeney
President and Chief Executive Officer
BRANDYWINE OPERATING PARTNERSHIP, L.P.
By Brandywine Realty Trust,
its general partner
By
-----------------------------
Gerard H. Sweeney
President and Chief Executive Officer
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
LEGG MASON WOOD WALKER, INCORPORATED
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By
-------------------------------
Managing Director
-27-
<PAGE> 28
SCHEDULE I
BRANDYWINE REALTY TRUST
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
----------- -----------
<S> <C>
Smith Barney Inc.............................................
Legg Mason Wood Walker, Incorporated.........................
Total............ 3,700,000
</TABLE>
<PAGE> 29
SCHEDULE 2(a)
SSI/TNC Documents
<PAGE> 30
SCHEDULE 2(c)(1)
SERS Transaction Documents
<PAGE> 31
SCHEDULE 2(c)(2)
SERS Investment Documents
<PAGE> 32
SCHEDULE 2(e)
Morgan Stanley Investment Documents
<PAGE> 33
SCHEDULE 2(f)
Other Acquisition Documents
<PAGE> 34
SCHEDULE 2(h)
Subsidiaries of the Company
<PAGE> 35
SCHEDULE 6(p)
Persons and Entities to Deliver Lock-up Letters
<PAGE> 36
SCHEDULE 7(f)
Ownership Interests in Subsidiaries
<PAGE> 37
Exhibit 9(c)
Form of Company Counsel Legal Opinion
1. The Company is duly formed and validly existing as a real
estate investment trust in good standing under and by virtue of the laws of the
State of Maryland, with full trust power and authority to own, lease, and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), and is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its properties
or the conduct of its business as described in the Registration Statement and
the Prospectus requires such registration or qualification; except where the
failure to so qualify would not have a material adverse effect on the condition,
financial or otherwise, business, properties, net worth or results of operations
of the Company.
2. Each of the Subsidiaries is a corporation, limited
partnership or general partnership duly incorporated or formed, as the case may
be, validly existing and in good standing under the laws of its jurisdiction of
incorporation or formation, with full corporate or partnership power and
authority, as the case may be, to own, lease, and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business as
described in the Registration Statement and the Prospectus requires such
registration or qualification; except where the failure to so qualify would not
have a material adverse effect on the condition, financial or otherwise,
business, properties, net worth or results of operations of such Subsidiary.
3. The authorized and outstanding capital stock of the Company
is as set forth under the caption "Capitalization" in the Prospectus; and the
authorized capital stock (including, but not limited to, any options, warrants
or other securities convertible into or exchangeable for capital stock of the
Company) conforms in all material respects to the description thereof in the
Registration Statement and the Prospectus. All the shares of capital stock of
the Company outstanding prior to the issuance of the Shares have been duly
authorized and validly issued, are fully-paid and nonassessable, and are free of
any preemptive or similar rights under Maryland law.
4. The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms of the Underwriting Agreement, will be validly issued, fully-paid and
nonassessable and free of any preemptive or, to the best of our knowledge after
reasonable inquiry, similar rights that entitle or will entitle any person or
entity to acquire any Shares upon the issuance thereof by the Company.
5. Except as described in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and,
to the best of our knowledge, there is no commitment, plan or arrangement to
issue, any shares of capital stock of the Company or any security convertible
into or exchangeable or exercisable for capital stock of the Company. Except as
described in the Prospectus, there is no holder of any security of the Company
or any other person who has the right, contractual or otherwise, to cause the
Company to sell or otherwise issue to them, or to permit them to underwrite the
sale of, the Shares or the right to have any Common Shares or other securities
of the Company included in the registration statement or the right, as a result
of the filing of the registration statement or sale of the Shares as
contemplated by the Underwriting Agreement, to require registration under the
Act of any Common Shares or other securities of the Company.
<PAGE> 38
6. All of the outstanding units of limited and general
partnership interests (the "Units") of the Operating Partnership, and the
partnership interests in each of the other Subsidiaries that are partnerships,
have been duly authorized and validly created and issued under the agreements
forming the Operating Partnership and such other Subsidiaries, as the case may
be, and are fully-paid, and all of the issued and outstanding shares of capital
stock of each of the Subsidiaries that are corporations have been duly
authorized and validly issued, and are fully-paid and non-assessable. Except as
described in the Registration Statement and the Prospectus, all such Units,
partnership interests and shares of capital stock and are owned by the Company
directly, or indirectly through one of the Subsidiaries, free and clear of any
security interest, lien, adverse claim, equity or other encumbrance, and the
Company's percentage ownership in the Operating Partnership, and the Company's
and the Operating Partnership's respective percentage interest and ownership in
each of the Subsidiaries is as set forth on Schedule I attached hereto and made
part hereof. Except as described in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), there are no outstanding
options, warrants or other rights calling for the issuance of, or any
commitment, plan or arrangement to issue, any equity interests in any
Subsidiary, or any security convertible into, or exchangeable or exercisable or,
any such interests in any such Subsidiary. The terms of the Units conform in all
material to statements and descriptions thereof contained in the Prospectus. The
Company is the sole general partner of the Operating Partnership.
7. All offers and sales of Units by the Operating Partnership,
and the offers and sales by the Company of Common Shares prior to the Effective
Date as described in the Registration Statement and the Prospectus have been
duly registered under the Act, or were issued in transactions exempt from the
registration requirements of the Act and state securities and Blue Sky laws. The
offer, sale and issuance by the Company of Common Shares pursuant to each of the
Morgan Stanley Private Placement and the SERS Private Placement, and the offer,
sale and issuance by the Company of Preferred Shares in and pursuant to the SERS
Private Placement, in each case, were exempt from the registration requirements
of the Act and state securities and Blue Sky laws, and neither such transaction
required or requires the approval or consent of the Company's shareholders under
the Company's Declaration of Trust or Bylaws, the rules, regulations and
requirements of the American Stock Exchange, or Maryland law.
8. The Company has all trust power and authority, and the
Operating Partnership has all partnership power and authority, to enter into the
Underwriting Agreement and each Transaction Document, and, in the case of the
Company, to issue, sell and deliver the Shares to the Underwriters as provided
in the Underwriting Agreement, and each of the Underwriting Agreement and each
Transaction Document has been duly and validly authorized, executed and
delivered by the Company and the Operating Partnership and is a valid, legal and
binding agreement of each of the parties thereto, enforceable against each of
the parties thereto in accordance with its terms, except as enforcement of
rights to indemnity and contribution hereunder may be limited by Federal or
state securities laws or principles of public policy and subject to the
qualification that the enforceability of the Company's obligations hereunder may
be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally
and by general equitable principles.
9. Each Subsidiary has all corporate or partnership power and
authority, as the case may be, to enter into each Transaction Document to which
it is a party, and each Transaction Document has been duly and validly
authorized, executed and delivered by each Subsidiary party thereto and is a
valid, legal and binding agreement of such Subsidiary, enforceable against such
Subsidiary in accordance with its terms, except as enforcement of rights to
indemnity and contribution hereunder may be limited by Federal or state
securities laws or principles of public policy and subject to the qualification
that the enforceability of each such Subsidiary's obligations thereunder may be
limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally
and by general equitable principles.
2
<PAGE> 39
10. Each of the Company and each of the Subsidiaries has all
necessary governmental authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental regulatory
officials and bodies (except where the failure so to have any such
authorizations, approvals, orders, licenses, certificates, franchises or
permits, individually or in the aggregate, would not have a material adverse
effect on the condition, financial or otherwise, business, properties, net worth
or results of operations of the Company or such Subsidiary, respectively) to own
their respective properties and to conduct their respective businesses as now
being conducted and proposed to be conducted following the Additional
Acquisitions, as described in the Prospectus.
11. The Company and the Subsidiaries own all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and other rights
described in the Prospectus as being owned by them or any of them or necessary
for the conduct of their respective businesses, and, to the best of our
knowledge, no claim to the contrary or any challenge by any other person to the
rights of the Company or the Subsidiaries with respect to the foregoing has been
asserted or threatened.
12. The form of certificate representing the Common Shares is
in due and proper form and complies with all applicable statutory requirements.
13. Neither the Company nor any of the Subsidiaries is in
violation of its respective Declaration of Trust, certificate or articles of
incorporation or bylaws, partnership agreement or other organizational
documents, or, to the best of our knowledge after reasonable inquiry, is in
default in the performance of any material obligation, agreement or condition
contained in any bond, debenture, note or other evidence of indebtedness.
14. With respect to the Company and the Subsidiaries, neither
the issuance and offer, sale or delivery of the Shares, the execution, delivery
or performance of the Underwriting Agreement and the Transaction Documents nor
the consummation of the transactions contemplated thereby by the Company or the
Subsidiaries, as applicable, (i) required or requires any consent, approval,
authorization or other order of, or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official, or the American Stock Exchange (except such as has been obtained for
the registration of the Shares under the Act, and state securities or Blue Sky
laws of various jurisdictions) (ii) conflicted with, conflicts or will conflict
with or constituted, constitutes or will constitute a breach of, or a default
under the Declaration of Trust, certificate or articles of incorporation or
bylaws, partnership agreement or other organizational documents, of any of such
entities, or under any agreement, indenture, lease or other instrument to which
any of such entities is a party or by which any of them or any of their
respective properties may be bound, which in each case has been filed as an
exhibit to the Registration Statement or is known to us after reasonable
inquiry, (iii) violated, violates or will violate any statute, law, regulation,
ruling, judgment, injunction, order or decree applicable to any of such entities
or any of their respective properties, or (iv) resulted or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of any of such entities pursuant to the terms of any agreement or
instrument to which any of them is a party or by which any of them may be bound
or to which any of the property or assets of any of them is subject.
15. Neither the Company nor any of the Subsidiaries is
required to be registered under the Investment Company Act of 1940, as amended.
16. To the best of our knowledge after reasonable inquiry, (A)
other than as described in the Prospectus (or any supplement thereto), there are
no proceedings pending or threatened against the Company or any of the
Subsidiaries or any of their respective trustees, directors or officers in their
capacity
3
<PAGE> 40
as such, or to which the Company or any of the Subsidiaries or any of their
respective trustees, directors or officers in their capacity as such, or any of
their respective property, is subject, that are required to be described in the
Registration Statement or Prospectus (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required by the Act.
17. To the best of our knowledge after reasonable inquiry,
neither the Company nor any Subsidiary is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
any of the Subsidiaries or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of the Subsidiaries;
18. None of the Subsidiaries is currently contractually
prohibited, directly or indirectly, from paying any dividends to the Company,
from making any other distribution on such Subsidiary's capital stock or other
equity interests, from repaying to the Company any loans or advances to such
Subsidiary from the Company or from transferring any of such Subsidiary's
property or assets to the Company or any of the other Subsidiaries, except as
described in or contemplated by the Prospectus.
19. The statements set forth under the heading "Description of
Shares of Beneficial Interest" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the Common Shares and Preferred
Shares, are accurate and present fairly in all material respects the information
required to be disclosed therein; and the statements set forth under the
headings "Risk Factors," "Structure of the Company," "Management," "Certain
Relationships and Transactions," "Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws," "Federal Income Tax Considerations,"
"Operating Partnership Agreement," "BRP General Partnership Agreement," "ERISA
Considerations," Shares Available for Future Sale," "Underwriting," "Tax
Matters," and "Available Information" in the Prospectus, insofar as such
statements are descriptions or summaries of contracts, agreements or other legal
documents, or refer to or constitute statements or matters of law, descriptions
of statutes, rules of regulations, or legal conclusions, are accurate and
present fairly in all material respects the information required to be shown.
20. The Initial Registration Statement, any Rule 462(b)
Registration Statement and the Prospectus and any supplements or amendments
thereto (except for the financial statements and the notes thereto and the
schedules and other financial, accounting and statistical data included therein
or excluded therefrom, as to which we do not express any opinion) comply as to
form in all material respects with the requirements of the Act.
21. The Registration Statement and all post-effective
amendments, if any, have become effective under the Act as of ______, 1996 and,
to the best of our knowledge after reasonable inquiry, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated by the
Commission, and any required filing of the Prospectus or Term Sheet that
constitutes a part thereof pursuant to Rules 424(b) and 434 has been made in
accordance with Rules 424(b) and 434.
22. If the Company elects to rely on Rule 434, the Prospectus
is not "materially different," as such term is used in Rule 434, from the
Prospectus included in the Registration Statement at the time of its
effectiveness or an effective post-effective amendment thereto (including such
information that is permitted to be omitted pursuant to Rule 430A).
4
<PAGE> 41
We have been advised by the American Stock Exchange, Inc. that
the Shares are duly authorized for listing, subject to official notice of
issuance.
In addition, we have participated in conferences with officers
and other representatives of the Company, the Operating Partnership and the
other Subsidiaries, and representatives of the Company's independent public
accountants in connection with the preparation of the Registration Statement at
which the contents of the Registration Statement, and the Prospectus therein,
and related matters were reviewed and discussed and, although we have not
verified independently and, therefore, do not assume any responsi bility,
explicitly or implicitly, for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (except as
provided in paragraph 19 above), on the basis of the foregoing, nothing has come
to our attention that has caused us to believe that the Registration Statement,
at the time the Registration Statement became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that Prospectus or any amendment or supplement thereto, as of their respective
dates, and as of the date hereof, as the case may be, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that no opinion shall
be expressed with respect to the financial statements and the notes thereto and
the schedules and other financial and statistical data included in the
Registration Statement or the Prospectus).
5
<PAGE> 42
Exhibit 9(e)
Tax Opinion of Arthur Andersen LLP
<PAGE> 1
EXHIBIT 3.2
BRANDYWINE REALTY TRUST
ARTICLES SUPPLEMENTARY
Brandywine Realty Trust, a Maryland real estate investment
trust (the "Trust"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Under a power contained in Section 6.3 of the Amended
and Restated Declaration of Trust of the Trust (the "Declaration"), the Board of
Trustees of the Trust (the "Board of Trustees"), by [resolution duly adopted at
a meeting duly called and held on] [unanimous consent dated] __________ __,
1996, classified and designated a series of the Trust's preferred shares of
beneficial interest, $.01 par value per share, as the Series A Convertible
Preferred Shares (the "Convertible Preferred Shares"), with the following
designation, preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications, and terms and conditions of redemption, which, upon any
restatement of the Declaration, shall be deemed to be part of Article 6 of the
Declaration:
SERIES A CONVERTIBLE PREFERRED SHARES
1. Number of Authorized Convertible Preferred Shares. The
number of authorized Convertible Preferred Shares shall be _________.
2. Voting Rights. Except as otherwise provided by law and as
provided in Section 4(b)(i) hereof, the holders of Convertible Preferred Shares
shall be entitled to vote on all matters as to which holders of common shares of
beneficial interest of the Trust (the "Common Shares") shall be entitled to
vote, together with the holders of Common Shares as a single class, and shall be
entitled to cast the number of votes equal to the number of Common Shares then
issuable upon conversion of the Convertible Preferred Shares owned by such
holder, in accordance with the provisions hereof.
3. Dividends.
(a) The holders of the Convertible Preferred Shares
shall not be entitled to receive any preferences as to dividends or other
distributions except as set forth in Section 6 hereof.
(b) In the event that the Trust pays a dividend with
respect to or makes a distribution on the Common Shares (whether in cash,
securities issued by the Trust or another entity or other property), then the
holders of the Convertible Preferred Shares shall be entitled to
-1-
<PAGE> 2
participate with the holders of the Common Shares in any such dividends or
distributions, such that the holders of the Convertible Preferred Shares shall
receive, with respect to each Convertible Preferred Share held, an amount equal
to the product of (i) the dividend or distribution payable with respect to each
Common Share (except that, if a Conversion Event has not occurred by June 30,
1997, the amount under this clause (i) shall be one hundred twenty percent
(120%) of any such dividend or distribution that is paid (A) on or after July 1,
1997 and prior to a Conversion Event or (B) to holders of record of Common
Shares during such period) multiplied by (ii) the number of Common Shares into
which such Convertible Preferred Share is convertible as of the record date for
such dividend or distribution (or if there is no record date, as of the payment
date).
(c) The provisions of this Section 3 shall not apply
to any dividend or distribution that would result in an adjustment of the
Conversion Number (as hereinafter defined) pursuant to Section 4(c)(ii).
4. Conversion Rights of Convertible Preferred Shares.
(a) Conversion at the Option of the Holder or the
Trust. A holder of record of any Convertible Preferred Shares shall have the
right, at any time, at such holder's option, to convert, without the payment of
any additional consideration, each Convertible Preferred Share held by such
holder into that number of fully paid and non-assessable Common Shares equal to
the Conversion Number (as defined below); provided that, prior to a Conversion
Event (as defined below), any such conversion shall not result in the number of
Common Shares issued upon such conversion plus the number of Common Shares
issued pursuant to prior transactions (including but not limited to, prior
conversions of Convertible Preferred Shares) contemplated by the Contribution
Agreement dated __________ __, 1996 by and among, inter alia, the Trust and RAI
Real Estate Advisors, Inc. as voting trustee of a voting trust dated as of
__________ __, 1996 (the "Voting Trust") or the Securities Purchase Agreement
dated __________ __, 1996 by and between the Trust and Voting Trust
(collectively, the "RAI Agreements") exceeding, in the aggregate, nineteen and
nine-tenths percent (19.9%) of the outstanding Common Shares as of October 31,
1996. After the occurrence of a Conversion Event, the Trust may, by written
notice to each holder, require the conversion of all, but not less than all, of
the Convertible Preferred Shares.
(b) Conversion Event. The term "Conversion Event"
shall mean the approval by a majority of the votes actually cast by the holders
of Common Shares, at a duly convened meeting of the shareholders of the Trust in
which vote the holders of the Convertible Preferred Shares shall have no right
to vote such shares, of the unlimited conversion of the Convertible Preferred
Shares into Common Shares.
(c) Conversion Number. The initial Conversion Number
shall be ten (10), subject to adjustment in accordance with the provisions in
this Section 4(c). Such respective conversion numbers in effect from time to
time, as adjusted pursuant to this Section
-2-
<PAGE> 3
4(c), are referred to herein as the "Conversion Number." All of the remaining
provisions of this Section 4(c) shall apply separately to the respective
Conversion Numbers in effect from time to time.
(i) Each adjustment to the Conversion Number shall
be calculated to the nearest four decimal places.
(ii) If at any time the Trust:
(A) pays a dividend or makes a distribution on
any of its shares of beneficial interest in
Common Shares;
(B) subdivides its outstanding Common Shares
into a greater number of shares;
(C) combines its outstanding Common Shares into
a smaller number of shares; or
(D) issues Common Shares by reclassification of
any of its shares of beneficial interest
then the Conversion Number in effect immediately prior to such action shall be
adjusted so that the holder of Convertible Preferred Shares may receive upon
conversion, the number of Common Shares which the holder would have owned
immediately following such action if the holder had converted the Convertible
Preferred Shares immediately prior to such action.
The adjustment shall become effective immediately
after the record date in the case of a dividend or distribution, and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(d) Mechanics of Conversion. If a holder of
Convertible Preferred Shares desires to exercise the optional conversion right
pursuant to Section 4(a) above, such holder shall give written notice to the
Trust of such holder's election to convert a stated number of Convertible
Preferred Shares into Common Shares, based upon the Conversion Number then in
effect, which notice shall be accompanied by the certificate or certificates
representing such Convertible Preferred Shares which shall be converted into
Common Shares. The notice shall also contain a statement of the name or names in
which the certificate or certificates for Common Shares shall be issued. The
date when such notice is received by the Trust, together with the certificate or
certificates evidencing the Convertible Preferred Shares being surrendered for
conversion, shall be the "Conversion Date." Within two (2) trading days after
the Conversion Date, the Trust shall issue and deliver to such holder of
Convertible Preferred Shares or to such holder's nominee or nominees, a
certificate or certificates evidencing the number of
-3-
<PAGE> 4
Common Shares issuable upon conversion of such Convertible Preferred Shares, and
the certificates evidencing Convertible Preferred Shares surrendered for
conversion shall be canceled by the Trust. If the number of shares evidenced by
the certificate or certificates surrendered for conversion shall exceed the
number of shares to be converted, the Trust shall issue and deliver to the
person entitled thereto a certificate evidencing the balance of any unconverted
shares.
(e) No Fractional Shares. Notwithstanding anything
herein to the contrary, no fractional shares shall be issued to any holder of
Convertible Preferred Shares on conversion of such holder's Convertible
Preferred Shares. Instead of any fractional Common Shares that would otherwise
be issuable upon conversion of such holder's Convertible Preferred Shares, the
Trust shall pay to such holder a cash adjustment in respect of such fractional
shares in an amount equal to the same fraction of the Current Market Price
(determined in a manner consistent with that provided in Section 5(c) below) of
a Common Share at the close of business on the Conversion Date.
(f) Reservation of Common Shares. The Trust shall at
all times reserve and keep available out of its authorized but unissued Common
Shares, solely for issuance upon conversion of Convertible Preferred Shares as
herein provided, such number of Common Shares as shall be issuable from time to
time upon the conversion of all of the Convertible Preferred Shares at the time
issued and outstanding. If the Common Shares are listed on any national
securities exchange or The Nasdaq Stock Market, the Trust shall also list the
Common Shares issuable upon conversion of the Convertible Preferred Shares on
such exchange, subject to notice of issuance, or include the shares issuable
upon conversion in the listing of its Common Shares on The Nasdaq Stock Market,
as the case may be.
5. Redemption.
(a) Optional Redemption. At any time after July 1,
1998, if a Conversion Event has not occurred, a holder of record of any
Convertible Preferred Shares shall have the right, at such holder's option, to
require the Trust to redeem from time to time all or any portion of the
Convertible Preferred Shares held by such holder.
(b) Redemption Price. The price at which each
Convertible Preferred Share shall be redeemed (the "Redemption Price") shall be
equal to the greater of:
(i) The product of (A) $5.50 plus an amount
(the "Return Amount") equal to 8% of $5.50 per annum, on the basis of a 360-day
year, from the date of issuance of the Convertible Preferred Share to the
Redemption Date (as hereinafter defined) less any cash distributions and the
fair market value of non-cash distributions (to the extent such distributions
are less than or equal to the Return Amount) actually received by the holder on
account of each Convertible Preferred Share and (B) the number of Common Shares
issuable
-4-
<PAGE> 5
upon the conversion of each Convertible Preferred Share if such conversion
occurred on the Redemption Date.
(ii) The product of (A) the Current Market
Price (determined as provided below) of a Common Share and (B) the number of
Common Shares issuable upon the conversion of each Convertible Preferred Share
if such conversion occurred on the Redemption Date.
(c) Current Market Price. The "Current Market Price"
of a Common Share shall be determined as follows:
(i) If the Common Shares are listed on a
national securities exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on The Nasdaq Stock Market, the Current Market
Price shall be the last reported sale price of the Common Shares on such
exchange or system on the last business day prior to the Redemption Date, or if
no such sale is made on such day, the average of the closing bid and asked
prices of the Common Shares for such day on such exchange or system; or
(ii) If the Common Shares are not so listed
or admitted to unlisted trading privileges, the Current Market Price shall be
the average of the last reported bid and asked prices reported by the National
Quotation Bureau, Inc., on the last business day prior to the Redemption Date;
or
(iii) If the Common Shares are not so listed
or admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Current Market Price per Share shall be an amount, not less than
90% of the book value per Common Share as at the end of the most recent fiscal
year of the Trust ending prior to the Redemption Date, determined in such
reasonable manner as may be prescribed in good faith by the Board of Trustees of
the Trust.
(d) Exercise of Option to Redeem. If a holder of
record of any Convertible Preferred Shares desires to exercise the option to
redeem some or all of such holder's Convertible Preferred Shares pursuant to
this Section 5, such holder shall give written notice to the Trust specifying
the number of shares to be redeemed (a "Redemption Notice"), which notice shall
be accompanied by the certificate or certificates (duly endorsed for transfer)
evidencing the Convertible Preferred Shares to be redeemed. Redemptions shall be
made as of the date that the Redemption Notice is received (or if such date is
not a trading date, as of the first trading day thereafter). Each such date of
redemption shall be a "Redemption Date." The Trust shall, within two (2) trading
days after the Redemption Date, pay the Redemption Price, without interest, to,
or to the order of, the person whose name appears on such certificate or
certificates as the owner thereof. If the number of shares evidenced by the
certificate or certificates surrendered shall exceed the number of shares to be
redeemed, the Trust shall issue and deliver to the person entitled thereto, a
certificate evidencing the balance of any unredeemed
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shares. Any Convertible Preferred Shares that are redeemed by a holder thereof
shall be retired and shall not be reissued.
6. Rights upon Liquidation, Merger or Consolidation.
(a) In the event of any liquidation, dissolution or
winding up, whether voluntary or involuntary, of the Trust (a "Liquidation")
prior to a Conversion Event, the holders of the issued and outstanding
Convertible Preferred Shares shall be entitled to receive for each Convertible
Preferred Share, before any distribution or payments are made upon any Common
Shares or any other security subordinate as to liquidation to the Convertible
Preferred Shares, and after payment by the Company of all sums due all
creditors, an amount equal to the greater of (A) such pro rata amount as would
have been payable with respect to the Common Shares into which such Convertible
Preferred Share was convertible immediately prior to the Liquidation if all
outstanding Convertible Preferred Shares had been so converted (the "Pro Rata
Amount") or (B) the product of $5.50 multiplied by the number of Common Shares
issuable upon the conversion of such Convertible Preferred Share if such
conversion occurred immediately prior to the Liquidation, plus all declared but
unpaid dividends. If, upon a Liquidation prior to a Conversion Event, the assets
available for distribution to the holders of Convertible Preferred Shares shall
be insufficient to pay such holders their liquidation preference in full, then
such holders shall share ratably in the distribution of such assets in
proportion to the respective sums which would otherwise be payable upon such
distribution if all sums so payable to the holders of Convertible Preferred
Shares were paid in full. In the event of any Liquidation after a Conversion
Event, the holders of the Convertible Preferred Shares shall be entitled to the
Pro Rata Amount. In no event shall holders of Convertible Preferred Shares be
entitled to distributions upon Liquidation in excess of the foregoing.
(b) Upon a merger, consolidation or similar
transaction involving the Trust, the holders of the issued and outstanding
Convertible Preferred Shares shall be entitled to receive for each Convertible
Preferred Share such payment and/or distribution as would have been paid or
distributed with respect to the Common Shares into which such Convertible
Preferred Share was convertible immediately prior to the merger, consolidation
or similar transaction if all outstanding Convertible Preferred Shares had been
so converted.
(c) Without the written consent of the holders of a
majority of the Convertible Preferred Shares then outstanding, prior to a
Conversion Event, no series of shares of beneficial interest in the Trust shall
be authorized or issued with rights upon a Liquidation senior to or pari passu
with the Convertible Preferred Shares.
(d) In determining whether a distribution (other than
upon voluntary or involuntary liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted under applicable law, amounts
that would be needed, if the Trust were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
Convertible Preferred Shares whose preferential rights upon dissolution are
superior to those receiving the distribution shall not be added to the Trust's
total liabilities.
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SECOND: The Convertible Preferred Shares have been classified
and designated by the Board of Trustees under the authority contained in the
Declaration.
THIRD: These Articles Supplementary have been approved by the
Board of Trustees in the manner and by the vote required by law.
FOURTH: The undersigned President of the Trust acknowledges
these Articles Supplementary to be the trust act of the Trust and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
IN WITNESS WHEREOF, the Trust has caused these Articles
Supplementary to be executed under seal in its name and on its behalf by its
President and attested to by its Secretary on this _____ of _________, 1996.
ATTEST: BRANDYWINE REALTY TRUST
________________________________ By:________________________________(SEAL)
_______________________, Secretary Gerard H. Sweeney, President
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EXHIBIT 3.3
BRANDYWINE REALTY TRUST
BYLAWS
ARTICLE I.
OFFICES
Section 1. Principal Office. The principal office of
Brandywine Realty Trust (the "Trust") shall be located at such place or places
as the Trustees may designate.
Section 2. Additional Offices. The Trust may have additional
offices at such places as the Trustees may from time to time determine or the
business of the Trust may require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 1. Place. All meetings of shareholders shall be held
at the principal place of the Trust or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. Annual Meeting. An annual meeting of the
shareholders for the election of Trustees and the transaction of any business
within the powers of the Trust shall be held annually and at the time set by the
Trustees.
Section 3. Special Meetings. Subject to the rights of the
holders of any series of Preferred Shares of Beneficial Interest (as defined in
the Declaration of Trust) to elect additional Trustees under specified
circumstances, special meetings of the shareholders may be called by the
chairman or by a resolution adopted by one-half or more of the total number of
Trustees which the Trust would have if there were no vacancies (the "Whole
Board"). Special meetings of shareholders may also be called upon the written
request of shareholders to the extent permitted in Article 7 of the Declaration
of Trust.
Section 4. Notice. Not less than ten nor more than 90 days
before each meeting of shareholders, the secretary shall give to each
shareholder entitled to vote at such meeting and to each shareholder not
entitled to vote who is entitled to notice of the meeting written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by statute, the purpose for which the
meeting is called, either by mail or by presenting it to such shareholder
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the
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shareholder at his post office address as it appears on the records of the
Trust, with postage thereon prepaid.
Section 5. Scope of Notice. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by statute to be
stated in such notice. No business shall be transacted at a special meeting of
shareholders except as specifically designated in the notice.
Section 6. Quorum. At any meeting of shareholders, the
presence in person or by proxy of shareholders entitled to cast a majority of
all the votes entitled to be cast at such meeting shall constitute a quorum; but
this section shall not affect any requirement under any statute or the
Declaration of Trust for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the shareholders,
the shareholders entitled to vote at such meeting, present in person or by
proxy, shall have power to adjourn the meeting from time to time to a date not
more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 7. Voting. A plurality of all the votes cast at a
meeting of shareholders duly called and at which a quorum is present shall be
sufficient to elect a Trustee. Shareholders shall not be entitled to cumulate
their votes in the election of Trustees. A majority of the votes cast at a
meeting of shareholders duly called and at which a quorum is present shall be
sufficient to approve any other matter which may properly come before the
meeting, unless more than a majority of the votes cast is required by statute or
by the Declaration of Trust. Unless otherwise provided in the Declaration, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders.
Section 8. Proxies. A shareholder may vote the shares owned of
record by him, either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the Trust before or at the time of the meeting. No
proxy shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 9. Voting of Shares by Certain Holders. Shares
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the chief executive officer or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other
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person who has been appointed to vote such shares pursuant to a bylaw or a
resolution of the board of directors of such corporation or other entity
presents a certified copy of such bylaw or resolution, in which case such person
may vote such shares. Any trustee or other fiduciary may vote shares registered
in his name as such fiduciary, either in person or by proxy.
Shares of the Trust directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person other
than the shareholder. The resolution shall set forth the class of shareholders
who may make the certification, the purpose for which the certification may be
made, the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the share
transfer books, the time after the record date or closing of the share transfer
books within which the certification must be received by the Trust; and any
other provisions with respect to the procedure which the Trustees consider
necessary or desirable. On receipt of such certification, the person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Section 10. Inspectors. At any meeting of shareholders, the
chairman of the meeting may, or upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meetings. Such inspectors
shall ascertain and report the number of shares represented at the meeting based
upon their determination of the validity and effect of proxies, count all votes,
report the results and perform such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by
him or by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
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Section 11. Reports to Shareholders. Not later than 90 days
after the close of each fiscal year of the Trust, the Trustees shall deliver or
cause to be delivered a report of the business and operations of the Trust
during such fiscal year to the shareholders, containing a balance sheet and a
statement of income and surplus of the Trust, accompanied by the certification
of an independent certified public accountant, and such further information as
the Trustees may determine is required pursuant to any law or regulation to
which the Trust is subject. A signed copy of the annual report and the
accountant's certificate shall be filed by the Trustees with the State
Department of Assessments and Taxation of Maryland, and with such other
governmental agencies as may be required by law and as the Trustees may deem
appropriate.
Section 12. Voting by Ballot. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
Section 13. No Shareholder Action by Written Consent. Subject
to the rights of the holders of any series Preferred Shares to elect additional
Trustees under specific circumstances, any action required or permitted to be
taken by the shareholders of the Trust must be effected at an annual or special
meeting of shareholders and may not be effected by any consent in writing by
such shareholders.
Section 14. Exemption of Certain Shares. All of the
acquisitions of: (i) the common shares of beneficial interest ("Common Shares")
of the Trust now or hereafter owned by Safeguard Scientifics, Inc., The Nichols
Company and any of their current or future affiliates or associates
(collectively, the "SSI/TNC Affiliates"); (ii) the Common Shares and Preferred
Shares now or hereafter owned by Commonwealth of Pennsylvania State Employes'
Retirement System, RAI Real Estate Advisers, Inc. and any of their current or
future affiliates or associates (collectively, the "SERS Affiliates"); and (iii)
the Common Shares now or hereafter owned by Morgan Stanley Asset Management,
Inc., Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio and
Morgan Stanley, Sicav Subsidiary, SA and any of their current or future
affiliates or associates (collectively, the "Morgan Affiliates") are hereby
exempted from Subtitle 7 of Title 3 of the Maryland General Corporation Law, and
the Trust shall have no right to exercise the redemption right with respect to
such Common Shares arising under said Subtitle 7. In no event will any
Shareholder of the Trust have any rights under Section 3-708 of said Subtitle 7
as a result of the ownership by the SSI/TNC Affiliates of Common Shares or by
the SERS Affiliates of Common Shares or Preferred Shares or by the Morgan
Affiliates of Common Shares as aforesaid. As used herein, the terms "affiliates"
and "associates" have the respective meanings
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<PAGE> 5
assigned to them in Subtitles 6 and 7, respectively, of said Title 3.
ARTICLE III.
TRUSTEES
Section 1. General Powers: Qualifications. The business and
affairs of the Trust shall be managed under the direction of its Board of
Trustees. A Trustee shall be an individual at least 21 years of age who is not
under legal disability.
Section 2. Annual and Regular Meetings. An annual meeting of
the Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
Section 3. Special Meetings. Special meetings of the Trustees
may be called by or at the request of the chairman or chief executive officer or
by one-half or more of the Trustees then in office. The person or persons
authorized to call special meetings of the Trustees may fix any place, either
within or without the State of Maryland, as the place for holding any special
meeting of the Trustees called by them.
Section 4. Notice. Notice of any special meeting shall be
given by written notice delivered personally, transmitted by facsimile,
telegraphed or mailed to each Trustee at his business or residence address.
Personally delivered, facsimile transmitted or telegraphed notices shall be
given at least two days prior to the meeting.
Notice by mail shall be given at least five days prior to the
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail properly addressed, with postage thereon prepaid. If
given by telegram, such notice shall be deemed to be given when the telegram is
delivered to the telegraph company. Neither the business to be transacted at,
nor the purpose of, any annual, regular or special meeting of the Trustees need
be stated in the notice, unless specifically required by statute or these
Bylaws.
Section 5. Quorum. A whole number of Trustees equal to at
least a majority of the Whole Board Trustees shall constitute a quorum for
transaction of business at any meeting of the Trustees, provided that, if less
than a quorum are present at said meeting, a majority of the Trustees present
may adjourn the meeting from time to time without further notice, and provided
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further that if, pursuant to the Declaration of Trust or these Bylaws, the vote
of a majority of a particular group of Trustees is required for action, a quorum
must also include a majority of such group.
The Trustees present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Trustees to leave less than a quorum.
Section 6. Voting. The action of the majority of the Trustees
present at a meeting at which a quorum is present shall be the action of the
Trustees, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 7. Telephone Meetings. Trustees may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 8. Informal Action by Trustees. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
Section 9. Vacancies. If for any reason any or all the
Trustees cease to be Trustees, such event shall not terminate the Trust or
affect these Bylaws or the powers of the remaining Trustees hereunder (even if
fewer than three Trustees remain). Any vacancy (including a vacancy created by
an increase in the number of Trustees) shall be filled, at any regular meeting
or at any special meeting called for that purpose, by a majority of the Trustees
(although less than a quorum). Any individual so elected as Trustee shall hold
office until the next annual meeting of shareholders and until his successor has
been duly elected and qualified.
Section 10. Compensation. Trustees shall not receive any
stated salary for their services as Trustees but, by resolution of the trustees,
fixed sums per year and/or per meeting. Expenses of attendance, if any, may be
allowed to trustees for attendance at each annual, regular or special meeting of
the Trustees or of any committee thereof; but nothing herein contained shall be
construed to preclude any Trustees from serving the Trust in any other capacity
and receiving compensation therefor.
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Section 11. Removal of Trustees. The shareholders may, at any
time, remove any Trustee in the manner provided in the Declaration of Trust.
Section 12. Loss of Deposits. No Trustee shall be liable for
any loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
Section 13. Surety Bonds. Unless required by law, no Trustee
shall be obligated to give any bond or surety or other security for the
performance of any of his duties.
Section 14. Reliance. Each Trustee, officer, employee and
agent of the Trust shall, in the performance of his duties with respect to the
Trust, be fully justified and protected with regard to any act or failure to act
in reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel or upon reports made to the Trust by any of
its officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section 15. Certain Rights of Trustees, Officers, Employees
and Agents. The Trustees shall have no responsibility to devote their full time
to the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust, in his personal capacity or in a capacity as an affiliate, employee, or
agent of any other person, or otherwise, may have business interests and engage
in business activities similar to or in addition to those of or relating to the
Trust. ARTICLE IV.
COMMITTEES
Section 1. Number, Tenure and Qualifications. The Trustees
may, by resolution or resolutions passed by a majority of the whole Board,
appoint from among its members an Executive Committee, an Audit Committee and
other committees, composed of two or more Trustees.
Section 2. Powers. The Trustees may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Trustees, provided, however that the Trustees may not delegate to a committee
the power to declare dividends or other distributions, elect Trustees, issue
Shares of Beneficial Interest in the Trust other than as provided in the next
sentence, recommend to the shareholders any action which requires shareholder
approval, amend the Bylaws, or approve any
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merger or share exchange which does not require shareholder approval. If the
Board of Trustees has given general authorization for the issuance of Shares of
Beneficial Interest in the Trust, a committee of the board, in accordance with a
general formula or method specified by the Board by resolution or by adoption of
an option or other plan, may fix the terms of the Shares of Beneficial Interest
subject to classification or reclassification and the terms on which the shares
may be issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Trustees.
Section 3. Committee Procedures. Each Committee may fix rules
of procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the action of a majority
of those present at a meeting at which a quorum is present shall be action of
the committee. In the absence of any member of any committee, the members
thereof present at any meeting, whether or not they constitute a quorum, may
appoint another Trustee to act in the place of such absent member. Any action
required or permitted to be taken at a meeting of a committee may be taken
without a meeting, if a unanimous written consent which sets forth the action is
signed by each member of the committee and filed with the minutes of the
proceedings of such committee. The members of a committee may conduct any
meeting thereof by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by such means shall constitute presence in
person at the meeting.
Section 4. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Trust by its Trustees and officers as contemplated by the
Declaration of Trust and these Bylaws, any two or more available members of the
then incumbent Executive Committee, if any, shall constitute a quorum of that
Committee for the full conduct and management of the affairs and business of the
Trust in accordance with the provisions of this Article. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available Trustees shall elect an Executive Committee
composed of any two members of the Board of Trustees, whether or not they be
officers of the Trust, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Trust in
accordance with the foregoing provisions of this Section . This Section shall be
subject to implementation by resolution of the Board of Trustees passed form
time to time for that purpose, and any provisions of the Bylaws (other than this
Section ) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementing resolutions shall be
suspended until it shall be determined by any interim
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Executive Committee acting under this Section that it shall be to the advantage
of the Trust to resume the conduct and management of its affairs and business
under all the other provisions of these Bylaws.
ARTICLE V.
OFFICERS
Section 1. General Provisions. The officers of the Trust may
consist of a chairman of the board, a chief executive officer, one or more vice
presidents, a chief financial officer, a secretary, and one or more assistant
secretaries. In addition, the Trustees may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Trust shall be elected annually by the Trustees at the first
meeting of the Trustees held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as may be convenient. Each officer shall hold office
until his successor is elected and qualifies or until his death, resignation or
removal in the manner hereinafter provided. Any two or more offices may be held
by the same person. In their discretion, the Trustees may leave unfilled any
office. Election of an officer or agent shall not of itself create contract
rights between the Trust and such officer or agent.
Section 2. Removal and Resignation. Any officer or agent of
the Trust may be removed by a majority of the members of the Whole Board if in
their judgment the best interests of the Trust would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any officer of the Trust may resign at any time by giving written
notice of his resignation to the Trustees, the chairman of the board, the chief
executive officer or the secretary. Any resignation shall take effect at any
time subsequent to the time specified therein or, if the time when it shall
become effective is not specified therein, immediately upon its receipt. The
acceptance of a resignation shall not be necessary to make it effective unless
otherwise stated in the resignation.
Section 3. Vacancies. A vacancy in any office may be filled by
the Trustees for the balance of the term.
Section 4. Chairman of the Board. The chairman of the board
shall preside over the meetings of the Trustees and of the shareholders at which
he shall be present. The chairman of the board shall perform such other duties
as may be assigned to him by the Trustees. Except where by law the signature of
the chief executive officer is required, the chairman of the board shall
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possess the same power as the chief executive officer to sign deeds, mortgages,
bonds, contracts or other instruments.
Section 5. Chief Executive Officer. The Trustees may designate
a chief executive officer from among the elected officers. In the absence of
such designation, the chairman of the board shall be the chief executive officer
of the Trust. The chief executive officer shall have general responsibility for
implementation of the policies of the Trust, as determined by the Trustees, and
for the management of the business affairs of the Trust. The chief executive
officer shall in general supervise and control all of the business and affairs
of the Trust. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Trustees or by these Bylaws to some other officer or agent of
the Trust or shall be required by law to be otherwise executed; and in general
shall perform all duties incident to the office of chief executive officer and
such other duties as may be prescribed by the Trustees from time to time.
Section 6. Vice Presidents. In the absence of the chief
executive officer or in the event of a vacancy in such office, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated at the time of their election or, in the
absence of any designation, then in the order of their election ) shall perform
the duties of the chief executive officer and when so acting shall have all the
powers of and be subject to all the restrictions upon the chief executive
officer; and shall perform such other duties as form time to time may be
assigned to him by the chief executive officer or by the Trustees. The Trustees
may designate one or more vice presidents as executive vice president or as vice
president for particular areas of responsibility.
Section 7. Secretary. The secretary shall (a) keep the minutes
of the proceedings of the shareholders, the Trustees and committees of the
Trustees in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the trust records and of the seal of the
Trust; (d) keep a register of the post office address of each shareholder which
shall be furnished to the secretary by such shareholder; (e) have general charge
of the share transfer books of the Trust; and (f) in general perform such other
duties as from time to time may be assigned to him by the chief executive
officer or by the Trustees.
Section 8. Chief Financial Officer. The chief financial
officer shall have the custody of the funds and securities of the Trust and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Trust and shall deposit all moneys and other valuable effects
in the name
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and to the credit of the Trust in such depositories as may be designated by the
Trustees.
The chief financial officer shall disburse the funds of the
Trust as may be ordered by the Trustees, taking proper vouchers for such
disbursements, and shall render to the chief executive officer and Trustees, at
the regular meetings of the Trustees or whenever they may require it, an account
of all his transactions as chief financial officer and of the financial
condition of the Trust.
If required by the Trustees, he shall give the Trust a bond in
such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of his office and for the
restoration of the Trust, in case of his death, resignation, retirement or
removal from office, all books, papers, vouchers, moneys and other property of
whatever kind in his possession or under his control belonging to the Trust.
Section 9. Assistant Secretaries. The assistant secretaries,
in general, shall perform such duties as shall be assigned to them by the
secretary, or by the chief executive officer or the Trustees.
Section 10. Salaries. The salaries of the officers shall be
fixed from time to time by the Trustees and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Trustee.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Trustees may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Trust and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the Trustees or by an authorized person
shall be deemed valid and binding upon the Trustees and upon the Trust when so
authorized or ratified by action of the Trustees.
Section 2. Checks and Drafts. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Trust shall be signed by such officer or officers, agent or
agents of the Trust and in such manner as shall from time to time be determined
by the Trustees.
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Section 3. Deposits. All funds of the Trust not otherwise
employed shall be deposited from time to time to the credit of the Trust in such
banks, trust companies or other depositories as the Trustees may designate.
ARTICLE VII.
SHARES
Section 1. Certificates. Each shareholder shall be entitled to
a certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the chief executive officer or a vice president
and countersigned by the secretary or an assistant secretary or the chief
financial officer or an assistant treasurer and may be sealed with the seal, if
any, of the Trust. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Trust shall, from time
to time, issue several classes of shares, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. Each certificate representing
shares which are restricted as to their transferability or voting powers, which
are preferred or limited as to their dividends or as to their allocable portion
of the assets upon liquidation or which are redeemable at the option of the
Trust, shall have a statement of such restriction, limitation, preference or
redemption provision, or a summary thereof, plainly stated on the certificate.
In lieu of such statement or summary, the Trust may set forth upon the face or
back of the certificate a statement that the Trust will furnish to any
shareholder, upon request and without charge, a full statement of such
information.
Section 2. Transfers. Certificates shall be treated as
negotiable and title thereto and to the shares they represent shall be
transferred by delivery thereof to the same extent as those of a Maryland stock
corporation. Upon surrender to the Trust or the transfer agent of the Trust of a
share certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Trust shall issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
The Trust shall be entitled to treat the holder of record of
any share or shares as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
-12-
<PAGE> 13
Section 3. Lost Certificate. The Trustees may direct a new
certificate to be issued in place of any certificate previously issued by the
Trust alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate to be lost, stolen
or destroyed. When authorizing the issuance of a new certificate, the Trustees
may, in their discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or his legal
representative to advertise the same in such manner as they shall require and/or
to give bond, with sufficient surety, to the Trust to indemnify it against any
loss or claim which may arise as a result of the issuance of a new certificate.
Section 4. Closing of Transfer Books or Fixing of Record Date.
The Trustees may set, in advance a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend or the allotment of any
other rights, or in order to make a determination of shareholders for any other
proper purpose. Such date, in any case, shall not be prior to the close of
business on the day the record date is fixed and shall be not more than 90 days
and, in the case of a meeting of shareholders not less than ten days, before the
date on which the meeting or particular action requiring such determination of
shareholders is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that
the share transfer books shall be closed for a stated period but not longer than
20 days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at lest ten days before the date of such meeting.
If no record date is fixed and the share transfer books are
not closed for the determination of shareholders, (a) the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
shareholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the Trustees, declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except where the
determination has been made through the
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<PAGE> 14
closing of the transfer books and the stated period of closing
has expired.
Section 5. Share Ledger. The Trust shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
shareholder and the number of shareholders of each class held by such
shareholder.
Section 6. Fractional Shares; Issuance of Units. Trustees may
issue fractional shares or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the Declaration or these Bylaws, the Trustees may issue units
consisting of different securities of the Trust. Any security issued in a unit
shall have the same characteristics as any identical securities issued by the
Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII.
ACCOUNTING YEAR
The Trustees shall have the power, from time to time, to fix
the fiscal year of the Trust by a duly adopted resolution.
ARTICLE IX.
DIVIDENDS
Section 1. Declaration. Dividends upon the shares of
the Trust may be declared by the Trustees, subject to the
provisions of law and the Declaration of Trust. Dividends may be
paid in cash, property or shares of the Trust, subject to the
provisions of law and the Declaration.
Section 2. Contingencies. Before payment of any dividends,
there may be set aside out of any funds of the Trust available for dividends
such sum or sums as the Trustees may from time to time, in their absolute
discretion, think proper as the reserve fund for contingencies, for equalizing
dividends, for repairing or maintaining any property of the Trust or for such
other purpose as the Trustees shall determine to be in the best interest of the
Trust, and the Trustees may modify or abolish any such reserve in the manner in
which it was created.
-14-
<PAGE> 15
ARTICLE X.
INVESTMENT POLICY
Subject to the provisions of the Declaration of Trust, the
Trustees may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Trust as they shall deem appropriate
in their sole discretion.
ARTICLE XI.
SEAL
Section 1. Seal. The Trustees may authorize the adoption of a
seal by the Trust. The seal shall have inscribed thereon the name of the Trust
and the year of its organization. The Trustees may authorize one or more
duplicate seals and provide for the custody thereof.
Section 2. Affixing Seal. Whenever the Trust is required to
place its seal to a document, it shall be sufficient to meet the requirements of
any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Trust.
ARTICLE XII.
INDEMNIFICATION
To the maximum extent permitted by Maryland law in effect from
time to time, the Trust, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify (a) any Trustee,
officer or shareholder or any former Trustee, officer or shareholder (including
among the foregoing, for all purposes of this Article XII and without
limitation, any individual who, while a Trustee and at the request of the Trust,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise), who has been successful, on the merits or otherwise,
in the defense of a proceeding to which he was made a party by reason of such
status, against reasonable expenses incurred by him in connection with the
proceeding, (b) any Trustee or officer or any former Trustee or officer against
any claim or liability to which he may become subject by reason of such status
unless it is established that
-15-
<PAGE> 16
(i) his act or omission was committed in bad faith or was the result of active
and deliberate dishonesty, (ii) he actually received an improper personal
benefit in money, property or services, or (iii) in the case of a criminal
proceeding, he had reasonable cause to believe that his act or omission was
unlawful and (c) each shareholder or former shareholder against any claim or
liability to which he may be subject by reason of his status as a shareholder or
former shareholder. In addition, the Trust shall pay or reimburse, in advance of
final disposition of a proceeding, reasonable expenses incurred by a Trustee,
officer or shareholder or former Trustee, officer or shareholder made a party to
a proceeding by reason of his status as a Trustee, officer or shareholder
provided that, in the case of a Trustee or officer, the Trust shall have
received (i) a written affirmation by the Trustee or officer of his good faith
belief that he has met the applicable standard of conduct necessary for
indemnification by the Trust as authorized by these Bylaws and (ii) a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
Trust if it shall ultimately be determined that the applicable standard of
conduct was not met. The Trust may, with the approval of its Trustees, provide
such indemnification and payment or reimbursement of expenses to any Trustee,
officer or shareholder or any former Trustee, officer or shareholder who served
a predecessor of the Trust and to any employee or agent of the Trust or a
predecessor of the Trust. Neither the amendment nor repeal of this Section , nor
the adoption or amendment of any other provision of the Declaration of Trust or
these Bylaws inconsistent with this Section , shall apply to or affect in any
respect the applicability of this paragraph with respect to any act or failure
to act which occurred prior to such amendment, repeal or adoption. Any
indemnification or payment or reimbursement of the expenses permitted by these
Bylaws shall be furnished in accordance with the procedures provided for
indemnification and payment or reimbursement of expenses under Section 2-418 of
the Maryland General Corporation Law (the "MGCL") for directors of Maryland
corporations. The Trust may provide to Trustees, officers and shareholders such
other and further indemnification or payment or reimbursement of expenses as may
be permitted by the MGCL, as in effect from time to time, for directors of
Maryland corporations.
ARTICLE XIII.
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons
-16-
<PAGE> 17
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Neither the business to be
transacted at nor the purpose of any meeting need be set forth in the waiver of
notice, unless specifically required by statute. The attendance of any person at
any meeting shall constitute a waiver of notice of such meeting, except where
such person attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE XIV.
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or
repeal any provision of these Bylaws and to make new Bylaws.
The foregoing are certified as the Bylaws of the Trust adopted
by the Trustees as of August 22, 1996.
---------------------------------
Secretary
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<PAGE> 1
EXHIBIT 5.01
November 7, 1996
Brandywine Realty Trust
16 Campus Boulevard
Newtown Square, Pennsylvania 19073
Gentleman:
We have acted as counsel to Brandywine Realty Trust, a
Maryland real estate investment trust (the "Company"), in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") of a registration statement (the "Registration Statement") of the
Company on Form S-11 (No. 333-13969) under the Securities Act of 1933, as
amended (the "Act"). The Registration Statement relates to the proposed issuance
and sale by the Company to the public of up to 3,700,000 common shares of
beneficial interest, par value $.01 per share ("Common Shares"), of the Company
(the "Firm Shares"), as well as the issuance and sale by the Company of up to an
additional 555,000 Common Shares (the "Option Shares") to cover over-allotments.
In connection with this opinion, we have examined the
originals or copies, certified or otherwise identified to our satisfaction, of
the Declaration of Trust and the By-Laws of the Company, as amended to date,
resolutions of the Company's Board of Trustees and such other documents and
trust records relating to the Company, and the proposed issuance and sale of the
Firm Shares and Option Shares, as we have deemed appropriate. Insofar as this
opinion relates to matters of Maryland law, we have relied exclusively upon the
opinion of Ballard Spahr Andrews & Ingersoll addressed to us, dated November 6,
1996.
On the basis of the foregoing, we are of the opinion
that the Firm Shares and the Option Shares, when sold in
<PAGE> 2
Brandywine Realty Trust
Page 2
November 7, 1996
accordance with the Underwriting Agreement attached as an exhibit to the
Registration Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the reference to our firm under the
caption "Legal Matters" in the Prospectus included in the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement.
Such consent does not constitute a consent under Section 7 of the Act, since we
have not certified any part of such Registration Statement and we do not
otherwise come within the categories of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
PEPPER, HAMILTON & SCHEETZ
By: /s/ Michael H. Friedman
-----------------------
A Partner
<PAGE> 1
EXHIBIT 5.02
November 6, 1996
Brandywine Realty Trust
16 Campus Boulevard
Newton Square, Pennsylvania 19073
Re: Registration Statement on Form S-11
Registration No. 333-13969
Ladies and Gentlemen:
We have served as Maryland counsel to Brandywine Realty Trust,
a Maryland real estate investment trust (the "Company"), in connection with
certain matters of Maryland law arising out of the registration of up to
4,255,000 common shares of beneficial interest, $.01 par value per share, of the
Company (the "Shares") (including up to 555,000 shares pursuant to an
over-allotment option granted to the underwriters), covered by the
above-referenced Registration Statement, and all amendments thereto (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"1933 Act"). Unless otherwise defined herein, capitalized terms used herein
shall have the meanings assigned to them in the Registration Statement.
In connection with our representation of the Company, and as a
basis for the opinion hereinafter set forth, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement and the related form of final
prospectus included therein in the form in which it was transmitted to the
Securities and Exchange Commission under the 1933 Act;
2. The Amended and Restated Declaration of Trust of the
Company, certified as of a recent date by the State Department of Assessments
and Taxation of Maryland (the "SDAT");
<PAGE> 2
Brandywine Realty Trust
November 6, 1996
Page 2
3. The Bylaws of the Company, certified as of a recent date by
its Secretary;
4. Resolutions adopted by the Board of Trustees and
shareholders of the Company relating to the sale, issuance and registration of
the Shares, certified as of a recent date by the Secretary of the Company;
5. The form of certificate representing common shares of
beneficial interest, $.01 par value per share, of the Company ("Common Shares"),
certified as of a recent date by its Secretary;
6. A certificate of the SDAT as to the good standing of the
Company, dated November 6, 1996;
7. A certificate executed by Francine M. Haulenbeek, Vice
President, Secretary and Treasurer of the Company, dated November 6, 1996; and
8. Such other documents and matters as we have deemed
necessary or appropriate to express the opinion set forth in this letter,
subject to the assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed,
and so far as is known to us there are no facts inconsistent with, the
following:
1. Each individual executing any of the Documents, whether on
behalf of such individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of
a party (other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any
of the Documents has duly and validly executed and delivered each of the
Documents to which such party is a signatory, and such party's obligations set
forth therein are legal, valid and binding.
4. All Documents submitted to us as originals are authentic.
All Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All public
records
<PAGE> 3
Brandywine Realty Trust
November 6, 1996
Page 3
reviewed or relied upon by us or on our behalf are true and complete. All
statements and information contained in the Documents are true and complete.
There are no oral or written modifications or amendments to the Documents, by
action or conduct of the parties or otherwise.
The phrase "known to us" is limited to the actual knowledge,
without independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:
1. The Company is a real estate investment trust duly formed
and existing under and by virtue of the laws of the State of Maryland and is in
good standing with the SDAT.
2. Assuming that the sum of (a) all Common Shares issued as of
the date hereof, (b) any Common Shares issued between the date hereof and the
date on which any of the Shares are actually issued (not including any of the
Shares), and (c) the Shares will not exceed the total number of Common Shares
that the Company is authorized to issue, the Shares are duly authorized and,
when and if delivered against payment therefor in accordance with the
resolutions of the Board of Trustees of the Company authorizing their issuance,
will be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the laws of the State of
Maryland and we do not express any opinion herein concerning any other law. We
express no opinion as to compliance with the securities (or "blue sky") laws or
the real estate syndication laws of the State of Maryland.
We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for submission
to the Securities and Exchange Commission as an exhibit to the Registration
Statement and, accordingly, may not be relied upon by, quoted in any manner to,
or delivered to any other person or entity (other than Pepper, Hamilton &
Scheetz,
<PAGE> 4
Brandywine Realty Trust
November 6, 1996
Page 4
counsel to the Company) without, in each instance, our prior written consent.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL
<PAGE> 1
EXHIBIT 10.30
AMENDMENT NO. 1 TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
BRANDYWINE OPERATING PARTNERSHIP, L.P.
This Amendment No. 1 dated November 6, 1996 to Agreement of
Limited Partnership dated August 22, 1996 by and among BRANDYWINE REALTY TRUST,
a Maryland real estate investment trust as general partner (the "General
Partner"), and the PERSONS NAMED IN EXHIBIT "A" attached hereto, as limited
partners (the "Limited Partners"). The General Partner and the Limited Partners
are sometimes referred to individually as a "Partner" and collectively as the
"Partners".
BACKGROUND
A. The General Partner and the Limited Partners have entered
into an Agreement of Limited Partnership of Brandywine Operating Partnership,
L.P. dated August 22, 1996 (the "Partnership Agreement"). Capitalized terms not
defined herein shall have the meanings given to such terms in the Partnership
Agreement.
B. The General Partner and the Limited Partners desire to
amend the Partnership Agreement as provided in this Amendment No. 1 to the
Partnership Agreement.
Accordingly, intending to be legally bound, the parties hereto
agree as follows:
1. Occurrence of Qualified Offering. (a) The completion of the
offering to the public by the General Partner of the common shares of beneficial
interest of the General Partner to be registered with the Securities and
Exchange Commission ("SEC") on the General Partner's registration statement No.
333-13969 on Form S-11 filed with the SEC on October 11, 1996, as such
registration statement may be amended from time to time (the "Registration
Statement") which public offering shall be underwritten on a firm commitment
basis by a syndicate of underwriters for whom Smith Barney Inc. and Legg Mason
Wood Walker Incorporated shall serve as their representatives
("Representatives"), shall constitute the completion of a "Qualified Offering"
(without regard to the amount of proceeds therefrom) as that term is defined and
used in the Partnership Agreement and the Distribution Support and Loan
Agreement dated August 22, 1996 between Safeguard Scientifics (Delaware), Inc.
and the Partnership. Such public offering is hereinafter called the "Public
Offering."
(b) The completion by the General Partner of the proposed
transactions (the "SERS Transaction") with a voting
<PAGE> 2
trust (the "SERS Voting Trust") established for the benefit of the Commonwealth
of Pennsylvania State Employes' Retirement System ("SERS"), as advised by Radnor
Real Estate Advisers, Inc. ("RAI") (A) pursuant to which the General Partner
will purchase eleven office buildings and two industrial facilities owned by
SERS for (i) Series A Preferred Shares of the General Partner convertible, under
certain circumstances, into 1,606,060 common shares of the General Partner,
after giving effect to the 1-for-3 reverse share split contemplated by the
Registration Statement; (ii) deferred payments aggregating $3.8 million, and
(iii) two-year warrants to purchase 133,333 common shares of the General Partner
at an exercise price of $25.50 per share, after giving effect to the 1-for-3
reverse share split contemplated by the Registration Statement; and (B) pursuant
to which the General Partner will issue to the SERS Voting Trust, in exchange
for $10.5 million, a number of common shares (or Preferred Shares if no Public
Offering shall occur), equal to $10.5 million divided by the public offering
price of the common shares to be sold in the Public Offering, shall not
constitute the completion of a Qualified Offering, as that term is defined and
used in the Partnership Agreement. If a capital contribution to the Partnership
is made by the General Partner from the proceeds realized from the sale of
preferred shares of beneficial interest ("Preferred Shares") in the SERS
Transaction, the Partnership shall issue to the General Partner in exchange
therefor that number of GP Units equal to the number of shares of BRT Common
Stock into which the Preferred Shares so issued may be converted (without regard
to limitations on conversion) to the extent that the net proceeds of such
issuance of Preferred Shares are contributed to the Partnership.
2. Unit Reclassification and Related Adjustments to Reflect
Share Combination. Effective as of the effective time of the reverse share split
as such term is defined in the Registration Statement: (i) each Class A Unit,
Class B Unit, Class C Unit and GP Unit which is outstanding on the date hereof
(including those held in escrow under Section 4.6 hereof), or which has been
committed to be issued by the Partnership under Sections 4.3 and 4.4 of the
Partnership Agreement, shall automatically be converted into and become
one-third of such Unit at such time and no adjustment under Section 15.4 in the
number of common shares issuable in exchange for a Class A Unit shall otherwise
be made as a result of the Share Combination; and (ii) the aggregate number of
Class A Units, Class B Units and Class C Units authorized for issuance under
Section 3.2 of the Partnership Agreement shall be automatically reduced to
495,837 Class A Units, 238,606 Class B Units, and 618,734 Class C Units,
respectively.
(a) The Partners agree that, after giving effect to the
reverse share split described in the Registration Statement and reclassification
of the Partnership's Units pursuant to the
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<PAGE> 3
preceding paragraph, the number of outstanding Units held by each Partner of the
Partnership shall be as set forth on Schedule 1 hereto and Exhibits F, H, and I
to the Partnership Agreement is hereby amended and restated in its entirety to
read as attached.
(b) Effective as of the effective time of the reverse share
split described in the Registration Statement, the $5.50 amount appearing at
various places in the Partnership Agreement, including in Sections 4.5(b),
4.6(b), 4.7(a)(ii), 4.8(a)(ii), and 4.8(b) and in the definition of "Qualified
Offering", is hereby adjusted to $16.50 in order to properly reflect the reverse
share split.
3. Termination of SSI's Right of First Refusal. SSI's right of
first refusal set forth in Section 4.11 of the Partnership Agreement is hereby
terminated, and the provisions of Section 4.11 are deleted from the Partnership
Agreement.
4. Amendment of Section 4.4. The second sentence of Section
4.4(d) of the Partnership Agreement is amended by adding the following words to
the end of such second sentence:
"less any amounts distributed to such person after August 22, 1996 and
prior to the date of such acquisition of the Retained Interests and
Class A Units of Witmer Partnership from such person in respect of such
person's Retained Interests and Class A Units of Witmer Partnership."
5. Deletion of Certain Anti-dilution Adjustments. (a) The
provisions of Sections 15.4(c) and 15.4(d) are hereby terminated and of no
further force or effect and these provisions are hereby deleted from the
Partnership Agreement.
(b) Nothing in this Amendment shall waive any
anti-dilution adjustment in the number of common shares issuable in exchange for
the Class A Units that would occur under the remaining provisions of Section
15.4.
6. Amendment of Section 6.3. Section 6.3(a) of the Partnership
Agreement is amended by inserting the following words after the phrase
"distribute to the Partners,":
"in the proportions described in Section 6.1(d) (if prior to the
completion of a Qualified Offering) or Section 6.2 (if after the
completion of a Qualified Offering),".
7. Amendment to Definition of Specified Redemption Date. The
definition of "Specified Redemption Date" appearing in the definitions section
of the Partnership Agreement is hereby amended to read in its entirety as
follows:
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<PAGE> 4
"'Specified Redemption Date' shall mean the tenth (10th)
Business Day after receipt by the General Partner of a Notice
of Redemption delivered to the Partnership at any time (i)
after the completion of a Qualified Offering, or (ii) after
the completion of the SERS Transaction, or (iii) if neither a
Qualified Offering or the SERS Transaction has then occurred,
within five days of the end of any period of 20 consecutive
business days occurring after the second anniversary of the
date of this Agreement during which such 20 business day
period the market price of a share of BRT Common Stock
averaged not less than $5.50 per share ($16.50 upon the
effectiveness of the reverse share split described in the
Registration Statement), as adjusted in accordance with
customary practice for stock splits, stock combinations and
stock dividends occurring after the date hereof."
8. No Other Amendments. This Amendment does not amend the
Partnership Agreement in any respect except as expressly provided herein, and
the Partnership Agreement, as amended by this Amendment No. 1, shall continue in
full force and effect after the date hereof in accordance with its terms.
9. Effective Time of Amendment. This Amendment No. 1 shall
become effective upon the execution and delivery of this Amendment No. 1 by the
General Partner, the holder of all of the outstanding Class B Units, the holder
of all of the outstanding Class C Units, and the holders of 75% or more of the
outstanding Class A Units (as of the date of this Amendment).
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be executed as of the date and year first
above written.
GENERAL PARTNER:
BRANDYWINE REALTY TRUST
By: /S/
-------------------------
Name: Gerard H. Sweeney,
President
-4-
<PAGE> 5
CLASS A LIMITED PARTNERS:
Safeguard Scientifics (Delaware),
Inc.
By: /S/
--------------------------------
Name: Gerald M. Wilk
Title: Vice President
THE NICHOLS COMPANY
By: /S/
--------------------------------
Anthony A. Nichols, President
By: /S/
--------------------------------
Brian F. Belcher
CLASS B LIMITED PARTNER:
BRANDYWINE REALTY TRUST
By: /S/
--------------------------------
Gerard H. Sweeney, President
CLASS C LIMITED PARTNER:
BRANDYWINE REALTY TRUST
By: /S/
--------------------------------
Gerard H. Sweeney, President
Safeguard Scientifics (Delaware), Inc. hereby confirms that
the completion of the SERS Transaction shall not constitute a Qualified Offering
for purposes of the Distribution Support and Loan Agreement, and that the
completion of the Public Offering shall constitute a Qualified Offering.
-5-
<PAGE> 6
SAFEGUARD SCIENTIFICS (DELAWARE),
INC.
/S/
--------------------------------
By: Gerald M. Wilk
Authorized Officer
-6-
<PAGE> 7
EXHIBIT A
LIST OF CLASS A LIMITED PARTNERS
<TABLE>
<CAPTION>
ADDRESS OF RESIDENCE
---------------------
(IF AN INDIVIDUAL) OR
---------------------
EXECUTIVE OFFICES SOCIAL SECURITY OR NUMBER OF CLASS A
--------------------- ------------------ -----------------
NAME (IF AN ENTITY) TAX ID NUMBER UNITS OWNED
---- --------------------- ------------------ -----------------
<S> <C> <C> <C>
Safeguard Scientifics 800 The Safeguard Building 51-0291171
(Delaware), Inc. 435 Devon Park Drive
Wayne, PA 19087
The Nichols Company 16 Campus Boulevard 23-2415327
Suite 150
Newtown Square, PA 19073
###-##-####
Brian F. Belcher 829 Juniper Drive
Lafayette Hill, PA 19444
Jack R. Loew 1090 New Street ###-##-####
West Chester, PA 19382
Craig C. Hough 1740 Hunter Circle ###-##-####
West Chester, PA 19380
RDC Institute, Inc. 602 Upland Avenue 22-2629435
Upland, PA 19104
Gary C. Bender 46 Heron Hill ###-##-####
Downingtown, PA 19335
Lotz Designers Engineers and 601 Dresher Road 23-1325780
Constructors, Inc. Horsham, PA 19044
Werner A. Fricker 708 McKean Road ###-##-####
Ambler, PA 19002
Brandywine Realty Trust Two Greentree Centre 23-2413352
Suite 100
Marlton, NJ 08053
C/N Oaklands III, Inc. 16 Campus Boulevard 23-2400860
Suite 150
Newtown Square, PA 19073
Iron Run V, Inc. 16 Campus Boulevard 23-2513078
Suite 150
Newtown Square, PA 19073
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
C/N Iron Run III, Inc. 16 Campus Boulevard 23-2400862
Suite 150
Newtown Square, PA 19073
C/N Leedom II, Inc. 800 The Safeguard Building 23-2292137
435 Devon Park Drive
Wayne, PA 19087
</TABLE>
LIST OF OTHER PARTNERS
<TABLE>
<CAPTION>
ADDRESS OF RESIDENCE
---------------------
(IF AN INDIVIDUAL) OR
---------------------
EXECUTIVE OFFICES SOCIAL SECURITY OR NUMBER AND TYPE OF
--------------------- ------------------- ------------------
NAME (IF AN ENTITY) TAX ID NUMBER UNITS OWNED
---- --------------------- ------------------- ------------------
<S> <C> <C> <C>
Brandywine Realty
Trust
Brandywine Realty
Trust
Brandywine Realty
Trust
</TABLE>
<PAGE> 1
EXHIBIT 10.39
FIRST AMENDMENT TO OPTION AGREEMENT
THIS FIRST AMENDMENT TO OPTION AGREEMENT ("FIRST AMENDMENT")
is made as of the ___ day of November, 1996, by and between C/N Horsham Towne
Limited Partnership, a Pennsylvania limited partnership, having an address c/o
The Nichols Company, 16 Campus Boulevard, Newtown Square, Pennsylvania 19073
(hereinafter called "OPTIONOR"), and Brandywine Operating Partnership, L.P., a
Delaware limited partnership, having an address c/o Brandywine Realty Trust, 16
Campus Boulevard, Suite 150, Newtown Square, Pennsylvania 19073 (hereinafter
called "OPTIONEE").
BACKGROUND
A. Optionor and Optionee are parties to a certain Option
Agreement dated the 22nd day of August, 1996 (the "AGREEMENT") pursuant to which
Optionor granted to Optionee the right and option (the "OPTION") to acquire
certain tracts or parcels of ground, and all improvements thereon, located at
255, 355, 455 and 555 Business Center Drive, Horsham, Pennsylvania, 19044, all
as more fully described in Exhibit "A" to the Agreement, and therein and herein
referred to as the "Property".
B. Optionor and Optionee desire to amend the Agreement to
redefine the Exchange Price (as such term is defined in the Agreement) and for
certain other purposes, all as more fully set forth herein.
AGREEMENT
The parties hereto, in consideration of the sum of Ten
($10.00) Dollars, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, agree as
follows:
1. Paragraph 1 of the Agreement is hereby amended and restated
in its entirety as follows:
Optionor does hereby grant to Optionee the right and option
(the "OPTION") to acquire the Property for the Exchange Price
(as defined below), and otherwise upon the terms and
conditions set forth herein. The Optionee may exercise the
Option by delivering written notice to the Optionor and New
England Mutual Life Insurance Company (the "LENDER") in
accordance with Section 16 of this Agreement at any time
during the Option Period (as defined below), or during any
extension thereof.
1
<PAGE> 2
2. Paragraph 4 of the Agreement is hereby amended and restated
in its entirety as follows:
The Exchange Price for the Property (the "EXCHANGE PRICE")
shall be equal to Ten ($10.00) Dollars, plus Optionee's
assumption of all sums due and owing under the note, mortgage
and any other loan document evidencing or securing the
mortgage loan encumbering the Property at the time the Option
is exercised.
3. Paragraph 6 of the Agreement is hereby amended by the
addition of the following sentence:
Consent of the holder of the mortgage on the Property for
conveyance of the Property under and subject to the mortgage
shall include a statement by the holder as to the status of
outstanding defaults thereunder (declared or otherwise), and a
confirmation of all sums due and owing under the mortgage
obligation as of the date of such statement.
4. Paragraph 16 of the Agreement is hereby amended by changing
the notice address for Optionee to the following address:
Gerard H. Sweeney, President & CEO
Brandywine Realty Trust
16 Campus Boulevard
Suite 150
Newtown Square, PA 19073
5. Paragraph 17 of the Agreement is hereby amended and
restated in its entirety as follows:
During the term of this Agreement, Optionor shall have the
right to fund the costs incurred by Optionor with respect to
new leases for space in the Property (including, but not
limited to, costs of tenant improvements, brokerage
commissions and legal fees) through capital loans made by
Optionor or an affiliate for such purpose ("CAPITAL
IMPROVEMENT LOANS"). All such Capital Improvement Loans shall
bear interest at the prime rate and shall be payable out of
cash flow from the Property remaining after payments of third
party debt. Upon exercise by Optionee of the Option, Optionor
shall advise Optionee if any Improvement Loan
2
<PAGE> 3
will remain outstanding at Closing hereunder. Optionee shall
assume all obligations under any such Capital Improvement
Loans outstanding at Closing, and shall indemnify and hold
Optionor harmless from any obligations accruing under any such
Loan after the date of Closing. Anything herein contained to
the contrary notwithstanding, from and after this date,
Optionor shall not assume or incur additional indebtedness for
capital improvements to the Property without the prior written
consent of Optionee, which consent shall not be unreasonably
withheld, conditioned or delayed.
6. Except to the extent expressly modified hereby, all of the
terms, conditions, covenants and agreements contained in the Agreement shall
remain in full force and effect and unmodified hereby, and as such, the
Agreement is hereby ratified and affirmed by Optionor and Optionee.
IN WITNESS WHEREOF, the parties hereto have executed, sealed
and delivered this Agreement the day and year first above written.
OPTIONOR:
C/N HORSHAM TOWNE
LIMITED PARTNERSHIP,
A PENNSYLVANIA LIMITED PARTNERSHIP
BY:______________________________________/S/
OPTIONEE:
BRANDYWINE OPERATING PARTNERSHIP, L.P.
BY: BRANDYWINE REALTY TRUST,
ITS GENERAL PARTNER
BY:______________________________________/S/
GERARD H. SWEENEY, PRESIDENT & CEO
[Continued on the next page]
3
<PAGE> 4
The address of the above-named Optionee is:
c/o Brandywine Realty Trust
16 Campus Boulevard
Suite 150
Newtown Square, PA 19073
By:________________________________________
Name:_________________________________
Title:________________________________,
On behalf of Optionee
4
<PAGE> 1
EXHIBIT 10.41
CONTRIBUTION AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
PAGE
Section 1. Sale and Purchase of Properties................................-2-
1.1 Sale and Purchase of Properties................................-2-
1.2 Consideration..................................................-2-
1.3 Capital Escrow.......................................................-3-
1.4 Deposit........................................................-3-
1.5 Included Assets................................................-4-
1.6 Assumption of Liabilities......................................-5-
Section 2. Additional Investment; Warrant.................................-5-
2.1 Additional Investment..........................................-5-
2.2 Warrant........................................................-5-
Section 3. Representations and Warranties.................................-5-
3.1 By BRT.........................................................-6-
3.2 By Sellers....................................................-12-
3.3 By The Voting Trust...........................................-17-
3.4 Survival of Representations and Warranties....................-18-
Section 4. Conditions....................................................-18-
4.1 Conditions Precedent to BRT Obligations on the Closing Date...-18-
4.2 Conditions Precedent To Sellers and the Voting Trust
Obligations on the Closing Date...............................-19-
4.3 Mutual Conditions Precedent of the Parties on the Closing
Date..........................................................-20-
-i-
<PAGE> 3
Section 5. Operations Prior to Transfer..................................-21-
5.1 Property Operations...........................................-21-
5.2 Casualty or Condemnation......................................-21-
Section 6. Closing; Closing Deliveries; Adjustments; Expenses............-22-
6.1 Closing.......................................................-22-
6.2 Closing Documents.............................................-22-
6.3 Adjustments...................................................-24-
6.4 Expenses......................................................-25-
6.5 Indemnification for Seller's Tax Obligations..................-26-
Section 7. Covenants......................................................-26-
7.1 BRT Covenants.................................................-26-
7.2 Mutual Covenant - Best Efforts To Close.......................-26-
7.3 Morgan Stanley Transactions...................................-26-
Section 8. Matters to be Completed........................................-26-
8.1. Matters to be Completed.......................................-26-
Section 9. Sellers' Or Voting Trust's Default.............................-27-
9.1 Sellers' or Voting Trust's Default............................-26-
Section 10. General Provisions...........................................-27-
10.1 Notices.......................................................-27-
10.2 Confidentiality...............................................-28-
10.3 Entire Agreement..............................................-28-
10.4 Counterparts..................................................-28-
-ii-
<PAGE> 4
10.5 Governing Law.................................................-28-
10.6 Section Headings, Captions and Defined Terms..................-28-
10.7 Amendments. Modifications and Waiver..........................-29-
10.8 Severability..................................................-29-
10.9 Liability of Trustees, etc....................................-29-
10.10 Non-Recourse..................................................-29-
10.11 Exhibits Incorporated.........................................-29-
-iii-
<PAGE> 5
CONTRIBUTION AGREEMENT
THIS AGREEMENT is made as of the 6th day of November, 1996 by and
among BRANDYWINE REALTY TRUST, a Maryland real estate investment trust ("BRT"),
GREENWOOD SQUARE CORPORATION, a Delaware corporation ("Greenwood"), BCBC HOLDING
COMPANY, a Delaware corporation ("BCBC"), 500 NORTH GULPH ROAD HOLDINGS, INC., a
Pennsylvania corporation ("North Gulph") (Greenwood, BCBC and North Gulph are
herein sometimes collectively called "Sellers" and individually, a "Seller")
and, RAI REAL ESTATE ADVISERS, INC., ("RAI") as the voting trustee of a voting
trust dated as of November 6, 1996 executed by the Commonwealth of Pennsylvania
State Employes' Retirement System ("SERS") as shareholder and by RAI as voting
trustee (the "Voting Trust")
RECITALS
A. Greenwood is the owner of the fee estate in property known as
Greenwood Square, located in Bensalem Township, Bucks County, Pennsylvania, more
fully described in EXHIBIT "A" attached hereto (the "Greenwood Property").
B. BCBC is the owner of the fee estate in property known as Bucks
County Business Park, located partly in Middletown Township and partly in Falls
Township, Bucks County, Pennsylvania, more fully described in "EXHIBIT "B"
attached hereto (the "BCBC Property").
C. North Gulph is the owner of the fee estate in property known as
500 North Gulph Road, located in Upper Merion Township, Montgomery County,
Pennsylvania, more fully described in EXHIBIT "C" attached hereto (the "North
Gulph Property"). The Greenwood Property, the BCBC Property and the North Gulph
Property are herein collectively called the "Properties" and individually a
"Property."
D. SERS is directly or indirectly the beneficial owner of all of the
capital stock of Sellers and has the sole economic interest in the Voting Trust.
E. BRT is a real estate investment trust and general partner of
Brandywine Operating Partnership, L.P., a Delaware limited partnership ("BRT
OP"), which owns certain office and other properties.
F. The parties wish to enter into this Agreement to provide for the
sale by Sellers for the account of the Voting Trust of the Properties, the
purchase of the Properties
<PAGE> 6
by BRT or its designated affiliate, the investment of funds by Voting Trust in
BRT and certain other matters as herein set forth.
TERMS AND CONDITIONS
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, agree as follows:
SECTION 1. SALE AND PURCHASE OF PROPERTIES
1.1 Sale and Purchase of Properties. On the Closing Date, each
Seller will sell and convey to BRT OP (or any subsidiary of BRT OP) the Property
of such Seller and BRT will purchase the Properties from Sellers, for the
consideration, on the terms and subject to the conditions of this Agreement.
1.2 Consideration. The purchase price ("Purchase Price") for the
Properties shall be THIRTY MILLION THREE HUNDRED THOUSAND DOLLARS ($30,300,000),
payable as follows:
(a) At Closing, BRT shall pay to Sellers $26,500,000 by
issuing to Voting Trust (or to its designee) preferred shares with the terms set
forth in the Articles Supplementary attached hereto as EXHIBIT "D-1" ( the
"Property Shares") that are convertible into 4,818,182 common shares of
beneficial interest (par value $.01) of BRT, as adjusted for any share splits,
reverse share splits, share dividends or similar transactions (the "Common
Shares"). The Property Shares shall be subject to a Standstill Agreement in the
form attached as EXHIBIT "D-2". References in this Agreement to designees of the
Voting Trust or Sellers shall be limited to designees that are not prohibited by
the Standstill Agreement.
(b) On June 30, 1998, BRT will pay to Sellers (or to their
designee) $2,500,000.
(c) On December 31, 1999, BRT will pay to Sellers (or to their
designee) $1,300,000. The sums payable pursuant to this clause (c) and the
preceding clause (b) in the total amount of $3,800,000 are herein jointly called
the "Deferred Purchase Price." Each installment of the Deferred Purchase Price
shall be paid by BRT in cash, or, at the option of BRT, by BRT issuing to the
Voting Trust (or to its designee) either Common Shares (if a Secondary Offering
as defined in Section 1.2 of the Securities Purchase Agreement (defined below)
shall have occurred) or Property Shares that are convertible into
-2-
<PAGE> 7
a number of Common Shares, equal to the applicable portion of the Deferred
Purchase Price divided by the greater of the Market Value or Book Value Per
Share.
The term "Book Value Per Share" as used herein means, as
of any date, (i) the total beneficiaries' equity as shown on BRT's consolidated
balance sheets as of the fiscal quarter end immediately prior to the applicable
date (with appropriate adjustment for any material events subsequent thereto)
prepared in accordance with the published rules and regulations of the
Securities and Exchange Commission (the "SEC") and generally accepted accounting
principles applied on a consistent basis (as adjusted to reflect the
consideration received by BRT upon the Exercise (defined below) of any
Convertible Securities (defined below) which are included in the computation in
(ii) below), divided by (ii) the sum of the number of Common Shares outstanding
on such date plus the number of Common Shares issuable upon the exercise,
conversion or exchange (collectively, "Exercise") of outstanding options,
warrants, preferred shares and other convertible securities or similar rights
(collectively, "Convertible Securities") to the extent that the consideration
payable upon the exercise of such Convertible Securities is less than the Market
Value of the Common Shares issuable upon such Exercise.
The term "Market Value" as used herein means, as of any
date, (the "Valuation Date") the average of the closing per share sale price(s)
of the Common Shares for the period of twenty consecutive trading days ending on
the trading day immediately preceding the Valuation Date as such prices are
reported by the principal United States securities exchange on which the Common
Shares are then traded or, if the Common Shares are not then traded on any such
exchange, the closing per share sale price (or the average of the quoted per
share closing bid and asked prices if no sale is reported) as reported by the
National Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System ("NASDAQ") or any comparable system or, if the Common Shares are not then
quoted on NASDAQ or any comparable system, the average of the closing per share
bid and asked prices as furnished by any member of the NASD selected by the
Board of Trustees of BRT.
1.3 Capital Escrow. At Closing, North Gulph will deposit into escrow
the sum of $315,000 (the "North Gulph Capital Escrow"), BCBC will deposit into
escrow the sum of $90,000 (the "BCBC Capital Escrow") and Greenwood will deposit
into escrow the sum of $950,000 (the "Greenwood Capital Escrow"), each on the
terms and conditions of the Capital Escrow Agreement attached hereto as EXHIBIT
"E".
1.4 Deposit. Upon the execution of this Agreement, BRT will deposit
in escrow with Commonwealth Land Title Insurance Company ("Deposit Escrowee")the
sum of $100,000,(such sum and all earnings thereon are herein called the
"Deposit"). The Deposit will be held by Deposit Escrowee in an interest bearing
account of a bank, savings bank or savings and loan association the accounts of
which are insured by an agency of the United States government, pursuant to an
Escrow Agreement in the form attached as EXHIBIT "T" (the "Deposit Escrow
Agreement"). If BRT shall fail to consummate Closing in accordance with this
Agreement or shall fail to observe or perform its covenants or obligations
hereunder
-3-
<PAGE> 8
to be observed or performed at or prior to Closing, the Deposit will be paid to
Sellers and Voting Trust on account of the purchase price or as liquidated
damages for such failure at the option of Sellers, provided, however, that
unless such failure to consummate Closing constitutes a breach of BRT's covenant
under subsection 7.2 hereof, Sellers and the Voting Trust will retain the
Deposit as Sellers' and the Voting Trust's sole and exclusive remedy hereunder.
If Closing occurs, the Deposit will be returned to BRT. If Closing does not
occur by reason of the failure of one or more conditions to Closing (which
failure does not result from the default of BRT hereunder) or if either party is
permitted to and shall terminate this Agreement as provided in Section 8, then
the Deposit will be returned to BRT.
1.5 Included Assets. References in this Agreement to a Property
shall include:
(a) Real Property. Fee simple interest in such Property, and
all of the easements, licenses, rights of way, (including, without limitation,
easements, licenses and rights of way for signage), privileges, hereditaments,
appurtenances, and rights to any land lying in the beds of any street, road or
avenue, open or proposed, adjoining there to, and inuring to the benefit of said
land (hereinafter collectively referred to as the "Premises"); and
(b) Personal Property. All equipment, fixtures, machinery and
personalty of every description attached to or used in connection with the
Premises, including, without limitation, furniture, fixtures, fittings,
supplies, apparatus, equipment, machinery, and all other items of tangible and
intangible personal property and replacements thereof, if any, affixed or
attached to or located on or about the Premises (including, without limitation,
all heating, lighting, plumbing, water, sewer, ventilating, exhaust, electrical,
gas, refrigeration, air-conditioning, communication, fire protection, security,
disability and life/safety fixtures, equipment and systems; all hot water
heaters, furnaces, heating controls, motors and boiler pressure systems and
equipment; all incinerating, disposal, cleaning, maintenance, janitorial, snow
removal and landscaping equipment; all fuels; all appliances; (limited, in the
case of personal property to the right, title and interest of Seller's therein,
and excluding property of tenants of the Properties but including all right,
title and interest of Sellers in such property of tenants); and all assignable
intangible personal property owned by Sellers and used in connection with the
ownership, operation and maintenance of the Premises, including without
limitation, all contract rights, guaranties and warranties of any nature,
architects, engineers, surveyors' or other real estate professionals' plans,
specifications, certifications, contracts, reports, data or other technical
descriptions, reports or audits, and all marketing materials ("Contract
Documents"), all governmental permits, licenses, certificates, and approvals in
connection with the ownership of the Premises ("Licenses"), all escrow accounts,
deposits, instruments, documents of title, general intangibles, and business
records pertaining to the Premises, and all of Seller's rights, claims, and
causes of action if any, to the extent they are assignable, under any warranties
and/or guarantees of manufacturers, contractors or installers, rights against
others relating to the Premises or the operation or maintenance thereof,
including to the extent applicable, any warranties from any previous owners of
the Premises (hereinafter collectively referred to as "Personal Property"); and
-4-
<PAGE> 9
(c) Leases. All leases, licenses (to the extent transferable)
and other occupancy agreements for any part of the Premises, if any, and all
prepaid rent and unapplied security deposits (the "Leases"):
(d) Right to Names. Any right, title and interest of Seller in
and to the trade names printing styles, trademarks and logos ("Names").
1.6 Assumption of Liabilities.
(a) At the Closing, BRT shall assume and agree to pay, perform
and discharge, when due, each of the following obligations and liabilities of
Sellers and/or their affiliates relating to the Properties (the "Assumed
Liabilities"):
(i) the liabilities and obligations of Sellers to be
performed or discharged after the Closing pursuant to the Leases;
(ii) payment of real estate taxes and utility bills
accruing prior to Closing with respect to the Properties as to which BRT
receives a credit at Closing, to the extent of such credit.
(b) Excluded Liabilities. Except as expressly provided in this
Agreement, BRT shall not assume or be responsible for any liabilities or
obligations of Sellers or their respective affiliates of any nature whatsoever,
whether or not relating to the Properties. Sellers and their respective
affiliates, as applicable, shall remain responsible for such excluded
liabilities and obligations.
SECTION 2. ADDITIONAL INVESTMENT; WARRANT
2.1 Additional Investment. The Voting Trust and BRT are
contemporaneously herewith entering into a Securities Purchase Agreement (the
"Securities Purchase Agreement") providing for the investment by Voting Trust of
$10.5 million in shares of BRT, at the times and on the terms and conditions set
forth in the Securities Purchase Agreement.
2.2 Warrant. At Closing as additional consideration for the
Properties, BRT will issue to the Voting Trust a warrant for the purchase of
400,000 Common Shares, as adjusted for any share splits, reverse share splits,
share dividends or similar transactions (the "Warrant"), on the terms and
subject to the conditions of the form of Warrant attached hereto as EXHIBIT "F".
The value of the Warrant is $56,000.00.
-5-
<PAGE> 10
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 By BRT. BRT hereby represents and warrants that, except as
disclosed in the Disclosure Letter (as defined in the Securities Purchase
Agreement) or the Company SEC Reports (defined below) or in any exhibit or
schedule hereto:
(a) Organization: Authority. BRT is a real estate investment
trust duly formed, validly existing and in good standing under the laws of the
state of Maryland with all the necessary trust power and authority to own, lease
or operate its properties and assets and to carry on its business as now
conducted, BRT is duly qualified to do business and is in good standing as a
foreign business trust or partnership in each jurisdiction where the character
of its properties or assets and the nature of its business requires it to be so
qualified. BRT has the requisite trust authority to enter into and perform this
Agreement and all other documents and agreements to be executed by it in
connection with the transactions contemplated by this Agreement.
(b) Due Authorization; Binding Agreement. The execution,
delivery and performance of this Agreement and all other documents and
agreements to be executed by BRT in connection with the transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary action of BRT. This Agreement and all other documents and agreements
to be executed by BRT in connection with the transactions contemplated by this
Agreement have been and will be duly executed and delivered by BRT and
constitute the legal, valid and binding obligations of BRT enforceable against
BRT in accordance with their respective terms , except as such enforcement may
be limited by bankruptcy, insolvency, moratorium, reorganization and other
similar laws relating to or affecting the enforcement of creditor's rights
generally, and except that the availability of specific performance, injunctive
relief or other equitable remedies is subject to the discretion of the court
before which any such proceeding may be brought.
(c) Consents and Approvals. No consent, waiver, approval,
license or authorization of, or filing, registration or qualification with, or
notice to, any governmental unit or any other person is required to be made,
obtained or given by BRT in connection with the execution, delivery and
performance of this Agreement or any other documents and agreements to be
executed by BRT in connection with the transactions contemplated by this
Agreement that has not been heretofore obtained, other than the filing with and
approval of the American Stock Exchange of a listing application with respect to
the Common Shares and the filing of the Articles Supplementary with the State
Department of Assessments and Taxation of Maryland.
(d) No Violation. None of the execution, delivery or
performance of this Agreement or any other document or agreement to be executed
by BRT in connection with the transactions contemplated by this Agreement does
or will, with or without the giving of notice, lapse of time or both, violate,
conflict with or constitute a default under any term or provision of the
organizational documents of BRT or any other agreement to which BRT is a party
or by which it is bound or any term or provision of any judgment, decree, order,
statute, injunction, rule or regulation of a governmental unit applicable to
BRT, or by which it or its
-6-
<PAGE> 11
assets or properties are bound or result in the creation of any lien or other
encumbrance upon the assets or properties of BRT.
(e) Compliance with Laws and Recorded Declarations. To the
best of BRT's knowledge, BRT and each of its subsidiaries has complied with all
laws (including, without limitation, the Americans with Disabilities Act of
1990) and requirements of insurance bodies applicable to the ownership, leasing,
use and operation of its or their real properties (collectively, the "BRT
Properties"), including, without limitation, parking and building setback
requirements, and has performed all work and secured all required material
consents and approvals and obtained and fully paid for all material licenses,
permits, certificates, entitlements, grants of right and any other items and
documents required by applicable law, by contract, or as a condition of any
approval granted by the applicable municipal authority, required of BRT or its
subsidiaries for the completion, ownership, leasing, use and occupancy of its or
their properties, including but not limited to final certificates of occupancy
for each of the current tenancies at such properties (other than where
construction of tenant improvements for new tenancies is not yet completed or
applications remain pending), except where the failure to so comply or obtain
would not have a material adverse effect on BRT and its subsidiaries taken as a
whole. Such licenses, permits, certificates, entitlement, grants of right and
other items and documents are in full force and effect. Neither BRT or any of
its subsidiaries have taken any action that would (or failed to take any action,
the omission of which would) result in the revocation or suspension of such
licenses, permits, certificates, entitlements, grants of right and other items
and documents, and neither BRT nor any of its subsidiaries have received any
notice of any violation from any federal, state or municipal entity or notice of
an intention by any such governmental entity to revoke any certificate of
occupancy or other certificate, license, permit, entitlement or grant of right
issued by it in connection with the ownership, use and occupancy of any of its
or their properties that in each case has not been cured or otherwise resolved
to the satisfaction of such governmental entity. To the best of BRT's knowledge,
(i) any and all charges (including condominium fees, to the extent applicable)
and other assessments under declarations and like agreements to which any of the
BRT Properties are subject have been paid and no special assessments thereunder
against any of the BRT Properties are pending, and (ii) all consents and
approvals required to be obtained under such declarations and like agreements
with respect to the BRT Properties have been obtained.
(f) Litigation. The SEC Reports(defined below), the
Registration Statements (defined below) and/or the Disclosure Letter (as defined
in the Securities Purchase Agreement) list all material pending or, to BRT's
knowledge, threatened litigation involving BRT and its subsidiaries. Except as
so disclosed, there is no pending or, to the knowledge of BRT, threatened suit,
action or litigation, or administrative, arbitration or other proceeding or
governmental inquiry or investigation questioning the validity of this Agreement
or the transactions contemplated hereby, or affecting in any material adverse
respect BRT or any subsidiary or the business, properties, assets, operations,
prospects or condition (financial or otherwise) of BRT and its subsidiaries
taken as a whole, nor is there, to the knowledge of BRT, any basis for any such
suit, action, litigation, proceeding, inquiry or investigation.
-7-
<PAGE> 12
(g) Brokers. No brokers or finders have been employed or
engaged by BRT or any of its subsidiaries with respect to the transactions
contemplated by this Agreement or any other document or agreement to be executed
in connection with the transactions contemplated by this Agreement.
(h) SEC Reports. Since January 1, 1995, BRT and its
subsidiaries have timely filed all forms, reports, schedules, statements and
other documents required to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or the Securities Act of 1933, as amended (the "1933 Act"), including without
limitation (i) all Annual Reports on Form 10-K, (ii) all Quarterly Reports on
Form 10-Q, (iii) all reports on Form 8-K and (iv) all proxy statements relating
to meetings of stockholders (whether annual or special) and (v) all information
incorporated by reference into any of the foregoing (collectively, as amended to
date, together with the Registration Statements (defined below) referred to
herein as the "Company SEC Reports"). The Company SEC Reports were prepared in
all material respects in accordance with and complied in all material respects
with the requirements of applicable law, including the Exchange Act and the 1933
Act and the applicable rules and regulations of the SEC thereunder, and the
Company SEC Reports did not at the time they were filed and do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. BRT has
not filed any registration statements with the SEC at any time within the last
three years other than (i) Registration Statement on Form S-8 dated October 16,
1996 and (ii) Registration Statement on Form S-11 dated October 11, 1996
(collectively the "Registration Statements"). BRT has delivered to Voting Trust
prior to the date hereof true and correct copies of all Company SEC Reports and
any other reports and documents filed with the SEC since January 1, 1995.
(i) Financial Statements. Each of the consolidated financial
statements (including, in each case, any related notes thereto) contained in the
Company SEC Reports (i) have been prepared in all material respects in
accordance with the published rules and regulations of the SEC and generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except in the case of the unaudited financial statements, as
permitted by Form 10-Q of the SEC), (ii) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto and (iii) fairly present in all
material respects the consolidated financial position of BRT and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations and cash flows for the periods indicated (subject, in the case of
unaudited consolidated financial statements for interim periods, to year-end
adjustments (consisting only of normal recurring accruals)), except that any pro
forma financial statements contained in such consolidated financial statements
are not necessarily indicative of the consolidated financial position of BRT and
its subsidiaries as of the respective dates thereof and the consolidated results
of operations and cash flows for the periods indicated. Since December 31, 1995,
the
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Company has not made any material change in the accounting practices or policies
applied in the preparation of its financial statements.
(j) Environmental Matters. Neither BRT nor its subsidiaries
have (a) caused any substance or waste that is listed or defined as hazardous or
toxic under applicable environmental laws or petroleum products (collectively,
"Hazardous Materials") to be improperly maintained or disposed of on, under or
at any of its or their properties, or any part thereof in a manner which
violates, or could give rise to liability under, applicable environmental laws,
or (b) failed to remediate, alter, mitigate or abate any condition required to
be remediated, altered, mitigated or abated under such environmental laws, to
the extent BRT or its subsidiaries have been notified of the existence of a
condition required to be remediated, altered, mitigated or abated. Except as set
forth in the environmental site assessments provided by BRT to Sellers or
disclosed in the Company SEC Reports: (1) to the best of BRT's knowledge, each
of its properties, and the properties of its subsidiaries, is in compliance, and
has heretofore complied, with all environmental laws in all material respects,
(2) to the best of BRT's knowledge, there has been no discharge of Hazardous
Materials by any tenant of any property of BRT or its subsidiaries, or by any
other person or property in, to or under any property of BRT or its
subsidiaries, in either case in quantities requiring response, remediation or
removal, and (3) BRT has not received any written notice from any governmental
unit or other person that it or its subsidiaries, or any of its or their
properties or operations conducted thereon, are not or have not been in
compliance with the environmental laws.
(k) Absence of Undisclosed Liabilities and Contractual
Obligations. Except for (i) liabilities disclosed in the financial statements
referred to in subsection 3.1 (i) or in the SEC Reports, (ii) liabilities
arising in the ordinary course of business which, if material (individually or
in the aggregate), are disclosed in EXHIBIT "G" attached hereto (the "BRT
Disclosure Schedule"), (iii) liabilities at the date hereof which are
specifically disclosed or otherwise reflected in the Exhibits attached to this
Agreement and (iv) current liabilities incurred in the ordinary course of
business after the date hereof, no BRT Property is subject to liabilities of any
nature, whether matured or unmatured, fixed or contingent, which could
reasonably be expected to have, individually or in the aggregate, a material
adverse effect upon such property. There are no Significant Agreements relating
to the BRT Properties, or their operations other than as set forth in the BRT
Disclosure Schedule. No indebtedness secured by a lien upon any of the BRT
Properties is cross-defaulted and/or cross-collateralized with any other
properties other than among the BRT Properties. For purposes hereof,
"Significant Agreement" means and includes any of the following by which any of
the BRT Properties may otherwise be subject or bound, in each such case as
amended and currently in effect, inclusive of any waivers relating thereto:
(A) all agreements, instruments and documents (excluding
tenant leases referred to in subsection 3.1(l) of this Agreement and easements
and documents providing for the assessment of common charges or related fees
that are included in the Permitted Exceptions) evidencing, securing or
pertaining to contractual obligations that relate to the ownership or operation
of any of the BRT Properties; and
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(B) all mortgages.
(l) Tenant Leases. The rent rolls attached hereto as EXHIBIT
"H" (the "BRT Rent Rolls") list each of the leases currently in effect with
respect to the BRT Properties as the same have been amended or modified (the
"BRT Leases"); there are no leases, licenses or other rights of occupancy
affecting any of the BRT Properties except for the BRT Leases. BRT has made
available to the Voting Trust complete copies of all of the documents that
constitute the BRT Leases. The BRT Leases are in full force and effect and,
except as set forth on the applicable BRT Rent Roll, (A) to the best of BRT's
knowledge, no uncured Event of Default (as defined in such Leases), has occurred
and is continuing under any such Lease, no tenant has asserted a defense to,
offset or claim against its rent or the performance of its obligations under its
Lease and no tenant has asserted a default on the part of the landlord which
would give it the right to terminate its Lease or set off against rent, (B)
there are no rights of first refusal on, or options to purchase, any of the BRT
Properties, or any right to a participation interest (whether of profits, sale
or refinancing proceeds, or calculated based on fair market value) with respect
to any such property, in favor of any tenant, (C) no proposed modifications to
any BRT Lease that would reduce (i) the space leased to any tenant, (ii) the
amount of any tenant's rent or (iii) the term of any lease, (D) no free rent or
other rent concession is due any tenant under the BRT Leases for periods after
the Closing Date, (E) no landlord under a BRT Lease is required to provide
tenant improvements or refurbishments with respect thereto after the Closing
Date (other than any tenant improvements that the landlord may be required to
construct if an expansion option provided in a BRT Lease is exercised), and (F)
no tenant under a BRT Lease has the option to terminate its lease prior to the
stated expiration date. Except for (i) security deposits or (ii) the first full
month's rent, whether or not the term of a Lease has commenced, no prepayments
of rent more than thirty (30) days in advance have been made under the BRT
Leases. All decorating, repairs, alterations or other work performed by the
landlord under each of the BRT Leases prior to the date hereof, or the cost of
any such work performed by the tenant and to be reimbursed by the landlord prior
to the date hereof, has been performed or reimbursed, as applicable. No rent or
security deposits under the BRT Leases have been assigned or encumbered, except
as security for the mortgages noted in the BRT Disclosure Schedule, and there
are no agreements or understandings, written or oral, with any of the tenants
other than as set forth in the BRT Leases or otherwise set forth on the BRT Rent
Rolls. All brokerage commissions and other compensation and fees payable by
reason of the BRT Leases have been paid in full, except as set forth in the BRT
Disclosure Schedule.
(m) Reassessments. Each of the BRT Properties has been fully
assessed and is not subject to abatement. To the best of BRT's knowledge, there
are no proposed reassessments of any of the BRT Properties by any taxing
authority and there are no threatened or pending special assessments or other
actions or proceedings (other than county-wide reassessments and/or the usual
increases in millage rates that may be under consideration by the taxing
authorities in the jurisdictions where the BRT Properties are located) that
could reasonably be expected to give rise to an increase in real property taxes
or assessments against any of the BRT Properties.
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<PAGE> 15
(n) Property Improvements. To the best of BRT's knowledge,
except as disclosed in any engineering studies or reports obtained by or
delivered to Sellers in connection with this transaction prior to the date
hereof, the improvements at the BRT Properties are in good condition and repair,
ordinary wear and tear excepted, and have not suffered any casualty or other
material damage which has not been repaired in all material respects. To the
best of BRT's knowledge, there is no material latent or patent structural,
mechanical or other significant defect, soil condition or deficiency in the
improvements included in the BRT Properties, or any other defects, soil
conditions or deficiencies which, in the aggregate, would materially adversely
affect the value of such properties taken as a whole.
(o) Condemnation or Governmental Proceedings. No eminent
domain, condemnation, incorporation, annexation or moratorium or similar
proceeding has been commenced or, to the best of BRT's knowledge, threatened by
an authority having the power of eminent domain to condemn any part of the BRT
Properties. To the best of BRT's knowledge, there are no pending or threatened
governmental rules, regulations, plans, studies or efforts, or court orders or
decisions, which do or could adversely effect the use or value of the BRT
Properties for their present use.
(p) Insurance. EXHIBIT "I" attached hereto lists the insurance
policies relating to the BRT Properties or any part thereof carried by BRT; all
such policies are in full force and effect, and will be continued or renewed
with the existing coverages and policy limits until the Closing Date, and all
premiums thereunder have been paid to the extent due, and will be paid until the
Closing Date; and no notice of cancellation has been received with respect
thereto and, to the best knowledge of BRT, no cancellation is threatened.
(q) FIRPTA. BRT is neither a "foreign person" within the
meaning of Section 1445(f) of the Code nor a "foreign partner" within the
meaning of Section 1446 of the Code.
(r) Taxes. BRT (i) has filed or has had filed on its behalf
all Tax Returns (as defined below) on a timely basis which are required to be
filed as of the date hereof, and such Tax Returns are correct and complete, (ii)
has paid or has had paid on its behalf on a timely basis all Taxes (as defined
below) shown to be due on such Tax Returns and (iii) with respect to any period
for which Tax Returns have not yet been filed, or for which Taxes are not yet
due or owing, has made due and sufficient current accruals for such Taxes in its
books and records in accordance with generally accepted accounting principles.
For purposes of this subsection, "Tax" shall mean any Federal, state or local
tax of any kind whatsoever, including any interest or penalty, and "Tax Return"
shall mean any return, declaration, report, claim for refund, information
return, statement or other similar document relating to Taxes.
(s) No Defaults. All payments of principal and interest on all
mortgage indebtedness respecting the BRT Properties are current as of the date
hereof. Neither BRT nor BRT OP is in default of any loan secured by any of the
BRT Properties or any other Significant Agreement and, to the best of BRT's
knowledge, no event has occurred which with
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<PAGE> 16
the giving of notice or passage of time would become a default under any such
loan or under any such Significant Agreement.
(t) Ownership of BRT Properties. The properties constituting
the BRT Properties are listed on EXHIBIT "J" attached hereto. BRT and BRT OP
each owns the interest in each of the BRT Properties indicated on EXHIBIT "J".
3.2 By Sellers. Sellers hereby represent and warrant that, except as
disclosed in any exhibit or schedule to this Agreement:
(a) Organization: Authority. Each of the Sellers is duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to own,
lease and operate its properties and to carry on its business as presently
conducted. Each of the Sellers is duly qualified to do business and is in good
standing in each jurisdiction where the character of its properties or assets
and the nature of its business requires it to be so qualified. Each Seller has
the requisite authority to enter into and perform this Agreement.
(b) Due Authorization; Binding Agreement. The execution,
delivery and performance of this Agreement and all other documents and
agreements to be executed by Sellers in connection with the transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary action of each Seller. This Agreement and all other documents and
agreements to be executed by Sellers in connection with the transactions
contemplated by this Agreement have been and will be duly executed and delivered
by Sellers and constitute the legal, valid and binding obligations of Sellers
enforceable against Sellers in accordance with their respective terms, except as
such enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization and other similar laws relating to or affecting the enforcement
of creditor's rights generally, and except that the availability of specific
performance, injunctive relief or other equitable remedies is subject to the
discretion of the court before which any such proceeding may be brought.
(c) Consents and Approvals. Except for the consent of
CoreStates Bank N.A. with respect to the sale of the North Gulph Property (which
consent Sellers shall obtain, by a pay down of related debt, if required), no
consent, waiver, approval, license or authorization of, or filing, registration
or qualification with, or notice to, any governmental unit or any other person
is required to be made, obtained or given by any Seller in connection with the
execution, delivery and performance of this Agreement or any other documents and
agreements to be executed by Sellers in connection with the transactions
contemplated by this Agreement that has not been heretofore obtained.
(d) No Violation. None of the execution, delivery or
performance of this Agreement or any other document or agreement to be executed
by any Seller in connection with the transactions contemplated by this Agreement
does or will, with or without the giving of notice, lapse of time or both, (i)
violate, conflict with or constitute a default under any term or
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<PAGE> 17
provision of (a) the organizational documents of any Seller or any other
agreement to which any Seller is a party or by which it is bound or (b) any term
or provision of any judgment, decree, order, statute, injunction, rule or
regulation of a governmental unit applicable to any Seller, or by which it or
they or its or their assets or properties are bound or (ii) result in the
creation of any lien or other encumbrance upon the assets or properties of any
Seller, other than in favor of BRT.
(e) Ownership of the Properties. The Properties are owned by
their respective Seller in fee simple and, to the best of Sellers' knowledge,
title thereto is subject only to the Permitted Exceptions (defined below).
(f) Compliance with Laws and Recorded Declarations. To the
best of Sellers' knowledge, each of the Sellers has complied with all laws
(including, without limitation, the Americans with Disabilities Act of 1990) and
requirements of insurance bodies applicable to the ownership, leasing, use and
operation of the Properties, including, without limitation, parking and building
setback requirements, and has performed all work and secured all required
consents and approvals and obtained and fully paid for all material licenses,
permits certificates, entitlements, grants of right and any other items and
documents required by applicable law, by contract, or as a condition of any
approval granted by the applicable municipal authority, required of any of the
Sellers for the completion, ownership, leasing, use and occupancy of the
Properties, including but not limited to final certificates of occupancy for
each of the current tenancies at such Properties (other than where construction
of tenant improvements for new tenancies is not yet completed or applications
remain pending), except where the failure to so comply or obtain would not have
a material adverse effect on the applicable Property. Such licenses, permits,
certificates, entitlement, grants of right and other items and documents are in
full force and effect. The Sellers have not taken any action that would (or
failed to take any action, the omission of which would) result in the revocation
or suspension of such licenses, permits, certificates, entitlements, grants of
right and other items and documents, and none of the Sellers, the Voting Trust
or SERS have received any notice of any violation from any federal, state or
municipal entity or notice of an intention by any such governmental entity to
revoke any certificate of occupancy or other certificate, license, permit,
entitlement or grant of right issued by it in connection with the ownership, use
and occupancy of any of the Sellers Properties that in each case has not been
cured or otherwise resolved to the satisfaction of such governmental entity. To
the best of Sellers' knowledge, (i) any and all charges (including condominium
fees, to the extent applicable) and other assessments under declarations and
like agreements to which any of the Properties are subject have been paid and no
special assessments thereunder against any of the Properties are pending, and
(ii) all consents and approvals required to be obtained under such declarations
and like agreements with respect to the Properties have been obtained.
(g) Environmental Matters. None of the Sellers have (a) caused
any Hazardous Materials to be improperly maintained or disposed of on, under or
at the Properties or any part thereof in a manner which violates, or could give
rise to liability under, applicable environmental laws, or (b) failed to
remediate, alter, mitigate or abate any condition required to be remediated,
altered, mitigated or abated under such environmental laws, to the extent
Sellers
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<PAGE> 18
has been notified of existence of a condition required to be remediated,
altered, mitigated or abated. Except as set forth in the environmental site
assessments provided by Sellers to BRT pursuant to their due diligence
investigation (including, without limitation, those described in EXHIBIT "K-1"
attached hereto or as described in EXHIBIT "K-2" attached hereto (the "Sellers'
Disclosure Schedule"): (1) to the best of Sellers' knowledge, each Property is
in compliance, and has heretofore complied, with all environmental laws in all
material respects, (2) to the best of Sellers' knowledge, there has been no
discharge of Hazardous Materials by any tenant of the Properties or by any other
person in, to or under any of the Properties, in either case in quantities
requiring response, remediation or removal, and (3) No Seller has received any
written notice from any governmental unit or other person that it or any of the
Properties or operations conducted thereon are not or have not been in
compliance with the environmental laws.
(h) Tenant Leases. The rent rolls attached hereto as EXHIBIT
"L" (the "Sellers' Rent Rolls") list each of the leases currently in effect with
respect to the Properties as the same have been amended or modified (the
"Leases"); there are no leases, licenses or other rights of occupancy affecting
any of the Properties except for the Leases. Sellers have made available to BRT
complete copies of all of the documents that constitute the Leases. The Leases
are in full force and effect and, except as set forth on the applicable Sellers'
Rent Roll, (A) to the best of Sellers' knowledge, no material uncured Event of
Default (as defined in such Leases), has occurred and is continuing under any
such Lease, no tenant has asserted a defense to, offset or claim against its
rent or the performance of its obligations under its Lease and no tenant has
asserted a default on the part of the landlord which would give it the right to
terminate its Lease or set off against rent, (B) there are no rights of first
refusal on, or options to purchase, any of the Properties or any right to a
participation interest (whether of profits, sale or refinancing proceeds, or
calculated based on fair market value) with respect to any such Property, in
favor of any tenant, (C) there are no proposed modifications to any Lease that
would reduce (i) the space leased to any tenant, (ii) the amount of any tenant's
rent or (iii) the term of any lease, (D) no free rent or other rent concession
is due any tenant under the Leases for periods after the Closing Date, (E) no
landlord under a Lease is required to provide tenant improvements or
refurbishments with respect thereto after the Closing Date (other than any
tenant improvements that the landlord may be required to construct if an
expansion option provided in a Lease is exercised), and (F) no tenant under a
Lease has the option to terminate its lease prior to the stated expiration date.
Except for (i) security deposits or (ii) the first full month's rent, whether or
not the term of a Lease has commenced, no prepayments of rent more than thirty
(30) days in advance have been made under the Leases. All decorating, repairs,
alterations or other work required to be performed by the landlord under each of
the Leases prior to the date hereof, or the cost of any such work performed by
the tenant and to be reimbursed by the landlord prior to the date hereof, has
been performed or reimbursed, as applicable. No rent or security deposits under
the Leases have been assigned or encumbered, and there are no agreements or
understandings, written or oral, with any of the tenants other than as set forth
in the Leases or otherwise set forth on the Sellers' Rent Roll. All brokerage
commissions and other compensation and fees payable by season of the Leases have
been paid in full, except as set forth in the Sellers' Disclosure Schedule (and
other than any commissions that may be due if a tenant takes expansion space or
renews its lease).
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<PAGE> 19
(i) Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the best of Sellers' knowledge,
threatened before any court, governmental unit or any mediator or arbitrator
with respect to the Properties, except for litigation listed on EXHIBIT "M"
hereto, which litigation and any projected liability resulting therefrom is
covered by insurance.
(j) Reassessments. Each of the Properties has been fully
assessed and is not subject to abatement. To the best of Sellers' knowledge,
there are no proposed reassessments of any of the Properties by any taxing
authority and there are no threatened or pending special assessments or other
actions or proceedings (other than county-wide reassessments and/or the usual
increases in millage rates that may be under consideration by the taxing
authorities in the jurisdictions where the Properties are located) that could
reasonably be expected to give rise to an increase in real property taxes or
assessments against any of the Properties.
(k) Sellers' Employees. There are no employees of any Seller.
(l) Property Improvements. To the best of Sellers' knowledge,
except as disclosed in any engineering studies or reports obtained by or
delivered to BRT in connection with this transaction prior to the date hereof
(including, without limitation, those described on Exhibit "K-3" attached
hereto), the improvements at the Properties are in good condition and repair,
ordinary wear and tear excepted, and have not suffered any casualty or other
material damage which has not been repaired in all material respects. To the
best of Sellers' knowledge, there is no material latent or patent structural,
mechanical or other significant defect, soil condition or deficiency in the
improvements included in the Properties, or any other defects, soil conditions
or deficiencies which, in the aggregate, would materially adversely affect the
value of such Properties taken as a whole.
(m) Condemnation or Governmental Proceedings. No eminent
domain, condemnation, incorporation, annexation or moratorium or similar
proceeding has been commenced or, to the best of Sellers' knowledge, threatened
by an authority having the power of eminent domain to condemn any part of the
Properties. To the best of Sellers' knowledge, there are no pending or
threatened governmental rules, regulations, plans, studies or efforts, or court
orders or decisions, which do or could adversely affect the use or value of the
Properties for their present use.
(n) Insurance. EXHIBIT "N" attached hereto lists the insurance
policies relating to the Properties or any part thereof carried by Sellers. All
such policies are in full force and effect, and will be continued or renewed
with the existing coverages and policy limits until the Closing Date, and all
premiums thereunder have been paid to the extent due, and will be paid until the
Closing Date; and no notice of cancellation has been received with respect
thereto and, to the best knowledge of Sellers, no cancellation is threatened.
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<PAGE> 20
(o) FIRPTA. No Seller is a "foreign person" within the meaning
of Section 1445(f) of the Code or a "foreign partner" within the meaning of
Section 1446 of the Code.
(p) Brokers. No brokers or finders have been employed or
engaged by Sellers with respect to the transactions contemplated by this
Agreement or any other document or agreement to be executed in connection with
the transactions contemplated by this Agreement.
(q) Taxes. Each of the Sellers (i) has filed or has had filed
on its behalf all Tax Returns (as defined below) on a timely basis which are
required to be filed as of the date hereof, and such Tax Returns are correct and
complete, (ii) has paid or has had paid on its behalf on a timely basis all
Taxes (as defined below) shown to be due on such Tax Returns and (iii) with
respect to any period for which Tax Returns have not yet been filed, or for
which Taxes are not yet due or owing, has made due and sufficient current
accruals for such Taxes in its books and records in accordance with generally
accepted accounting principles. For purposes of this subsection, "Tax" shall
mean any Federal, state or local tax of any kind whatsoever, including any
interest or penalty, and "Tax Return" shall mean any return, declaration,
report, claim for refund, information return, statement or other similar
document relating to Taxes.
(r) Business of Seller. None of the Sellers has engaged in any
business other than owning the properties that are being transferred hereunder.
(s) Service Contracts. EXHIBIT "S" attached hereto is a
complete list of all existing service, equipment, supply and maintenance
contracts with respect to or affecting the Properties (the "Service Contracts"),
and each of such Service Contracts is terminable at will without penalty or
cancellation fee upon no more than thirty (30) days notice. Unless otherwise
directed by BRT, none of the Service Contracts shall be terminated by Sellers as
of Closing, except such of the Service Contracts as constitute management
agreements for a Property or Properties, which shall be terminated by Sellers as
of Closing. Except as set forth on EXHIBIT "S", no written notice of default or
breach by Sellers in the terms of any of such Service Contracts have been
received by Sellers. Sellers have performed, and at Closing shall have
performed, all obligations which it or they have under said Service Contracts.
(t) No Tax Assessments. There are no public improvements in
the nature of off-site improvements, or otherwise, which have been ordered to be
made and/or which have not heretofore been assessed, and, to Seller's knowledge,
there are no general or special assessments currently affecting or pending
against the Properties.
(u) Utilities. All utilities required for the operation of the
Properties either enter each of the Properties through adjoining public streets,
or, if they pass through adjoining private lands, do so in accordance with valid
public easements or private easements which will inure to the benefit of BRT as
assignee or nominee at no cost to the owner of the Properties.
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(v) Zoning Classification. The zoning classification of: (i)
the Greenwood Property is PCD Planned Commerce Park District; (ii) the BCBL
Property is M-1 as to Middletown Township and PIP Planned Industrial Park
District as to Falls Township; and (iii) the North Gulph Property is SM Suburban
Metropolitan.
3.3 By The Voting Trust. The Voting Trust hereby represents and
warrants that, except as disclosed in any exhibit to this Agreement:
(a) Organization: Authority. The Voting Trust is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of formation and has full power and authority to own, lease and
operate its properties and to carry on its business as presently conducted. The
Voting Trust is duly qualified to do business and is in good standing in each
jurisdiction where the character of its properties or assets and the nature of
its business requires it to be so qualified. The Voting Trust has the requisite
authority to enter into and perform this Agreement.
(b) Due Authorization; Binding Agreement. The execution,
delivery and performance of this Agreement and all other documents and
agreements to be executed by the Voting Trust in connection with the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary action of the Voting Trust. This Agreement and all
other documents and agreements to be executed by the Voting Trust in connection
with the transactions contemplated by this Agreement have been and will be duly
executed and delivered by the Voting Trust and constitute the legal, valid and
binding obligations of the Voting Trust enforceable against the Voting Trust in
accordance with their respective terms , except as such enforcement may be
limited by bankruptcy, insolvency, moratorium, reorganization and other similar
laws relating to or affecting the enforcement of creditor's rights generally,
and except that the availability of specific performance, injunctive relief or
other equitable remedies is subject to the discretion of the court before which
any such proceeding may be brought.
(c) Consents and Approvals. No consent, waiver, approval,
license or authorization of, or filing, registration or qualification with, or
notice to, any governmental unit or any other person is required to be made,
obtained or given by the Voting Trust in connection with the execution, delivery
and performance of this Agreement or any other documents and agreements to be
executed by the Voting Trust in connection with the transactions contemplated by
this Agreement that has not been heretofore obtained.
(d) No Violation. None of the execution, delivery or
performance of this Agreement or any other document or agreement to be executed
by the Voting Trust in connection with the transactions contemplated by this
Agreement does or will, with or without the giving of notice, lapse of time or
both, (i) violate, conflict with or constitute a default under any term or
provision of (a) the organizational documents of the Voting Trust or any other
agreement to which the Voting Trust is a party or by which it is bound or (b)
any term or provision of any judgment, decree, order, statute, injunction, rule
or regulation of a governmental unit applicable to the Voting Trust, or by which
it or they or its or their assets or properties are
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<PAGE> 22
bound or (ii) result in the creation of any lien or other encumbrance upon the
assets or properties of the Voting Trust, other than in favor of BRT.
(e) Status of SERS. No individual has an actuarial interest of
more than 9.8% in SERS.
3.4 Survival of Representations and Warranties. All representations
and warranties made by the parties in this Agreement shall survive Closing for a
period of two years; provided that no party shall be liable for the breach of
any representation or warranty hereunder unless the total amount recoverable
from such breaching party with respect to all breaches of representations and
warranties hereunder exceeds, an aggregate of $225,000. Any and all liability of
Sellers and the Voting Trust hereunder after Closing shall be limited to and
enforceable only against the Collateral (as defined in the Pledge Agreement),
and by offset against the Deferred Purchase Price, and the Collateral shall be
pledged to BRT to secure the payment of any such liability, pursuant to a Pledge
Agreement in the form attached hereto as EXHIBIT "V".
SECTION 4. CONDITIONS
4.1 Conditions Precedent to BRT Obligations on the Closing Date. The
obligations of BRT to effect the transactions contemplated under this Agreement
at the Closing are subject to the fulfillment on or prior to the Closing of the
following conditions, any one or more of which may be waived in whole or in part
by BRT in writing:
(a) Title Insurance. Title to the Properties shall be good and
marketable and insurable as such by Commonwealth Land Title Insurance Company
free and clear of all liens, restrictions, easements, encroachments, exceptions
and other encumbrances other than Permitted Exceptions at regular rates under an
ALTA 1970 Form B (revised 10/17/70 and 10/17/84) title insurance policy, with
such title endorsements as BRT shall reasonably specify. For purposes of this
Agreement "Permitted Exceptions" means (i) for each of the Properties, the
existing leases with respect thereto as listed on EXHIBIT "L" and the mortgages,
liens, restrictions, easements, encroachments, exceptions and other encumbrances
listed on EXHIBIT "O" hereto with respect to such Property, and (ii) for each
Property, the lien of taxes not yet due and payable and applicable laws and
ordinances.
(b) No Material Adverse Change. There shall not have occurred
any material adverse change to the Properties, taken as a whole.
(c) Tenant Estoppels. Estoppel Certificates with respect to
the Properties in form and substance satisfactory to BRT shall have been
executed by the tenants of the Properties listed on EXHIBIT "P" hereto.
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(d) Securities Purchase Agreement. The representations and
warranties of the Voting Trust under the Securities Purchase Agreement shall be
true and correct as of Closing.
(e) No SEC Integration Challenge. The SEC shall not have
asserted that the issuance of Shares pursuant to (and as defined in) the
Securities Purchase Agreement must be integrated with the sale of Common Shares
(as defined in the Securities Purchase Agreement) pursuant to the Registration
Statements, which assertion, if made, has not been resolved to the reasonable
satisfaction of the Company after the Company has used its best efforts to
accomplish such resolution.
4.2 Conditions Precedent To Sellers and the Voting Trust Obligations
on the Closing Date. The obligations of Sellers and the Voting Trust to effect
the transactions contemplated under this Agreement at the Closing are subject to
the fulfillment on or prior to the Closing Date of the following conditions,
which may be waived by Sellers and the Voting Trust in writing:
(a) No Material Adverse Change. There shall not have occurred
any material adverse change to BRT or the properties owned by BRT and its
subsidiaries, taken as a whole.
(b) Exemption From Ownership Requirements. BRT, by action of
its Board of Trustees, shall have confirmed the Voting Trust is exempt from the
ownership requirements of BRT's Declaration of Trust pursuant to Section 6.6(k)
thereof, in the form attached hereto as EXHIBIT "P".
(c) Securities Purchase Agreement. The representations and
warranties of BRT under the Securities Purchase Agreement shall be true and
correct as of Closing. The conditions set forth in Section 4.11 of the
Securities Purchase Agreement shall have been satisfied as of Closing.
(d) Amendment to Partnership Agreement. The Partnership
Agreement of BRT OP shall have been amended in accordance with the form of
amendment attached as EXHIBIT "X".
(e) Certain Shareholders Approve Conversion. Safeguard
Scientifics, Inc. and Richard M. Osborne, Sr., and all entities holding shares
of BRT beneficially owned by Richard M. Osborne, Sr. shall have entered into an
agreement with the Voting Trust in the form of EXHIBIT "U".
(f) Blue Sky Compliance. BRT shall have complied with all
applicable requirements of federal and state securities or "blue sky" laws with
respect to the issuance of the Property Shares at the Closing.
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(g) Registration Rights. The Registration Rights Agreement in
the form of EXHIBIT "W" attached hereto shall have been executed and delivered
by all the parties thereto and shall be in full force and effect.
(h) Opinions. Counsel for BRT shall have delivered to the
Voting Trust, as appropriate, written opinions, dated the Closing Date, in form
and substance satisfactory to the Voting Trust and its counsel, as appropriate,
substantially in the form attached hereto as EXHIBIT "Q".
4.3 Mutual Conditions Precedent of the Parties on the Closing Date.
The obligations of BRT, Sellers and the Voting Trust to effect the transactions
contemplated under this Agreement at the Closing are subject to the fulfillment
on or prior to the Closing Date of the following conditions, any one or more of
which may be waived in whole or in part by BRT, Sellers and the Voting Trust in
writing:
(a) Concurrent Closings and Deliveries. All of the closing
documents to be delivered at the Closing shall have been executed and be
available for concurrent delivery.
(b) Representations and Warranties True as of Closing Date.
The representations and warranties of each of the parties contained in this
Agreement shall be true at and as of the Closing Date in all material respects,
with the same effect as though such representations and warranties were made as
of such date, provided that the representations and warranties of each of the
parties shall be modified at Closing as provided in their respective Closing
Certificates to reflect, as necessary, the operation of the Properties from the
date hereof through the Closing Date in accordance with Section 5 hereof.
(c) Closing Certificates. Each party to this Agreement shall
have executed and delivered a certificate dated as of the Closing Date (the
"Closing Certificate"), and signed by the President or other authorized officer,
as the case may be, certifying that its representations and warranties set forth
in this Agreement (and, as to BRT and the Voting Trust in the Securities
Purchase Agreement) remain true and correct in all material respects, as may be
modified by information relating to events after the date hereof set forth in
the Closing Certificate. The ability of the parties to modify their
representations and warranties in a Closing Certificate to reflect events
occurring after the date hereof shall not affect the other conditions set forth
in this Section 4.
(d) Confirmations. BRT shall have received confirmation that
the transactions contemplated hereby will not require approval of BRT's
shareholders under the rules of the American Stock Exchange.
(e) American Stock Exchange Listing. On or prior to the
Closing Date, the Common Shares into which the Property Shares are convertible
and the Common Shares for which the Warrant is exercisable or exchangeable shall
have been approved for listing on the American Stock Exchange.
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SECTION 5. OPERATIONS PRIOR TO TRANSFER
5.1 Property Operations.
(a) Except as otherwise expressly provided herein, between the
date hereof and the Closing Date, Sellers shall operate their respective
Properties in the ordinary course in a manner consistent with past practice,
maintaining the Properties in the same state of repair, order and condition as
they are on the date hereof, reasonable wear and tear, damage by fire or other
casualty excepted. Without limiting the foregoing, the applicable owner shall
not defer any required maintenance or repair unless such maintenance or repair
would otherwise be deferred in the ordinary course of business. Sellers shall
maintain or have maintained, their books and records in accordance with past
practice and use diligent efforts to maintain in full force and effect all
authorizations and all insurance policies with respect to their respective
Properties.
(b) Without in each case obtaining the prior written consent
of BRT, which shall not be unreasonably withheld, no Seller shall enter into new
Leases or modify, cancel, waive any material default under, accept any rental
more than thirty (30) days in advance of its accrual date or accept early
surrender of any of the Leases; provided that Sellers may enter into Leases for
5,000 square feet of space or less provided that such Leases are on terms and
conditions consistent with the leasing pro forma provided by Sellers for the
applicable Property.
(c) Sellers shall notify BRT of any material change in any of
the information set forth in Section 3 hereof or any of the Exhibits attached
hereto with respect to their respective Properties, promptly after such party
has knowledge of such material change. Sellers shall promptly deliver to BRT
copies of all default notices and other material written communications sent or
received by them with respect to their respective Properties.
5.2 Casualty or Condemnation.
(a) If prior to the Closing Date there shall be any damage or
destruction to a Property by fire or other casualty, Sellers shall give prompt
notice thereof to BRT. Unless such damage or destruction results in a material
adverse change to the Properties taken as a whole, such damage or destruction
shall in no way void or impair this Agreement or reduce the number of Property
Shares to be issued with respect to such Property. In such event, subject to
BRT's right to participate in the adjustment of the loss with the applicable
insurance companies involved and approve the manner of repair and restoration,
Sellers shall settle with the insurance companies and apply the insurance
proceeds to promptly and diligently repair and restore, or commence to repair
and restore, the affected Property to its condition and character immediately
prior to the damage or destruction. If such repair and restoration is not
completed by the Closing Date, then on the Closing Date the owner of the
affected Property shall pay over to BRT the amount of the insurance proceeds
collected to the extent such proceeds have not yet been applied to the repair
and restoration of the affected Property, (and if any such proceeds
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have not been collected, the owner of the affected Property shall assign to BRT
all its right, title and interest in and to the same).
(b) If prior to the Closing Date condemnation or eminent
domain proceedings are commenced against any Property, the Seller in question
shall give prompt notice thereof to BRT. Unless the taking contemplated by such
condemnation or eminent domain proceeding would result in a material adverse
change to the Properties taken as a whole, no such condemnation or eminent
domain proceeding shall void or impair this Agreement, or reduce the number of
Property Shares to be issued with respect to such Property, provided that the
owner of the affected Property shall be relieved from any obligation hereunder
to convey title to the portion of any such Property so taken. BRT shall have the
right to participate in the negotiation of the award to be made for such taking,
and the owner of the affected Property shall not agree to any proposed award or
execute a deed in lieu of foreclosure without BRT's prior written consent. Any
condemnation award payable with respect to the taking of a Property shall be
assigned to BRT.
SECTION 6. CLOSING; CLOSING DELIVERIES; ADJUSTMENTS; EXPENSES
6.1 Closing. The closing for the transfer of all of the Properties
(the "Closing"), shall take place at the offices of Wolf, Block, Schorr and
Solis-Cohen, 12th Floor Packard Building, 15th & Chestnut Streets, Philadelphia,
PA at 10:00 a.m., on November 14, 1996, or on such other date or at such other
time or place as may be agreed upon in writing by the parties hereto (the
"Closing Date").
6.2 Closing Documents. In addition to the opinions, certificates and
other documents and instruments referred to in Section 4 of this Agreement, at
the Closing, the parties shall also execute and deliver, or cause to be executed
and delivered, the following documents:
(a) Deeds and Assignments. Deeds and Assignment Agreements in
respect of each of the Properties in substantially the forms attached hereto as
EXHIBITS "R-1" and "R-2".
(b) Mechanics' Liens. Sellers will furnish such affidavits,
indemnities and collateral as Commonwealth Land Title Insurance Company may
require to insure title to the Properties in BRT OP (or its subsidiaries) free
and clear of the possibility of mechanic's liens.
(c) Bill of Sale. A bill of sale prepared by BRT's counsel in
form acceptable to Sellers, assigning, conveying and transferring to Buyer, all
of the Personal Property and the Names.
(d) Original Leases. All Leases, tenant files, tenant
correspondence and repair records.
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(e) Original Licenses, Service Contracts. All licenses with
respect to the Properties, and such of the Service Contracts as BRT shall
request.
(f) Assignment of Leases. An assignment agreement prepared by
BRT's counsel in form acceptable to Sellers (the "Assignment"), duly exercised
by Sellers and BRT, assigning, conveying and transferring to BRT the Leases, and
BRT shall assume the obligations and liabilities of Seller arising after the
Closing Date under them.
(g) FIRPTA Certificates. All certificate(s) required under
Section 1445 of the Code.
(h) Tenant Letter. Letters to each tenant advising of the
change in ownership and directing payment of rent to such party as the BRT shall
designate, said letter to be in form acceptable to BRT.
(i) Corporate Clearance. Such evidence, indemnification and
other undertaking as Commonwealth Land Title Insurance Company may require to
insure title in BRT OP (or its subsidiary) free and clear of any liability for
taxes owing by any Seller to the Commonwealth of Pennsylvania.
(j) Title Insurance Certificates. Such reasonable and
customary affidavits of title or other certifications as shall be required by
Commonwealth Land Title Insurance Company to insure BRT's title to the
Properties as set forth in Section 4.1(a), and to provide affirmative
endorsements for (a) no violation of existing covenants, conditions and
restrictions, and future violation not to result in forfeiture of title, (b)
removal of any exceptions for matters which an accurate survey would disclose,
(c) "Fairways" endorsements, and such other endorsements as BRT shall reasonably
request.
(k) Updated Rent Roll. An updated schedule of Leases,
containing all information required to be set forth in EXHIBIT "L which schedule
is correct and complete as of the date of closing.
(l) Organization Certifications. Confirmation of the good
standing and existence of each Seller and the due authority of those executing
for them, including, without limitation, the following documents issued no
earlier than 30 days prior to Closing: (a) good standing certificate in state or
organization and in the State in which the Properties are located, (b) articles
of incorporation, certified by the secretary of state of the state of
incorporation, (c) a certificate from the secretary of the corporation
confirming the incumbency of the signatories and the current force and effect of
the resolution authorizing their execution of the documents required under this
Agreement.
(m) Keys. All keys and combinations to all locks to the
Properties.
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(n) Tax Bills. Current tax bills and, if available, tax bills
for each of the years of Sellers' ownership of the Properties.
(o) Tax Reduction Rights. An instrument assigning to BRT any
claims for the reduction of real or personal property taxes assessed against any
portion of the Property for the fiscal year in which the Closing takes place;
any refund for such year shall be prorated when received.
(p) Contract Documents. All Contract Documents in possession
of Sellers.
6.3 Adjustments. The following terms shall be prorated on a per diem
basis at Closing, as of the close of business of the day immediately preceding
Closing except as otherwise set forth below:
(a) Rent Under Leases. Delinquent rents under Leases will not
be prorated, but after Closing, BRT will pay promptly to the Seller in question
(i) the first money collected from any tenant which as of Closing was delinquent
only for the month in which Closing occurred, up to the amount of such
delinquency and (ii) sums collected within ninety (90) days following Closing in
excess of all sums owing after Closing, from any tenant which, as of Closing,
was delinquent for more than the month in which Closing occurred, up to the
amount of such delinquency. Except as herein expressly provided, BRT shall be
under no obligation to collect rents in arrears for the benefit of Sellers.
Except for the adjustment of escalation payments as provided below, Sellers
shall have no claim to any rent collected more than ninety (90) days following
the Closing Date.
(b) All security deposits under Leases and all interest
required to be paid thereon pursuant to the terms of such Leases shall be paid
over to BRT on the Closing Date; and
(c) Sellers shall have paid prior to Closing all taxes and
assessments and water and sewer charges, including assessments payable in
installments, which are to become due and payable and/or a lien against any
Property, provided the first installment of such assessment has become due and
payable as of Closing. Real estate taxes, assessments and municipal water and
sewer charges for the current tax years will be prorated.
(d) Sellers will use reasonable efforts to cause all utility
meters to be read as of the end of the day preceding Closing, or as close
thereto (whether before or after) as practicable, and the parties will adjust
utility charges on the basis of such readings and reasonable estimates to
approximate the result that Sellers shall bear all utility charges through the
day preceding Closing and BRT shall bear utility charges thereafter. Utility
deposits, if any, will be assigned to BRT and reimbursed to Sellers.
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(e) If BRT shall elect to take assignment of any insurance
policy or contract, the premiums or sums payable (or receivable) thereunder will
be prorated on a per diem basis such that Sellers will bear all expenses through
the day preceding the Closing and BRT will bear all expenses thereafter.
(f) Amounts paid or payable in respect of any Service
Contracts assigned and assumed by BRT in accordance herewith.
(g) At least five (5) days prior to Closing, Sellers shall
deliver to BRT a reasonably detailed statement setting forth, as of the date of
Closing (a) the sums collected from tenants under Leases on account of or in
reimbursement of landlord's operating expenses and/or any other payments made by
tenant to landlord on account of sums which are attributable to expenses paid or
incurred by the landlord ("escalation payments") for the current fiscal year
under each such Lease (whether a lease year or calendar or other year); and (b)
the amounts paid or incurred by Sellers during the appropriate fiscal year as
aforesaid which Sellers expects will be paid or reimbursed by escalation
payments made by tenants.
If Sellers shall have collected escalation payments for
period prior to Closing in excess of the amount to which Sellers are entitled,
whether pursuant to estimates which were in excess of the amounts actually
required to be paid, or otherwise, there shall be an adjustment and payment to
BRT at Closing for such excess. If the charges were not billed or have not been
collected as of the date of Closing, then, when the amount of such escalation
payments is determined and collected by BRT from tenants, BRT will, upon
collection, remit to Sellers the portion thereof to which Sellers is entitled to
the date of Closing. BRT shall have the right, in good faith, to settle or
adjust any amount of such escalation payments due from any tenant without
Sellers' prior consent, provided that such settlement or adjustment applies
ratably to all amounts of escalation payments due from such tenant. Escalation
payments will ultimately be prorated between the parties on the basis of the
proportions in which each party bore the expense in question.
(h) The parties shall endeavor to jointly prepare a schedule
of prorations for the Properties no less than five (5) days prior to closing. As
to any matter to be prorated hereunder which cannot be determined with certainty
as of Closing, the parties will estimate such matter as of Closing and will
thereafter adjust such estimated proration promptly after such matter can be
determined with certainty. The parties shall correct any errors in prorations as
soon after the Closing as amounts are finally determined.
6.4 Expenses. Transfer taxes payable with respect to the conveyance
of the Properties shall be divided equally between the Sellers and BRT;
provided, however, that if Closing shall occur under the Securities Purchase
Agreement, and if in connection with such Closing thereunder Common Shares are
issued, then at such Closing BRT will pay to the Voting Trust the sum of Two
Hundred Ten Thousand Dollars ($210,000) in partial reimbursement of the realty
transfer taxes paid by Sellers at Closing hereunder. BRT shall pay the cost of
title insurance and recording costs of the deeds. BRT will pay its own due
diligence expenses. Other closing expenses will be allocated to the party who
would customarily pay such expense under local practice. Each party will pay the
fees and expenses of its own counsel, except that if Closing occurs, BRT will
reimburse the Voting Trust at Closing for the reasonable costs incurred
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by Sellers and Voting Trust for the fees and expenses of counsel in connection
with the transactions described hereby. Otherwise each party shall be
responsible for all expenses incurred by it in connection with this Agreement
and the transactions contemplated hereby, including without limitation the fees
and expenses of such party's accountants, attorneys and other advisors;
provided, however, that if Closing occurs, BRT will reimburse the Voting Trust
the sum of $242,500 paid or payable by SERS to consultants.
6.5 Indemnification for Seller's Tax Obligations. Sellers shall
indemnify, defend and save and hold harmless BRT from any loss, cost, liability
or expense (including, without limitation, reasonable counsel fees and court
costs) incurred, paid or suffered by BRT arising out of or by reason of any
claim made by the Pennsylvania Department of Revenue or by any other state
taxing or employment authorities asserting or indicating any claims or possible
claims for unpaid taxes, penalties, interest or court costs related thereto of
Sellers, the Voting Trust, SERS or any related party, due the Commonwealth of
Pennsylvania or its political subdivisions. The provisions of this Section 6.5
shall specifically survive Closing hereunder.
SECTION 7. COVENANTS
7.1 BRT Covenants. BRT hereby makes the following covenant to
Sellers and the Voting Trust: during the Due Diligence Period, BRT will
diligently endeavor to obtain the confirmation from the American Stock Exchange
described in subsection 4.3(e) hereof.
7.2 Mutual Covenant - Best Efforts To Close. Each party to this
Agreement hereby covenants to use its best efforts (i) to cause to be fulfilled
any condition to Closing which is under the control or influence of such party
and (ii) to consummate Closing hereunder so long as the conditions to such
party's obligation are fulfilled.
7.3 Morgan Stanley Transactions. RAI specifically acknowledges and
agrees that the Voting Trust and RAI as voting trustee of the Voting Trust are
aware of and have no right to consent to or otherwise approve the investment
transactions with the Morgan Stanley Funds referred to in the Registration
Statements.
SECTION 8. MATTERS TO BE COMPLETED
8.1. Matters to be Completed. Prior to Closing, BRT will review the
documents and materials described on EXHIBIT "Z" hereto and will promptly notify
Sellers' if any information contained in any such documents materially adversely
affects the value of the Properties (other than any impairment of future
development potential). Sellers may, but need not, remedy the matter in question
or compensate BRT therefor, and if Sellers shall not so remedy or so compensate
BRT in a manner reasonably satisfactory to BRT, then BRT may terminate this
Agreement by notice to Sellers and thereupon the Deposit shall be returned to
BRT.
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SECTION 9. SELLERS' OR VOTING TRUST'S DEFAULT
9.1 Sellers' or Voting Trust's Default. If Sellers or the Voting
Trust shall fail to consummate Closing in accordance with this Agreement or
shall fail to observe or perform any of their covenants or obligations under
this Agreement to be observed or performed at or prior to Closing, BRT as its
sole and exclusive remedies may (i) seek specific performance of this Agreement,
or (ii) enforce any other remedy available at law or in equity, provided,
however, that unless such failure to consummate Closing constitutes a breach of
Sellers' or the Voting Trust's covenant under subsection 7.2 hereof, the
remedies of BRT under this clause (ii) will be limited to the return of the
Deposit to BRT and payment to BRT of the additional sum of $100,000 as
liquidated damages for such default.
SECTION 10. GENERAL PROVISIONS
10.1 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given only if delivered personally, sent by
reputable next business day delivery service or by telegram or by registered or
certified mail, postage prepaid, as follows:
If to BRT, to:
Brandywine Realty Trust
16 Campus Boulevard
Suite 150
Newtown Square, PA 19073
Attn: Gerard H. Sweeney,
President and Chief Executive Officer
With a required copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
Attn: Michael H. Friedman, Esq.
If to the Sellers or Voting Trust, to:
RAI Real Estate Advisers, Inc.
259 Radnor-Chester Road
Suite 200
Radnor, PA 19087
Attn: Richard K. Layman
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With a required copy to:
Wolf, Block, Schorr, and Solis-Cohen
12th Floor Packard Building
S.E. Corner 15th and Chestnut Streets
Philadelphia, PA 19102
Attn: Jason M. Shargel, Esq.
10.2 Confidentiality. The parties to this Agreement acknowledge that
certain of the information that may be made available to them in connection with
their due diligence investigation or otherwise is proprietary and includes
confidential information. The parties shall hold all such information in
confidence and shall not disclose it to any person before the Closing without
the approval of the other parties, as applicable; provided, however, that the
foregoing restriction shall not apply to (i) any information that is or becomes
publicly known or that is lawfully obtained from a third party, (ii) to any
disclosure required by law or in connection with the enforcement of any party's
rights under this Agreement or (iii) any information required, in the reasonable
judgment of BRT's counsel, to be included in the Registration Statement on Form
S-11, as amended or in any Preliminary or Final Prospectus pertaining thereto.
Prior to the Closing, none of the parties (or any of their respective
affiliates) shall make any public announcement or disclosure relating to the
transactions contemplated herein without the prior agreement of each other party
hereto, except as required by law, provided that each other party shall use its
best efforts to consult with the other in advance of any disclosure required by
law.
10.3 Entire Agreement. This Agreement, together with the Exhibits
and certificates referred to herein or delivered pursuant hereto, constitute the
entire agreement between the parties hereto with respect to its subject matter
and supersede all prior and contemporaneous agreements and understandings with
respect to the subject matter thereof.
10.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original copy of this
Agreement, and all of which, when taken together, shall be deemed to constitute
but one and the same Agreement.
10.5 Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania (and United States federal law, to the extent applicable),
irrespective of the principal place of business, residence or domicile of the
parties hereto, and without giving effect to otherwise applicable principles of
conflicts of laws. Nothing contained herein or in any other document
contemplated hereunder shall prevent or delay any party from seeking, in any
court of competent jurisdiction, specific performance or other equitable
remedies in the event of any breach or intended breach by any party of any of
their respective obligations hereunder.
10.6 Section Headings, Captions and Defined Terms. The section
headings and captions contained herein are for reference purposes only and shall
not in any way affect the meaning and interpretation of this Agreement. The
terms defined herein and in any agreement executed in connection herewith
include the plural as well as the singular and the use of masculine pronouns
include the feminine and neuter. Except as otherwise indicated, all
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agreements defined herein refer to the same as from time to time amended or
supplemented or the terms thereof waived or modified in accordance herewith and
therewith.
10.7 Amendments. Modifications and Waiver. The parties may amend or
modify this Agreement in any respect. No such amendment or modification shall be
effective unless in writing and signed by the party against which such amendment
or modification is to be enforced. The waiver by any party of any provision of
this Agreement shall not constitute or operate as a waiver of any other
provision hereof, nor shall any failure to enforce any provision hereof operate
as a waiver of such provision or of any other provision.
10.8 Severability. The invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provisions or
parts were omitted.
10.9 Liability of Trustees, etc. No recourse shall be had for any
obligation of BRT hereunder, or for any claim based thereon or otherwise in
respect thereof, against any past, present or future trustee, shareholder,
officer or employee of BRT, whether by virtue of any statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being expressly waived and released by each other party hereto.
10.10 Non-Recourse. No recourse shall be had for any obligation of
the Sellers or the Voting Trust hereunder, or for any claim based thereon or in
respect thereof, against RAI, SERS, or any past, present or future trustee,
stockholder, officer or employee of either or against any other person or
entity, except for the payment by Sellers or the Voting Trust of any amounts due
under clause (ii) of Section 9.1 hereof or as provided in the following
sentence, whether by virtue of any statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise, all such other liability being
expressly waived and released by each other party hereto. After Closing,
recourse for any obligation or liability of the Sellers or the Voting Trust
hereunder shall be enforceable only against the collateral (as defined in the
Pledge Agreement), and by offset against the Deferred Purchase Price.
10.11 Exhibits Incorporated. All exhibits attached hereto are hereby
incorporated into and made a part of this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, all as of the date first written above.
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
-----------------------------------------
Title: President/CEO
--------------------------------------
GREENWOOD SQUARE CORPORATION
By: /s/ Kathleen M. Hands
-----------------------------------------
Title: Vice President
--------------------------------------
BCBC HOLDING COMPANY
By: /s/ Kathleen M. Hands
-----------------------------------------
Title: Vice President
--------------------------------------
500 NORTH GULPH ROAD HOLDINGS, INC.
By: /s/ Kathleen M. Hands
-----------------------------------------
Title: Vice President
--------------------------------------
RAI REAL ESTATE ADVISERS, INC.
By: /s/ Richard K. Layman
-----------------------------------------
Title: President
--------------------------------------
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EXHIBIT LIST
Exhibit A: Legal Description - Greenwood Property
Exhibit B: Legal Description - BCBC Property
Exhibit C: Legal Description - North Gulph Property
Exhibit D-1: Articles Supplementary (Property Shares)
Exhibit D-2: Standstill Agreement
Exhibit E: Form of Capital Escrow Agreement
Exhibit F: Form of Warrant
Exhibit G: BRT Disclosure Schedule
Exhibit H: BRT Rent Rolls
Exhibit I: Insurance Policies Relating to BRT Properties
Exhibit J: BRT Properties
Exhibit K-1: List of Environmental Site Assessments of the Properties
Exhibit K-2: Sellers' Disclosure Schedule
Exhibit K-3: List of Engineering Studies and Reports of the Properties
Exhibit L: Sellers' Rent Rolls
Exhibit M: Sellers' Litigation
Exhibit N: Insurance Policies Relating to Properties
Exhibit O: Permitted Exceptions on Properties
Exhibit P: Required Tenant Estoppels
Exhibit Q: Form of Opinion
Exhibit R-1: Form of Deed
Exhibit R-2: Form of Assignment and Assumption Agreement
Exhibit S: Sellers' Service Contracts
-31-
<PAGE> 36
Exhibit T: Deposit Escrow Agreement
Exhibit U: Form of Agreement of Safeguard Scientifics, Inc. and
Richard M. Osborne
Exhibit V: Form of Pledge Agreement
Exhibit W: Form of Registration Rights Agreement
Exhibit X: Form of Amendment to Partnership Agreement of BRT OP
Exhibit Y: Form of Confirmation of Voting Trust Exemption from Ownership
Requirements
Exhibit Z: Remaining Due Diligence Items
-32-
<PAGE> 1
EXHIBIT 10.42
BRANDYWINE REALTY TRUST
SECURITIES PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. SALE AND PURCHASE OF SHARES; CLOSING........................................................-1-
1.1 Authorization of Securities.................................................................-1-
1.2 Sale and Purchase...........................................................................-1-
1.3 Closing.....................................................................................-2-
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................................-2-
2.1 Organization and Good Standing..............................................................-2-
2.2 Authorization...............................................................................-3-
2.3 No Conflict with Law or Documents...........................................................-3-
2.4 Beneficial Interest of Company..............................................................-3-
2.5 Reservation of Shares.......................................................................-4-
2.6 Consents and Approvals......................................................................-4-
2.7 Private Offering............................................................................-4-
2.8 Declaration of Trust and Bylaws.............................................................-5-
2.9 Subsidiaries................................................................................-5-
2.10 SEC Reports.................................................................................-5-
2.11 Litigation..................................................................................-5-
2.12 Compliance with Laws........................................................................-6-
2.13 Financial Statements........................................................................-6-
2.14 Real Property...............................................................................-7-
2.15 Tenant Leases...............................................................................-9-
2.16 Dividends and Other Distributions...........................................................-9-
2.17 Tax Matters.................................................................................-9-
2.18 Agreements Affecting the Company's Securities..............................................-10-
2.19 Insurance..................................................................................-10-
2.20 Employee Benefit Plans.....................................................................-10-
2.21 Contracts and Agreements...................................................................-12-
2.22 Absence of Certain Developments............................................................-12-
2.23 Contracts with Insiders....................................................................-13-
2.24 Use of Proceeds............................................................................-13-
2.25 Environmental Matters......................................................................-13-
2.26 Certain Agreements.........................................................................-13-
2.27 Books and Records..........................................................................-14-
2.28 Certain Payments...........................................................................-14-
2.29 Labor Agreements and Actions...............................................................-14-
2.30 Entire Business; Etc.......................................................................-15-
2.31 Registration Statement.....................................................................-15-
2.32 Information................................................................................-15-
2.33 Standstill Agreements......................................................................-15-
2.34 Matters Relating to Partnership Agreement and Warrants.....................................-16-
2.35 Investment Company.........................................................................-16-
2.36 Commodity Exchange Act.....................................................................-16-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES.................................................-16-
3.1 Pre-Existing Entity........................................................................-16-
3.2 Beneficial Ownership.......................................................................-16-
3.3 Principal Place of Business................................................................-17-
3.4 Purchase Without View to Distribution......................................................-17-
3.5 Restrictions on Transfer...................................................................-17-
3.6 Access to Information......................................................................-17-
3.7 Additional Representations of the Purchaser................................................-17-
3.8 Legends....................................................................................-18-
3.9 Due Authorization, etc.....................................................................-18-
SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S
OBLIGATIONS................................................................................-18-
4.1 Representations and Warranties.............................................................-18-
4.2 Performance................................................................................-19-
4.3 Opinion of Counsel to the Company..........................................................-19-
4.4 Proceedings; Certified Copies..............................................................-19-
4.5 No Proceeding or Litigation................................................................-19-
4.6 No Material Adverse Change.................................................................-19-
4.7 ASE Listing................................................................................-19-
4.8 Blue Sky Compliance........................................................................-19-
4.9 Registration Rights........................................................................-19-
4.10 Contribution Closing; Transaction Documents................................................-19-
4.11 Maryland Anti-Takeover Statutes............................................................-19-
4.12 Environmental Representation Letter........................................................-20-
4.13 Tax Opinion................................................................................-20-
SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S
OBLIGATIONS................................................................................-20-
5.1 Representations and Warranties.............................................................-20-
5.2 Performance................................................................................-20-
5.3 No Proceeding or Litigation................................................................-20-
5.4 ASE Listing................................................................................-20-
5.5 Contribution Closing.......................................................................-20-
5.6 Additional Documents.......................................................................-21-
5.7 Proceedings; Certified Copies..............................................................-21-
5.8 No SEC Integration Challenge...............................................................-21-
SECTION 6. COVENANTS OF THE COMPANY AND THE PURCHASER
PRIOR TO CLOSING...........................................................................-21-
6.1 Payment of Expenses........................................................................-21-
6.2 Operation of Business in Ordinary Course...................................................-21-
6.3 Access to Information......................................................................-21-
6.4 Notification of Certain Matters............................................................-22-
6.5 Conditions Precedent.......................................................................-23-
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 7. COVENANTS OF THE COMPANY AND THE PURCHASER AFTER
CLOSING....................................................................................-23-
7.1 Rule 144...................................................................................-23-
7.2 Delivery of Financial Statements...........................................................-23-
7.3 Reservation of Shares......................................................................-23-
7.4 Compliance with Laws.......................................................................-23-
7.5 Waivers, Consents, Etc.....................................................................-24-
7.6 Press Releases.............................................................................-24-
7.7 Shareholders' Meeting......................................................................-24-
7.8 Purchaser's Covenant.......................................................................-24-
7.9 REIT Status................................................................................-25-
SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON
TRANSFERABILITY OF SHARES, PROPERTY SHARES
WARRANT AND CONVERSION ....................................................................-25-
8.1 Compliance with 1933 Act...................................................................-25-
8.2 Restrictive Legend.........................................................................-25-
8.3 Restrictions on Transferability............................................................-25-
8.4 Termination of Restrictions on Transferability.............................................-26-
SECTION 9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.................................................................................-26-
SECTION 10. MISCELLANEOUS..............................................................................-26-
10.1 Owner of Shares, Property Shares, Warrant and Conversion Shares............................-26-
10.2 Successors.................................................................................-26-
10.3 Broker or Finder...........................................................................-27-
10.4 Governing Law..............................................................................-27-
10.5 Notice.....................................................................................-27-
10.6 Full Agreement.............................................................................-28-
10.7 Headings...................................................................................-28-
10.8 Amendment..................................................................................-28-
10.9 Survival of Representations and Warranties.................................................-28-
10.10 Settlement of Disputes.....................................................................-28-
10.11 Counterparts...............................................................................-29-
10.12 Termination................................................................................-29-
10.13 Effect of Termination......................................................................-30-
10.14 Non-Recourse...............................................................................-30-
</TABLE>
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<PAGE> 5
SCHEDULE OF EXHIBITS
Exhibit A -- Form of Amendment No. 1 to Registration Statement
Exhibit B -- Amendments or Waivers of Warrant Holders
Exhibit C -- Form of Opinion of Counsel to the Company
Exhibit D -- Form of Opinion of Special Maryland Counsel to the Company
-iv-
<PAGE> 6
EXHIBIT 10.42
SECURITIES PURCHASE AGREEMENT (this "Agreement") made as of
the 6th day of November, 1996 between BRANDYWINE REALTY TRUST, a Maryland real
estate investment trust (the "Company"), and RAI REAL ESTATE ADVISERS, INC.
("RAI") as the voting trustee of a voting trust dated as of November 6, 1996
executed by the Commonwealth of Pennsylvania State Employes' Retirement System
("SERS") as shareholder and by RAI as voting trustee (the "Purchaser").
BACKGROUND
The Company desires to issue and sell to the Purchaser, and the
Purchaser desires to purchase Common Shares (as defined in Section 1.1), or, if
so provided in Section 1.2, Series A Preferred Shares (as defined in Section
1.1), for an aggregate purchase price of $10,500,000 (the "Purchase Price") on
the terms and conditions set forth herein.
Intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION 1. SALE AND PURCHASE OF SHARES; CLOSING
1.1 AUTHORIZATION OF SECURITIES. The Board of Trustees of
the Company has authorized the issuance of a number of its authorized but
unissued common shares of beneficial interest (the "Common Shares") as provided
in Section 1.2. The term "Shares" as used herein means the number of Common
Shares issuable to the Purchaser hereunder or, if shares of the Company's Series
A Convertible Preferred Shares (the "Series A Preferred Shares") are to be
issued as provided in Section 1.2, the number of Series A Preferred Shares
issuable to Purchaser hereunder. The term "Securities" as used herein means the
Shares, the Conversion Shares, the Series A Preferred Shares (the "Property
Shares") issuable pursuant to the Contribution Agreement of even date herewith
among, inter alia, the Company and the Purchaser (the "Contribution Agreement"),
and the Warrant to Purchase Common Shares (the "Warrant") issuable pursuant to
the Contribution Agreement. The term "Conversion Shares" as used herein means
the Common Shares issuable upon conversion of the Series A Preferred Shares and
Property Shares and upon exercise or exchange of the Warrant.
1.2 SALE AND PURCHASE. Subject to the terms and conditions
herein set forth, on the Closing Date (as defined in Section 1.3), the Company
shall sell, issue and deliver Shares to the Purchaser as follows: If the
Secondary Offering occurs on or prior to December 27, 1996, the Company shall
issue to the Purchaser a number of Common Shares equal to the Purchase Price
divided by a number equal to the price to the public in the Secondary Offering.
If the Secondary Offering is not consummated on or before December 27, 1996, the
Company shall issue to the Purchaser Preferred Shares convertible into a number
of Common Shares equal to the Purchase Price divided by $5.50. The term
"Secondary Offering" as used herein means an underwritten primary public
offering of Common Shares pursuant to a Registration Statement on Form S-11
declared effective by the
<PAGE> 7
SEC (as defined in Section 2.10) which results in gross proceeds to the Company
(prior to reduction for the underwriters' discount) of at least $50,000,000. All
share amounts and prices shall be appropriately adjusted for any share splits,
reverse share splits, share dividends or similar transactions.
1.3 CLOSING.
(a) The closing of the issuance and sale of the Shares to
the Purchaser hereunder shall take place on the earlier of (i) as promptly as
practicable after the closing of the Secondary Offering, or (ii) December 30,
1996, subject to the satisfaction or, if permissible, waiver of the conditions
set forth in Sections 4 and 5, at 10:00 A.M. at the offices of Wolf, Block,
Schorr and Solis-Cohen, Packard Building, 15th and Chestnut Streets,
Philadelphia, PA 19102, unless another date, time or place is agreed to in
writing by the parties hereto. As used herein "Closing" shall mean the closing
of the issuance and sale of the Shares to the Purchaser hereunder and the
"Closing Date" shall mean the date on which such Closing takes place.
(b) Subject to the terms and conditions herein set forth,
at the Closing, the Company shall deliver to the Purchaser certificates for the
Shares duly executed by the Company and registered in the Purchaser's name or
the name of its nominee and, in exchange for the delivery of the Shares, the
Purchaser shall deliver to the Company the Purchase Price by wire transfer of
immediately available funds to an account designated by the Company at least two
business days prior to the Closing Date.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Other than as set forth on the disclosure letter previously
provided to the Purchaser by the Company (the "Disclosure Letter") or as
described in the Registration Statement (as defined in Section 2.31) or in the
SEC Reports (as defined in Section 2.10), the Company represents and warrants to
the Purchaser as follows:
2.1 ORGANIZATION AND GOOD STANDING. The Company is a real
estate investment trust duly formed and existing under and by virtue of the laws
of the State of Maryland and is in good standing with the State Department of
Assessments and Taxation of Maryland and has all requisite power and trust
authority, and all necessary licenses and permits, to own and lease its
properties and assets and to conduct its business as now conducted. Each
Subsidiary (as defined in Section 2.9) is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite power and authority, and all necessary
licenses and permits, to own and lease its properties and assets and to conduct
its business as now conducted. The Company and its Subsidiaries are each
qualified to do business and are in good standing in all states where the
conduct of their respective businesses or their ownership or leasing of property
requires such qualification.
-2-
<PAGE> 8
2.2 AUTHORIZATION. The Company has all requisite power and
trust authority to execute and deliver this Agreement and each Transaction
Document (as defined in Section 4.10) required to be executed and delivered by
it prior to or at the Closing and to carry out the transactions contemplated
hereby and thereby. The execution, delivery and performance by the Company of
this Agreement and each Transaction Document to which it is a party have been
duly authorized by all requisite corporate action. This Agreement has been duly
executed and delivered by the Company and constitutes (and, when executed and
delivered as contemplated herein each such Transaction Document will constitute)
the valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization and other similar laws
relating to or affecting the enforcement of creditors' rights generally, and
except that the availability of specific performance, injunctive relief or other
equitable remedies is subject to the discretion of the court before which any
such proceeding may be brought.
2.3 NO CONFLICT WITH LAW OR DOCUMENTS. The execution, delivery
and performance by the Company of this Agreement and each Transaction Document
to which it is a party will not violate any provision of law, any rule or
regulation of any governmental authority, or any judgment, decree or order of
any court binding on the Company, and will not conflict with or result in any
breach of any of the terms, conditions or provisions of, or constitute a default
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties, assets or outstanding shares of the
Company under its the Declaration of Trust of the Company as amended to the date
of this Agreement (the "Declaration of Trust") or the Bylaws of the Company as
amended to the date of this Agreement (the "Bylaws"), or any indenture,
mortgage, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound.
2.4 BENEFICIAL INTEREST OF COMPANY. The authorized beneficial
interest of the Company consists of: (a) 75,000,000 Common Shares, 2,733,554
shares of which are presently issued and outstanding, and (b) 5,000,000
undesignated preferred shares, par value $.01 per share, none of which is
presently issued and outstanding. All issued and outstanding Common Shares have
been duly and validly issued and are fully paid and nonassessable. There are no
outstanding subscriptions, warrants, options or other rights or commitments of
any character to subscribe for or purchase from the Company, or obligating the
Company to issue, any shares of beneficial interest of the Company or any
securities convertible into or exchangeable for such shares, and there are no
Common Shares reserved for issuance. The number of Common Shares issuable upon
the exercise, conversion or exchange of any outstanding securities of the
Company is not subject to adjustment by reason of the issuance and sale of the
Securities. There are no (i) preemptive, first refusal or similar rights to
purchase or otherwise acquire securities of the Company or any Subsidiary
pursuant to any provision of law, the Declaration of Trust, the Bylaws, the
Partnership Agreement (as defined in Section 2.21), other agreement or
otherwise; or (ii) rights to adjust the number, type or pricing of securities
issuable upon conversion, exercise or exchange of other securities or rights
issued by the Company.
-3-
<PAGE> 9
2.5 RESERVATION OF SHARES. The requisite number of duly
authorized and unissued Common Shares of the Company have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares and Property
Shares and exercise of the Warrant and no further trust action is required for
the valid issuance of Common Shares upon conversion of the Preferred Shares and
Property Shares and exercise of the Warrant. The Conversion Shares will, at the
time of the Closing and thereafter, not be subject to preemptive or similar
rights of any person or entity, and when issued against payment therefor in
accordance with the terms of the Preferred Shares, Property Shares and Warrant,
as applicable, will be duly and validly issued, fully paid and nonassessable.
2.6 CONSENTS AND APPROVALS. No permit, consent, approval or
authorization of, or declaration to or filing with, any federal, state, local or
foreign governmental or regulatory authority or other person or entity, not made
or obtained, is required in connection with the execution or delivery of this
Agreement or any Transaction Document by the Company, the offer, issuance, sale
or delivery of the Securities, or the carrying out by the Company of the other
transactions contemplated hereby, other than (a) the filing with, and approval
of, the American Stock Exchange, Inc. ("ASE") with respect to the listing of the
Shares (to the extent they are Common Shares) and the Conversion Shares, (b) any
filings required under federal and applicable state securities laws and (c) the
filing of Articles Supplementary in the form of Exhibit D-1 to the Contribution
Agreement with the State Department of Assessments and Taxation of Maryland. The
issuance and sale by the Company of the Securities as contemplated hereby or by
the Contribution Agreement will not require compliance with the notification or
other requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder. Prior to the
closing under the Contribution Agreement (the "Contribution Closing"), the Board
of Trustees of the Company shall have taken all action necessary so that the
transactions contemplated by the Contribution Agreement and this Agreement
including, without limitation, the issuance of the Securities, shall be
irrevocably exempt from the operation of Section 3-601 et seq. (the "business
combination" statute) and Section 3-701 et seq. (the "control share acquisition"
statute) of the Maryland General Corporation Law (collectively, the "Maryland
Anti-Takeover Statutes") and from any provisions of the Declaration of Trust and
Bylaws that may have the effect of limiting the acquisition of securities of the
Company, including without limitation Sections 6.6 and 11.5 of the Declaration
of Trust.
2.7 PRIVATE OFFERING. Assuming the accuracy of the Purchaser's
representations and warranties contained in Section 3, the offer, issuance and
delivery to the Purchaser pursuant to the terms of this Agreement and the
Contribution Agreement of the Shares, Property Shares and Warrant and, assuming
compliance by the Purchaser with the terms of the Series A Preferred Shares, the
Warrant and applicable law, the Conversion Shares, are exempt from registration
under the Securities Act of 1933, as amended (the "1933 Act"). Based on the
representations of the Purchaser contained in Section 3, it is not necessary,
under the circumstances contemplated by this Agreement and the Contribution
Agreement, to register issuance of the Securities under the 1933 Act or the
Pennsylvania Securities Act of 1972.
-4-
<PAGE> 10
2.8 DECLARATION OF TRUST AND BYLAWS. The Company has filed as
exhibits to the SEC Reports the Declaration of Trust and Bylaws, true and
correct copies of which have been delivered to the Purchaser.
2.9 SUBSIDIARIES. The SEC Reports or the Disclosure Letter
disclose the name of each entity in which the Company owns any equity interest,
other than such entities that neither own any assets nor have ever conducted any
business (collectively, the "Subsidiaries," which term includes without
limitation Brandywine Operating Partnership, L.P., a Delaware limited
partnership). The SEC Reports or the Disclosure Letter accurately describe (a)
each Subsidiary's jurisdiction of organization and the percentage of its equity
interests owned by the Company and (b) the name of each of the Company's
corporate or joint venture affiliates (other than Subsidiaries) and the nature
of the affiliation. Except as described in the SEC Reports or the Disclosure
Letter, the Company has good and marketable title to all of the equity interests
it purports to own of each Subsidiary, free and clear in each case of any
mortgage, lien, security interest, charge or other encumbrance, and all such
interests have been duly issued and are fully paid and nonassessable. There are
no outstanding warrants, options or other rights or commitments of any character
to subscribe for or purchase from the Company or a Subsidiary, or obligating
such Subsidiary to issue, any additional equity interests or any securities
convertible into or exchangeable for such equity interests.
2.10 SEC REPORTS. Since January 1, 1995, the Company and its
Subsidiaries have timely filed all forms, reports, schedules, statements and
other documents required to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or the 1933 Act, including without limitation, (a) all Annual
Reports on Form 10-K, (b) all Quarterly Reports on Form 10-Q, (c) all reports on
Form 8-K, (d) all proxy statements relating to meetings of stockholders (whether
annual or special) and (e) all information incorporated by reference into any of
the foregoing. As used herein the term "SEC Reports" means any of the foregoing,
as amended to the date of this Agreement, filed on or after January 1, 1995. The
SEC Reports were prepared in all material respects in accordance with and
complied in all material respects with the requirements of applicable law,
including the Exchange Act and the 1933 Act and the applicable rules and
regulations of the SEC thereunder, and the SEC Reports did not at the time they
were filed and do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Except for the Registration Statement and the
Registration Statement on Form S-8 filed on October 16, 1996, the Company has
not filed any registration statements with the SEC at any time within the last
three years. The Company has delivered to the Purchaser prior to the date hereof
true and correct copies of all SEC Reports and any other reports and documents
filed with the SEC since January 1, 1995.
2.11 LITIGATION. The SEC Reports, the Registration
Statement and/or the Disclosure Letter list all material pending or, to the
Company's knowledge, threatened
-5-
<PAGE> 11
litigation involving the Company and its Subsidiaries. Except as so disclosed,
there is no pending or, to the knowledge of the Company, threatened suit, action
or litigation, or administrative, arbitration or other proceeding or
governmental inquiry or investigation questioning the validity of this Agreement
or the transactions contemplated hereby, or affecting in any material adverse
respect the Company or any Subsidiary or the business, properties, assets,
operations, prospects or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole, nor is there, to the knowledge of the
Company, any basis for any such suit, action, litigation, proceeding, inquiry or
investigation.
2.12 COMPLIANCE WITH LAWS. The Company and each Subsidiary is
in compliance in all material respects with all laws, ordinances, rules and
regulations of governmental authorities (including, without limitation, the
Americans with Disabilities Act of 1990) and requirements of insurance bodies
applicable to ownership, leasing, use and operation of its or their properties
and has obtained and fully paid for all material licenses, permits,
certificates, entitlements, grants of right and any other items and documents
required by applicable law to be obtained by the Company or its Subsidiaries for
the completion, ownership, leasing, use and occupancy of its or their
properties, except where the failure to so comply or obtain would not have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
Such licenses, permits, certificates, entitlements, grants of right and other
items and documents are in full force and effect. Neither the Company nor any of
its Subsidiaries have taken any action that would (or failed to take any action,
the omission of which would) result in the revocation or suspension of such
licenses, permits, certificates, entitlements, grants of right and other items
and documents, and neither the Company nor any of its Subsidiaries have received
any notice of any material violation from any federal, state or municipal entity
or notice of an intent by any such governmental entity to revoke any material
certificate of occupancy or other certificate, license, permit, entitlement or
grant of right issued by it in connection with the ownership, use and occupancy
of any of its or their properties, that in each case has not been cured or
otherwise resolved to the satisfaction of such governmental entity.
2.13 FINANCIAL STATEMENTS.
(a) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the SEC
Reports and the Registration Statement (i) have been prepared in all material
respects in accordance with the published rules and regulations of the SEC and
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except in the case of the unaudited financial
statements, as permitted by Form 10-Q of the SEC), (ii) comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto and (iii) fairly present
in all material respects the consolidated financial position of the Company and
its Subsidiaries as of the respective dates thereof and the consolidated results
of operations and cash flows for the periods indicated (subject, in the case of
unaudited consolidated financial statements for interim periods, to year-end
adjustments consisting only of normal recurring accruals), except that any pro
forma
-6-
<PAGE> 12
financial statements contained in such consolidated financial statements are not
necessarily indicative of the consolidated financial position of the Company and
its Subsidiaries as of the respective dates thereof and the consolidated results
of operations and cash flows for the periods indicated. Since December 31, 1995,
the Company has not made any material change in the accounting practices or
policies applied in the preparation of its financial statements.
(b) Since June 30, 1996 (the "Balance Sheet Date") there
has been no material adverse change in the business, properties, assets,
operations or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole.
(c) The consolidated balance sheet of the Company and its
Subsidiaries at the Balance Sheet Date (the "Balance Sheet") reflects all
liabilities and obligations of the Company and of each Subsidiary, whether
accrued, contingent or otherwise as of the date thereof, that are of a nature
required to be set forth as a liability on a consolidated balance sheet under
GAAP. Neither the Company nor any of its Subsidiaries have any liabilities or
obligations of any nature (whether or not of the nature required to be reflected
on the balance sheet prepared in accordance with GAAP) that are not reflected on
the Balance Sheet, except for current liabilities (within the meaning of GAAP)
which (i) have been incurred in the ordinary course of business consistent in
nature and amount with past practice, and (ii) are neither material to the
Company and its Subsidiaries taken as a whole nor inconsistent with any of the
representations and warranties contained herein. The Balance Sheet reflects
reserves or other appropriate provisions at least equal to reasonably
anticipated liabilities, losses and expenses of the Company and its Subsidiaries
as of the date thereof which are required to be disclosed by GAAP.
(d) At the respective times of the issuance and sale of
the Shares, Property Shares and Warrant to the Purchaser, neither the Company
nor any of its Subsidiaries will have any liabilities or obligations, whether
absolute, accrued, contingent, or otherwise, other than (i) current liabilities
reflected on the Balance Sheet not paid since the Balance Sheet Date, (ii)
current liabilities incurred in the ordinary course of business or in connection
with the transactions contemplated hereby or by the Contribution Agreement or
the Disclosure Letter and (iii) the other indebtedness and liabilities of the
Company or of its Subsidiaries described in the Disclosure Letter, the
Registration Statement or SEC Reports.
2.14 REAL PROPERTY.
(a) The SEC Reports or the Registration Statement describe
all real properties owned by the Company and each Subsidiary. To the Company's
knowledge, the Company and each Subsidiary has good, valid and marketable title
to all such real and personal properties and assets reflected therein as being
owned by the Company or such Subsidiary, except for properties and assets sold
or otherwise disposed of in the ordinary course of business since the Balance
Sheet Date or that are not material to its business taken as a whole, subject to
no liens, mortgages, security interests, pledges, encumbrances, or
-7-
<PAGE> 13
charges of any kind except: (i) liens for taxes or assessments or other
government charges or levies not yet due and payable, (ii) liens imposed by law,
such as mechanic's, materialmen's, warehousemen's and carrier's liens, and other
similar liens, securing obligations incurred in the ordinary course of business
which are not past due for more than 30 days, (iii) liens under workmen's
compensation, unemployment insurance, social security or similar legislation
securing obligations which are not past due and (iv) the liens securing other
indebtedness not past due of the Company or its Subsidiaries described in the
SEC Reports, the Registration Statement or the Disclosure Letter (the "Permitted
Liens").
(b) No eminent domain, condemnation, incorporation,
annexation or moratorium or similar proceeding has been commenced or, to the
best of the Company's knowledge, threatened by an authority having the power of
eminent domain to condemn any part of the properties owned by the Company and
its Subsidiaries. To the best of the Company's knowledge, there are no pending
or threatened governmental rules, regulations, plans, studies or efforts, or
court orders or decisions, which do or could adversely affect the use or value
of such properties for their present use.
(c) The improvements at all properties owned by the
Company and its Subsidiaries are in good condition and repair, ordinary wear and
tear excepted, and have not suffered any casualty or other material damage which
has not been repaired in all material respects. To the best of the Company's
knowledge, there is no material latent or patent structural, mechanical or other
significant defect, soil condition or deficiency in the improvements included in
such properties.
(d) Each of the properties owned by the Company and its
Subsidiaries has been fully assessed and is not subject to abatement. To the
best of the Company's knowledge, there are no proposed reassessments of any of
such properties by any taxing authority and there are no threatened or pending
special assessments or other actions or proceedings (other than county-wide
reassessments and/or the usual increases in millage rates that may be under
consideration by the taxing authorities in the jurisdictions where such
properties are located) that could give rise to an increase in real property
taxes or assessments against any of such properties.
(e) There are no "Significant Agreements" relating to the
properties owned by the Company and its Subsidiaries, or their operations, other
than as set forth in the Disclosure Letter, the Registration Statement or the
SEC Reports. For purposes hereof, "Significant Agreement" means and includes any
of the following by which any of such properties may otherwise be subject or
bound, in each such case as amended and currently in effect, inclusive of any
waivers relating thereto:
(i) all agreements, instruments and documents (excluding
tenant leases referred to in Section 2.15 and easements included in the
Permitted Liens) evidencing, securing or pertaining to contractual obligations
that (A) are not cancelable upon 60 days
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notice or less and (B) have payments or receipts, as applicable, in excess of
$15,000 per year or $25,000 over its life; and
(ii) all mortgages and ground leases.
2.15 TENANT LEASES.
(a) The Disclosure Letter lists each of the leases
currently in effect with respect to the properties owned by the Company and its
Subsidiaries as the same have been amended or modified to date (the "Leases").
The Leases are in full force and effect and, except as set forth in the
Disclosure Letter, (a) no material uncured Event of Default (as defined in any
such Lease), has occurred and is continuing under any such Lease, no tenant has
asserted a defense to, offset or claim against its rent or the performance of
its obligations under its Lease and no tenant has asserted a default on the part
of the landlord which would give it the right to terminate its Lease and (b)
there are no rights of first refusal on, or options to purchase, any of such
leased properties in favor of any tenant, and no proposed modifications to any
Lease that would reduce (A) the space leased to any tenant, (B) the amount of
any tenant's rent or (C) the term of any Lease.
(b) Except for (i) security deposits or (ii) the first
full month's rent, whether or not the term of a Lease has commenced, no
prepayments of rent more than thirty (30) days in advance have been made under
the Leases. No rent or security deposits under the Leases have been assigned or
encumbered, except as security for the mortgages noted in the Disclosure Letter
or the SEC Reports, and there are no agreements or understandings, written or
oral, with any of the tenants other than as set forth in the Leases. All
brokerage commissions and other compensation and fees payable by reason of the
Leases have been paid in full.
2.16 DIVIDENDS AND OTHER DISTRIBUTIONS. Since the Balance
Sheet Date, except for the Company's regular quarterly cash dividend (not in
excess of $.07 per share per quarter between the Balance Sheet Date and the
Closing Date) neither the Company nor any Subsidiary has declared, set aside, or
made any payment of a dividend or made any other distribution in respect of the
Company's beneficial interest, repurchased or redeemed any of the Company's
beneficial interest, or made any other payments to any holder of 5% or more of
the Company's outstanding Common Stock other than salary paid to such
stockholder for bona fide services to the Company or a Subsidiary as an officer
or employee or reimbursement of reasonable expenses incurred in the ordinary
course of business.
2.17 TAX MATTERS. Beginning with the first taxable year of
the Company, its taxable year ended December 31, 1986, the Company properly
elected to be taxed as a real estate investment trust within the meaning of
Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"),
and has satisfied, and continues to satisfy, all of the requirements set forth
in those provisions and the regulations thereunder to be taxed as a real estate
investment trust within the meaning of those provisions. Without limiting the
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generality of the foregoing, the Company, for each taxable year of the Company
beginning with the first taxable year for which it made an election to be
classified as a real estate investment trust: (i) has timely made all of the
distributions required under Section 857(a)(1) of the Code; (ii) has timely
demanded the statements from its shareholders required under Section 1.857-8(d)
of the Treasury Regulations promulgated under the Code and maintained the
records required under Treasury Regulations Section 1.857-8(e); (iii) has not
sought to apply the provisions of Section 856(c)(7) of the Code in any taxable
year of the Company; and (iv) has not revoked its election to be taxed as a real
estate investment trust for federal income tax purposes nor has it received any
notice that its classification as a real estate investment trust has been
challenged by any taxing authority. The Company and each Subsidiary has filed
all U.S. Federal, state, local, foreign and other tax returns which were
required to be filed on or before the date hereof and has paid all taxes which
have become due and payable. All such reports and returns were materially
accurate and complete when filed and reflect all taxes required to be paid by
the Company and its Subsidiaries for the periods reported therein. The provision
for taxes made in the Balance Sheet at the Balance Sheet Date was sufficient for
the payment of all accrued and unpaid taxes of the Company and its Subsidiaries
with respect to the periods then ended. No additional material assessments,
deficiencies or penalties in respect of taxes have been made or claimed against
the Company or any Subsidiary which remain unpaid. No tax returns or reports of
the Company or any Subsidiary are or ever have been under audit.
2.18 AGREEMENTS AFFECTING THE COMPANY'S SECURITIES. There are
no agreements, written or oral, between the Company and any holder of its
securities or, to the knowledge of the Company, among any holders of its
securities, relating to the acquisition, disposition or voting of the securities
of the Company. Except for the provisions of the Registration Rights Agreement
attached as Exhibit W to the Contribution Agreement (the "Registration Rights
Agreement"), there are no agreements, either written or oral, which obligate the
Company to effect the registration of any of its securities under the 1933 Act.
2.19 INSURANCE. The Disclosure Letter lists all insurance
policies carried by the Company or any Subsidiary relating to its or their real
property and assets. All such policies are in full force and effect and all
premiums thereunder have been paid to the extent due, and no notice of
cancellation has been received with respect thereto and, to the best knowledge
of Company, no cancellation is threatened.
2.20 EMPLOYEE BENEFIT PLANS. Schedule 2.20 to the Disclosure
Letter lists all deferred compensation, pension, profit sharing, stock option,
stock purchase, savings, group insurance and retirement plans, and all vacation
pay, severance pay, incentive compensation, consulting, bonus and other material
employee benefit or fringe benefit plans or arrangements maintained by the
Company and its Subsidiaries with respect to which contributions are made by the
Company (including health, life insurance and other benefit plans or
arrangements maintained for the retirees which are specifically identified as
such on Schedule 2.20). Such plans, including but not limited to all plans or
programs that constitute "employee benefit plans" as defined in Section 3(3) of
the Employee Retirement Income
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<PAGE> 16
Security Act of 1974, as amended ("ERISA"), are sometimes collectively referred
to in this section as "Benefit Plans." Neither the Company nor any ERISA
Affiliate (as hereinafter defined) maintains, contributes or sponsors, and have
not maintained, contributed to or sponsored any "employee benefit plan" (as
defined in section 3(3) of ERISA) that is subject to Title IV of ERISA or
Section 412 of the Internal Revenue Code of 1986, as amended ("Code") or any
"Multiemployer Plan" (as defined in Section 4001(a)(3) of ERISA). ERISA
Affiliate means all persons which are treated as being under common control or
as a single employer with the Company or any of its Subsidiaries under Section
414(b), (c), (m) or (o) of the Code. Each Benefit Plan is and has been
maintained in compliance in all material respects with applicable law, including
but not limited to ERISA, the Code and with any applicable collective bargaining
agreements or other contractual obligations. Each Benefit Plan that provides
medical benefits has been operated in compliance with all applicable
requirements of Sections 601 through 608 of ERISA and either (i) Section
162(i)(2) and (k) of the Code and regulations thereunder (prior to 1989) or (ii)
Section 4980B of the Code and regulations thereunder (after 1988), relating to
the continuation of coverage under certain circumstances in which coverage would
otherwise cease. Company is not required to make any payment to any current or
former employee of the Company in the form of wages or other consideration
pursuant to any employment agreement or Benefit Plan that will constitute in the
aggregate an "excess parachute payment" (within the meaning of Section 280G(b)
of the Code as a consequence in whole or in part of the transactions
contemplated by this Agreement.
There have been no written statements or communications made or
materials provided to any employee or former employee of the Company or its
Subsidiaries by any person which provide for or could reasonably be construed as
a contract or promise by the Company or any subsidiary to provide for any
pension, welfare, or other insurance-type benefits to any such employee or
former employee, whether before or after retirement, other than benefits
specifically identified on Schedule 2.20 or under the form of employment
contracts. All of the Benefit Plans which are pension benefit plans are the
subject of favorable determination or opinion letters from the IRS such that the
employers maintaining such Benefit Plans, are entitled to rely on the compliance
of such Benefit Plans as to the form of the Plan with the applicable
requirements of Sections 401(a) and 501(a) of the Code; and no determination
letter with respect to any Benefit Plan has been revoked nor, to the best
knowledge of the Company, has revocation been threatened, nor has any Benefit
Plan been amended since the date of its most recent determination letter or
application therefore in any request which would adversely affect its
qualification or materially increase its cost. Neither the Company nor any ERISA
Affiliate maintains or sponsors any nonqualified deferred compensation plan or
arrangements. There are no pending or, to the best knowledge of the Company,
threatened claims, actions or lawsuits, other than routine claims for benefits
in the ordinary course, asserted or instituted against (i) any Benefit Plan or
its assets, (ii) any ERISA Affiliate with respect to any Benefit Plan, or (iii)
any fiduciary with respect to any Benefit Plan for which the Company, or its
Subsidiaries may be directly or indirectly liable, through indemnification
obligations or otherwise. Neither the Company, nor any of its Subsidiaries
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<PAGE> 17
has engaged, directly or indirectly, in a non-exempt prohibited transaction (as
defined in Section 4975 of the Code or Section 406 of ERISA) in connection with
any Benefit Plan.
As of the date of this Agreement, none of the assets of the Company or
its Subsidiaries are required to be treated as "plan assets," within the meaning
of Title I of ERISA ("Plan Assets").
2.21 CONTRACTS AND AGREEMENTS.
(a) The Company has filed as exhibits to its SEC Reports
and the Registration Statement all of the contracts and agreements required to
be so filed by the 1933 Act, the Exchange Act and the rules and regulations of
the SEC. True and correct copies of all such agreements have been provided to
the Purchaser prior to the date hereof. Neither the Company nor any Subsidiary
is a party to any contract or agreement which is material to the business,
properties, assets, prospects, operations or condition (financial or otherwise)
of the Company and its Subsidiaries taken as a whole which have not been filed
as an exhibit to, or otherwise described in, the Registration Statement or the
SEC Reports.
(b) Neither the Company nor any Subsidiary is (i) in
default under any agreement, contract or instrument to which it is a party or by
which it is bound, which default is reasonably likely to have a material adverse
effect on the business, properties, assets, prospects, operations or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole,
(ii) in violation of the Declaration of Trust, Bylaws or the Agreement of
Limited Partnership of Brandywine Operating Partnership, L.P. (the "Partnership
Agreement") dated August 22, 1996, as amended, by the amendment attached as
Exhibit X to the Contribution Agreement (or other organizational documents), or
(iii) in default with respect to any order, writ, injunction or decree of any
court or governmental agency binding on it, and no event has occurred which with
notice or lapse of time, or both, would create any default or violation
described in clauses (i) through (iii).
2.22 ABSENCE OF CERTAIN DEVELOPMENTS. Since the Balance Sheet
Date, neither the Company nor any Subsidiary has (a) mortgaged, pledged or
subjected to lien, charge or any other encumbrance any of its assets, tangible
or intangible, except Permitted Liens, (b) sold, assigned or transferred any of
its tangible assets or canceled any debts or obligations except in the ordinary
course of business, (c) suffered any extraordinary losses, or waived any rights
of substantial value (whether or not in the ordinary course of business), (d)
made any changes in officer compensation, (e) entered into any material
transaction other than in the ordinary course of business, (f) made any change
in any of its material contracts, the Declaration of Trust, Bylaws or
Partnership Agreement (or other organizational documents), or in any
arrangements or agreements of any nature relating to its officers and directors,
(g) sold any equity interests or (h) established any record dates for dividends
or other distributions on other than customary quarterly record dates in
accordance with past practice.
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2.23 CONTRACTS WITH INSIDERS. Excluding any agreements or
transactions that would not be required to be disclosed pursuant to Items 402 or
404 of Regulation S-K, no officer or trustee of the Company, or, to the
Company's knowledge, holder of more than 5% of the Company's outstanding Common
Shares, is a party to any contract, agreement, or arrangement providing for the
Company's or a Subsidiary's employment of, furnishing of services to the Company
or a Subsidiary by, the rental of real or personal property by the Company or a
Subsidiary from, or otherwise requiring payments by the Company or a Subsidiary
to, any such person or entity, or, to the Company's knowledge, any member of
such person's family, or any corporation, partnership or other entity in which
such person or entity, or, to the Company's knowledge, any member of such
person's family, has an interest or of which such person, or, to the Company's
knowledge, any member of such person's family, is an officer, director, trustee,
or beneficiary.
2.24 USE OF PROCEEDS. The Company shall use the Purchase Price
solely to pay fees and expenses relating to the transactions contemplated by the
Transaction Documents and to repay mortgage indebtedness to one or more entities
that are not affiliated with the Company or with any entity that owns or has the
right to obtain more than five percent of the outstanding Common Shares as of
the date of this Agreement in substantially the amounts and to the lenders
identified in the Disclosure Letter.
2.25 ENVIRONMENTAL MATTERS. Neither the Company nor its
Subsidiaries have (a) caused any substance or waste that is listed or defined as
hazardous or toxic under applicable environmental laws or petroleum products
(collectively "Hazardous Materials") to be improperly maintained or disposed of
on, under or at any of its or their properties, or any part thereof, in a manner
which violates, or could give rise to liability under, applicable environmental
laws, or (b) failed to remediate, alter, mitigate or abate any condition
required to be remediated, altered, mitigated or abated under such environmental
laws, to the extent the Company and its Subsidiaries have been notified of the
existence of a condition required to be remediated, altered, mitigated or
abated. Except as set forth in the environmental site assessments provided by
the Company to the Purchaser, (i) to the Company's knowledge, each of its
properties, and the properties of its Subsidiaries, is in compliance, and has
heretofore complied, with all environmental laws in all material respects, (ii)
to the Company's knowledge, there has been no discharge of Hazardous Materials
by any tenant of any property of the Company or its subsidiaries in quantities
requiring response, remediation or removal, and (iii) the Company has not
received any written notice from any governmental unit or other person or entity
that it or its Subsidiaries, or any of its or their properties or operations
conducted thereon, are not or have not been in compliance with all environmental
laws.
2.26 CERTAIN AGREEMENTS. The SEC Reports, the Registration
Statement or the Disclosure Letter list all employment and severance agreements
that the Company and each Subsidiary has entered into with its officers and
employees. The issuance and sale of the Shares to the Purchaser hereunder, the
issuance of the Property Shares and Warrant pursuant to the Contribution
Agreement, the issuance of the Conversion Shares and the
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completion of the other transactions provided for herein or in the other
Transaction Documents will not give any employee the right to terminate his or
her employment and receive severance or other payments from the Company or any
Subsidiary, or result in the acceleration of vesting of any outstanding option
issued by the Company.
2.27 BOOKS AND RECORDS. The books and records of the Company
and its Subsidiaries accurately and fairly reflect their respective income,
expenses, assets and liabilities, and the Company and its Subsidiaries maintain
internal accounting controls which provide reasonable assurance that: (a)
transactions are executed in accordance with management's authorization; (b)
transactions are recorded as necessary to permit preparation of reliable
financial statements and to maintain accountability for earnings and assets; (c)
access to assets is permitted only in accordance with management's
authorization; (d) the recorded accountability of all assets is compared with
existing assets at reasonable intervals; and (e) all intercompany transactions,
charges and expenses among or between the Company, any Subsidiary, or any other
affiliate of the Company are accurately reflected in all financial statements.
2.28 CERTAIN PAYMENTS. Neither the Company nor any of its
Subsidiaries, nor, to the Company's knowledge, any trustee, officer, agent or
employee of any such entity, or any other person or entity associated with or
acting for or on behalf of the Company or any of its Subsidiaries has directly
or indirectly (a) made any unlawful contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person or entity, private
or public, regardless of form, whether in money, property or services, (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, or (iii) to obtain special concessions or
special concessions already obtained, for or in respect of the Company or any of
its Subsidiaries, or (b) established or maintained any fund or asset that has
not been recorded in the books and records of the Company and its Subsidiaries,
or (c) taken any other action in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
2.29 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any
Subsidiary is bound by or subject to, any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company or any Subsidiary. There
is no strike or other labor dispute involving the Company or any Subsidiary
pending, or to the knowledge of the Company threatened, nor is the Company aware
of any labor organization activity involving any of the employees of the Company
or any Subsidiary. The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate his, her or their
employment with the Company or any Subsidiary, nor does the Company or any
Subsidiary have a present intention to terminate the employment of any of the
foregoing. The employment of each employee of the Company or any Subsidiary is
terminable at the will of the applicable employer without further liability of
such employer to such employee
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except for the payment of such employee's normal salary accrued but not paid
through the date of such termination.
2.30 ENTIRE BUSINESS; ETC. All of the assets (including the
Company's and its Subsidiaries' interests under franchises, licenses, leases and
permits) necessary for the conduct of the business of the Company and its
Subsidiaries as presently conducted are held exclusively by the Company or a
Subsidiary.
2.31 REGISTRATION STATEMENT. The Registration Statement on
Form S-11 (SEC File No. 333-13969) initially filed by the Company with the SEC
on October 11, 1996 (the "Registration Statement"), as it shall be amended from
time to time, will comply at all times in all material respects with the
provisions of the 1933 Act and the rules and regulations thereunder, as
applicable, except that no representation is made by the Company with respect to
information supplied in writing by the Purchaser specifically for inclusion in
the Registration Statement ("Purchaser Information") and, at the date hereof, at
the date of the Contribution Closing, at the Closing Date, at the date that the
Registration Statement is declared effective by the SEC and at each date that
sales of Common Shares are made pursuant to the Registration Statement, except
for Purchaser Information, the Registration Statement, as it shall be amended
from time to time, will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Unless the otherwise specifically
provided, references to the Registration Statement are to the Registration
Statement as originally filed, as modified by the form of Amendment No. 1
thereto attached hereto as Exhibit A.
2.32 INFORMATION. Neither this Agreement nor any document
delivered to the Purchaser pursuant hereto, including the SEC Reports (except to
the extent modified by the Disclosure Letter) and the Registration Statement,
contains an untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. There is no fact,
development or threatened development known to the Company which could
reasonably be expected to materially adversely effect the business, assets,
properties, operations, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole which has not been set forth in
this Agreement, the Disclosure Letter, the SEC Reports or the Registration
Statement.
2.33 STANDSTILL AGREEMENTS. The Agreement, dated March 20,
1996, by and among the Company, the Richard M. Osborne Trust (the "RMO Trust")
and Richard M. Osborne, and the Agreement dated August 22, 1996, by and among
the Company, Safeguard Scientifics, Inc. and Safeguard Scientifics (Delaware),
Inc., copies of which have been delivered to the Purchaser, have been executed
and delivered by all the parties thereto and are in full force and effect as of
the date hereof.
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2.34 MATTERS RELATING TO PARTNERSHIP AGREEMENT AND WARRANTS.
The Company has caused the Partnership Agreement to be amended in the form of
Exhibit X to the Contribution Agreement and the terms of all outstanding options
and warrants (the "Outstanding Warrants") to be amended or waived in the form of
Exhibit B hereto, to the effect that:
(a) All rights of first refusal relating to the securities
of the Company have been eliminated.
(b) No adjustments in the number of shares to be received
upon redemption or exchange of the Units (as defined in the Partnership
Agreement) or upon exercise or exchange of the Outstanding Warrants shall be
made as a result of any issuance of securities by the Company other than as a
result of the transactions described in Section 15.4(a) of the Partnership
Agreement.
2.35 INVESTMENT COMPANY. Each of the Company and its
Subsidiaries is not, and upon the issuance and sale of the Common Shares as
herein contemplated and the application of the net proceeds therefrom, will not
be, an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
2.36 COMMODITY EXCHANGE ACT. The Common Shares, upon issuance,
will be excluded or exempted under, or beyond the purview of, the Commodity
Exchange Act, as amended (the "Commodity Exchange Act"), and the rules and
regulations of the Commodity Futures Trading Commission under the Commodity
Exchange Act.
SECTION 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser understands that the Shares, Property Shares,
Warrant and Conversion Shares will not be registered under the 1933 Act, on the
grounds that the sales provided for in this Agreement and the Contribution
Agreement are exempt pursuant to Section 4(2) of the 1933 Act and/or Regulation
D promulgated under Section 4(2) of the 1933 Act, and that the reliance of the
Company on such exemptions is predicated in part on the Purchaser's
representations, warranties, covenants and acknowledgments set forth in this
Section 3.
3.1 PRE-EXISTING ENTITY. The Purchaser represents and warrants
to the Company that SERS is the sole owner of the economic interest in the
Securities to be issued to the Purchaser pursuant to the Transaction Documents
and that SERS was not organized for the specific purpose of purchasing the
Securities to be purchased by it hereunder and pursuant to the Contribution
Agreement.
3.2 BENEFICIAL OWNERSHIP. The Purchaser represents and
warrants to the Company that, as of the date hereof and prior to the purchase of
the Shares, Property Shares and Warrant, (a) it is not the "beneficial owner" of
any securities of the Company, as such
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<PAGE> 22
term is defined in Rule 13d-3 promulgated under the Exchange Act, except for ten
Common Shares acquired immediately prior to the execution of this Agreement and
the Contribution Agreement, and (b) it is not a member of a group which has
acquired beneficial ownership of securities of the Company for purposes of
Sections 13(d) and 13(g) of the Exchange Act.
3.3 PRINCIPAL PLACE OF BUSINESS. The Purchaser represents
and warrants to the Company that the address of its principal place of business
or residence is as set forth in Section 10.5 herein.
3.4 PURCHASE WITHOUT VIEW TO DISTRIBUTION. The Purchaser
represents and warrants to the Company that the Shares, Property Shares and
Warrant to be purchased by it are being, and any Conversion Shares acquired by
it will be, acquired by the Purchaser for its own account for investment
purposes, not as a nominee or agent, and not with a view to resale or
distribution within the meaning of the 1933 Act, and the rules and regulations
thereunder, and the Purchaser will not distribute the Shares, Property Shares,
Warrant or Conversion Shares in violation of the 1933 Act or in a way that will
cause the Company to lose its exemption from the registration requirements under
the 1933 Act with respect to the offer and sale of any of the Securities.
3.5 RESTRICTIONS ON TRANSFER. The Purchaser (a)
acknowledges that the Securities are not registered under the 1933 Act or under
any state securities laws and that the Securities to be acquired by it must be
held indefinitely by it unless they are subsequently registered under the 1933
Act and under any applicable state securities laws or an exemption from
registration is available, (b) is aware that any routine sales pursuant to Rule
144 promulgated under the 1933 Act of the Securities may be made only in limited
amounts and in accordance with the terms and conditions of that Rule and that in
such cases where the Rule is not applicable, compliance with some other
registration exemption will be required, (c) is aware that Rule 144 is not
presently available for use by the Purchaser for resale of the Securities and
(d) is aware that, except as provided in the Registration Rights Agreement, the
Company is not obligated to register under the 1933 Act any sale, transfer or
other disposition of the Securities.
3.6 ACCESS TO INFORMATION. The Purchaser confirms that the
Company has made available to it the opportunity to ask questions of and receive
answers from the Company's officers and trustees concerning the terms and
conditions of this transaction and the business and financial condition of the
Company and its Subsidiaries, and to acquire, and the Purchaser has received to
its satisfaction, such additional information, in addition to that set forth
herein, about the business and financial condition of the Company and its
Subsidiaries and the terms and conditions of this transaction as it has
requested.
3.7 ADDITIONAL REPRESENTATIONS OF THE PURCHASER. The
Purchaser, on behalf of itself and SERS, represents that (a) it is an
"accredited investor" as such term is defined in Rule 501 promulgated under the
1933 Act, and an "institutional investor" within the meaning of Section 203(c)
of the Pennsylvania Securities Act of 1972 and the regulations
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promulgated thereunder, (b) its financial situation is such that it can afford
to bear the economic risk of holding the Securities for an indefinite period of
time and suffer complete loss of its investment in the Securities (c) its
knowledge and experience in financial and business matters are such that it is
capable of evaluating the merits and risks of its purchase of the Securities as
contemplated by this Agreement and (d) the purchase of the Shares, Property
Shares and Warrant by it has been duly and properly authorized and this
Agreement has been duly executed by it or on its behalf.
3.8 LEGENDS. The Purchaser understands that the
certificates evidencing the Securities shall bear the legend set forth in
Section 8.2 herein.
3.9 DUE AUTHORIZATION, ETC. The Purchaser represents that it
has all requisite power and authority to execute and deliver this Agreement and
each Transaction Document required to be excuted and delivered by it prior to or
at the Closing and to carry out the transactions contemplated hereby and
thereby. The execution, delivery and performance by the Purchaser of this
Agreement and each Transaction Document to which is a party have been duly
authorized. This Agreement has been duly executed and delivered by the Purchaser
and constitutes (and, when executed and delivered as contemplated herein, each
Transaction Document will constitute) the valid and binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization
and other similar laws relating to or affecting the enforcement of creditors'
rights generally, except that the availability of specific performance,
injunctive relief or other equitable relief or other equitable remedies is
subject to the discretion of the court before which any such proceeding may be
brought. The execution, delivery and performance by the Purchaser of this
Agreement and each Transaction Document to which it is a party will not violate
any provision of law, or any rule or regulation of any governmental authority,
or any judgment, decree or order of any court binding on the Purchaser, and will
not conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the assets of the
Purchaser, any Agreement or other instrument to which it is a party or by which
it or any of its assets is bound. SERS is the sole owner of the economic
interest in the Purchaser. No individual has an actuarial interest of more than
9.8% in SERS.
SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S
OBLIGATIONS
The Purchaser's obligation to purchase and make payment for
the Shares subscribed for hereunder by it on the Closing Date is subject, at its
option, to the satisfaction of each of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date,
the representations and warranties contained in Section 2 shall be true and
correct in all material
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respects with the same effect as though made on and as of the Closing Date, and
the Company shall have so certified to the Purchaser in writing.
4.2 PERFORMANCE. All the covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company on
or prior to the Closing Date shall have been performed or complied with in all
material respects, and the Company shall have so certified to the Purchaser in
writing.
4.3 OPINION OF COUNSEL TO THE COMPANY. On the Closing Date,
the Purchaser shall have received an opinion from counsel for the Company and
special Maryland Counsel to the Company, each dated the Closing Date, addressed
to the Purchaser in the forms of Exhibits C and D hereto, respectively.
4.4 PROCEEDINGS; CERTIFIED COPIES. All proceedings to be taken
in connection with the transactions contemplated by this Agreement to be
consummated on or prior to the Closing Date, and all documents incident thereto,
shall be satisfactory in form and substance to the Purchaser. The Purchaser
shall have received such certified copies or other copies of such documents as
it may reasonably request.
4.5 NO PROCEEDING OR LITIGATION. No suit, action, or other
proceeding seeking to restrain, prevent or change the transactions contemplated
hereby or otherwise questioning the validity or legality of such transactions
shall have been instituted and be pending.
4.6 NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change since the Balance Sheet Date in the business,
properties, assets, operations, or condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole.
4.7 ASE LISTING. On or prior to the Closing Date, the Shares
(to the extent that they are Common Shares) and the Conversion Shares shall have
been approved for listing on the ASE.
4.8 BLUE SKY COMPLIANCE. The Company shall have complied
with all applicable requirements of federal and state securities or "blue sky"
laws with respect to the issuance of the Shares sold at the Closing.
4.9 REGISTRATION RIGHTS. The Registration Rights Agreement
shall have been executed and delivered by all the parties thereto and shall be
in full force and effect.
4.10 CONTRIBUTION CLOSING; TRANSACTION DOCUMENTS. The
Contribution Closing shall have occurred. This Agreement, the Warrant,
Registration Rights Agreement, Standstill Agreement (as defined in Section 5.4),
Contribution Agreement, and each document or agreement required to be delivered
at the closing hereunder and at the Contribution Closing shall be referred to
herein collectively as the "Transaction Documents."
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4.11 MARYLAND ANTI-TAKEOVER STATUTES, ETC. The Company and its
counsel shall have confirmed to the Purchaser's satisfaction that (a) this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby are exempt from the operation of the Maryland Anti-Takeover
Statutes and Section 11.5 of the Declaration of Trust; and (b) the Purchaser is
not subject to the restrictions set forth in Section 6.6 of the Declaration of
Trust, including without limitation from the Ownership Limit and the Permissible
Ownership Threshold.
4.12 ENVIRONMENTAL REPRESENTATION LETTER. The Company shall
have delivered to Purchaser a representation letter dated the Closing Date
concerning environmental matters in form and substance similar to that which is
contained in the underwriting agreement for the Secondary Offering.
4.13 TAX OPINION. On the Closing Date the Company shall have
received from Arthur Andersen LLP an opinion with respect to certain tax matters
in form and substance reasonably satisfactory to Purchaser.
SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S
OBLIGATIONS
The Company's obligation to sell the Shares subscribed for by
the Purchaser on the Closing Date is subject, at the Company's option, to the
satisfaction of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the
representations and warranties contained in Section 3 shall be true and correct
in all material respects with the same effect as though made on and as of the
Closing Date and the Purchaser shall have so certified to the Company in
writing.
5.2 PERFORMANCE. All the covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Purchaser on
or prior to the Closing Date shall have been performed or complied with in all
material respects, and the Purchaser shall have so certified to the Company in
writing.
5.3 NO PROCEEDING OR LITIGATION. No suit, action, or other
proceeding seeking to restrain, prevent or change the transactions contemplated
hereby or otherwise questioning the validity or legality of such transactions
shall have been instituted and be pending.
5.4 ASE LISTING. On or prior to the Closing Date, the Shares
(to the extent that they are Common Shares) and the Conversion Shares shall have
been approved for listing on the ASE.
5.5 CONTRIBUTION CLOSING. The Contribution Closing shall
have occurred.
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5.6 ADDITIONAL DOCUMENTS. The Purchaser shall have
delivered such other documents necessary to effect the transactions contemplated
hereby as the Company may reasonably request.
5.7 PROCEEDINGS; CERTIFIED COPIES. All proceedings to be taken
in connection with the transactions contemplated by this Agreement to be
consummated on or prior to the Closing Date, and all documents incident thereto,
shall be satisfactory in form and substance to the Company. The Company shall
have received such certified copies or other copies of such documents as it may
reasonably request.
5.8 NO SEC INTEGRATION CHALLENGE. The SEC shall not have
commented that the issuance of Shares pursuant to this Agreement should or may
be required to be integrated with the sale of Common Shares pursuant to the
Registration Statement, which comment, if made, has not been resolved to the
reasonable satisfaction of the Company after the Company has used its best
efforts to accomplish such resolution.
SECTION 6. COVENANTS OF THE COMPANY AND THE PURCHASER
PRIOR TO CLOSING
6.1 PAYMENT OF EXPENSES.
(a) If the Closing occurs hereunder, each party shall bear
its own expenses, except that the Company shall pay all reasonable legal fees
and expenses incurred by the Purchaser in connection with this Agreement and the
transactions contemplated hereby.
(b) If the Closing hereunder does not occur, each party
shall bear its own expenses.
6.2 OPERATION OF BUSINESS IN ORDINARY COURSE. Prior to the
Closing, the Company and each Subsidiary will operate its business and the
business of each of its Subsidiaries only in the usual and normal course, and
will not, except as contemplated by the Registration Statement, as amended
through the date of this Agreement, including Amendment No. 1, without the
consent of the Purchaser, engage in any of the transactions described in
paragraphs (a), (b), (d), (e), (f), (except for the amendment in the form of
Exhibit C hereto), (g) or (h) of Section 2.22 hereof.
6.3 ACCESS TO INFORMATION.
(a) Between the date hereof and the Closing Date, the
Company will give the Purchaser and its authorized representatives reasonable
access to all officers, employees, agents, properties, offices and other
facilities and to all books and records of the Company and its Subsidiaries, and
will permit the Purchaser to make such inspections as the Purchaser may
reasonably request and will cause the Company's officers and those of its
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Subsidiaries to furnish the Purchaser promptly (i) a copy of each report,
schedule, registration statement and other document filed by it pursuant to the
requirements of federal securities laws and (ii) all other financial and
operating data and other information with respect to the business and properties
of the Company and any of its Subsidiaries as the Purchaser may from time to
time reasonably request.
(b) The Purchaser will hold and will cause its authorized
representatives, consultants and advisors to hold in confidence, unless
compelled to disclose by judicial or administrative process or, in the written
opinion of its legal counsel, by other requirements of law, all documents and
information concerning the Company and its Subsidiaries furnished to the
Purchaser in connection with the transactions contemplated by this Agreement
(except to the extent that such information can be shown to have been (i)
previously known by the Purchaser from sources other than the Company, its
trustees, officers, representatives or affiliates, (ii) in the public domain
through no fault of the Purchaser or (iii) later lawfully acquired by the
Purchaser on a non-confidential basis from other sources who are not known by
the Purchaser to be bound by a confidentiality agreement or otherwise prohibited
from transmitting the information to the Purchaser by a contractual, legal or
fiduciary obligation) and will not release or disclose such information to any
other person or entity, except its auditors, attorneys, financial advisors and
other consultants, agents and representatives in connection with this Agreement
who need to know such information. If the transactions contemplated by this
Agreement are not consummated, such confidence shall be maintained and, if
requested by or on behalf of the Company, the Purchaser will, and will use all
reasonable efforts to cause its auditors, attorneys, financial advisors and
other consultants, agents and representatives to, return to the Company or
destroy all copies of written information furnished by the Company to the
Purchaser or its agents, representatives or advisors. It is understood that the
Purchaser shall be deemed to have satisfied its obligation to hold such
information confidential if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
(c) No inquiry or investigation pursuant to Section 3.6 or
this Section 6.3 shall affect any representation or warranty in this Agreement
or any other Transaction Document made by the Company or its Subsidiaries or any
condition to the Purchaser's obligations set forth herein or in any other
Transaction Document.
6.4 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to the Purchaser, and the Purchaser shall give prompt notice to
the Company, of (a) the occurrence or nonoccurrence of any event the occurrence
or nonoccurrence of which would be likely to cause (i) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (ii) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied and (b) any failure of the Company or the Purchaser, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.4 shall not cure such breach
or noncompliance or limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
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6.5 CONDITIONS PRECEDENT. The Company and the Purchaser
shall use their reasonable best efforts to cause the conditions specified in
Sections 4 and 5 to be satisfied by the Closing Date.
SECTION 7. COVENANTS OF THE COMPANY AND THE PURCHASER
AFTER CLOSING
7.1 RULE 144.
(a) The Company covenants that (i) the Company will use
its best efforts to comply with the current public information requirements of
Rule 144(c)(1) under the 1933 Act; and (ii) at all such times as Rule 144 is
available for use by the holders of the Securities, the Company will furnish
each such holder upon request with all information within the possession of the
Company required for the preparation and filing of Form 144.
(b) At all times during which the Company is neither
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, it will provide as promptly as practicable (in any event not later than 15
days after initial request) in written form, upon the written request of the
Purchaser or any prospective buyer of the Shares or Conversion Shares from the
Purchaser, all information required by Rule 144A(d)(4)(i) of the General
Regulations promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company's obligations under this Section 7.1 shall at all
times be contingent upon such seller's obtaining from a prospective buyer an
agreement to take all reasonable precautions to safeguard any non-public Rule
144A Information from disclosure to anyone other than a person or entity who
will assist such buyer in evaluating the purchase of the Conversion Shares.
7.2 DELIVERY OF FINANCIAL STATEMENTS. From and after the
Contribution Closing, the Company shall deliver to the Purchaser, until such
time as the Purchaser no longer owns any Securities, a copy of each and every
report on Form 10-K, Form 8-K, Form 10-Q and all other reports and proxy
statements filed by the Company or any Subsidiary with the SEC within 15 days of
such filing.
7.3 RESERVATION OF SHARES. From and after the Closing, the
Company shall at all times reserve and keep available, free from pre-emptive
rights, out of its authorized but unissued shares of beneficial interest, a
sufficient number of of Common Shares for issuance upon the exercise of the
Warrant and conversion of the Shares (if applicable) and Property Shares.
7.4 COMPLIANCE WITH LAWS. The Company will, and will cause
each Subsidiary to, comply in all material respects with all laws and
regulations applicable to the conduct of its business, including without
limitation ERISA, environmental laws, and
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employee safety laws. The Company shall use its best efforts to insure that none
of the assets of the Company or its Subsidiaries are required to be treated as
Plan Assets (as defined in Section 2.20) by any "benefit plan investor" (as
defined in Title I of ERISA). The Company shall take such actions as are
necessary, on an ongoing basis, to determine whether assets of the Company or
its Subsidiaries are required to be treated by a Benefit Plan Investor as
including Plan Assets and shall promptly notify the Purchaser in writing if, at
any time, it has reason to believe that any Benefit Plan Investor is likely to
be required to treat the assets of the Company or its Subsidiaries as Plan
Assets.
7.5 WAIVERS, CONSENTS, ETC. Compliance with any of the
covenants in this Section 7 may be waived, either generally or in the particular
instance, and any consent required thereunder may be given, by the Purchaser in
writing.
7.6 PRESS RELEASES. The Purchaser shall have the right
reasonably to approve any press release with respect to the transactions
contemplated by this Agreement and the Contribution Agreement. In addition, at
no time may the Company use or otherwise refer to the name of the Purchaser or
any of its affiliates in any press release, publication or other report without
the prior consent of the Purchaser not to be unreasonably withheld or delayed.
7.7 SHAREHOLDERS' MEETING. The Company shall duly call and
hold an annual meeting of its shareholders as soon as practicable after the end
of its curent fiscal year, but in no event later than June 30, 1997, for the
purpose of voting upon the approval of the Stockholder Approval Matter; and, if
approval of the Stockholder Approval Matter is not obtained at such meeting, the
Company shall duly call and hold another meeting of its shareholders by June 30,
1998 for such purpose. In this regard, the Company will (i) subject to the
fiduciary duties of the Board of Trustees, include in the proxy statement (the
"Proxy Statement") relating to the annual meeting (and, if necessary, such other
meeting) the unanimous recommendation of the Board that shareholders of the
Company vote in favor of the Stockholder Approval Matter, and (ii) use its best
efforts (A) to obtain and furnish the information required to be included by it
in the Proxy Statement in compliance with the Exchange Act and, after
consultation with the Purchaser, respond promptly to any comments made by the
SEC with respect to the Proxy Statement and cause the Proxy Statement to be
mailed to its shareholders in a timely fashion and (B) to obtain the necessary
approvals by its shareholders of the Stockholder Approval Matter subject to its
Board's fiduciary duties. The term "Stockholder Approval Matter" as used herein
means any and all matters that must be approved by shareholders in order to
permit the unlimited conversion and exchange of all the Conversion Shares by the
Purchaser in compliance with all ASE rules, regulations and requirements.
7.8 PURCHASER'S COVENANT. To the extent permitted by
applicable law Purchaser hereby (i) waives any right of rescission it might have
arising out of the integration of the offer and sale of the Securities made
hereby or in the Contribution
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Agreement with the public offering under the Registration Statement and (ii)
covenants that it will not make any rescission claim on that basis.
7.9 REIT STATUS. The Company will continue to elect to be
taxed as a real estate investment trust within the meaning of Sections 856-860
of the Code, and will continue to satisfy all of the requirements set forth in
those provisions and the regulations thereunder to be taxed as a real estate
investment trust within the meaning of those provisions and the regulations
thereunder.
SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON
TRANSFERABILITY OF SHARES, PROPERTY SHARES
WARRANT AND CONVERSION SHARES
8.1 COMPLIANCE WITH 1933 ACT. The Shares, Property Shares,
Warrant, Property Shares and Conversion Shares shall not be transferable, except
upon the conditions specified in this Section 8, which conditions are intended
to insure compliance with the provisions of the 1933 Act and applicable state
securities laws in respect of any such transfer.
8.2 RESTRICTIVE LEGEND. The Warrant, and each certificate
evidencing the Shares and Conversion Shares and any Common Shares or other
securities issued in respect of such Shares and Conversion Shares upon any share
split, share dividend, recapitalization, merger, consolidation, similar event,
shall (unless otherwise permitted by the provisions of Section 8.4) be stamped
or otherwise imprinted with the following legend:
"[THIS WARRANT HAS] OR [THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE] NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW AND THE TRANSFERABILITY [T]HEREOF IS SUBJECT TO THE
PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN BRANDYWINE REALTY TRUST
AND THE ORIGINAL HOLDER OF THE SECURITIES EVIDENCED HEREBY."
8.3 RESTRICTIONS ON TRANSFERABILITY. The Company shall not be
required to register the transfer of the Shares, Property Shares or Warrant or
any Conversion Shares on the books of the Company unless the Company shall have
been provided with an opinion of counsel reasonably satisfactory to it prior to
such transfer to the effect that registration under the 1933 Act or any
applicable state securities law is not required in connection with the
transaction resulting in such transfer; provided, however, that no such opinion
of counsel shall be necessary in order to effectuate a transfer in accordance
with the provisions of Rule 144(k) or Rule 144A promulgated under the 1933 Act.
Each Warrant or certificate for Shares, Property Shares or Conversion Shares
issued upon any transfer as above provided shall bear the restrictive legend set
forth in Section 8.2 above, except that such restrictive legend shall not be
required if the opinion of counsel reasonably satisfactory to the Company
referred to above is to the further effect that such legend is not required in
order to establish
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compliance with the provisions of the 1933 Act and any applicable state
securities law, or if the transfer is made in accordance with the provisions of
Rule 144(k) under the 1933 Act. Nothing herein shall restrict a transfer of any
or all of the Securities to a Permitted Transferee (as defined in Section 10.2).
8.4 TERMINATION OF RESTRICTIONS ON TRANSFERABILITY. The
conditions precedent imposed by this Section 8 upon the transferability of the
Shares, Property Shares, Warrant and Conversion Shares shall cease and terminate
as to any of the Shares, Property Shares, Warrant or Conversion Shares when (i)
such securities shall have been registered under the 1933 Act and sold or
otherwise disposed of in accordance with the intended method of disposition by
the seller or sellers thereof set forth in the registration statement covering
such securities, (ii) at such time as an opinion of counsel satisfactory to the
Company shall have been rendered as required pursuant to the second sentence of
Section 8.3 to the effect that the restrictive legend on such securities is no
longer required, or (iii) when such securities are transferable in accordance
with the provisions of Rule 144(k) promulgated under the 1933 Act. Whenever the
conditions imposed by this Section 8 shall terminate as hereinabove provided
with respect to any of the Shares, Property Shares, Warrant or Conversion
Shares, the holder of any such securities bearing the legend set forth in this
Section 8 as to which such conditions shall have terminated shall be entitled to
receive from the Company, without expense (except for the payment of any
applicable transfer tax) and as expeditiously as possible, a new Warrant or new
shares certificates not bearing such legend.
SECTION 9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS
All covenants, agreements, representations and warranties made
herein and in the certificates delivered pursuant hereto shall survive the
execution and delivery of this Agreement and the issuance and sale of the Shares
hereunder in accordance with Section 10.9.
SECTION 10. MISCELLANEOUS
10.1 OWNER OF SHARES, PROPERTY SHARES, WARRANT AND CONVERSION
SHARES. The Company may deem and treat the person or entity in whose name the
Shares, Property Shares, Warrant and Conversion Shares, as the case may be, are
registered as the absolute owner thereof for all purposes whatsoever, and the
Company shall not be affected by any notice to the contrary.
10.2 SUCCESSORS. This Agreement shall be binding upon and
except as provided herein, shall inure to the benefit of the respective
successors and permitted assigns of each of the parties hereto. The rights and
obligations of either party hereunder shall not be assignable without the prior
written consent of the other party, except that, subject to
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compliance with applicable state and federal securities laws, the Purchaser
shall be entitled to assign its rights and obligations in whole or in part to
one or more entities in which the majority of the economic interests are held by
SERS ("Permitted Transferees") to the extent that any of the Securities are
transferred to any such entity and any such entity agrees to be bound by the
restrictions set forth in this Agreement.
10.3 BROKER OR FINDER. Each party to this Agreement represents
and warrants that, to the best of its knowledge, no broker or finder has acted
for such party in connection with this Agreement or the transactions
contemplated by this Agreement and that no broker or finder is entitled to any
broker's or finder's fee or other commission in respect thereof based in any way
on agreements, arrangements or understandings made by such party. The Company
shall indemnify the Purchaser against, and hold it harmless from, any liability,
cost or expense (including reasonable attorneys' fees and expenses) resulting
from any agreement, arrangement, or understanding made by the Company, and the
Purchaser shall indemnify the Company against, and hold the Company harmless
from, any liability, cost or expense (including reasonable attorneys' fees and
expenses) resulting from any agreement, arrangement, or understanding made by
the Purchaser with any third party, for brokerage or finder's fees or other
commissions in connection with this Agreement or any of the transactions
contemplated hereby.
10.4 GOVERNING LAW. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
10.5 NOTICE. Any notice or other communication required or
permitted hereunder shall be deemed given when delivered personally, or upon
receipt by the party entitled to receive the notice when sent by registered or
certified mail, postage prepaid, addressed as follows or to such other address
or addresses as may hereafter be furnished in writing by notice similarly given
by one party to the other:
To the Company: Brandywine Realty Trust
16 Campus Boulevard
Suite 150
Newtown Square, PA 19073
Attention: Gerard H. Sweeney, President
With a copy to: Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, Pennsylvania 19103-2799
Attention: Michael H. Friedman, Esq.
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To the Purchaser: RAI Real Estate Advisers, Inc.
259 Radnor-Chester Road
Suite 200
Radnor, Pennsylvania 19087
Attention: Richard K. Layman, President
With a copy to: Wolf, Block, Schorr and Solis-Cohen
Packard Building, 15th and Chestnut Streets
Philadelphia, Pennsylvania 19102
Attention: Jason M. Shargel, Esq.
Notice to any holder of Shares, Property Shares, Warrant, or Conversion Shares
other than the Purchaser shall be given in a like manner to such holder at the
address reflected in the Company's records.
10.6 FULL AGREEMENT. This Agreement, together with all
Exhibits attached hereto or delivered herewith, the other Transaction Documents
and any other documents delivered herewith, sets forth the entire understanding
of the parties with respect to the transactions contemplated hereby.
10.7 HEADINGS. The headings of the sections of this
Agreement are inserted for convenience of reference only and shall not be
considered a part hereof.
10.8 AMENDMENT. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
10.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by the parties in this Agreement shall
survive the execution of this Agreement for a period of two years after the
Closing Date.
10.10 SETTLEMENT OF DISPUTES. The parties will attempt in
good faith to resolve any and all controversies of every kind and nature between
the parties to this Agreement and the other Transaction Documents arising out of
or in connection with the existence, construction, validity, interpretation or
meaning, performance, non-performance, enforcement, operation, breach,
continuance or termination of this Agreement or the other Transaction Documents
(each, a "Dispute") promptly by negotiations between senior executives of the
parties who have authority to settle the Dispute (and who do not have direct
responsibility for administration of this Agreement or the other Transaction
Documents). The disputing party shall give the other party written notice of the
Dispute. Within 20 days after receipt of said notice, the receiving party shall
submit to the other a written response. The notice and response shall include
(a) a statement of each party's position and a summary of the evidence and
arguments supporting its position, and (b) the name and title of the executive
who will represent that party. The executives shall meet at a
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mutually acceptable time and place within 30 days of the date of the disputing
party's notice and thereafter as often as they reasonably deem necessary to
exchange relevant information and to attempt to resolve the Dispute. If the
matter has not been resolved within 60 days of the disputing party's notice, or
if the party receiving said notice will not meet within 30 days, either party
may initiate mediation of the controversy or claim in accordance with the Center
for Public Resources Model Procedure for Mediation of Business Disputes. If the
Dispute has not been resolved pursuant to the aforesaid mediation procedure
within 60 days of the initiation of such procedure, or if either party will not
participate in a mediation, the Dispute shall be submitted to arbitration in
accordance with the rules of the American Arbitration Association. The parties
further agree that all matters shall be governed by the laws of the Commonwealth
of Pennsylvania. The parties further agree that any arbitration conducted
pursuant to this Section 10.10 shall be held in Philadelphia, Pennsylvania
before a panel of three arbitrators, one selected by the Purchaser and one
selected by the Company and the third selected by the arbitrators selected by
the parties. All deadlines specified in this Section 10.10 may be extended by
mutual agreement. The prevailing party in any Dispute shall be entitled to
reimbursement for its costs, including without limitation attorneys' fees and
expenses.
10.11 COUNTERPARTS. This Agreement may be executed in two
or more counterparts each of which shall be deemed an original, and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.12 TERMINATION. This Agreement may be terminated prior
to the Closing:
(a) by mutual written consent of the Purchaser and the
Company;
(b) by either the Purchaser or the Company if the Closing
shall not have been consummated before January 31, 1997 (unless the failure to
so close by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement);
(c) by either the Purchaser or the Company if any court
of competent jurisdiction or other governmental entity shall have issued a final
permanent order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action is or shall have become
nonappealable;
(d) by the Purchaser if (i) there shall have been a
material breach on the part of the Company or any of its Subsidiaries of any
representation or warranty of the Company or its Subsidiaries set forth herein,
(ii) there shall have been any
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failure of the Company or any of its Subsidiaries to perform or comply with its
covenants or agreements hereunder and, in either case, the aggregate effect of
all such breaches or failures, as the case may be, would be material to the
Company and the Subsidiaries taken as a whole, or (iii) any person (as that term
is used in Sections 13(d) and 14(d)(2) of the Exchange Act) acquires beneficial
ownership of at least 20% of the outstanding Common Shares; or
(e) by the Company if (i) there shall have been a material
breach of any representation or warranty on the part of the Purchaser or (ii)
there shall have been a failure of the Purchaser to perform or comply with its
covenants or agreements hereunder which failure has not been cured within ten
days after written notice thereof from the Company to the Purchaser and, in
either case, the aggregate effect of all such breaches and failures, as the case
may be, would be material.
10.13 EFFECT OF TERMINATION. In the event of the
termination and abandonment of this Agreement pursuant to Section 10.12, this
Agreement shall forthwith become void and have no effect, without any liability
on the part of any party hereto or its affiliates, trustees, directors, officers
or stockholders; provided, however, that nothing contained in this Section 10.13
shall relieve any party from liability for any breach of this Agreement;
provided further that Sections 6.1(b), 6.3(b), 7 (if the Contribution Closing
occurs), 8 and 10 shall survive any such termination.
10.14 NON-RECOURSE. No recourse shall be had for any
obligation of the Company hereunder, or for any claim based thereon or otherwise
in respect thereof, against any past, present or future trustee, stockholder,
officer or employee of the Company, whether by virtue of any statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
other liability being expressly waived and released by each other party hereto.
No recourse shall be had for any obligation of the Purchaser hereunder, or for
any claim based thereon or in respect thereof, against RAI Real Estate Advisers,
Inc., SERS, or any past, present or future trustee, stockholder, officer or
employee of either or against any other person or entity, except as provided in
the following sentence, whether by virtue of any statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such other
liability being expressly waived and released by each other party hereto.
Recourse for any obligation or liability of the Purchaser hereunder shall be
limited to the Collateral (as defined in the Pledge Agreement attached as
Exhibit V to the Contribution Agreement) on the terms set forth in such Pledge
Agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, each of the parties hereto has fully
executed this Agreement as of the date first set forth above.
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
----------------------------------------
Gerard H. Sweeney, President
RAI REAL ESTATE ADVISERS, INC.,
as voting trustee of a voting trust
dated November 6, 1996
By: /s/ Richard K. Layman
----------------------------------------
Richard K. Layman, President
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EXHIBIT 10.43
THE SECURITIES REPRESENTED HEREBY AND ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE. ALL SUCH SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF SUCH SECURITIES
MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Void after 5:00 p.m. New York Time, on __________, 1998.
BRANDYWINE REALTY TRUST
Warrant Agreement for the Purchase of Shares of Common Stock
No. 1 400,000 Shares
FOR VALUE RECEIVED, BRANDYWINE REALTY TRUST, a Maryland real
estate investment trust (the "Company"), with its principal office at 16 Campus
Boulevard, Suite 150, Newtown Square, Pennsylvania 19073, hereby certifies that
RAI Real Estate Advisers, Inc. as voting trustee of a voting trust dated as of
November 6 ,1996 or its assigns (the "Holder") is entitled, subject to the
provisions of this Warrant, to purchase from the Company, at any time before
5:00 p.m. (Eastern Time) on ____________ __, 1998 (the "Expiration Date"), the
number of fully paid and nonassessable common shares of beneficial interest of
the Company (the "Common Stock") set forth above, subject to adjustment as
hereinafter provided.
The Holder may purchase such number of shares of Common Stock
at a purchase price per share (as appropriately adjusted pursuant to Section 6,
Section 8 or Section 9 hereof) of Eight Dollars and 50/100 Cents ($8.50) (the
"Exercise Price"). As provided in Section 6(j), the term "Common Stock" shall
mean the aforementioned Common Stock of the Company, together with any other
equity securities that may be issued by the Company in addition thereto or in
substitution therefor as provided herein.
The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for a share of Common Stock
are subject to adjustment from time to time as hereinafter set forth. The shares
of Common Stock deliverable upon such
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<PAGE> 2
exercise, as adjusted from time to time, are hereinafter sometimes referred to
as "Warrant Shares."
Section 1. Exercise of Warrant. (a) This Warrant may be
exercised in whole or in part on any business day (the "Exercise Date")
occurring from and after the date hereof and on or before the Expiration Date by
presentation and surrender hereof to the Company at its principal office at the
address set forth in the initial paragraph hereof or at the office of its stock
transfer or warrant agent, if any, (or at such other address as the Company may
hereafter notify the Holder in writing) with the Purchase Form annexed hereto
duly executed and accompanied by proper payment of the Exercise Price in lawful
money of the United States of America in the form of a check, subject to
collection, for the number of Warrant Shares specified in the Purchase Form. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
hereunder. Upon receipt by the Company of this Warrant and such Purchase Form,
together with proper payment of the Exercise Price, at such office, the Holder
shall be deemed to be the holder of record of such Warrant Shares,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
actually delivered to the Holder, which certificates shall be delivered to the
Holder within two (2) business days following the Company's receipt of the
Warrant together with the aforesaid Purchase Form and payment. The Company shall
pay any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the Warrant Shares.
(b) In addition to and without limiting the rights of the
Holder under any other terms set forth herein, the Holder shall have, upon
written request by the Holder delivered or transmitted to the Company together
with this Warrant, the right (the "Conversion Right") to require the Company to
convert this Warrant into shares of Common Stock as follows: upon exercise of
the Conversion Right, the Company shall deliver to the Holder (without payment
by the Holder of any Exercise Price) that number of shares of Common Stock that
is equal to the quotient obtained by dividing (x) the value of this Warrant at
the time the Conversion Right is exercised (determined by subtracting the
aggregate Exercise Price in effect immediately prior to the exercise of the
Conversion Right from the aggregate current market price (determined as provided
in Section 11 below) of the shares of Common Stock issuable upon exercise of
this Warrant immediately prior to the exercise of the Conversion Right) by (y)
the current market price of one share of Common Stock (determined as provided in
Section 11 below) immediately prior to the exercise of the Conversion Right.
The Conversion Right referred to above may be exercised by the
Holder by surrender of this Warrant at the principal office of the Company or at
the offices of its stock transfer or warrant agent, if any, together with a
written statement specifying that the Holder thereby intends to exercise the
Conversion Right. Certificates representing shares of Common Stock issuable upon
exercise of the Conversion Right shall be delivered to the Holder within two (2)
business days following the Company's receipt of this Warrant together with the
aforesaid written statement.
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<PAGE> 3
Section 2. Reservation of Shares. The Company shall reserve at
all times for issuance and delivery upon exercise of this Warrant all shares of
its Common Stock or other shares of beneficial interest of the Company from time
to time issuable upon exercise of this Warrant. All such shares shall be duly
authorized and, when issued upon the exercise of the Warrant in accordance with
the terms hereof, shall be validly issued, fully paid and nonassessable, free
and clear of all taxes, liens, security interests, charges and other
encumbrances or restrictions (other than restrictions pursuant to applicable
federal and state securities laws) and free and clear of all preemptive rights.
If the Common Stock is listed on any national securities exchange or The Nasdaq
Stock Market, the Company shall also list the shares issuable upon exercise of
the Warrant on such exchange, subject to notice of issuance, or include the
shares issuable upon exercise of this Warrant in the listing of its Common Stock
on The Nasdaq Stock Market, as the case may be.
Section 3. Fractional Interest. The Company will not issue a
fractional share of Common Stock or scrip upon any exercise or conversion of
this Warrant. Instead, the Company shall issue the next highest number of whole
shares of Common Stock.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant.
(a) The Holder of this Warrant may not transfer or assign its
interest in this Warrant, or any of the Warrant Shares, in whole or in part,
unless, prior to any such transfer, the transferee agrees in writing, in form
and substance satisfactory to the Company, to be bound by the terms of this
Agreement and provides the Company with an opinion of counsel in such form
reasonably acceptable to the Company, that such transfer would not be in
violation of the Act or any applicable state securities laws.
(b) Subject to the provisions of subsection (a) above and
Section 10, upon surrender of this Warrant to the Company or its stock transfer
agent or warrant agent, accompanied by the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees named in such instrument of assignment and, if the
Holder's entire interest is not being assigned, in the name of the Holder, and
this Warrant shall promptly be canceled.
(c) This Warrant may be divided by or combined with other
Warrants which carry the same rights upon presentation hereof at the principal
office of the Company or at the office of its stock transfer or warrant agent,
if any, together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any warrants into which this Warrant may be
divided or exchanged.
(d) Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of indemnification reasonably satisfactory to the
Company, and upon surrender and cancellation of
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<PAGE> 4
this Warrant, if mutilated, the Company shall execute and deliver a new Warrant
of like tenor and date registered in the Holder's name representing the number
of shares purchasable under the original Warrant. Any such new Warrant executed
and delivered shall constitute an additional contractual obligation of the
Company, whether or not the original Warrant shall be at any time enforceable by
anyone.
Section 5. Rights of the Holder. The Holder shall not, by
virtue hereof, be entitled to any rights of a shareholder in the Company, either
at law or equity, and the rights of the Holder are limited to those set forth in
this Warrant.
Section 6. Adjustment of Exercise Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Adjustment for Change in Beneficial Interest. If at any
time after November 6, 1996, the Company:
(i) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines its outstanding shares of Common Stock
into a smaller number of shares;
(iv) makes a distribution on its Common Stock in
shares of its beneficial interest other than Common
Stock; or
(v) issues by reclassification of its Common Stock
any shares of its beneficial interest;
then the Exercise Price in effect (and the number of Warrant Shares and other
securities, if any, issuable upon exercise of this Warrant) immediately prior to
such action shall be adjusted so that the Holder may receive upon exercise of
the Warrant, and payment of the same aggregate consideration, the number of
shares of beneficial interest of the Company which the Holder would have owned
immediately following such action if the Holder had exercised the Warrants
immediately prior to such action.
The adjustment shall become effective immediately after the
record date in the case of such a dividend or distribution, and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
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<PAGE> 5
(b) Adjustment for Other Distributions. If at any time after
November 6, 1996, the Company distributes to all holders of its Common Stock any
of its assets or debt securities, the Exercise Price following the record date
for such distribution shall be adjusted in accordance with the following
formula:
M-F
E' = E x -----
M
where: E' = the adjusted Exercise Price.
E = the then current Exercise Price immediately
prior to the adjustment.
M = the current market price (determined as
provided in Section 11 below) per share of
Common Stock on the record date of the
distribution.
F = the aggregate fair market value
(determined in such reasonable manner as may
be prescribed in good faith by the Board of
Trustees of the Company) on the record date
of the distribution of the assets or debt
securities divided by the number of
outstanding shares of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution
or the effective date of such issuance, as applicable. Notwithstanding the
formula above, in no event shall the adjusted Exercise Price be less than zero.
In the event that such distribution or issuance is not actually made, the
Exercise Price shall again be adjusted to the Exercise Price as determined
without giving effect to the calculation provided hereby.
This subsection does not apply to ordinary quarterly cash
dividends or cash distributions paid out of consolidated current or retained
earnings as shown on the books of the Company and paid in the ordinary course of
business.
(c) Deferral of Issuance or Payment. In any case in which an
event covered by this Section 6 shall require that an adjustment in the Exercise
Price be made effective as of a record date, the Company may elect to defer
until the occurrence of such event (i) issuing to the Holder, if this Warrant is
exercised after such record date, the shares of Common Stock and other
beneficial interest of the Company, if any, issuable upon such exercise over and
above the shares of Common Stock or other beneficial interest of the Company, if
any, issuable upon such exercise on the basis of the Exercise Price in effect
prior to such adjustment, and (ii) paying to the Holder by check any amount in
lieu of the issuance of fractional shares pursuant to Section 11.
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<PAGE> 6
(d) When No Adjustment Required. No adjustment need be made
for a change in the par value of the Common Stock.
(e) Notice of Certain Actions. In the event that:
(i) the Company shall authorize the issuance to all
holders of its Common Stock of rights, warrants, options or convertible
securities to subscribe for or purchase shares of its Common Stock, or of any
other subscription rights, warrants, options or convertible securities; or
(ii) the Company shall authorize the distribution to
all holders of its Common Stock of evidences of its indebtedness or assets
(other than dividends paid in or distributions of the Company's beneficial
interest for which the Exercise Price shall have been adjusted pursuant to
subsection (a) of this Section 6) or cash dividends or cash distributions
payable out of consolidated current or retained earnings as shown on the books
of the Company and paid in the ordinary course of business); or
(iii) the Company shall authorize any capital
reorganization or reclassification of the Common Stock (other than a subdivision
or combination of the outstanding Common Stock and other than a change in par
value of the Common Stock) or any consolidation or merger to which the Company
is a party and for which approval of any shareholders of the Company is required
(other than a consolidation or merger in which the Company is the continuing
corporation and that does not result in any reclassification or change of the
Common Stock outstanding), or the conveyance or transfer of the properties and
assets of the Company as an entirety or substantially as an entirety; or
(iv) the Company is the subject of a voluntary or
involuntary dissolution, liquidation or winding-up procedure; or
(v) the Company proposes to take any action (other
than actions of the character described in subsection (a) of this Section 6)
that would require an adjustment of the Exercise Price pursuant to this Section
6;
then the Company shall cause to be mailed by first-class mail to the Holder, at
least ten (10) days prior to the applicable record or effective date, a notice
stating (x) the date as of which the holders of Common Stock of record to be
entitled to receive any such rights, warrants or distributions are to be
determined, or (y) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
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<PAGE> 7
(f) No Adjustment Upon Exercise of Warrants. No adjustments
shall be made under any Section herein in connection with the issuance of
Warrant Shares upon exercise of the Warrants.
(g) Common Stock Defined. The term "Common Stock" shall
include any equity securities of any class of the Company hereinafter authorized
which shall not be limited to a fixed sum or percentage in respect of the right
of the holders thereof to participate in dividends, or to participate in
distributions of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company. However, subject to the provisions of
Section 8 hereof, shares issuable upon exercise hereof shall include only shares
of the class designated as Common Stock of the Company as of the date hereof or
shares of any class or classes resulting from any reclassification or
reclassifications thereof or as a result of any corporate reorganization as
provided for in Section 8 hereof.
(h) Warrants Issued After Adjustments. Irrespective of any
adjustments in the Exercise Price or the number or kind of Warrant Shares
purchasable upon exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in the similar warrants initially issuable pursuant to this
Agreement.
Section 7. Officers' Certificate. Whenever the Exercise Price
shall be adjusted as required by the provisions of Section 6, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office an officers' certificate showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment and the manner of computing such adjustment. Each such
officers' certificate shall be signed by the Chairman, President or Chief
Financial Officer of the Company and by the Secretary or any Assistant Secretary
of the Company. A copy of each such officers' certificate shall be promptly
mailed, by certified mail, to each holder of a Warrant and the original shall be
made available at all reasonable times for inspection by any other holder of a
Warrant executed and delivered pursuant to Section 4 hereof.
Section 8. Reclassification, Reorganization, Consolidation or
Merger. In the event of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company (other than a
subdivision or combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock) or in the event of any
consolidation or merger of the Company with or into another person or entity
(other than a merger in which the Company is the continuing person or entity and
that does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the class issuable upon exercise
of this Warrant) or in the event of any sale, lease, transfer or conveyance to
another person or entity of the property and assets of the Company as an
entirety or substantially as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter, by exercising this Warrant, to purchase
the kind and amount of shares of beneficial interest and other securities and
property (including cash) receivable upon such reclassification,
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<PAGE> 8
capital reorganization and other change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock that might have
been received upon exercise of this Warrant immediately prior to such
reclassification, capital reorganization, change, consolidation, merger, sale or
conveyance. Any such provision shall include provisions for adjustments in
respect of such shares of beneficial interest and other securities and property
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section 8 shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in connection with any such capital
reorganization, or classification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for, or of, a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of Section 6 hereof.
Section 9. Duty to Make Fair Adjustments in Certain Cases. If
any event occurs as to which, in the reasonable opinion of either the Board of
Trustees of the Company or a majority of the holders of the warrants then
outstanding under this Warrant, the Warrants issued to the Turkey Vulture Fund
XIII, Ltd. on June 21, 1996, the Warrants issued to Safeguard on August 22, 1996
and any warrants issued upon repayment of unsecured debt issued to or held by
Osborne (collectively, the "Other Warrants"), the provisions of Section 6 and
Section 8 hereof are not strictly applicable or, if strictly applicable, would
not fairly protect the purchase rights of the holders of such warrants in
accordance with the essential intent and principles of such provisions, then the
Board of Trustees of the Company and a majority of the holders of the warrants
then outstanding under this Warrant and the Other Warrants shall mutually agree
upon an adjustment in the application of such provisions, in accordance with
such essential intent and principles, so as to protect such purchase rights as
aforesaid.
Section 10. Transfer to Comply with the Securities Act of
1933; Registration Rights.
(a) No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or of the Warrant Shares shall be made if such sale,
transfer, assignment, hypothecation or other disposition would result in a
violation of the Act, or any state securities laws. Upon exercise of this
Warrant, the Holder shall, if requested by the Company, confirm in writing, in a
form reasonably satisfactory to the Company, that the shares of Common Stock so
purchased are being acquired solely for the Holder's own account, and not as a
nominee thereof, for investment, and not with a view toward distribution or
resale, except as permitted by the Act, and shall provide such other information
to the Company as the Company may reasonably request. Any Warrant and any
Warrants issued upon substitution for, or upon assignment or transfer of this
Warrant, as the case may be, and all shares of Common Stock issued upon exercise
hereof or conversion thereof shall bear a legend (in addition to any legend
required by state securities laws) in substantially the form set forth on the
first page of this Warrant, unless and until such securities have been
transferred pursuant to an effective registration statement
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<PAGE> 9
under the Act or may be freely sold to the public pursuant to Rule 144 (or any
successor rule thereto) or otherwise.
(b) The Holder and any transferee of the Warrant or the
Warrant Shares issuable hereunder shall have the right to require the Company to
register the Warrant Shares with the Securities and Exchange Commission for
resale as provided in the Registration Rights Agreement of even date herewith by
and between the Holder and the Company.
Section 11. Current Market Price. The "current market price"
of a share of Common Stock for purposes of this Agreement shall be determined as
follows:
(a) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on The Nasdaq Stock Market, the current market price shall be the
last reported sale price of the Common Stock on such exchange or system on the
last business day prior to the date of exercise of this Warrant, or if no such
sale is made on such day, the average of the closing bid and asked prices of the
Common Stock for such day on such exchange or system; or
(b) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current market price shall be the average of
the last reported bid and asked prices reported by the National Quotation
Bureau, Inc., on the last business day prior to the date of exercise of this
Warrant; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current market price per share shall be an amount, not less than 90% of the book
value per share of the Common Stock as at the end of the most recent fiscal year
of the Company ending prior to the date of the exercise of this Warrant,
determined in such reasonable manner as may be prescribed in good faith by the
Board of Trustees of the Company.
Section 12. Modification and Waiver. Neither this Warrant nor
any term hereof may be changed, waived, discharged or terminated other than by
an instrument in writing signed by the Company and by the Holder.
Section 13. Notices. Any notice, request or other document
required or permitted to be given or delivered to the Holder or the Company
shall be delivered or shall be sent by certified mail, postage prepaid, or by
overnight courier to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor in the first
paragraph of this Warrant.
Section 14. Descriptive Headings and Governing Law. The
description headings of the several sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. This
Warrant shall be construed and enforced in
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accordance with, and the rights of the parties shall be governed by, the laws of
the State of Maryland.
Section 15. No Impairment. The Company will not knowingly
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by it, but will at all times in good faith
assist in the carrying out of all of the provisions of this Warrant.
Section 16. Non-Recourse. No recourse shall be had for any
obligation of the Company hereunder, or for any claim based thereon or otherwise
in respect thereof, against any past, present or future trustee, shareholder,
officer or employee of the Company, whether by virtue of any statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
other liability being expressly waived and released by each other party hereto.
IN WITNESS WHEREOF, the Company has duly caused this Warrant
to be signed by its duly authorized officer and to be dated as of ______________
__, 1996.
BRANDYWINE REALTY TRUST
By:
-----------------------------------
Gerard H. Sweeney, President
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PURCHASE FORM
Dated: ____________________
The undersigned hereby irrevocably elects to exercise the
within Warrant to purchase _____________ shares of Common Stock and hereby makes
payment of ___________________________ in payment of the exercise price thereof.
Signature________________________
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ASSIGNMENT FORM
Dated: ____________________
FOR VALUE RECEIVED,__________________ hereby sells, assigns and
transfers unto _______________________ (the "Assignee"),
(please type or print in block letters)
________________________________________________________________________________
(insert address)
its right to purchase up to _______________ shares of Common Stock represented
by this Warrant and does hereby irrevocably constitute and appoint
_______________________________ Attorney, to transfer the same on the books of
the Company, with full power of substitution in the premises.
Signature________________________
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EXHIBIT 10.44
STANDSTILL AGREEMENT
THIS AGREEMENT is made as of the ____ day of ___________, 1996
by and between Brandywine Realty Trust, a Maryland real estate investment trust
(the "Trust") and RAI Real Estate Advisers, Inc. ("RAI"), as the voting trustee
of a voting trust dated as of November 6, 1996 between the Commonwealth of
Pennsylvania State Employes' Retirement System
("SERS") as shareholder and RAI as voting trustee (the "Holder").
WHEREAS, as of the date hereof, pursuant to a Contribution
Agreement dated November 6, 1996 among, inter alia, the Trust and the Holder
(the "Contribution Agreement"), Holder is acquiring __________ Series A
Convertible Preferred Shares, par value $.01 per share (the "Convertible
Preferred Shares") and a warrant to purchase 400,000 common shares of beneficial
interest, par value $.01 per share (the "Common Shares"). The Convertible
Preferred Shares and the Common Shares issuable upon conversion thereof are
collectively referred to herein as the "Shares;"
WHEREAS, pursuant to the Contribution Agreement and a
Securities Purchase Agreement dated November 6, 1996 between the Trust and the
Holder (the "Securities Purchase Agreement"), the Holder is expected to acquire
additional Shares; and
WHEREAS, the Trust desires to obtain from the Holder, and the
Holder desires to obtain from the Trust, certain agreements, as set forth
herein.
NOW, THEREFORE, intending to be legally bound hereby, the
parties hereto agree as follows:
1. Proxy Solicitations. During the term hereof, without the
consent of a majority of the independent members of the Board of Trustees of the
Trust (the "Board of Trustees"), Holder agrees that it will not: (i) make or
participate in, directly or indirectly, any "solicitation" of "proxies" (as such
terms are defined or used in Regulation 14A promulgated pursuant to the Exchange
Act) or become a "participant" in any "election contest" (as such terms are used
in Regulation 14A) with respect to the Trust, (ii) seek to encourage any third
person to vote Common Shares in opposition to the recommendation of a majority
of the Board of Trustees, (iii) propose any amendment to the Declaration of
Trust of the Trust (the "Declaration of Trust") or (iv) assist any attempt by
any other person or entity to do any of the foregoing.
2. Voting of Common Shares; Submission of Matters to Vote of
Shareholders; Conversion. During the term hereof, the Holder agrees to vote all
Shares beneficially owned by it in accordance with the recommendations of a
majority of the Board of Trustees on any matter submitted to a vote of
shareholders other than on any of the following matters: (i) a merger,
consolidation or liquidation of the Trust or a sale by the Trust of all or
substantially all of its assets; (ii) any amendment to the Declaration of Trust
or to the Partnership Agreement (as defined in Section 4(a) below); (iii) the
nomination of a new member to the Board of Trustees; (iv) the Trust's incurring
debt as a result of which the aggregate principal amount of its debt at the time
of incurrence would exceed the Trust's Equity Market
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<PAGE> 2
Capitalization (as defined in Section 8 below); and (v) any Related Party
Transaction (as defined in Section 8 below). Without the prior written approval
of the Holder during the term hereof (and, as to clause (iv) above, until the
Deferred Purchase Price (as defined in the Contribution Agreement) has been paid
in full), the Trust shall not effect any of the preceding matters without first
obtaining approval thereof by shareholders in accordance with the Declaration of
Trust and applicable law. Upon the written request of the Trust delivered to the
Holder at least ten (10) days prior to the record date for the applicable
meeting, the Holder shall convert into Common Shares prior to such record date
the number of Convertible Preferred Shares specified by the Trust in such
request as being permissible to be so converted and shall vote such Common
Shares in favor of the right of the Holder to convert the Convertible Preferred
Shares on an unlimited basis.
3. Restrictions on Dispositions. During the term hereof, the
Holder shall not, directly or indirectly, sell, assign, transfer or otherwise
dispose of any Shares, except: (i) in transactions under Rule 144 promulgated
under the Securities Act of 1933, as amended; (ii) in a private transaction to
any person who is not then a business competitor of the Trust and who,
immediately following the transaction, would own less than five percent (5%) of
the outstanding Common Shares (assuming the conversion of all outstanding
Convertible Preferred Shares and the conversion of all of the Class A Units of
the Partnership (as defined in Section 4(a) below)); (iii) in response to a bona
fide tender or exchange offer by a third party for at least 80% of the
outstanding Common Shares and supported by a majority of the Board of Trustees;
(iv) in a merger or statutory share exchange pursuant to which ownership of the
Trust is acquired by a third party; or (v) pursuant to incidental registration
rights of the Holder pursuant to a Registration Rights Agreement of even date
herewith between the Trust and the Holder. During the term hereof, the Holder
agrees to enter into a customary "lock-up" letter upon the request of the
underwriters in connection with any public equity offering by the Trust,
provided that (i) the duration thereof does not extend for more than 180 days
following the effective date of the applicable registration statement and (ii)
all other holders of in excess of ten percent (10%) of the outstanding Common
Shares and all Trustees and executive officers of the Trust execute a
substantially similar letter. Notwithstanding anything to the contrary herein,
the Holder may pledge any and all of its Shares to secure up to $15 million in
borrowings.
4. Business Operations.
(a) Prior to the consummation by the Trust of a
Secondary Offering, without the prior written approval of the Holder, the Trust
may not materially deviate from the description of its business plans set forth
under the caption "Prospectus Summary" in the draft of Amendment No. 1
("Amendment No. 1") to the Trust's Registration Statement on Form S-11 attached
as Exhibit A to the Securities Purchase Agreement and may not do any of the
following: (i) engage in speculative development; (ii) acquire any individual
property with a purchase price in excess of $25 million; (iii) acquire or
dispose of any portfolio of properties with an aggregate purchase price which
exceeds 25% of the amount equal to the Trust's Equity Market Capitalization plus
the principal amount of all outstanding debt secured by mortgages on the Trust's
properties; (iv) acquire any properties outside the Trust's Primary Market Area
(as defined in Section 8 below); (v) acquire any properties other than office,
warehouse, flex or industrial properties; (vi) incur additional indebtedness in
any one transaction or in any series of
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<PAGE> 3
related transactions in excess of $25 million; (vii) except as provided in
Section 4(b) below, issue any additional shares of beneficial interest (other
than issuances of Common Shares to funds managed by Morgan Stanley Asset
Management, Inc., as more fully described in Amendment No. 1) the Registration
Statement) or permit Brandywine Operating Partnership, L.P., a Delaware limited
partnership (the "Partnership"), to issue Partnership Interests (as defined in
the Partnership's Agreement of Limited Partnership dated August 22, 1996 (the
"Partnership Agreement")); (viii) amend in any material manner the Partnership
Agreement; (ix) acquire any property other than through the Partnership, unless
acquired by the Trust and contributed to the Partnership; or (x) make any
material change to the employment agreements between Brandywine Realty Services
Company, Inc. ("Brandywine") and Anthony A. Nichols, Sr. and Gerald H. Sweeney
(other than to permit such agreements to be assigned to the Trust).
(b) Section 4(a)(vii) shall not apply to (A) Common
Shares issued pursuant to options and warrants outstanding on the date of this
Agreement, (B) Common Shares issued to officers, trustees, directors or
employees of, or consultants to, the Trust and its affiliates upon the exercise
of warrants, rights or options which (x) are issued pursuant to employee benefit
plans, employment agreements or consulting agreements, in each case approved by
the Board of Trustees or an appropriate committee of the Trust's Board of
Trustees, and (y) have an exercise price not less than 85% of the current market
price of the Common Shares at the time of issuance of such warrant, right or
option, (C) Common Shares issued on redemption of Class A units of limited
partnership interest in the Partnership issued or issuable to Safeguard
Scientifics (Delaware), Inc. ("Safeguard") and The Nichols Company ("TNC") and
certain other persons, or their respective affiliates, in connection with the
transactions contemplated by the Contribution Agreement dated July 31, 1996, by
and among the Trust, Safeguard and TNC, (D) Common Shares issuable to (i)
Messrs. Belcher, Gallagher, Nichols and Sweeney upon exercise of warrants issued
to them on or as of August 22, 1996 pursuant to their employment agreements with
Brandywine and (ii) certain other employees of the Trust or Brandywine upon
exercise of warrants issued to them on or as of August 22, 1996 for the purchase
of an aggregate of 40,000 Common Shares, (E) up to 236,200 Common Shares
reserved for issuance to Richard M. Osborne, Sr. or to an entity controlled by
him ("Osborne") upon the repayment of unsecured debt issued to or held by
Osborne and up to 236,200 Common Shares issuable to Osborne upon exercise of a
warrant previously issued to him or issuable upon repayment of unsecured debt
issued to or held by Osborne, (F) Common Shares issued upon conversion of the
Convertible Preferred Shares, (G) Common Shares or Convertible Preferred Shares
issued to the Holder or to or for the benefit of SERS, (H) Common Shares issued
in a Secondary Offering, or (I) Partnership Interests issued (i) to acquire
Residual Interests pursuant to Section 4.4 of the Partnership Agreement, (ii)
upon the achievement of debt discounts pursuant to Section 4.5 of the
Partnership Agreement; or (iii) to the Trust on account of capital contributions
to the Partnership in accordance with the terms of the Partnership Agreement.
5. REIT Status. During the term hereof, the Holder agrees not
to pursue any action which may disqualify the Trust's status as a real estate
investment trust under the Internal Revenue Code of 1986.
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6. Legend. During the term hereof, the Trust may cause any
certificates evidencing Shares beneficially owned by the Holder to bear a legend
indicating the existence of this Agreement.
7. Term.
(a) Unless terminated earlier pursuant to Section
7(b) below and as otherwise provided with respect to Section 2(iv) above, the
term of this Agreement shall be for a period ending on the earlier of the (i)
second anniversary of the date of this Agreement or (ii) the date on which the
Holder owns less than twenty percent (20%) of the Common Shares assuming the
conversion of all outstanding Convertible Preferred Shares.
(b) The Holder shall have the right, upon written
notice to the Trust, to terminate this Agreement (except as to Section 2(iv) as
provided above) at any time after one year from the date of this Agreement if:
(i) for two successive calendar quarters commencing with the quarter ending
December 31, 1996, the total debt of the Trust as of the end of such quarters
exceeds the Trust's Equity Market Capitalization; (ii) for two successive
calendar quarters commencing with the quarter ending December 31, 1996, the
Holder did not receive a cash distribution at least equal to $.11 per Common
Share into which the Convertible Preferred Shares are convertible (subject to
appropriate adjustment for share splits, share dividends and similar
transactions subsequent to November 6, 1996), which distribution shall not
exceed 90% of Funds From Operations (as defined in Section 8 below) for such
quarter; (iii) the Equity Market Capitalization of the Trust is less than $100
million at any time on or after one year from the date of this Agreement; or
(iv) the Trust acquires any property other than through the Partnership, unless
acquired by the Trust and contributed to the Partnership.
(c) Upon expiration or termination of the term, all
rights and obligations of the parties hereto shall terminate, except as provided
with respect to Section 2(iv) above and except for any rights arising out of the
breach by a party hereto of its obligations hereunder.
8. Definitions. For purposes of this Agreement, the following
terms shall have the meanings specified in this Section 8 and shall be equally
applicable to both singular and plural forms.
"Current Market Price" of a Common Share shall be
determined as follows:
(i) If the Common Shares are listed on a
national securities exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on The Nasdaq Stock Market, the Current Market
Price shall be the last reported sale price of the Common Shares on such
exchange or system on the last business day prior to the valuation date, or if
no such sale is made on such day, the average closing bid and asked prices of
the Common Shares for such day on such exchange or system; or
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(ii) If the Common Shares are not so listed
or admitted to unlisted trading privileges, the Current Market Price shall be
the mean of the last reported bid and asked prices reported by the National
Quotation Bureau, Inc., on the last business day prior to the valuation date; or
(iii) If the Common Shares are not so listed
or admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Current Market Price per Common Share shall be an amount, not less
than 90% of the book value per Common Share as at the end of the most recent
fiscal year of the Trust ending prior to the valuation date, determined in such
reasonable manner as may be prescribed in good faith by the Board of Trustees.
"Equity Market Capitalization" means the product of
(A) the Current Market Price of a Common Share and (B) the number of outstanding
Common Shares assuming the conversion of all outstanding Convertible Preferred
Shares and all Class A Units of the Partnership.
"Funds From Operations" means net income (loss),
excluding extraordinary items, gains and losses from sales of property, plus
depreciation and amortization and other non-cash charges and similar adjustments
for unconsolidated subsidiaries, all as calculated in accordance with generally
accepted accounting principles applied on a consistent basis with past periods.
"Primary Market Area" means Bucks, Chester, Delaware
and Montgomery counties in Pennsylvania; Burlington, Camden, Gloucester, Mercer
and Salem counties in New Jersey; and New Castle county in Delaware.
"Related Party Transaction" means any transaction
involving the Trust or the Partnership and any of their officers, trustees,
partners or holders of more than five percent of beneficial interests or
partnership interests, as the case may be, which would be required to be
disclosed under Items 402 or 404 of Regulation S-K.
"Secondary Offering" means an underwritten primary
public offering of Common Shares pursuant to a registration statement on Form
S-11 declared effective by the Securities and Exchange Commission which results
in gross proceeds to the Trust (prior to reduction for the underwriters'
discount) of at least $50 million.
9. Specific Performance and Remedies. The parties to this
Agreement acknowledge and agree that irreparable damage would occur to the
aggrieved party in the event that any provision of this Agreement is not
performed in accordance with its specific terms or is otherwise breached, and
acknowledge and agree that termination of this Agreement and monetary damages
would not provide adequate remedies. It is accordingly agreed that each of the
parties shall be entitled to injunctive relief to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States in addition to any other
remedy to which it may be entitled at law or in equity, including, without
limitation, monetary damages.
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<PAGE> 6
10. Expenses. All fees and expenses incurred by any party
hereto shall be borne by the party incurring them; provided that the Trust shall
reimburse the Holder for the legal fees and expenses incurred by it in
connection with the preparation and negotiation of this Agreement; and provided
further that, if any party incurs expenses in an effort to enforce compliance by
another party of its obligations hereunder and prevails in such effort, the
prevailing party shall be entitled to recover such expenses from such other
party.
11. Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, whether oral
or written, among the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended orally, but may be amended only by an
instrument in writing signed by each of the parties hereto.
12. Counterparts. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto.
Each such executed counterpart shall be, and shall be deemed, an original
instrument, and all such executed counterparts shall be deemed to be one and the
same instrument.
13. Notices. All notices given hereunder shall be in writing
and delivered personally, or sent by telex, telecopier or registered mail,
postage prepaid, or by overnight delivery service, addressed as follows:
If to The Trust:
Brandywine Realty Trust
16 Campus Boulevard
Suite 150
Newtown Square, PA 19073
Attention: Gerald A. Sweeney, President
Telecopier No. (610) 325-5622
With a copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Attention: Michael H. Friedman, Esquire
Telecopier No. (215) 981-4750
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If to The Holder:
RAI Real Estate Advisers, Inc.
259 Radnor-Chester Road
Suite 200
Radnor, PA 19087
Attention: Richard K. Layman, President
Telecopier No. (610) 964-0830
With a copy to:
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor Packard Building
S.E. Corner 15th and Chestnut Streets
Philadelphia, PA 19102
Attention: Jason M. Shargel, Esquire
Telecopier No. (215) 977-2346
or to such other address, or such telex or telecopier number, as any party may,
from time to time, designate in a written notice given in like manner. Notice
given by overnight delivery service shall be deemed delivered on the day
following the date the same is accepted for next day delivery by said service.
Notice delivery by telecopier shall be deemed to be delivered when transmitted.
Notice delivered personally shall be deemed to be delivered when delivered to
the addressee.
14. Choice of Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Maryland,
without reference to the conflict of laws principles thereof.
15. Headings. The headings in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement.
16. No Waiver. Any waiver by any party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term or any other
term of this Agreement.
17. Severability. If any clause, provision or section of this
Agreement is held illegal or invalid by any court, the illegality or invalidity
of such clause, provision or section shall not affect any of the remaining
clauses, provisions or sections of this Agreement, and this Agreement shall be
construed and enforced as if such illegal or invalid clause, provision or
section had not been contained herein. In case any agreement or obligation
contained in this Agreement is held to be in violation of law, then such
agreement or obligation shall be deemed
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<PAGE> 8
to be the agreement or obligation of the applicable party hereto only to the
full extent permitted by law.
18. Non-Recourse. No recourse shall be had for any obligation
of the Trust hereunder, or for any claim based thereon or otherwise in respect
thereof, against any past, present or future trustee, shareholder, officer or
employee of the Trust, whether by virtue of any statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such other
liability being expressly waived and released by each other party hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BRANDYWINE REALTY TRUST
By:__________________________
Gerard H. Sweeney, President
RAI REAL ESTATE ADVISERS, INC.
as voting trustee of a voting trust dated
November 6, 1996
By:__________________________
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<PAGE> 1
EXHIBIT 10.45
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") made and
entered into as of this __ day of __________ ___, 1996 by and among BRANDYWINE
REALTY TRUST, a Maryland real estate investment trust (the "Company"), RAI REAL
ESTATE ADVISERS, INC. ("RAI"), as the voting trustee of a voting trust executed
by the Commonwealth of Pennsylvania State Employes' Retirement System as
shareholder and RAI as voting trustee dated as of November 6, 1996 (the "Voting
Trust").
BACKGROUND
Pursuant to a Contribution Agreement, dated November 6, 1996,
by and among, inter alia, the Company and the Voting Trust (the "Contribution
Agreement"), the Company has issued to the Voting Trust (a) ________ shares of
the Company's Series A Convertible Preferred Shares (the "Preferred Shares"),
par value $.01 per share, and may issue additional Preferred Shares on June 10,
1998, and December 31, 1999 (such issued and issuable Preferred Shares are
collectively referred to as the "Property Shares") and (b) a warrant (the
"Warrant") to purchase 400,000 shares of the Company's common shares of
beneficial interest par value $.01 per share (the "Common Stock").
Pursuant to a Securities Purchase Agreement dated as of
November 6, 1996 by and between the Company and the Voting Trust (the
"Securities Purchase Agreement"), the Company is obligated to issue to the
Voting Trust additional Common Stock or Preferred Shares (the "Additional
Shares").
To induce the Voting Trust to enter into the foregoing
transactions, the Company has agreed to provide it with the registration rights
set forth in this Agreement.
1. CERTAIN DEFINITIONS.
In addition to the other terms defined in this Agreement, the
following terms shall be defined as follows:
"Additional Holders" means the Persons who have registration
rights with respect to certain securities of the Company pursuant to either of
the Additional Registration Rights Agreements.
"Additional Registration Rights Agreements" means that certain
Registration Rights Agreement dated August 22, 1996 to which the Company is a
party and the Registration Rights Agreement which the Company will enter into
with Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio and
Morgan Stanley SICAV Subsidiary, SA.
<PAGE> 2
"Additional Securities" means those securities of the Company
which are or become subject to the registration provisions of either of the
Additional Registration Rights Agreements.
"Brokers Transactions" has the meaning ascribed to such term
pursuant to Rule 144 under the Securities Act.
"Business Day" means any day on which the American Stock
Exchange is open for trading.
"Closing Date" means the date of closing under the
Contribution Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder, all as the same
shall be in effect at the relevant time.
"Fair Market Value" means:
(a) If the Registrable Security is listed on a
national securities exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on The NASDAQ Stock Market, the fair market value
shall be the last reported sale price of the Registrable Security on such
exchange or system on the last business day prior to the date the determination
of fair market value is made, or if no such sale is made on such day, the
average closing bid and asked prices of the Registrable Security for such day on
such exchange or system; or
(b) If the Registrable Security is not so listed or
admitted to unlisted trading privileges, the fair market value shall be the mean
of the last reported bid and asked prices reported by the National Quotation
Bureau, Inc., on the last business day prior to the date the determination of
fair market value is made; or
(c) If the Registrable Security is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the fair market value per share shall be an amount, not less than 90%
of the book value per share of the Registrable Security as at the end of the
most recent fiscal year of the Company ending prior to the date the
determination of fair market value is made, determined in such reasonable manner
as may be prescribed in good faith by the Board of Trustees of the Company.
"Holders" means the Voting Trust for so long as (and to the
extent that) it owns any Registrable Securities, and its successors, assigns,
and direct and indirect transferees who become registered owners of Registrable
Securities or securities exercisable, exchangeable or convertible into
Registrable Securities.
"Outstanding" means with respect to any securities as of any
date, all such securities theretofore issued, except any such securities
theretofore converted, exercised or
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<PAGE> 3
canceled or held by the issuer or any successor thereto (whether in its treasury
or not) or any affiliate of the issuer or any successor thereto.
"Person" means an individual, a partnership (general or
limited), corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
"Registrable Security(ies)" means (i) all or any portion of
the Additional Shares (to the extent they are shares of Common Stock), (ii) all
or any portion of any shares of Common Stock that may be issued upon conversion
of, or in exchange for, the Property Shares or the Additional Shares (to the
extent they are Preferred Shares), (iii) all or any portion of any shares of
Common Stock that may be issued upon the exercise of, or in exchange for, the
Warrant, (iv) any additional shares of Common Stock or other equity securities
of the Company issued or issuable after the Closing Date in respect of any such
securities (or other equity securities issued in respect thereof) by way of a
stock dividend or stock split, in connection with a combination, exchange,
reorganization, recapitalization or reclassification of Company securities, or
pursuant to a merger, division, consolidation or other similar business
transaction or combination involving the Company, and (v) any other shares of
Common Stock obtained in open market transactions or otherwise; provided that in
the case of equity securities other than Common Stock such securities are
registered under Section 12(b) or Section 12(g) of the Exchange Act; and further
provided that: as to any particular Registrable Securities, such securities
shall cease to constitute Registrable Securities (i) when a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of thereunder; or (ii) when such securities shall have ceased to be issued and
outstanding. Any time this Agreement requires the vote or consent of the Holder
of a "majority" or other stated percentage of the Registrable Securities, the
term Registrable Securities shall, solely for purposes of calculating such vote,
be deemed to include the Registrable Securities that could be issued under the
Preferred Shares and the Warrant and any other securities exercisable or
exchangeable for, or convertible into, Registrable Securities. The term
Registrable Securities shall not include the Preferred Shares or the Warrant.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with the registration requirements set
forth in this Agreement including, without limitation, the following: (i) the
fees, disbursements and expenses of the Company's counsel(s), accountants, and
experts in connection with the registration under the Securities Act of
Registrable Securities; (ii) all expenses in connection with the preparation,
printing and filing of the registration statement, any preliminary prospectus or
final prospectus, any other offering document and amendments and supplements
thereto, and the mailing and delivering of copies thereof to the underwriters
and dealers, if any; (iii) the cost of printing or producing any agreement(s)
among underwriters, underwriting agreement(s) and blue sky or legal investment
memoranda, any selling agreements, and any other documents in connection
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<PAGE> 4
with the offering, sale or delivery of Registrable Securities to be disposed of;
(iv) any other expenses in connection with the qualification of Registrable
Securities for offer and sale under state securities laws, including the fees
and disbursements of counsel for the underwriters in connection with such
qualification and in connection with any blue sky and legal investment surveys;
(v) the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of Registrable
Securities to be disposed of and any blue sky registration or filing fees, and
(vi) the fees and expenses incurred in connection with the listing of
Registrable Securities on each securities exchange (or The NASDAQ Stock Market)
on which Company securities of the same class are then listed; provided,
however, that Registration Expenses with respect to any registration pursuant to
this Agreement shall not include (x) expenses incurred by any Holder in
connection with any offering, including the fees and expenses of counsel,
accountants, and experts retained by such Holder (other than the fees and
expenses of one counsel for the Holders as and to the extent provided in Article
10), (y) any underwriting discounts or commissions attributable to Registrable
Securities, or (z) any transfer taxes applicable to Registrable Securities.
"SEC" means the United States Securities and Exchange
Commission, or such other federal agency at the time having the principal
responsibility for administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the relevant time.
"Shelf Registration Statement" means a Shelf Registration
Statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers Common Stock on an appropriate form then permitted by the
SEC to be used for such registration and the sales contemplated to be made
thereby, under Rule 415 under the Securities Act, or any similar rule that may
be adopted by the SEC, and all amendments and supplements to such Registration
Statement, including pre- and post-effective amendments thereto, in each case
including the prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Shelf Registration" means a registration of Common Stock
effected pursuant to Section 2(b) hereof.
"Trading Day" means a day on which the principal securities
exchange or stock market on which the applicable security is traded is open for
the transaction of business.
2. DEMAND REGISTRATION; SHELF REGISTRATION.
(a) (i) A Holder or Holders may request at any time (by
written notice delivered to the Company) that the Company register under the
Securities Act all or any portion of the Registrable Securities held by (or then
issuable to) such Holder or Holders (the "Requesting Holders"), representing in
the aggregate not less than twenty percent of the Registrable
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<PAGE> 5
Securities, for sale in the manner specified in such notice (including, but not
limited to, an underwritten public offering); provided, however, that no such
request may be made when the Voting Trust would be prohibited from selling
Registrable Securities pursuant to an effective registration statement under the
Securities Act by the terms of the Standstill Agreement, dated the Closing Date,
between the Company and the Voting Trust; provided further, however, that no
such request shall be made prior to one hundred twenty (120) days after the date
that the Company's Registration Statement on Form S-11 (File No. 333-13969)(the
"1996 Registration Statement") has been declared effective by the SEC. In each
such case, such notice shall specify the number of Registrable Securities for
which registration is requested, the proposed manner of disposition of such
securities, and the minimum price per share at which the Requesting Holders
would be willing to sell such securities in an underwritten offering. The
Company shall, within five (5) Business Days after its receipt of any Requesting
Holders' notice under this Section 2(a)(i), give written notice of such request
to all other Holders and all Additional Holders and afford them the opportunity
of including in the requested registration statement such of their Registrable
Securities or Additional Securities, as the case may be, as they shall specify
in a written notice given to the Company within twenty (20) days after their
receipt of the Company's notice. Within ten (10) Business Days after the
expiration of such twenty (20) day period, the Company shall notify all Holders
and all Additional Holders requesting registration of (A) the aggregate number
of Registrable Securities or Additional Securities, as the case may be, proposed
to be registered by all Holders and all Additional Holders, (B) the proposed
filing date of the registration statement, and (C) such other information
concerning the offering as any Holder or Additional Holder may have reasonably
requested. If the Holders of a majority in aggregate amount of the Registrable
Securities to be included in such offering shall have requested that such
offering be underwritten, the managing underwriter for such offering shall be
chosen by the Holders of a majority in aggregate amount of the Registrable
Securities being registered, with the consent of the Company, which consent
shall not be unreasonably withheld, not less than thirty (30) days prior to the
proposed filing date stated in the Company's notice, and the Company shall
thereupon promptly notify such Holders, and any Additional Holders to be
included in such offering, as to the identity of the managing underwriter, if
any, for the offering. On or before the 30th day prior to such anticipated
filing date, any Holder or Additional Holder may give written notice to the
Company and the managing underwriter specifying either that (A) Registrable
Securities or Additional Securities, as the case may be, of such Holder or
Additional Holder are to be included in the underwriting, on the same terms and
conditions as the securities otherwise being sold through the underwriters under
such registration or (B) such Registrable Securities or Additional Securities,
as the case may be, are to be registered pursuant to such registration statement
and sold in the open market without any underwriting, on terms and conditions
comparable to those normally applicable to offerings in reasonably similar
circumstances, regardless of the method of disposition originally specified in
Holder's or Additional Holder's request for registration. To the extent that any
or all of the Registrable Securities to be included in any registration pursuant
to this Section 2(a)(i) or any other provision of this Agreement are to be
issued upon conversion, exercise or exchange of other securities, there shall be
no obligation for any Holder to effect any such conversion, exercise or exchange
until immediately prior to the closing of the sale of such Registrable
Securities.
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(ii) The Company shall use its commercially
reasonable best efforts to file with the SEC within eighty (80) days (thirty
(30) days if the Company may use a Registration Statement on Form S-3 to
register such Registrable Securities) after the Company's receipt of the initial
Requesting Holders' written notice pursuant to Section 2(a)(i), a registration
statement for the public offering and sale, in accordance with the method of
disposition specified by such Holders, of the number of Registrable Securities
specified in such notice, and thereafter use its commercially reasonable best
efforts to cause such registration statement to become effective within sixty
(60) days after its filing. Such registration statement may be on Form S-1 or
Form S-11 or another appropriate form (including Form S-3) that the Company is
eligible to use and that is reasonably acceptable to the managing underwriter;
provided, however, that if any Form other than Form S-1 or Form S-11 is used in
an underwritten offering, upon the request of the managing underwriter, or the
selling shareholders, the prospectus included in the registration statement
shall be amplified to include such additional information as such persons may
reasonably request regarding the Company, its business and management
(including, without limitation, the information called for by Items 101, 102,
103, 201, 202, 301 and 303 of Regulation S-K under the Securities Act).
(iii) The Company shall not have any obligation
hereunder (A) to permit or participate in more than two offerings pursuant to
this Section 2(a), or (B) to register any Registrable Securities under this
Section 2(a) unless it shall have received requests from Holders to register at
least 20% of the aggregate Registrable Securities issued at the date hereof.
(iv) If the Company is required to use commercially
reasonable best efforts to register Registrable Securities and Additional
Securities in a registration initiated upon the demand of any Holder pursuant to
Section 2(a) of this Agreement and the managing underwriters for such offering
advise that the inclusion of all securities sought to be registered by the
Holders and Additional Holders may interfere with an orderly sale and
distribution of or may materially adversely affect the price of such offering,
then, unless all such Holders and Additional Holders otherwise notify the
Company in writing, the aggregate number of Registrable Securities and
Additional Securities included by the Holders and Additional Holders in such
offering shall be reduced to a number which the managing underwriters advise
will not likely have such effect and the maximum number of Registrable
Securities and Additional Securities able to be included in such offering by
each Holder and Additional Holder shall be reduced giving first preference to
all Registrable Securities before any Additional Securities are included and
thereafter pro rata (in accordance with such Holder's or Additional Holder's, as
the case may be, proportionate share of all Registrable Securities and
Additional Securities duly requested to be included in such registration).
(b) At any time during the 60-day period following the end of
any fiscal year of the Company, other than the fiscal year in which a
registration statement is to be filed pursuant to Section 2(a) (except that the
registration pursuant to a Deemed Additional Share Request shall not be subject
to such limitation), any Holder or Holders may request in writing that the
Company register under the Securities Act all or any portion of the Registrable
Securities held by (or then issuable to) such Requesting Holders for sale
pursuant to a Shelf Registration Statement; provided that any distribution or
sale pursuant to any such Shelf Registration shall be limited to Brokers'
Transactions or other transactions that do not involve
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<PAGE> 7
an underwritten public offering. By closing under the Securities Purchase
Agreement, the Voting Trust shall be deemed to have made (as of the date of such
closing) a request under Section 2(b) (the "Deemed Additional Share Request")
that the Company register for sale pursuant to a Shelf Registration Statement
all Additional Shares (or, if applicable, all shares of Common Stock issuable
upon conversion of the Additional Shares). The Company shall, within five (5)
Business Days after its receipt of any Requesting Holders' notice under this
Section 2(b), give written notice of such request to all other Holders and all
Additional Holders and afford them the opportunity of including in the requested
Shelf Registration Statement such of their Registrable Securities or Additional
Securities, as the case may be, as they shall specify in a written notice given
to the Company within twenty (20) days after their receipt of the Company's
notice. The Company shall thereupon use its commercially reasonable best efforts
to file the Shelf Registration Statement with the SEC within sixty (60) days
after its receipt of the initial Requesting Holders' notice and to cause such
registration statement to be declared effective within sixty (60) days after its
filing (or in the case of the Deemed Additional Share Request, the earlier of 60
days after filing or March 31, 1997); provided, however, that the Company shall
not be required (A) to effect more than one registration pursuant to this
Section 2(b) in any fiscal year for Holders, or (B) to effect any registration
pursuant to this Section 2(b) during the fiscal year during which Registrable
Securities are registered pursuant to Section 2(a) of this Agreement, or (C) to
register any Registrable Securities under this Section 2(b) (other than pursuant
to the Deemed Additional Share Request) unless it shall receive requests from
Holders to register at least 10% of the aggregate Registrable Securities issued
at the date hereof. The Company shall use its commercially reasonable best
efforts to keep such Shelf Registration Statement (or, if required hereunder, a
successor Shelf Registration Statement filed pursuant to Section 2(d) below)
continuously effective in order to permit the prospectus forming a part thereof
to be usable by Holders and Additional Holders until all securities included in
such Shelf Registration Statement have ceased to be Registrable Securities or
Additional Securities, as the case may be, (the "Lapse Date").
(c) Notwithstanding any other provision of this Agreement, the
Company shall have the right to defer the filing or effectiveness of a
registration statement relating to any registration requested under Section 2(a)
for a reasonable period of time not to exceed 180 days if (x) the Company is, at
such time, working on an underwritten, primary public offering of its securities
and is advised by its managing underwriter(s) that such offering would in its or
their opinion be materially adversely affected by such filing; or (y) a prior
registration statement of the Company for an underwritten, primary public
offering by the Company of its securities was declared effective by the SEC less
than 120 days prior to the anticipated effective date of the requested
registration.
(d) If the Company is precluded by Rule 415 or any other
applicable rule under the Securities Act from including all Registrable
Securities and Additional Securities in any Shelf Registration or from keeping
any Shelf Registration Statement continuously effective from the filing date
thereof through the Lapse Date, the Company shall file such additional or
further Shelf Registration Statements, as may be required, so that, subject to
the other provisions of this Agreement, all Registrable Securities and
Additional Securities requested to be included are included on a continuously
effective Shelf Registration Statement for substantially all of the period from
the filing date of the first Shelf Registration Statement through the Lapse
Date.
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<PAGE> 8
(e) Neither the Company nor any Person other than a Holder or
an Additional Holder shall be entitled to include any securities held by it or
him in any underwritten offering pursuant to Section 2(a) of this Agreement.
(f) No registration of Registrable Securities under this
Article 2 shall relieve the Company of its obligation (if any) to effect
registrations of Registrable Securities pursuant to Article 3.
3. INCIDENTAL REGISTRATION.
(a) Until all securities subject to this Agreement have ceased
to be Registrable Securities, if the Company proposes, other than pursuant to
Article 2 hereof and other than pursuant to the 1996 Registration Statement, to
register any of its Common Stock or other securities issued by it having terms
substantially similar to Registrable Securities or any successor securities
(collectively, "Other Securities") for public sale under the Securities Act
(whether proposed to be offered for sale by the Company or by any other Person)
on a form and in a manner which would permit registration of Registrable
Securities for sale to the public under the Securities Act, it will give prompt
written notice (which notice shall specify the intended method or methods of
disposition) to the Holders and the Additional Holders of its intention to do
so, and upon the written request of any Holder or Additional Holder delivered to
the Company within fifteen (15) Business Days after the giving of any such
notice (which request shall specify the number of Registrable Securities or
Additional Securities, as the case may be, intended to be disposed of by such
Holder or Additional Holder), the Company will use its commercially reasonable
best efforts to effect, in connection with the registration of the Other
Securities, the registration under the Securities Act of all Registrable
Securities and Additional Securities which the Company has been so requested to
register by Holders and Additional Holders; provided, however, that:
(i) if, at any time after giving such written notice
of its intention to register Other Securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such Other Securities,
the Company may, at its election, give written notice of such determination to
the Holders and Additional Holders requesting registration and thereupon the
Company shall be relieved of its obligation to register such Registrable
Securities and Additional Securities in connection with the registration of such
Other Securities (but not from its obligation to pay Registration Expenses to
the extent incurred in connection therewith as provided in Article 11), without
prejudice, however, to the rights (if any) of the Holders to request that such
registration be effected as a registration under Article 2; and
(ii) the Company will not be required to effect any
registration of Registrable Securities or Additional Securities pursuant to this
Article 3 in connection with a primary offering of securities by it if the
Company shall have been advised in writing (with a copy to the Holders
requesting registration) by a nationally recognized investment banking firm
(which may be the managing underwriter for the offering) selected by the Company
that, in such firm's opinion, a registration of Registrable Securities and
Additional Securities at that time may interfere with an orderly sale and
distribution of the securities being sold by the Company in such offering or
materially and adversely affect the price of such securities; provided, however,
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<PAGE> 9
that if an offering of some but not all of the Registrable Securities and
Additional Securities requested to be registered by the Holders and Additional
Holders would not adversely affect the distribution or price of the securities
to be sold by the Company in the offering in the opinion of such firm or are
included in such offering notwithstanding any such opinion, the Company shall
only include such lesser amount of Registerable Securities and Additional
Securities and the aggregate number of Registerable Securities and Additional
Securities to be included in such offering by each Holder and Additional Holder
shall be allocated pro rata among the Holders and Additional Holders requesting
such registration on the basis of the percentage of the securities held by such
Holders and Additional Holders which have requested that such securities be
included; provided further, however, that a registration under this Article 3
pursuant to demand registration rights of any Additional Holders shall be
treated as a primary offering for purposes of this clause (ii) with the result
that the applicable Additional Holders shall be entitled to the same priority
with respect to the Holders to which the Company is entitled as provided above;
and
(iii) The Company shall not be required to give
notice of, or effect any registration of Registrable Securities under this
Article 3 incidental to, the registration of any of its securities in connection
with mergers, consolidations, acquisitions, exchange offers, subscription
offers, dividend reinvestment plans or stock options or other employee benefit
or compensation plans.
(b) No registration of Registrable Securities effected under
this Article 3 shall relieve the Company of its obligations (if any) to effect
registrations of Registrable Securities pursuant to Article 2.
4. HOLDBACKS AND OTHER RESTRICTIONS.
(a) Each Holder hereby covenants and agrees with the Company
that:
(i) such Holder shall not, if requested by the
managing underwriters in an underwritten offering that includes such Holder's
Registrable Securities, effect any public sale or distribution of securities of
the Company of the same class as the securities included in such registration
statement (or convertible into such class), including a sale pursuant to Rule
144(k) under the Securities Act (except as part of such underwritten
registration): (A) during the ninety (90)-day period (or such longer period of
not more than one hundred eighty (180) days if such longer period is also
required by the managing underwriters of the Company and all other Persons
having securities included in such registration) beginning on the effective date
of such registration statement, to the extent timely notified in writing by the
Company or the managing underwriters; and (B) in the event of a primary offering
by the Company, to the extent such Holder does not elect to sell such securities
in connection with such offering, during the period of distribution of the
Company's securities in such offering and during the period in which the
underwriting syndicate, if any, participates in the aftermarket. In any such
case the Company shall require the underwriters to notify the Company and the
Company, in turn, shall notify all Holders of Registrable Securities included in
the offering promptly after such participation ceases;
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<PAGE> 10
(ii) such Holder shall not, during any period in
which any of his or its Registrable Securities are included in any effective
registration statement: (A) effect any stabilization transactions or engage in
any stabilization activity in connection with the Common Stock or other equity
securities of the Company in contravention of Rule 10b-7 under the Exchange Act;
(B) permit any Affiliated Purchaser (as that term is defined in Rule 10b-6 under
the Exchange Act) to bid for or purchase for any account in which such Holder
has a beneficial interest, or attempt to induce any other person to purchase,
any shares of Common Stock or Registrable Securities in contravention of Rule
10b-6 under the Exchange Act; or (C) offer or agree to pay, directly or
indirectly, to anyone any compensation for soliciting another to purchase, or
for purchasing (other than for such Holder's own account), any securities of the
Company on a national securities exchange in contravention of Rule 10b-2 under
the Exchange Act; and
(iii) such Holder shall, in the case of a
registration including Registrable Securities to be offered by it for sale
through Brokers Transactions, furnish each broker through whom such Holder
offers Registrable Securities such number of copies of the prospectus as the
broker may require and otherwise comply with the prospectus delivery
requirements under the Securities Act.
(b) The Company covenants and agrees with the Holders not to
effect any public or private sale or distribution (other than distributions
pursuant to employee benefit plans) of its securities, including a sale pursuant
to Regulation D under the Securities Act (or Section 4(2) thereof), during the
ten (10) day period prior to, and during the ninety (90) day period beginning
with, the effectiveness of a Registration Statement filed under Section 2(a)
hereof, to the extent timely requested in writing by the managing underwriters,
if any, or, if there be none, by the Holders of a majority in aggregate amount
of the Registrable Securities included on such registration statement for such
registration, except pursuant to registrations on Form S-4, Form S-8 or any
successor form.
5. REGISTRATION PROCEDURES.
If and whenever the Company is required by the provisions of this
Agreement to use commercially reasonable best efforts to effect or cause a
registration as provided in this Agreement, the Company will:
(a) Use its commercially reasonable best efforts to prepare
and file with the SEC, a registration statement within the time periods
specified herein, and use its commercially reasonable best efforts to cause such
registration statement to become effective as promptly as practicable and to
remain effective under the Securities Act until (i) the Lapse Date with respect
to registrations pursuant to Section 2(b) and (ii) until the earlier of such
time as all securities covered thereby are no longer Registrable Securities or
one hundred and eighty (180) days after such registration statement becomes
effective with respect to registrations pursuant to Section 2(a), in every case
as any such period may be extended pursuant to Section 5(h) hereto.
(b) Prepare and file (and, if applicable, cause to become
effective) with the SEC, as promptly as practicable, such amendments,
post-effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be
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<PAGE> 11
necessary to keep such registration statement effective for such period of time
required by Section 5(a) above, as such period may be extended pursuant to
Section 5(h) hereto.
(c) Comply in all material respects with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during the period during which any such registration
statement is required to be effective.
(d) Furnish to any Holder and any underwriter of Registrable
Securities, (i) such number of copies (including manually executed and conformed
copies) of such registration statement and of each amendment thereof and
supplement thereto (including all annexes, appendices, schedules and exhibits),
(ii) such number of copies of the prospectus used in connection with such
registration statement (including each preliminary prospectus, any summary
prospectus and the final prospectus), and (iii) such number of copies of other
documents, in each case as such Holder or such underwriter may reasonably
request.
(e) Use its commercially reasonable best efforts to register
or qualify all Registrable Securities covered by such registration statement
under the securities or "blue sky" laws of states of the United States as any
Holder or any underwriter shall reasonably request, and do any and all other
acts and things which may be reasonably requested by such Holder or such
underwriter to consummate the offering and disposition of Registrable Securities
in such jurisdictions; provided, however, that the Company shall not be required
to qualify generally to do business as a foreign corporation or as a dealer in
securities, subject itself to taxation, or consent to general service of process
in any jurisdiction wherein it is not then so qualified or subject.
(f) Use, as soon as practicable after the effectiveness of the
registration statement, commercially reasonable best efforts to cause the
Registrable Securities covered by such registration statement to be registered
with, or approved by, such other United States public, governmental or
regulatory authorities, if any, as may be required in connection with the
disposition of such Registrable Securities.
(g) Use its commercially reasonable best efforts to list the
Common Stock covered by such registration statement on any securities exchange
(or if applicable, The NASDAQ Stock Market) on which any securities of the
Company are then listed, if the listing of such Registrable Securities in then
permitted under the applicable rules of such exchange (or if applicable, The
NASDAQ Stock Market).
(h) Notify each Holder as promptly as practicable and, if
requested by any Holder, confirm such notification in writing, (i) when a
prospectus or any prospectus supplement has been filed with the SEC, and, with
respect to a registration statement or any post-effective amendment thereto,
when the same has been declared effective by the SEC, (ii) of the issuance by
the SEC of any stop order or the coming to the Company's attention of the
initiation of any proceedings for such or a similar purpose, (iii) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, (iv) of the
occurrence of any event which requires the making of any changes to a
registration statement or related prospectus so that such documents will not
contain any untrue statement of a material
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<PAGE> 12
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (and the Company shall promptly prepare and
furnish to each Holder a reasonable number of copies of a supplemented or
amended prospectus such that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading), and (v) of the Company's determination
that the filing of a post-effective amendment to the Registration Statement
shall be necessary or appropriate. Upon the receipt of any notice from the
Company of the occurrence of any event of the kind described in clause (iv) or
(v) of this Section 5(h), the Holders shall forthwith discontinue any offer and
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until all Holders shall have received
copies of a supplemented or amended prospectus which is no longer defective and,
if so directed by the Company, shall deliver to the Company, at the Company's
expense, all copies (other than permanent file copies) of the defective
prospectus covering such Registrable Securities which are then in the Holders'
possession. If the Company shall provide any notice of the type referred to in
the preceding sentence, the period during which the registration statements are
required to be effective as set forth under Section 5(a) shall be extended by
the number of days from and including the date such notice is provided, to and
including the date when Holders shall have received copies of the corrected
prospectus.
(i) Enter into such agreements and take such other appropriate
actions as are customary and reasonably necessary to expedite or facilitate the
disposition of such Registrable Securities, and in that regard, deliver to the
Holders such documents and certificates as may be reasonably requested by any
Holder of the Registrable Securities being sold or, as applicable, the managing
underwriters, to evidence the Company's compliance with this Agreement
including, without limitation, using commercially reasonable best efforts to
cause its independent accountants to deliver to the Company's Board of Trustees
(and to the Holders of Registrable Securities being sold in any registration) an
accountants' comfort letter substantially similar to that in scope delivered in
an underwritten public offering and covering audited and interim financial
statements included in the registration statement or, if such letter cannot be
obtained through the exercise of commercially reasonable best efforts, cause its
independent accountants to deliver to the Company's Board of Trustees (and to
the Holders of Registrable Securities being sold in any registration) a comfort
letter based on negotiated procedures providing comfort with respect to the
Company's financial statements included or incorporated by reference in the
registration statement at the highest level permitted to be given by such
accountants under the then applicable standards of the Association of
Independent Certified Accountants with respect to such registration statement.
In addition, the Company shall furnish to the Holders of Registrable Securities
being included in any registration hereunder an opinion of counsel substantially
identical in substance and scope to that customarily delivered to underwriters
in public offerings.
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<PAGE> 13
6. UNDERWRITING.
(a) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration hereunder, the
Company will enter into and perform its obligations under an underwriting
agreement with the underwriters for such offering, such agreement to contain
such representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, customary provisions
relating to indemnities and contribution and the provision of opinions of
counsel and accountants' letters.
(b) If any registration pursuant to Article 3 hereof shall
involve, in whole or in part, an underwritten offering, the Company may require
Registrable Securities requested to be registered pursuant to Article 3 to be
included in such underwriting on the same terms and conditions as shall be
applicable to the securities being sold through underwriters under such
registration. In such case, each Holder requesting registration shall be a party
to any such underwriting agreement. Such agreement shall contain such
representations and warranties by the Holders requesting registration and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, provisions relating to indemnities and contribution.
(c) In any offering of Registrable Securities pursuant to a
registration hereunder, each Holder requesting registration shall also enter
into such additional or other agreements as may be customary in such
transactions, which agreements may contain, among other provisions, such
representations and warranties as the Company or the underwriters of such
offering may reasonably request (including, without limitation, those concerning
such Holder, its Registrable Securities, such Holder's intended plan of
distribution and any other information supplied by it to the Company for use in
such registration statement), and customary provisions relating to indemnities
and contribution.
7. RULE 144.
The Company shall use commercially reasonable best efforts to
take all actions necessary to comply with the filing requirements described in
Rule 144(c)(1) or any successor thereto so as to enable the Holders to sell
Registrable Securities without registration under the Securities Act. Upon the
written request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with the filing requirements under Rule
144(c)(1) or any successor thereto.
8. PREPARATION; REASONABLE INVESTIGATION; INFORMATION.
In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, (a) the Company will give the Holders and the underwriters, if any, and
their respective counsel and accountants, drafts of such registration statement
for their review and comment prior to filing and (during normal business hours
and subject to such reasonable limitations as the Company may impose to prevent
disruption of its business) such reasonable and customary access to its books
and records and such opportunities to discuss the business of the Company with
its officers and the independent
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<PAGE> 14
public accountants who have certified its financial statements as shall be
necessary, in the reasonable opinion of the Holders of a majority in aggregate
amount of the Registrable Securities being registered and such underwriters or
their respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act and (b) as a condition precedent to including any
Registrable Securities of any Holder in any such registration, the Company may
require such Holder to furnish the Company such information regarding such
Holder and the distribution of such securities as the Company may from time to
time reasonably request in writing or as shall be required by law or the SEC in
connection with any registration; provided, however, that, upon the reasonable
request of the supplier of any such information, the recipient thereof shall
enter into a confidentiality agreement respecting such information in customary
form for an underwritten public offering.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) In the case of each offering of Registrable Securities
made pursuant to this Agreement, the Company shall indemnify and hold harmless
each Holder, its officers, directors and trustees, each underwriter of
Registrable Securities so offered and each Person, if any, who controls any of
the foregoing Persons within the meaning of the Securities Act ("Holder
Indemnitees"), from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject, under the Securities Act or otherwise, including any amount
paid in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as such losses, claims, damages, liabilities or actions shall arise out
of, or shall be based upon, any violation or alleged violation by the Company of
the Securities Act, or relating to action taken or action or inaction required
of the Company in connection with such offering, or shall arise out of, or shall
be based upon, any untrue statement or alleged untrue statement of a material
fact contained in the registration statement (or in any preliminary or final
prospectus included therein) relating to the offering and sale of such
Registrable Securities, or any amendment thereof or supplement thereto, or in
any document incorporated by reference therein, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, that the
Company shall not be liable to any Holder Indemnitee in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement, or any
omission, if such statement or omission shall have been made in reliance upon
and in conformity with information furnished to the Company in writing by or on
behalf of such Holder specifically for use in the preparation of the
registration statement (or in any preliminary or final prospectus included
therein), or any amendment thereof or supplement thereto. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of any Holder and shall survive the transfer of such securities. The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Holder Indemnitee.
(b) In the case of each offering of Registrable Securities
made pursuant to this Agreement, each Holder, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and trustees, and each
Person, if any, who controls any of the foregoing within the meaning of the
Securities Act and (if requested by the underwriters) each underwriter
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<PAGE> 15
who participates in the offering and each Person, if any, who controls any such
underwriter within the meaning of the Securities Act (the "Company
Indemnitees"), from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject, under the Securities Act or otherwise, including any amount
paid in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any violation or alleged violation by such
Holder of the Securities Act, any blue sky laws, securities laws or other
applicable laws of any state or country in which the Registrable Securities are
offered and relating to action taken or action or inaction required of such
Holder in connection with such offering, or shall arise out of, or shall be
based upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) relating to the offering and sale of such
Registrable Securities or any amendment thereof or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
in each case only to the extent that such untrue statement is contained in, or
such fact is omitted from, information furnished in writing to the Company by or
on behalf of such Holder specifically for use in the preparation of such
registration statement (or in any preliminary or final prospectus included
therein). The liability of each Holder under such indemnity provision (and under
Section 9(d) below) shall be limited to an amount equal to the total net
proceeds received by such Holder from such offering. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
the Company and shall survive the transfer of such securities. The foregoing
indemnity is in addition to any liability which Holder may otherwise have to any
Company Indemnitee.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to this Article 9, such Person (the
"indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 9(a) or (b) shall be available to any
person who shall fail to give notice as provided in this Section 9(c) if the
indemnifying party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 9(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and
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<PAGE> 16
representation of both parties by the same counsel, in the written opinion of
such counsel, would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by the Holders of a majority in aggregate Fair Market Value of the then
Outstanding Registrable Securities in the case of parties indemnified pursuant
to Section 9(a) and by the Company in the case of parties indemnified pursuant
to Section 9(b). The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent but if settled with such
consent or if there be a final judgement for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Article 9 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 9(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
or if the indemnified party failed to give the notice required under Section
9(c) above, then each indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in proportion as is
appropriate to reflect not only both the relative benefits received by such
party (as compared to the benefits received by all other parties) from the
offering in respect of which indemnity is sought, but also the relative fault of
all parties in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by a party shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by it bear to the total amounts (including, in the case of
any underwriter, underwriting commission and discounts) received by each other
party. Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this Section 9(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 9(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
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<PAGE> 17
10. EXPENSES.
In connection with any registration under this Agreement, the
Company shall pay all Registration Expenses. In addition, in connection with
each registration, the Company shall pay the reasonable fees and expenses of one
counsel to represent the interests of the Holders selling Registrable Securities
in such registration. Notwithstanding the foregoing, in the event that any
Holder or Holders require the Company to conduct an underwritten public offering
of Registrable Securities pursuant to Section 2(a) prior to 12 months after the
date hereof, each such Holder or Holders shall pay its pro rata share of all
Registration Expenses.
11. NOTICES.
Except as otherwise provided below, whenever it is provided in
this Agreement that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties hereto, or whenever any of the parties hereto, desires to provide to or
serve upon the other party any other communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be delivered in person, mailed
by registered or certified mail (return receipt requested) or sent by overnight
courier service or via facsimile transmission (which is confirmed), as follows:
(a) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Article 11, which address initially is, with respect to the Voting Trust, the
address set forth in the Securities Purchase Agreement; and (b) if to the
Company, initially at the address set forth in the Securities Purchase Agreement
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Article 11. The furnishing of any notice required
hereunder may be waived in writing by the party entitled to receive such notice.
Every notice, demand, request, consent, approval, declaration or other
communication hereunder shall be deemed to have been duly furnished or served on
the party to which it is addressed, in the case of delivery in person or by
facsimile, on the date when sent (with receipt personally acknowledged in the
case of telecopied notice), in the case of overnight mail, on the day after it
is sent and in all other cases, five business days after it is sent. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
12. ENTIRE AGREEMENT.
This Agreement represents the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any and all prior oral and written agreements, arrangements and
understandings among the parties hereto with respect to such subject matter; and
this Agreement can be amended, supplemented or changed, and any provision hereof
can be waived or a departure from any provision hereof can be consented to, only
by a written instrument making specific reference to this Agreement signed by
the Company and the Holders of at least 80% of the Registrable Securities then
outstanding; provided that any amendment that adversely affects the rights of
any Holder must be signed by the adversely
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<PAGE> 18
affected Holder; provided further that any waiver must be signed by the party
entitled to the benefit of the term or matter being waived.
13. ARTICLE HEADINGS.
The article headings contained in this Agreement are for
general reference purposes only and shall not affect in any manner the meaning,
interpretation or construction of the terms or other provisions of this
Agreement.
14. APPLICABLE LAW.
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts to be made, executed, delivered and performed wholly within such state
and, in any case, without regard to the conflicts of law principles of such
state.
15. SEVERABILITY.
If at any time subsequent to the date hereof, any provision of
this Agreement shall be held by any court of competent jurisdiction to be
illegal, void or unenforceable, such provision shall be of no force and effect,
but the illegality or unenforceability of such provision shall have no effect
upon and shall not impair the enforceability of any other provision of this
Agreement.
16. EQUITABLE REMEDIES.
The parties hereto agree that irreparable harm would occur in
the event that any of the agreements and provisions of this Agreement were not
performed fully by the parties hereto in accordance with their specific terms or
conditions or were otherwise breached, and that money damages are an inadequate
remedy for breach of this Agreement because of the difficulty of ascertaining
and quantifying the amount of damage that will be suffered by the parties hereto
in the event that this Agreement is not performed in accordance with its terms
or conditions or is otherwise breached. It is accordingly hereby agreed that the
parties hereto shall be entitled to an injunction or injunctions to restrain,
enjoin and prevent breaches of this Agreement by the other parties and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, such remedy being in addition to and
not in lieu of, any other rights and remedies to which the other parties are
entitled to at law or in equity.
17. NO WAIVER.
The failure of any party at any time or times to require
performance of any provision hereof shall not affect the right at a later time
to enforce the same. No waiver by any party of any condition, and no breach of
any provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
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<PAGE> 19
18. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute but one and the same original instrument.
19. THIRD PARTY BENEFICIARIES; SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the successors, assigns and transferees of each of the parties hereto; and;
provided that nothing herein shall be deemed to permit any assignment, transfer
or other disposition of Registrable Securities in violation of the terms of the
Securities Purchase Agreement, the Warrant, the Standstill Agreement of even
date herewith between the Company and the Voting Trust, the Contribution
Agreement or applicable law. If any transferee of any Holder shall acquire
Registrable Securities, in any manner, whether by operation of law or otherwise,
such Registerable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement.
21. NON-RECOURSE.
No recourse shall be had for any obligation of the Company
hereunder, or for any claim based thereon or otherwise in respect thereof,
against any past, present or future trustee, shareholder, officer or employee of
the Company, whether by virtue of any statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such other liability
being expressly waived and released by each other party hereto.
22. OTHER REGISTRATION RIGHTS AGREEMENTS.
The Company represents and warrants to the Holder that it (i)
has not granted any registration rights to any Person other than to the
Additional Holders pursuant to the Additional Registration Rights Agreements,
and (ii) has caused to be amended all agreements relating to registration rights
to which it is a party so that such agreements do not conflict with this
Agreement, including without limitation Sections 2(a)(iv) and 3(a)(ii) hereof.
The Company covenants and agrees that it will not grant any Person any
registration rights that are in conflict with this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
BRANDYWINE REALTY TRUST
By:________________________________
Gerard H. Sweeney, President
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<PAGE> 20
RAI REAL ESTATE ADVISERS, INC.,
as voting trustee of a voting trust dated
November 6, 1996.
By:___________________________________
Title:
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<PAGE> 1
EXHIBIT 10.46
PLEDGE AGREEMENT
PLEDGE AGREEMENT (the "Agreement") made as of this ___ day of
__________, 1996 by and among RAI Real Estate Advisers, Inc. ("RAI"), as the
voting trustee of a voting trust dated as of November 6, 1996 between the
Commonwealth of Pennsylvania State Employes' Retirement System as shareholder
and RAI as voting trustee ("Pledgor"), Brandywine Realty Trust, a Maryland real
estate investment trust ("Pledgee") and ___________ ("Escrow Agent").
WITNESSETH:
WHEREAS, as of the date hereof, pursuant to a Contribution
Agreement dated November 6, 1996 by and among, inter alia, the Pledgor and
Pledgee (the "Contribution Agreement"), the Pledgee has issued to the Pledgor
shares of the Pledgee's Series A Convertible Preferred Shares (the "Preferred
Shares"), par value $.01 per share;
WHEREAS, pursuant to Sections 3.3 and 10.10 of the
Contribution Agreement, any and all liability of Sellers (as defined in the
Contribution Agreement) and the Pledgor under the Contribution Agreement, after
the closing under the Contribution Agreement, is limited to and enforceable only
against the Collateral (as defined below) on the terms set forth in this
Agreement; and
WHEREAS, pursuant to Section 10.14 of the Securities Purchase
Agreement dated as of November 6, 1996 by and between the Pledgor and the
Pledgee (the "Securities Purchase Agreement"), recourse for any liability or
obligation of Pledgor thereunder is limited to the Collateral on the terms set
forth in this Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the
parties hereto agrees as follows:
1. Defined Terms. For purposes of this Agreement, the
following terms shall have the meanings specified below and shall be equally
applicable to both singular and plural forms.
"Collateral" means, subject to Section 12 below, the
Pledged Shares and, in the event the Pledged Shares are sold, transferred,
assigned, exchanged or otherwise disposed of pursuant to Section 8 below, all
proceeds from the sale, transfer, assignment, exchange or other disposition of
the Pledged Shares or other replacement collateral which is reasonably
satisfactory to Pledgee.
"Event of Default" means either (i) a court of competent
jurisdiction having entered a final judgment or (ii) a final resolution being
reached by mediation or
<PAGE> 2
arbitration pursuant to the dispute resolution provision in the Securities
Purchase Agreement, against Pledgor in favor of Pledgee for an obligation or
liability arising under the Contribution Agreement or the Securities Purchase
Agreement.
"Pledged Shares" means the ______Preferred Shares
[$5,000,000 of Preferred Shares, based on $5.50 per Common Share into which the
Preferred Shares are convertible] being delivered to the Escrow Agent pursuant
to Section 4 below and the shares of the Pledgee's common shares of beneficial
interest, par value $.01 per share, issued upon any conversion of such Preferred
Shares.
"Uniform Commercial Code" means the Uniform
Commercial Code from time to time in effect in the Commonwealth of Pennsylvania
and the Uniform Commercial Code of any other state which shall be applicable to
the pledge of shares hereunder.
2. Pledge; Grant of Security Interest. The Pledgor
hereby grants and confirms to Pledgee a first pledge and security interest in
the Collateral, as collateral security for any and all liability of Sellers or
Pledgor to Pledgee arising out of the Contribution Agreement or the Securities
Purchase Agreement.
3. Appointment of Escrow Agent. Pledgor and Pledgee
hereby appoint Escrow Agent as the escrow agent under this Agreement and Escrow
Agent accepts such appointment in accordance with the provisions of this
Agreement.
4. Share Transfer Powers. Pledgor hereby delivers to
Escrow Agent, and Escrow Agent acknowledges receipt of, all certificates
representing the Pledged Shares, with undated share transfer powers covering
such certificates, duly executed in blank by the Pledgor. Such certificates,
share transfer powers and any other Collateral subsequently delivered to Escrow
Agent pursuant to this Agreement shall be held in escrow by Escrow Agent
pursuant to the terms hereof.
5. Representations and Warranties. Pledgor represents
and warrants that; (a) Pledgor has the power and authority and the legal right
to grant the lien on the Collateral pursuant to this Agreement; (b) Pledgor is
the record owner of, and has good and marketable title to, the Pledged Shares,
free of any and all liens or options in favor of any other person, except the
lien granted by this Agreement; (c) the lien granted and confirmed pursuant to
this Agreement constitutes a valid, perfected priority lien on the Collateral,
enforceable as such against all creditors of the Pledgor and any persons
purporting to purchase any Collateral from the Pledgor; and (d) this Agreement
constitutes the valid and binding obligations of Pledgor, enforceable against
Pledgor in accordance with its terms, and the execution, delivery and
performance of this Agreement does not violate any agreement or understanding to
which Pledgor is a party or by which Pledgor is bound, or any applicable law,
rule or regulation.
6. Covenants. Pledgor covenants and agrees with Pledgee
that from and after the date of this Agreement and until the second anniversary
of the date of the Securities
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<PAGE> 3
Purchase Agreement (or, if on such second anniversary, a claim has been made by
Pledgee pursuant to Section 16 (f) below, which, if resolved in Pledgee's favor,
would result in an Event of Default, until such later date that such claim has
been resolved) (the "Termination Date"):
(a) If Pledgor shall, as a result of its ownership of
the Pledged Shares, become entitled to receive or shall receive any share
certificate as a result of a share dividend, share split or similar distribution
on, or as a conversion of or in exchange for any of the Pledged Shares then
constituting all or a portion of the Collateral, Pledgor shall immediately
deliver the same to Escrow Agent in the exact form received, duly endorsed by
the Pledgor to Pledgee, if required, together with an undated share transfer
power covering such certificate duly executed in blank by the Pledgor to be held
as part of the Collateral.
(b) Without the prior written consent of Pledgee, the
Pledgor will not create, incur or permit to exist any lien or option in favor
of, or any claim of any person with respect to, the Collateral, or any interest
therein, except for the lien provided for by this Agreement. The Pledgor will
defend the right, title and interest of Pledgee in and to the Collateral against
the claim and demands of all persons whom so ever.
(c) At any time and from time to time upon the
written request of, and at the expense of, Pledgee, the Pledgor will promptly
and duly execute and delivery such further documents and take such further
actions as Pledgee may reasonably request for the purposes of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note, other instrument
or chattel paper, such note, instrument or chattel paper shall be immediately
delivered to Pledgee, duly endorsed in a manner satisfactory to Pledgee, to be
held as Collateral pursuant to this Agreement.
(d) Pledgor agrees to pay, and to save Pledgee and
Escrow Agent harmless from, any and all liability with respect to or resulting
from any delay in paying, any and all stamp, exercise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by this
Agreement.
7. Cash Dividends; Other Distributions; Voting
Rights. Unless an Event of Default shall have occurred and Pledgee shall have
given notice to Pledgor of Pledgee's intent to exercise one or more of its
rights pursuant to Sections 9 and 10 below, Pledgor shall be permitted to
receive all cash dividends and other distributions, if any, paid in respect of
the Pledged Shares (except as provided in Section 6(a) above) and to exercise
all voting and other rights with respect to the Pledged Shares.
8. Sale of Pledged Shares. Unless an Event of Default
shall have occurred and Pledgee shall have given notice to Pledgor of Pledgee's
intent to exercise one or more of its rights pursuant to Sections 9 and 10
below, Pledgor shall have the right to sell, transfer, assign, exchange or
otherwise dispose of, or grant an option with respect to, any or all of the
Pledged
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<PAGE> 4
Shares provided Pledgee receives a security interest in the proceeds of the
Pledged Shares or such other collateral as is satisfactory to Pledgee in its
reasonable discretion. Pledgor, Pledgee and Escrow Agent shall cooperate with
each other in order to accomplish any such transaction.
9. Rights of Pledgee. If an Event of Default shall
occur: (i) Pledgee shall have the right to receive any and all cash dividends
paid in respect of the Pledged Shares, and (ii) at Pledgee's option, all the
Collateral shall be transferred into the name of Pledgee or its nominee, and
Pledgee or its nominee may, at its option, thereafter exercise (A) all voting
and other rights pertaining to the Collateral and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to the Collateral as if it were the absolute owner thereof, all
without liability except to account for property actually received by it, but
Pledgee shall have no duty to the Pledgor to exercise any such right, privilege
or option and shall not be responsible for any failure to do so or delay in so
doing.
10. Remedies. If an Event of Default shall have occurred
which is then continuing, the Pledgee shall thereafter have all of the rights
and remedies set forth in this Agreement and in the Contribution Agreement and
of a Pledgee after default under the Uniform Commercial Code or other applicable
law with respect to the Collateral and shall have the right, at any time or
times thereafter to sell, resell, assign and deliver all or any part of the
Collateral in one or more parcels at public or private sale. The Pledgee shall
give Pledgee at least ten (10) days' prior written notice of the time and place
of any public sale of any Collateral or of the time after which any private sale
or any other intended disposition thereof is to be made. Any such notice shall
be deemed to meet all requirements hereof and of any applicable law (including
the Uniform Commercial Code) that reasonable notification be given of the time
and place of such sale or other disposition. All such sales shall be at such
commercially reasonable price or prices as the Pledgee shall deem best and
either for cash or on credit or for future delivery (without the Pledgee
assuming any responsibility for credit risk). At any such sale or sales the
Pledgee may purchase any or all of the Collateral to be sold thereat upon such
terms as the Pledgee may deem best. The Pledgor shall not remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral are
insufficient to pay the judgment causing the Event of Default and the reasonable
fees and disbursements of any attorneys employed by Pledgee to collect such
judgment.
11. Private Sales. The Pledgor recognizes that Pledgee
may be unable to effect a public sale of any or all the Pledged Shares, by
reason of certain prohibitions contained in the Securities Act of 1933 (the
"Securities Act") and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner. Pledgee shall be under no obligation to delay a sale of any
of
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<PAGE> 5
the Pledged Shares for the period of time necessary to permit the Pledged Shares
to be registered for public sale under the Securities Act, or under applicable
state securities laws.
12. Return of Collateral. On the Termination Date (as
defined in Section 6 above), the Escrow Agent shall return to Pledgor any
remaining Collateral and this Agreement shall terminate.
13. Further Assurances. Pledgor agrees to cooperate with
Pledgee and to execute and deliver, or cause to be executed and delivered, all
such other instruments and to take all such actions as Pledgee may reasonably
request from time to time which shall be appropriate or necessary in Pledgee's
judgment in order to carry out the provisions and purposes of this Agreement.
14. Escrow Agent
(a) Designation. Escrow Agent is designated by
Pledgee to hold the Collateral and holds the Collateral on behalf of Pledgee for
purposes of Articles 8 and 9 of the Uniform Commercial Code.
(b) Limitation on Duties and Liability. Escrow
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9207 of the
Uniform Commercial Code or otherwise, shall be to take reasonable steps to carry
out the terms of this Agreement and to assure safekeeping of the Collateral
while in Escrow Agent's possession. In no event, however, shall Escrow Agent
have any duty to preserve rights in the Collateral against other parties and
Escrow Agent shall not be liable for failure to demand, collect or realize upon
any of the Collateral or for any delay in doing so. Escrow Agent shall not be
liable for any actions undertaken in good faith or in reliance upon documents
which it believes to be genuine.
(c) Indemnification. Pledgor and Pledgee each agrees
to indemnify and hold Escrow Agent harmless against any loss or liability
(including reasonable attorneys' fees) incurred by Escrow Agent as a result of
any dispute regarding the Collateral or in any way arising from the performance
of its obligations under this Agreement, except for any loss or liability
resulting from Escrow Agent's negligence or willful misconduct.
(d) Resignation; Successor. Escrow Agent may resign
from its obligations hereunder by written notice to Pledgor and Pledgee, such
resignation to become effective upon the appointment of a successor escrow
holder and the delivery to such successor escrow holder of the Collateral.
Within 10 days following notice of Escrow Agent's intent to resign, the Pledgor
and Pledgee shall jointly designate in writing a successor escrow holder. In the
absence of such a designation by Pledgor and Pledgee, Escrow Agent may designate
a successor escrow holder. The resigning Escrow Agent shall have no
responsibility for the performance of failure of performance of any successor
escrow holder hereunder, whether designated by Pledgor and Pledgee or by the
resigning Escrow Agent. When the resignation of a
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<PAGE> 6
resigning Escrow Agent shall become affective hereunder, such Escrow Agent shall
be absolutely released and relieved from any and all liability arising
thereafter under this Agreement.
15. Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
16. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any
delay on the part of any party hereto to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and signed by the party asserted to have granted such
waiver.
(b) Controlling Law. This Agreement and all
questions relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania, notwithstanding any conflict-of-laws doctrines of
such state or other jurisdiction to the contrary, and without the aid of any
canon, custom or rule of law requiring construction against the draftsman.
(c) Notices. All notices required or permitted
hereunder shall be deemed given when delivered (personally or by recognized
courier service such as Federal Express), or upon receipt by the party entitled
to receive the notice two days after sent by registered or certified mail,
postage prepaid, addressed as follows or to such other address or addresses as
may hereafter be furnished in writing by notice similarly given by one party to
the other:
(i) If to Pledgor:
RAI Real Estate Advisers, Inc.
259 Radnor-Chester Road
Suite 200
Radnor, PA 19087
Attention: President
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With a copy to:
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor Packard Building
S.E. Corner 15th and Chestnut Streets
Philadelphia, PA 19102-2678
Attention: Jason M. Shargel, Esquire
(ii) If to Pledgee:
Brandywine Realty Trust
16 Campus Boulevard
Suite 150
Newtown Square, PA 19073
Attention: President
With a copy to:
Pepper Hamilton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Attention: Michael H. Friedman, Esquire
(iii) If to Escrow Agent:
____________________________________
____________________________________
____________________________________
____________________________________
Attention:__________________________
(d) Binding Nature of Agreement; No Assignment. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that neither Pledgor nor
Pledgee may assign or transfer any of their obligations under this Agreement
without the consent of the other.
(e) Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
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<PAGE> 8
(f) Settlement of Disputes. Any and all
controversies of every kind and nature between the parties hereto shall be
resolved in accordance with the provisions set forth in Section 10.10 of the
Securities Purchase Agreement.
(g) Fees and Expenses of Escrow Agent. Pledgee shall
pay all fees and expenses of the Escrow Agent hereunder.
(h) Provisions Separable. The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(i) Entire Agreement. This Agreement contains the
entire understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course or performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by
agreement in writing.
(j) Section Headings. The section headings in this
Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be duly executed and delivered as of the date first above written.
BRANDYWINE REALTY TRUST
By:___________________________________
Gerard H. Sweeney, President
RAI REAL ESTATE ADVISERS,
INC., as voting trustee of
a voting trust dated
November 6, 1996.
By:___________________________________
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<PAGE> 9
[ESCROW AGENT]
By:__________________________________
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<PAGE> 1
EXHIBIT 10.47
VOTING AGREEMENT
VOTING AGREEMENT (the "Agreement") made as of this ___ day of
_______________, 1996 by and among RAI Real Estate Advisers, Inc. ("RAI") as the
voting trustee of a voting trust dated as of November 6, 1996 executed by the
Commonwealth of Pennsylvania State Employes' Retirement System as shareholder
and by RAI as voting trustee (the "Purchaser"), Safeguard Scientifics, Inc., a
Pennsylvania corporation ("Safeguard"), Safeguard Scientifics (Delaware), Inc.,
a Delaware corporation ("SSD"), The Nichols Company, a Pennsylvania corporation
("TNC"), Anthony A. Nichols, Sr. ("Nichols"), The Richard M. Osborne Trust (the
"RMO Trust") and Turkey Vulture Fund XIII, Ltd. (the "RMO Fund"). Safeguard,
SSD, TNC, Nichols, the RMO Trust and the RMO Fund are sometimes referred to
herein individually as a "Holder" and collectively as the "Holders."
WHEREAS, the Holders own common shares of beneficial interest,
par value $.01 per share (the "Shares") of the Brandywine Realty Trust, a
Maryland real estate investment trust (the "Trust") and warrants (the
"Warrants") exercisable for Shares;
WHEREAS, the Trust has entered into (i) a Contribution
Agreement (the "Contribution Agreement") dated November 6, 1996 by and among
inter alia, the Trust and the Purchaser, and (ii) a Securities Purchase
Agreement (the "Securities Purchase Agreement") dated November 6, 1996 between
the Trust and the Purchaser. The Contribution Agreement and the Securities
Purchase Agreement are together referred to herein as the "Transaction
Agreements;" and
WHEREAS, the Holders desire to enter into an agreement to be
specifically enforceable against each of them, as an inducement to the Purchaser
to consummate the transactions contemplated by the Transaction Agreements,
pursuant to which the Holders, subject to the terms hereof, agree to vote the
Shares in accordance with the terms of the Transaction Agreements;
NOW, THEREFORE, intending to be legally bound hereby, the
parties hereto agree as follows:
1. Voting of Shares. Each of the Holders shall vote all of the
Shares now or hereafter registered in such Holder's name, including, but not
limited to Shares acquired upon exercise of Warrants, in all matters submitted
to the shareholders of the Trust for approval in accordance with Section 7.7 of
the Securities Purchase Agreement.
2. Representations of Holders. Each of the Holders hereby
represents and warrants to each of the other Holders and to the Purchaser that
such Holder: (a) owns and has the right to vote the number of Shares set forth
on Schedule A attached hereto, (b) has full power to enter into this Agreement
and has not, prior to the date of this Agreement, executed or delivered any
proxy or entered into any other voting agreement or similar arrangement which
has not
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<PAGE> 2
expired prior to the date hereof, and (c) will not take any action inconsistent
with the purposes and provisions of this Agreement.
3. Binding Agreement; Changes in Shares. Each Holder expressly
agrees that this Agreement shall be specifically enforceable in any court of
competent jurisdiction in accordance with its terms against each of the parties
hereto. In the event that at any time after the date hereof, any Shares or other
shares of beneficial interest of the Trust are issued on, or in exchange of any
of the Shares by reason of any dividend, split, reclassification or
consolidation, such Shares or other beneficial interests shall be subject to the
terms of this Agreement.
4. Voting by the Purchaser. Purchaser shall vote all securities
of the Trust held by it at any duly called meeting of the Trust's shareholders
in favor of restoring voting rights of the RMO Trust and the RMO Fund.
5. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any
delay on the part of any party hereto to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and signed by the party asserted to have granted such
waiver.
(b) Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the state of
Maryland, notwithstanding any conflict-of-laws doctrines of such state or other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman.
(c) Schedules. All schedules attached hereto are
hereby incorporated by reference into, and made a part of, this Agreement.
(d) Binding Nature of Agreement; No Assignment. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that no party may assign or
transfer any of their obligations under this Agreement without the consent of
the other parties.
(e) Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof,
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<PAGE> 3
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
(f) Settlement of Disputes. Any and all controversies
of every kind and nature among the parties hereto shall be resolved in
accordance with the provisions set forth in Section 10.10 of the Securities
Purchase Agreement.
(g) Provisions Separable. The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(h) Entire Agreement. This Agreement contains the
entire understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course or performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by
agreement in writing. (i) Section Headings. The section headings in this
Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the date first above written.
RAI REAL ESTATE ADVISERS, INC., as voting
trustee of a voting trust dated
November 6, 1996
By:______________________________________
SAFEGUARD SCIENTIFICS, INC.
By:______________________________________
SAFEGUARD SCIENTIFICS (DELAWARE),
INC.
By:______________________________________
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<PAGE> 4
THE NICHOLS COMPANY
By:______________________________________
_________________________________________
ANTHONY A. NICHOLS, SR.
THE RICHARD M. OSBORNE TRUST
By:______________________________________
TURKEY VULTURE FUND XIII, LTD.
By:______________________________________
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<PAGE> 1
EXHIBIT 10.48
PURCHASE AGREEMENT FOR REAL PROPERTY
AND ESCROW INSTRUCTIONS
BETWEEN
K/B FUND II,
a Delaware general partnership
AS SELLER
AND
BRANDYWINE REALTY TRUST,
a Maryland business trust
AS BUYER
(DELAWARE CORPORATE CENTER I
NEW CASTLE COUNTY, DELAWARE)
August 12, 1996
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. PURCHASE OF PROPERTY.......................................... -1-
2. BASIC TERMS AND DEFINITIONS................................... -1-
2.1 PROPERTY............................................. -1-
2.2 PURCHASE PRICE....................................... -1-
2.3 TERMS OF PURCHASE.................................... -1-
2.4 EFFECTIVE DATE....................................... -2-
2.5 OUTSIDE DATE......................................... -2-
2.6 TITLE APPROVAL PERIOD................................ -3-
2.7 FEASIBILITY PERIOD................................... -3-
2.8 ESCROW HOLDER........................................ -3-
2.9 TITLE COMPANY........................................ -3-
3. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE................... -3-
3.1 TITLE CONDITION...................................... -3-
3.2 FEASIBILITY CONDITION................................ -4-
3.3 REPRESENTATIONS AND WARRANTIES....................... -5-
3.4 DELIVERY OF DOCUMENTS................................ -5-
3.5 TENANT ESTOPPEL CERTIFICATE.......................... -5-
3.6 GROUND LESSOR ESTOPPEL CERTIFICATE................... -5-
4. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE.................. -5-
4.1 PERFORMANCE OF COVENANTS............................. -5-
4.2 REPRESENTATIONS AND WARRANTIES....................... -5-
4.3 DELIVERY OF DOCUMENTS................................ -5-
4.4 OPENING OF ESCROW.................................... -5-
4.5 CONSENTS AND APPROVALS............................... -6-
4.6 LEASEHOLD RELEASES................................... -6-
5. CLOSING....................................................... -6-
5.1 THE CLOSING.......................................... -6-
5.2 SELLER'S CLOSING OBLIGATIONS......................... -6-
5.3 BUYER'S CLOSING OBLIGATIONS.......................... -7-
6. TERMINATION OF THIS AGREEMENT................................. -7-
6.1 FAILURE TO CLOSE BY OUTSIDE DATE..................... -7-
6.2 FAILURE OF A CONDITION............................... -7-
(i)
<PAGE> 3
TABLE OF CONTENTS
PAGE
6.3 CONSEQUENCES......................................... -7-
6.4 ESCROW CANCELLATION CHARGES.......................... -8-
6.5 LIQUIDATED DAMAGES................................... -8-
7. GENERAL ESCROW PROVISIONS...................................... -8-
7.1 ESCROW INSTRUCTIONS................................... -8-
7.2 OPENING OF ESCROW..................................... -8-
7.3 GENERAL PROVISIONS.................................... -9-
7.4 PRORATIONS............................................ -9-
7.5 PAYMENT OF COSTS...................................... -11-
7.6 ESCROW HOLDER AUTHORIZED TO COMPLETE BLANKS........... -11-
7.7 RECORDATION AND DELIVERY OF FUNDS AND DOCUMENTS....... -11-
8. NO BROKERAGE COMMISSIONS....................................... -12-
9. REPRESENTATIONS AND WARRANTIES................................. -12-
9.1 SELLER'S REPRESENTATIONS AND WARRANTIES............... -12-
9.2 BUYER'S REPRESENTATIONS AND WARRANTIES................ -14-
10. CONDUCT DURING ESCROW.......................................... -17-
10.1 ENTRY ON PROPERTY..................................... -17-
10.2 SELLER'S OPERATIONS AND NEGOTIATIONS.................. -18-
11. CONDEMNATION OR CASUALTY....................................... -19-
11.1 CONDEMNATION.......................................... -19-
11.2 CASUALTY.............................................. -20-
12. REMEDIES AGAINST SELLER........................................ -20-
13. GENERAL PROVISIONS............................................. -20-
13.1 ASSIGNMENT............................................ -20-
13.2 ATTORNEYS' FEES AND/OR COSTS.......................... -21-
13.3 NOTICES AND APPROVALS................................. -21-
13.4 CONTROLLING LAW....................................... -22-
13.5 TITLES AND CAPTION.................................... -22-
13.6 INTERPRETATION........................................ -22-
13.7 NO WAIVER............................................. -22-
(ii)
<PAGE> 4
TABLE OF CONTENTS
PAGE
13.8 MODIFICATIONS......................................... -22-
13.9 SEVERABILITY.......................................... -22-
13.10 INTEGRATION OF PRIOR AGREEMENTS AND UNDERSTANDINGS.... -22-
13.11 NOT AN OFFER.......................................... -23-
13.12 TIME OF ESSENCE....................................... -23-
13.13 POSSESSION OF PROPERTY................................ -23-
13.14 COUNTERPARTS.......................................... -23-
13.15 EXHIBITS INCORPORATED BY REFERENCE.................... -23-
13.16 [OMITTED]. ........................................... -23-
13.17 COMPUTATION OF TIME................................... -23-
13.18 JOINT AND SEVERAL LIABILITY........................... -23-
13.19 BUYER'S WORK PRODUCT CONCERNING THE PROPERTY.......... -23-
13.20 NO OBLIGATIONS TO THIRD PARTIES....................... -23-
13.21 SURVIVAL OF COVENANTS................................. -24-
EXHIBITS
"A" LEGAL DESCRIPTION OF LAND
"B" DESCRIPTION OF TENANTS
"C" ESTOPPEL CERTIFICATE
"D" ASSIGNMENT AND ASSUMPTION OF GROUND LEASE
"E" ASSIGNMENT AND ASSUMPTION OF COMMERCIAL LEASES, CONTRACTS AND
LICENSES, TRADE NAME, WARRANTIES AND GUARANTIES
"F" ASSIGNMENT AND ASSUMPTION OF GROUND LESSOR CONSENT AGREEMENT
"G" SELLER'S CERTIFICATE OF NON-FOREIGN STATUS
"H" GROUND LESSOR ESTOPPEL CERTIFICATE
"I" BUYER'S DUE DILIGENCE BUDGET
(iii)
<PAGE> 5
PURCHASE AGREEMENT FOR REAL PROPERTY
AND ESCROW INSTRUCTIONS
This Purchase Agreement for Real Property and Escrow Instructions
("Agreement") is between K/B FUND II, a Delaware general partnership ("Seller"),
and BRANDYWINE REALTY TRUST, a Maryland business trust ("Buyer").
1. PURCHASE OF PROPERTY. Seller agrees to sell to Buyer and Buyer
agrees to purchase from Seller, the Property (as described in Paragraph 2.1), in
consideration for the payment of the Purchase Price (as described in Paragraph
2.2), together with the respective promises of the parties set forth in this
Agreement.
2. BASIC TERMS AND DEFINITIONS.
2.1 PROPERTY. The term "Property" shall mean: (i) all of Seller's
leasehold estate, right, title, and interest in and to that certain tract of
land in New Castle County, Delaware, (commonly referred to as Delaware Corporate
Center I) as more particularly described on the attached Exhibit "A" ("Land")
together with all of Seller's right, title and interest in all improvements
located on the Land, including the building (collectively, the "Building") and
pursuant to that Ground Lease dated as of May 31, 1988 originally between
Woodlawn Trustees, as ground lessor, and Donohoe Wilmington Associates One
Limited Partnership (a predecessor of Seller), as ground lessee, and recorded in
the land records of New Castle County, Delaware at Deed Book 711, Page 34
("Ground Lease"), (ii) Seller's leasehold rights in the leases with the tenants
described on the attached Exhibit "B" ("Leases"), (iii) whatever rights Seller
has in any easements, rights of way, and real property rights appurtenant to the
Land, to the extent they are assignable (collectively, "Real Property Rights"),
and (iv) whatever rights Seller has in Contracts, Licenses, the Trade Name, and
Warranties (as defined in the attached Assignment and Assumption Of Commercial
Leases, Contracts and Licenses, Trade Name, and Warranties and Guaranties;
Exhibit "E"). Notwithstanding anything to the contrary contained in this
Agreement, Seller is not transferring any rights in the name "Koll" or "K/B" nor
shall Buyer have any rights to use the name "Koll" or "K/B" with regard to the
Property or otherwise.
2.2 PURCHASE PRICE. Twelve Million, Seven Hundred Thousand
Dollars ($12,700,000) ("Purchase Price").
2.3 TERMS OF PURCHASE.
(a) The Deposits.
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(i) Initial Deposit. Upon Buyer's execution of this
Agreement, a cashier's or certified check in the amount of One Hundred Thousand
Dollars ($100,000) (the "Initial Deposit") shall be delivered to Escrow Holder
by Buyer as a condition to the "Opening of Escrow" as provided in Paragraph 7.2.
(ii) Additional Deposit. Unless this Agreement has
been previously terminated pursuant to Paragraph 3.1 or 3.2, an additional
deposit in the amount of Two Hundred Thousand Dollars ($200,000) ("Additional
Deposit") shall be delivered to Escrow Holder by Buyer by no later than
expiration of the Feasibility Period by cashier's or certified check.
(iii) Handling and Nonrefundability of Deposits. For
purposes of this Agreement, the term "Deposit" shall mean the Initial Deposit
until such time as the Escrow Holder has received the Additional Deposit
after which the term "Deposit" shall collectively mean both the Initial Deposit
and the Additional Deposit (i.e. $300,000). Escrow Holder shall place the
Initial Deposit and Additional Deposit in an interest bearing account and all
earned interest shall accrue to Buyer's benefit, unless Seller is entitled to
the Deposit as liquidated damages under Paragraph 6.5, in which event, interest
shall accrue to Seller's benefit. For purposes of this Agreement, any accrued
interest shall be deemed part of the "Deposit". Unless this Agreement has
previously been terminated pursuant to Paragraph 3.1 or 3.2, upon expiration of
the Feasibility Period, the entire Deposit shall become nonrefundable except
where expressly provided otherwise under this Agreement.
(b) Buyer's Cash at Closing. The balance of the Purchase
Price less the amount of the Deposit and Costs Payment (as defined below), plus
any other amounts to be paid by Buyer under this Agreement, shall be delivered
to Escrow Holder by Buyer as provided in Paragraph 5.3.
(c) Costs Payment. Also upon Buyer's execution of this
Agreement, a cashier's check or certified in the amount of Fifteen Thousand
Dollars ($15,000) (the "Costs Payment") shall be delivered directly to Seller by
Buyer as a condition to the "Opening of Escrow" as provided in Paragraph 7.2.
The Costs Payment shall serve as payment to Seller for its costs, expenses and
resources expended in pursuing the transaction which is the subject of this
Agreement. The Costs Payment shall be nonrefundable to Buyer under all
circumstances, including, without limitation, circumstances which result in the
return of the Deposit to Buyer, except for Seller's breach of this Agreement or
exercise of Seller's Kimberly-Clark Termination Rights (as defined in Paragraph
10.2(b)). However, if the Closing occurs pursuant to the terms of this
Agreement, the Costs Payment shall be credited to the Purchase Price at Closing.
2.4 EFFECTIVE DATE. The effective date of this Agreement is
August 12, 1996 ("Effective Date").
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<PAGE> 7
2.5 OUTSIDE DATE. The last day that Closing may occur shall be
the earlier to occur of 5:00 p.m. on: (i) the tenth (10th) business day
following Buyer's Unconditional Commitment To Close, as defined in Paragraph
10.2(b), or (ii) September 19, 1996 ("Outside Date"). However, Seller shall have
the right to extend the Outside Date one or more times up to and including
October 22, 1996 by delivery of written notice to Buyer and Escrow Holder of the
intended extended Outside Date on or before 12:00 noon of the business day
immediately preceding the existing scheduled Outside Date.
2.6 TITLE APPROVAL PERIOD. The "Title Approval Period" shall end
on September 6, 1996 at 5:00 p.m.
2.7 FEASIBILITY PERIOD. The "Feasibility Period" shall end on
September 6, 1996 at 5:00 p.m.
2.8 ESCROW HOLDER. The escrow holder is Chicago Title Company
("Escrow Holder"), whose address is 16969 Von Karman, Irvine, California 92714,
Escrow Officer: Joy Eaton; Telephone: (714) 263-0134; Telecopier: (714)
263-0356.
2.9 TITLE COMPANY. The title company is Chicago Title Company
("Title Company") whose address is 169169 Von Karman, Irvine, California 92714,
Title Coordinator: John Premac; Telephone: (714) 263-0156; Telecopier: (714)
263-0356.
3. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. Buyer's obligation to
purchase the Property is subject to the satisfaction or waiver of all the
conditions set forth below (which are for Buyer's benefit) within the time
periods specified and if no time period is specified by the Outside Date.
3.1 TITLE CONDITION.
3.1.1 Buyer has received from the Title Company a current
standard owner's (or leaseholder's) preliminary report for the Property (the
"Preliminary Report"), together with copies of all documents available to the
Title Company referenced as recorded exceptions in the Preliminary Report.
3.1.2 Buyer shall have until the last day of the Title
Approval Period to secure from the Title Company a commitment for title
insurance coverage in a form and with exceptions and endorsements acceptable to
Buyer in its sole and absolute discretion (the "Title Policy"). By the end of
the Title Approval Period, Buyer shall provide written notice to Seller and
Escrow Holder as to whether Buyer has received from the Title Company a
commitment for the Title Policy acceptable to Buyer in its sole and absolute
discretion (either "Title Approval Notice" or "Title Rejection Notice"). If
Seller and Escrow Holder receive a Title Approval Notice from Buyer by the end
of the Title Approval Period, this title condition shall be conclusively deemed
satisfied in all respects. If Seller and Escrow Holder do not receive either
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<PAGE> 8
form of written notice, or receive the Title Rejection Notice by the end of the
Title Approval Period, Escrow and this Agreement shall terminate and the Deposit
shall be returned to Buyer, as provided in Paragraph 6.3.
3.1.3 Nothing in this Paragraph 3.1 shall obligate Buyer or
Seller to expend any funds to cure any title defects unless the parties have
expressly committed to do so in writing. To the extent Seller indicates that it
will use its reasonable efforts to correct any title matter, "reasonable
efforts" shall not include any obligation of Seller to incur any expense
whatsoever in connection with correcting a title matter.
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<PAGE> 9
3.2 FEASIBILITY CONDITION.
3.2.1 Buyer shall have until 5:00 p.m. on the last day of
the Feasibility Period to confirm (in Buyer's sole and absolute discretion), at
Buyer's sole expense, whether Buyer may feasibly acquire and use the Property
for Buyer's intended purpose. During the Feasibility Period, Buyer shall, in
addition to all other matters regarding the Property, have reviewed (or shall
have assumed the risk of not reviewing) all of the following:
(a) the physical condition of the Property;
(b) the terms of the Ground Lease;
(c) the availability of all necessary utilities and
gravity sewers and storm drains for the Property;
(d) rental agreements, Leases, subleases, service
contracts, tax bills and other written agreements or notices which affect the
Property to the extent available;
(e) income and expense statements to the extent
available;
(f) rent roll(s);
(g) whether Buyer's intended use of the Property is
permitted by all applicable local, state and federal zoning ordinances, land use
controls and regulations, and other rules, regulations and laws;
(h) the existing soil and environmental condition,
both with regard to improvements, the Building, surface and subsurface,
including the existence of toxic waste and hazardous substances;
(i) the economic feasibility of Buyer's intended use
of the Property;
(j) the ability of Buyer to secure funds sufficient
to purchase the Property;
(k) the type and nature of the tenants;
(l) any existing, pending or threatened proceedings
for condemnation (if any);
(m) property tax bills for the Property; and
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<PAGE> 10
(n) any other matters which are or may be relevant to
Buyer's decision whether or not to purchase the Property.
3.2.2 By the end of the Feasibility Period, Buyer shall
provide written notice to Seller and Escrow Holder as to whether Buyer approves
the feasibility of acquiring the Property (either "Feasibility Notice" or
"Non-Feasibility Notice") . If Seller and Escrow Holder receive a Feasibility
Notice from Buyer by the end of the Feasibility Period, this feasibility
condition shall be conclusively deemed satisfied in all respects including
Buyer's approval of each of the items set out in Paragraph 3.2.1, upon which
Buyer shall deliver the Additional Deposit to Escrow Holder. If Seller and
Escrow Holder do not receive either form of written notice, or receive the
Non-Feasibility Notice, by the end of the Feasibility Period, Escrow and this
Agreement shall terminate, and the Deposit shall be returned to Buyer, as
provided in Paragraph 6.3.
3.3 REPRESENTATIONS AND WARRANTIES. All of Seller's
Representations and Warranties shall be true as of Closing or qualified as
provided in Paragraph 9.1
3.4 DELIVERY OF DOCUMENTS. Seller shall have signed, acknowledged
and timely delivered all documents and instruments to Escrow Holder as required
by Paragraph 5.2 below.
3.5 TENANT ESTOPPEL CERTIFICATE. Buyer shall have received a
signed tenant estoppel certificate in the form attached as Exhibit "C" ("Tenant
Estoppel Certificate") from the existing tenant under the Scott Lease (as
defined in Paragraph 4.6 below).
3.6 GROUND LESSOR ESTOPPEL CERTIFICATE. Buyer shall have received
a signed Ground Lessor Estoppel Certificate in the form attached as Exhibit "H"
("Ground Lessor Estoppel Certificate") from the Ground Lessor under the Ground
Lease (as defined in Paragraph 2.1).
4. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE. Seller's obligation to
sell the Property is subject to the satisfaction (or waiver) of all conditions
set forth below (which are for Seller's benefit) within the time periods
specified and if no time period is specified by the Outside Date.
4.1 PERFORMANCE OF COVENANTS. Buyer shall have timely performed
all of its covenants and terms under this Agreement.
4.2 REPRESENTATIONS AND WARRANTIES. All of Buyer's
Representations and Warranties provided in Paragraph 9.2 of this Agreement shall
be true as of Closing.
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<PAGE> 11
4.3 DELIVERY OF DOCUMENTS. Buyer shall have signed, acknowledged
and timely delivered all documents, monies, and instruments to Escrow Holder
(and the Costs Payment to Seller) as required by Paragraphs 2.3 and 5.3.
4.4 OPENING OF ESCROW. Escrow shall have opened (as provided in
Paragraph 7.2) by no later than August 16, 1996.
4.5 CONSENTS AND APPROVALS. Seller shall have received all
consents to assignments and approvals from all parties from whom such consents
to assignments or approvals are needed under any and all leases, subleases,
contracts, covenants and other agreements pertaining to the Property.
4.6 LEASEHOLD RELEASES. Seller shall have received full general
releases in forms and pursuant to terms acceptable to Seller in its sole and
absolute discretion, releasing Seller from all costs, obligations, liabilities,
and claims under (i) the Ground Lease, and (ii) the Lease dated June 20, 1995
between K/B Fund II, as Landlord, and Scott Paper Company (predecessor to
Kimberly-Clark Tissue Company), for Delaware Corporate Center, 1 Righter
Parkway, Wilmington, Delaware ("Scott Lease").
5. CLOSING.
5.1 THE CLOSING.
(a) The Closing shall occur by no later than 5:00 p.m. on
the Outside Date or such earlier time as mutually agreed upon by the parties.
(b) The terms "Close of Escrow" and/or "Closing" are used
in this Agreement to mean the time the Ground Lease Assignment (as defined in
Paragraph 5.2(a)) is filed of record by the Escrow Holder in the office of the
county recorder of New Castle County. The term "Closing Date" is used in this
Agreement to mean the day the Ground Lease Assignment is so filed of record.
(c) The occurrence of the Closing shall constitute Buyer's
agreement that all of its conditions precedent to its obligation to perform have
been satisfied.
5.2 SELLER'S CLOSING OBLIGATIONS. On or before 12:00 noon on the
last business day immediately before the Outside Date, Seller shall deliver to
Escrow Holder:
(a) An Assignment and Assumption of Ground Lease in the
form attached as Exhibit "D" ("Ground Lease Assignment"), signed by Seller and
notarized;
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<PAGE> 12
(b) An Assignment and Assumption of Commercial Leases,
Contracts and Licenses, Trade Name, Warranties and Guaranties in the form
attached as Exhibit "E" ("Assignment of Commercial Leases, Contracts and Other
Rights") signed by Seller;
(c) An Assignment and Assumption of Ground Lessor Consent
Agreement in the form attached as Exhibit "F" ("Ground Lease Consent
Assignment") signed by Seller and notarized;
(d) A certificate of non-foreign status in the form
attached as Exhibit "G" ("Seller's Certificate"), signed by Seller; and
(e) Any additional instruments (signed by Seller and
acknowledged, if appropriate) as may be necessary to comply with this Agreement.
5.3 BUYER'S CLOSING OBLIGATIONS. On or before 12:00 noon on the
last business day immediately before the Outside Date, Buyer shall deliver to
Escrow Holder:
(a) Cash equal to that amount provided for in Paragraph
2.3(b). The cash must be by direct deposit or by wire transfer of funds actually
made in Escrow Holder's depository bank account by 12:00 noon on the last
business day immediately before the Outside Date;
(b) The Ground Lease Assignment, signed by Buyer, and
notarized;
(c) The Assignment of Commercial Leases, Contracts and
Other Rights, signed by Buyer;
(d) The Ground Lease Consent Assignment, signed by Buyer
and notarized;
(e) Any additional funds and/or instruments (signed by
Buyer and notarized, if appropriate) as may be necessary to comply with this
Agreement.
6. TERMINATION OF THIS AGREEMENT.
6.1 FAILURE TO CLOSE BY OUTSIDE DATE. If the Closing does not
occur on or before 5:00 p.m. on the Outside Date, this Agreement and Escrow
shall automatically terminate and cancel without further action by Escrow Holder
or any party and notwithstanding any provision contained in Escrow Holder's
general provisions.
6.2 FAILURE OF A CONDITION. Except in those instances where
Escrow automatically terminates under the terms of this Agreement, if any
condition is not satisfied or waived within the time period and in the manner
set forth in this Agreement, then the party for
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whose benefit the condition exists (as provided in Paragraphs 3 and 4 of this
Agreement) may terminate this Agreement by delivering written notice to the
other party and to Escrow Holder after the end of the applicable time period.
6.3 CONSEQUENCES. If this Agreement terminates (or is properly
terminated by either party) as specifically provided by its terms, then each of
the following shall occur: (i) Escrow shall be deemed automatically canceled
regardless of whether cancellation instructions are signed; (ii) neither party
shall have any further obligation to the other under this Agreement (except: (1)
for breach of this Agreement as those remedies may be limited hereunder, (2) as
provided under Paragraphs 10.1 and 13.2 which shall survive termination of this
Agreement), and (3) Seller's Termination Reimbursement (as defined in Paragraph
10.2(b)) if Seller exercised Seller's Kimberly-Clark Termination Rights (as
defined in Paragraph 10.2(b)); (iii) all rights granted to Buyer under this
Agreement and in the Property shall terminate; and, (iv) except as provided to
the contrary in Paragraph 6.5 (concerning Seller's right to retain the Deposit
as liquidated damages), Escrow Holder shall return all funds and documents then
held in Escrow to the party depositing the same. However, under no circumstances
other than Seller's breach of this Agreement and Seller's exercise of Seller's
Kimberly-Clark Termination Rights (as defined in Paragraph 10.2(b)), shall
Seller be required to return or reimburse the Costs Payment to Buyer.
6.4 ESCROW CANCELLATION CHARGES. If the Closing does not occur
because of either party's default, the defaulting party shall be liable for all
Escrow cancellation and Title Company charges. If the Closing does not occur for
any other reason, Buyer and Seller shall each pay one-half of any Escrow
cancellation and Title Company charges.
6.5 LIQUIDATED DAMAGES. IF THE CLOSING DOES NOT OCCUR DUE TO
BUYER'S BREACH OF THIS AGREEMENT, SELLER SHALL BE RELEASED FROM ALL OF ITS
OBLIGATIONS UNDER THIS AGREEMENT, AND ESCROW HOLDER SHALL IMMEDIATELY DELIVER,
DESPITE ANY INSTRUCTIONS TO THE CONTRARY, THE DEPOSIT TO SELLER, AND SELLER
SHALL BE ENTITLED TO RETAIN THE DEPOSIT AS ITS SOLE AND LIQUIDATED DAMAGES.
SELLER AND BUYER SHALL INDEMNIFY ESCROW HOLDER FOR ANY LIABILITY, COSTS AND
EXPENSES BY REASON OF ESCROW HOLDER'S GOOD FAITH COMPLIANCE WITH THIS PARAGRAPH.
THE PARTIES EXPRESSLY AGREE THAT THE AMOUNT OF THE DEPOSIT IS A REASONABLE
ESTIMATE OF THE EXTENT TO WHICH SELLER WOULD BE DAMAGED BY BUYER'S BREACH OF
THIS AGREEMENT, IN LIGHT OF THE DIFFICULTY THE PARTIES WOULD HAVE IN DETERMINING
SELLER'S ACTUAL DAMAGES AS A RESULT OF SUCH BREACH BY BUYER. SELLER'S RETENTION
OF THE DEPOSIT AS LIQUIDATED DAMAGES SHALL BE SELLER'S EXCLUSIVE REMEDY FOR
DAMAGES BY REASON OF BUYER'S BREACH OF THIS AGREEMENT. NOTWITHSTANDING ANYTHING
TO THE CONTRARY IN THIS PARAGRAPH 6.5, THE DEPOSIT AND THE PROVISIONS OF THIS
PARAGRAPH 6.5 SHALL NOT LIMIT SELLER'S RIGHTS TO RECOVERY UNDER PARAGRAPHS 10.1
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AND 13.2 OR SELLER'S RIGHT TO RETAIN THE COSTS PAYMENT UNDER ALL CIRCUMSTANCES
OTHER THAN SELLER'S BREACH OF THIS AGREEMENT AND SELLER'S EXERCISE OF SELLER'S
KIMBERLY-CLARK TERMINATION RIGHTS.
_________________ ________________
SELLER'S INITIALS BUYER'S INITIALS
7. GENERAL ESCROW PROVISIONS.
7.1 ESCROW INSTRUCTIONS. This Agreement when signed by Buyer and
Seller shall also constitute escrow instructions to Escrow Holder.
7.2 OPENING OF ESCROW. When both (i) this Agreement, fully signed
or in signed counterparts, and Buyer's Deposit are delivered to Escrow Holder
and (ii) the Costs Payment has been delivered to Seller, Escrow shall be deemed
open ("Opening of Escrow"), and Escrow Holder shall immediately notify Buyer and
Seller by telephone and in writing of the date of Opening of Escrow.
7.3 GENERAL PROVISIONS. Notwithstanding anything to the contrary
in this Agreement, the General Provisions of Escrow Holder, if any, which are
later signed by the parties, are incorporated by reference to the extent they
are not inconsistent with the provisions of this Agreement. If there is any
inconsistency between the provisions of those General Provisions and any of the
provisions of this Agreement, the provisions of this Agreement shall control. If
any requirements relating to the duties or obligations of the Escrow Holder are
unacceptable to the Escrow Holder, or if the Escrow Holder requires additional
instructions, the parties agree to make any deletions, substitutions and
additions as counsel for Buyer and Seller shall mutually approve and which do
not materially alter the terms of this Agreement. Any supplemental instructions
shall be signed only as an accommodation to Escrow Holder and shall not be
deemed to modify or amend the rights of Buyer and Seller, as between Buyer and
Seller, unless the supplemental instructions expressly so provide.
7.4 PRORATIONS. The following prorations and adjustments shall be
made between Seller and Buyer at the Close of Escrow. Any prorations shall be
based on the actual number of days in the month in which the Closing occurs and
a three hundred sixty-five (365) day year.
(a) Property Expenses. Ground Lease rent, taxes, real
property taxes, special taxes, utility fees, management fees and costs, common
area maintenance expenses, Property operating expenses, personal property taxes,
assessments, sewer charges, and other costs and expenses attributable to the
Property shall be prorated as of the Close of Escrow. To the extent any expenses
or charges for the Property are paid by tenants to the landlord under the Leases
on an estimated basis, for which a future reconciliation of actual to estimates
is to be
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performed, Seller and Buyer shall make an adjustment at Closing for the
applicable reconciliation period in which the Closing occurs based on a
comparison of the actual Property expenses paid by Seller as of the Closing Date
to the estimated Property expenses paid by tenants to Seller. The adjustment for
such reconciliation period shall be calculated as follows: To the extent the
estimated payments made by tenants to Seller as of the Closing Date exceed the
actual Property expenses paid by Seller as of the Closing Date, Buyer shall
receive a credit at Closing for the excess tenant payments. To the extent actual
Property expenses paid by Seller as of the Closing Date exceed the estimated
payments made by tenant as of the Closing Date, Seller shall receive a credit at
Closing. Buyer shall then assume all rights and obligations to collect from or
pay to Lease tenants any such reconciliation amounts.
(b) Property Rent. All rents, additional rent, income, and
other amounts payable to the owner or landlord of the Property (collectively,
"Property Rent") shall also be prorated as of Close of Escrow. In addition to
all other amounts owing under this Agreement, Buyer shall pay Seller at Closing,
an amount equal to all accrued but unpaid Property Rent existing as of the
Closing. All rights to collection and retention of such Property Rent shall then
belong to Buyer upon Closing.
(c) Security Deposits. Security deposits in Seller's
possession shall be transferred or credited to Buyer at Closing.
(d) Tenant Improvement Leasing Costs. Any
tenant-improvement or leasing commission cost and/or referral fees
(collectively, "Leasing Costs") paid or incurred by Seller after the Effective
Date with respect to leases or other rental agreements for which Buyer will
receive rent after the Closing shall be paid by Buyer to Seller at Closing.
However, Buyer shall not be responsible for any Leasing Costs for any new leases
or new rental agreements signed with new tenants executed after expiration of
the Feasibility Period unless Buyer has consented to such new lease agreements
or new rental agreements (which consent shall not be unreasonably withheld).
Seller shall provide Buyer with written notice prior to the expiration of the
Feasibility Period of the Leasing Costs for which Buyer will be seeking payment
at the Closing incurred as of the date of such notice.
(e) Capital Improvement Costs. All capital improvement
costs incurred by Seller after the Effective Date for capital improvements made
to the Property ("Capital Improvement Costs") shall be paid by Buyer to Seller
at Closing. However, Buyer shall not be responsible for the payment of any
Capital Improvement Costs incurred for capital improvement agreements executed
after the expiration Feasibility Period unless either of the following are true:
(i) the capital improvement contract was approved by Buyer (which consent shall
not be unreasonably withheld) or (ii) the capital improvement was necessary in
order for Seller to comply with the terms of any Lease or to satisfy any
requirements of any law, ordinance, rules, covenant, condition or restriction
imposed on the Property. Seller shall provide Buyer with written notice prior to
the expiration of the Feasibility Period of the Capital
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Improvement Costs for which Buyer will be seeking payment at the Closing
incurred as of the date of such notice.
(f) Seller Deposits. Seller shall receive a credit at
Closing for all bonds, deposits, letters of credit, set aside letters or other
similar items, if any, outstanding with respect to the Property, that have been
provided by Seller, or any of its affiliates, to any governmental agency, public
utility, or similar entity (collectively, "Seller Deposits") to the extent
assignable to Buyer. Otherwise, Buyer shall replace all Seller Deposits and
obtain the release of Seller (or its affiliates) from any obligations under the
Seller Deposits. To the extent that any funds are released as a result of the
termination of Seller Deposits for which Seller did not get a credit, such funds
shall be delivered to Seller immediately upon their receipt.
(g) Tax Protests. If Seller has engaged consultants for the
purpose of protesting the amount of taxes or the assessed valuation for certain
tax periods for the Property ("Protest Proceedings") any refunds or proceeds
will be apportioned as described below. Any refunds or proceeds (including
interest thereon) on account of a favorable determination, after deduction of
costs and expenses incurred for such Protest Proceedings and payment of any
reimbursements owing to tenants, shall be: (i) the property of Seller to the
extent such refunds or proceeds were for taxes paid for a period prior to the
Closing Date, (ii) prorated between Buyer and Seller for taxes paid for a period
during which the Closing Date occurred, and (iii) the Property of Buyer for
taxes paid for a period after the Closing Date. Seller shall have the obligation
to refund to any tenants in good standing as of the date of such refund, any
portion of such refund paid to it which may be owing to such tenants, which
payment shall be paid to Buyer within fifteen (15) days of delivery to Seller by
Buyer of written confirmation of such tenants' entitlement to such refunds.
Buyer shall have the obligation to refund to tenants in good standing as of the
date of such refund, any portion of such refund paid to it which may be owing to
such tenants. Seller and Buyer agree to notify the other in writing of any
receipt of a tax refund within ten (10) business days of receipt of such refund.
To the extent either party obtains a refund, a portion of which is owed to the
other party, the receiving party shall deliver the refund to the other party
within fifteen (15) days of its receipt.
(h) Post-Closing Access. After the Closing, Seller, or any
representative of Seller, shall for a period of one (1) year after the Closing
have the right to inspect the books and records of the Property to verify that
Buyer is remitting to Seller all amounts to be remitted to Seller according to
the terms of this Agreement and for any other purpose related to Seller's prior
ownership of the Property, provided that such inspection is done in a manner
that does not unreasonably interfere with Buyer's operation of the Property.
(i) Adjustments. If any errors or omissions are made
regarding adjustments and prorations, the parties shall make the appropriate
corrections promptly upon the discovery thereof. If any estimations are made at
the Close of Escrow regarding adjustments or prorations, the parties shall make
the appropriate correction promptly when accurate information becomes available.
Any corrected adjustment or proration shall be paid promptly in cash to the
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party entitled to the adjustment. Notwithstanding anything to the contrary
above, the above right to adjustment shall terminate one (1) year after Close of
Escrow, subject to Seller's continuing right even after the expiration of such
one (1) year period to receive (i) the deficiency in estimated tenant payments
under Paragraph 7.4(a), and (ii) refunds or proceeds from Protest Proceedings
under Paragraph 7.4(g).
7.5 PAYMENT OF COSTS. Buyer will be responsible for all of its
own costs incurred with regard to this transaction including performing its due
diligence and obtaining its due diligence information, including, without
limitation, any new or updated surveys, environmental reports, engineering
reports, or other studies or investigations. Each party will be responsible for
satisfying its own legal costs incurred on the transaction. All closing costs
will be shared equally, including, without limitation, title insurance fees,
escrow fees, and recording fees. The parties believe that this transaction is
exempt from the provisions of 30 Del. C. Chapter 54. In the event this
transaction is found to be taxable pursuant to 30 Del. C. Chapter 54, Buyer and
Seller shall each pay one-half (1/2) of the Real Estate Transfer Tax.
7.6 ESCROW HOLDER AUTHORIZED TO COMPLETE BLANKS. If necessary,
Escrow Holder is authorized to insert in all blanks in the Closing documents the
date of recordation of the Ground Lease Assignment.
7.7 RECORDATION AND DELIVERY OF FUNDS AND DOCUMENTS. When Buyer
and Seller have satisfied their respective Closing obligations under Paragraphs
5.2 and 5.3 and each of the conditions under Paragraphs 3 and 4 have either been
satisfied or waived, Escrow Holder shall promptly undertake all of the following
in the manner indicated:
(a) Prorations. Prorate and allocate all matters as
described in Paragraphs 7.4 and 7.5.
(b) Funds. Disburse funds deposited by Buyer with Escrow
Holder towards payment of all items chargeable to the account of Buyer pursuant
hereto in payment of such costs including, without limitation, the payment of
the Purchase Price to Seller.
(c) Recording. Upon confirmation of disbursement of the
Purchase Price to Seller, cause the Ground Lease Assignment, and any other
documents which the parties hereto may mutually direct, to be recorded in the
official records of New Castle County, Delaware in the order instructed by the
parties.
(d) Document Delivery. Deliver originals and conformed
copies of all documents to Seller and Buyer, as appropriate.
(e) Title Policy. Direct the Title Company to issue the
Title Policy to Buyer.
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8. NO BROKERAGE COMMISSIONS. Buyer is represented by Bob Yoshimura of
The Flynn Company ("Broker"). Upon Close of Escrow pursuant to the terms of this
Agreement, Seller shall pay Broker a commission mutually agreed upon between
Seller and Broker, not to exceed one and one-half percent (1 1/2%) of the
Purchase Price pursuant to a mutually acceptable separate written commission
agreement with Broker. Except with regard to Broker, neither Seller nor Buyer
has engaged a broker or finder in connection with this transaction. Each party
shall indemnify, defend and hold the other harmless from and against all claims,
liabilities, costs, damages and expenses (including, without limitation,
attorneys' fees and costs) resulting from or arising out of any claims for
finders' fees or commissions arising out of any contract or commitments made by
or through the indemnifying party by any broker or finder other than the Broker.
Notwithstanding the terms of this provision, Broker is not a third party
beneficiary of the terms of this Paragraph 8 or any terms of this Agreement.
9. REPRESENTATIONS AND WARRANTIES.
9.1 SELLER'S REPRESENTATIONS AND WARRANTIES. In consideration of
Buyer entering into this Agreement and as an inducement to Buyer to buy the
Property from Seller, Seller makes the following representations and warranties,
each of which is material and is being relied upon by Buyer (the continued truth
and accuracy of which shall constitute a condition precedent to Buyer's
obligations hereunder):
(a) Authority. Seller is validly existing under the laws of
the State of Delaware, with full power and authority to enter into and comply
with the terms of this Agreement. Seller has the legal right, power and
authority to enter into this Agreement, and the execution, delivery and
performance of this Agreement have been duly authorized and no other action by
Seller is requisite to the valid and binding execution, delivery and performance
of this Agreement.
(b) Documents. To Seller's actual knowledge, prior to the
expiration of the Feasibility Period, Seller shall have delivered to Buyer or
made available to Buyer for Buyer's review (at Seller's or the property
manager's office) all non-proprietary and non-confidential documents in the
actual possession of Seller (i) setting forth information directly about the
physical condition of the Property (including structural, engineering, and
environmental written reports and written analysis), (ii) memorializing the
terms of the Leases, or (iii) constituting written communications with any
tenants under current Leases that were sent or received by seller on or before
the Effective Date. Buyer acknowledges and agrees that notwithstanding the
proceeding provision, Seller is not obligated to provide any documents which
relate to (i) the terms of Seller's acquisition of the Property, including,
without limitation, any documents that set forth the price at which the Property
was purchased by Seller, (ii) documents that pertain to valuations of the
Property, (iii) internal memoranda and correspondence of Seller with regard to
the Property, (iv) any documents reflecting marketing plans or strategies for
the Property, and (v) any reports generated by Seller for its investors.
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(c) Litigation. To Seller's actual knowledge, Seller has
not received any written notice of pending litigation which would materially and
adversely affect title to the Property.
(d) Condemnation. To Seller's actual knowledge, Seller has
not received any written notice of any pending proceedings for condemnation or
eminent domain pertaining to the taking of any portion of the Property.
(e) Violations of Law. To Seller's actual knowledge, Seller
has not received any written notice from any governmental agency having
jurisdiction of the Property notifying Seller that the existing condition of the
Property violates any laws governing the Property.
For purposes of this Paragraph 9.1, the term "To Seller's Actual Knowledge"
shall mean the actual (and not implied, imputed, or constructive) knowledge of
Paula Gault and Tara Weekes, without any inquiry or investigation, and without
any attribution of facts and matters otherwise within the personal knowledge of
any other parties, including, without limitation, tenants and property managers
of the Property.
The representations and warranties made by Seller in this Agreement shall
survive the recordation of the Ground Lease Assignment for a period of one (1)
year and any action for a breach of Seller's representations or warranties must
be made and filed within said one (1) year period. If, after the Effective Date,
but before the Close of Escrow, Seller becomes aware of any facts or changes in
circumstances that would cause any of its representations and warranties in this
Agreement to be untrue at Close of Escrow, Seller shall promptly notify Buyer in
writing of such fact. In such case, or in the event Buyer obtains information
which would cause any of Seller's representations and warranties to be untrue at
Close of Escrow, Buyer, as its sole and exclusive remedy, shall have the right
to either (i) terminate this Agreement, in which case the Deposit shall be
immediately returned to Buyer and neither party shall have any rights or
obligations under this Agreement (except for Paragraphs 10.1 and 13.2 which
survive termination of this Agreement); or (ii) accept a qualification to
Seller's representations and warranties as of the Close of Escrow and complete
the purchase and sale of the Property without any rights to recovery for breach
of the unqualified representation and warranty. Other than as set forth in the
immediately preceding sentence, Buyer shall be deemed to have expressly waived
any and all remedies for the breach of any representation or warranty discovered
by Buyer prior to the Close of Escrow.
9.2 BUYER'S REPRESENTATIONS AND WARRANTIES. In consideration of
Seller entering into this Agreement and as an inducement to Seller to sell the
Property to Buyer, Buyer makes the following representations and warranties,
each of which shall be true and accurate as of the Effective Date and Close of
Escrow (and shall survive the Close of Escrow), and each of which is material
and is being relied upon by Seller (the continued
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truth and accuracy of which shall constitute a condition precedent to Seller's
obligations hereunder):
(a) Authority. Buyer is validly existing under the laws of
the State of Maryland, with the full power and authority to enter into and
comply with the terms of this Agreement and is qualified to do business in the
State of Delaware. Buyer has the legal right, power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby, and the
execution, delivery and performance of this Agreement have been duly authorized
and no other action by Buyer is requisite to the valid and binding execution,
delivery and performance of this Agreement.
(b) "AS IS". BUYER ACKNOWLEDGES AND AGREES THAT BUYER IS
EXPERIENCED IN THE OWNERSHIP AND OPERATION OF PROPERTIES SIMILAR TO THE PROPERTY
AND THAT BUYER PRIOR TO THE CLOSING DATE WILL HAVE INSPECTED THE PROPERTY TO ITS
SATISFACTION AND IS QUALIFIED TO MAKE SUCH INSPECTION. BUYER ACKNOWLEDGES THAT
IT IS FULLY RELYING ON BUYER'S (OR BUYER'S REPRESENTATIVES') INSPECTIONS OF THE
PROPERTY AND NOT UPON ANY STATEMENTS (ORAL OR WRITTEN) WHICH MAY HAVE BEEN MADE
OR MAY BE MADE (OR PURPORTEDLY MADE) BY SELLER OR ANY OF ITS REPRESENTATIVES.
BUYER ACKNOWLEDGES THAT BUYER HAS (OR BUYER'S REPRESENTATIVES HAVE), OR PRIOR TO
THE CLOSING DATE WILL HAVE, THOROUGHLY INSPECTED AND EXAMINED THE PROPERTY TO
THE EXTENT DEEMED NECESSARY BY BUYER IN ORDER TO ENABLE BUYER TO EVALUATE THE
CONDITION OF THE PROPERTY AND ALL OTHER ASPECTS OF THE PROPERTY (INCLUDING, BUT
NOT LIMITED TO, THE ENVIRONMENTAL CONDITION OF THE PROPERTY), AND BUYER
ACKNOWLEDGES THAT BUYER IS RELYING SOLELY UPON ITS OWN (OR ITS REPRESENTATIVES')
INSPECTION, EXAMINATION AND EVALUATION OF THE PROPERTY. AS A MATERIAL PART OF
THE CONSIDERATION FOR THIS CONTRACT AND THE PURCHASE, BUYER HEREBY AGREES TO
ACCEPT THE PROPERTY ON THE CLOSING DATE IN ITS "AS IS", "WHERE IS" CONDITION AND
WITH ALL FAULTS, AND WITHOUT ANY REPRESENTATIONS AND WARRANTIES OF ANY KIND,
EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, EXCEPT AS SET FORTH IN
PARAGRAPH 9.1. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IN CONNECTION
WITH THE SALE OF THE PROPERTY TO BUYER, SELLER AND SELLER'S OFFICERS, AGENTS,
DIRECTORS, PARTNERS, ASSET MANAGERS, PROPERTY MANAGERS, REPRESENTATIVES,
EMPLOYEES, ATTORNEYS, CONTRACTORS AND AFFILIATES ("SELLER'S RELATED PARTIES")
HAVE MADE NO, AND SPECIFICALLY DISCLAIM, AND BUYER ACCEPTS THAT SELLER AND
SELLER'S RELATED PARTIES HAVE DISCLAIMED, ANY AND ALL REPRESENTATIONS,
GUARANTIES OR WARRANTIES, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW
(EXCEPT AS SET FORTH IN PARAGRAPH 9.1), OF OR RELATING TO (I) THE USE, INCOME
POTENTIAL, EXPENSES, OPERATION, VALUATION (FOR TAX PURPOSES OR
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OTHERWISE), CHARACTERISTICS OR CONDITION OF THE PROPERTY OR ANY PORTION THEREOF,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF SUITABILITY, HABITABILITY,
MERCHANTABILITY, TENANTABILITY, DESIGN OR FITNESS FOR ANY SPECIFIC OR A
PARTICULAR PURPOSE, OR GOOD AND WORKMANLIKE CONSTRUCTION, (II) THE NATURE,
MANNER, CONSTRUCTION, CONDITION, STATE OF REPAIR OR LACK OF REPAIR OF ANY
IMPROVEMENTS LOCATED ON THE PROPERTY, ON THE SURFACE OR SUBSURFACE THEREOF,
WHETHER OR NOT OBVIOUS, VISIBLE OR APPARENT, (III) THE NATURE OR QUALITY OF
CONSTRUCTION, STRUCTURAL DESIGN OR ENGINEERING OF THE PROPERTY, (IV) THE
ENVIRONMENTAL CONDITION OF THE PROPERTY AND THE PRESENCE OR ABSENCE OF OR
CONTAMINATION BY HAZARDOUS MATERIALS, OR THE COMPLIANCE OF THE PROPERTY WITH
REGULATIONS OR LAWS PERTAINING TO HEALTH OR THE ENVIRONMENT, THE SOIL
CONDITIONS, DRAINAGE, FLOODING CHARACTERISTICS, UTILITIES OR OTHER CONDITIONS
EXISTING IN, ON, OR UNDER THE PROPERTY, AND (VI) THE COSTS, FEES, EXPENSES,
ASSESSMENTS, OR OTHER CHARGES RELATING TO THE USE OR OPERATION OF THE PROPERTY.
BUYER ACKNOWLEDGES AND AGREES THAT ALL DOCUMENTS, RECORDS, AGREEMENTS, WRITINGS,
STATISTICAL AND FINANCIAL INFORMATION AND ALL OTHER INFORMATION (COLLECTIVELY,
"DOCUMENTS") WHICH HAVE BEEN GIVEN TO BUYER BY SELLER, OR SELLER'S RELATED
PARTIES, HAVE BEEN DELIVERED AS AN ACCOMMODATION TO BUYER AND WITHOUT ANY
REPRESENTATION OR WARRANTY AS TO THE SUFFICIENCY, ACCURACY, COMPLETENESS,
VALIDITY, TRUTHFULNESS, ENFORCEABILITY OR ASSIGNABILITY OF ANY OF THE DOCUMENTS
(INCLUDING, WITHOUT LIMITATION, THE ENFORCEABILITY, EFFECT, OR ASSIGNABILITY OF
THE GROUND LEASE), ALL OF WHICH BUYER RELIES ON AT ITS OWN RISK. BUYER
ACKNOWLEDGES THAT ANY INFORMATION, ORAL OR WRITTEN, PROVIDED TO BUYER BY ANY
PROPERTY MANAGERS OR ASSET MANAGERS IS ALSO MERELY AS AN ACCOMMODATION TO BUYER.
NONE OF THE INFORMATION PROVIDED TO BUYER BY ANY PROPERTY MANAGERS OR ASSET
MANAGERS MAY BE ATTRIBUTED TO SELLER AND SELLER SHALL HAVE NO LIABILITY
WHATSOEVER TO BUYER IN THE EVENT THAT ANY DOCUMENTS OR INFORMATION PROVIDED TO
BUYER ARE INACCURATE. BUYER HEREBY EXPRESSLY ASSUMES ALL RISKS, LIABILITIES,
CLAIMS, DAMAGES, AND COSTS (AND AGREES THAT SELLER SHALL NOT BE LIABLE FOR ANY
SPECIAL, DIRECT, INDIRECT, CONSEQUENTIAL, OR OTHER DAMAGES) ON AND AFTER THE
CLOSING DATE RESULTING OR ARISING FROM OR RELATED TO THE OWNERSHIP, USE,
CONDITION, LOCATION, MAINTENANCE, REPAIR OR OPERATION OF THE PROPERTY. BUYER
ACKNOWLEDGES THAT ANY CONDITION OF THE PROPERTY WHICH BUYER DISCOVERS OR DESIRES
TO CORRECT OR IMPROVE PRIOR TO OR AFTER THE CLOSING DATE SHALL BE AT BUYER'S
SOLE EXPENSE. BUYER EXPRESSLY WAIVES (TO THE EXTENT ALLOWED BY APPLICABLE LAW)
ANY AND ALL CLAIMS UNDER FEDERAL LAW, STATE OR OTHER LAW THAT BUYER MIGHT
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OTHERWISE HAVE AGAINST SELLER AND SELLER'S RELATED PARTIES RELATING TO THE USE,
CHARACTERISTICS OR CONDITION OF THE PROPERTY. THE PROVISIONS OF THIS PARAGRAPH
9.2(b) SHALL SURVIVE THE CLOSING.
(c) Seller's Responsibility. Seller shall not have any
liability, obligation or responsibility of any kind with respect to the
following:
(i) The content or accuracy of any report, opinion or
conclusion of any soils or environmental experts (including, without limitation,
those contained in the Environmental Reports) or other engineer or other person
or entity who has examined the Property;
(ii) The content or accuracy of any information
released to Buyer by an engineer or planner in connection with the development
of the Property;
(iii) Any of the items delivered to Buyer in
connection with Buyer's review of the condition of the Property; and
(iv) The content or accuracy of any other cost,
projection, financial or other analysis or other information given to Buyer by
Seller or Seller's Related Parties or reviewed by Buyer with respect to the
Property.
(d) Buyer's Experience and Opportunity to Investigate.
Buyer is knowledgeable and experienced in the purchase, operation, ownership,
refurbishing and sale of commercial real estate, and is fully able to evaluate
the merits and risks of this transaction. Paragraph 3 of this Agreement gives
Buyer the right to (i) inspect, examine and investigate the Property, and (ii)
terminate this Agreement if Buyer determines that the Property is unacceptable
to Buyer. If Buyer elects to consummate the purchase of the Property after
making such inspections, examinations and investigations, Buyer agrees that it
is relying SOLELY on its own inspections, examinations and investigations in
making the decision to purchase the Property.
(e) Buyer's Nonreliance. Buyer has not relied, and is not
relying, upon any information, document, sales brochures or other literature,
maps or sketches, projection, proforma, statement, representation, guarantee or
warranty (whether express or implied, oral or written, material or immaterial)
that may have been given or made by, or on behalf of Seller except as set forth
in Paragraph 9.1.
(f) Truth of Representations. The representations and
warranties of Buyer set forth in this Agreement shall be true on and as of the
Close of Escrow as if those representations and warranties were made on and as
of such time. The representations, warranties and terms of this Paragraph 9.2
shall survive the Close of Escrow.
10. CONDUCT DURING ESCROW.
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10.1 ENTRY ON PROPERTY.
(a) License To Enter For Investigation. Until Escrow closes
or this Agreement is terminated, Buyer and Buyer's employees and agents shall
have a limited license to enter upon the Property, during usual business hours,
after receipt by Seller of two (2) business days advance written notice of its
intention to enter the Property (the "License") so long as the activities do not
damage the Property and subject to any rights of tenants under the Leases. Buyer
shall not contact or communicate with any tenant of the Property. However, prior
to the expiration of the Feasibility Period (and provided that three (3)
business days prior written notice has been provided to Seller) Buyer shall be
permitted the opportunity to conduct one interview for a reasonable period of
time with the tenant under the Scott Lease ("Tenant") and with each of the other
tenants under the Leases, including, without limitation, any subtenant under the
Scott Lease (collectively, "Other Tenants") subject to the following: (i) all of
Buyer's questions are limited to the status of the Tenant's and Other Tenants'
businesses, the Tenant's and Other Tenants' satisfaction with their premises,
and the Tenant's and Other Tenants' intentions with regard to the future use of
their premises (no questions pertaining to the terms of the Tenant's and Other
Tenants' lease or renegotiation or buy-out of such terms will be permitted),
(ii) a representative of Seller is in attendance at the interviews, and (iii)
the Tenant and Other Tenants do not have any objection to their respective
interviews (which shall terminate at any time the Tenant and Other Tenants'
desire). Before beginning any tests or investigations which contemplate the
drilling or disturbance of the surface of the Property, Buyer shall submit to
Seller for its approval in its sole and absolute discretion, Buyer's operational
plan for conducting the tests or investigations. Seller may have a
representative present during any tests or investigations and Buyer shall
provide Seller with prior notice of any tests or investigations. After any
entry, Buyer shall immediately restore the Property to the Property's condition
before Buyer entered on the Property. Buyer shall not allow any dangerous or
hazardous condition to be created on or arise from Buyer's entry on the
Property. Buyer shall comply with all applicable laws and governmental
regulations applicable to its entry to the Property. Buyer shall keep the
Property free and clear of all mechanics' liens and materialmen's liens arising
out of any of Buyer's activities. The License shall be deemed revoked upon
termination of this Agreement.
(b) Indemnification on Entries. Buyer shall indemnify,
defend (with counsel selected by Seller), and hold harmless Seller and Seller's
officers, directors, partners, shareholders, employees, agents, managers,
property managers (including, without limitation, Koll Management Services,
Inc.), asset managers (including, without limitation, Koll Investment
Management, Inc.), attorneys, representatives, subsidiary and parent
corporations, affiliated entities, and the above parties' predecessors,
successors and assigns, and the Property, (all of the above parties and the
Property collectively referred to as "Indemnified Parties and Property") from
and against all claims, losses, liens, liabilities, damages, expenses and costs
(including, without limitation, attorneys' fees and costs) arising from or
relating to the entry of Buyer and its representatives, agents and contractors
on the Property. Buyer's obligations under this
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paragraph shall survive the Close of Escrow and the termination of this
Agreement and shall not be limited by any insurance required under Paragraph
10.1(c).
(c) Insurance on Entries. Buyer shall maintain or cause to
be maintained either Comprehensive General Liability insurance or Commercial
General Liability insurance to cover Buyer's activities on the Property. At
least five (5) days before entering on the Property, Buyer shall deliver to
Seller a Certificate of Insurance evidencing compliance with the terms of this
paragraph. The liability insurance policy shall have a combined single limit per
occurrence liability limit of at least $2,000,000.00 for premises liability,
bodily injury, personal injury and property damage, shall be primary and
noncontributing with any insurance which may be carried by Seller, and shall
name the Indemnified Parties as additional insureds, and shall be written by
companies rated A+XII or better in "Best's Insurance Guide" and authorized to do
business in Delaware. The insurance policy shall be maintained and kept in
effect by Buyer (or Buyer's agent), at Buyer's (or Buyer's agent's) sole
expense, at all times during the term of this Agreement. The insurance policy
shall provide that it may not be canceled or modified without at least thirty
(30) days prior written notice to Seller, or until this license is terminated.
10.2 SELLER'S OPERATIONS AND NEGOTIATIONS.
(a) Operations of the Property. Until expiration of the
Feasibility Period, Seller shall be permitted to proceed with its operations at
the Property in any manner that it desires in its sole and absolute discretion,
including, without limitation, proceeding with any of its leasing efforts,
capital improvement work, and other operations and commitments that Seller
desires. Prior to the expiration of the Feasibility Period, Seller shall inform
Buyer of all new leases executed after the Effective Date ("New Leases"), new
contracts ("New Contracts"), and new capital improvement work performed after
the Effective Date ("New Capital Improvement Work") and the obligations arising
from such New Leases, New Contracts, and New Capital Improvement Work. If Buyer
does not terminate this Agreement pursuant to Paragraph 3.1 or 3.2 and proceeds
with the Closing of this transaction, Buyer shall assume all obligations arising
from the New Leases, New Contracts, and New Capital Improvement Work (and the
conveyancing documents shall be modified to reflect such assumption) and Seller
shall be paid at Closing for all costs and expenses incurred by Seller in
connection with the New Leases, New Contracts and New Capital Improvement Work.
However, Seller shall not execute any New Leases, New Contracts, or agreements
for New Capital Improvement Work after expiration of the Feasibility Period
without Buyer's consent not to be unreasonably withheld.
(b) Kimberly-Clark Negotiations. Notwithstanding any
provisions to the contrary in this Agreement (including, without limitation,
Paragraph 10.2(a)), Buyer acknowledges that Seller is currently in the process
of negotiating ("Kimberly-Clark Negotiations") a potential buy-out or
termination of the Scott Lease with representatives of Kimberly-Clark
Corporation or its parent, subsidiary or affiliated entities (collectively,
"Kimberly-Clark"). Seller shall be permitted to proceed in any manner it desires
with the Kimberly-Clark Negotiations for the buy-out, termination and/or
modification of the Scott Lease
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pursuant to any terms which Seller desires in its sole and absolute discretion
("Scott Buy-Out Arrangement"). However, after Buyer's Unconditional Commitment
To Close (as defined below), Seller shall not execute any written Scott Buy-Out
Arrangement documentation that would be legally binding on Buyer after the
Closing, without Buyer's consent. At anytime prior to Buyer's Unconditional
Commitment To Close, Seller shall have the right to terminate this Agreement by
providing Buyer with written notice that Seller has or believes (in its sole and
absolute discretion) that it will reach agreement with Kimberly-Clark on a Scott
Buy-Out Arrangement and is terminating the Agreement ("Seller Termination
Notice"), which termination shall be effective ("Termination Date") upon
delivery of the Seller Termination Notice to Buyer ("Seller's Kimberly-Clark
Termination Rights"). If Seller exercises Seller's Kimberly-Clark Termination
Rights, this Agreement and Escrow shall terminate pursuant to Paragraph 6.3 and
Seller shall pay Buyer the Seller's Termination Reimbursement (as defined below)
within ten (10) business days of Seller's receipt from Buyer of reasonable proof
of Buyer's payment of the items requested as part of Seller's Termination
Reimbursement. For purposes of this Paragraph, Buyer's Unconditional Commitment
To Close shall mean the time at which Buyer shall have delivered in writing to
Seller and Escrow Holder written notice that, except for Seller's satisfaction
of its Paragraph 5.2 Closing obligations, all of Buyer's Conditions Precedent To
Buyer's Performance and any other conditions to its Closing (including, without
limitation, Paragraphs 3.1, 3.2, and 3.3) have conclusively been satisfied or
waived by Buyer and Buyer is prepared and shall satisfy its Closing obligations
and proceed with Close of Escrow within ten (10) business days thereafter.
"Seller's Termination Reimbursement" shall solely consist of the following
amounts: (i) the amount of the Deposit actually delivered to Escrow Holder by
Buyer (including interest earned thereon), (ii) the Costs Payment, and (iii)
those out-of-pocket expenses paid for due diligence review of the Property
conducted on Buyer's behalf after the Effective Date of the Agreement but prior
to the Termination Date and only to the extent the amounts sought do not exceed
the amounts set forth in Buyer's due diligence budget attached as Exhibit "I".
(c) Subleases. Buyer acknowledges that Tenant has the right
to sublease any portion of the premises under the Scott Lease and has sublet at
least a portion of those premises to DuPont Capital Management Corporation.
Buyer acknowledges and agrees that Seller shall be permitted to allow and/or not
interfere with any subleases of the premises under the Scott Lease or any other
Leases pursuant to which Seller allows any subleasing (in its sole and absolute
discretion).
11. CONDEMNATION OR CASUALTY.
11.1 CONDEMNATION. If, before the Closing, all or enough of the
Property is taken by eminent domain or condemnation proceedings so that the
balance of the Property (assuming necessary repairs) is not sufficient for
Buyer's intended use for the Property (collectively, a "Taking"), Seller shall
notify Buyer of the event after actual knowledge of the Taking and, in that
event, Buyer shall have the option to either (i) terminate this Agreement as of
the date of the Taking, or (ii) continue with this transaction in accordance
with the terms of this
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Agreement and without any adjustment in the Purchase Price (but with the right
to receive an assignment at Closing of all of Seller's condemnation proceeds for
such Taking), by delivery of written notice of Buyer's election to Seller within
ten (10) days after receipt of Seller's notice. If Seller and Escrow Holder
receive Buyer's election to terminate this transaction or have not received any
notice from Buyer within the 10-day period, then this transaction shall
terminate, and the Deposit shall be returned to Buyer, as provided in Paragraph
6.3. If Buyer elects to continue with this transaction, as provided above, then
such condemnation proceeds shall become the property of Buyer after Close of
Escrow.
11.2 CASUALTY. If, before the Closing, all or any portion of the
Property is damaged by a casualty so that the Property (assuming necessary
repairs) is not sufficient for Buyer's intended use for the Property (a
"Casualty"), Seller shall notify Buyer of this event after actual knowledge of
the Casualty, and, in this event, Buyer shall have the option to either (i)
terminate this Agreement as of the date of the Casualty, or (ii) continue with
this transaction in accordance with the terms of this Agreement and without any
adjustment in the Purchase Price (but with the right to receive an assignment at
Closing of all of Seller's insurance proceeds for such Casualty), by delivery of
written notice of Buyer's election to Seller and Escrow Holder within ten (10)
days after receipt of Seller's notice. If Seller and Escrow Holder receive
Buyer's election to terminate this transaction or have not received any notice
from Buyer within the 10-day period, then this transaction shall terminate, and
the Deposit shall be returned to Buyer, as provided in Paragraph 6.3. If Buyer
elects to continue with this transaction, as provided above, then such Casualty
proceeds shall become the property of Buyer after Close of Escrow.
12. REMEDIES AGAINST SELLER. IF CLOSE OF ESCROW AND THE CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT DO NOT OCCUR BY REASON OF ANY
DEFAULT OR BREACH BY SELLER IN ITS OBLIGATION TO TRANSFER THE PROPERTY TO BUYER,
BUYER SHALL BE ENTITLED, AS ITS SOLE AND EXCLUSIVE REMEDY, TO EITHER: (I) SEEK
SELLER'S SPECIFIC PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT (WITHOUT
MONETARY DAMAGES) OR (II) SEEK RECOVERY OF "BUYER'S ACTUAL DAMAGES" AS DEFINED
BELOW. BUYER'S SELECTED REMEDY SHALL BE BUYER'S SOLE AND EXCLUSIVE REMEDY FOR
SUCH BREACH OR DEFAULT BY SELLER, AND BUYER SHALL NOT BE ENTITLED OR HAVE ANY
RIGHT TO RECEIVE ANY OTHER RELIEF, LEGAL OR EQUITABLE. FOR PURPOSES OF THIS
PARAGRAPH "BUYER'S ACTUAL DAMAGES" SHALL MEAN THE TOTAL OF THE FOLLOWING: (I)
THE AMOUNT OF THE DEPOSIT ACTUALLY DELIVERED TO ESCROW HOLDER BY BUYER,
INCLUDING ANY INTEREST EARNED THEREON, (II) THE COSTS PAYMENT, (III) AND THOSE
OUT-OF-POCKET EXPENSES PAID FOR DUE DILIGENCE REVIEW OF THE PROPERTY CONDUCTED
ON BUYER'S BEHALF AFTER THE EFFECTIVE DATE OF THIS AGREEMENT BUT PRIOR TO THE
DATE OF BREACH, AND ONLY TO THE EXTENT THE AMOUNTS SOUGHT DO NOT EXCEED THE
AMOUNTS SET FORTH IN BUYER'S DUE DILIGENCE BUDGET ATTACHED AS EXHIBIT "I".
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_________________ ________________
SELLER'S INITIALS BUYER'S INITIALS
13. GENERAL PROVISIONS.
13.1 ASSIGNMENT.
(a) This Agreement shall be binding upon and shall inure to
the benefit of Buyer and Seller and their respective successors and permitted
assigns.
(b) Buyer may only assign this Agreement and any interest
or right under this Agreement or under the Escrow after obtaining Seller's prior
written consent, in Seller's sole and absolute discretion. Any assignment shall
not relieve Buyer of its obligations under this Agreement.
13.2 ATTORNEYS' FEES AND/OR COSTS. In any action or proceeding
between the parties to enforce or interpret any of the terms or provisions of
this Agreement, the prevailing party in the action or proceeding shall be
entitled to recover from the non-prevailing party, in addition to damages,
injunctive relief or other relief, its reasonable costs and expenses, including,
without limitation, costs and reasonable attorneys' fees, both at trial and on
appeal.
13.3 NOTICES AND APPROVALS. All notices, approvals or other
communications (collectively, "Notices") required or permitted under this
Agreement shall be in writing, and shall be sent by one or more of the
following: (i) personally delivered, (ii) sent by overnight mail (Federal
Express or the like), (iii) sent by registered or certified mail, postage
prepaid, return receipt requested, or (iv) sent by facsimile (provided that a
follow-up hard copy of the facsimile is sent the same day by one of the other
above methods). Notices shall be deemed received upon the earlier of (i) if
personally delivered, the day of delivery, to the address of the person to
receive such Notice, (ii) if sent by overnight mail, the first business day
following its deposit in such overnight facility, (iii) if mailed, two (2)
business days after the date of posting by the United State Post Office, or (iv)
if by facsimile, the date of transmission. If multiple methods of providing
notice have been used, the earlier date of deemed notice shall govern. In order
to be effective, all Notices must be directed to the appropriate parties as
follows.
To Seller: K/B Fund II
c/o Koll Investment Management, Inc.
4343 Von Karman Avenue
Newport Beach, California 92660
Attention: Paula Gault, Senior Vice President
Telephone: (714) 852-5252, ext. 571
Facsimile: (714) 250-6055
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With a copy to: James Chiboucas, Esq.
4343 Von Karman Avenue
Newport Beach, California 92660
Telephone: (714) 833-3030, ext. 398
Facsimile: (714) 852-9472
To Buyer: Brandywine Realty Trust
Two Greentree Centre, Suite 100
Marlton, New Jersey 08053
Attention: Gerard H. Sweeney, President and CEO
Telephone: (609) 797-0200
Facsimile: (609) 797-0425 or (609) 797-0240
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With a copy to: Pepper, Hamilton & Scheetz
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, Pennsylvania 19103-2799
Attention: Brad Molotsky, Esq.
Telephone: (215) 981-4262
Facsimile: (215) 981-4930
To Escrow Holder: Chicago Title Company
16969 Von Karman Avenue
Irvine, California 92715
Attention: Joy Eaton
Telephone: (714) 263-0134
Facsimile: (714) 263-0356
13.4 CONTROLLING LAW. This Agreement shall be construed under the
laws of the State of Delaware in effect at the time of the signing of this
Agreement.
13.5 TITLES AND CAPTION. Titles and captions are for convenience
only and shall not constitute a portion of this Agreement. References to
paragraph numbers are to paragraphs in this Agreement, unless expressly stated
otherwise.
13.6 INTERPRETATION. As used in this Agreement, masculine,
feminine or neuter gender and the singular or plural number shall each be deemed
to include the others where and when the context so dictates. The word
"including" shall be construed as if followed by the words "without limitation."
If a dispute arises over the interpretation or construction of any provision,
term or word contained in this Agreement, this document shall be interpreted and
construed neutrally, and not against either Buyer or Seller.
13.7 NO WAIVER. A waiver by either party of a breach of any of
the covenants, conditions or obligations under this Agreement to be performed by
the other party shall not be construed as a waiver of any succeeding breach of
the same or other covenants, conditions or obligations of this Agreement.
13.8 MODIFICATIONS. Any alteration, change or modification of or
to this Agreement, in order to become effective, shall be made in writing and in
each instance signed on behalf of each party.
13.9 SEVERABILITY. If any term or provision of this Agreement, or
its application to any party or set of circumstances, shall be held, to any
extent, invalid or unenforceable, the remainder of this Agreement, or the
application of the term or provision to persons or circumstances other than
those as to whom or which it is held invalid or
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unenforceable, shall not be affected, and each shall be valid and enforceable to
the fullest extent permitted by law.
13.10 INTEGRATION OF PRIOR AGREEMENTS AND UNDERSTANDINGS. This
Agreement contains the entire understanding between the parties relating to the
transaction contemplated by this Agreement. All prior or contemporaneous
agreements, understandings, representations, warranties and statements, whether
oral or written, expressed or implied, are superseded in their entirety by this
Agreement, and are of no force or effect, in whole or in part.
13.11 NOT AN OFFER. Seller's delivery of unsigned copies of this
Agreement is solely for the purposes of review by Buyer, and neither the
delivery nor any prior communications between Buyer and Seller, whether oral or
written, shall in any way be construed as an offer by Seller, nor in any way
imply that Seller is under any obligation to enter the transaction which is the
subject of this Agreement. The signing of this Agreement by Buyer constitutes an
offer which shall not be deemed accepted by Seller unless and until Seller has
signed this Agreement and delivered a duplicate original to Buyer. If Seller has
not deposited a fully executed original or facsimile (or combination of
facsimile and original execution pages) of this Agreement with Escrow Holder by
August 16, 1996, any offer effectuated by Buyer's signing of this Agreement
shall be deemed revoked.
13.12 TIME OF ESSENCE. Time is expressly made of the essence as
to the performance of each and every obligation and condition of this Agreement.
13.13 POSSESSION OF PROPERTY. Buyer shall be entitled to
possession of the Property only after the Closing and not before.
13.14 COUNTERPARTS. This Agreement may be signed in multiple
counterparts which shall, when signed by all parties constitute a binding
agreement.
13.15 EXHIBITS INCORPORATED BY REFERENCE. All exhibits attached
to this Agreement are incorporated into this Agreement by this reference.
13.16 [OMITTED].
13.17 COMPUTATION OF TIME. The time in which any act is to be
done under this Agreement is computed by excluding the first day (such as the
Effective Date), and including the last day, unless the last day is a holiday or
Saturday or Sunday, and then that day is also excluded. All references to time
shall be deemed to refer to Eastern Standard time.
13.18 JOINT AND SEVERAL LIABILITY. If Buyer is composed of more
than one individual or entity, all obligations and liabilities of Buyer under
this Agreement shall be joint and several as to each of those individuals or
entities who compose Buyer.
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13.19 BUYER'S WORK PRODUCT CONCERNING THE PROPERTY. If for any
reason Buyer fails to purchase the Property, and as a condition to the return of
the Deposit to Buyer (if Buyer is so entitled), Buyer shall immediately deliver
to Seller, at no cost or expense to Seller, all test results, studies, plans,
reports or other materials or work product prepared by Buyer, or its agents,
employees or contractors, related to the Property ("work product"). Following
delivery, Seller may use this work product for any purpose.
13.20 NO OBLIGATIONS TO THIRD PARTIES. The execution and delivery
of this Agreement shall not be deemed to confer any rights upon, nor obligate
any of the parties to this Agreement to, any person or entity other than Seller
and Buyer. There are not any third party beneficiaries to this Agreement,
including, without limitation, Broker.
13.21 SURVIVAL OF COVENANTS. The covenants, agreements,
indemnitees, representations and warranties of Buyer shall survive the Close of
Escrow and termination of this Agreement.
"SELLER" "BUYER"
K/B Fund II, a Delaware general Brandywine Realty Trust, a
partnership Maryland business trust
/s/ Gerard H. Sweeney
By: K/B Opportunity Fund II, L.P., a By: _____________________
Delaware limited partnership, Gerard H. Sweeney,
managing general partner President and CEO
By: KB Opportunity Investors, a Attest/Witness
California general partnership,
sole general partner _____________________
By: Koll Investment Management, Inc., _____________________
a California corporation, (Print Name)
general partner
/s/ Charles J. Schreiber, Jr.
Attest/Witness By: _____________________________
Charles J. Schreiber, Jr.
____________________ Executive Vice President
____________________
(Print Name)
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EXHIBIT 10.49
REINSTATEMENT AND FIRST AMENDMENT TO
PURCHASE AGREEMENT FOR REAL PROPERTY AND ESCROW INSTRUCTIONS
This Reinstatement and First Amendment to Purchase Agreement For Real
Property And Escrow Instructions ("First Amendment") is entered into as of
October 17, 1996 ("Effective Date") between K/B FUND II, a Delaware general
partnership ("Seller") and BRANDYWINE REALTY TRUST, a Maryland business trust
("Buyer"). Any terms not defined in this First Amendment shall have the same
meanings as in the Purchase Agreement defined below. All paragraph references
are to paragraphs in the Purchase Agreement.
RECITALS
A. Buyer and Seller entered into that certain Purchase Agreement For Real
Property And Escrow Instructions dated as of August 12, 1996 (the "Purchase
Agreement"), for certain real property commonly referred to as Delaware
Corporate Center I, New Castle County, Delaware.
B. On or about September 6, 1996, Buyer terminated the Purchase Agreement.
C. By this First Amendment, Seller and Buyer desire to reinstate and amend the
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth below and for valuable consideration which is acknowledged, the
parties agree as follows:
1. Reinstatement. The Purchase Agreement, subject to the modifications
and terms provided below, is hereby reinstated and in full force and effect.
2. Deposit. Concurrent with or prior to the delivery of this First
Amendment, Buyer shall deliver to Escrow Holder the One Hundred Thousand Dollars
($100,000) "Initial Deposit" provided for under Paragraph 2.3(a)(i) of the
Purchase Agreement. Except in the event of Seller's breach of this Agreement and
except as expressly provided otherwise in the Agreement, the Initial Deposit
shall be immediately non-refundable. Paragraphs 2.3(a)(ii) and 2.3(a)(iii) are
hereby deleted and replaced with the following Paragraph 2.3(a)(ii):
"(ii) Handling and Non-Refundablity of Deposit. For purposes of
this Agreement, the term "Deposit" shall mean the Initial
Deposit, if and until such time as the Escrow Holder has received
the Additional Deposit (as defined in Paragraph 2.5(c)),
after which the term "Deposit" shall collectively mean both the
Initial Deposit and Additional Deposit (i.e. $400,000). Escrow
Holder shall place the Deposit in an interest bearing account and
all earned interest shall accrue to
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Buyer's benefit, unless Seller is entitled to the Deposit as
liquidated damages under Paragraph 6.5, in which event, interest
shall accrue to Seller's benefit. For purposes of this Agreement,
any accrued interest shall be deemed part of the "Deposit"."
The phrase "upon which Buyer shall deliver the Additional Deposit to Escrow
Holder" in Paragraph 3.2.2 is also hereby deleted.
3. Outside Date. Paragraph 2.5 is deleted and replaced with the
following:
"2.5 OUTSIDE DATE.
(a) Outside Date. The last day that Closing may occur shall be
5:00 p.m. on November 15, 1996 ("Outside Date").
(b) Seller's Right to Extend. Seller shall have the right to
extend the Outside Date up to and including December 16, 1996 by
delivery of written notice to Buyer and Escrow Holder of the
intended extended Outside Date by no later than 5:00 p.m. on
November 7, 1996.
(c) Buyer's Right to Extend. Buyer shall have the right to extend
the Outside Date to December 16, 1996 by satisfying both of the
following: (i) delivery to Seller and Escrow Holder by no later
than 5:00 p.m. on November 7, 1996 of written notice of the
extension of the Outside Date to December 16, 1996 and (ii)
delivery to Escrow Holder of an additional deposit of Three
Hundred Thousand Dollars ($300,000) ("Additional Deposit").
Except in the event of Seller's breach of this Agreement and
except as expressly provided otherwise under this Agreement, the
Additional Deposit shall also become immediately non-refundable."
4. Feasibility Period. Paragraph 2.7 is amended to provide that the
"Feasibility Period" ended on October 17, 1996 at 5:00 p.m.
5. Satisfaction Or Waiver Of Conditions. Buyer acknowledges and agrees
that the Paragraph 3.1 (Title Condition), Paragraph 3.2 (Feasibility Condition),
Paragraph 3.5 (Tenant Estoppel Certificate) and Paragraph 3.6 (Ground Lessor
Estoppel Certificate) conditions precedent to Buyer's performance have been
conclusively satisfied or are hereby waived by Buyer.
6. Scott Lease Representation and Warranty. The following Paragraph
9.1(f) is added to the Purchase Agreement:
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"(f) Seller has not entered into any valid and binding written
agreement with the existing tenant under the Scott Lease requiring Seller to
accept such tenant's buy-out or termination of the Scott Lease (except where
such termination is specifically permitted under the terms of the Scott Lease
(i.e. condemnation, etc.)).
7. Kimberly-Clark Negotiations. Notwithstanding the terms of Paragraph
10.2(b), effective as of the date of this First Amendment: (i) Seller shall not
execute any written Scott Buy-Out Arrangement (as defined in Paragraph 10.2(b))
documentation that would be legally binding on Buyer after the Closing, without
Buyer's consent, and (ii) Seller's Kimberly-Clark Termination Rights (as defined
in Paragraph 10.2(b)) shall terminate and be of no further force or effect.
8. Buyer's Work Product. Paragraph 13.19 is deleted and replaced with
the following:
"13.19 BUYER'S WORK PRODUCT CONCERNING THE PROPERTY. If for any
reason Buyer fails to purchase the Property, and as a condition
to the return of the Deposit to Buyer (if Buyer is so entitled),
Buyer shall immediately deliver to Seller (to the extent it has
not already done so), at no cost or expense to Seller, all of the
following (collectively, "Buyer's Work Product"):
A. The Phase I Environmental Assessment as set forth on the
Proposal, Phase I Environmental Assessments, McLaren/Hart
No.: PH96-0170, September 4, 1996, Prepared for Brandywine
Realty Trust, Prepared by McLaren/Hart Environmental
Engineering Corporation (already delivered to Seller).
B. The Property Condition Report as set forth in the
September 6, 1996, Proposal for Property Condition Report
Services, Delaware Corporate Center One, Newcastle County,
Delaware, Comm. No. 96-214-005, prepared for Brandywine
Realty Trust, prepared by Eckland Consultants, Inc (already
delivered to Seller).
C. An update by Tetra-Tech of its June, 1995 survey for the
Property.
D. All other test results, studies, plans, reports or other
materials and work product prepared by Buyer, or its
agents, employees or contractors related to the Property .
Following delivery, Seller may use the Buyer's Work Product for
any purpose. Buyer shall not enter into any terms, covenants, or
agreements with any preparers of any of Buyer's Work Product that
prohibits delivery or disclosure of Buyer's Work Product to
Seller."
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9. Exhibits. The parties acknowledge and agree that the Exhibit "B"
attached to this First Amendment shall constitute the Exhibit "B" to the
Purchase Agreement. The parties also acknowledge and agree that the Exhibit "E"
attached to this First Amendment shall be deemed the Exhibit "E" to the Purchase
Agreement.
10. Entire Agreement. This First Amendment contains the entire
understanding between the parties relating to its subject matter.
11. No Further Modification. Except as specifically set forth in this
First Amendment, the Purchase Agreement is not modified in any way and shall
remain in full force and effect.
12. Facsimile and Counterparts. This First Amendment shall be effective
even if signed by facsimile and/or in counterparts.
SELLER: BUYER:
K/B FUND II, a Delaware general BRANDYWINE REALTY TRUST,
partnership a Maryland business trust
By: K/B Opportunity Fund II, L.P.,
a Delaware limited partnership,
managing general partner By: /s/ Gerard H. Sweeney
______________________
Gerard H. Sweeney,
By: KB Opportunity Investors, President and CEO
a California general
partnership, sole general Attest/Witness
partner
______________________
By: Koll Investment Management,
Inc., a California corporation, ______________________
general partner (Print Name)
By: /s/ Charles J. Schreiber, Jr.
_____________________________
Charles J. Schreiber, Jr.
Executive Vice President
Attest/Witness
____________________
____________________
(Print Name)
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EXHIBIT 10.50
REAL ESTATE SALE AND PURCHASE CONTRACT
THIS CONTRACT ("Contract") is made and entered into as of the ____ day
of August, 1996 (hereinafter referred to as "the date hereof"), by and between
MONUMENTAL LIFE INSURANCE COMPANY,
a Maryland corporation, (hereinafter referred to as "Seller"), and
BRANDYWINE REALTY TRUST,
a Maryland real estate investment trust (hereinafter referred to as
"Purchaser").
WHEREAS, Seller owns the office building, real property and
related improvements located at 8000 Lincoln Drive, Marlton, Evesham Township,
Burlington County, New Jersey commonly known as and hereinafter referred to as
"8000 Lincoln Drive", which office building Seller has agreed to sell to
Purchaser upon certain terms and conditions; and
WHEREAS, the parties intending to be legally bound desire to set forth
in writing the terms and conditions of their agreements, NOW THEREFORE,
WITNESSETH:
That in consideration of the promises and covenants hereinafter
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually agree
as follows:
l. AGREEMENT TO PURCHASE AND SELL.
A. Seller agrees to sell to Purchaser and Purchaser agrees to purchase
from Seller, subject to the terms and conditions of this Contract, 8000 Lincoln
Drive, which property consists of the following (all of which shall hereinafter
be collectively referred to as the "Property"):
(i) That certain tract or tracts of land (the "Land") being more
particularly described on Exhibit "A" attached hereto, together with all
appurtenances to the Land including, without limitation, all easements, rights,
serviant estates and rights of way appurtenant thereto;
(ii) All buildings, improvements, structures and fixtures, placed,
constructed, installed, or located on the Land, together with the parking
facilities related thereto, and all other improvements situated on, over and
under the Land ("Improvements");
(iii) All of the furniture, furnishings, fixtures, fittings,
appliances, apparatus, systems, equipment, tools, supplies and machinery owned
by Seller and located on the Property (the "Personal Property");
(iv) All leases and rental agreements with tenants now or hereafter
occupying space in the Improvements or otherwise having rights with respect to
the use of the Land or the Improvements (the "Tenant Leases") and the Seller's
interest in all security, advance rental, or other deposits made under the
Tenant Leases; and
(v) All rights of Seller, if any, to the name the "8000 Lincoln Drive",
including, if and only to the extent owned by Seller, the exclusive right to use
the name.
2. PURCHASE PRICE AND METHOD OF PAYMENT.
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A. The total purchase price for the Property to be paid by Purchaser is
Three Million One Hundred Thousand Dollars ($3,100,000.00), payable in cash by
Purchaser at Closing.
B. Within three (3) business days after the date hereof, Purchaser
shall deliver to Commonwealth Land Title Insurance Company, whose address is
1700 Market Street, Philadelphia, PA, 19103 Attention: Karen Mark (hereinafter
referred to as the "Title Company") an initial earnest money payment (the
"Deposit") in the amount of Fifty Thousand Dollars ($50,000.00).
C. Purchaser shall deliver to the Title Company an additional earnest
money payment in the amount of One Hundred Thousand Dollars ($100,000.00), upon:
(i) Seller's finalization of leases with Computer Sciences Corporation and with
Blue Cross Blue Shield, and Purchaser's approval of those leases; or (ii)
expiration of the Inspection Period, whichever first occurs. That additional
earnest money payment shall become part of the Deposit which shall be refundable
until the expiration of the Inspection Period.
D. The Deposit shall be placed by the Title Company in an interest
bearing account with all interest earned thereon to be for the benefit of the
Purchaser, except as provided below. The interest accruing on the Deposit and
any additional earnest money amounts paid in conjunction with this Contract
shall also become part of the Deposit. If the Purchaser shall default and the
Deposit is paid to Seller, the Seller shall also become entitled to all earned
and accrued interest on the Deposit. The Deposit shall be held during the
pendency of this Contract and disbursed in accordance with the terms hereof. In
the event the transactions covered hereby shall close, at Closing the Deposit
shall, at Seller's option, be credited towards the Purchase Price or returned to
Purchaser.
3. PERMITTED TITLE EXCEPTIONS.
The Property is being sold in fee simple title, subject to the
following exceptions:
A. Zoning and building laws or ordinances;
B. Parties in possession on the date of Closing, as tenants only
pursuant to the Tenant Leases;
C. The liens of real estate taxes which are not yet due and
payable;
D. Title exceptions as to the Property as set forth on Exhibit
"B" attached hereto;
E. Matters shown on the survey of the Property prepared by John
T. Butler, dated March 19, 1990 and revised through April 11,
1990.
(A through E above are hereinafter collectively referred to as
"Permitted Exceptions").
4. CLOSING.
Consummation of the transactions contemplated by this Contract
(the "Closing") will be held at or closed in escrow through the offices of the
Title Company on a day and at a time mutually agreeable to the parties on or
before October 23, 1996. In the absence of a different specified date in
accordance with this paragraph, the Closing shall take place at 9:00 A.M., on
the above stated date, (hereinafter referred to as the "Closing Date").
5. INSPECTION PERIOD.
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Purchaser shall have until September 30, 1996 (hereinafter
referred to as the "Inspection Period"), to inspect the Property and Seller's
records relating thereto, to determine in Purchaser's sole discretion whether
the Property is suitable for its investment. Seller shall make the Property and
every part thereof available for Purchaser's inspection. Any destructive testing
by Purchaser or their agents shall be done only with the prior written consent
of Seller, which shall not be unreasonably withheld. Purchaser agrees to
promptly repair any damage occasioned by Purchaser's tests and/or inspections.
Purchaser agrees to indemnify and hold Seller harmless from any expense of
Purchaser's inspections performed by third parties, including reasonable
attorney's fees and any other costs incurred by Seller to remove any liens
therefor, and from liability for any personal injury or property damage arising
from Purchaser's, its employees' and agents' presence on the Property prior to
Closing. Notwithstanding anything to the contrary contained herein, Purchaser's
agreements in this paragraph to repair and indemnify shall survive the Closing
and/or termination of this Contract.
If Purchaser is not satisfied with the Property for any
reason, Purchaser may terminate this Contract by giving written notice to Seller
on or before September 30, 1996. If no such notice is received by Seller on or
prior to such date, Purchaser's option to so terminate shall expire and be of
any further force and effect. If Purchaser elects to terminate as provided
herein, upon Purchaser's compliance with Paragraph 7 (C) hereof, Purchaser's
Deposit shall be refunded, this Contract shall be terminated and neither party
shall have any further rights or obligations hereunder.
6. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants that:
A. Attached hereto as Exhibit "C" is a true and complete rent
roll of the Property as of the date set forth thereon. Except as disclosed on
Exhibit "C," to Seller's actual knowledge, (i) no tenant is in default under its
lease, and (ii) Seller has not received notice that it is in default as landlord
under any Tenant Lease.
B. Seller has no actual knowledge, without having performed
any investigation or inquiry, other than: (i) the Environmental Assessment
report prepared by Synertech Incorporated, dated March 28, 1990; (ii) the
Underground Storage Tank Closure Activities report prepared by The Needleman
Group, dated July 31, 1990; (iii) the letter of Stephen M. Trautman dated August
15, 1990; (iv) the Phase I Environmental Site Assessment and Environmental
Sampling report prepared by Furgo Environmental, Inc., dated May 3, 1995; and
(v) the Environmental Radius Map Report of Dunn & Bradstreet, dated January 11,
1996, (hereinafter collectively referred to as the "Reports") of the presence on
or contamination of the Property or any part thereof by any toxic or hazardous
substances, or underground storage tanks except as may be set forth in the
Reports. Seller does not warrant the accuracy or completeness of the Reports.
Purchaser may conduct such investigations of the Property in this regard as it
may deem advisable to assure Purchaser that the Property is not contaminated. As
per the last unnumbered paragraph of Paragraph No. 5 above, Purchaser may on or
before September 30, 1996, terminate this Contract for any reason by written
notice to Seller. If any investigations of the Property by Seller disclose any
contamination other than as indicated in the Reports, Purchaser shall provide
Seller with a copy of the results of the investigation showing contamination.
Upon such termination, this Contract shall be null and void, and upon return
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<PAGE> 4
to Seller of all materials concerning the Property furnished by Seller and any
copies made of those materials, Purchaser's Deposit shall be promptly refunded
and neither party shall have any further obligations hereunder.
C. There is no pending, or to Seller's actual knowledge, any
threatened litigation which will affect the Property or Purchaser's ownership
thereof after Closing, or the performance of Seller hereunder.
D. Seller has received no notice of (i) any planned
condemnation proceeding which would affect the Property or any part thereof,
(ii) any pending special assessments against the Property, or (iii) any increase
in the taxable value of the Property, other than normal, periodic evaluations.
E. There are no contracts or agreements (other than the Tenant
Leases, contemplated tenant leases as per Paragraph 2 (c), contemplated
construction contracts as per Paragraph 7 (D) and Permitted Exceptions) which
will affect the Property or Purchaser's operation thereof after Closing.
F. Seller has received no notice and has no actual knowledge
(without having performed any investigation or inquiry) that the Property or the
use thereof is in violation of any governmental law, rule or ordinance
applicable thereto, including zoning laws or ordinances. Notwithstanding the
foregoing, Seller makes no representation as to the compliance of the Property
or Improvements with the American With Disabilities Act and Purchaser
acknowledges that it is purchasing the Property on an "AS IS" basis in regard to
such compliance.
G. Seller is a corporation, duly organized, in good standing
and has been duly authorized to enter into and perform its agreements under this
Contract.
H. As of the Closing Date, no persons shall be employed in
connection with the management, operation, or maintenance of the Property for
whom Purchaser shall have any liability whatsoever after the Closing.
I. To the best of Seller's actual knowledge, there are no
pending or threatened assessments or charges that would affect the Property, or
that would increase the assessed value of any portion of the Land or the
Property.
J. That Seller has not granted, nor to the best of Seller's
actual knowledge are there outstanding, any options, rights of first refusal,
conditional sales agreements or other arrangements other than Tenant Leases,
whether oral or written, which affect any portion of the Property.
K. Other than the Assumed Expenses, all debts, liabilities and
obligations incurred by Seller arising out of the construction, ownership and
operation of the Property including, but not limited to, construction costs,
salaries, taxes, accounts payable, and the like will be brought current by
Seller through the date of Closing.
L. Seller has not conducted or to its knowledge, permitted any
activity on the Property, or used or permitted the use of the Property, in any
manner involving hazardous materials (as defined under applicable federal or
state statues, rules or regulations).
M. To the best of Seller's actual knowledge there are no
outstanding notices of uncorrected violations of the building, safety, plumbing,
electrical, health, zoning or fire ordinances of the city, county, state or
municipality in which the Property is located.
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<PAGE> 5
N. Except for the Assumed Contracts, as of the Closing Date
there will be no management, service, supply, security, maintenance, or similar
contracts with respect to or affecting the Property.
7. COVENANTS AND AGREEMENTS.
A. Between the date hereof and the Closing, Seller shall not enter into
any new agreements or contracts affecting the Property, nor shall Seller enter
into any new lease or modify or terminate any existing Tenant Lease without the
prior written consent of Purchaser, which consent Purchaser agrees shall not be
unreasonably withheld. Notwithstanding the above provisions to the contrary,
Seller shall be permitted to enter into the tenant leases as set forth in
section (D) below and also into the Contracts defined in that section without
any further consent of Purchaser.
B. Seller agrees to give Purchaser prompt written notice of any matter
coming to the knowledge of Seller which would render any of the representations
and warranties of Seller contained herein untrue in any material respect. In the
event such change or disclosure shall have a material detrimental effect upon
the Property or the value thereof, Purchaser, as its sole remedies, shall have
the right to either: (i) terminate this Contract by written notice to Seller
such that Seller receives the notice no later than the fifth (5th) day after
Purchaser's receipt of Seller's notice as to such change or disclosure; or (ii)
waive such condition(s) and close. Upon termination, Purchaser's Deposit shall
be promptly returned and neither party shall have any further rights or
obligations hereunder. Absent such timely written notice of termination,
Purchaser shall be deemed to have waived the matters so disclosed.
C. Purchaser acknowledges and agrees that all information and materials
provided to Purchaser by Seller in conjunction with this transaction are for
Purchaser's sole use and benefit as a prospective purchaser on a strictly
confidential basis. All information provided is to be treated as proprietary and
confidential and is not to be disclosed or disseminated to third parties, except
appropriate information may be provided to potential investors, advisors and
lenders who have agreed to abide by these terms of confidentiality. Purchaser's
obligations as to confidentiality are ongoing and shall continue until such time
as the purchase of the Property has been finalized. In the event the Purchaser's
purchase of the Property is not consummated for whatever reason, Purchaser's
obligations as to confidentiality shall continue and all materials concerning
the Property furnished by Seller and any copies made of those materials are to
be promptly returned to Seller at Purchaser's expense.
D. Purchaser agrees to assume in full all tenant improvement costs and
leasing commission expenses for which the Seller as landlord is responsible
pursuant to the Computer Sciences Corporation and Blue Cross Blue Shield leases.
Purchaser acknowledges that the amounts so assumed are currently estimated to be
approximately $700,000.00 as to the Computer Sciences Corporation lease and
approximately $570,000.00 as to the Blue Cross Blue Shield lease. In addition,
Purchaser shall be responsible for all other building and capital improvement
expenses incurred by Seller associated with or resulting from the above two
leases, which additional expenses are currently estimated at $200,000.00. All
such amounts shall herein be referred to collectively as "Assumed Expenses".
Purchaser shall reimburse Seller at Closing for that portion of the Assumed
Expenses actually paid by Seller, if any. In the event, however, either of the
above tenants has commenced paying monthly rental prior to the
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<PAGE> 6
Closing, the tenant improvement expenses and leasing commissions shall be
prorated over the term of the lease with Purchaser being responsible for only
the prorata share allocable to the portion of the lease term from and after the
date of Closing. At Closing, as provided in attached Exhibit "D", Purchaser
shall assume all of Seller's obligations, responsibilities and liabilities under
the construction contracts for the above projects (herein referred to as the
"Contracts") , which Contracts including Addendum and General Conditions of the
Contract for Construction shall be in the general form of Exhibit "G" attached
hereto.
8. TITLE AND SURVEY.
A. Within its Inspection Period, Purchaser shall procure at Purchaser's
expense, and deliver or cause to be delivered to Seller a copy of a commitment
covering the Property issued by the Title Company, binding the Title Company to
issue its standard form owner's policy of title insurance to Purchaser in the
amount of the purchase price, together with certified copies of all exceptions
to title coverage listed therein. Purchaser shall have until the expiration of
its Inspection Period to notify Seller in writing of any defects in or
encumbrances upon Seller's title to the Property (other than the Permitted
Exceptions). Any matters not so timely objected to shall become Permitted
Exceptions.
Seller shall have until five (5) days prior to Closing to cure the
objections (or to make arrangements to so cure at Closing), including any survey
objections made pursuant to Paragraph 8(B) below, but shall have no obligation
to do so. Unless the parties agree in writing to extend the Closing date, if any
objections are not cured by the scheduled date of Closing, Purchaser may, as its
sole and exclusive remedies, either (i) terminate this Contract and receive a
refund of the Deposit, whereupon neither party shall have any further obligation
hereunder, or (ii) waive such defects and take the title as it then is upon
giving to Seller written notice of such election no later than three (3) days
prior to Closing and tendering performance on its part. In the absence of such
notice, Purchaser shall be deemed to have elected to terminate this Contract.
B. Prior to the expiration of its Inspection Period, if required by
Purchaser, Purchaser may obtain at Purchaser's expense and deliver a copy to
Seller forthwith upon Purchaser's receipt an updated survey of the Property
certified to Seller, Purchaser and the Title Company and object, in writing, to
any new matter shown thereon. Purchaser shall have ten (10) days following
Purchaser's receipt of the survey within which to object to Seller, in writing,
to any new matter shown thereon. Purchaser shall be conclusively deemed to have
accepted all matters that would be disclosed by an accurate survey unless such
written objections are timely delivered to Seller. Seller shall have ten (10)
days following receipt of Purchaser's written objections in which to either (i)
remove any survey objections to Purchaser's reasonable satisfaction; or (ii)
notify Purchaser of Seller's intention to do so prior to Closing. If Seller does
not remove the survey objections or notify Purchaser of Seller's intention to do
so, this Contract shall be deemed terminated unless within five (5) days of the
expiration of the above ten (10) day period Purchaser notifies Seller in writing
of Purchaser's election to waive those objections and proceed to close. In the
event of termination of this Contract, Purchaser's Deposit shall be refunded
upon Purchaser's compliance with Paragraph 7 (C) hereof.
9. ITEMS TO BE DELIVERED AT THE CLOSING.
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A. At Closing, Seller shall deliver the following:
(1) Special Warranty Deed for the Property in the form
attached hereto as Exhibit "E" (modified as necessary to comply with state law
or local law requirements), conveying to Purchaser fee simple title to the
Property, subject only to the Permitted Exceptions.
(2) A blanket conveyance, bill of sale and assignment (the
"Bill of Sale"), conveying and assigning title with covenants of special
warranty to Purchaser, free and clear of all liens and encumbrances (other than
the Permitted Exceptions), the Personal Property, the Tenant Leases, the
Contracts, and rights, if any, to the name of the Property; such instrument to
be in form attached hereto as Exhibit "D".
(3) A rent roll (the "Rent Roll") for the Property, certified
by Seller to be true, complete and correct as of the Closing Date and reflecting
the status of tenant delinquencies, if any, existing as of the Closing Date.
(4) All keys in Seller's possession or control to all locks on
the Property and to the extent they are in Seller's possession, executed
originals or counterparts of all Tenant leases.
(5) A certificate in the form of attached Exhibit "F" from
Seller, certifying that Seller is a non-foreign entity.
(6) Possession of the Property.
(7) Affidavits required by the Title Company regarding matters
of mechanic liens or claims against title not of record, provided that any such
affidavit or indemnity shall be limited to matters or claims by, through, or
under Seller but not further or otherwise, and further provided the same are
reasonable, appropriate and acceptable in form and substance to Seller.
(8) Seller shall use its best efforts (without incurring
additional expense and without being obligated to institute litigation) to
obtain an executed tenant estoppel letter in the form of Exhibit "H" from
Computer Sciences Corporation and Blue Cross Blue Shield. In the event Sellers
cannot for any reason obtain a tenant estoppel letter from either of said
tenants, Purchaser agrees to rely on the Seller's (Landlord) estoppel letter,
covering only the period of Sellers' actual ownership of the Property, in the
form of Exhibit "I".
B. Action at the Closing by Purchaser.
On the date of Closing, Purchaser shall deliver to the Seller
by wire transfer the amount required by Paragraph 2 hereof, subject to
prorations and credits as contemplated herein. Purchaser shall execute and
deliver to Seller at Closing a copy of the Bill of Sale evidencing Purchaser's
assumption of the Tenant Leases and Contracts. The parties shall execute
"Notices to Tenants" advising tenants of the sale and Purchaser agrees to
deliver, or cause to be delivered, such notices to each tenant after Closing.
10. CLOSING PRORATIONS.
Purchaser shall obtain its own insurance coverage for the Property at
Closing. Property expenses, including water, sewer and services, collected rents
and ad valorem taxes on the Property for the current year shall
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be prorated at the Closing, effective as of the Closing Date, based on the
Property's 1997 assessed value of $3,000,000.00, with the prorations to be
adjusted in cash between the parties based on actual taxes at the time actual
taxes are determined. Purchaser acknowledges that a result of Seller's
assessment appeal as to the Property, the 1997 assessed value has been set at
$3,000,000.00, which value is binding upon both parties.
Tenant security deposits in the possession of Seller and prepaid rents
shall be credited to Purchaser. Purchaser will purchase from Seller, at face
value, all account receivables of tenants whose entire account is less than
thirty (30) days delinquent. Purchaser shall remit as collected Seller's
pro-rata share of any annual tenant reimbursements. Seller agrees to promptly
deliver to Purchaser, Purchaser's prorata share of any rents collected by Seller
from the Property after Closing. Rents collected after Closing shall be
allocated first to rents THEN DUE Purchaser, if any, and then to delinquent
rents due Seller. After Closing, Purchaser agrees to use reasonable efforts to
collect delinquent rentals due Seller, but Purchaser shall not be required to
institute legal action therefor. Any delinquent rents and/or tenant
reimbursements which remain the property of Seller and are collected by
Purchaser after Closing shall be delivered promptly to Seller by Purchaser.
Seller may, upon notice to Purchaser, collect directly any of its account
receivables from the Property which remain unpaid sixty (60) days after Closing.
Upon request, either party shall give the other an accounting of amounts
collected from such Tenants after Closing. Seller shall cause all utility meters
to be read on the Closing Date and Purchaser shall be responsible for having
utilities connected on such date in its own name. Pursuant to Paragraph 7 (D)
above, certain lease related costs and expenses may be reimbursed to Seller at
Closing.
11. CLOSING COSTS.
Purchaser shall pay the cost of the owner's standard title insurance
policy and any additional endorsements and coverages ordered by Purchaser, the
costs of an updated survey if required, and recording fees for the deed. Seller
shall pay the cost of the real estate transfer tax. The parties shall each pay
one-half of the Title Company escrow fees, if any. Each party shall bear its own
attorney's fees.
12. REMEDIES UPON DEFAULT.
IF PURCHASER SHALL DEFAULT IN ITS PERFORMANCE OF THIS CONTRACT,
PURCHASER AND SELLER AGREE IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO
FIX THE DAMAGES WHICH SELLER MAY SUFFER. THEREFORE, PURCHASER AND SELLER HEREBY
AGREE A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT SELLER WOULD SUFFER IN
THE EVENT PURCHASER DEFAULTS AND FAILS TO COMPLETE THE PURCHASE OF THE PROPERTY
IS AND SHALL BE, AS SELLER'S SOLE AND EXCLUSIVE REMEDY (WHETHER AT LAW OR IN
EQUITY), AN AMOUNT EQUAL TO THE DEPOSIT. SAID AMOUNT SHALL BE THE FULL, AGREED
AND LIQUIDATED DAMAGES FOR THE BREACH OF THIS CONTRACT BY PURCHASER, ALL OTHER
CLAIMS TO DAMAGES OR REMEDIES BEING HEREIN EXPRESSLY WAIVED BY SELLER. THE
PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR
PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER. UPON SUCH
DEFAULT BY PURCHASER, THIS AGREEMENT SHALL BE TERMINATED AND NEITHER PARTY
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SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS HEREUNDER, EACH TO THE OTHER EXCEPT
FOR THE RIGHT OF SELLER TO RECEIVE SUCH LIQUIDATED DAMAGES FROM THE TITLE
COMPANY. NOTWITHSTANDING THE FOREGOING, SELLER SHALL BE ENTITLED TO RECEIPT OF
ATTORNEY'S FEES, SHOULD PURCHASER REFUSE TO DIRECT THE TITLE COMPANY TO DELIVER
THE DEPOSIT TO SELLER AND SELLER PREVAILS IN OBTAINING THE DEPOSIT BY SUIT OR
OTHER COLLECTION EFFORTS.
If Seller shall default in its performance of this Contract, the
Purchaser may, as its sole and exclusive remedies elect to (i) terminate this
Contract and receive a refund of the Deposit, (ii) enforce specific performance
of this Contract or (iii) sue Seller for damages, which damages the parties
agree shall be limited to an amount not to exceed the initial Deposit.
Except for failure to close on the specified Closing Date, for which
default no notice or cure period is required, prior to a declaration of default,
the declaring party shall give the defaulting party written notice specifying
the default. The defaulting party shall have five (5) business days from receipt
of such notice to cure the default. If the cure period extends beyond the
scheduled date of Closing, the Closing Date shall be postponed to the last day
of the cure period.
In the event either party hereto employs an attorney and commences
legal action because of the other party's default, then the non-prevailing party
shall pay to the prevailing party reasonable attorney's fees incurred in the
enforcement of this Contract.
If the sale contemplated herein does not close for any reason,
Purchaser shall promptly return to Seller all materials concerning the Property
furnished by Seller and any copies made of those materials. If Purchaser is
entitled to a return of its Deposit, such Deposit shall not be released until
all such materials concerning the Property are returned to Seller at Purchaser's
expense.
13. RISK OF LOSS.
A. Until Closing, all risk of loss of the Property is on the
Seller and if, prior to Closing, the Property shall become damaged by fire or
other casualty or become the object of any condemnation proceedings, Purchaser
may, as its sole and exclusive remedies, elect to either (i) terminate this
Contract and receive a refund of its Deposit, or (ii) proceed with the Closing
and receive an assignment in form acceptable to Purchaser of all insurance
proceeds or awards for such taking. If the Property is damaged prior to Closing,
the cost of repair of which is in excess of One Million Five Hundred Thousand
Dollars ($1,500,000.00), Seller may elect to terminate this Contract by written
notice to Purchaser. Any election allowed hereunder shall be made in writing no
later than the earlier of (i) the scheduled date of Closing, or (ii) ten (10)
days after a party's receipt of notice of such damage or proceeding.
B. Except for injury or damages caused by the deliberate act
or omission of Seller, its employees, agents or contractors, Purchaser assumes
all liability for personal injury or property damage occurring on the Property
on and after the Closing Date and agrees to indemnify and hold Seller harmless
from any claim, loss or cause of action arising therefrom. Except for injury or
damages caused by the deliberate act or omission of
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Purchaser, its employees, agents or contractors, Seller agrees to indemnify and
hold Purchaser harmless from any claim, loss or cause of action for personal
injury or property damage occurring prior to the Closing Date. This indemnity is
in addition to and not in substitution for any other indemnity given by either
party in this Contract or in the documents delivered at Closing pursuant hereto.
14. NOTICES.
All notices and demands herein required shall be in writing. Whenever
any notice, demand or request is required or permitted hereunder, such notice,
demand or request shall be hand-delivered personally or by express mail, courier
service (both with delivery receipt), or electronically verifiable facsimile
transmission or sent by United States Mail (registered or certified) postage
prepaid, to the addresses set forth below.
As to Seller: Monumental Life Insurance Company
c/o AEGON USA Realty Advisors, Inc.
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499
Attention: Bill Sindlinger
Fax Number: (319) 369-2188
Telephone Number: (319) 369-2552
As to Purchaser: Brandywine Realty Trust
Attn: Gerard H. Sweeney, President
Newtown Square Corporate Campus
16 Campus Blvd., Suite 150
Newtown Square, PA 19073
Fax Number: (610) 325-5622
Telephone Number: (610) 325-5600
With a copy to: Brad Molotsky
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103 - 2799
Fax Number: (215) 981-4930
Telephone Number: (215) 981-4262
Any notice, demand or request which shall be given in the manner
aforesaid shall be deemed sufficiently given for all purposes hereunder (1) at
the time such notices, demands or requests are hand-delivered (which shall be
deemed to include delivery by express mail or courier service or transmission by
telefax facsimile) or (2) the day such notices, demands or requests are posted,
postage prepaid, in the United States Mail in accordance with the preceding
portion of this paragraph, provided however, time for response to any such
notice shall commence upon receipt at the address specified. Notice by telefax
transmission shall be given on a non-banking holiday weekday between the hours
of 9:00 a.m. to 5:00 p.m. (at the destination) or shall be deemed received on
the next such day and time.
15. TIME OF ESSENCE.
Time is of the essence of this Contract.
16. REAL ESTATE BROKERS.
Purchaser and Seller covenant and represent to each other that, to
their knowledge, there is no party entitled to a real estate commission,
finder's fee, cooperation fee, or other brokerage-type fee or similar
compensation in connection with the Contract and the transactions contemplated
hereby except for The Rubin Organization, Inc.,
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<PAGE> 11
whose fee shall be due and payable if and only if the transaction contemplated
herein actually closes and shall be paid by Seller at Closing, pursuant to a
separate agreement. Each party agrees to hold the other harmless from and
against any claim for a commission or fee from any other broker or agent
claiming by or though the indemnifying party.
17. ENTIRE AGREEMENT.
This Contract contains all of the agreements, representations and
warranties of the parties hereto and supersedes all other discussions,
understandings or agreements in respect to the subject matter hereof. All prior
discussions, understandings and agreements are merged into this Contract, which
alone fully and completely expresses the agreements and understandings of the
parties hereto. This Contract may be amended, superseded, extended or modified
only by an instrument in writing referring hereto signed by both parties.
18. EXHIBITS AND SCHEDULES A PART OF THIS CONTRACT.
All Exhibits and Schedules referred to in this Contract and attached
hereto are incorporated into this Contract by reference and are hereby made a
part hereof.
19. NO BENEFIT TO OTHER PARTIES.
Except as otherwise provided herein, none of the provisions hereof
shall inure to the benefit of any party other than the parties hereto and their
respective successors and permitted assigns, or be deemed to create any rights,
benefits or privileges in favor of any other party except the parties hereto.
20. NO AGENCY, PARTNERSHIP OR JOINT VENTURE.
Nothing herein shall be construed to establish an agency relationship,
a partnership or a joint venture between Seller and Purchaser for any purpose.
21. CAPTIONS.
The captions and headings contained in this Contract are for reference
purposes only and shall not in any way affect the meaning or interpretation
hereof.
22. GOVERNING LAW.
This Contract shall be governed, construed and enforced in accordance
with the laws of the State of New Jersey.
23. NO WAIVER.
The waiver by one party of the performance of any covenant or condition
herein shall not invalidate this Contract, nor shall it be considered to be a
waiver by such party of any other covenant or condition herein. The waiver by
either or both parties of the time for performing any act shall not constitute a
waiver of the time for performing any other act or an identical act required to
be performed at a later time. Except as otherwise specifically restricted
herein, the exercise of any remedy provided by law and the provisions of this
Contract shall not exclude other available remedies.
24. AS-IS CONDITION.
Purchaser acknowledges that it is purchasing the Property, the
Improvements and fixtures therein and the Personal Property, in an AS-IS
condition based upon its own inspections thereof and without benefit of any
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<PAGE> 12
representation or warranty from Seller, either express or implied or in the
nature of fitness for any particular purpose, except as specifically set forth
herein. Seller agrees to maintain the Property in its current physical condition
to the Closing Date, normal wear and tear excepted.
25. SELLER INDEMNIFICATION AND SURVIVAL OF REPRESENTATIONS.
From and after the Closing Date Seller shall indemnify and hold
harmless Purchaser, and its respective principals, agents, indemnitees,
servants, permitted assignees and employees, from and against any and all losses
which Purchaser may suffer or incur, resulting from, relating to, or arising out
of: (i) any misrepresentation or breach of a warranty by Seller contained in
this Contract; or (ii) any failure to fulfill any covenant or agreement of
Seller contained in this Contract. The above indemnification and all
representations, warranties, covenants and agreements made by Seller in this
Contract, shall, however, shall survive the Closing and the delivery of the deed
for a period of twelve (12) months only. Any claim based upon Seller's
indemnification of Purchaser, or a representation, warranty, covenant or
agreement of Seller must be made in writing and delivered to Seller on or before
the twelfth month anniversary of the Closing Date or any such claim shall be
expired and of no further force or effect.
26. ASSIGNMENT.
This Contract may not be assigned by either party without the prior
written consent of the other party. In the event the Purchaser desires to assign
its interests in this Contract, prior written approval of such an assignment
shall be obtained by Purchaser from each of the contractors with whom Seller has
entered into construction contracts as to the Property. Seller's prior written
consent shall also be obtained, which consent shall not be unreasonably withheld
upon Purchaser's obtaining the required consents from the contractors. An
assignment shall contain an express assumption by the assignee of all
obligations of the assignor hereunder, and shall not terminate any liability
hereunder unless so released by Seller in writing.
27. BUSINESS DAYS.
In the event that any time period under this Contract expires on a day
that is not a business day, such time period shall be deemed extended to the
first business day following such date. "Business day" as used herein shall mean
any day other than Saturday, Sunday or a legal holiday on which business is
transacted by federally insured national banking institutions in Trenton, New
Jersey.
28. COUNTERPARTS.
This Contract may be signed in counterparts, each of which is deemed an
original.
29. OFFER OF LIMITED DURATION.
The offer to Sell the Property as evidenced by this Contract duly
executed by Seller shall expire unless a fully executed copy of this Contract
duly executed by Purchaser is delivered to Seller on or prior to August 19,
1996. Purchaser acknowledges that until Seller has delivered to Purchaser a copy
of this Contract duly signed by Seller, Seller is not legally bound or obligated
to Purchaser as to the sale of the Property. If Seller is not in receipt
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<PAGE> 13
of a fully executed copy of this Contract duly executed by Purchaser on or
before August 19, 1996, this offer shall lapse and expire, and this Contract
shall be of no further force or effect. WHEREFORE, the parties have hereunto
affixed their hands and seals as of the date set hereof.
SELLER: PURCHASER:
Monumental Life Insurance Company Brandywine Realty Trust
By: /s/ Lindsay Schumacher By: /s/ Gerard H. Sweeney
---------------------------------- --------------------------------
Is: Vice President, Lindsay Schumacher Its: _______________________________
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<PAGE> 1
EXHIBIT 10.51
FIRST AMENDMENT
To
REAL ESTATE SALE and PURCHASE CONTRACT
THIS AGREEMENT is made and entered into this 30th day of September,
1996, by and between Monumental Life Insurance Company, hereinafter referred to
as "Seller", located at 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499, and
Brandywine Realty Trust, hereinafter referred to as "Purchaser".
WHEREAS, the parties have entered into a Real Estate Sale and Purchase
Contract dated August 16, 1996, (hereinafter referred to as "Contract") for
certain premises known as 8000 Lincoln Drive, located at 8000 Lincoln Drive,
Marlton, Evesham Township, Burlington County, New Jersey, which Contract is
incorporated herein by reference;
WHEREAS, the parties have agreed to extend the Inspection Period and
delay the Closing Date, which agreements the parties desire to set forth in
writing. NOW, THEREFORE,
WITNESSETH:
That in consideration of the promises and covenants hereinafter
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties mutually agree that the Contract
shall be amended as follows:
1. As to Paragraphs Nos. 2 and 4: The parties agree that the Closing
Date shall be rescheduled to a time and date to be agreed upon by the parties,
which Closing Date shall in no event be later than 9:00 A.M. on the fourth
Wednesday following expiration of the Inspection Period as extended below.
Notwithstanding the above, however, the Closing date shall under no
circumstances be later than December 30, 1996, unless expressly agreed to in
writing by the parties.
In the event the sale contemplated by this Contract is not finalized by December
30, 1996 due to Seller's failure to provide the Computer Sciences Corporation
and Blue Cross Blue Shield leases or due to Seller's failure to otherwise
perform, upon Purchaser's compliance with Paragraph 7 (C) of the Contract, the
Deposit shall be refunded, this Contract shall be terminated and neither party
shall have any further rights or obligations hereunder.
In the event the sale contemplated by this Contract is not finalized by December
30, 1996 due to Purchaser's inability, unwillingness or failure to perform,
provided the Inspection Period has expired, the Deposit shall be forfeited to
and become the property of Seller, this Contract shall be terminated and neither
party shall have any further rights or obligations hereunder.
2. As to Paragraph No. 5: The Inspection Period is hereby extended
until seven calendar days following Purchaser's receipt of executed copies of
the Computer Sciences Corporation and Blue Cross Blue Shield leases. If Seller
has not received written notice of Purchaser's election to termination prior to
the expiration of that seven day period, Purchaser's option to terminate shall
expire and be of no further force or effect.
3. Except as above amended, the Contract and all of its terms and
conditions are hereby ratified and confirmed in their entirety.
WHEREFORE, the parties have hereunto affixed their signatures as of the above
stated date.
SELLER:
Monumental Life Insurance Company
By: /s/ Lindsay Schumacher
------------------------------------
Its: Vice President, Lindsay Schumacher
PURCHASER:
Brandywine Realty Trust
By: /s/ Gerard H. Sweeney
------------------------------------
Its: President, Gerard H. Sweeney
<PAGE> 1
EXHIBIT 10.52
SECOND AMENDMENT To
REAL ESTATE SALE and PURCHASE CONTRACT
THIS AGREEMENT is made and entered into this 22nd day of October, 1996,
by and between Monumental Life Insurance Company, hereinafter referred to as
"Seller", located at 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499, and
Brandywine Realty Trust, hereinafter referred to as "Purchaser".
WHEREAS, the parties have entered into a Real Estate Sale and Purchase
Contract dated August 16, 1996, which was amended by a First Amendment to Real
Estate Sale and Purchase Contract dated September 30, 1996 (hereinafter referred
to as "Contract") for certain premises known as 8000 Lincoln Drive, located at
8000 Lincoln Drive, Marlton, Evesham Township, Burlington County, New Jersey,
which Contract is incorporated herein by reference;
WHEREAS, the parties have agreed to a reduction in the Purchase Price
in order to address certain matters identified in Purchaser's due diligence
review and to finalize the Closing Date, which agreements the parties desire to
set forth in writing. NOW, THEREFORE,
WITNESSETH:
That in consideration of the promises and covenants hereinafter
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties mutually agree that the Contract
shall be amended as follows:
1. As to Paragraph No. 2 (A):The parties agree that the Purchase Price
shall be reduced by One Hundred Thousand Dollars ($100,000.00), such amount
being the agreed upon sum needed to address Purchaser's due diligence concerns
with the parking lot and roof and that the reduced Purchase Price for the
Property shall be Three Million Dollars ($3,000,000.00).
2. As to Paragraph No. 2 (C): The Purchaser acknowledges having
received, reviewed and approved the executed leases with Computer Sciences
Corporation and Blue Cross Blue Shield. The Purchaser further acknowledges that
the additional earnest money payment to be held as Deposit in the amount of One
Hundred Thousand Dollars ($100,000.00) to be paid upon approval of those lease
or expiration of the Inspection Period, is now due and owing.
The Purchaser also acknowledges and agrees that in the event the sale
contemplated by this Contract is not finalized by the Closing Date of November
20, 1996 (or December 18, 1996 if Purchaser has duly elected to extend the
Closing Date and has paid the additional One Hundred Thousand Dollar
($100,000.00) earnest money payment as set forth below in Paragraph No. 4
immediately below) due to Purchaser's inability, unwillingness or failure to
perform, the entire Deposit shall be forfeited to and become the property of
Seller, this Contract shall be terminated and neither party shall have any
further rights or obligations hereunder.
3. As to Paragraph 2 (D): The Seller acknowledges that the entire
Deposit shall be credited on a dollar-for-dollar basis towards the Purchase
Price if Purchaser purchases the Property in accordance with the terms of this
Contract.
4. As to Paragraph No. 4: The parties agree that the Closing Date shall
be Wednesday, November 20, 1996. Purchaser shall, however, have the right to
extend the Closing Date until December 18, 1996 upon: (i) providing of Seller
with written notice of Purchaser's election to so extend the Closing Date on or
before 5:00 P.M. E.S.T. on Thursday, November 14, 1996; and (ii) providing the
Title Company with an additional earnest money payment to be held as part of the
Deposit of One Hundred Thousand Dollars ($100,000.00) no later than Monday,
November 18, 1996, which additional Deposit shall be subject to forfeiture to
Seller set forth in Paragraph 2 immediately above in the event Purchaser is
unable, unwilling or fails to perform and finalize the sale contemplated by this
Contract by the Closing Date.
4. As to Paragraph No. 5: The Purchaser acknowledge and agree that the
Inspection Period as extended has expired as of the date hereof and the
Purchaser's right to terminate the Contract based upon such inspection has
expired and is of no further force and effect.
5. Except as above amended, the Contract and all of its terms and
conditions are hereby ratified and confirmed in their entirety. WHEREFORE, the
parties have hereunto affixed their signatures as of the above stated date.
PURCHASER: SELLER:
Brandywine Realty Trust Monumental Life Insurance Company
By: /s/ Gerard H. Sweeney By: /s/ Lindsay Schumacher
______________________________ ___________________________________
Its: President, Gerard H. Sweeney Its: Vice President, Lindsay Schumacher
<PAGE> 1
EXHIBIT 10.53
AGREEMENT FOR PURCHASE AND SALE
OF REAL ESTATE AND RELATED PROPERTY
THIS AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE AND
RELATED PROPERTY ("Agreement") is made and entered into as of the ____ day of
August, 1996, by and between HORSHAM OFFICE CENTER ASSOCIATES LIMITED
PARTNERSHIP, a Pennsylvania limited partnership ("Seller"), and BRANDYWINE
REALTY TRUST, or its permitted nominee or assignee ("Purchaser").
RECITALS
A. Seller is the fee simple owner of two (2) office buildings and the
related improvements and rights located at 700 and 800 Business Center Drive,
Horsham, Pennsylvania.
B. Seller desires to sell, and Purchaser desires to acquire, the
aforedescribed office buildings and certain related property on an "AS IS, WHERE
IS" basis, without any conditions, representations or warranties of any kind,
except as specifically and expressly set forth in this Agreement.
NOW, THEREFORE, in consideration of and in reliance upon the above
Recitals (which are incorporated in and made a part of this Agreement), and the
mutual covenants, promises and undertakings set forth in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Seller and Purchaser agree as follows:
AGREEMENTS
1. PURCHASE AND SALE OF PROPERTY.
A. Seller agrees to sell and convey and Purchaser agrees to purchase
and accept all of Seller's right, title and interest in and to the following
described property (all of which is hereinafter collectively referred to as the
"Property"):
1. Certain real property ("Land") located in Horsham,
Pennsylvania, and more specifically described in Exhibit A attached hereto and
made a part hereof, together with all easements, tenements, hereditaments and
appurtenances pertaining thereto.
2. The buildings, improvements and fixtures now situated on the
Land (collectively, the "Improvements").
<PAGE> 2
3. All personal property, machinery, apparatus, and equipment
situated on the Land or the Improvements ("Personal Property"). The Personal
Property specifically excludes any and all of the items identified on Exhibit
"A" attached hereto and any and all personal property owned by any property
manager on the Property and any personal property owned by tenants under the
Leases (as hereinafter defined). The Personal Property to be conveyed is subject
to depletions, replacements and additions in the ordinary course of the
operation, repair and maintenance of the Land and Improvements.
4. Current occupancy leases affecting the Improvements or any
part thereof and the security deposits and guaranties related thereto, if any
("Leases"), all service contracts currently in effect and assumed by Purchaser
hereunder (the "Service Contracts"), copies of any plans and specifications,
maintenance logs and records, if any, for the Improvements in the possession of
Seller (the "Plans"), copies of any warranties and permits currently in effect
and in possession of Seller (the "Permits and Warranties") and copies of any
existing books, records, documents and intangible property (other than accounts,
accounts receivable and proprietary computer software) pertaining to the
operation, maintenance, repair and leasing of the Property in the possession of
Seller and located at the Premises.
The Land and Improvements are sometimes together referred to herein as the
"Premises."
B. Except for the express representations and warranties of Seller set
forth in this Agreement, the Property is being sold in an "AS IS WHERE IS"
condition and with "ALL FAULTS" as of the date of this Agreement. Except as
specifically and expressly set forth in this Agreement, no promises,
representations or warranties have been made or are made and no responsibility
has been or is assumed by Seller or by any officer, director, shareholder,
beneficiary, affiliate, person, firm, agent or representative acting or
purporting to act on behalf of Seller as to (i) the condition or state of repair
or utility of the Property, (ii) the value, expense of operation or income
potential thereof, or (iii) any other fact or condition which has or could
affect the Property or the condition, repair, value, expense of operation or
income potential of the Property or any portion thereof, including, without
limitation, with respect to any environmental matters which could affect the
Property. Purchaser waives any rights to contribution for environmental matters
he may now or hereafter have, whether under the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), or
otherwise. The parties acknowledge and agree that the intent of this Agreement
is that Purchaser shall have an agreed upon time period within which to
investigate and determine all matters pertaining to the Property to its own
satisfaction, including, without limitation, its satisfaction with the
environmental condition of the Property, and compliance with the Americans with
Disabilities Act. The parties acknowledge and agree that all understandings and
agreements heretofore made between them or their respective agents or
representatives regarding the purchase and sale of the Property are merged into
this Agreement and the Exhibits made a part hereof, which alone fully and
<PAGE> 3
completely express their agreement and that neither party is relying upon any
statement, promise or representation by the other unless such statement, promise
or representation is specifically and expressly set forth in this Agreement or
the Exhibits made a part hereof.
2. PURCHASE PRICE.
The purchase price ("Purchase Price") which Seller agrees to accept and
Purchaser agrees to pay for the Property is SEVEN MILLION ONE HUNDRED THOUSAND
DOLLARS ($7,100,000) U.S., payment of which is to be made as follows:
A. (I) Upon execution of this Agreement by Purchaser, Purchaser shall
make an earnest money deposit of TWENTY-FIVE THOUSAND DOLLARS ($25,000) U.S.
("Initial Deposit").
(ii) Within one (1) Business Day (as hereinafter defined) after
the expiration of the Inspection Period, unless this Agreement shall have been
terminated by Purchaser on or prior to the expiration of the Inspection Period,
Purchaser shall make an additional earnest money deposit of FIFTY THOUSAND
DOLLARS ($50,000) U.S. ("Additional Deposit"). The Initial Deposit and the
Additional Deposit (collectively the "Deposit") shall be held in escrow by
Commonwealth Land Title Insurance Company ("Deposit Escrowee") in an interest
bearing account pursuant to the terms of a joint order escrow agreement in the
form of Exhibit B attached hereto and made a part hereof ("Deposit Escrow
Agreement"). Any interest earned on the Deposit shall be considered part of the
Deposit.
<PAGE> 4
B. At 9:00 A.M. Eastern Time on the date of Closing, provided that all
applicable documents required by Section 10.A hereof have been deposited
previously into escrow with Purchaser's designated title insurance company
("Title Company"), Purchaser shall pay to Title Company an amount equal to the
Purchase Price (less the Deposit), plus or minus prorations as provided herein,
via wire transfer in immediately available U.S. funds to a bank account
designated by Title Company ("Cash Balance"). Provided that the transaction
contemplated hereby closes, Seller shall thereafter direct Deposit Escrowee to
return the Deposit or apply the Deposit to the Purchase Price, together with
interest thereon, to Purchaser.
3. PRIOR TO CLOSING.
During the period from the date of Seller's execution of this Agreement
until Closing or the earlier termination of this Agreement, Seller shall:
A. Except as otherwise provided in this Agreement, operate the Property
through its property manager ("Property Manager"), in the normal course of
business and, through the Property Manager, keep the Property in its existing
condition and state of repair, ordinary wear and tear and loss due to fire or
other casualty excepted, subject to Section 11 below.
<PAGE> 5
B. (i) Neither enter nor permit the Property Manager to enter into any
new Lease (or extensions or expansions of existing Leases) without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld,
denied or delayed. In the event Seller desires to enter into a new lease (or
extensions or expansions of existing Leases) of any portion of the Premises
prior to Closing, Seller shall submit to Purchaser a lease proposal package
describing the economic terms of the proposed new lease (or extensions or
expansions of existing Leases) ("Lease Proposal"). The Lease Proposal shall
consist of financial information, if any, relating to the proposed tenant, and a
written summary of the material lease terms including, without limitation, the
following information (if applicable): (a) rent (including a description of rent
inducements, if any), (b) lease term, (c) security deposit, (d) leasing
commissions, (e) moving allowance, and (f) tenant improvement allowance.
Purchaser shall have two (2) Business Days after its receipt of the Lease
Proposal to consent to the terms of the Lease Proposal; provided, however, that
unless a reasonable basis for refusing to give such consent is communicated to
Seller in writing within such two Business Day period, Purchaser shall be deemed
to have consented to the terms of the Lease Proposal ("Approved Lease
Proposal"). Prior to executing any tenant lease (or extensions or expansions of
existing Leases) prepared in accordance with the terms and conditions described
in an Approved Lease Proposal, Seller shall submit a draft of such proposed new
lease to Purchaser for Purchaser's approval ("Lease Draft Proposal"). Purchaser
shall have three (3) Business Days after its receipt of the Lease Draft Proposal
to consent to the terms of the Lease Draft Proposal; provided, however, that
unless a reasonable basis for refusing to give such consent is communicated to
Seller in writing within such two (2) Business Day period, Purchaser shall be
deemed to have consented to the form of the Lease Draft Proposal and Seller may
enter into a lease (or extensions or expansions of existing Leases) with such
proposed tenant in accordance with the Lease Proposal and the Lease Draft
Proposal. Purchaser shall bear all costs in connection with new Leases (or
extensions or expansions of existing Leases) entered into pursuant to this
Section 3.B(i), including leasing commissions, tenant improvement costs, moving
costs, engineering fees and other tenant incentives permitted pursuant to this
Section 3.B(i) (collectively called the "Leasing Costs"), provided that the
transaction contemplated hereby is consummated.
(ii) Notwithstanding anything contained in Section 3.B(i) to the
contrary, Seller may elect to enter into a new Lease (or extensions or
expansions of existing Leases) notwithstanding Purchaser's rejection of the
Lease Proposal or Lease Draft Proposal as set forth in Section 3.B(i); provided,
however, Seller shall bear all Leasing Costs in connection with any such new
Leases (or extensions or expansions of existing Leases) entered into pursuant to
this Section 3.B(ii).
C. Neither enter nor permit the Property Manager to enter into any new
Service contract or extend, renew or materially modify or amend any existing
Service Contract, except those that are cancelable on not more than thirty (30)
days' written notice.
<PAGE> 6
D. Keep the Improvements insured against fire or other hazards covered
by extended coverage endorsement and comprehensive public liability insurance
against claims for bodily injury, death and property damage occurring in, on or
about the Premises, on terms no less favorable than currently existing and as
set forth in Seller's certificate of insurance, a true and correct copy of which
is attached hereto as Exhibit C .
E. Not sell, transfer or dispose of all or any part of the Property,
except that Seller may enter into new Leases (or extensions or expansions of
existing Leases) pursuant to Section 3.B above, and except for depletions and
replacements of Personal Property in the ordinary course of the operation,
repair and maintenance of the Land and Improvements and except as a result of
the exercise of a condemnation (but subject to Section 11 hereof).
F. Promptly give written notice to Purchaser upon obtaining knowledge
of the occurrence of any event which affects the truth or accuracy of any
representations or warranties made by Seller in this Agreement.
4. INSPECTION OF THE PROPERTY.
During the period commencing on the date this Agreement is fully
executed by both the Purchaser and the Seller and terminating forty-five (45)
days thereafter ("Inspection Period") , Purchaser and its agents and
representatives may inspect the Property (including the Leases and the books,
records and documents of the Property maintained by either Seller or the
Property Manager, together with any title reports, surveys, or mechanical,
structural or environmental reports) and conduct such mechanical and engineering
inspection and such sampling or non-destructive testing as Purchaser shall
reasonably deem necessary during normal business hours, subject to the following
terms and conditions. In addition, Seller and the Property Manager shall make
available to Purchaser during the Inspection Period all other documentation
concerning the Property in the possession of Seller and/or the Property Manager
including, without limitation, all Leases, Permits and Warranties, and Service
Contracts, also subject to the following terms and conditions.
A. Purchaser shall give Seller (in care of Richard Heany (610)
962-5105) at least two (2) Business Days telephonic notice of its intention to
inspect the Property or conduct any sampling or testing. In addition, Purchaser
shall give at least two (2) Business Days telephonic notice to Andrew Wolfington
((610)-962-5104) before any environmental sampling or testing is done at the
Premises.
B. If Purchaser desires to obtain a Phase I environmental report of the
Property, Purchaser shall deliver a copy of such report to Seller within five
(5) days after its receipt thereof. Purchaser hereby represents and warrants
that such report will be used solely for the purpose of evaluating the Property
for purposes of consummating the transactions contemplated by this Agreement and
that such report and the contents thereof will be kept confidential by Purchaser
and its advisors, it being understood that Purchaser
<PAGE> 7
shall inform the environmental contractor selected by Purchaser to prepare such
report of the confidential nature of such report and the contents thereof and
shall direct said environmental contractor to treat such report and the contents
thereof confidentially. If Purchaser desires to conduct any environmental
sampling or testing at the Premises, Purchaser shall first provide Seller with
the proposed study plan therefor ("Plan"). The Plan is subject to the approval
of Seller and no environmental sampling or testing shall be performed until the
Plan therefor has been approved by Seller. Purchaser agrees that Seller, at
Seller's sole cost and expense, may have a representative present at any
inspection, sampling or testing, including, but not limited to, an environmental
engineer or consultant designated by Seller (in connection with any
environmental sampling or testing conducted by Purchaser in accordance with this
Section 4). At Seller's request, and after contribution for the additional cost
of same, if any, any sampling or testing by Purchaser's environmental consultant
shall be conducted in a manner so as to provide "split" samples or data to
Seller's environmental consultant.
C. Purchaser shall maintain adequate liability insurance coverage for
its employees, agents and representatives inspecting the Property or conducting
sampling or testing and, at Seller's request, will provide Seller with written
evidence of same.
D. Any such inspections, sampling and testing shall be at Purchaser's
sole cost and expense and Purchaser agrees to keep the Property free and clear
of any liens which may arise as a result of such inspections, sampling and
testing.
E. Purchaser shall restore promptly any physical damage caused by the
inspection, sampling or testing of the Property.
F. Purchaser shall, upon the request of Seller, provide Seller with
copies of written sampling test results and reports prepared by third parties,
but otherwise Purchaser and its employees, agents and representatives shall keep
all such information, sampling and test results and reports obtained or
developed during or as a result of such inspection strictly confidential, except
as provided in Section 13.F below.
G. Purchaser hereby indemnifies and agrees to defend, and hold Seller
and its partners and each of their officers, directors, shareholders, advisors,
beneficiaries, agents, employees, representatives, tenants and affiliates
harmless from and against all loss, cost, liability, lien, damage or expense,
including reasonable attorneys' fees and costs made, sustained, suffered or
incurred against or by Seller and its partners and each of their officers,
directors, shareholders, advisors, beneficiaries, agents, employees,
representatives, tenants and affiliates and attributable to or arising out of a
breach of the foregoing agreements (or the agreements contained in Section 13.F
below) by Purchaser in connection with any such inspection, sampling or testing.
5. TERMINATION OF AGREEMENT.
<PAGE> 8
A. If based on the inspection rights granted to Purchaser in Section 4
above, Purchaser determines that it has an objection for any reason whatsoever,
then Purchaser may elect to terminate this Agreement by giving Seller notice, in
writing, by United States first class mail, postage prepaid, hand delivery or
telecopy, that it elects to terminate this Agreement, which notice must be
received by Seller (and the other parties described in Section 14 hereof that
are entitled to receive notices sent to Seller) not later than 5:00 P.M. Eastern
Time on the last day of the Inspection Period. In such event, and provided that
Purchaser has complied with its obligations contained in Section 4 above, Seller
shall direct Deposit Escrowee to return the Initial Deposit to Purchaser and
thereupon, neither party shall have any liability to the other, except for the
obligations of Purchaser set forth in Section 4.G above and Section 13.F below
and the obligations of both parties set forth in Section 8.D below, which shall
survive the termination of this Agreement. If Purchaser fails to give timely
notice of its election to terminate this Agreement as aforesaid, it shall be
conclusively presumed that Purchaser has satisfied or waived the foregoing
contingency.
B. In the event that Purchaser has not served written notice of its
election to terminate this Agreement within the Inspection Period, Purchaser
shall make the Additional Deposit as provided in Section 2.A above. The failure
to make the Additional Deposit shall not affect the satisfaction or waiver of
the contingency set forth in Section 5.A, or the obligation of Purchaser to
consummate its purchase of the Property in accordance with the terms hereof.
6. CONDITIONS OF TITLE.
A. Title to the Premises shall be good and marketable, fee simple,
absolute and free and clear of all liens, restrictions, easements, encumbrances,
leases, tenancies and other title objections, except for the Permitted
Encumbrances (as hereinafter defined), and shall be insurable as such and as
provided in this Agreement at ordinary rates by any reputable title insurance
company selected by Purchaser (the "Title Company") pursuant to an ALTA Owner's
Policy of Title Insurance, 1992 Form B, amended October 17, 1992 (the "Owner's
Policy of Title Insurance"). The term "Permitted Encumbrances" shall mean: (i)
the lien of non-delinquent real estate taxes and assessments; (ii) the rights of
tenants under the Leases, other than the rights of such tenants to purchase the
Premises or any portion thereof, excluding, however, the rights described on
Schedule 6.A. attached hereto; (iii) acts and deeds of Purchaser; and (iv) the
matters approved or deemed approved by Purchaser pursuant to Section 6.B below.
The premium for the Owner's Policy of Title Insurance and any endorsements
thereto will be paid by Purchaser.
B. Purchaser hereby acknowledges and agrees that Purchaser will order a
commitment to insure with respect to the Premises from the Title Company, such
commitment to certify that fee simple title to the Premises is vested in Seller,
and to commit to insure title to the Purchaser as required by Section 6.A
hereof. If the commitment to
<PAGE> 9
insure discloses that title to the Premises is subject to any defect,
encumbrance or other title objection other than the Permitted Encumbrances, or
if Purchaser is unable to obtain such commitment to insure, Purchaser shall have
the right to give to Seller written notice specifying such defect, encumbrance
or other title objection, or inability to obtain such commitment to insure, and
Seller shall have (at Seller's election) thirty (30) days after receipt of such
written notice ("Title Cure Period") to have the Title Company waive such
matters or commit to insure for the full amount of the policy against loss or
damage that may be occasioned by such matters. If Seller (in its sole
discretion) does not have such matters removed or committed to be insured over
within the Title Cure Period, Purchaser may, within two (2) Business Days after
the earlier to occur of (x) receipt of notice from Seller that Seller does not
elect to cure or have insured over the matter objected to by Purchaser, or (y)
expiration of the Title Cure Period, (i) terminate this Agreement upon written
notice given to Seller, or (ii) elect, upon written notice given to Seller, to
take title as it then is with an abatement of the Purchase Price in the amount
of any fixed monetary liens on the Premises, except for any lien arising as with
respect to the rights described on Schedule 6.A. attached hereto. In the event
Purchaser elects to take title to the Premises in accordance with subsection
6.B.ii above, Seller may, at its option, secure a bond for any and all liens
upon the Premises, without regard to the amount of any such liens, individually
or in the aggregate, whereupon Purchaser shall take title to the Premises
subject to such liens and without abatement of the Purchaser Price with respect
thereto. If this Agreement is so terminated, Seller shall direct the Deposit
Escrowee to return the Deposit to Purchaser and shall reimburse Purchaser for
all out of pocket costs and expenses incurred by Purchaser in connection with
the transactions contemplated by this Agreement in an amount not to exceed
Fifteen Thousand Dollars ($15,000.00), and neither party shall have any
liability to the other, except for the obligations of the parties set forth in
Section 4.G above and Section 13.F below and the obligations of the parties set
forth in Section 8. below, which shall survive the termination of this
Agreement. If Seller does not receive written notice of Purchaser's election to
terminate this Agreement within the (2) two Business Day period specified above,
Purchaser shall be conclusively presumed to have elected to take title as it
then is as aforesaid.
C. Title to the Personal Property shall be good and marketable and free
and clear of all liens, security interests and other encumbrances. Seller shall
pay at or before Closing all sums required to free the Personal Property of any
interest of any party not otherwise permitted under this Agreement and shall
cause to be filed at or before Closing any termination statement, release,
discharge or other document required to remove of record any encumbrance upon
the Personal Property held by any party.
7. CLOSING.
Payment of the Purchase Price and the consummation of the transaction
contemplated by this Agreement ("Closing") shall take place pursuant to an
escrow closing which provides that the Purchase Price shall be paid to Seller
substantially simultaneously with the agreement of the Title Company to issue
the Title Policy to Purchaser. The Closing shall occur at 9:00 A.M. Eastern Time
on a date being thirty (30)
<PAGE> 10
days after the expiration of the Inspection Period (or if such 30th day is not a
Business Day, then on the next Business Day) at the offices of the Title Company
in Philadelphia, Pennsylvania or at such earlier date or other place as may be
mutually agreed upon in writing by both Seller and Purchaser; provided, however,
that Seller, at Seller's sole discretion, may elect to extend the Closing as
necessary (but in no event more than thirty (30) additional days) in order to
satisfy the requirements of Section 10.D(ii) below. The date of the Closing may
be extended by Seller beyond such 30th day after the date of the expiration of
the Inspection Period by the number of days needed to cure title defects or
adverse matters pursuant to Section 6 above, but in no event shall the date of
the Closing be after October 16, 1996. Seller and Purchaser shall meet at the
office of Purchaser's attorney and commence preparations for Closing on the day
immediately prior to the date of Closing ("Proration Date"), so that all Closing
documents required hereunder are signed and deposited into escrow with the Title
Company (and all Closing prorations required hereunder are finalized) before the
close of business on the Proration Date.
8. REPRESENTATIONS AND WARRANTIES.
A. Seller represents and warrants to Purchaser that:
1. Horsham Office Center Associates Limited Partnership, a
Pennsylvania limited Partnership, is duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania, has duly
authorized the execution and performance of this Agreement and such execution
and performance will not violate any contract or agreement by which Seller is
bound.
2. This Agreement is valid and enforceable against Seller in
accordance with its terms and each instrument to be executed by Seller pursuant
to this Agreement will, when executed and delivered, be enforceable in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
affecting creditors' rights generally.
3. To Seller's knowledge, (a) neither Seller nor the Property
Manager has received written notice prior to the date hereof from any
governmental authority of any violation of any environmental, zoning, building,
fire or health code or law applicable to the Property or any portion thereof,
that has not heretofore been corrected; (b) neither Seller nor the Property
Manager has received written notice prior to the date hereof of any matters
disclosed in any existing environmental report provided by Seller to Purchaser
or in any environmental report or study obtained by Purchaser pursuant to
Section 4 hereof; and (c) any hazardous material that may be located on the
Property in the ordinary course of any tenant's business is in compliance with
applicable law. However, no warranty is made with respect to the Americans With
Disabilities Act, 42 U.S.C. Section 12101 et seq., and the regulations
promulgated thereunder, or Seller's compliance therewith.
4. There are no delinquencies with respect to real estate taxes
affecting the Premises.
<PAGE> 11
5. Seller does not have any employees in connection with the
Property.
6. Except with respect to the Service Contracts, as of the
Closing Date, there shall be no management, service, supply, security,
maintenance or similar contracts with respect to or affecting the property which
shall survive the Closing; Schedule 8.A.6 attached hereto contains a list of all
such management, service, supply, security, maintenance or similar contracts
with respect to or affecting the Property as of the date hereof.
7. As of the Closing Date, no persons shall be employed in
connection with the management, operation or maintenance of the Property for
whom Purchaser shall have any liability whatsoever after the Closing.
8. To the best of Seller's knowledge, there are no options,
rights of first refusal, leases (other than the Leases), conditional sales
agreements or other arrangements, whether oral or written, which affect the
Property or any portion thereof, except as disclosed in Schedule 6.A.
9. All debts, liabilities and obligations of Seller arising out
of the construction, ownership and operation of the Property including, without
limitation, construction costs, salaries, taxes, accounts payable and the like
have been paid and shall continue to be so paid from the date hereof until the
date of the Closing.
10. There is no current, pending or, to the best of Seller's
knowledge, threatened litigation against Seller involving the Property or any
portion thereof nor any pending or, to the best of Seller's knowledge,
threatened litigation involving any suppliers or materialmen.
11. (a) Seller has not caused or permitted any "Hazardous
Material" to be placed, stored, held, located or disposed of on, under or at the
Property; (b) Seller has received no notice, and has no information which would
lead it reasonably to believe that the Property has ever been used as a dump
site or storage site (whether permanent or temporary) for any Hazardous
Material; (c) Seller has not conducted or permitted any activity on the
Property, or used or permitted the use of the Property, in any manner involving
Hazardous Material; (d) there is no asbestos containing material contained in or
forming a part of any building, building component, structure or office space
located on or in the Property. for purposes of this Agreement, "Hazardous
Material" means any material resulting in (x) the Property becoming a hazardous
waste treatment, storage or disposal facility within the meaning of, or
otherwise bringing the Property within the ambit of RCRA (as the same may be
amended, supplemented or
<PAGE> 12
replaced) or any similar federal, state or local law or regulation; (y) a
release or threatened release of a hazardous substance on or from the Property
within the meaning of, or otherwise bringing the Property within the ambit of
CERCLA (as the same may be amended, supplemented or replaced) or any similar
federal, state or local law or regulation; or (z) the discharge of pollutants or
effluents into any water source or system, or the discharge into the air of any
emissions which would require a permit under the Federal Water Pollution Control
Act, the Clean Air Act (as the same may be amended, supplemented or replaced),
the Clean Water Act (as the same may be amended, supplemented or replaced) or
any similar federal, state or local law or regulation.
12. (a) No notice from any insurance company which has issued a
policy to Seller with respect to any portion of the Property or from any board
of fire underwriters (or other body exercising similar functions) has been
received requesting the performance of any repairs, alterations or other work.
If such notice is received prior to the Closing, Seller shall disclose such
notice to Purchaser; and (b) to the best of Seller's knowledge, Seller has
received all permanent certificates of occupancy, licenses, permits,
authorizations and approvals required by all governmental authorities having
jurisdiction over the Property and as of the Closing Date all such certificates
of occupancy, licenses, permits, authorizations and approvals shall be in full
force and effect.
13. All public utilities including connection and permanent right
to discharge sanitary waste into the collector system of the appropriate sewer
authority are installed and operating, and, to the best of Seller's knowledge,
all installation and connection charges have been paid in full.
14. Attached hereto as Schedule 8.A.14 is a true and correct
listing of all current policies of fire, liability and other forms of insurance
pursuant to which the Property is insured (whether or not held by Seller) or
with respect to which Seller directly or indirectly pays all or part of the
premium (the "Policies"). Seller shall ratify and confirm the content of
Schedule 8.A.14 on and as of the date of the Closing. The Property is, and
between the date hereof and the date of the Closing the Property shall be,
insured against fire and casualty on a replacement cost basis under the Policies
and in the amounts and types of coverage set forth in Schedule 8.A.14, and
Purchase shall be named as an additional insured under all such Policies (except
products liability insurance). All of the Policies are, and between the date
hereof and the date of the Closing shall be, outstanding and duly in force and
the premiums thereon fully paid when and as the same are due and payable.
B. Purchaser represents and warrants to Seller that:
1. The execution and performance of this Agreement will not
violate any contract or agreement by which Purchaser is bound.
2. This Agreement is valid and enforceable against Purchaser in
accordance with its terms and each instrument to be executed by Purchaser
pursuant to this Agreement will, when executed and delivered, be enforceable in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
affecting creditors' rights generally.
<PAGE> 13
C. As used in Section 8.A. (or in any other Sections of this
Agreement), Seller's "knowledge" shall mean and be limited to the actual
knowledge (as distinguished from implied, imputed or constructive knowledge) of
Richard Heany, J. Brian O'Neill and Andrew Wolfington.
D. Seller and Purchaser mutually represent and warrant to each other
that each has had no dealings, negotiations, or consultations with any broker or
other intermediary in connection with this Agreement or the sale of the
Property, except for Cushman & Wakefield, Inc. ("CW") and the Flynn Company.
Provided the transaction contemplated hereby is consummated, Seller shall pay a
brokerage commission to CW in an amount previously agreed to by Seller and CW.
Seller and Purchaser agree that each will indemnify, defend and hold the other
free and harmless from the claims (including attorneys' fees) of any other
broker or other intermediary claiming to have dealt with Seller or Purchaser,
respectively, in connection with this Agreement or the sale of the Property.
E. It shall be a condition to each party's obligation to close that the
representations and warranties of the other party are true and correct in all
material respects as of Closing, and each party shall deliver a certificate of
its president and secretary to the other, dated as of the date of the Closing,
certifying as to same, in such detail as the other may reasonably request,
F. If prior to Closing Purchaser becomes aware that any of Seller's
representations and warranties are not true and correct, Purchaser shall
promptly notify Seller of same. Seller shall have (at Seller's election) a
period of thirty (30) days ("Warranty Cure Period") in which to attempt to cure
any breach of warranty alleged by Purchaser or any breach of warranty otherwise
discovered by Seller (and the date of Closing shall be extended accordingly);
provided, however, that Seller, at its sole option, may elect not to cure (or
attempt to cure) the alleged breach. If Seller does not cure such breach of
warranty within the Warranty Cure Period, Purchaser may within two (2) Business
Days after the earlier to occur of (x) receipt of notice from Seller that Seller
does not elect to cure the alleged breach of warranty, or (y) expiration of the
Warranty Cure Period, (i) terminate this Agreement upon written notice given to
Seller, or (ii) elect, upon written notice given to Seller, to close without any
set-off or deduction of any kind against the Purchase Price or otherwise. If
this Agreement is so terminated, Seller shall direct the Deposit Escrowee to
return promptly the Deposit to the Purchaser and reimburse Purchaser for all out
of pocket costs and expenses incurred by Purchaser in connection with the
transactions contemplated by this Agreement in an amount not to exceed Fifteen
Thousand Dollars ($15,000.00) and neither party shall have any liability to the
other, except for the obligations of Purchaser set forth in Section 4.G above
and Section 13.F below and the obligations of the parties set forth in Section
8.D above, which shall survive the termination of this Agreement. If Seller does
not receive written notice of Purchaser's election to terminate this Agreement
within the two (2) Business
<PAGE> 14
Day period specified above, Purchaser shall be conclusively presumed to have
elected to close notwithstanding the alleged breach of warranty.
G. The representations and warranties set forth in Section 8.D shall
survive the Closing for the full period of the applicable statute of
limitations. All of the other representations, warranties, certifications and
indemnifications of the parties set forth in Sections 8.A and 8.B above, in the
documents delivered pursuant to Sections 10.A.1, 10.A.3 and 10.A.4 below
(collectively called the "Conveyance Documents"), and in Seller's Estoppel
Certificates (as hereinafter defined), if any, shall survive closing, provided
written notice of any claim arising from a breach of such representations,
warranties, certifications and indemnifications must be specified and received
by the other party not later than six (6) months after the date of Closing and
prosecuted by the filing of a lawsuit in a court of proper jurisdiction within
nine (9) months after the date of Closing. All other claims for breach of such
representations, warranties, certifications and indemnifications shall be barred
and neither party shall have any liability with respect thereto. Notwithstanding
anything contained herein to the contrary, Purchaser shall have no right to
recover damages against Seller for the breach of any representation, warranty,
certification or indemnification of Seller contained herein or in the Conveyance
Documents or Seller's Estoppel Certificates as to which was within the knowledge
of Jerry Sweeney or John Adderly or Tony Nichols prior to Closing, but as to
which Purchaser did not give Seller the notification required in Section 8.F
above.
9. CLOSING COSTS AND PRORATIONS.
A. Seller and Purchaser shall share equally the cost of the escrow
closing arrangements. Any state, local or county real or personal property
transfer taxes relating to the transfer of real or personal property to
Purchaser shall be shared equally by Seller and Purchaser. Except as otherwise
specifically provided in this Agreement, each party shall bear its own costs in
performing its obligations under this Agreement including, without limitation,
its own attorneys' fees and, in the case of Purchaser, all costs and expenses in
connection with its inspection of the Property as provided in Section 4 above
and all costs and expenses in connection with the Owner's Policy of Title
Insurance as provided in Section 6 above.
B. The following items are to be prorated or adjusted as of the
Proration Date:
1. Rents and other amounts owed under the Leases actually
received by Seller, payments under Service Contracts assigned to Purchaser,
personal property taxes, installment payments of special assessment liens (and
Purchaser shall be responsible to pay all installments of special assessments
which are due after the Proration Date), sewer charges and operating or utility
charges actually collected, billed or paid as of the date of Closing shall be
prorated as of the Proration Date and be adjusted against the Cash Balance due
at Closing, provided that within ninety (90) days after Closing, Purchaser and
Seller will make a further adjustment for such rents, payments,
<PAGE> 15
taxes or charges which may have been incurred for the period of time before
Closing, but not billed or paid at that time. In addition, Seller may require a
further adjustment of such rents, payments, taxes or charges following the end
of calendar year 1996 after the actual amount of the applicable items becomes
known and available. Rents and other amounts collected by Purchaser or its agent
under any Lease after Closing attributable to the time period before Closing
shall be paid to Seller.
2. Non-delinquent real and/or personal property taxes will be
prorated as of the Proration Date using the most recent ascertainable tax bill
therefor. Such taxes will be reprorated within ninety (90) days after the
issuance of the actual tax bill, it being the intent of the parties that Seller
be responsible for real estate (and personal property, if applicable) taxes for
the Premises attributable to the period before Closing and Purchaser be
responsible for the real estate (and personal property, if applicable) taxes for
the Premises attributable to the period after Closing. Any refund of real estate
or personal property taxes for the Premises attributable to the fiscal year in
which the Closing takes place (or any fiscal year prior to such year) shall be
prorated between the parties within thirty (30) days after such refund has been
received by Seller or Purchaser, as the case may be. Seller shall be entitled to
receive the portion of such refund that pertains to the period of time prior to
the date of Closing and Purchaser shall be entitled to receive the portion of
such refund that pertains to the period of time after the date of Closing.
3. The full amount of security deposits paid under the Leases,
which have not been applied by Seller shall be credited to Purchaser by
application against the Cash Balance due at Closing.
4. Seller shall pay for the Leasing Costs currently due and owing
in connection with all Leases entered into prior to the date of this Agreement
("Current Leases"). Purchaser shall pay (a) all Leasing Costs arising out of the
exercise by a tenant after the date of this Agreement and prior to the date of
Closing of an extension or expansion option (or the failure of a tenant to
exercise a cancellation option) contained in a Current Lease, (b) all Leasing
Costs in connection with any Leases entered into after the date hereof in
accordance with Section 3.B hereof ("New Leases"), and (c) all Leasing Costs in
connection with the exercise by a tenant on or after the date of Closing of an
extension or expansion option (or the failure of a tenant to exercise a
cancellation option) contained in a Current Lease or a New Lease. Purchaser
shall have five (5) business days following written notice from Seller to
approve or disapprove, in writing, any proposed exercise of any extension or
expansion option under any Current Lease after the date of this Agreement and
prior to the date of Closing. In the event Purchaser fails to approve or
disapprove, in writing, any such extension or expansion within said five (5) day
period, Purchaser shall be deemed to have approved such extension or expansion.
In the event Purchaser disapproves such extension or expansion within said five
(5) day period, Seller shall have the option to permit such tenant to exercise
such extension or expansion option; however, Purchaser shall have no obligation
to pay any Leasing Costs in connection therewith.
<PAGE> 16
C. Notwithstanding the foregoing, at Seller's election, no prorations
shall be made for any expense item that is required to be paid (or reimbursed to
Seller) pursuant to the terms of the Leases. All prorations and Closing
adjustments shall be made on the basis of a 366 day calendar year. All such
prorations and adjustments shall be subject to post-Closing adjustments as
necessary to reflect later relevant information not available at Closing and to
correct any errors made at Closing with respect to such apportionments and the
party receiving more than it was entitled to hereunder shall reimburse the other
party hereto in the amount of such overpayment within thirty (30) days after
receiving written demand therefor. Notwithstanding the foregoing, such
apportionments shall be deemed final and not subject to further post-Closing
adjustment, except for reproration of real estate (and personal property, if
applicable) taxes or tax refunds as provided above, if no such adjustments have
been requested within ninety (90) days after the end of calendar year 1996.
Seller shall obtain utility prorations as close to the date of Closing as
practical.
10. CLOSING DOCUMENTS AND MATTERS.
A. On the Proration Date, Seller shall deliver the following original
documents into escrow, each acknowledged and executed (as appropriate):
1. A Deed to the Premises containing Seller's special warranty,
substantially in the form of Exhibit D attached hereto and made a part hereof,
subject to the matters Purchaser has agreed to accept under the terms of this
Agreement.
2. Applicable real estate transfer tax declarations, if any.
3. A Bill of Sale with respect to the Personal Property
containing Seller's special warranty, substantially in the form of Exhibit E
attached hereto and made a part hereof.
4. An Assignment and Assumption of Trade Name to Premises,
Leases, Service Contracts, Permits and Warranties, Plans and any other so-called
intangible property constituting the Property substantially in the form of
Exhibit F attached hereto and made a part hereof.
5. A letter, substantially in the form attached hereto as Exhibit
G, advising the tenants under the Leases of the change in ownership and
management of the Premises, that Purchaser has assumed the Leases and Seller has
transferred any security deposits under the Leases to Purchaser, and directing
such tenants to pay rent to Purchaser or as Purchaser may direct.
6. All Leases and assigned Service Contracts which Purchaser has
agreed to assume pursuant to this Agreement, all Permits and Warranties, Plans
and copies of the intangible property described in Section l.A.4 above, all of
which shall be delivered to Purchaser or its agent at the Premises.
<PAGE> 17
7. An Affidavit pursuant to the Foreign Investment in Real
Property Tax Act.
8. Any evidence of the authority of Seller to consummate the
transaction contemplated hereby that is reasonably requested by the Title
Company.
9. A Subordination, Non-Disturbance and Attornment Agreement in
favor of the lender engaged by Purchaser to finance Purchaser's acquisition of
the Property, if applicable.
10. A certificate of the President and the Secretary of Seller,
in form and substance satisfactory to Purchaser, dated as of the date of the
Closing, certifying, the fulfillment of the covenants of Seller set forth in
this Agreement and certifying that all representations and warranties by Seller
contained in this Agreement or in any written document executed and delivered by
Seller pursuant to this Agreement or in connection herewith were true and
correct in all material respects when made and on and as of the date of the
Closing, unless when made such representation or warranty was specifically
stated to relate only to such date.
11. A resolution of the general partner of Seller and consent of
the general partner of Seller, certified by the Secretary or the Assistant
Secretary of the general partner of Seller, authorizing the execution, delivery
and performance by Seller of this agreement, all agreements and instruments to
be executed and delivered by Seller pursuant to this Agreement or in connection
herewith and the consummation of the transactions contemplated hereby.
B. On the Proration Date, Purchaser shall deliver or cause to be
delivered the following original documents into escrow, each acknowledged and
executed (as appropriate):
1. The Assignment and Assumption in the form of Exhibit F hereto,
which includes an assumption of Seller's obligations to the tenants under the
Leases and the security deposits paid thereunder.
2. Applicable real estate transfer tax declarations, if any.
3. An ALTA Loan and Extended Coverage Statement or the equivalent
thereof reasonably required by the Title Company in connection with the issuance
of the Title Policy.
4. The tenant notification letters described in Section 10.A.5
above.
<PAGE> 18
5. Any evidence of the authority of any permitted assignee of
Purchaser to consummate the transaction contemplated hereby that is reasonably
requested by the Title Company.
C. At Closing, Purchaser shall cause to be paid to Seller the Cash
Balance as required pursuant to Section 2 above, plus or minus prorations as
determined pursuant hereto. Closing shall be deemed to have occurred (e.g., for
purposes of possession and prorations) at such time as the Cash Balance has been
received by Seller in sufficient time for Seller to invest such sum (and receive
interest thereon), in no event later than 3:00 p.m. Eastern Time. Amounts not
received by such time shall, for purposes hereof, be deemed to have been
received the next Business Day.
D. In addition to the other conditions to Closing expressly set forth
in this Agreement, it shall be a condition to Purchaser's obligation to close
the transaction contemplated hereby that Purchaser receives at Closing:
1. The Title Policy or the written obligation of the Title
Company to issue the Title Policy.
2. Estoppel certificates, substantially in the form of Exhibit H
attached hereto and made a part hereof, from the tenants under Leases which
demise not less than eighty five percent (85%) of the rentable area of the
Improvements which is occupied by tenants under Leases in effect as of the end
of the Inspection Period ("Required Number of Estoppel Certificates"). Seller
shall use reasonable efforts to obtain estoppel certificates from all tenants
leasing space in the Improvements, but if the Required Number of Estoppel
Certificates are not delivered at or prior to Closing (an estoppel certificate
shall be deemed to satisfy the requirements of this Section 10.D(ii) even though
it may not be in the form or substance of Exhibit H, provided that the
certificate contains the specific information (as opposed to a general or
"catch-all" requirement), if any, required by the applicable Lease or that the
departures therefrom reflect facts or circumstances that were known to Purchaser
through its inspection of the Property), Purchaser may elect to terminate this
Agreement unless Seller elects (in its sole discretion) to certify to Purchaser
or otherwise correct the matters which should have been certified to in the
missing (or altered, as the case may be) estoppel certificates. Such
certifications ("Seller's Estoppel Certificates"), which Seller may elect to
give in order to deliver the Required Number of Estoppel Certificates, shall (x)
be limited to matters within the knowledge of Seller (as knowledge is defined in
Section 8.C hereof), (y) be subject to the limitations on liability set forth in
Section 8.G hereof, and (z) be in the form of the certificate attached hereto as
Exhibit I. If this Agreement is terminated pursuant to this Section , Seller
shall direct the Deposit Escrowee to refund the Deposit to Purchaser, and shall
reimburse Purchaser for all out of pocket cost and expenses incurred by
Purchaser in connection with the transactions contemplated by this Agreement in
an amount not to exceed Fifteen Thousand Dollars ($15,000.00), and the parties
shall not have any further obligations hereunder, except pursuant to Sections
4.G, 8.D and 13.F hereof, which shall survive such termination.
<PAGE> 19
E. Seller shall terminate the existing management agreement with the
Property Manager effective as of the date of Closing.
F. Purchaser shall be entitled to possession of the Property at the
conclusion of Closing subject only to the matters expressly permitted by or
pursuant to this Agreement.
G. Effective upon Closing, Seller may notify all contractors and
utility companies serving the Property of the sale of the Property and to (i)
return any deposit or deposits posted by Seller, (ii) terminate Seller's account
effective on noon on the date of Closing, and (iii) direct to Purchaser all
bills for services provided to the Property on and after the date of Closing.
11. CASUALTY AND CONDEMNATION.
A. If, prior to Closing, either (i) the Premises are destroyed or
materially damaged by fire or other casualty or (ii) the Premises or a material
part thereof is condemned, then either party may elect to terminate this
Agreement. The party electing to terminate shall give written notice of its
election to the other party within ten (10) days after receiving notice or
knowledge of damage or condemnation. In such event, Seller shall direct the
Deposit Escrowee to return the Deposit to Purchaser and thereupon this Agreement
shall be null and void and neither party shall have any further obligations
under this Agreement, except under Sections 4.G, 8.D and 13.F, which survive
such termination. If neither Seller nor Purchaser gives such written notice
within such ten (10) day period, the transaction contemplated by this Agreement
shall be consummated as otherwise provided herein. In such event, Seller will
assign to Purchaser at Closing the physical damage proceeds of any insurance
policy payable to Seller or Seller's portion of the condemnation award (less any
costs or expenses paid by Seller in connection therewith), in either case, not
to exceed the Purchase Price.
B. As used in Section 11.A(i) above, material damage shall be deemed to
have occurred if the cost of repairing such damage (as estimated by the
applicable insurance carrier for Seller) is in excess of Two Hundred Fifty
Thousand Dollars ($250,000). As used in Section 11.A (ii) above, a condemnation
of a material part of the Premises shall be deemed to have occurred if the
portion taken adversely affects the normal use or income of the Premises.
C. If prior to Closing less than a material portion of the Premises is
damaged by fire or other casualty or less than a material part thereof is
condemned, then the transaction contemplated by this Agreement shall be
consummated as otherwise provided herein. In the event of such casualty or
condemnation, Seller shall assign to Purchaser at Closing the physical damage
proceeds of any insurance policy payable to Seller or Seller's portion of the
condemnation award (less any costs or expenses paid by Seller in connection
therewith), in either case, not to exceed the Purchase Price.
<PAGE> 20
12. DEFAULT.
A. If Purchaser shall default under this Agreement prior to Closing,
the Deposit shall be paid by the Deposit Escrowee to Seller as Seller's sole and
liquidated damages, and both parties shall be relieved of and released from any
further liability hereunder except for the obligations of Purchaser set forth in
Section 4.G. above and Section 13.F below and the obligations of the parties set
forth in Section 8.D above. Seller and Purchaser agree that the Deposit is a
fair and reasonable amount to be retained by Seller as agreed and liquidated
damages in light of Seller's removal of the Property from the market and the
costs incurred by Seller and shall not constitute a penalty or a forfeiture.
B. If Seller shall default under this Agreement prior to Closing or
refuse or fail to convey the Property as herein provided, Purchaser's sole
remedy therefor shall be either (1) to terminate this Agreement, whereupon
Seller shall direct the Deposit Escrowee to refund the Deposit to Purchaser and
shall reimburse Purchaser for all out of pocket cost and expenses incurred by
Purchaser in connection with the transactions contemplated by this Agreement in
an amount not to exceed Fifteen Thousand Dollars ($15,000.00), or (2) to enforce
Seller's obligations to convey the Property, provided that no such action in
specific performance shall seek to require Seller to (a) change the condition of
the Property or restore the Property or any part thereof following any fire,
other casualty or condemnation, provided the proceeds of any applicable
replacement value insurance policy (or the right of Seller to any such proceeds)
have been assigned by Seller to Purchaser; (b) expend money or post a bond to
remove a title defect, except for any title defect arising with respect to the
rights described on Schedule 6.A. attached hereto; or (c) secure any permit,
approval or consent with respect to the Property or Seller's conveyance of the
Property.
13. MISCELLANEOUS.
A. No alteration, modification or interpretation of this Agreement or
the Exhibits shall be binding unless in writing and signed by both parties.
B. If any provision of this Agreement or any application to any party
or circumstances shall be determined by any court of competent jurisdiction to
be invalid and unenforceable to any extent, the remainder of this Agreement or
the application of such provision to such person or circumstances, other than
those as to which it is so determined invalid or unenforceable, shall not be
affected thereby, and each provision hereof shall be valid and shall be enforced
to the fullest extent permitted by law, except that, if as a result thereof, the
consideration to be paid to Seller under this Agreement is diminished in any
material respect Seller shall have the option, upon written notice to Purchaser,
to terminate this Agreement.
<PAGE> 21
C. This Agreement shall be construed and enforced in accordance with
the laws of the Commonwealth of Pennsylvania.
D. Purchaser may not assign this Agreement without first obtaining
Seller's written consent, which consent may be withheld in Seller's sole
discretion; provided, however, that Seller shall not withhold its consent to an
assignment of this Agreement to an entity controlled by Purchaser so long as the
requirements of Section 13.P below are satisfied with respect to such
assignment. Any assignment in contravention of this provision shall be void. No
assignment (including an assignment to an entity controlled by Purchaser) shall
release the Purchaser herein named from any obligation or liability under this
Agreement. If Purchaser requests Seller's written consent to any assignment,
Purchaser shall (i) notify Seller in writing of the proposed assignment; (ii)
provide Seller with the name and address of the proposed assignee; (iii) provide
Seller with financial information including financial statements of the proposed
assignee (except for an entity controlled by Purchaser); and (iv) provide Seller
with a copy of the proposed assignment.
E. This Agreement shall be binding and inure to the benefit of
Purchaser and Seller and their successors and permitted assigns.
F. Neither Purchaser nor Seller shall make any public disclosure of the
terms of this transaction prior to the completion of the Closing without the
prior written consent of the other, except as may be required by law or
applicable governmental regulation. Neither Purchaser nor Seller shall (without
first obtaining the other's written consent, which shall not be unreasonably
withheld or delayed) disclose to any third party any information or data with
respect to the Property, except such disclosure as may be expressly contemplated
or permitted by this Agreement.
G. The captions in this Agreement are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Agreement or the scope or content of any of its provisions.
H. In the event of any litigation arising out of this Agreement, in
addition to any other rights or remedies specified herein, the prevailing party
(which term shall mean the party which obtains substantially all of the relief
sought by such party) shall be entitled to its reasonable attorneys' fees and
costs.
I. When used in this Agreement, the term "Business Day" shall mean any
day when national banks located in Philadelphia, Pennsylvania are open for
business.
J. Nothing contained in this Agreement shall be construed to create a
partnership or joint venture between the parties or their successors in interest
or any other relationship other than seller and purchaser.
K. Time is of the essence of this Agreement.
<PAGE> 22
L. This Agreement may be executed and delivered in any number of
counterparts, each of which so executed and delivered shall be deemed to be an
original and all of which shall constitute one and the same instrument.
M. Purchaser and Seller agree not to record this Agreement or any
memorandum thereof.
N. No failure or delay by a party to exercise any right it may have by
reason of the default of the other party shall operate as a waiver of default or
as a modification of this Agreement or shall prevent the exercise of any right
by the first party while the other party continues to be so in default.
O. For the purpose of complying with Internal Revenue Service reporting
requirements for this transaction, the Title Company shall be obligated to
prepare and file the 1099-S form (and any necessary supporting documentation)
and Seller and Purchaser shall cooperate with any requests from the Title
Company in connection therewith.
P. Purchaser certifies and warrants to Seller that the purchase of the
Property will not result in a prohibited transaction under Section 406 of the
Employee Retirement Income Security Act of 1974, Section 4975 of the Internal
Revenue Code of 1986 or any similar state law applicable to governmental plans.
Purchaser shall indemnify and hold Seller harmless from all loss (including
reasonable attorneys' fees and costs) arising out of a breach of the foregoing
certification and warranty.
Q. The submission by Seller to Purchaser of this Agreement in unsigned
form shall be deemed to be a submission solely for Purchaser's consideration and
not for acceptance and execution. Such submission shall have no binding force
and effect, shall not constitute an option, and shall not confer any rights or
impose any obligations upon Purchaser, irrespective of any reliance thereon,
change of position or partial performance. The submission by Seller of this
Agreement for execution by Purchaser and the actual execution and delivery
thereof by Purchaser to Seller shall similarly have no binding force and effect
on Seller unless and until Seller shall have executed this Agreement and a
counterpart thereof shall have been delivered to Purchaser, together with the
Deposit, within five (5) Business Days after submission thereof by Seller to
Purchaser.
14. NOTICES.
Any notices or requests required or permitted to be given hereunder
shall be (i) hand delivered, or (ii) sent by Federal Express or similar
overnight service for next business day delivery, or (iii) sent by U.S.
certified mail, return receipt requested, in all cases addressed to the parties
at their respective addresses as follows:
If to Seller: Horsham Office Center Associates
Limited Partnership
c/o O'Neill Properties Group
<PAGE> 23
443 S. Gulph Road
King of Prussia, PA 19406
Attn: Richard Heany
With a copy to: Kevin W. Walsh, Esq.
Adelman, Lavine Gold and Levin
Suite 1900
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
If to Purchaser: Brandywine Realty Trust
Two Greentree Center, Suite 100
Marlton, New Jersey 08053
Attention: Jerry Sweeny
With a copy to: Pepper Hamilton & Scheetz
Two Logan Square, 32nd Floor
Philadelphia, Pennsylvania 19103
Attn: Brad Molotsky, Esquire
or in each case to such other address as either party may from time to time
designate by giving notice in writing to the other party.
15. INDEMNIFICATION.
A. From and after the date of the Closing, Seller shall indemnify and
hold harmless Purchaser, and its principals, agents, indemnitees, servants,
assignees and employees from and against any and all losses which Purchaser may
suffer or incur resulting from, relating to, or arising out of (1) any
misrepresentation or breach of a warranty by Seller contained in this Agreement;
(2) the failure to comply with any applicable bulk sales laws; (3) any failure
to fulfill any covenant or agreement of Seller contained in this Agreement; or
(4) any and all actions, suits, investigations, proceedings, demands,
assessments, audits, judgments and/or claims arising out of or relating to any
of the foregoing.
B. From and after the date of the Closing, Purchaser shall indemnify
and hold harmless Seller, and its principals, agents, indemnitees, servants,
assignees and employees from and against any and all losses which Seller may
suffer or incur resulting from, relating to, or arising out of (1) any
misrepresentation or breach of a warranty by Purchaser contained in this
Agreement; (2) any failure to fulfill any covenant or agreement of Purchaser
contained in this Agreement; or (3) any and all actions, suits, investigations,
proceedings, demands, assessments, audits, judgments and/or claims arising out
of or relating to any of the foregoing.
<PAGE> 24
IN WITNESS WHEREOF, Seller and Purchaser have executed and delivered
this Agreement as of the date first written above, being the date inserted by
Seller as the date of its execution and delivery hereof to Purchaser.
SELLER: PURCHASER:
HORSHAM OFFICE CENTER BRANDYWINE REALTY TRUST
ASSOCIATES LIMITED
PARTNERSHIP, a Pennsylvania limited
partnership
By: HORSHAM OFFICE CENTER By: /s/ GERARD H. SWEENEY
ASSOCIATES ACQUISITION ---------------------------
CORPORATION, a Pennsylvania Name: __________________________
corporation, its general partner Title: _________________________
By: /s/ J. BRIAN O'NEILL
______________________________
J. BRIAN O'NEILL, President
<PAGE> 1
EXHIBIT 10.54
AMENDMENT TO AGREEMENT FOR PURCHASE
AND SALE OF REAL ESTATE AND RELATED PROPERTY
THIS AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE AND
RELATED PROPERTY ("Amendment") is made this _____ day of September, 1996, by and
between HORSHAM OFFICE CENTER ASSOCIATES LIMITED PARTNERSHIP, a Pennsylvania
limited partnership (the "Seller") and BRANDYWINE REALTY TRUST, or its permitted
nominee or assignee (the "Purchaser").
B A C K G R O U N D
A. Seller and Purchaser are parties to a certain Agreement for Purchase
and Sale of Real Estate and Related Property dated August 14, 1996 ("Agreement
of Sale").
B. Seller and Purchase have agreed to extend the Inspection Period for
certain specified purposes and to provide for an extension of the date of
Closing upon the terms and conditions set forth in this Amendment.
C. All capitalized terms not otherwise defined herein shall have the
meaning ascribed to such terms in the Agreement of Sale.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing Background and of the
mutual promises of the parties contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Seller and Purchaser, intending to be legally bound, hereby agree as follows:
1. Seller and Purchaser agree that the Inspection Period as set forth
in Section 4 of the Agreement of Sale and the corresponding right of Purchaser
to terminate the Agreement of Sale pursuant to Section 5 of the Agreement of
Sale shall be extended to 5:00 p.m., Eastern Standard Time on October 7, 1996
for the sole and limited purposes of allowing Purchaser to (i) conduct a tenant
interview with representatives of MetPath, Inc. at a meeting to be attended with
representatives of Seller for the sole purpose of permitting Purchaser to
determine MetPath's future business plans to Purchaser's satisfaction; and (ii)
procure an environmental report on the Property acceptable to Purchaser.
Purchaser hereby waives its right to terminate the Agreement of Sale or seek the
return of the Deposit for any reason relating to the inspection rights of
Purchaser pursuant to Section 4 of the Agreement of Sale except for the reasons
specified in (i) and (ii) above.
2. Seller and Purchaser hereby agree that the Additional Deposit
specified in Section 2(A)(ii) of the Agreement of Sale shall be Seventy Five
Thousand Dollars ($75,000.00). Purchaser hereby agrees to wire transfer to the
Deposit Escrowee the
<PAGE> 2
Additional Deposit specified in Section 2(A)(ii) of the Agreement of Sale as
amended hereby for receipt by Deposit Escrowee on or before 3:00 p.m. Eastern
Standard Time on October 2, 1996. The Deposit Escrowee shall hold the Initial
Deposit and the Additional Deposit pursuant to the Agreement of Sale as amended
herein. In the event that Purchaser does not terminate the Agreement of Sale
before the expiration of the Inspection Period as provided in Section 1 of this
Amendment, Purchaser agrees that the Deposit , together with interest accrued
thereon has been fully earned by Seller, and the Deposit Escrowee shall not be
obligated to return the Deposit to Purchaser unless Seller defaults in its
obligation under the Agreement of Sale to close on the sale of the Property on
or before the date of Closing as specified herein.
3. Section 7 of the Agreement of Sale is hereby amended to read in its
entirety as follows:
Payment of the Purchase Price and the consummation of the transaction
contemplated by this Agreement ("Closing") shall take place pursuant to an
escrow closing which provides that the Purchase Price shall be paid to Seller
substantially simultaneously with the agreement of the Title Company to issue
the Title Policy to Purchaser. The Closing shall occur at 9:00 A.M. Eastern Time
on November 15, 1996 at the offices of the Title Company in Philadelphia,
Pennsylvania or at such earlier date or other place as may be mutually agreed
upon in writing by both Seller and Purchaser; provided, however, that (i)
Purchaser may elect to extend the date of Closing to December 15, 1996 by
transmitting notice to the Seller on or before November 14, 1996 provided that
such notice is accompanied by payment to the Deposit Escrowee of an additional
Fifty Thousand Dollars ($50,000.00) which amount shall be applied by Seller on
account of the Purchase Price payable under Section 2 of the Agreement of Sale;
or (ii) Seller, at Seller's sole discretion, may elect to extend the Closing as
necessary (but in no event more than thirty (30) additional days) in order to
satisfy the requirements of Section 10.D(ii) below. The date of the Closing may
be extended by Seller beyond such 30th day after the date of the expiration of
the Inspection Period by the number of days needed to cure title defects or
adverse matters pursuant to Section 6 above, but in no event shall the date of
the Closing be after January 16, 1997. Seller and Purchaser shall meet at the
office of Purchaser's attorney and commence preparations for Closing on the day
immediately prior to the date of Closing ("Proration Date"), so that all Closing
documents required hereunder are signed and deposited into escrow with the Title
Company (and all Closing prorations required hereunder are finalized) before the
close of business on the Proration Date.
4. Except as specifically provided in this Agreement, all other terms
and conditions of the Agreement of Sale shall remain in full force and effect.
5. This Agreement shall inure to the benefit of, and be binding upon,
the heirs, executors, administrators, successors and assigns of the respective
parties hereto.
<PAGE> 3
6. This Agreement may be executed in one (1) or more counterparts and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one (1) and the same agreement.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Amendment to Agreement of Sale to be executed as of the date and year first
above written.
SELLER:
HORSHAM OFFICE CENTER ASSOCIATES
LIMITED PARTNERSHIP
By: Horsham Office Center Associates
Acquisition Corporation
By: /s/ HORSHAM OFFICE CENTER
ASSOCIATES ACQUISITION
CORPORATION
--------------------------------
Name:
Title:
PURCHASER:
BRANDYWINE REALTY TRUST
By: /s/ GERARD H. SWEENEY
_________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.55
SECURITIES PURCHASE AGREEMENT
BETWEEN
BRANDYWINE REALTY TRUST
MORGAN STANLEY INSTITUTIONAL FUND, INC. -
U.S. REAL ESTATE PORTFOLIO
AND
MORGAN STANLEY SICAV SUBSIDIARY S.A.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. SALE AND PURCHASE OF SHARES; CLOSING........................................................... 1
1.1 Authorization of Securities.................................................................... 1
1.2 Sale and Purchase.............................................................................. 1
1.3 Closing........................................................................................ 1
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 2
2.1 Organization and Good Standing................................................................. 2
2.2 Authorization.................................................................................. 2
2.3 No Conflict with Law or Documents.............................................................. 3
2.4 Beneficial Interest of Company................................................................. 3
2.5 Consents and Approvals......................................................................... 3
2.6 Private Offering............................................................................... 4
2.7 Declaration of Trust and Bylaws................................................................ 4
2.8 Subsidiaries................................................................................... 4
2.9 SEC Reports.................................................................................... 5
2.10 Litigation..................................................................................... 5
2.11 Compliance with Laws........................................................................... 5
2.12 Financial Statements........................................................................... 6
2.13 Real Property.................................................................................. 7
2.14 Tenant Leases.................................................................................. 8
2.15 Dividends and Other Distributions.............................................................. 9
2.16 Tax Matters.................................................................................... 9
2.17 Agreements Affecting the Company's Securities.................................................. 10
2.18 Insurance...................................................................................... 10
2.19 Employee Benefit Plans......................................................................... 10
2.20 Contracts and Agreements....................................................................... 12
2.21 Absence of Certain Developments................................................................ 12
2.22 Contracts with Insiders........................................................................ 12
2.23 Environmental Matters.......................................................................... 13
2.24 Certain Agreements............................................................................. 13
2.25 Books and Records.............................................................................. 13
2.26 Certain Payments............................................................................... 14
2.27 Labor Agreements and Actions................................................................... 14
2.28 Entire Business; Etc........................................................................... 14
2.29 Registration Statement......................................................................... 14
2.30 Information.................................................................................... 15
2.31 Investment Company............................................................................. 15
2.32 Commodity Exchange Act......................................................................... 15
SECTION 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES..................................................... 15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
3.1 Pre-Existing Entity............................................................................ 16
3.2 Beneficial Ownership........................................................................... 16
3.3 Principal Place of Business.................................................................... 16
3.4 Purchase Without View to Distribution.......................................................... 16
3.5 Restrictions on Transfer....................................................................... 16
3.6 No General Solicitation........................................................................ 16
3.7 Access to Information.......................................................................... 17
3.8 Additional Representations of the Purchasers................................................... 17
3.9 Legends........................................................................................ 17
3.10 Registration Statement......................................................................... 17
3.11 Due Authorization; Etc......................................................................... 17
3.12 Status......................................................................................... 18
SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS............................................ 18
4.1 Representations and Warranties................................................................. 18
4.2 Performance.................................................................................... 18
4.3 Opinion of Counsel to the Company.............................................................. 18
4.4 Proceedings; Certified Copies.................................................................. 18
4.5 No Proceeding or Litigation.................................................................... 18
4.6 No Material Adverse Change..................................................................... 18
4.7 ASE Listing.................................................................................... 18
4.8 Blue Sky Compliance............................................................................ 19
4.9 Registration Rights............................................................................ 19
4.10 Maryland Anti-Takeover Statutes, Etc........................................................... 19
4.11 Secondary Offering............................................................................. 19
4.12 Beneficial Ownership........................................................................... 19
4.13 Environmental Representation Letter............................................................ 19
4.14 Additional Documents........................................................................... 19
SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS.............................................. 19
5.1 Representations and Warranties................................................................. 20
5.2 Performance.................................................................................... 20
5.3 No Proceeding or Litigation.................................................................... 20
5.4 ASE Listing.................................................................................... 20
5.5 Additional Documents........................................................................... 20
5.6 Proceedings; Certified Copies.................................................................. 20
5.7 No SEC Integration Challenge................................................................... 20
5.8 Beneficial Ownership........................................................................... 20
SECTION 6. COVENANTS OF THE COMPANY AND EACH PURCHASER PRIOR TO
CLOSING........................................................................................ 21
6.1 Payment of Expenses............................................................................ 21
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
6.2 Operation of Business in Ordinary Course....................................................... 21
6.3 Access to Information.......................................................................... 21
6.4 Notification of Certain Matters................................................................ 22
6.5 Conditions Precedent........................................................................... 22
SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY AND THE PURCHASERS......................................... 22
7.1 Rule 144....................................................................................... 22
7.2 Delivery of Financial Statements............................................................... 23
7.3 Compliance with Laws........................................................................... 23
7.4 Waivers, Consents, Etc......................................................................... 23
7.5 Press Releases................................................................................. 23
7.6 No Rescission.................................................................................. 24
7.7 REIT Status.................................................................................... 24
SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON TRANSFERABILITY
OF COMMON SHARES............................................................................... 24
8.1 Compliance with 1933 Act....................................................................... 24
8.2 Restrictive Legend............................................................................. 24
8.3 Restrictions on Transferability................................................................ 24
8.4 Termination of Restrictions on Transferability................................................. 25
SECTION 9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS......................................... 25
SECTION 10. MISCELLANEOUS.................................................................................. 25
10.1 Owner of Common Shares......................................................................... 25
10.2 Successors..................................................................................... 25
10.3 Broker or Finder............................................................................... 26
10.4 Governing Law.................................................................................. 26
10.5 Notice......................................................................................... 26
10.6 Full Agreement................................................................................. 27
10.7 Headings....................................................................................... 27
10.8 Amendment...................................................................................... 27
10.9 Survival of Representations and Warranties..................................................... 27
10.10 Settlement of Disputes......................................................................... 27
10.11 Counterparts................................................................................... 28
10.12 Termination.................................................................................... 28
10.13 Effect of Termination.......................................................................... 29
10.14 Non-Recourse................................................................................... 29
</TABLE>
-iii-
<PAGE> 5
SCHEDULE OF EXHIBITS
Exhibit A -- Disclosure Letter
Exhibit B -- Form of Amendment to Partnership Agreement
Exhibit C -- Form of Amendment No. 1 to Registration Statement
Exhibit D -- Form of Opinion of Counsel to the Company
Exhibit E -- Form of Opinion of Special Maryland Counsel to the Company
Exhibit F -- Form of Registration Rights Agreement
Schedule A
Schedule 3.2
-iv-
<PAGE> 6
SECURITIES PURCHASE AGREEMENT (this "Agreement") made as of
the 6th day of November, 1996 between BRANDYWINE REALTY TRUST, a Maryland real
estate investment trust (the "Company"), and MORGAN STANLEY INSTITUTIONAL FUND,
INC.-U.S. REAL ESTATE PORTFOLIO and MORGAN STANLEY SICAV SUBSIDIARY S.A. (each a
Purchaser and together, the "Purchasers").
BACKGROUND
The Company desires to issue and sell to the Purchasers, and each
Purchaser desires to purchase Common Shares (as defined in Section 1.1) on the
terms and conditions set forth herein.
Intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION 1. SALE AND PURCHASE OF SHARES; CLOSING
1.1 AUTHORIZATION OF SECURITIES. The Board of Trustees has
authorized the issuance of 709,091 of its authorized but unissued common shares
of beneficial interest (the "Common Shares") as provided in Section 1.2.
1.2 SALE AND PURCHASE. Subject to the terms and conditions
herein set forth, on the Closing Date (as defined in Section 1.3), the Company
shall sell, issue and deliver Common Shares to the Purchasers at a price of
$16.50 per share (assuming the Company has combined its Common Shares by means
of a one-for-three reverse share split as described in the Registration
Statement (as defined in Section 2.29)), and each Purchaser agrees, severally
and not jointly, to purchase the number of Common Shares set forth opposite its
name on Schedule A attached hereto. All share amounts and prices shall be
appropriately adjusted for any share splits, reverse share splits, dividends or
similar transactions (with the exception of the one for three reverse share
split described in the Registration Statement). The Purchasers shall not be
deemed to be affiliated shareholders or affiliated purchasers.
1.3 CLOSING.
(a) The closing of the issuance and sale of the
Shares to the Purchasers hereunder shall take place as promptly as practicable
after the closing of the Secondary Offering, subject to the satisfaction or, if
permissible, waiver of the conditions set forth in Sections 4 and 5, at 10:00
A.M. at the offices of Pepper, Hamilton & Scheetz, Two Logan Square, 18th and
Arch Streets, Philadelphia, PA 19103, unless another date, time or place is
agreed to in writing by the parties hereto. As used herein "Closing" shall mean
the closing of the issuance and sale of the Common Shares to the Purchasers
hereunder and the "Closing Date" shall mean the date on which such Closing takes
place. The term "Secondary Offering" as used herein means an underwritten
primary public offering of unissued common shares of beneficial interest of the
<PAGE> 7
same class as the Common Shares pursuant to a Registration Statement on Form
S-11 declared effective by the SEC (as defined in Section 2.9) which results in
gross proceeds to the Company (prior to reduction for the underwriters'
discount) of at least $45,000,000.
(b) Subject to the terms and conditions herein set
forth, at the Closing, the Company shall deliver to each Purchaser certificates
for the Common Shares purchased thereby duly executed by the Company and
registered in such Purchaser's name or the name of their respective nominee and,
in exchange for the delivery of the Common Shares, Purchaser shall deliver to
the Company the purchase price for the number of Common Shares set forth
opposite its name on Schedule A attached hereto by wire transfer of immediately
available funds to an account designated by the Company on the Closing Date.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Other than as set forth on the disclosure letter previously
provided to the Purchasers (the "Disclosure Letter") or as described in the
Registration Statement or in the SEC Reports or exhibits thereto (as defined in
Section 2.09), the Company represents and warrants to each Purchaser as follows:
2.1 ORGANIZATION AND GOOD STANDING. The Company is a real
estate investment trust duly formed and existing under and by virtue of the laws
of the State of Maryland and is in good standing under the laws of the State of
Maryland Department of Assessments and Taxation and has all requisite power and
trust authority, and all necessary licenses and permits, to own and lease its
properties and assets and to conduct its business as now conducted. Each
Subsidiary (as defined in Section 2.9) is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite power and authority, and all necessary
licenses and permits, to own and lease its properties and assets and to conduct
its business as now conducted. The Company and its Subsidiaries are each
qualified to do business and are in good standing in all states where the
conduct of their respective businesses or their ownership or leasing of property
requires such qualification.
2.2 AUTHORIZATION. The Company has all requisite power and
trust authority to execute and deliver this Agreement and the Registration
Rights Agreement (as defined herein) and to carry out the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Company of this Agreement and the Registration Rights Agreement have been duly
authorized by all requisite corporate action. This Agreement has been duly
executed and delivered by the Company and constitutes (and, when executed and
delivered as contemplated herein the Registration Rights Agreement will
constitute) the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, moratorium, reorganization and other similar
laws relating to or affecting the enforcement of creditors' rights
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generally, and except that the availability of specific performance, injunctive
relief or other equitable remedies is subject to the discretion of the court
before which any such proceeding may be brought.
2.3 NO CONFLICT WITH LAW OR DOCUMENTS. The execution, delivery
and performance by the Company of this Agreement and the Registration Rights
Agreement will not violate any provision of law, any rule or regulation of any
governmental authority, or any judgment, decree or order of any court binding on
the Company, and will not conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the properties, assets or outstanding shares of the Company under the
Declaration of Trust of the Company as amended to the date of this Agreement
(the "Declaration of Trust") or the Bylaws of the Company as amended to the date
of this Agreement (the "Bylaws"), or any indenture, mortgage, lease, agreement
or other instrument to which the Company is a party or by which it or any of its
properties is bound.
2.4 BENEFICIAL INTEREST OF COMPANY. The authorized beneficial
interest of the Company consists of: (a) 75,000,000 Common Shares, 2,733,554
shares of which are presently issued and outstanding, and (b) 5,000,000
undesignated preferred shares, par value $.01 per share, none of which is
presently issued and outstanding. All issued and outstanding Common Shares have
been duly and validly issued and are fully paid and nonassessable. There are no
outstanding subscriptions, warrants, options or other rights or commitments of
any character to subscribe for or purchase from the Company, or obligating the
Company to issue, any shares of beneficial interest of the Company or any
securities convertible into or exchangeable for such shares, and there are no
Common Shares reserved for issuance. The number of Common Shares issuable upon
the exercise, conversion or exchange of any outstanding securities of the
Company is not subject to adjustment by reason of the issuance and sale of the
Common Shares to be sold to the Purchasers. There are no (i) preemptive, first
refusal or similar rights to purchase or otherwise acquire securities of the
Company or any Subsidiary pursuant to any provision of law, the Declaration of
Trust, the Bylaws, the Partnership Agreement (as defined in Section 2.21), other
agreement or otherwise; or (ii) rights to adjust the number, type or pricing of
securities issuable upon conversion, exercise or exchange of other securities or
rights issued by the Company.
2.5 CONSENTS AND APPROVALS. Except as set forth in the
Disclosure Letter, no permit, consent, approval or authorization of, or
declaration to or filing with, any federal, state, local or foreign governmental
or regulatory authority or other person or entity, not made or obtained, is
required in connection with the execution or delivery of this Agreement or the
Registration Rights Agreement by the Company, the offer, issuance, sale or
delivery of the Common Shares, or the carrying out by the Company of the other
transactions contemplated hereby, other than (a) the filing with, and approval
of, the American Stock Exchange, Inc. ("ASE") with respect to the listing of the
Common Shares, (b) any filings required under federal
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and applicable state securities laws, and (c) the filing of Articles
Supplementary with the State Department of Assessments and Taxation of Maryland.
Prior to the closing, the Board of Trustees of the Company shall have taken all
action necessary so that the transactions contemplated by this Agreement
including, without limitation, the issuance of the Common Shares, shall be
irrevocably exempt from the operation of Section 3-601 et seq. (the "business
combination" statute), and Section 3-701 et seq. (the "control share
acquisition" statute) of the Maryland General Corporation Law (collectively, the
"Maryland Anti-Takeover Statutes") and from any provisions of the Declaration of
Trust and Bylaws that may have the effect of limiting the acquisition of
securities of the Company, including without limitation Sections 6.6 and 11.5 of
the Declaration of Trust.
2.6 PRIVATE OFFERING. Assuming the accuracy of the Purchasers'
representations and warranties contained in Section 3, the offer, issuance and
delivery to the Purchasers pursuant to the terms of this Agreement of the Shares
are exempt from registration under the Securities Act of 1933, as amended (the
"1933 Act"). Based on the representations of the Purchasers contained in Section
3, it is not necessary, under the circumstances contemplated by this Agreement
to register issuance of the Common Shares under the 1933 Act or the securities
laws of any state or other jurisdiction.
2.7 DECLARATION OF TRUST AND BYLAWS. The Company has filed as
exhibits to the SEC Reports the Declaration of Trust and Bylaws, true and
correct copies of which have been delivered to the Purchasers.
2.8 SUBSIDIARIES. The SEC Reports or the Disclosure Letter
accurately disclose the name of each entity in which the Company owns any
interest, other than such entities that neither own any assets nor have ever
conducted any business (collectively, the "Subsidiaries," which term includes
without limitation Brandywine Operating Partnership, L.P., a Delaware limited
partnership). The SEC Reports or the Disclosure Letter accurately describe (a)
each Subsidiary's jurisdiction of organization and the percentage of its equity
interests owned by the Company and (b) the name of each of the Company's
corporate or joint venture affiliates (other than Subsidiaries) and the nature
of the affiliation. Except as described in the SEC Reports or the Disclosure
Letter, the Company has good and marketable title to all of the equity interests
it purports to own of each Subsidiary, free and clear in each case of any
mortgage, lien, security interest, charge or other encumbrance, and all such
interests have been duly issued and are fully paid and nonassessable. There are
no outstanding warrants, options or other rights or commitments of any character
to subscribe for or purchase from the Company or a Subsidiary, or obligating
such Subsidiary to issue, any additional equity interests or any securities
convertible into or exchangeable for such equity interests.
2.9 SEC REPORTS. Since January 1, 1995, the Company and its
Subsidiaries have timely filed all forms, reports, schedules, statements and
other documents required to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities
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Exchange Act of 1934, as amended (the "Exchange Act") or the 1933 Act, including
without limitation, (a) all Annual Reports on Form 10-K, (b) all Quarterly
Reports on Form 10-Q, (c) all reports on Form 8-K, (d) all proxy statements
relating to meetings of stockholders (whether annual or special) and (e) all
information incorporated by reference into any of the foregoing. As used herein
the term "SEC Reports" means any of the foregoing, as amended to the date of
this Agreement, filed on or after January 1, 1995. The SEC Reports were prepared
in all material respects in accordance with and complied in all material
respects with the requirements of applicable law, including the Exchange Act and
the 1933 Act and the applicable rules and regulations of the SEC thereunder, and
the SEC Reports did not at the time they were filed and do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Except
for the Registration Statement and the Registration Statement on Form S-8 filed
on October 12, 1996, the Company has not filed any registration statements with
the SEC at any time within the last three years. The Company has delivered to
the Purchasers prior to the date hereof true and correct copies of all SEC
Reports and any other reports and documents filed with the SEC since January 1,
1995.
2.10 LITIGATION. The SEC Reports, the Registration Statement
and/or the Disclosure Letter list all material pending or, to the Company's
knowledge, threatened litigation involving the Company and its Subsidiaries.
Except as so disclosed, there is no pending or, to the knowledge of the Company,
threatened suit, action or litigation, or administrative, arbitration or other
proceeding or governmental inquiry or investigation questioning the validity of
this Agreement or the transactions contemplated hereby, or affecting in any
material adverse respect the Company or any Subsidiary or the business,
properties, assets, operations, or condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole, nor is there, to the knowledge of
the Company, any basis for any such suit, action, litigation, proceeding,
inquiry or investigation.
2.11 COMPLIANCE WITH LAWS. The Company and each Subsidiary is
in compliance in all material respects with all laws, ordinances, rules and
regulations of governmental authorities (including, without limitation, the
Americans with Disabilities Act of 1990) and requirements of insurance bodies
applicable to ownership, leasing, use and operation of its or their properties
and has obtained and fully paid for all material licenses, permits,
certificates, entitlements, grants of right and any other items and documents
required by applicable law to be obtained by the Company or its Subsidiaries for
the completion, ownership, leasing, use and occupancy of its or their
properties, except where the failure to so comply or obtain would not have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
Such licenses, permits, certificates, entitlements, grants of right and other
items and documents are in full force and effect. Neither the Company nor any of
its Subsidiaries have taken any action that would (or failed to take any action,
the omission of which would) result in the revocation or suspension of such
licenses, permits, certificates, entitlements, grants of right and other items
and documents, and neither the Company nor any of its Subsidiaries have
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<PAGE> 11
received any notice of any material violation from any federal, state or
municipal entity or notice of an intent by any such governmental entity to
revoke any material certificate of occupancy or other certificate, license,
permit, entitlement or grant of right issued by it in connection with the
ownership, use and occupancy of any of its or their properties, that in each
case has not been cured or otherwise resolved to the satisfaction of such
governmental entity.
2.12 FINANCIAL STATEMENTS.
(a) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the SEC
Reports and the Registration Statement (i) have been prepared in all material
respects in accordance with the published rules and regulations of the SEC and
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except in the case of the unaudited financial
statements, as permitted by Form 10-Q of the SEC), (ii) comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto and (iii) fairly present
in all material respects the consolidated financial position of the Company and
its Subsidiaries as of the respective dates thereof and the consolidated results
of operations and cash flows for the periods indicated (subject, in the case of
unaudited consolidated financial statements for interim periods, to year-end
adjustments consisting only of normal recurring accruals), except that any pro
forma financial statements contained in such consolidated financial statements
are not necessarily indicative of the consolidated financial position of the
Company and its Subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated.
Since December 31, 1995, the Company has not made any material change in the
accounting practices or policies applied in the preparation of its financial
statements.
(b) Since June 30, 1996 (the "Balance Sheet Date")
there has been no material adverse change in the business, properties, assets,
operations or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole.
(c) The consolidated balance sheet of the Company and
its Subsidiaries at the Balance Sheet Date (the "Balance Sheet") reflects all
liabilities and obligations of the Company and of each Subsidiary, whether
accrued, contingent or otherwise as of the date thereof, that are of a nature
required to be set forth as a liability on a consolidated balance sheet under
GAAP. Neither the Company nor any of its Subsidiaries have any liabilities or
obligations of any nature (whether or not of the nature required to be reflected
on the balance sheet prepared in accordance with GAAP) that are not reflected on
the Balance Sheet, except for current liabilities (within the meaning of GAAP)
which (i) have been incurred in the ordinary course of business consistent in
nature and amount with past practice, and (ii) are neither material to the
Company and its Subsidiaries taken as a whole nor inconsistent with any of the
representations and warranties contained herein. The Balance Sheet reflects
reserves or other appropriate provisions at least equal to reasonably
anticipated liabilities, losses and expenses of
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the Company and its Subsidiaries as of the date thereof which are required to be
disclosed by GAAP.
(d) At the time of the issuance and sale of the
Common Shares to the Purchasers, neither the Company nor any of its Subsidiaries
will have any liabilities or obligations, whether absolute, accrued, contingent,
or otherwise, other than (i) current liabilities reflected on the Balance Sheet
not paid since the Balance Sheet Date, (ii) current liabilities incurred in the
ordinary course of business or in connection with the transactions contemplated
hereby or described in the Disclosure Letter and (iii) the other indebtedness of
the Company or of its Subsidiaries described in the Disclosure Letter, the
Registration Statement or the SEC Reports.
2.13 REAL PROPERTY.
(a) The SEC Reports or the Registration Statement
describe all real properties owned by the Company and each Subsidiary. To the
Company's knowledge, the Company and each Subsidiary has good, valid and
marketable title to all such real and personal properties and assets reflected
therein as being owned by the Company or such Subsidiary, except for properties
and assets sold or otherwise disposed of in the ordinary course of business
since the Balance Sheet Date or that are not material to its business taken as a
whole, subject to no liens, mortgages, security interests, pledges,
encumbrances, or charges of any kind except: (i) liens for taxes or assessments
or other government charges or levies not yet due and payable, (ii) liens
imposed by law, such as mechanic's, materialmen's, warehousemen's and carrier's
liens, and other similar liens, securing obligations incurred in the ordinary
course of business which are not past due for more than 30 days, (iii) liens
under workmen's compensation, unemployment insurance, social security or similar
legislation securing obligations which are not past due, and (iv) the liens
securing other indebtedness not past due of the Company or its Subsidiaries
described in the SEC Reports, the Registration Statement or the Disclosure
Letter (the "Permitted Liens").
(b) No eminent domain, condemnation, incorporation,
annexation or moratorium or similar proceeding has been commenced or, to the
best of the Company's knowledge, threatened by an authority having the power of
eminent domain to condemn any part of the properties owned by the Company and
its Subsidiaries. To the best of the Company's knowledge, there are no pending
or threatened governmental rules, regulations, plans, studies or efforts, or
court orders or decisions, which do or could adversely affect the use or value
of such properties for their present use.
(c) The improvements at all properties owned by the
Company and its Subsidiaries are in good condition and repair, ordinary wear and
tear excepted, and have not suffered any casualty or other material damage which
has not been repaired in all material respects. To the best of the Company's
knowledge, there is no material latent or patent structural,
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mechanical or other significant defect, soil condition or deficiency in the
improvements included in such properties.
(d) Each of the properties owned by the Company and
its Subsidiaries has been fully assessed and is not subject to abatement. To the
best of the Company's knowledge, there are no proposed reassessments of any of
such properties by any taxing authority and there are no threatened or pending
special assessments or other actions or proceedings (other than county-wide
reassessments and/or the usual increases in millage rates that may be under
consideration by the taxing authorities in the jurisdictions where such
properties are located) that could give rise to an increase in real property
taxes or assessments against any of such properties.
(e) There are no "Significant Agreements" relating to
the properties owned by the Company and its Subsidiaries, or their operations,
other than as set forth in the Disclosure Letter, the Registration Statement or
the SEC Reports. For purposes hereof, "Significant Agreement" means and includes
any of the following by which any of such properties may otherwise be subject or
bound, in each such case as amended and currently in effect, inclusive of any
waivers relating thereto:
(i) all agreements, instruments and
documents (excluding tenant leases referred to in Section 2.14 and easements
included in the Permitted Liens) evidencing, securing or pertaining to
contractual obligations that (A) are not cancelable upon 60 days notice or less
and (B) have payments or receipts, as applicable, in excess of $15,000 per year
or $25,000 over its life; and
(ii) all mortgages and ground leases.
2.14 TENANT LEASES.
(a) The Disclosure Letter lists each of the leases
currently in effect with respect to the properties owned by the Company and its
Subsidiaries as the same have been amended or modified to date (the "Leases").
The Leases are in full force and effect and, except as set forth in the
Disclosure Letter, no material uncured Event of Default (as defined in any such
Lease), has occurred and is continuing under any such Lease, no tenant has
asserted a defense to, offset or claim against its rent or the performance of
its obligations under its Lease and no tenant has asserted a default on the part
of the landlord which would give it the right to terminate its Lease and there
are no rights of first refusal on, or options to purchase, any of such leased
properties in favor of any tenant, and no proposed modifications to any Lease
that would reduce (A) the space leased to any tenant, (B) the amount of any
tenant's rent or (C) the term of any Lease.
(b) Except for (i) security deposits or (ii) the
first full month's rent, whether or not the term of a Lease has commenced, no
prepayments of rent more than thirty (30)
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days in advance have been made under the Leases. No rent or security deposits
under the Leases have been assigned or encumbered, except as security for the
mortgages noted in the Disclosure Letter or the SEC Reports, and there are no
agreements or understandings, written or oral, with any of the tenants other
than as set forth in the Leases. All brokerage commissions and other
compensation and fees payable by reason of the Leases have been paid in full.
2.15 DIVIDENDS AND OTHER DISTRIBUTIONS. Since the Balance
Sheet Date, except for the Company's regular quarterly cash dividend (not in
excess of $.07 per quarter between the Balance Sheet Date and the Closing Date),
neither the Company nor any Subsidiary has declared, set aside, or made any
payment of a dividend or made any other distribution in respect of the Company's
beneficial interest, repurchased or redeemed any of the Company's beneficial
interest, or made any other payments to any holder of 5% or more of the
Company's outstanding Common Stock other than salary paid to such stockholder
for bona fide services to the Company or a Subsidiary as an officer or employee
or reimbursement of reasonable expenses incurred in the ordinary course of
business.
2.16 TAX MATTERS. Beginning with the first taxable year of the
Company, its taxable year ended December 31, 1986, the Company properly elected
to be taxed as a real estate investment trust within the meaning of Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
satisfied, and continues to satisfy, all of the requirements set forth in those
provisions and the regulations thereunder to be taxed as a real estate
investment trust within the meaning of those provisions. Without limiting the
generality of the foregoing, the Company, for each taxable year of the Company
beginning with the first taxable year for which it made an election to be
classified as a real estate investment trust: (i) has timely made all of the
distributions required under Section 857(a)(1) of the Code; (ii) has timely
demanded the statements from its shareholders required under Section 1.857-8(d)
of the Treasury Regulations promulgated under the Code and maintained the
records required under Treasury Regulations Section 1.857-8(e); (iii) has not
sought to apply the provisions of Section 856(c)(7) of the Code in any taxable
year of the Company; and (iv) has not revoked its election to be taxed as a real
estate investment trust for federal income tax purposes nor has it received any
notice that its classification as a real estate investment trust has been
challenged by any taxing authority. The Company and each Subsidiary has filed
all U.S. Federal, state, local, foreign and other tax returns which were
required to be filed on or before the date hereof and has paid all taxes which
have become due and payable. All such reports and returns were materially
accurate and complete when filed and reflect all taxes required to be paid by
the Company and its Subsidiaries for the periods reported therein. The provision
for taxes made in the Balance Sheet at the Balance Sheet Date was sufficient for
the payment of all accrued and unpaid taxes of the Company and its Subsidiaries
with respect to the periods then ended. No additional material assessments,
deficiencies or penalties in respect of taxes have been made or claimed against
the Company or any Subsidiary which remain unpaid. No tax returns or reports of
the Company or any Subsidiary are or ever have been under audit.
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2.17 AGREEMENTS AFFECTING THE COMPANY'S SECURITIES. There are
no agreements, written or oral, between the Company and any holder of its
securities or, to the knowledge of the Company, among any holders of its
securities, relating to the acquisition, disposition or voting of the securities
of the Company. Except for the provisions of the Registration Rights Agreements
listed on the Disclosure Schedule, there are no agreements, either written or
oral, which obligate the Company to effect the registration of any of its
securities under the 1933 Act.
2.18 INSURANCE. The Disclosure Letter lists all insurance
policies carried by the Company or any Subsidiary relating to its or their real
property and assets. All such policies are in full force and effect and all
premiums thereunder have been paid to the extent due, and no notice of
cancellation has been received with respect thereto and, to the best knowledge
of Company, no cancellation is threatened.
2.19 EMPLOYEE BENEFIT PLANS. Schedule 2.20 to the Disclosure
Letter lists all deferred compensation, pension, profit sharing, stock option,
stock purchase, savings, group insurance and retirement plans, and all vacation
pay, severance pay, incentive compensation, consulting, bonus and other material
employee benefit or fringe benefit plans or arrangements maintained by the
Company and its Subsidiaries with respect to which contributions are made by the
Company (including health, life insurance and other benefit plans or
arrangements maintained for the retirees which are specifically identified as
such on Schedule 2.20). Such plans, including but not limited to all plans or
programs that constitute "employee benefit plans" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), are
sometimes collectively referred to in this section as "Benefit Plans." Neither
the Company nor any ERISA Affiliate (as hereinafter defined) maintains,
contributes or sponsors, and have not maintained, contributed to or sponsored
any "employee benefit plan" (as defined in section 3(3) of ERISA) that is
subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of
1986, as amended ("Code") or any "Multiemployer Plan" (as defined in Section
4001(a)(3) of ERISA). ERISA Affiliate means all persons which are treated as
being under common control or as a single employer with the Company or any of
its Subsidiaries under Section 414(b), (c), (m) or (o) of the Code. Each Benefit
Plan is and has been maintained in compliance in all material respects with
applicable law, including but not limited to ERISA, the Code and with any
applicable collective bargaining agreements or other contractual obligations.
Each Benefit Plan that provides medical benefits has been operated in compliance
with all applicable requirements of Sections 601 through 608 of ERISA and either
(i) Section 162(i)(2) and (k) of the Code and regulations thereunder (prior to
1989) or (ii) Section 4980B of the Code and regulations thereunder (after 1988),
relating to the continuation of coverage under certain circumstances in which
coverage would otherwise cease. Company is not required to make any payment to
any current or former employee of the Company in the form of wages or other
consideration pursuant to any employment agreement or Benefit Plan that will
constitute in the aggregate an "excess parachute payment" (within the meaning of
Section 280G(b) of the Code as a consequence in whole or in part of the
transactions contemplated by this Agreement.
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There have been no written statements or communications made
or materials provided to any employee or former employee of the Company or its
Subsidiaries by any person which provide for or could be construed as a contract
or promise by the Company or any subsidiary to provide for any pension, welfare,
or other insurance-type benefits to any such employee or former employee,
whether before or after retirement, other than benefits under Benefit Plans set
forth on the Disclosure Schedule or under the form of employment contracts. All
of the Benefit Plans which are pension benefit plans are the subject of
favorable determination or opinion letters from the IRS such that the employers
maintaining such Benefit Plans, are entitled to rely on the compliance of such
Benefit Plans as to the form of the Plan with the applicable requirements of
Sections 401(a) and 501(a) of the Code; and no determination letter with respect
to any Benefit Plan has been revoked nor, to the best knowledge of the Company,
has revocation been threatened, nor has any Benefit Plan been amended since the
date of its most recent determination letter or application therefore in any
request which would adversely affect its qualification or materially increase
its cost. Neither the Company nor any ERISA Affiliate maintains or sponsors any
nonqualified deferred compensation plan or arrangements. There are no pending
or, to the best knowledge of the Company, threatened claims, actions or
lawsuits, other than routine claims for benefits in the ordinary course,
asserted or instituted against (i) any Benefit Plan or its assets, (ii) any
ERISA Affiliate with respect to any Benefit Plan, or (iii) any fiduciary with
respect to any Benefit Plan for which the Company, or its Subsidiaries may be
directly or indirectly liable, through indemnification obligations or otherwise.
Neither the Company, nor any of its Subsidiaries has engaged, directly or
indirectly, in a non-exempt prohibited transaction (as defined in Section 4975
of the Code or Section 406 of ERISA) in connection with any Benefit Plan.
As of the date of this Agreement, none of the assets of the
Company or its Subsidiaries are required to be treated as "plan assets," within
the meaning of Title I of ERISA ("Plan Assets").
2.20 CONTRACTS AND AGREEMENTS.
(a) The Company has filed as exhibits to its SEC
Reports and/or the Registration Statement all of the contracts and agreements
required to be so filed by the 1933 Act, the Exchange Act and the rules and
regulations of the SEC. True and correct copies of all such agreements have been
provided to the Purchasers prior to the date hereof. Neither the Company nor any
Subsidiary is a party to any contract or agreement which is material to the
business, properties, assets, operations or condition (financial or otherwise)
of the Company and its Subsidiaries taken as a whole which has not been filed as
an Exhibit to, or otherwise described in, the Registration Statement or the SEC
Reports.
(b) Neither the Company nor any Subsidiary is (i) in
default under any agreement, contract or instrument to which it is a party or by
which it is bound, which default is reasonably likely to have a material adverse
effect on the business, properties, assets, operations
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or condition (financial or otherwise) of the Company and its Subsidiaries taken
as a whole, (ii) in violation of the Declaration of Trust, Bylaws or the
Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. dated
August 22, 1996, as it will be amended in the form of amendment attached hereto
as Exhibit B (the "Partnership Agreement") (or other organizational documents),
or (iii) in default with respect to any order, writ, injunction or decree of any
court or governmental agency binding on it, and no event has occurred which with
notice or lapse of time, or both, would create any default or violation
described in clauses (i) through (iii).
2.21 ABSENCE OF CERTAIN DEVELOPMENTS. Since the Balance Sheet
Date, neither the Company nor any Subsidiary has (a) mortgaged, pledged or
subjected to lien, charge or any other encumbrance any of its assets, tangible
or intangible, except Permitted Liens, (b) sold, assigned or transferred any of
its tangible assets or canceled any debts or obligations except in the ordinary
course of business, (c) suffered any extraordinary losses, or waived any rights
of substantial value (whether or not in the ordinary course of business), (d)
made any changes in officer compensation, (e) entered into any material
transaction other than in the ordinary course of business, (f) made any change
in any of its material contracts, the Declaration of Trust, Bylaws or
Partnership Agreement (or other organizational documents), or in any
arrangements or agreements of any nature relating to its officers and directors,
(g) sold any equity interests or (h) established any record dates for dividends
or other distributions on other than customary quarterly record dates in
accordance with past practice.
2.22 CONTRACTS WITH INSIDERS. Excluding any agreements or
transactions that would not be required to be disclosed pursuant to Items 402 or
404 of Regulation S-K, no officer or trustee of the Company, or, to the
Company's knowledge, holder of more than 5% of the Company's outstanding Common
Shares, is a party to any contract, agreement, or arrangement providing for the
Company's or a Subsidiary's employment of, furnishing of services to the Company
or a Subsidiary by, the rental of real or personal property by the Company or a
Subsidiary from, or otherwise requiring payments by the Company or a Subsidiary
to, any such person or entity, or, to the Company's knowledge, any member of
such person's family, or any corporation, partnership or other entity in which
such person or entity, or, to the Company's knowledge, any member of such
person's family, has an interest or of which such person, or, to the Company's
knowledge, any member of such person's family, is an officer, director, trustee,
or beneficiary.
2.23 ENVIRONMENTAL MATTERS. Neither the Company nor its
Subsidiaries have (a) caused any substance or waste that is listed or defined as
hazardous or toxic under applicable environmental laws or petroleum products
(collectively "Hazardous Materials") to be improperly maintained or disposed of
on, under or at any of its or their properties, or any part thereof, in a manner
which violates, or could give rise to liability under, applicable environmental
laws, or (b) failed to remediate, alter, mitigate or abate any condition
required to be remediated, altered, mitigated or abated under such environmental
laws, to the extent the Company and its
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Subsidiaries have been notified of the existence of a condition required to be
remediated, altered, mitigated or abated. Except as set forth in the
environmental site assessments provided by the Company to the Purchasers, (i) to
the Company's knowledge, each of its properties, and the properties of its
Subsidiaries, is in compliance, and has heretofore complied, with all
environmental laws in all material respects, (ii) to the Company's knowledge,
there has been no discharge of Hazardous Materials by any tenant of any property
of the Company or its subsidiaries in quantities requiring response, remediation
or removal, and (iii) the Company has not received any written notice from any
governmental unit or other person or entity that it or its Subsidiaries, or any
of its or their properties or operations conducted thereon, are not or have not
been in compliance with all environmental laws.
2.24 CERTAIN AGREEMENTS. The SEC Reports, the Registration
Statement and/or the Disclosure Letter list all employment and severance
agreements that the Company and each Subsidiary has entered into with its
officers and employees. The issuance and sale of the Common Shares to the
Purchasers hereunder, and the completion of the other transactions provided for
herein or in the Registration Rights Agreement will not give any employee the
right to terminate his or her employment and receive severance or other payments
from the Company or any Subsidiary, or result in the acceleration of vesting of
any outstanding option issued by the Company.
2.25 BOOKS AND RECORDS. The books and records of the Company
and its Subsidiaries accurately and fairly reflect their respective income,
expenses, assets and liabilities, and the Company and its Subsidiaries maintain
internal accounting controls which provide reasonable assurance that: (a)
transactions are executed in accordance with management's authorization; (b)
transactions are recorded as necessary to permit preparation of reliable
financial statements and to maintain accountability for earnings and assets; (c)
access to assets is permitted only in accordance with management's
authorization; (d) the recorded accountability of all assets is compared with
existing assets at reasonable intervals; and (e) all intercompany transactions,
charges and expenses among or between the Company, any Subsidiary, or any other
affiliate of the Company are accurately reflected in all financial statements.
2.26 CERTAIN PAYMENTS. Neither the Company nor any of its
Subsidiaries, nor, to the Company's knowledge, any trustee, officer, agent or
employee of any such entity, or any other person or entity associated with or
acting for or on behalf of the Company or any of its Subsidiaries has directly
or indirectly (a) made any unlawful contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person or entity, private
or public, regardless of form, whether in money, property or services, (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, or (iii) to obtain special concessions or
special concessions already obtained, for or in respect of the Company or any of
its Subsidiaries, or (b) established or maintained any fund or asset that has
not been recorded in the books and records of the Company and its Subsidiaries,
or (c) taken any other action in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
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2.27 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any
Subsidiary is bound by or subject to, any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company or any Subsidiary. There
is no strike or other labor dispute involving the Company or any Subsidiary
pending, or to the knowledge of the Company threatened, nor is the Company aware
of any labor organization activity involving any of the employees of the Company
or any Subsidiary. The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate his, her or their
employment with the Company or any Subsidiary, nor does the Company or any
Subsidiary have a present intention to terminate the employment of any of the
foregoing. The employment of each employee of the Company or any Subsidiary is
terminable at the will of the applicable employer without further liability of
such employer to such employee except for the payment of such employee's normal
salary accrued but not paid through the date of such termination.
2.28 ENTIRE BUSINESS; ETC. All of the assets (including the
Company's and its Subsidiaries' interests under franchises, licenses, leases and
permits) necessary for the conduct of the business of the Company and its
Subsidiaries as presently conducted are held exclusively by the Company or a
Subsidiary.
2.29 REGISTRATION STATEMENT. The Registration Statement on
Form S-11 (SEC File No. 333-13969) initially filed by the Company with the SEC
on October 11, 1996 (the "Registration Statement"), as it shall be amended from
time to time, will comply at all times in all material respects with the
provisions of the 1933 Act and the rules and regulations thereunder, as
applicable, except that no representation is made by the Company with respect to
information supplied in writing by the Purchasers specifically for inclusion in
the Registration Statement ("Purchasers Information") and, at the date hereof,
at the Closing Date, at the date that the Registration Statement is declared
effective by the SEC and at each date that sales of Common Shares are made
pursuant to the Registration Statement, except for Purchasers Information, the
Registration Statement, as it shall be amended from time to time, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Unless the otherwise specifically provided, references to the
Registration Statement are to the Registration Statement as originally filed, as
modified by the form of Amendment No. 1 thereto attached hereto as Exhibit C.
2.30 INFORMATION. Neither this Agreement nor any document
delivered to the Purchasers pursuant hereto, including the SEC Reports (except
to the extent modified by the Disclosure Letter) and the Registration Statement,
contains an untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. There is no fact,
development or threatened development known to the Company which could
reasonably be expected to
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materially adversely effect the business, assets, properties, operations,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole which has not been set forth in this Agreement,
the Disclosure Letter, the SEC Reports or the Registration Statement.
2.31 INVESTMENT COMPANY. Each of the Company and its
Subsidiaries is not, and upon the issuance and sale of the Common Shares as
herein contemplated and the application of the net proceeds therefrom, will not
be, an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "1940 Act").
2.32 COMMODITY EXCHANGE ACT. The Common Shares, upon issuance,
will be excluded or exempted under, or beyond the purview of, the Commodity
Exchange Act, as amended (the "Commodity Exchange Act"), and the rules and
regulations of the Commodity Futures Trading Commission under the Commodity
Exchange Act (the "Commodity Exchange Act Regulations").
SECTION 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser understands that the Common Shares will not be
registered under the 1933 Act, on the grounds that the sales provided for in
this Agreement are exempt pursuant to Section 4(2) of the 1933 Act and/or
Regulation D promulgated under Section 4(2) of the 1933 Act, and that the
reliance of the Company on such exemptions is predicated in part on each
Purchaser's representations, warranties, covenants and acknowledgments set forth
in this Section 3. Each Purchaser (except with respect to Section 3.12 which is
solely a representation and warranty of Morgan Stanley Institutional Fund,
Inc.-U.S. Real Estate Portfolio) severally and not jointly represents and
warrants to the Company as follows:
3.1 PRE-EXISTING ENTITY. Such Purchaser is the sole owner of
the economic interest in the Common Shares to be issued thereto and that such
Purchaser was not organized for the specific purpose of purchasing the Common
Shares to be purchased by it hereunder.
3.2 BENEFICIAL OWNERSHIP. Except as set forth on Schedule 3.2,
as of the date hereof and prior to the purchase of the Common Shares, (a) it is
not the "beneficial owner" of any securities of the Company, as such term is
defined in Rule 13d-3 promulgated under the Exchange Act, and (b) it is not a
member of a group which has acquired beneficial ownership of securities of the
Company for purposes of Sections 13(d) and 13(g) of the Exchange Act.
3.3 PRINCIPAL PLACE OF BUSINESS. The address of its principal
place of business or residence is as set forth on Schedule A herein.
3.4 PURCHASE WITHOUT VIEW TO DISTRIBUTION. The Common Shares
to be purchased by it are being acquired by such Purchaser for its own account
for investment purposes, not as a nominee or agent, and not with a view to
resale or distribution within the
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meaning of the 1933 Act, and the rules and regulations thereunder, and such
Purchaser will not distribute the Common Shares in violation of the 1933 Act or
in a manner that will cause the Company to lose its exemption from the
registration requirements under the 1933 Act with respect to the offer and sale
of the Common Shares.
3.5 RESTRICTIONS ON TRANSFER. Such Purchaser (a) acknowledges
that the Common Shares are not registered under the 1933 Act or under any state
securities laws and that the Common Shares to be acquired by it must be held
indefinitely by it unless they are subsequently registered under the 1933 Act
and under any applicable state securities laws or an exemption from registration
is available, (b) is aware that any routine sales pursuant to Rule 144
promulgated under the 1933 Act of the Common Shares may be made only in limited
amounts and in accordance with the terms and conditions of that Rule and that in
such cases where the Rule is not applicable, compliance with some other
registration exemption will be required, (c) is aware that Rule 144 is not
presently available for use by such Purchaser for resale of the Common Shares
and (d) is aware that, except as provided in the Registration Rights Agreement,
the Company is not obligated to register under the 1933 Act any sale, transfer
or other disposition of the Common Shares.
3.6 NO GENERAL SOLICITATION. It is making this investment
based upon its own investigation of and discussions with the Company, which
investigation and discussions commenced prior to the filing of the Registration
Statement, and not from or through any broker, dealer or other third party.
3.7 ACCESS TO INFORMATION. The Company has made available to
it the opportunity to ask questions of and receive answers from the Company's
officers and trustees concerning the terms and conditions of this transaction
and the business and financial condition of the Company and its Subsidiaries,
and to acquire, and each Purchaser has received to its satisfaction, such
additional information, in addition to that set forth herein, about the business
and financial condition of the Company and its Subsidiaries and the terms and
conditions of this transaction as it has requested.
3.8 ADDITIONAL REPRESENTATIONS OF THE PURCHASERS. That (a) it
is an "accredited investor" as such term is defined in Rule 501 promulgated
under the 1933 Act, and either individually or together with its parent has
assets in excess of $100 million, (b) its financial situation is such that it
can afford to bear the economic risk of holding the Common Shares for an
indefinite period of time and suffer complete loss of its investment in the
Common Shares, (c) its knowledge and experience in financial and business
matters are such that it is capable of evaluating the merits and risks of its
purchase of the Common Shares as contemplated by this Agreement and (d) the
purchase of the Common Shares by it has been duly and properly authorized and
this Agreement has been duly executed by it or on its behalf.
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<PAGE> 22
3.9 LEGENDS. Such Purchaser understands that the certificates
evidencing the Common Shares shall bear the legend set forth in Section 8.2
herein.
3.10 REGISTRATION STATEMENT. None of the material supplied by
it in writing specifically for inclusion in the Registration Statement will, at
the date that the Registration Statement is declared effective by the SEC and at
each date that Common Shares are sold pursuant to the Registration Statement,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
3.11 DUE AUTHORIZATION; ETC. It has all requisite power and
authority to execute and deliver this Agreement and each document required to be
executed and delivered by it prior to or at the Closing and to carry out the
transactions contemplated hereby and thereby. The execution, delivery and
performance by such Purchaser of this Agreement and such document to which it is
a party have been duly authorized. This Agreement has been duly executed and
delivered by such Purchaser and constitutes the valid and binding obligation of
such Purchaser, enforceable against it in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization and other similar laws relating to or affecting the enforcement
of creditors' rights generally, except that the availability of specific
performance, injunctive relief or other equitable relief or other equitable
remedies is subject to the discretion of the court before which any such
proceeding may be brought.
3.12 STATUS. Morgan Stanley Institutional Fund, Inc - U.S.
Real Estate Portfolio is a regulated investment company as defined in Section
851 of the Code.
SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S
OBLIGATIONS
Each Purchaser's obligations to purchase and make payment for
the Common Shares subscribed for hereunder by it on the Closing Date is subject,
at its option, to the satisfaction of each of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the
representations and warranties contained in Section 2 shall be true and correct
in all material respects with the same effect as though made on and as of the
Closing Date, and the Company shall have so certified to the Purchasers in
writing.
4.2 PERFORMANCE. All the covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company on
or prior to the Closing Date shall have been performed or complied with in all
material respects, and the Company shall have so certified to the Purchasers in
writing.
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4.3 OPINION OF COUNSEL TO THE COMPANY. On the Closing Date,
the Purchasers shall have received an opinion from counsel for the Company and
special Maryland Counsel to the Company, each dated the Closing Date, addressed
to the Purchasers in the forms of Exhibits D and E hereto, respectively.
4.4 PROCEEDINGS; CERTIFIED COPIES. All proceedings to be taken
in connection with the transactions contemplated by this Agreement to be
consummated on or prior to the Closing Date, and all documents incident thereto,
shall be satisfactory in form and substance to the Purchasers. The Purchasers
shall have received such certified copies or other copies of such documents as
it may reasonably request.
4.5 NO PROCEEDING OR LITIGATION. No suit, action, or other
proceeding seeking to restrain, prevent or change the transactions contemplated
hereby or otherwise questioning the validity or legality of such transactions
shall have been instituted and be pending.
4.6 NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change since the Balance Sheet Date in the business,
properties, assets, operations, or condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole.
4.7 ASE LISTING. On or prior to the Closing Date, the Common
Shares shall have been approved for listing on the ASE.
4.8 BLUE SKY COMPLIANCE. The Company shall have complied with
all applicable requirements of federal and state securities or "blue sky" laws
with respect to the issuance of the Common Shares sold at the Closing.
4.9 REGISTRATION RIGHTS. The Registration Rights Agreement,
substantially in the form of Exhibit F, shall have been executed and delivered
by all the parties thereto and shall be in full force and effect.
4.10 MARYLAND ANTI-TAKEOVER STATUTES, ETC. The Company and its
counsel shall have confirmed to the Purchasers' satisfaction that (a) this
Agreement, the Registration Rights Agreement and the transactions contemplated
hereby and thereby are exempt from the operation of the Maryland Anti-Takeover
Statutes and Section 11.5 of the Declaration of Trust; and (b) the Purchasers
are exempted from the restrictions set forth in Section 6.6 of the Declaration
of Trust, including without limitation from the Ownership Limit and the
Permissible Ownership Threshold.
4.11 SECONDARY OFFERING. The Registration Statement shall have
been declared effective by the SEC and the Secondary Offering shall have closed.
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4.12 BENEFICIAL OWNERSHIP. As a result of the sale of the
Common Shares, such Purchaser shall not be deemed to be the beneficial owner,
directly or indirectly, of 10% or more of the Outstanding common shares of
beneficial interest of the Company.
4.13 ENVIRONMENTAL REPRESENTATION LETTER. The Company shall
have delivered to each Purchaser a representation letter dated the Closing Date
concerning environmental matters in form and substance substantially similar to
that which is contained in the Underwriting Agreement for the Secondary Offering
4.14 TAX OPINION. On the Closing Date, Arthur Andersen shall
have delivered to the Company an opinion with respect to certain tax matters in
such form as may be reasonably acceptable to each Purchaser.
4.15 ADDITIONAL DOCUMENTS. The Company shall have delivered
such other documents necessary to effect the transactions contemplated hereby as
either Purchaser may reasonably request.
SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S
OBLIGATIONS
The Company's obligation to sell the Common Shares subscribed
for by a Purchaser on the Closing Date is subject, at the Company's option, to
the satisfaction of each of the following conditions with respect to such
Purchaser:
5.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the
representations and warranties contained in Section 3 shall be true and correct
in all material respects with the same effect as though made on and as of the
Closing Date and such Purchaser shall have so certified to the Company in
writing.
5.2 PERFORMANCE. All the covenants, agreements and conditions
contained in this Agreement to be performed or complied with by such Purchaser
on or prior to the Closing Date shall have been performed or complied with in
all material respects, and such Purchaser shall have so certified to the Company
in writing.
5.3 NO PROCEEDING OR LITIGATION. No suit, action, or other
proceeding seeking to restrain, prevent or change the transactions contemplated
hereby or otherwise questioning the validity or legality of such transactions
shall have been instituted and be pending.
5.4 ASE LISTING. On or prior to the Closing Date, the Common
Shares shall have been approved for listing on the ASE.
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5.5 ADDITIONAL DOCUMENTS. Such Purchaser shall have delivered
such other documents necessary to effect the transactions contemplated hereby as
the Company may reasonably request.
5.6 PROCEEDINGS; CERTIFIED COPIES. All proceedings to be taken
in connection with the transactions contemplated by this Agreement to be
consummated on or prior to the Closing Date, and all documents incident thereto,
shall be satisfactory in form and substance to the Company. The Company shall
have received such certified copies or other copies of such documents as it may
reasonably request.
5.7 NO SEC INTEGRATION CHALLENGE. The SEC shall not have
commented that the issuance of Common Shares pursuant to this Agreement shall or
may be required to be integrated with the sale of Common Shares pursuant to the
Registration Statement, which assertion, if made, has not been resolved to the
reasonable satisfaction of the Company after the Company has used its best
efforts to accomplish such resolution.
5.8 BENEFICIAL OWNERSHIP. As a result of the sale of the
Common Shares, such Purchaser shall not be deemed to be the beneficial owner,
directly or indirectly, of 10% or more of the outstanding common shares of the
beneficial interest of the Company.
SECTION 6. COVENANTS OF THE COMPANY AND EACH PURCHASER PRIOR TO CLOSING
6.1 PAYMENT OF EXPENSES.
(a) If the Closing occurs hereunder, each party shall
bear its own expenses.
(b) If the Closing hereunder does not occur, each
party shall bear its own expenses.
6.2 OPERATION OF BUSINESS IN ORDINARY COURSE. Prior to the
Closing, the Company and each Subsidiary will operate its business and the
business of each of its Subsidiaries only in the usual and normal course, and
will not, except as contemplated by the Registration Statement, as amended
through the date of this Agreement, including Amendment No. 1, without the
consent of the Purchasers, engage in any of the transactions described in
paragraphs (a), (b), (d), (e), (f), (except for the amendment in the form of
Exhibit C hereto), (g) or (h) of Section 2.21 hereof.
6.3 ACCESS TO INFORMATION.
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(a) Between the date hereof and the Closing Date, the
Company will give each Purchaser and its authorized representatives reasonable
access to all officers, employees, agents, properties, offices and other
facilities and to all books and records of the Company and its Subsidiaries, and
will permit each Purchaser to make such inspections as such Purchaser may
reasonably request and will cause the Company's officers and those of its
Subsidiaries to furnish each Purchaser promptly (i) a copy of each report,
schedule, registration statement and other document filed by it pursuant to the
requirements of federal securities laws and (ii) all other financial and
operating data and other information with respect to the business and properties
of the Company and any of its Subsidiaries as such Purchaser may from time to
time reasonably request.
(b) Each Purchaser will hold and will cause its
authorized representatives, consultants and advisors to hold in confidence,
unless compelled to disclose by judicial or administrative process or, in the
written opinion of its legal counsel, by other requirements of law, all
documents and information concerning the Company and its Subsidiaries furnished
to such Purchaser in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have been
(i) previously known by such Purchaser from sources other than the Company, its
trustees, officers, representatives or affiliates, (ii) in the public domain
through no fault of such Purchaser or (iii) later lawfully acquired by such
Purchaser on a non-confidential basis from other sources who are not known by
such Purchaser to be bound by a confidentiality agreement or otherwise
prohibited from transmitting the information to such Purchaser by a contractual,
legal or fiduciary obligation) and will not release or disclose such information
to any other person or entity, except its auditors, attorneys, financial
advisors and other consultants, agents and representatives in connection with
this Agreement who need to know such information. If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained and, if requested by or on behalf of the Company, each Purchaser
will, and will use all reasonable efforts to cause its auditors, attorneys,
financial advisors and other consultants, agents and representatives to, return
to the Company or destroy all copies of written information furnished by the
Company to the Purchasers, or their agents representatives or advisors. It is
understood that each Purchaser shall be deemed to have satisfied its obligation
to hold such information confidential if it exercises the same care as it takes
to preserve confidentiality for its own similar information.
(c) No inquiry or investigation pursuant to Section
3.6 or this Section 6.3 shall affect any representation or warranty in this
Agreement made by the Company or its Subsidiaries or any condition to the
Purchasers' obligations set forth herein.
6.4 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to the Purchasers, and the Purchasers shall give prompt notice to
the Company, of (a) the occurrence or nonoccurrence of any event the occurrence
or nonoccurrence of which would be likely to cause (i) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (ii) any
covenant, condition or agreement contained in this Agreement not to be
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complied with or satisfied and (b) any failure of the Company or any Purchaser,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.4 shall not cure such
breach or noncompliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
6.5 CONDITIONS PRECEDENT. The Company and each Purchaser shall
use their reasonable best efforts to cause the conditions specified in Sections
4 and 5 to be satisfied by the Closing Date.
SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY AND THE PURCHASERS
7.1 RULE 144.
(a) The Company covenants that (i) the Company will
use its best efforts to comply with the current public information requirements
of Rule 144(c)(1) under the 1933 Act; and (ii) at all such times as Rule 144 is
available for use by the holders of the Common Shares, the Company will furnish
each such holder upon request with all information within the possession of the
Company required for the preparation and filing of Form 144.
(b) At all times during which the Company is neither
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, it will provide as promptly as practicable (in any event not later than 15
days after initial request) in written form, upon the written request of a
Purchaser or any prospective buyer of the Common Shares from a Purchaser, all
information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company's obligations under this Section 7.1 shall at all
times be contingent upon such seller's obtaining from a prospective buyer an
agreement to take all reasonable precautions to safeguard any non-public Rule
144A Information from disclosure to anyone other than a person or entity who
will assist such buyer in evaluating the purchase of the Common Shares.
7.2 DELIVERY OF FINANCIAL STATEMENTS. From and after the date
hereof, the Company shall deliver to the Purchasers, until such time as the
Purchasers no longer own any Common Shares, a copy of each and every report on
Form 10-K, Form 8-K, Form 10-Q and all other reports and proxy statements filed
by the Company or any Subsidiary with the SEC within 15 days of such filing.
7.3 COMPLIANCE WITH LAWS. The Company will, and will cause
each Subsidiary to, comply in all material respects with all laws and
regulations applicable to the
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conduct of its business, including without limitation ERISA, environmental laws,
and employee safety laws. The Company shall use its best efforts to insure that
none of the assets of the Company or its Subsidiaries are required to be treated
as Plan Assets (as defined in Section 2.20) by any "benefit plan investor" (as
defined in Title I of ERISA). The Company shall take such actions as are
necessary, on an ongoing basis, to determine whether assets of the Company or
its Subsidiaries are required to be treated by a Benefit Plan Investor as
including Plan Assets and shall promptly notify the Purchasers in writing if, at
any time, it has reason to believe that any Benefit Plan Investor is likely to
be required to treat the assets of the Company or its Subsidiaries as Plan
Assets.
7.4 WAIVERS, CONSENTS, ETC. Compliance with any of the
covenants in this Section 7 may be waived, either generally or in the particular
instance, and any consent required thereunder may be given, by the Purchasers in
writing.
7.5 PRESS RELEASES. The Purchasers shall have the right
reasonably to approve any press release with respect to the transactions
contemplated by this Agreement. In addition, at no time may the Company use or
otherwise refer to the name of the Purchasers or any of its affiliates in any
press release, publication or other report without the prior consent of the
Purchasers not to be unreasonably withheld or delayed.
7.6 NO RESCISSION. To the extent permitted under applicable
law, each Purchaser hereby (i) waives any right of rescission it might have
arising out of the integration of the offer and sale of the Common Shares with
the public offering of common shares of beneficial interest pursuant to the
Registration Statement and (ii) covenants that it will not make any rescission
claim on that basis.
7.7 REIT STATUS. The Company will continue to elect to be
taxed as a real estate investment trust within the meaning of Sections 856-860
of the Code, and will continue to satisfy all of the requirements set forth in
those provisions and the regulations thereunder to be taxed as a real estate
investment trust within the meaning of those provisions and the regulations
thereunder.
SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON TRANSFERABILITY OF
COMMON SHARES
8.1 COMPLIANCE WITH 1933 ACT. The Common Shares shall not be
transferable, except upon the conditions specified in this Section 8, which
conditions are intended to ensure compliance with the provisions of the 1933 Act
and applicable state securities laws in respect of any such transfer.
8.2 RESTRICTIVE LEGEND. Each certificate evidencing the Common
Shares or other securities issued in respect of such Common Shares upon any
share split, share dividend,
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<PAGE> 29
recapitalization, merger, consolidation, similar event, shall (unless otherwise
permitted by the provisions of Section 8.4) be stamped or otherwise imprinted
with the following legend:
"THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW AND THE TRANSFERABILITY [T]HEREOF IS SUBJECT TO THE PROVISIONS OF A
SECURITIES PURCHASE AGREEMENT BETWEEN BRANDYWINE REALTY TRUST AND THE ORIGINAL
HOLDER OF THE SECURITIES EVIDENCED HEREBY."
8.3 RESTRICTIONS ON TRANSFERABILITY. The Company shall not be
required to register the transfer of the Common Shares on the books of the
Company unless the Company shall have been provided with an opinion of counsel
reasonably satisfactory to it prior to such transfer to the effect that
registration under the 1933 Act or any applicable state securities law is not
required in connection with the transaction resulting in such transfer;
provided, however, that no such opinion of counsel shall be necessary in order
to effectuate a transfer in accordance with the provisions of Rule 144(k) or
Rule 144A promulgated under the 1933 Act. Each certificate for Common Shares
issued upon any transfer as above provided shall bear the restrictive legend set
forth in Section 8.2 above, except that such restrictive legend shall not be
required if the opinion of counsel reasonably satisfactory to the Company
referred to above is to the further effect that such legend is not required in
order to establish compliance with the provisions of the 1933 Act and any
applicable state securities law, or if the transfer is made in accordance with
the provisions of Rule 144(k) under the 1933 Act. Nothing herein shall restrict
a transfer of any or all of the Securities to a Permitted Transferee (as defined
in Section 10.2).
8.4 TERMINATION OF RESTRICTIONS ON TRANSFERABILITY. The
conditions precedent imposed by this Section 8 upon the transferability of the
Common Shares shall cease and terminate as to any of the Common Shares when (i)
such securities shall have been registered under the 1933 Act and sold or
otherwise disposed of in accordance with the intended method of disposition by
the seller or sellers thereof set forth in the registration statement covering
such securities, (ii) at such time as an opinion of counsel satisfactory to the
Company shall have been rendered as required pursuant to the second sentence of
Section 8.3 to the effect that the restrictive legend on such securities is no
longer required, or (iii) when such securities are transferable in accordance
with the provisions of Rule 144(k) promulgated under the 1933 Act. Whenever the
conditions imposed by this Section 8 shall terminate as hereinabove provided
with respect to any of the Common Shares, the holder of any such securities
bearing the legend set forth in this Section 8 as to which such conditions shall
have terminated shall be entitled to receive from the Company, without expense
(except for the payment of any applicable transfer tax) and as expeditiously as
possible, new Common Shares certificates not bearing such legend.
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<PAGE> 30
SECTION 9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
All covenants, agreements, representations and warranties made
herein and in the certificates delivered pursuant hereto shall survive the
execution and delivery of this Agreement and the issuance and sale of the Common
Shares hereunder in accordance with Section 10.9.
SECTION 10. MISCELLANEOUS
10.1 OWNER OF COMMON SHARES. The Company may deem and treat
the person or entity in whose name the Common Shares, as the case may be, are
registered as the absolute owner thereof for all purposes whatsoever, and the
Company shall not be affected by any notice to the contrary.
10.2 SUCCESSORS. This Agreement shall be binding upon and
except as provided herein, shall inure to the benefit of the respective
successors and permitted assigns of each of the parties hereto. The rights and
obligations of either party hereunder shall not be assignable without the prior
written consent of the other party.
10.3 BROKER OR FINDER. Each party to this Agreement represents
and warrants that, to the best of its knowledge, no broker or finder has acted
for such party in connection with this Agreement or the transactions
contemplated by this Agreement and that no broker or finder is entitled to any
broker's or finder's fee or other commission in respect thereof based in any way
on agreements, arrangements or understandings made by such party. The Company
shall indemnify the Purchasers against, and hold it harmless from, any
liability, cost or expense (including reasonable attorneys' fees and expenses)
resulting from any agreement, arrangement, or understanding made by the Company,
and the Purchasers shall indemnify the Company against, and hold the Company
harmless from, any liability, cost or expense (including reasonable attorneys'
fees and expenses) resulting from any agreement, arrangement, or understanding
made by any Purchaser with any third party, for brokerage or finder's fees or
other commissions in connection with this Agreement or any of the transactions
contemplated hereby.
10.4 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
10.5 NOTICE. Any notice or other communication required or
permitted hereunder shall be deemed given when delivered personally, or upon
receipt by the party entitled to receive the notice when sent by registered or
certified mail, postage prepaid, addressed as follows or to such other address
or addresses as may hereafter be furnished in writing by notice similarly given
by one party to the other:
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<PAGE> 31
To the Company: Brandywine Realty Trust
16 Campus Boulevard
Suite 150
Newtown Square, PA 19073
Attention: Gerard H. Sweeney, President
With a copy to: Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, Pennsylvania 19103-2799
Attention: Michael H. Friedman, Esq.
To the Purchasers: Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Russell Platt
With a copy to: Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaff, Jr., Esq.
Notice to any holder of Common Shares, other than the Purchasers shall be given
in a like manner to such holder at the address reflected in the Company's
records.
10.6 FULL AGREEMENT. This Agreement, together with all
Exhibits attached hereto or delivered herewith, the Registration Rights
Agreement and any other documents delivered herewith, sets forth the entire
understanding of the parties with respect to the transactions contemplated
hereby.
10.7 HEADINGS. The headings of the sections of this Agreement
are inserted for convenience of reference only and shall not be considered a
part hereof.
10.8 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
10.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by the parties in this Agreement shall
survive the execution of this Agreement for a period of two years after the
Closing Date.
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<PAGE> 32
10.10 SETTLEMENT OF DISPUTES. The parties will attempt in good
faith to resolve any and all controversies of every kind and nature between the
parties to this Agreement arising out of or in connection with the existence,
construction, validity, interpretation or meaning, performance, non-performance,
enforcement, operation, breach, continuance or termination of this Agreement
(each, a "Dispute") promptly by negotiations between senior executives of the
parties who have authority to settle the Dispute (and who do not have direct
responsibility for administration of this Agreement). The disputing party shall
give the other party written notice of the Dispute. Within 20 days after receipt
of said notice, the receiving party shall submit to the other a written
response. The notice and response shall include (a) a statement of each party's
position and a summary of the evidence and arguments supporting its position,
and (b) the name and title of the executive who will represent that party. The
executives shall meet at a mutually acceptable time and place within 30 days of
the date of the disputing party's notice and thereafter as often as they
reasonably deem necessary to exchange relevant information and to attempt to
resolve the Dispute. If the matter has not been resolved within 60 days of the
disputing party's notice, or if the party receiving said notice will not meet
within 30 days, either party may initiate mediation of the controversy or claim
in accordance with the Center for Public Resources Model Procedure for Mediation
of Business Disputes. If the Dispute has not been resolved pursuant to the
aforesaid mediation procedure within 60 days of the initiation of such
procedure, or if either party will not participate in a mediation, the Dispute
shall be submitted to arbitration in accordance with the rules of the American
Arbitration Association. The parties further agree that all matters shall be
governed by the laws of the Commonwealth of Pennsylvania. The parties further
agree that any arbitration conducted pursuant to this Section 10.10 shall be
held in Philadelphia, Pennsylvania before a panel of three arbitrators, one
selected by the Purchasers and one selected by the Company and the third
selected by the arbitrators selected by the parties. All deadlines specified in
this Section 10.10 may be extended by mutual agreement. The prevailing party in
any Dispute shall be entitled to reimbursement for its costs, including without
limitation attorneys' fees and expenses.
10.11 COUNTERPARTS. This Agreement may be executed in two or
more counterparts each of which shall be deemed an original, and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.12 TERMINATION. This Agreement may be terminated prior to
the Closing with respect to the Company or a Purchaser:
(a) by mutual written consent of such Purchaser and
the Company;
(b) by either a Purchaser or the Company if the
Closing shall not have been consummated before January 31, 1997 (unless the
failure to so close by such date shall be due to the action or failure to act of
the party seeking to terminate this Agreement);
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<PAGE> 33
(c) by either a Purchaser or the Company if any court
of competent jurisdiction or other governmental entity shall have issued a final
permanent order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action is or shall have become
nonappealable;
(d) by a Purchaser if (i) there shall have been a
material breach on the part of the Company or any of its Subsidiaries of any
representation or warranty of the Company or its Subsidiaries set forth herein,
(ii) there shall have been any failure of the Company or any of its Subsidiaries
to perform or comply with its covenants or agreements hereunder and, in either
case, the aggregate effect of all such breaches or failures, as the case may be,
would be material to the Company and the Subsidiaries taken as a whole, or (iii)
the Board of Trustees shall have withdrawn, amended or modified in a manner
adverse to a Purchaser its approval or recommendation of this Agreement.
(e) by the Company if (i) there shall have been a
material breach of any representation or warranty on the part of such Purchaser
or (ii) there shall have been a failure of such Purchaser to perform or comply
with its covenants or agreements hereunder which failure has not been cured
within ten days after written notice thereof from the Company to such Purchaser
and, in either case, the aggregate effect of all such breaches and failures, as
the case may be, would be material.
10.13 EFFECT OF TERMINATION. In the event of the termination
and abandonment of this Agreement pursuant to Section 10.12, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party hereto or its affiliates, trustees, directors, officers or
stockholders; provided, however, that nothing contained in this Section 10.13
shall relieve any party from liability for any breach of this Agreement;
provided further that Sections 6.1(b), 6.3(b), 8 and 10 shall survive any such
termination.
10.14 NON-RECOURSE. No recourse shall be had for any
obligation of the Company hereunder, or for any claim based thereon or otherwise
in respect thereof, against any past, present or future stockholder or (except
for any claim arising due to the bad faith, gross negligence, willful misconduct
or fraudulent misconduct of such person) against any trustee, stockholder,
officer or employee of the Company, whether by virtue of any statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
other liability being expressly waived and released by each other party hereto.
No recourse shall be had for any obligation of either Purchaser hereunder, or
for any claim based thereon or in respect thereof, against any past, present or
future stockholder or (except for any claim arising due to the bad faith, gross
negligence, willful misconduct or fraudulent misconduct of such person) against
any trustee, officer or employee of either or against any other person or
entity, whether by virtue of any statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise, all such other liability being
expressly waived and released by each other party hereto.
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<PAGE> 34
IN WITNESS WHEREOF, each of the parties hereto has fully
executed this Agreement as of the date first set forth above.
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
-----------------------------------------------
Gerard H. Sweeney, President
MORGAN STANLEY INSTITUTIONAL FUND, INC. -
U.S. REAL ESTATE PORTFOLIO, a Maryland corporation
By: MORGAN STANLEY ASSET
MANAGEMENT INC., AS
By: /s/ INVESTMENT ADVISER
-----------------------------------------------
MORGAN STANLEY SICAV SUBSIDIARY SA,
a Luxembourg corporation
By: MORGAN STANLEY ASSET
MANAGEMENT INC., AS
By: INVESTMENT ADVISER
-----------------------------------------------
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<PAGE> 1
EXHIBIT 10.56
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") made and
entered into as of this __ day of __________ ___, 1996 by and among BRANDYWINE
REALTY TRUST, a Maryland real estate investment trust (the "Company"), and
MORGAN STANLEY INSTITUTIONAL FUND, INC.-U.S. REAL ESTATE PORTFOLIO, a Maryland
corporation and MORGAN STANLEY SICAV SUBSIDIARY SA, a Luxembourg corporation
(each a Purchaser and together the "Purchasers").
BACKGROUND
Pursuant to a Securities Purchase Agreement dated as of
November 6, 1996 by and between the Company and the Purchasers (the "Securities
Purchase Agreement"), the Company has agreed to issue to the Purchasers an
aggregate of 709,091 shares of the Company's common shares of beneficial
interest par value $.01 per share (the "Shares").
To induce each Purchaser to enter into the foregoing
transaction, the Company has agreed to provide them with the registration rights
set forth in this Agreement.
1. CERTAIN DEFINITIONS.
In addition to the other terms defined in this Agreement, the
following terms shall be defined as follows:
"Additional Holders" means those Persons who have registration
rights with respect to securities of the Company pursuant to either of the
Additional Registration Rights Agreements.
"Additional Registration Rights Agreements" means that certain
Registration Rights Agreement of the Company and Safeguard Scientifics
(Delaware) Inc., the Nichols Company and the Turkey Venture Fund XIII, Ltd. and
that certain Registration Rights Agreement of the Company and RAI Real Estate
Advisers, Inc., as the voting trustee of a voting trust executed by the
Commonwealth of Pennsylvania State Employes' Retirement System.
"Additional Securities" means those securities of the Company
which are or become subject to the registration provisions of either of the
Additional Registration Rights Agreements.
"Brokers Transactions" has the meaning ascribed to such term
pursuant to Rule 144 under the Securities Act.
<PAGE> 2
"Business Day" means any day on which the American Stock
Exchange is open for trading.
"Closing Date" means the date of closing under the Securities
Purchase Agreement.
"Common Stock" means common shares of beneficial interest of
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder, all as the same
shall be in effect at the relevant time.
"Holder(s)" means each Purchaser for so long as (and to the
extent that) it owns any Registrable Securities, and its successors, assigns,
and direct and indirect transferees who become registered owners of Registrable
Securities or securities exercisable, exchangeable or convertible into
Registrable Securities.
"Outstanding" means with respect to any securities as of any
date, all such securities theretofore issued, except any such securities
theretofore converted, exercised or canceled or held by the issuer or any
successor thereto (whether in its treasury or not) or any affiliate of the
issuer or any successor thereto.
"Person" means an individual, a partnership (general or
limited), corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
"Registrable Security(ies)" means (I) all or any portion of
the Shares, (ii) any additional common shares of beneficial interest or other
equity securities of the Company issued or issuable after the Closing Date in
respect of any such securities (or other equity securities issued in respect
thereof) by way of a stock dividend or stock split, in connection with a
combination, exchange, reorganization, recapitalization or reclassification of
Company securities, or pursuant to a merger, division, consolidation or other
similar business transaction or combination involving the Company, and (iii) any
other common shares of beneficial interest obtained in open market transactions
or otherwise; provided that in the case of equity securities other than Common
Stock such securities are registered under Section 12(b) or Section 12(g) of the
Exchange Act; and further provided that: as to any particular Registrable
Securities, such securities shall cease to constitute Registrable Securities (I)
when a registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall have
been disposed of thereunder; or (ii) when such securities shall have ceased to
be issued and outstanding.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with the registration requirements set
forth in this Agreement including, without
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<PAGE> 3
limitation, the following: (I) the fees, disbursements and expenses of the
Company's counsel(s), accountants, and experts in connection with the
registration under the Securities Act of Registrable Securities; (ii) all
expenses in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus or final prospectus, any
other offering document and amendments and supplements thereto, and the mailing
and delivering of copies thereof to the underwriters and dealers, if any; (iii)
the cost of printing or producing any agreement(s) among underwriters,
underwriting agreement(s) and blue sky or legal investment memoranda, any
selling agreements, and any other documents in connection with the offering,
sale or delivery of Registrable Securities to be disposed of; (iv) any other
expenses in connection with the qualification of Registrable Securities for
offer and sale under state securities laws, including the fees and disbursements
of counsel for the underwriters in connection with such qualification and in
connection with any blue sky and legal investment surveys; (v) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of Registrable Securities to
be disposed of and any blue sky registration or filing fees, and (vi) the fees
and expenses incurred in connection with the listing of Registrable Securities
on each securities exchange (or The NASDAQ Stock Market) on which Company
securities of the same class are then listed; provided, however, that
Registration Expenses with respect to any registration pursuant to this
Agreement shall not include (x) expenses incurred by any Holder in connection
with any offering, including the fees and expenses of counsel, accountants, and
experts retained by such Holder (other than the fees and expenses of one counsel
for the Holders as and to the extent provided in Section 10), (y) any
underwriting discounts or commissions attributable to Registrable Securities, or
(z) any transfer taxes applicable to Registrable Securities.
"SEC" means the United States Securities and Exchange
Commission, or such other federal agency at the time having the principal
responsibility for administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the relevant time.
"Shelf Registration Statement" means a Shelf Registration
Statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers Common Stock on an appropriate form then permitted by the
SEC to be used for such registration and the sales contemplated to be made
thereby, under Rule 415 under the Securities Act, or any similar rule that may
be adopted by the SEC, and all amendments and supplements to such Registration
Statement, including pre and post-effective amendments thereto, in each case
including the prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Shelf Registration" means a registration of Common Stock
effected pursuant to Section 2(b) hereof.
"Trading Day" means a day on which the principal securities
exchange or stock market on which the applicable security is traded is open for
the transaction of business.
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<PAGE> 4
2. DEMAND REGISTRATION; SHELF REGISTRATION.
(a) (I) A Holder may request at any time (by written notice
delivered to the Company) that the Company register under the Securities Act all
or any portion of the Registrable Securities held by (or then issuable to) such
Holder (the "Requesting Holder"), representing in the aggregate not less than
twenty percent of the Registrable Securities held by such Requesting Holder, for
sale in the manner specified in such notice (including, but not limited to, an
underwritten public offering); provided however, that no such request shall be
made prior to one hundred twenty (120) days after the date that the Company's
Registration Statement on Form S-11 (File No. 333-13969)(the "1996 Registration
Statement") has been declared effective by the SEC. In each such case, such
notice shall specify the number of Registrable Securities for which registration
is requested, the proposed manner of disposition of such securities, and the
minimum price per share at which the Requesting Holder would be willing to sell
such securities in an underwritten offering. The Company shall, within five (5)
Business Days after its receipt of any Requesting Holder's notice under this
Section 2(a)(I), give written notice of such request to all other Holders and
all Additional Holders and afford them the opportunity of including in the
requested registration statement such of their Registrable Securities or
Additional Securities, as the case may be, as they shall specify in a written
notice given to the Company within twenty (20) days after their receipt of the
Company's notice. Within ten (10) Business Days after the expiration of such
twenty (20) day period, the Company shall notify all Holders and Additional
Holders requesting registration of (A) the aggregate number of Registrable
Securities or Additional Securities, as the case may be, proposed to be
registered by all Holders and Additional Holders, (B) the proposed filing date
of the registration statement, and (C) such other information concerning the
offering as any Holder or Additional Holder may have reasonably requested. If
the Requesting Holder of the Registrable Securities to be included in such
offering shall have requested that such offering be underwritten, the managing
underwriter for such offering shall be chosen by such Holder with the consent of
the Company, which consent shall not be unreasonably withheld, not less than
thirty (30) days prior to the proposed filing date stated in the Company's
notice, and the Company shall thereupon promptly notify such Holders and any
Additional Holders to be included in such offering as to the identity of the
managing underwriter, if any, for the offering. On or before the 30th day prior
to such anticipated filing date, any Holder or Additional Holder may give
written notice to the Company and the managing underwriter specifying either
that (A) Registrable Securities or Additional Securities, as the case may be, of
such Holder or Additional Holder are to be included in the underwriting, on the
same terms and conditions as the securities otherwise being sold through the
underwriters under such registration or (B) such Registrable Securities or
Additional Securities, as the case may be, are to be registered pursuant to such
registration statement and sold in the open market without any underwriting, on
terms and conditions comparable to those normally applicable to offerings in
reasonably similar circumstances, regardless of the method of disposition
originally specified in such Holder's or Additional Holder's request for
registration. To the extent that any or all of the Registrable Securities to be
included in any registration pursuant to this Section 2(a)(I) or any other
provision of this Agreement are to be issued upon conversion, exercise or
exchange of other securities, there shall be no obligation for any Holder to
effect any such conversion, exercise or exchange until immediately prior to the
closing of the sale of such Registrable Securities.
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<PAGE> 5
(ii) The Company shall use its commercially
reasonable best efforts to file with the SEC within eighty (80) days (thirty
(30) days if the Company may use a Registration Statement on Form S-3 to
register such Registrable Securities) after the Company's receipt of the initial
Requesting Holder's written notice pursuant to Section 2(a)(I), a registration
statement for the public offering and sale, in accordance with the method of
disposition specified by such Holder, of the number of Registrable Securities
specified in such notice, and thereafter use its commercially reasonable best
efforts to cause such registration statement to become effective within sixty
(60) days after its filing. Such registration statement may be on Form S-11 or
another appropriate form (including Form S-3) that the Company is eligible to
use and that is reasonably acceptable to the managing underwriter; provided,
however, that if any Form other than Form S-11 is used in an underwritten
offering, upon the request of the managing underwriter, or the selling
shareholders, the prospectus included in the registration statement shall be
amplified to include such additional information as such persons may reasonably
request regarding the Company, its business and management (including, without
limitation, the information called for by Items 101, 102, 103, 201, 202, 301 and
303 of Regulation S-K under the Securities Act).
(iii) With respect to any Holder, the Company shall
not have any obligation hereunder (A) to permit or participate in more than two
offerings pursuant to this Section 2(a), or (B) to register any Registrable
Securities under this Section 2(a) unless it shall have received requests from
the Requesting Holder to register at least 20% of the aggregate Registrable
Securities of such Requesting Holder issued at the date hereof.
(iv) If the Company is required to use commercially
reasonable best efforts to register Registrable Securities and Additional
Securities in a registration initiated upon the demand of any Holder pursuant to
Section 2(a) of this Agreement and the managing underwriters for such offering
advise that the inclusion of all securities sought to be registered by the
Holders and Additional Holders may interfere with an orderly sale and
distribution of or may materially adversely affect the price of such offering,
then, unless all such Holders and Additional Holders otherwise notify the
Company in writing, the aggregate number of Registrable Securities and
Additional Securities included by the Holders and Additional Holders in such
offering shall be reduced to a number which the managing underwriters advise
will not likely have such effect and the maximum number of Registrable
Securities and Additional Securities able to be included in such offering by
each Holder and Additional Holder shall be reduced giving first preference to
all Registrable Securities before any Additional Securities are included and
thereafter pro rata (in accordance with such Holder's or Additional Holder's, as
the case may be, proportionate share of all Registrable Securities and
Additional Securities duly requested to be included in such registration).
(b) At any time during the 60-day period following the end of
any fiscal year of the Company, other than the fiscal year in which a
registration statement is to be filed pursuant to Section 2(a) (except that the
registration pursuant to a Deemed Additional Share Request shall not be subject
to such limitation), any Holder or Holders may request in writing that the
Company register under the Securities Act all or any portion of the Registrable
Securities held by (or then issuable to) such Requesting Holders for sale
pursuant to a Shelf Registration Statement; provided that any distribution or
sale pursuant to any such Shelf Registration shall be limited to Brokers'
Transactions or other transactions that do not involve an underwritten public
offering. By closing
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<PAGE> 6
under the Securities Purchase Agreement, the Purchasers shall be deemed to have
made (as of the date of such closing) a request under Section 2(b) (the "Deemed
Additional Share Request") that the Company register for sale pursuant to a
Shelf Registration Statement all Shares. The Company shall, within five (5)
Business Days after its receipt of any Requesting Holder's notice under this
Section 2(b), give written notice of such request to all other Holders and
Additional Holders and afford them the opportunity of including in the requested
Shelf Registration Statement such of their Registrable Securities or Additional
Securities, as the case may be, as they shall specify in a written notice given
to the Company within twenty (20) days after their receipt of the Company's
notice. The Company shall thereupon use its commercially reasonable best efforts
to file the Shelf Registration Statement with the SEC within sixty (60) days
after its receipt of the initial Requesting Holder's notice and to cause such
registration statement to be declared effective within sixty (60) days after its
filing (or in the case of the Deemed Additional Share Request the earlier of 60
days after filing or March 31, 1997); provided, however, that the Company shall
not be required (A) to effect more than one registration pursuant to this
Section 2(b) in any fiscal year for a Holder, or (B) to effect any registration
for a Holder pursuant to this Section 2(b) during the fiscal year during which
Registrable Securities of such Holder are registered pursuant to Section 2(a) of
this Agreement, or (C) to register for a Holder any Registrable Securities under
this Section 2(b) (other than pursuant to the Deemed Additional Share Request)
unless it shall receive requests from such Holder to register at least 10% of
the aggregate Registrable Securities of such Holder issued at the date hereof.
The Company shall use its commercially reasonable best efforts to keep such
Shelf Registration Statement (or, if required hereunder, a successor Shelf
Registration Statement filed pursuant to Section 2(d) below) continuously
effective in order to permit the prospectus forming a part thereof to be usable
by Holders and Additional Holders until all securities included in such Shelf
Registration Statement have ceased to be Registrable Securities or Additional
Securities, as the case may be. (the "Lapse Date").
(c) Notwithstanding any other provision of this Agreement, the
Company shall have the right to defer the filing or effectiveness of a
registration statement relating to any registration requested under Section 2(a)
for a reasonable period of time not to exceed 180 days if (x) the Company is, at
such time, working on an underwritten, primary public offering of its securities
and is advised by its managing underwriter(s) that such offering would in its or
their opinion be materially adversely affected by such filing; or (y) a prior
registration statement of the Company for an underwritten, primary public
offering by the Company of its securities was declared effective by the SEC less
than 120 days prior to the anticipated effective date of the requested
registration.
(d) If the Company is precluded by Rule 415 or any other
applicable rule under the Securities Act from including all Registrable
Securities and Additional Securities in any Shelf Registration or from keeping
any Shelf Registration Statement continuously effective from the filing date
thereof through the Lapse Date, the Company shall file such additional or
further Shelf Registration Statements, as may be required, so that, subject to
the other provisions of this Agreement, all Registrable Securities and
Additional Securities requested to be included are included on a continuously
effective Shelf Registration Statement for substantially all of the period from
the filing date of the first Shelf Registration Statement through the Lapse
Date.
(e) Neither the Company nor any Person other than a Holder or
an Additional Holder shall be entitled to include any securities held by it or
him in any underwritten offering pursuant to Section 2(a) of this Agreement.
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(f) No registration of Registrable Securities under this
Article 2 shall relieve the Company of its obligation (if any) to effect
registrations of Registrable Securities pursuant to Article 3.
3. INCIDENTAL REGISTRATION.
(a) Until all securities subject to this Agreement have ceased
to be Registrable Securities, if the Company proposes, other than pursuant to
Article 2 hereof and other than pursuant to the 1996 Registration Statement, to
register any of its Common Stock or other securities issued by it having terms
substantially similar to Registrable Securities or any successor securities
(collectively, "Other Securities") for public sale under the Securities Act
(whether proposed to be offered for sale by the Company or by any other Person)
on a form and in a manner which would permit registration of Registrable
Securities for sale to the public under the Securities Act, it will give prompt
written notice (which notice shall specify the intended method or methods of
disposition) to the Holders and the Additional Holders of its intention to do
so, and upon the written request of any Holder or Additional Holder delivered to
the Company within fifteen (15) Business Days after the giving of any such
notice (which request shall specify the number of Registrable Securities or
Additional Securities, as the case may be, intended to be disposed of by such
Holder or Additional Holder) the Company will use its commercially reasonable
best efforts to effect, in connection with the registration of the Other
Securities, the registration under the Securities Act of all Registrable
Securities and Additional Securities which the Company has been so requested to
register by Holders and Additional Holders; provided, however, that:
(i) if, at any time after giving such written notice
of its intention to register Other Securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such Other Securities,
the Company may, at its election, given written notice of such determination to
the Holders and Additional Holders requesting registration and thereupon the
Company shall be relieved of its obligation to register such Registrable
Securities and Additional Securities in connection with the Registration of such
Other Securities (but not from its obligation to pay Registration Expenses to
the extent incurred in connection therewith as provided in Article 11), without
prejudice, however, to the rights (if any) of the Holders to request that such
registration be effected as a registration under Article 2; and
(ii) the Company will not be required to effect any
registration of Registrable Securities or Additional Securities pursuant to this
Article 3 in connection with a primary offering of securities by it if the
Company shall have been advised in writing (with a copy to the Holders
requesting registration) by a nationally recognized investment banking firm
(which may be the managing underwriter for the offering) selected by the
Company, that, in such firm's opinion, a registration of Registrable Securities
and Additional Securities at that time may interfere with an orderly sale and
distribution of the securities being sold by the Company in such offering or
materially and adversely affect the price of such securities; provided however,
that if an offering of some but not all of the Registrable Securities and
Additional Securities requested to be registered by the Holders and Additional
Holders would not adversely affect the distribution or price of the securities
to be sold by the Company in the offering in the opinion of such firm or are
included in such offering notwithstanding any such opinion, the Company shall
only include such lesser amount of Registerable
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<PAGE> 8
Securities and Additional Securities and the aggregate number of Registrable
Securities and Additional Securities to be included in such offering by each
Holder and Additional Holder shall be allocated pro rata among the Holders and
Additional Holders requesting such registration on the basis of the percentage
of the securities held by such Holders and Additional Holders which have
requested that such securities be included provided further, however, that a
registration under this Article 3 pursuant to demand registration rights of any
Additional Holders shall be treated as a primary offering for purposes of this
clause (ii) with the result that the applicable Additional Holders shall be
entitled to the same priority with respect to the Holders to which the Company
is entitled as provided above; and
(iii) The Company shall not be required to give
notice of, or effect any registration of Registrable Securities under this
Article 3 incidental to, the registration of any of its securities in connection
with mergers, consolidations, acquisitions, exchange offers, subscription
offers, dividend reinvestment plans or stock options or other employee benefit
or compensation plans.
(b) No registration of Registrable Securities effected under
this Article 3 shall relieve the Company of its obligations (if any) to effect
registrations of Registrable Securities pursuant to Article 2.
4. HOLDBACKS AND OTHER RESTRICTIONS.
(a) Each Holder hereby covenants and agrees with the Company
that:
(i) such Holder shall not, if requested by the
managing underwriters in an underwritten offering that includes such Holder's
Registrable Securities, effect any public sale or distribution of securities of
the Company of the same class as the securities included in such registration
statement (or convertible into such class), including a sale pursuant to Rule
144(k) under the Securities Act (except as part of such underwritten
registration: (A) during the ninety (90)-day period (or such longer period of
not more than one hundred eighty (180) days if such longer period is also
required by the managing underwriters of the Company and all other Persons
having securities included in such registration) beginning on the effective date
of such registration statement, to the extent timely notified in writing by the
Company or the managing underwriters; and (B) in the event of a primary offering
by the Company, to the extent such Holder does not elect to sell such securities
in connection with such offering, during the period of distribution of the
Company's securities in such offering and during the period in which the
underwriting syndicate, if any, participates in the aftermarket. In any such
case the Company shall require the underwriters to notify the Company and the
Company, in turn, shall notify all Holders of Registrable Securities included in
the offering promptly after such participation ceases;
(ii) such Holder shall not, during any period in
which any of his or its Registrable Securities are included in any effective
registration statement: (A) effect any stabilization transactions or engage in
any stabilization activity in connection with the Common Stock or other equity
securities of the Company in contravention of Rule 10b-7 under the Exchange Act;
(B) permit any Affiliated Purchaser (as that term is defined in Rule 10b-6 under
the Exchange Act) to bid for or purchase for any account in which such Holder
has a beneficial interest, or attempt to induce any other person to purchase,
any shares of Common Stock or Registrable Securities in contravention of
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<PAGE> 9
Rule 10b-6 under the Exchange Act; or (C) offer or agree to pay, directly or
indirectly, to anyone any compensation for soliciting another to purchase, or
for purchasing (other than for such Holder's own account), any securities of the
Company on a national securities exchange in contravention of Rule 10b-2 under
the Exchange Act; and
(iii) such Holder shall, in the case of a
registration including Registrable Securities to be offered by it for sale
through Brokers Transactions, furnish each broker through whom such Holder
offers Registrable Securities such number of copies of the prospectus as the
broker may require and otherwise comply with the prospectus delivery
requirements under the Securities Act.
(b) The Company covenants and agrees with the Holders not to
effect any public or private sale or distribution (other than distributions
pursuant to employee benefit plans) of its securities, including a sale pursuant
to Regulation D under the Securities Act (or Section 4(2) thereof), during the
ten (10) day period prior to, and during the ninety (90) day period (or such
longer period of not more than one hundred eighty (180) days if such longer
period is also required by the managing underwriters of the Holders and all
other Persons having securities included in such registration) beginning with,
the effectiveness of a Registration Statement filed under Section 2(a) hereof,
to the extent timely requested in writing by the managing underwriters, if any,
or, if there be none, by the Holders of a majority in aggregate amount of the
Registrable Securities included on such registration statement for such
registration, except pursuant to registrations on Form S-4, Form S-8 or any
successor form.
5. REGISTRATION PROCEDURES.
If and whenever the Company is required by the provisions of this
Agreement to use commercially reasonable best efforts to effect or cause a
registration as provided in this Agreement, the Company will:
(a) Use its commercially reasonable best efforts to prepare
and file with the SEC, a registration statement within the time periods
specified herein, and use its commercially reasonable best efforts to cause such
registration statement to become effective as promptly as practicable and to
remain effective under the Securities Act until (I) the Lapse Date with respect
to registrations pursuant to Section 2(b) and (ii) until the earlier of such
time as all securities covered thereby are no longer Registrable Securities or
one hundred and eighty (180) days after such registration statement becomes
effective with respect to registrations pursuant to Section 2(a), in every case
as any such period may be extended pursuant to Section 5(h).
(b) Prepare and file (and, if applicable, cause to become
effective) with the SEC, as promptly as practicable, such amendments,
post-effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for such period of time required by Section
5(a) above, as such period may be extended pursuant to Section 5(h).
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<PAGE> 10
(c) Comply in all material respects with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during the period during which any such registration
statement is required to be effective.
(d) Furnish to any Holder and any underwriter of Registrable
Securities, (I) such number of copies (including manually executed and conformed
copies) of such registration statement and of each amendment thereof and
supplement thereto (including all annexes, appendices, schedules and exhibits),
(ii) such number of copies of the prospectus used in connection with such
registration statement (including each preliminary prospectus, any summary
prospectus and the final prospectus), and (iii) such number of copies of other
documents, in each case as such Holder or such underwriter may reasonably
request.
(e) Use its commercially reasonable best efforts to register
or qualify all Registrable Securities covered by such registration statement
under the securities or "blue sky" laws of states of the United States as any
Holder or any underwriter shall reasonably request, and do any and all other
acts and things which may be reasonably requested by such Holder or such
underwriter to consummate the offering and disposition of Registrable Securities
in such jurisdictions; provided, however, that the Company shall not be required
to qualify generally to do business as a foreign corporation or as a dealer in
securities, subject itself to taxation, or consent to general service of process
in any jurisdiction wherein it is not then so qualified or subject.
(f) Use, as soon as practicable after the effectiveness of the
registration statement, commercially reasonable best efforts to cause the
Registrable Securities covered by such registration statement to be registered
with, or approved by, such other United States public, governmental or
regulatory authorities, if any, as may be required in connection with the
disposition of such Registrable Securities.
(g) Use its commercially reasonable best efforts to list the
Common Stock covered by such registration statement on any securities exchange
(or if applicable, The NASDAQ Stock Market) on which any securities of the
Company are then listed, if the listing of such Registrable Securities in then
permitted under the applicable rules of such exchange (or if applicable, The
NASDAQ Stock Market).
(h) Notify each Holder as promptly as practicable and, if
requested by any Holder, confirm such notification in writing, (I) when a
prospectus or any prospectus supplement has been filed with the SEC, and, with
respect to a registration statement or any post-effective amendment thereto,
when the same has been declared effective by the SEC, (ii) of the issuance by
the SEC of any stop order or the coming to the Company's attention of the
initiation of any proceedings for such or a similar purpose, (iii) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, (iv) of the
occurrence of any event which requires the making of any changes to a
registration statement or related prospectus so that such documents will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (and
the Company shall promptly prepare and furnish to each Holder a reasonable
number of copies of a supplemented or amended prospectus such that,
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<PAGE> 11
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading), and (v) of the Company's determination that the filing of a
post-effective amendment to the Registration Statement shall be necessary or
appropriate. Upon the receipt of any notice from the Company of the occurrence
of any event of the kind described in clause (iv) or (v) of this Section 5(h),
the Holders shall forthwith discontinue any offer and disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until all Holders shall have received copies of a supplemented or
amended prospectus which is no longer defective and, if so directed by the
Company, shall deliver to the Company, at the Company's expense, all copies
(other than permanent file copies) of the defective prospectus covering such
Registrable Securities which are then in the Holders' possession. If the Company
shall provide any notice of the type referred to in the preceding sentence, the
period during which the registration statements are required to be effective as
set forth under Section 5(a) shall be extended by the number of days from and
including the date such notice is provided, to and including the date when
Holders shall have received copies of the corrected prospectus.
(i) Enter into such agreements and take such other appropriate
actions as are customary and reasonably necessary to expedite or facilitate the
disposition of such Registrable Securities, and in that regard, deliver to the
Holders such documents and certificates as may be reasonably requested by any
Holder of the Registrable Securities being sold or, as applicable, the managing
underwriters, to evidence the Company's compliance with this Agreement
including, without limitation, using commercially reasonable best efforts to
cause its independent accountants to deliver to the Company's Board of Trustees
(and to the Holders of Registrable Securities being sold in any registration) an
accountants' comfort letter substantially similar to that in scope delivered in
an underwritten public offering and covering audited and interim financial
statements included in the registration statement or, if such letter cannot be
obtained through the exercise of commercially reasonable best efforts, cause its
independent accountants to deliver to the Company's Board of Trustees (and to
the Holders of Registrable Securities being sold in any registration) a comfort
letter based on negotiated procedures providing comfort with respect to the
Company's financial statements included or incorporated by reference in the
registration statement at the highest level permitted to be given by such
accountants under the then applicable standards of the Association of
Independent Certified Accountants with respect to such registration statement.
In addition, the Company shall furnish to the Holders of Registrable Securities
being included in any registration hereunder an opinion of counsel substantially
identical in substance and scope to that customarily delivered to underwriters
in public offerings.
6. UNDERWRITING.
(a) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration hereunder, the
Company will enter into and perform its obligations under an underwriting
agreement with the underwriters for such offering, such agreement to contain
such representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, customary provisions
relating to indemnities and contribution and the provision of opinions of
counsel and accountants' letters.
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<PAGE> 12
(b) If any registration pursuant to Article 3 hereof shall
involve, in whole or in part, an underwritten offering, the Company may require
Registrable Securities requested to be registered pursuant to Article 3 to be
included in such underwriting on the same terms and conditions as shall be
applicable to the securities being sold through underwriters under such
registration. In such case, each Holder requesting registration shall be a party
to any such underwriting agreement. Such agreement shall contain such
representations and warranties by the Holders requesting registration and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, provisions relating to indemnities and contribution.
(c) In any offering of Registrable Securities pursuant to a
registration hereunder, each Holder requesting registration shall also enter
into such additional or other agreements as may be customary in such
transactions, which agreements may contain, among other provisions, such
representations and warranties as the Company or the underwriters of such
offering may reasonably request (including, without limitation, those concerning
such Holder, its Registrable Securities, such Holder's intended plan of
distribution and any other information supplied by it to the Company for use in
such registration statement), and customary provisions relating to indemnities
and contribution.
7. RULE 144.
The Company shall use commercially reasonable best efforts to
take all actions necessary to comply with the filing requirements described in
Rule 144(c)(1) or any successor thereto so as to enable the Holders to sell
Registrable Securities without registration under the Securities Act. Upon the
written request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with the filing requirements under Rule
144(c)(1) or any successor thereto.
8. PREPARATION; REASONABLE INVESTIGATION; INFORMATION.
In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, (a) the Company will give the Holders and the underwriters, if any, and
their respective counsel and accountants, drafts of such registration statement
for their review and comment prior to filing and (during normal business hours
and subject to such reasonable limitations as the Company may impose to prevent
disruption of its business) such reasonable and customary access to its books
and records and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the reasonable opinion of a
Holder of the Registrable Securities being registered and such underwriters or
their respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act and (b) as a condition precedent to including any
Registrable Securities of any Holder in any such registration, the Company may
require such Holder to furnish the Company such information regarding such
Holder and the distribution of such securities as the Company may from time to
time reasonably request in writing or as shall be required by law or the SEC in
connection with any registration; provided, however, that, upon the reasonable
request of the supplier of any such information, the recipient thereof shall
enter into a confidentiality agreement respecting such information in customary
form for an underwritten public offering.
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<PAGE> 13
9. INDEMNIFICATION AND CONTRIBUTION.
(a) In the case of each offering of Registrable Securities
made pursuant to this Agreement, the Company shall indemnify and hold harmless
each Holder, its officers, directors and trustees, each underwriter of
Registrable Securities so offered and each Person, if any, who controls any of
the foregoing Persons within the meaning of the Securities Act ("Holder
Indemnitees"), from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject, under the Securities Act or otherwise, including any amount
paid in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as such losses, claims, damages, liabilities or actions shall arise out
of, or shall be based upon, any violation or alleged violation by the Company of
the Securities Act, or relating to action taken or action or inaction required
of the Company in connection with such offering, or shall arise out of, or shall
be based upon, any untrue statement or alleged untrue statement of a material
fact contained in the registration statement (or in any preliminary or final
prospectus included therein) relating to the offering and sale of such
Registrable Securities, or any amendment thereof or supplement thereto, or in
any document incorporated by reference therein, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, that the
Company shall not be liable to any Holder Indemnitee in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement, or any
omission, if such statement or omission shall have been made in reliance upon
and in conformity with information furnished to the Company in writing by or on
behalf of such Holder specifically for use in the preparation of the
registration statement (or in any preliminary or final prospectus included
therein), or any amendment thereof or supplement thereto. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of any Holder and shall survive the transfer of such securities. The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Holder Indemnitee.
(b) In the case of each offering of Registrable Securities
made pursuant to this Agreement, each Holder, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and trustees, and each
Person, if any, who controls any of the foregoing within the meaning of the
Securities Act and (if requested by the underwriters) each underwriter who
participates in the offering and each Person, if any, who controls any such
underwriter within the meaning of the Securities Act (the "Company
Indemnitees"), from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject, under the Securities Act or otherwise, including any amount
paid in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any violation or alleged violation by such
Holder of the Securities Act, any blue sky laws, securities laws or other
applicable laws of any state or country in which the Registrable Securities are
offered and relating to action taken or action or inaction required of such
Holder in connection with such offering, or shall arise out of, or shall be
based upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any
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<PAGE> 14
preliminary or final prospectus included therein) relating to the offering and
sale of such Registrable Securities or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue statement is
contained in, or such fact is omitted from, information furnished in writing to
the Company by or on behalf of such Holder specifically for use in the
preparation of such registration statement (or in any preliminary or final
prospectus included therein). The liability of each Holder under such indemnity
provision (and under Section 9(d) below) shall be limited to an amount equal to
the total net proceeds received by such Holder from such offering. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company and shall survive the transfer of such
securities. The foregoing indemnity is in addition to any liability which each
Holder may otherwise have to any Company Indemnitee.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to this Article 9, such Person (the
"indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 9(a) or (b) shall be available to any
person who shall fail to give notice as provided in this Section 9(c) if the
indemnifying party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 9(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred the fees and expenses of the counsel retained by the
indemnified party in the event (I) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel, in the written opinion of such counsel, would be
inappropriate due to actual or potential differing interests between them. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgement for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Article 9 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 9(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
or if the indemnified party failed to give the notice required under Section
9(c) above, then each
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<PAGE> 15
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in proportion as is appropriate to
reflect not only both the relative benefits received by such party (as compared
to the benefits received by all other parties) from the offering in respect of
which indemnity is sought, but also the relative fault of all parties in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by a party shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses) received by it bear
to the total amounts (including, in the case of any underwriter, underwriting
commission and discounts) received by each other party. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this Section 9(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 9(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
10. EXPENSES.
In connection with any registration under this Agreement, the
Company shall pay all Registration Expenses. In addition, in connection with
each registration, the Company shall pay the reasonable fees and expenses of one
counsel to represent the interests of a Holder selling Registrable Securities in
such registration. Notwithstanding the foregoing, in the event that any Holder
or Holders require the Company to conduct an underwritten public offering of
Registrable Securities pursuant to Section 2(a) prior to 12 months after the
date hereof, each such Holder or Holders shall pay its pro rata share of all
Registration Expenses.
11. NOTICES.
Except as otherwise provided below, whenever it is provided in
this Agreement that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties hereto, or whenever any of the parties hereto, desires to provide to or
serve upon the other party any other communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be delivered in person, mailed
by registered or certified mail (return receipt requested) or sent by overnight
courier service or via facsimile transmission (which is confirmed), as follows:
(a) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 11, which address initially
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EXHIBIT 10.57
November 4, 1996
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA
Gentlemen:
Reference is made to the Declaration of Trust, as amended (the
"Declaration") of Brandywine Realty Trust (the "Trust"), a Maryland real estate
investment trust.
In connection with the contemplated underwritten offering (the
"Public Offering") by the Trust of common shares of beneficial interest, par
value $.01 per share ("Common Shares"), as more fully described in a
Registration Statement on Form S-11 filed by the Trust with the Securities and
Exchange Commission on October 11, 1996, the Trust's Board of Trustees (the
"Board") desires to exercise its authority to increase the Ownership Limit (as
defined in the Declaration) from 4.16% to 9.8% in value of the outstanding
Shares (as defined in the Declaration), concurrently with, and subject to, the
consummation of the Public Offering.
By executing this letter in the place designated below:
Safeguard Scientifics, Inc. ("SSI") agrees, for itself and on behalf of its SSI
Affiliates (as defined in the Declaration), that the Permissible Ownership
Threshold (as defined in the Declaration) applicable to them, which the
Declaration has fixed at 35.25%, shall be reduced from 35.25% to 14.75%, as
fully as if such reduction were contained in the Declaration, subject to, and
effective automatically upon, the occurrence of each of the following
conditions: (w) the Public Offering shall have been consummated; (x) the
Ownership Limit shall have been increased by the Board to 9.8%; (y) immediately
following consummation of the Public Offering, the Common Shares beneficially
owned by SSI shall be below 14.75% of the outstanding Common Shares (as computed
under the ownership limitations of Article 6 of the Declaration); and (z) the
Trust shall not have amended or agreed to amend the letter dated the date hereof
executed by Richard M.
<PAGE> 2
Osborne and two of his affiliates, a copy of which letter is attached as Exhibit
A.
Sincerely,
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
------------------------
Title: President and Chief
Executive Officer
AGREED TO:
SAFEGUARD SCIENTIFICS, INC.
By: /s/ Gerald M. Wilk
---------------------
Title: Sr. Vice President
<PAGE> 1
EXHIBIT 10.58
November 4, 1996
The Richard M. Osborne Trust
Turkey Vulture Fund XIII, Ltd.
Richard M. Osborne
c/o Mr. Richard M. Osborne
OSAIR, Inc.
7001 Center Street
Mentor, OH 44060
Gentlemen:
Reference is made to the Declaration of Trust, as amended (the
"Declaration") of Brandywine Realty Trust (the "Trust"), a Maryland real estate
investment trust.
In connection with the contemplated underwritten offering (the
"Public Offering") by the Trust of common shares of beneficial interest, par
value $.01 per share ("Common Shares"), as more fully described in a
Registration Statement on Form S-11 filed by the Trust with the Securities and
Exchange Commission on October 11, 1996, the Trust's Board of Trustees (the
"Board") desires to exercise its authority to increase the Ownership Limit (as
defined in the Declaration) from 4.16% to 9.8% in value of the outstanding
Shares (as defined in the Declaration), concurrently with, and subject to, the
consummation of the Public Offering.
By executing this letter in the place designated below: (i)
Richard M. Osborne, (ii) The Richard M. Osborne Trust and (iii) Turkey Vulture
Fund XIII, Ltd. (collectively, the "Osborne Parties") agree that the Permissible
Ownership Threshold (as defined in the Declaration) applicable to them, which
the Declaration has fixed at 33.33%, shall be reduced from 33.33% to 9.8%, as
fully as if such reduction were contained in the Declaration, subject to, and
effective automatically upon, the occurrence of each of the following
conditions: (x) the Ownership Limit shall have been increased by the Board to
9.8%; (y) immediately following consummation of the Public Offering and the
repayment of the then outstanding balance of the loan (including accrued
interest) from Turkey Vulture Fund XIII, Ltd. to the Trust through the issuance
by the Trust of Common Shares and
<PAGE> 2
warrants exercisable for Common Shares, the Common Shares beneficially owned by
the Osborne Parties, as a group, shall be below 9.8% of the outstanding Common
Shares (as computed under the ownership limitations of Article 6 of the
Declaration); and (z) the Trust shall not have amended or agreed to amend the
letter dated the date hereof executed by Safeguard Scientifics, Inc., a copy of
which letter is attached as Exhibit A.
Sincerely,
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
-----------------------
Title: President and Chief
Executive Officer
AGREED TO:
THE RICHARD M. OSBORNE TRUST
By: /s/ Richard M. Osborne
--------------------------
Title: Trustee
TURKEY VULTURE FUND XIII, LTD.
By: /s/ Richard M. Osborne
--------------------------
Title: Manager
/s/ Richard M. Osborne
- ------------------------------
Richard M. Osborne
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<C> <S>
1. Brandywine Operating Partnership, L.P. a Delaware limited partnership.
2. Brandywine Realty Services Corporation, a Pennsylvania corporation.
3. Brandywine Holdings I, Inc., a Pennsylvania corporation.
4. Brandywine Holdings II, Inc., a Pennsylvania corporation.
5. Brandywine Holdings III, Inc., a Pennsylvania corporation.
6. Fifteen Horsham, L.P., a Pennsylvania limited partnership.
7. C/N Oaklands Limited Partnership I, a Pennsylvania limited partnership.
8. Newtech IV Limited Partnership, a Pennsylvania limited partnership.
9. Newtech III Limited Partnership, a Pennsylvania limited partnership.
10. LC/N Keith Valley Limited Partnership I, a Pennsylvania limited partnership.
11. LC/N Horsham Limited Partnership, a Pennsylvania limited partnership.
12. Nichols Lansdale Limited Partnership III, a Pennsylvania limited partnership.
13. Witmer Operating Partnership I, L.P., a Delaware limited partnership.
14. C/N Leedom II Limited Partnership, a Pennsylvania limited partnership.
15. C/N Horsham Towne Limited Partnership, a Pennsylvania limited partnership.
16. C/N Oaklands Limited Partnership III, a Pennsylvania limited partnership.
17. Iron Run Limited Partnership V, a Pennsylvania limited partnership.
18. C/N Iron Run Limited Partnership III, a Pennsylvania limited partnership.
19. Brandywine Realty Partners, a Pennsylvania general partnership.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 4, 1996 (except with respect to the matters discussed in Note 16, as
to which the date is October 7, 1996) on the consolidated financial statements
of Brandywine Realty Trust as of December 31, 1994 and 1995, and for each of the
three years in the period ended December 31, 1995, and to all references to our
firm included in or made a part of this Registration Statement on Form S-11. It
should be noted that we have not audited any financial statements of Brandywine
Realty Trust subsequent to December 31, 1995 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
November 6, 1996
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 12, 1996 on the combined financial statements of the SSI/TNC
Properties as of December 31, 1994 and 1995 and for each of the three years in
the period ended December 31, 1995, and to all references to our firm included
in or made a part of this Registration Statement on Form S-11. It should be
noted that we have not audited any financial statements of the SSI/TNC
Properties subsequent to December 31, 1995 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
November 6, 1996
<PAGE> 3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated June 14, 1996 on the statement of revenue and certain expenses of the
LibertyView Building for the year ended December 31, 1995, and to all references
to our firm included in or made a part of this Registration Statement on Form
S-11. It should be noted that we have not audited any financial statements of
the LibertyView Building subsequent to December 31, 1995 or performed any audit
procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
November 6, 1996
<PAGE> 4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated October 29, 1996 on the statement of revenue and certain expenses of the
SERS Acquisition Properties for the year ended December 31, 1995, and to all
references to our firm included in or made a part of this Registration Statement
on Form S-11. It should be noted that we have not audited any financial
statements of the SERS Acquisition Properties subsequent to December 31, 1995
or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
November 6, 1996
<PAGE> 5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated October 31, 1996 on the statement of revenue and certain expenses of the
Delaware Acquisition Property for the year ended December 31, 1995, and to all
references to our firm included in or made a part of this Registration Statement
on Form S-11. It should be noted that we have not audited any financial
statements of the Delaware Acquisition Property subsequent to December 31, 1995
or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
November 6, 1996
<PAGE> 6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated October 13, 1996 on the statement of revenue and certain expenses of the
Equivest Acquisition Properties for the year ended December 31, 1995, and to
all references to our firm included in or made a part of this Registration
Statement on Form S-11. It should be noted that we have not audited any
financial statements of the Equivest Acquisition Properties subsequent to
December 31, 1995 or performed any audit procedures subsequent to the date of
our report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
November 6, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT
We hereby consent to the references in the Prospectus which is part of
the Registration Statement on Form S-11 for Brandywine Realty Trust (the
"Registration Statement") to (i) the statistical and other information from our
Mid-Year 1996 Philadelphia Office Market Report and Mid-Year 1996 Philadelphia
Industrial Market Report and from 10 additional market analyses, each dated
August 1, 1996, which were prepared by us at the request of Brandywine Realty
Trust, and (ii) to the data reflected in the chart under the caption "Historical
Feet Under Construction -- Philadelphia MSA"; and we further consent to the
reference to us under the heading "Experts" in the Registration Statement.
CUSHMAN & WAKEFIELD OF
PENNSYLVANIA, INC.
By: /s/ John B. Rush
--------------------------
Name: John B. Rush
Title: Director
