UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 14, 1997
ROYALE INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 0-20047 41-1691930
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification Number)
One Logan Square, Suite 1105
Philadelphia, PA 19103
(Address of principal executive offices) (Zip Code)
(215) 567-1800
Registrant's telephone number, including area code)
Royale Investments, Inc.
3430 List Place
Minneapolis, MN 55416-4547
(Former name or former address, if changed since last report)
<PAGE>
Item 1. Changes in Control of Registrant
On October 14, 1997, Royale Investments, Inc. ("Registrant"), H/SIC
Corporation, a Delaware corporation ("H/SIC"), Strategic Facility Investors,
Inc., a Delaware corporation ("Strategic"), the sole general partner of Blue
Bell Investment Company, L.P., a Delaware limited partnership ("Blue Bell,
L.P."), South Brunswick Investment Company, LLC, a New Jersey limited liability
company ("SBIC"), a general partner of South Brunswick Investors, L.P., a
Delaware limited partnership ("South Brunswick, L.P."), ComCourt Investment
Corporation, a Pennsylvania corporation ("ComCourt Corporation"), the sole
general partner of ComCourt Investors, L.P., a Delaware limited partnership
("ComCourt, L.P."), and Gateway Shannon Development Corporation, a Pennsylvania
corporation ("Gateway"), the sole general partner of 6385 Flank Drive, L.P., a
Pennsylvania limited partnership ("Flank, L.P."), completed a number of
transactions (collectively, the "Transactions") pursuant to the
Formation/Contribution Agreement dated September 7, 1997, as amended by the
Amendment thereto dated as of October 13, 1997 (collectively, the "Formation
Agreement"). H/SIC, Strategic and ComCourt Corporation are each 50% owned by Jay
H. Shidler ("Shidler") and Clay W. Hamlin, III ("Hamlin"). Gateway is owned by
Mr. Hamlin. Although the Transactions involved a number of properties and
partnerships and were effected by a series of intermediate steps, the
Transactions were negotiated and effected as a unitary transaction in which one
part would not have been done without the other and, in effect, constituted as
described below the acquisition by Registrant of an interest in a Delaware
limited partnership, FCO, L.P. ("FCO"), formed to acquire ("Acquisition") and
hold the Mid-Atlantic suburban office operations of The Shidler Group, a
national real estate investment firm.
Pursuant to the Transactions, Registrant became the sole general partner of
FCO, and FCO acquired all of the limited partnership interests in Blue Bell,
L.P., South Brunswick, L.P., ComCourt, L.P. and Flank, L.P. (collectively the
"Properties Partnerships") except for an 11% limited partnership interest in
Blue Bell, L.P. retained by Shidler Equities, L.P., a limited partnership in
effect controlled by Mr. Shidler and his wife Wallette Shidler ("Equities
L.P."), and 11% limited partnership interests in each of ComCourt, L.P. and
Flank, L.P. retained by Mr. Hamlin (collectively the "Retained Interests").
Immediately prior to the acquisition by FCO of such limited partnership
interests, the general partnership interests in the respective Properties
Partnerships held by Strategic, SBIC, ComCourt Corporation and Gateway were
converted into
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limited partnership interests, and FCO
Holdings, Inc. ("Holdings"), a wholly-owned Delaware subsidiary of Regis-
trant, was admitted as the sole general partner of each of the Properties
Partnerships holding a .1% interest in each of them. Registrant has a
20.6946% Percentage Interest in FCO which it acquired as a result of the
contribution by Registrant to FCO of certain limited partnership interests
in various of the Properties Partnerships which had been assigned directly
to Registrant in exchange for 600,000 shares of common stock of Registrant.
In addition, until December 31, 2000, a portion of the Profits (as defined
in the FCO Partnership Agreement) for each fiscal year is to be allocated
19.8% to Registrant as the General Partner and 80.2% to all Partners
(including Registrant as the General Partner but not the Preferred Limited
Partners holding Preferred Units).
The Retained Interests are required to be contributed by Equities L.P. and
Hamlin to FCO in November 2000 in consideration for the issuance to them of an
aggregate of 282,508 Limited Partner Interests and 186,455 Preferred Partnership
Units of FCO.
FCO was formed as a Delaware limited partnership by Registrant on October
9, 1997 for the purpose of effecting the Transactions. On October 14, 1997
Registrant, as the sole General Partner of FCO, and the limited partners and
preferred limited partners named therein entered into a Limited Partnership
Agreement dated that day (the "FCO Partnership Agreement").
Each of the Properties Partnerships holds one or more suburban office
buildings located in South Brunswick, New Jersey, Blue Bell, Pennsylvania and
Harrisburg, Pennsylvania. The ten buildings held by the Properties Partnerships
(the "Commercial Office Buildings") comprise an aggregate of approximately 1.5
million square feet and in the aggregate are currently 99.8% leased to major
corporate tenants, including Unisys Corporation, IBM Corporation, Teleport
Communications Group, Merck, Hershey Foods, Pitney-Bowes, Ernst & Young and
McGraw-Hill. These leases expire in various years, commencing in September 1999
and running to June 2009. Six of these buildings are single tenant buildings.
Registrant, through FCO and Holdings, intends to continue the business of the
Properties Partnerships of owning and leasing commercial office buildings.
Immediately prior to the Acquisition, each of the Properties Partnerships
jointly and severally entered into a $100 million principal amount mortgage
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financing with Bankers Trust Company pursuant to a Senior Secured Credit
Agreement dated as of October 14, 1997 ("Credit Facility"). Approximately $96.1
million of the proceeds of the Credit Facility was used by entities other than
the Registrant and FCO to refinance indebtedness of or secured by the assets of
the Properties Partnerships and to pay various costs in connection with the
Transactions. Approximately $3.9 million of the proceeds of the Credit Facility
were contributed to FCO in connection with the Transactions. FCO used
approximately $2.9 million of these funds to pay various costs associated with
the Transactions and retained approximately $1.0 million for working capital
needs. FCO is a joint and several obligor in respect of the Credit Facility.
Registrant and Holdings are not obligors with respect to the Credit Facility,
but have pledged certain assets described below to secure repayment of the
Credit Facility. The initial term of the Credit Facility is three years with the
right given to the obligors to extend it, subject to the satisfaction of
conditions precedent thereto, for two successive one year extensions.
Substantially all of the assets of the Properties Partnerships and FCO's and
Holdings' interests in the Properties Partnerships and Registrant's interests in
Holdings and FCO have been pledged or mortgaged to secure the Properties
Partnerships' and FCO's joint and several obligations in respect of the Credit
Facility.
For the purposes of the Acquisition, the Properties Partnerships were
treated as having a value of $170 million (before giving effect to the
indebtedness represented by the Credit Facility). For purposes of determining
the consideration to be given in respect of the acquisition by FCO of limited
partnership interests in the Properties Partnerships, Limited Partner Interests
were issued (and will be issued in November 2000 for Retained Interests) at the
rate of one Unit for every $5.50 in exchange value and Preferred Partnership
Units were issued (and will be issued in November 2000 for Retained Interests)
at a rate of one Unit for every $25.00 in exchange value.
The aggregate consideration issued in the Transactions by Registrant and
FCO on October 14, 1997 to the former general and limited partners of the
Properties Partnerships consisted of (x) 600,000 shares of common stock of
Registrant (issued at a price of $5.50 per share); (y) an aggregate of 2,899,310
Limited Partner Interests in FCO (including 600,000 issued to Registrant in
consideration for limited partnership interests in the Properties Partnerships
acquired by it for 600,000 shares of its common stock and subsequently
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contributed by it to FCO); and (z) 1,913,545 Preferred Partnership Units in FCO.
Prior to the execution and delivery of the Formation/Contribution
Agreement, there had not been any material relationship between the general and
limited partners of the Properties Partnerships and Registrant or any of its
affiliates.
The nature and amount of consideration given and received by Registrant in
the Transactions was based on its judgment as to the fair market value of the
Commercial Office Buildings and the shares of common stock of Royale at the time
the Formation/Contribution Agreement was negotiated.
Preferred Partnership Units of FCO may be converted on or after October 1,
1999 into Limited Partner Interests of FCO on the basis of 3.5714 Units of
Limited Partner Interest for each Preferred Partnership Unit being converted
plus an amount in cash equal to the accrued Priority Return Amount (as defined
in the FCO Partnership Agreement) in respect of such Preferred Partnership
Units.
Subject to compliance with the FCO Partnership Agreement, beginning on
September 1, 1998, each Limited Partner of FCO has the right to require FCO to
redeem all or a portion of the Limited Partner Interests held by such Limited
Partner. FCO (or Registrant as its General Partner) has the right, in its sole
discretion, to deliver to such redeeming Limited Partner either one share of
common stock of Registrant (subject to anti-dilution adjustment) or a cash
payment equal to the then fair market value of such share (so adjusted) (based
on the formula for determining such value set forth in the FCO Partnership
Agreement). Such rights of redemption and conversion are immediately exercisable
upon the happening of a Special Event (as defined in the FCO Partnership
Agreement). The redemption of Limited Partner Interests for common stock of
Registrant will have the effect of increasing Registrant's Percentage Interest
in FCO.
The right to receive common stock of Registrant upon exercise of such right
of redemption is subject to compliance with a number of significant conditions
precedent including compliance with Registrant's charter, all requirements under
the Internal Revenue Code of 1986, as amended applicable to real estate
investment trusts, compliance with the Minnesota Business Corporation Act or any
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other law then in effect and any applicable rule or policy of any stock exchange
or self-regulatory organization.
The following table sets forth the interests as of October 14, 1997 of the
general and limited partners of FCO and the holders of Preferred Partnership
Units in FCO (before giving effect to any contribution of Retained Interests):
<TABLE>
<CAPTION>
Units of
Limited Preferred
Partner Percentage Partnership
Interests Interest Units
<S> <C> <C> <C>
General Partner
Royale Investments, Inc. 600,000 20.6946%
Limited Partners and Preferred Limited Partners
Mr. Shidler 2,600 0.0897% 126,079
Shidler Equities, L.P.(1) 582,103 20.0773% 457,826
Mr. Hamlin 5,235 .1805% 115,334
LBCW Limited Partnership(2) 875,284 30.1894% 663,808
CHLB Partnership(3) 63,243 2.1813% 41,741
Robert L. Denton 129,549 4.4683% 85,502
James K. Davis 15,368 .5300% 10,142
</TABLE>
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1 A limited partnership controlled by Jay H. Shidler and his wife, Wallette
Shidler.
2 A limited partnership controlled by Mr. Hamlin who is the sole general
partner.
3 A Pennsylvania family partnership controlled by Mr. Hamlin and his wife,
Lynn B. Hamlin, as the sole general partners.
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<PAGE>
<TABLE>
<CAPTION>
Units of
Limited Preferred
Partner Percentage Partnership
Interests Interest Units
<S> <C> <C> <C>
John E. deB. Blockey, Trustee of the John E.
deB. Blockey Living Trust dated 9/12/88
89,549 3.0886% 59,102
Henry D. Bullock 34,718 1.1975% 22,914
Frederick K. Ito 17,359 0.5987% 11,457
LGR Investment Fund, Ltd. 80,030 2.7603% 52,820
Tiger South Brunswick, L.L.C.
2,875 .0992% 1,898
Westbrook Real Estate Fund I, L.P.
336,121 11.5931% 221,840
Westbrook Real Estate Co. Investment
Partnership I, L.P. 33,299 1.1485% 21,977
Denise J. Liszewski 10,227 0.3527% 6,750
Samuel Tang 6,818 0.2352% 4,500
David P. Hartsfield 9,091 0.3136% 6,000
Lawrence J. Taff 4,091 0.1411% 2,700
Kimberly F. Aquino 1,750 0.0604% 1,155
2,899,310 100.0000% 1,913,545
------------------------------------------------
</TABLE>
Pursuant to the Transactions, Messrs. Shidler and Hamlin each acquired
300,000 shares of common stock of Registrant in exchange for partnership
interests in various of the Properties Partnerships. The right to acquire
147,818 of these shares (73,909 by each of Messrs. Shidler and Hamlin) was
acquired by Mr. Shidler and Mr. Hamlin for cash payments aggregating $813,000 to
the persons who contributed certain of these partnership interests to
Registrant. The common stock issued to Mr. Shidler and Mr. Hamlin represents, in
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the aggregate, approximately 26% of the outstanding common stock of the
Registrant immediately following the Transactions. The Properties Partnerships
had prior to the Transactions in effect been controlled by Mr. Shidler and Mr.
Hamlin.
Concurrently with the closing of the Transactions and pursuant to the
Formation/Contribution Agreement, Registrant acquired for 273,729 shares of its
common stock all of the assets of Crown Advisors, Inc. ("Crown") (including
27,646 shares of Registrant's common stock held by Crown and valued for this
purpose at $5.50 per share). The shares of common stock of Registrant held by
Crown were then retired. Crown had been the advisor to Registrant pursuant to a
management contract. All of the outstanding capital stock of Crown was owned by
Vernon R. Beck and John Parsinen, then directors and Chairman of the Board and
Chief Executive Officer and Secretary, respectively, of Registrant. The
management contract between Crown and Registrant was terminated and Registrant
entered into a new management agreement with Glacier Realty, LLC, a Minnesota
limited liability company all of the interests in which are owned by Vernon R.
Beck and John Parsinen. Under this Management Agreement, Glacier will be
responsible for the management of the retail properties of the Registrant.
Upon completion of the Transactions, Mr. Hamlin, Mr. Shidler, William H.
Walton and Kenneth S. Sweet, Jr., nominees of the persons who previously
directly or indirectly held the general and limited partnership interests in the
Properties Partnerships, were elected directors of the Registrant and John
Parsinen, Orvin J. Hall and Kurt Schoenrock resigned from the Board of Directors
of the Registrant. Messrs. Vernon R. Beck, Allen C. Gehrke and Kenneth D. Wethe
continued as directors. The Board of Directors of Registrant consists of seven
directors. All directors are elected to serve until they die or retire or until
the next annual meeting of the shareholders of Registrant and their successors
are elected and qualified. It is expected that Mr. Shidler will shortly be
elected Chairman of the Board of Directors of Registrant as provided by the
Formation/Contribution Agreement.
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<PAGE>
Upon completion of the Transactions, the following officers of the
Registrant were appointed and the existing officers of the Registrant resigned:
Clay W. Hamlin, III President and Chief Executive
Officer
Vernon R. Beck Vice President
James K. Davis Chief Financial Officer
David P. Hartsfield Chief Operating Officer
John Parsinen Secretary
Denise Liszewski Vice President and Assistant
Secretary
Mr. Hamlin has entered into a two year, employment agreement with FCO which
will be renewed automatically unless terminated by either party upon notice to
the other.
Item 2. Acquisition or Disposition of Assets.
See response to Item 1.
Item 3. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
To be filed by amendment.
(b) Pro Forma Financial Information
To be filed by amendment.
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Exhibit Number Description
2.1 Formation/Contribution Agreement dated September 7, 1997, as
amended, by and among Royale Investments, Inc., H/SIC
Corporation, a Delaware corporation, Strategic Facility
Investors, Inc., a Delaware corporation, the sole general
partner of Blue Bell Investment Company, L.P., a Delaware
limited partnership, South Brunswick Investment Company,
LLC, a New Jersey limited liability company, a general
partner of South Brunswick Investors, L.P., a Delaware
limited partnership, ComCourt Investment Corporation, a
Pennsylvania corporation, the sole general partner of
ComCourt Investors, L.P., a Delaware limited partnership,
and Gateway Shannon Development Corporation, a Pennsylvania
corporation, the sole general partner of 6385 Flank Drive,
L.P., a Pennsylvania limited partnership, with exhibits, as
amended by the Amendment thereto dated October 13, 1997.
2.2 Agreement and Plan of Reorganization between the Registrant
and Crown Advisors, Inc.
2.3 FCO, L.P. Partnership Agreement dated October 14, 1997.
2.4 Amended and Restated Partnership Agreement of Blue Bell
Investment Company.
2.5 Amended and Restated Partnership Agreement of South
Brunswick Investors, L.P.
2.6 Amended and Restated Partnership Agreement of ComCourt
Investors, L.P.
2.7 Amended and Restated Partnership Agreement of 6385 Flank,
L.P.
10.1 Clay W. Hamlin III Employment Agreement dated October 14,
1997 with FCO, L.P.
10.2 Registration Rights Agreement dated October 14, 1997 for the
benefit of certain shareholders of the Registrant.
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10.3 Management Agreement between Registrant and Glacier Realty,
LLC.
10.4 Senior Secured Credit Agreement dated October 13, 1997
(Exhibits and Schedules have been omitted pursuant to Rule
6.01(b)(2) of Regulation S-K. Such Exhibits and Schedules
are listed and described in the Credit Agreement. The
Registrant hereby agrees to furnish to the Securities and
Exchange Commission, upon its request, any or all such
omitted Exhibits and Schedules.)
20. Press Release dated October 14, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 28, 1997
ROYALE INVESTMENTS, INC.
By: /s/ Clay W. Hamlin, III
-----------------------------
Name: Clay W. Hamlin, III
Title: President and Chief
Executive Officer
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<PAGE>
EXHIBIT INDEX
Exhibit Number Description
2.1 Formation/Contribution Agreement dated September 7, 1997, as
amended, by and among Royale Investments, Inc., H/SIC
Corporation, a Delaware corporation, Strategic Facility
Investors, Inc., a Delaware corporation, the sole general
partner of Blue Bell Investment Company, L.P., a Delaware
limited partnership, South Brunswick Investment Company,
LLC, a New Jersey limited liability company, a general
partner of South Brunswick Investors, L.P., a Delaware
limited partnership, ComCourt Investment Corporation, a
Pennsylvania corporation, the sole general partner of
ComCourt Investors, L.P., a Delaware limited partnership,
and Gateway Shannon Development Corporation, a Pennsylvania
corporation, the sole general partner of 6385 Flank Drive,
L.P., a Pennsylvania limited partnership, with exhibits, as
amended by the Amendment thereto dated October 13, 1997.
2.2 Agreement and Plan of Reorganization between the Registrant
and Crown Advisors, Inc.
2.3 FCO, L.P. Partnership Agreement dated October 14, 1997.
2.4 Amended and Restated Partnership Agreement of Blue Bell
Investment Company.
2.5 Amended and Restated Partnership Agreement of South
Brunswick Investors, L.P.
2.6 Amended and Restated Partnership Agreement of ComCourt
Investors, L.P.
2.7 Amended and Restated Partnership Agreement of 6385 Flank,
L.P.
10.1 Clay W. Hamlin III Employment Agreement dated October 14,
1997 with FCO, L.P.
<PAGE>
10.2 Registration Rights Agreement dated October 14, 1997 for
the benefit of certain shareholders of the Registrant.
10.3 Management Agreement between Registrant and Glacier Realty,
LLC.
10.4 Senior Secured Credit Agreement dated October 13, 1997
(Exhibits and Schedules have been omitted pursuant to Rule
6.01(b)(2) of Regulation S-K. Such Exhibits and Schedules
are listed and described in the Credit Agreement. The
Registrant hereby agrees to furnish to the Securities and
Exchange Commission, upon its request, any or all such
omitted Exhibits and Schedules.)
20. Press Release dated October 14, 1997.
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FORMATION/CONTRIBUTION AGREEMENT
THIS FORMATION/CONTRIBUTION AGREEMENT dated as of the 7th day of September
1997 by and among ROYALE INVESTMENTS, INC., a Minnesota corporation ("Royale"),
H/SIC CORPORATION, a Delaware corporation ("H/SIC"), STRATEGIC FACILITY
INVESTORS, INC., a Delaware corporation ("Strategic"), the sole general partner
of BLUE BELL INVESTMENT COMPANY, L.P., a Delaware limited partnership ("Blue
Bell, L.P."); SOUTH BRUNSWICK INVESTMENT COMPANY, LLC, a New Jersey limited
liability company ("SBIC"), a general partner of SOUTH BRUNSWICK INVESTORS,
L.P., a Delaware limited partnership ("Brunswick, L.P."), COMCOURT INVESTMENT
CORPORATION, a Pennsylvania corporation ("ComCourt Corporation"), the sole
general partner of COMCOURT INVESTORS, L.P., a Delaware limited partnership
("ComCourt Investors, L.P."), and GATEWAY SHANNON DEVELOPMENT CORPORATION, a
Pennsylvania corporation ("Gateway"), the sole general partner of 6385 FLANK
DRIVE, L.P., a Pennsylvania limited partnership ("Flank, L.P.").
1. Definitions:
All terms not otherwise defined in this Formation/Contribution Agreement
shall have the meanings set forth in this Section 1.
"Advisory Agreement" means the existing Amended and Restated REIT Advisory
Agreement dated as of November 22, 1995 between Royale and Crown, attached
hereto as Exhibit "Advisory Agreement".
"Agreement" shall mean this Formation/Contribution Agreement.
"Blue Bell, L.P." shall mean Blue Bell Investment Company, L.P., a Delaware
limited partnership.
"Brunswick, L.P." shall mean South Brunswick Investors, L.P., a Delaware
limited partnership.
"Closing" shall mean the closing of the Transactions.
"Closing Date" shall mean a date which occurs on or before one hundred
twenty (120) days after the date of this Agreement, and shall be the earliest
date at which the conditions precedent to Closing can or have been satisfied.
<PAGE>
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"Code" shall mean the Internal Revenue Code of 1986 as amended.
"ComCourt Corporation" shall mean ComCourt Investment Corporation, a
Pennsylvania corporation, the sole general partner of ComCourt Investors.
"ComCourt Investors, L.P." shall mean ComCourt Investors, L.P., a Delaware
limited partnership.
"Common Units" shall mean 3,181,818 common partnership units in the UPREIT
in the aggregate (which, together with the Preferred Units, shall be the
aggregate consideration for the Contributed Interests, Retained Interests, and
H/SIC Assets). The Common Units will have a distribution yield equal to the
dividend yield of Royale Common Stock and will be convertible into Royale Common
Stock initially on a one for one basis (subject to the anti-dilution
adjustments) and otherwise will have the terms and conditions set forth in the
UPREIT Agreement.
"Contributed Interests" shall mean 89% of the H/SIC Partnership Interests
(including, without limitation, the H/SIC Partnerships Interests of the H/SIC
General Partners) in each of Blue Bell, ComCourt Investors, L.P. and Flank, and
100% of the H/SIC Partnerships Interests in Brunswick, L.P. to be contributed to
the UPREIT at Closing in exchange for Common Units and Preferred Units.
"Contributors" shall mean the H/SIC Partners.
"Coopers" shall mean Coopers & Lybrand, L.L.P.
"Crown" shall mean Crown Advisors, Inc., a Minnesota corporation.
"Flank, L.P." shall mean 6385 Flank Drive, L.P., a Pennsylvania limited
partnership.
"Gateway" shall mean Gateway Shannon Development Corporation, a
Pennsylvania corporation, the sole general partner of Flank, L.P. and Central
Pennsylvania, L.P.
"H/SIC" shall mean H/SIC Corporation, a Delaware corporation owned equally
by Jay H. Shidler and Clay W. Hamlin, III.
<PAGE>
-3-
"H/SIC Assets" shall mean H/SIC's furniture, fixtures, equipment,
proprietary assets, and rights to compensation for services performed after
Closing under H/SIC's management contracts.
"H/SIC General Partners" shall mean Strategic, Gateway, SBIC, and ComCourt
Corporation.
"H/SIC Limited Partners" shall mean the limited partners of the H/SIC
Partnerships, as such limited partners are more particularly identified on
Exhibit "H/SIC Partners".
"H/SIC Partners" shall mean all of the general and limited partners of the
H/SIC Partnerships, as more particularly identified, with each of their
respective partnership interests, on "Exhibit H/SIC Partners".
"H/SIC Partnerships" shall mean, collectively, Blue Bell, L.P., Brunswick,
L.P., ComCourt Investors, L.P., and Flank, L.P. "H/SIC Partnership" shall mean
any one (1) of the H/SIC Partnerships.
"H/SIC Partnership Agreements shall mean collectively, the limited
partnership agreements of Blue Bell, L.P., Brunswick, L.P., ComCourt Investors,
L.P. and Flank, L.P. "H/SIC Partnership Agreement" shall mean any one (1) of the
H/SIC Partnership Agreements.
"H/SIC Partnership Interests" shall mean all of the partnership interests
of the H/SIC Partners in the H/SIC Partnerships.
"H/SIC Properties" shall mean, collectively, the nine (9) office properties
totalling approximately 1,480,436 net rentable square feet owned by the H/SIC
Partnerships, as more fully identified on Exhibit "H/SIC Properties". "H/SIC
Property" shall mean any one (1) of the H/SIC Properties.
"H/SIC Properties Indebtedness" shall mean approximately $99,000,000 of
mortgage debt secured by the H/SIC Properties at the time of Closing. The H/SIC
Properties Indebtedness will be prepayable and will bear interest at a fixed
rate of 7.5% per year and will be on other terms acceptable to the H/SIC General
Partners and Royale. The general terms of the "H/SIC Properties Indebtedness"
are set forth on Exhibit "H/SIC Properties Indebtedness".
<PAGE>
-4-
"H/SIC Corporation Shareholders" shall mean Jay H. Shidler and Clay W.
Hamlin, III, the owners of common stock of H/SIC.
"Management Agreement" means the agreement to be entered into at Closing
between Royale and Newco, a to be formed corporation owned by Vernon Beck and
John Parsinen, pursuant to which Newco will manage all of Royale's net leased
retail proper ties. The Management Agreement is set forth in Exhibit "Management
Agreement".
"Pennsylvania H/SIC Partnerships" shall mean Blue Bell, L.P., ComCourt
Investors, L.P. and Flank, L.P.
"Pennsylvania H/SIC Limited Partners" shall mean the limited partners of
Blue Bell, L.P., ComCourt Investors, L.P. and Flank, L.P.
"Pennsylvania H/SIC Partnership Agreements" shall mean the limited
partnership agreements of Blue Bell, L.P., ComCourt Investors, L.P. and Flank,
L.P.
"Pennsylvania H/SIC Properties" shall mean the real estate owned by Blue
Bell, L.P., ComCourt Investors, L.P. and Flank, L.P.
"Preferred Units" shall mean convertible preferred partnership units of the
UPREIT with an aggregate face value of $52,500,000.00 and a distribution yield
of 6.5% per year (which, together with the Common Units, shall be the aggregate
consideration for the Contributed Interests, Retained Interests, and H/SIC
Assets). Preferred Units will be convertible into Common Units or Royale Common
Stock at an initial conversion price of $7.00 per Common Unit or share of Royale
Common Stock (subject to anti dilution adjustments), and will otherwise have the
terms and conditions set forth in the UPREIT Agreement. Preferred Units issued
at Closing may not be converted prior to the second anniversary of the Closing.
"Registration Rights Agreement" shall mean an agreement between Royale and
the H/SIC Partners pursuant to which Royale shall give the H/SIC Partners
certain registration rights (commonly known as demand, shelf, and piggyback
registration rights) with respect to Royale Common Stock to induce the H/SIC
Partners to contribute the H/SIC Partnership Interests.
<PAGE>
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"Retained Interests Closing" shall mean the second closing which will take
place on the date which is three (3) years and one (1) month after the Closing
Date at which second closing the Retained Interests shall be contributed to the
UPREIT in exchange for Common Units and Preferred Units.
"Retained Interests" shall mean 11% of the H/SIC Partnership Interests held
by Pennsylvania H/SIC Limited Partners not contributed in exchange for Units and
Preferred Units at Closing, but contributed at the Retained Interests Closing in
consideration for Common Units and Preferred Units.
"Royale" shall mean Royale Investments, Inc., a Minnesota corporation which
qualifies as a real estate investment trust pursuant to Section 856 of the Code.
Royale shall be an internally managed and advised real estate investment trust.
"Royale Acquisition Facility" shall mean the financing to be arranged by
H/SIC for Royale for acquisitions of additional properties after the Closing,
which financing is more particularly described on Exhibit "Royale Acquisition
Facility".
"Royale Common Stock" shall mean the common stock of Royale. Royale Common
Stock is publicly traded.
"Royale Properties" shall mean all of the net leased retail properties
owned by Royale as of the date of this Agreement as more particularly described
on Exhibit "Royale Properties."
"Royale Properties Indebtedness" shall mean the mortgage debt secured by
the Royale Properties and more particularly described on Exhibit "Royale
Properties Indebtedness."
"Strategic" shall mean Strategic Facility Investors, Inc., a Delaware
corporation in the sole general partner of Blue Bell.
"SBIC" shall mean South Brunswick Investment Company, LLC, a New Jersey
limited liability company a general partner of Brunswick, L.P.
"Transactions" shall mean collectively all of the transactions contemplated
by this Agreement.
"UPREIT" shall mean First Commercial, L.P., a Delaware limited partnership
whose one percent (1%) sole general
<PAGE>
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partner shall be Royale and which will be the operating partnership or umbrella
partnership in Royale's umbrella partnership real estate investment trust
structure. UPREIT shall also include (a) any entity or entities (limited
partnerships, corporations, or limited liability companies) controlled by the
UPREIT or Royale and designated by the UPREIT to acquire any of the H/SIC
Partnership Interests contributed by the H/SIC Partners in exchange for Common
Units and Preferred Units, and (b) any directly or indirectly wholly owned
subsidiary entities of First Commercial, L.P. designated by First Commercial,
L.P. to enter into agreements relating to real estate or to own real estate for
and on behalf of First Commercial, L.P.
"UPREIT Agreement" shall mean the limited partnership agreement of the
UPREIT which shall provide that Royale shall be the one percent (1%) sole
general partner and whose provisions shall be the customary provisions typically
found in the limited partnership agreements of operating partnerships in an
umbrella partnership real estate investment trust structure, with such changes
that may be necessary or desirable to reflect the specific terms of the
Transactions and shall otherwise be in form and substance reasonably
satisfactory to the H/SIC Partners and Royale. Certain general terms of the
UPREIT Agreement are set forth on Exhibit "UPREIT Agreement Terms."
2. General: Intention of the Parties.
Royale, H/SIC, Strategic, SBIC, Gateway, and ComCourt Corporation are
entering into this Agreement for the purpose of setting forth the terms of the
Transactions pursuant to which the parties shall create an UPREIT. The UPREIT
shall acquire the H/SIC Partnership Interests contributed by the H/SIC Partners
in exchange for Common Units and Preferred Units.
3. Structure.
Royale and the H/SIC General Partners shall form the UPREIT prior to
Closing. Pursuant to the terms of this Formation/Contribution Agreement,
(a) The UPREIT will acquire the H/SIC Partnership Interests (including,
without limitation, the H/SIC Partnership Interests of the H/SIC General
Partners).
(b) H/SIC will transfer the H/SIC Assets to Royale in accordance with
Exhibit "H/SIC Management Transfer".
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The UPREIT, through the H/SIC Partnerships, will have controlling ownership of
the H/SIC Properties, and will focus on acquiring and operating commercial real
estate properties.
4. Board of Directors: Senior Management.
(a) As a part of the Transactions. the Board of Directors of Royale will,
at Closing, be expanded to seven (7) members. Four (4) of the Directors will be
Directors nominated by the H/SIC General Partners; two (2) of the Directors
nominated by the H/SIC General Partners shall be Independent Directors (as
defined in Royale's bylaws). Three of the Directors shall be Directors nominated
by the Board of Directors of Royale as constituted before Closing; two (2) of
the Directors nominated by the Board of Directors of Royale as constituted
before Closing shall be Independent Directors. Jay H. Shidler shall be the
Chairman of the Board of Directors of Royale, and Vernon Beck shall be the Vice
Chairman of the Board of Directors of Royale.
(b) At Closing, the officers of Royale shall be the Officers set forth on
Exhibit "Senior Management." At Closing, Royale and Clay W. Hamlin, III will
enter into an employment agreement, in the form set forth in Exhibit "Senior
Management." The powers, duties and responsibilities of the officers of Royale
shall be as set forth in the bylaws of Royale or as established by the Board of
Directors of Royale.
5. Royale Offices.
From and after the Closing Date, Royale will maintain offices at 3430 List
Place, Minneapolis, Minnesota 55416 and One Logan Square, Suite 1105,
Philadelphia, Pennsylvania 19103 (or, with respect to the Philadelphia office,
at such location in the Philadelphia, Pennsylvania vicinity as Royale shall
select).
6. Advisory Agreement; Crown; Management Agreement.
(a) At Closing, Crown shall transfer and assign to Royale, free and clear
of all liens and encumbrances (other than the National City debt to be assumed
by Royale), all of Crown's assets, including without limitation, the Advisory
Agreement and all Royale Common Stock owned by Crown, and Royale shall purchase
such assets and terminate the Advisory Agreement effective as of Closing. At
Closing, Royale shall pay to Crown all accrued and unpaid fees due under the
Advisory Agreement through Closing. In consideration for such transfer
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and assignment and for Crown relinquishing all of its rights (if any) for
present and future compensation under the Advisory Agreement, including, without
limitation, any other compensation in connection with the Transactions, Crown
shall be paid at Closing an amount equal to One Million Three Hundred Fifty
Thousand Dollars ($1,350,000) plus the value. (computed at $5.50 per share) of
any Royale Common Stock transferred by Crown to Royale less Crown's National
City debt in the amount of approximately $240,000 to be assumed by Royale. The
net amount determined by the immediately preceding sentence shall be paid by
Royale to Crown at Closing by the delivery of the number of shares of Royale
Common Stock determined by dividing such net amount by $5.50 per share. Crown
shall have piggyback registration rights with respect to such shares on terms
mutually acceptable to Crown and Royale.
(b) At Closing, Royale shall cause the Management Agreement to be executed
and delivered.
7. Consideration for Contribution of H/SIC Partnership Interests and
Transfer of H/SIC Assets; Retained Interests.
(a) (1) Royale, the H/SIC General Partners, and H/SIC have agreed that the
net equity value of each of the H/SIC Properties, after deducting the amount of
the H/SIC Properties Indebtedness, is as set forth on Exhibit "H/SIC
Properties." and the value attributable to the H/SIC Assets is as set forth on
Exhibit "H/SIC Management Transfer".
(2) As consideration for the contribution of the H/SIC Partnership
Interests to the UPREIT and the transfer of H/SIC Assets to Royale, the H/SIC
Partners and H/SIC shall receive at the times specified in Section 7(b) and
Section 7(c), in the aggregate (A) 3,181,818 Common Units and (B) Preferred
Units with a face value of $52,500.000. Royale, the H/SIC General Partners and
H/SIC agree that the aggregate number of Common Units and the aggregate face
value of the Preferred Units are to be divided among the H/SIC Partnerships and
H/SIC as set forth on Exhibit "H/SIC Properties," and Exhibit "H/SIC Management
Transfer" based on the net equity value of the H/SIC Properly owned by a
specific H/SIC Partnership and on the value attributed to the H/SIC Assets in
each case as shown on such Exhibits.
(b) (1) In consideration for the contribution of the Contributed Interests
at Closing, the H/SIC Partners in each H/SIC Partnership shall receive at
Closing Common Units and Preferred Units (divided among the H/SIC Partnerships
in
<PAGE>
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accordance with Exhibit "H/SIC Properties") distributed to each of the H/SIC
Partners in accordance with "Exhibit "H/SIC Partners Unit Consideration." In
consideration for the transfer of H/SIC Assets to Royale at Closing, H/SIC shall
receive Common Units and Preferred Units at Closing in accordance with Exhibit
"H/SIC Management Transfer"; H/SIC shall have registration rights with respect
to Royale Common Stock on terms mutually acceptable to H/SIC and Royale.
(2) Upon the contribution of the Contributed Interests to the UPREIT at the
Closing, the Contributors holding the Retained Interests (the "Retained
Partners") and the UPREIT shall enter into an amended and restated limited
partnership agreement (the "Amended Pennsylvania H/SIC Partnership H/SIC
Partnership Agreement") for the Pennsylvania H/SIC Partnerships containing such
terms and conditions as are mutually agreeable to the UPREIT and the Retained
Partners. The Amended Pennsylvania H/SIC Partnership Agreements shall provide,
among other terms, that (A) the UPREIT (or its designee) is the general partner
of the Pennsylvania H/SIC Partnerships and shall have exclusive authority to
manage the Pennsylvania H/SIC Properties and the Pennsylvania H/SIC
Partnerships, including without limitation the expenditure of funds and the
distribution of cash flow, (B) the Retained Partners shall be limited partners
and shall have no personal liability for any debts, obligations or claims of the
Pennsylvania H/SIC Partnerships, and (C) the Retained Partners shall, in the
aggregate, have a capital interest in the Pennsylvania H/SIC Partnerships equal
to 11% of the aggregate capital of the Partnership. The Retained Partners shall
retain full right, title and interest in and to the Retained Interests until the
Retained Interests Closing.
(c) (1) In consideration for the contribution of the Retained Interests by
the Retained Partners at the Retained Interests Closing, the Retained Partners
will receive Common Units and Preferred Units at the Retained Interests Closing
distributed among the Retained Partners in accordance with Exhibit "H/SIC
Partners Unit Consideration".
(2) At the Retained Interests Closing, the Retained Partners shall (A)
execute, acknowledge and deliver to the UPREIT substantially the same documents
set forth in Section 20(b) and 20(c) with respect to the Retained Interests,
each dated as of the date of the Retained Interests Closing and (B) execute an
affidavit setting forth that all of the representations and warranties set forth
in Section 9 (including, without limitation, subsection 9(d) relating to
securities law matters) relating to the Retained Interests are true and cor-
<PAGE>
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rect in all material respects on the date of the Retained Interests Closing.
(d) At Closing, the Contributed Interests shall be contributed to the
UPREIT with the H/SIC Properties then being subject to the H/SIC Properties
Indebtedness.
(e) The contribution of the H/SIC Partnership Interests pursuant to this
Agreement shall constitute a capital contribution under the UPREIT Agreement and
is intended, except as otherwise required under Section 707 of the Code, to be
governed by Section 721(a) of the Code, and the UPREIT, the H/SIC Partnerships,
and Royale will report such contribution consistently with this Section. Because
the contribution of the Contributed Interests will terminate the H/SIC
Partnerships for federal income tax purposes, the parties to this Agreement
agree that the H/SIC General Partners shall have the right and obligation to
file final tax returns for the H/SIC Partnerships. The H/SIC Partnerships shall
not terminate for any other purpose and shall continue to exist after Closing,
each H/SIC Partnership continuing to own the H/SIC Property owned by such H/SIC
Partnership.
(f) Subject to compliance with applicable federal and state securities law
requirements and Code requirements applicable to real estate investment trusts,
the H/SIC Partners and H/SIC may elect to receive Royale Common Stock in lieu of
Common Units by giving the H/SIC General Partners notice of such election at
least ten (10) days before Closing or, as to the Retained Interests, at least
ten (10) days before the Retained Interests Closing.
8. Closing.
Closing will take place on the Closing Date, commencing on 10:00 a.m. on
the Closing Date at the offices of Saul, Ewing, Remick & Saul, Three Westlakes,
Suite 150, 1055 Westlakes Drive, Berwyn, PA 19312, or at such other place as
Royale and the H/SIC General Partners shall agree.
9. H/SIC Partners Authorization: Representations and Warranties of
Contributors.
Attached hereto as Exhibit "H/SIC Partners Authorization Agreement" are
brief summaries of agreements (the "H/SIC Partners Authorization Agreements") of
the H/SIC Partners authorizing the Transactions and authorizing the H/SIC
General Partners to proceed with the implementation and consummation of
<PAGE>
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the Transactions. As part of the H/SIC Partners Authorization Agreements, each
Contributor, for himself, herself, or itself, shall make the following
representations and warranties to Royale and the H/SIC General Partners for such
Contributor only and for no other Contributor, all of which shall survive
Closing:
(a) Authority. Such Contributor has the right, power and authority to
enter into this Agreement and to contribute such Contributor's H/SIC
Partnership Interests in accordance with the terms and conditions of this
Agreement. This Agreement is the valid and binding obligation of such
Contributor, enforceable against such Contributor in accordance with its
terms.
(b) No Defaults. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) conflict
with or result in a breach of, the terms, conditions, or provisions of or
constitute a default under any agreement or instrument to which such
Contributor is a party or by which such Contributor is bound, (ii) subject
to any approval required under the H/SIC Properties Indebtedness, violate
any restriction, requirement, covenant or condition to which such
Contributor is subject or by which such Contributor is bound or (iii)
constitute in violation of any code, resolution, law, statute regulation,
ordinance, rule, judgment, decree or order to which such Contributor is
subject or by which such Contributor is bound.
(c) Ownership of Interests. Such Contributor owns the H/SIC
Partnership Interests owned by such Contributor, as set forth on Exhibit
"H/SIC Partners" hereto, free and clear of all liens, charges,
encumbrances, restrictive agreements and assessments, other than
restrictions on transfers and other similar provisions as set forth in the
relevant H/SIC Partnership Agreement. Upon the contribution of such
Contributor's H/SIC Partnership interest (or a portion thereof) to the
UPREIT (or its designee(s)), the UPREIT will receive good and absolute
title thereto, free from all liens, charges, encumbrances, restrictive
agreements and assessments, whatsoever, other than restrictions on
transfers and other similar provisions as set forth in the relevant H/SIC
Partnership Agreement. Such Contributor hereby waives, with respect to the
contribution contemplated by this Agreement, any "right of refusal" or
other restriction on transfer set forth in the H/SIC Partnership Agreement
of any H/SIC Partnership of which such
<PAGE>
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Contributor is a partner. There are no outstanding options, contracts,
calls, commitments or demands of any nature relating to the H/SIC
Partnership Interests of such Contributor.
(d) Securities Law Matters.
(1) Such Contributor is an "accredited investor" as such term is
defined under Rule 501 promulgated under the Securities Act of 1933, as
amended (the "Securities Act");
(2) Such Contributor's primary residence or principal place of
business is in the state set forth on Exhibit "H/SIC Partners";
(3) Such Contributor is acquiring the Common Units and Preferred Units
or Royale Common Stock for such Contributor's account for investment
purposes only and not with a present view to distribution;
(4) Taking into account the information and resources such Contributor
can practically bring to bear on the acquisition of the Common Units and
Preferred Units in the UPREIT or Royale Common Stock contemplated hereby,
such Contributor is knowledgeable, sophisticated and experienced in making,
and is qualified to make, decisions with respect to investments in
securities presenting an investment decision like that involved in the
acquisition of the Common Units and Preferred Units or Royale Common Stock,
including investments in securities issued by the UPREIT or Royale, and has
requested, received, reviewed and considered all information such
Contributor deems relevant in making an informed decision to acquire the
Common Units and the Preferred Units, or Royale Common Stock;
(5) Such Contributor will not, directly or indirectly, voluntarily
offer, sell, pledge, transfer or otherwise dispose of (or solicit any
offers to buy, purchase or otherwise acquire or take a pledge of) any of
the Common Units and Preferred Units or Royale Common Stock except in
compliance with the Securities Act and the rules and regulation promulgated
thereunder and with the terms and conditions of this Contribution
Agreement;
(6) Such Contributor acknowledges that the Common Units and Preferred
Units or Royale Common Stock to be
<PAGE>
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issued must be held and may not be sold unless they are subject to an
effective registration statement under the Securities Act and under
applicable state securities or blue sky laws, unless exemptions from such
registrations are available at the time of resale;
(7) Prior to the issuance of the Common Units and Preferred Units or
Royale Common Stock, such Contributor will execute all such other documents
and instruments as may be reasonably necessary to allow, the UPREIT, Royale
and the H/SIC General Partners to comply with federal and state securities
law requirements with respect to the issuance of the Common Units and
Preferred Units or Royale Common Stock and to comply with the terms of this
Agreement;
(8) As required by the Pennsylvania Securities Act of 1972, if such
Contributor is a resident of, or has his, her or its principal place of
business in the Commonwealth of Pennsylvania, such Contributor shall not
resell his, her or its Common Units or Preferred Units or Royale Common
Stock for a period of twelve (12) months from and after the date of their
issuance to such Contributor other than in accordance with such Act;
(9) Except as otherwise provided in Section 7(f), such Contributor
acknowledges and agrees that (A) the Common Units to be issued hereunder
(whether at Closing or the Retained Interests Closing) shall not be
exchangeable or exchanged for Royale Common Stock for a period of thirteen
(13) months from and after the date of issuance to such Contributor, (B)
Preferred Units to be issued at Closing shall not be exchangeable or
exchanged for Royale Common Stock for a period of twenty five (25) months
from and after the Closing Date, and (C) Preferred Units to be issued at
the Retained Interests Closing shall not be exchangeable or exchanged for
Royale Common Stock for a period of thirteen (13) months from and after the
date of the Retained Interests Closing.
10. Representations and Warranties of the H/SIC General Partners.
Unless otherwise specifically set forth in this Section 10, the
representations, warranties and covenants set forth in this Section 10 shall, as
to each H/SIC General Partner be applicable only to (i) the H/SIC Partnership of
which such H/SIC General Partner is a General Partner, and (ii) only
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as to the H/SIC Property owned by the H/SIC Partnership of which such H/SIC
General Partner is a general partner.
Each H/SIC General Partner represents and warrants to Royale, and covenants
with Royale, which representations, warranties and covenants are true and
correct on the date hereof, shall be materially true and correct at Closing, and
shall survive Closing, as follows:
(a) Authority. The H/SIC Partnership is a limited partnership duly
organized and in good standing under the laws of the State of Delaware
(Pennsylvania for Flank), and is authorized to do business in the
Commonwealth of Pennsylvania or the State of New Jersey, to the extent such
authorization is required under the laws of such states. The copy of the
H/SIC Partnership's Partnership. Agreement and all Amendments thereto
(collectively, the "H/SIC Partnership Agreement") including all
certificates of limited partnership and all amendments thereto delivered,
or to be delivered, to Royale and the list of all of the H/SIC Partners
along with their individual H/SIC Partnership Interests, attached hereto an
Exhibit "H/SIC Partners", are true, correct and complete copies thereof as
of the date delivered.
(b) Title. The H/SIC Partnership is the sole owner of fee simple title
to the H/SIC Property.
(c) Compliance with Existing Laws. To H/SIC General Partner's
knowledge and, except as set forth on Exhibit "H/SIC Properties
Violations", attached hereto, (i) the H/SIC Partnership is not in
violation, in any material respect, of any material building, zoning,
environmental or other ordinances, statutes or regulations of any
governmental agency, in respect to the ownership, use, maintenance,
condition and operation of the H/SIC Property or any part thereof, and (ii)
the H/SIC Partnership possesses all material licenses, certificates,
permits and authorizations necessary for the use and operation of the H/SIC
Property in the manner in which it is currently being operated by the H/SIC
Partnership, and the requisite certificates of the fire marshals or board
of fire underwriters have been issued for the Property.
(d) Leases. True, correct and complete copies of all of the leases of
the H/SIC Property and any amendments thereto (collectively, the "H/SIC
Leases"), have been, or will be, delivered to Royale. Attached hereto as
Exhibit
<PAGE>
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"H/SIC Leases" is a description of all of the H/SIC Leases and a current
rent schedule ("H/SIC Rent Schedule") covering the H/SIC Leases, which is
true and correct in all material respects. There are no leases or tenancies
of any space in the H/SIC Property other than those set forth in Exhibit
"H/SIC Leases" or, to the H/SIC General Partner's knowledge, any subleases
or subtenancies unless otherwise noted therein. Except as otherwise set
forth in Exhibit "H/SIC Leases" or elsewhere in this Agreement:
(1) The H/SIC Leases are in full force and effect and constitute a
legal, valid and binding obligation of the respective tenants;
(2) No tenant has an option to purchase the H/SIC Property or any
portion thereof;
(3) No renewal or expansion options have been granted to the tenants,
except as provided in the H/SIC Leases;
(4) To the H/SIC General Partner's knowledge, the H/SIC Partnership is
not in material default under any of the H/SIC Leases;
(5) The rents set forth on the H/SIC Rent Schedule are being collected
on a current basis and there are no arrearages in excess of one month,
except as indicated in Exhibit "H/SIC Leases" hereto, nor has any tenant
paid any rent, additional rent or other charge of any nature for a period
of more than thirty (30) days in advance;
(6) The H/SIC Partnership has not sent written notice to any tenant
claiming that such tenant is in default, which default remains uncured, and
the General Partner's knowledge, no tenant is in default under its Lease,
except as indicated in Exhibit "H/SIC Leases" hereto;
(7) No action or proceeding instituted against the H/SIC Partnership
by any tenant is presently pending in any court; and
(8) There are no security deposits other than those set forth in
Exhibit "H/SIC Leases".
<PAGE>
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(e) Service Contracts. Attached hereto as Exhibit "H/SIC Properties
Service Contracts" is a complete and correct list of all contracts or
agreements relating to the management, leasing, operation, maintenance or
repair of the H/SIC Property (the "H/SIC Service Contracts"). True and
correct copies of all of the H/SIC Service Contracts have been delivered to
Royale. Except in the case of a default by the vendor under a specific
Service Contract, no H/SIC Contract will be terminated, or materially
amended or modified prior to the Closing Date without Royale's prior
written approval, which approval shall not be unreasonably withheld,
conditioned or delayed.
(f) Tax Bills. The H/SIC General Partner has delivered to Royale true
and correct copies of tax bills issued by any applicable federal, state or
local governmental authority and received by the H/SIC General Partner with
respect to the H/SIC Property for the most recent past and current tax
years, and any new assessment received with respect to a current or future
tax year.
(g) Insurance. Attached hereto as Exhibit "H/SIC Properties Insurance"
is a list of all hazard, liability and other insurance policies presently
affording coverage with respect to the H/SIC Property. The General Partners
shall maintain in fall force and effect all such or equivalent policies
until the Closing Date.
(h) Tenant Estoppels. The H/SIC General Partner represents and
warrants that it shall use reasonable good faith efforts (without cost or
liability to the H/SIC Partners or the H/SIC Partnerships) to obtain and
deliver to Royale a tenant estoppel letter from each tenant in the general
form required by real estate investment trust purchasers of leased real
estate (or in such form or containing such information as may be required
by the lease of such tenant) from each of the tenants of the H/SIC Property
confirming the information set forth in the H/SIC Rent Schedule.
(i) Condemnation Proceedings. No condemnation or eminent domain
proceedings are pending or, to the best of the H/SIC General Partner's
knowledge, threatened against the H/SIC Property or any part thereof, and
neither the H/SIC Partnership nor the H/SIC General Partner has made any
commitments to or received any notice, oral or written, of the desire of
any public authority or other entity to take or use the H/SIC Property or
any part thereof
<PAGE>
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whether temporarily or permanently, for easements, right-of-way, or other
public or quasi public purposes, except as set forth in the Permitted
Exceptions.
(j) Litigation. Except as set forth on Exhibit "H/SIC Litigation"
hereto, no litigation is pending or, to the best of the H/SIC General
Partner's knowledge, threatened, including administrative actions or orders
relating to governmental regulations, against the Partnership or affecting
the use, operation or ownership of the H/SIC Property or any part thereof
as contemplated herein.
(k) No Defaults. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) subject to
any approval that may be required under the H/SIC Properties Indebtedness
or any H/SIC Partnership Agreement, conflict with, or result in a breach
of, the terms, conditions or provisions of, or constitute a default under,
any agreement or instrument to which the H/SIC Partnership is a party or by
which the H/SIC Partnership or the H/SIC Property is bound, (ii) subject to
any approval required under the H/SIC Properties Indebtedness or any H/SIC
Partnership Agreement, violate any restriction, requirement, covenant or
condition to which the H/SIC Partnership is subject or by which the H/SIC
Partnership or the H/SIC Property is bound, (iii) constitute a violation of
any applicable code, resolution, law, statute, regulation, ordinance, rule,
judgment, decree or order applicable to the H/SIC Partnership, or (iv)
result in the cancellation of any contract or lease pertaining to the H/SIC
Property.
(l) Environmental Matters. Except as set forth on Exhibit "H/SIC
Environmental Matters", the H/SIC General Partners have no knowledge of any
material release, discharge, spillage, uncontrolled loss, seepage or
filtration of oil, petroleum or chemical liquids or solids, liquid or
gaseous products or any hazardous waste or hazardous substance (as those
terms are used in the Comprehensive Environmental Response, Compensation
and Liability Act of 1986, as amended, the Resource Conservation and
Recovery Act of 1976, as amended, or in any other applicable federal, state
or local laws, ordinances, rules or regulations relating to protection of
public health, safety or the environment, as such laws may be amended from
time to time) at, upon, under or within the H/SIC Property. Except as set
forth on Exhibit "H/SIC Environmental Matters", to the General Partner's
knowledge, there is no
<PAGE>
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proceeding or action pending or threatened by any person or governmental
agency regarding the environmental condition of the H/SIC Property.
(m) Certificates of Occupancy. The H/SIC Partnership will not amend in
any material manner any certificates of occupancy for the H/SIC Property
and will maintain them in fall force and effect to the extent that the
H/SIC Partnership is responsible for them.
(n) Personal Property. Attached hereto as Exhibit "H/SIC Personal
Property" and complete inventory of all personal property ('H/SIC Personal
Property"), if any, used in the management, maintenance and operation of
the H/SIC Property (other than trade fixtures or personal property of
tenants).
(o) Leasing Commissions. There are, and at Closing shall be, no
outstanding or contingent leasing commissions or fees payable with respect
to the H/SIC Property.
(p) Partnership Liabilities. Except for (i) the obligations and
liabilities of the H/SIC Partnership which the UPREIT is taking the H/SIC
Partnership Interests subject to under Section 7(d) above, and (ii) any
accrued liabilities and obligations of the H/SIC Partnership which are
being adjusted at Closing pursuant to Section 22(d) of this Agreement, the
H/SIC Partnership shall not have any liabilities or obligations, either
accrued, absolute or contingent or otherwise, which will not be paid or
discharged on or before the Closing Date. In addition, except for the
claims and liabilities described in the preceding sentence or otherwise
described or disclosed in this Agreement (including the Exhibits hereto),
the H/SIC Partnership has not received notice of any, and to the knowledge
of the H/SIC General Partner, there is, as of the date of execution of this
Agreement, no basis for any, claim against (or liability of) the
Partnership arising from the business done, transactions entered into or
other events occurring prior to the Closing Date which will not be
discharged by the H/SIC Partnership before the Closing Date.
(q) Partnership for Tax Purposes. The H/SIC Partnership is, and at all
times has been, properly treated as a partnership for federal income tax
purposes, and not as an "association" or "publicly traded partnership"
taxable as a corporation.
<PAGE>
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(r) Taxes. Each of the H/SIC Partnership and any predecessor of the
H/SIC Partnership has timely filed with the appropriate taxing authorities
all returns (including without limitation information returns and other
material information) in respect of Federal, State and local taxes
(collectively "Taxes") required to be filed through the date hereof and
will timely file any such returns required to be filed on or prior to the
Closing Date. The returns and other information filed (or to be filed) are
complete and accurate in all material respects. All Taxes of the H/SIC
Partnership in respect of periods beginning before the Closing Date have
been timely paid, or will be timely paid prior to the Closing Date, and the
H/SIC Partnership has no material liability for Taxes in excess of the
amounts so paid. All Taxes that the H/SIC Partnership has been required to
collect or withhold have been duly collected or withheld and, to the extent
required when due, have been or will be (prior to Closing Date) duly paid
to the proper taxing authority. No audits of any of the H/SIC Partnership's
federal, state or local returns for Taxes by the relevant taxing
authorities have occurred, and no material deficiencies for Taxes of the
H/SIC Partnership have been claimed, proposed or assessed by any taxing or
other governmental authority against the H/SIC Partnership. There are no
pending or, to the best of knowledge of the H/SIC General Partner,
threatened audits, investigations or claims for or relating to any material
additional liability to the H/SIC Partnership in respect of Taxes, and
there are no matters under discussion with any governmental authorities
with respect to Taxes that in reasonable judgment of the H/SIC General
Partner or its counsel, is likely to result in a material additional
liability for Taxes. To the knowledge of the H/SIC General Partner there
are no liens for Taxes (other than for current taxes not yet due and
payable) on any of the assets of the H/SIC Partnership. No Contributor is a
person other than a United States person within the meaning of the Code.
The transaction contemplated herein is not subject to the tax withholding
provisions of Section 3406 of the Code, or Subchapter A of Chapter 3 of the
Code or of any other provision of law.
(s) Disclosure. No representation or warranty made by the H/SIC
General Partners in this Agreement or in any documents delivered or to be
delivered by the H/SIC General Partners contains any untrue statement of a
material fact, or omits to state a material fact necessary in order to make
the statements contained therein not misleading,
<PAGE>
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or necessary in order to provide adequate information as to the H/SIC
Partnerships and the H/SIC Properties and their management, operation,
maintenance and repair. All items delivered or to be delivered by the H/SIC
General Partners pursuant to the terms of this Agreement are true, correct
and complete in all material respects, and fairly present the information
set forth therein in a manner that is not misleading.
11. Obligations of General Partners Pending Closing. From and after the
date of this Agreement through the Closing Date, each H/SIC General Partner,
only with respect to the H/SIC Partnership of which such H/SIC General Partner
is a general partner and the H/SIC Property owned by the H/SIC Partnership of
which such H/SIC General Partner is a general partner, covenants and agrees as
follows:
(a) Maintenance and Operation of Property. The H/SIC General Partner
will cause the H/SIC Property to be maintained in its present order and
condition, normal wear and tear, and damage by fire or other casualty
(subject to Section 16) excepted and will cause the continuation of the
normal operation thereof, including the purchase and replacement of
fixtures and equipment, and the continuation of the normal practice with
respect to maintenance and repairs so that the H/SIC Property will, except
for normal wear and tear and damage by fire or other casualty (subject to
Section 16), be in substantially the same condition on the Closing Date as
on the date hereof.
(b) Compliance with Governmental Requirements. The H/SIC General
Partner shall use its commercially reasonable efforts to cause the Property
to be in material compliance with governmental requirements.
(c) Changes in Representations. The H/SIC General Partner shall notify
Royale promptly, and Royale shall notify the H/SIC General Partner
promptly, if either becomes aware of any occurrence prior to the Closing
Date which would make any of its representations, warranties or covenants
contained herein not true in any material respect.
(d) Obligations as to H/SIC Leases. The H/SIC General Partner shall
not, without Royale's prior written consent (which consent shall not be
unreasonably withheld conditioned or delayed), amend, modify, renew or
extend any H/SIC Lease in any material respect unless required bylaw, or
enter into new leases or approve any assignment
<PAGE>
-21-
of leases or subletting of leased space, or terminate any Lease.
(e) Obligations as to H/SIC Properties Indebtedness. The H/SIC General
Partner shall make, or cause the H/SIC Partnership to make, all payments
required to be made under the H/SIC Properties Indebtedness when due; shall
perform, or cause the H/SIC Partnership to perform, all obligations under
the H/SIC Properties Indebtedness and shall keep, and cause the H/SIC
Partnership to keep, the H/SIC Properties Indebtedness free from default.
(f) No Other Indebtedness. Subject to the H/SIC Properties
Indebtedness, the H/SIC General Partner shall not incur any indebtedness,
other than current accounts payable in the day-to-day operation of the
H/SIC Properties.
(g) No Solicitation. The H/SIC General Partner will not solicit or
undertake any recapitalization, business combination or other transaction,
or engage in any discussions or negotiations with respect thereto, or
furnish information (other than as required by law or this Agreement) that
would be inconsistent with the Transactions.
12. Representations and Warranties of Royale. Royale represents and
warrants to the H/SIC Partners, and covenants with the H/SIC Partners which
representations, warranties and covenants are true and correct on the date
hereof, shall be true and correct at Closing and shall survive Closing, as
follows:
(a) Authority of Royale. Royale is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Minnesota and is duly authorized to do business and own properties in all
jurisdictions in which it does business and owns properties. Royale has all
necessary power and authority to execute, deliver and perform this
Agreement and consummate all of the Transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement and
the Transactions have been approved and duly authorized by all necessary
action of Royale. This Agreement is the valid and binding obligation of
Royale, enforceable against Royale in accordance with its terms.
(b) No Defaults. Neither the execution of this Agreement nor the
consummation of the Transactions contem-
<PAGE>
-22-
plated hereby will: (i) subject to any approval required under the Royale
Properties Indebtedness, conflict with, or result in a breach of, the
terms, conditions or provisions of, or constitute a default under, any
agreement or instrument to which Royale is a party, (ii) subject to any
approval required under the Royale Properties Indebtedness, violate any
restriction, requirement, covenant or condition to which the Royale is
subject, or (iii) constitute a violation of any applicable code,
resolution, law, statute, regulation, ordinance, rule, judgment, decree or
order. Royale has made all filings required to be made under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and all such 1934 Act
filings are true, correct and complete.
(c) Royale Common Stock. All shares of Royale Common Stock
exchangeable for Common Units issued in connection with the Transactions
will be duly authorized, validly issued, fully paid and non assessable. All
issued and outstanding shares of Royale Common Stock were issued in
compliance with, or in transactions exempt from, the registration
requirements of applicable federal and state securities laws. Royale has an
authorized capitalization consisting of 50,000,000 shares of stock, of
which 30,000,000 shares are classified as Royale Common Stock, $.01 par
value per share, and 20,000,000 shares are unclassified. There are issued
and outstanding 1,420,000 shares of Royale Common Stock. All such
outstanding shares have been nonassessable. There are no outstanding
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements of any character providing for the
purchase, issuance or sale of any shares of the capital stock of Royale,
other than the Directors' Stock Option Plan as described in the 1996 Form
10-KSB filed by Royale pursuant to the 1934 Act.
(d) Litigation. Except as set forth on Exhibit "Royale Litigation",
there is no action or proceeding pending or, to the knowledge of Royale,
threatened against Royale or any subsidiary before any court or
administrative agency which would result in any material adverse change in
the business or financial condition of Royale.
(e) Corporate Documents. The copies of the articles of incorporation
of Royale and bylaws of Royale, the copy of the Advisory Agreement, and the
copies of all other books and records of Royale delivered, or to be
delivered to the H/SIC General Partners, are true, correct and com-
<PAGE>
-23-
plete copies thereof as of the date delivered. There are no employment
agreements, consulting agreements, advisory agreements or similar
agreements, other than the Advisory Agreement.
(f) Title; Royale Properties Indebtedness. Royale is the sole owner of
fee simple title to the Royale Properties. Royale is not in default under
the Royale Properties Indebtedness. Royale has delivered, or shall deliver,
copies of the Royale Properties Indebtedness documents to the H/SIC General
Partners.
(g) Compliance with Existing Laws. To Royale's knowledge and except as
set forth on Exhibit "Royale Violations" attached hereto, (i) Royale is not
in violation, in any material respect, of any material building, zoning,
environmental or other ordinances, statutes or regulations of any
governmental agency, in respect to the ownership, use, maintenance,
condition and operation of the Royale Properties or any part thereof, and
(ii) Royale possesses all material licenses, certificates, permits and
authorizations necessary for the use and operation of the Royale Properties
in the manner in which they are currently being operated by Royale, and the
requisite certificates of the fire marshals or board of fire underwriters
have been issued for the Royale Properties.
(h) Leases. True, correct and complete copies of all of the leases of
the Royale Properties and any amendments thereto (collectively, the "Royale
Leases"), have been delivered to the H/SIC General Partners. Attached
hereto as Exhibit "Royale Leases" is a description of all of the Royale
Leases and a current rent schedule ("Royale Rent Schedule") covering the
Leases, which is true and correct in all material respects. There are no
leases or tenancies of any space in the Property other than those set forth
in Exhibit "Royale Leases" or, to Royale's knowledge, any subleases or
subtenancies unless otherwise noted therein. Except as otherwise set forth
in Exhibit "Royale Leases" or elsewhere in this Agreement:
(i) The Royale Leases are in full force and effect and constitute
a legal, valid and binding obligation of the respective tenants;
(ii) No tenant has an option to purchase the Royale Properties or
any portion thereof,
<PAGE>
-24-
except as otherwise set forth in Exhibit "Royale Purchase Options";
(iii) No renewal or expansion options have been granted to the
tenants, except as provided in the Royale Leases;
(iv) To Royale's knowledge, Royale is not in material default
under any of the Leases;
(v) The rents set forth on the Royale Rent Schedule are being
collected on a current basis and there are no arrearages in excess of
one month, except as indicated in Exhibit "Royale Leases" hereto, nor
has any tenant paid any rent, additional rent or other charge of any
nature for a period of more than thirty (30) days in advance;
(vi) Royale has not sent written notice to any tenant claiming
that such tenant is in default, which default remains uncured, and to
Royale's knowledge, no tenant is in default under its Lease, except as
indicated in Exhibit "Royale Leases";
(vii) No action or proceeding instituted against Royale by any
tenant is presently pending in any court; and
(viii) There are no security deposits other than those set forth
in Exhibit "Royale Leases".
(i) Service Contracts. Attached hereto as Exhibit "Royale Service
Contracts" is a complete and correct list of all contracts or agreements
relating to the management, leasing, operation, maintenance or repair of
the Royale Properties (the "Royale Service Contracts"). True and correct
copies of all of the Royale Service Contracts have been delivered to H/SIC
General Partners. Except in the case of a default by the vendor under a
specific Royale Service Contract, no Royale Service Contract will be
terminated, or materially amended or modified prior to the Closing Date
without H/SIC's prior written approval, which approval shall not be
unreasonably withheld, conditioned or delayed.
<PAGE>
-25-
(j) Tax Bills. Royale has delivered to the H/SIC General Partners true
and correct copies of tax bills issued by any applicable federal, state or
local governmental authority and received by Royale with respect to the
Royale Properties for the most recent past and current tax years, and any
new assessment received with respect to a current or future tax year.
(k) Insurance. Attached hereto as Exhibit "Royale Properties
Insurance" is a list of all hazard, liability and other insurance policies
presently affording coverage with respect to the Royale Properties. Royale
shall maintain in full force and effect all such (or equivalent) policies
until the Closing Date.
(l) Tenant Estoppels. Royale represents and warrants that it shall use
reasonable good faith efforts (without cost or liability to Royale) to
obtain and deliver to H/SIC General Partners a tenant estoppel letter from
each tenant in the general form required by real estate investment trust
purchasers of leased real estate (or in such form or containing such
information as may be required by the lease of such tenant) from each of
the tenants of the Royale Properties confirming the information set forth
in the Royale Rent Schedule.
(m) Condemnation Proceedings. No condemnation or eminent domain
proceedings are pending or, to the best of the Royale's knowledge,
threatened against the Royale Properties or any part thereof, and Royale
has not made any commitments to or received any notice, oral or written, of
the desire of any public authority or other entity to take or use the
Property or any part thereof whether temporarily or permanently, for
easements, rights-of-way, or other public or quasi-public purposes, except
as set forth in the Permitted Exceptions.
(n) No Defaults. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) subject to
any approval required under the Royale Properties Indebtedness, conflict
with, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, any agreement or instrument to which Royale is
a party or by which the Royale or the Royale Properties are bound, (ii)
subject to any approval required under the Royale Properties Indebtedness,
violate any restriction, requirement, covenant or condition to which Royale
is subject or by which Royale or
<PAGE>
-26-
the Royale Properties are bound, (iii) constitute a violation of any
applicable code, resolution, law, statute, regulation, ordinance, rule,
judgment, decree or order applicable to Royale, or (iv) result in the
cancellation of any contract or lease pertaining to the Royale Properties.
(o) Environmental Matters. Except as set forth on Exhibit "Royale
Environmental Matters", Royale has no knowledge of any discharge, spillage,
uncontrolled loss, seepage or filtration of oil, petroleum or chemical
liquids or solids, liquid or gaseous products or any hazardous waste or
hazardous substance (as those terms are used in the Comprehensive
Environmental Response, Compensation and Liability Act of 1986, as amended,
the Resource Conservation and Recovery Act of 1976, as amended, or in any
other applicable federal, state or local laws, ordinances, rules or
regulations relating to protection of public health, safety or the
environment, as such laws may be amended from time to time) at, upon, under
or within the Land or any contiguous real estate. Except as set forth on
Exhibit "Royale Environmental Matters" to Royale's knowledge, there is no
proceeding or action pending or threatened by any person or governmental
agency regarding the environmental condition of the Property. To Royale's
knowledge, the Royale Properties are free of friable asbestos requiring
remediation.
(p) Certificates of Occupancy. Royale will not amend any certificates
of occupancy for the Royale Properties and will maintain them in full force
and effect to the extent that Royale is responsible for them.
(q) Personal Property. Attached hereto as Exhibit "Royale Personal
Property" is a true, correct and complete inventory of all personal
property ("Royale Personal Property"), if any, used in the management,
maintenance and operation of the Royale Properties (other than trade
fixtures or personal property of tenants).
(r) Leasing Commissions. There are, and at Closing shall be, no
outstanding or contingent leasing commissions or fees payable with respect
to the Royale Properties.
(s) Real Estate Investment Trust for Tax Purposes. Subject to
information provided by Royale to Coopers & Lybrand, Royale (1) is
complying and, at all times has complied with, all requirements applicable
to real estate investment trusts under Section 856 of the Code, and (2) is,
<PAGE>
-27-
and at all times has been, property treated as a real estate investment
trust under Section 856 of the Code for federal income tax purposes.
(t) Taxes. Royale and any predecessor of Royale have timely filed with
the appropriate taxing authorities all returns (including without
limitation information returns and other material information) in respect
of Taxes required to be filed through the date hereof and will timely file
any such returns required to be filed on or prior to the Closing Date. The
returns and other information filed (or to be filed) are complete and
accurate in all material respects. All Taxes of Royale in respect of
periods beginning before the Closing Date have been timely paid, or will be
timely paid prior to the Closing Date, and the Royale has no material
liability for Taxes in excess of the amounts so paid. All Taxes that Royale
has been required to collect or withhold have been duly collected or
withheld and, to the extent required when due, have been or will be (prior
to Closing Date) duly paid to the proper taxing authority. No audits of any
of Royale's federal, state or local returns for Taxes by the relevant
taxing authorities have occurred, and no material deficiencies for Taxes of
Royale have been claimed, proposed or assessed by any taxing or other
governmental authority against Royale. There are no pending or, to the best
of knowledge of Royale, threatened audits, investigations or claims for or
relating to any material additional liability to the Partnership in respect
of Taxes, and there are no matters under discussion with any governmental
authorities with respect to Taxes that in reasonable judgment of Royale or
its counsel, is likely to result in a material additional liability for
Taxes. To the knowledge of Royale, there are no liens for Taxes (other than
for current taxes not yet due and payable) on any of the assets of Royale.
(u) Fairness Opinion. Royale has received a satisfactory "fairness
opinion" from a reputable Financial advisor selected by Royale's Board of
Directors with respect to the Transactions.
(v) Disclosure. No representation or warranty made by Royale in this
Agreement or in any documents delivered or to be delivered by Royale
contains any untrue statement of a material fact, or omits to state a
material fact necessary in order to make the statements contained therein
not misleading or necessary in order to provide adequate
<PAGE>
-28-
information as to Royale and the Royale Properties and its and their
management, operation, maintenance and repair. All items delivered or to be
delivered by Royale pursuant to this Agreement are true, correct and
complete in all material respects, and fairly present the information set
forth therein in a manner that is not misleading.
13. Obligations of Royale Pending Closing. From and after the date of this
Agreement through the Closing Date, Royale covenants and agrees as follows:
(a) Maintenance and Operation of Royale Properties and Royale
Business. Royale shall continue to own the properties owned by it and to
operate its business as a real estate investment trust as Royale's business
is currently operated. Royale will cause the Royale Properties to be
maintained in their present order and condition, normal wear and tear, and
damage by fire or other casualty (subject to Section 16) excepted and will
cause the continuation of the normal operation thereof, including the
purchase and replacement of fixtures and equipment, and the continuation of
the normal practice with respect to maintenance and repairs so that the
Royale Properties will, except for normal wear and tear and damage by fire
or other casualty (subject to Section 16), be in substantially the same
condition on the Closing Date as on the date hereof.
(b) Government Requirements. Royale shall use its commercially
reasonable efforts to comply with governmental requirements applicable to
Royale.
(c) Changes in Representations. Royale shall notify the H/SIC General
Partners promptly, and the H/SIC General Partners shall notify Royale
promptly, if either becomes aware of any occurrence prior to the Closing
Date which would make any of its representations, warranties or covenants
contained herein not true in any material respect.
(d) Obligations as to Royale Leases and Other Documents. Royale shall
not, without H/SIC's prior written consent (which consent shall not be
unreasonably withheld, conditioned or delayed), amend, modify, renew or
extend any Royale Lease in any material respect unless required by law, or
enter into new leases or approve any assignment of leases or subletting of
leased space, or terminate any Royale Leases. Royale shall not, without
H/SIC's prior written consent, amend the articles of incorporation or
<PAGE>
-29-
bylaws of Royale, or the Advisory Agreement, or enter into any employment,
consulting, advisory or similar agreements.
(e) Obligations as to Royale Properties Indebtedness. Royale shall
not, without H/SIC's prior written consent, (i) prepay the Royale
Properties Indebtedness, or (ii) modify or amend, or permit any of the
documents evidencing or securing the Royale Properties Indebtedness or
otherwise entered into in connection with the Royale Properties
Indebtedness to be amended or modified. Royale shall make all payments
required to be made under the Royale Properties Indebtedness when due,
shall perform all obligations under the Royale Properties Indebtedness and
shall keep the Royale Properties Indebtedness free from default.
(f) No Other Indebtedness. Royale shall not incur any indebtedness,
other than current accounts payable in the day-to-day operation of the
Royale Properties.
(g) No Solicitation. Royale will not solicit or undertake any
recapitalization, business combination or other transaction or engage in
any discussions or negotiations with respect thereto, or furnish
information (other than as required by law or this Agreement) that would be
inconsistent with the Transactions.
14. Title; H/SIC Properties.
(a) At Closing, the H/SIC Properties shall be free and clear of all
liens, covenants, restrictions, easements, encumbrances, and other title
exceptions or objections excepting, however, the "H/SIC Permitted
Exceptions" (hereinafter defined). Title to the H/SIC Properties at Closing
shall be good and marketable and such as will be insured by Commonwealth
Land Title Insurance Company at regular rates for regular risks, with such
endorsements as the H/SIC General Partners shall reasonably require.
(b) As to each H/SIC Property, the "H/SIC Permitted Exceptions" are:
(i) real estate taxes and assessments not yet due and payable;
(ii) covenants, restrictions, easements and other similar
agreements, provided that the
<PAGE>
-30-
same are not violated by existing improvements or the current use and
operation of an H/SIC Property, or if so violated that the same do not
materially impair the value of the H/SIC Property and that the
violation of the same will not result in a forfeiture or reversion of
title;
(iii) zoning laws, ordinances and regulations, building codes and
other governmental laws, regulations, rules and orders affecting such
H/SIC Property, provided that the same are not violated by existing
improvements or the current use and operation of the H/SIC Property,
or if so violated that the same do not materially impair the value of
the H/SIC Property or that such violation will not result in a
forfeiture or reversion of title;
(iv) any minor imperfection of title which (1) does not affect
the current use, operation or enjoyment of an H/SIC Property, (2) does
not render title to such H/SIC Property unmarketable or uninsurable,
and (3) does not materially impair the value of the H/SIC Property;
(v) the H/SIC Properties Indebtedness encumbering such H/SIC
Property;
(vi) the H/SIC Leases with respect to such H/SIC Property.
(c) From and after the date of this Agreement, the H/SIC General
Partners shall not take any action, or fail to take any action, that would
cause title to the H/SIC Properties to be subject to any title exceptions
or objections, other than the H/SIC Permitted Exceptions.
15. Title; Royale Properties.
(a) At Closing, the Royale Properties shall be free and clear of all
liens, covenants, restrictions, easements, encumbrances, and other title
exceptions or objections excepting, however, the "Royale Permitted
Exceptions" (hereinafter defined). Title to the Royale Properties at
Closing shall be good and marketable and such as will be insured by
Commonwealth Land Title Insurance Company at regular rates for regular
risks, with such en-
<PAGE>
-31-
dorsements as the H/SIC General Partners shall reasonably require.
(b) As to each Royale Property, the "Royale Permitted Exceptions" are:
(i) real estate taxes and assessments not yet due and payable;
(ii) covenants, restrictions, easements and other similar
agreements, provided that the same are not violated by existing
improvements or the current use and operation of an Royale Property,
or if so violated that the same do not materially impair the value of
the Royale Property and that the violation of the same will not result
in a forfeiture or reversion of title;
(iii) zoning laws, ordinances and regulations, building codes and
other governmental laws, regulations, rules and orders affecting such
Royale Property, provided that the same are not violated by existing
improvements or the current use and operation of an Royale Property,
or if so violated that the same do not materially impair the value of
the Royale Property or that such violation will not result in a
forfeiture or reversion of title;
(iv) any minor imperfection of title which (1) does not affect
the current use, operation or enjoyment of an Royale Property, (2)
does not render title to such Royale Property unmarketable or
uninsurable, and (3) does not materially impair the value of the
Royale Property;
(v) the Royale Properties Indebtedness encumbering such Royale
Property;
(vi) the Royale Leases with respect to such Royale Property.
(c) From and after the date of this Agreement, Royale shall not take
any action, or fail to take any action, that would cause title to the
Royale Properties to be subject to any title exceptions or objections,
other than the Royale Permitted Exceptions.
<PAGE>
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16. Risk of Loss. If prior to Closing (i) condemnation proceedings are
commenced against all or any portion of the H/SIC Properties or the Royale
Properties (other than a de minimis condemnation, which shall mean a
condemnation which does not materially and adversely affect and parking or
access area of the H/SIC Properties and does not have a material adverse affect
on the value of the H/SIC Properties or the Royale Properties), or (ii) if the
H/SIC Properties or the Royal Properties are damaged by an uninsured casualty to
the extent that the cost of repairing such damage shall be Five Hundred Thousand
Dollars ($500,000.00) or more based on the good faith estimate of an independent
contractor selected by the H/SIC General Partners and reasonably approved by
Royale, then the H/SIC General Partners and Royale shall have the right, upon
notice in writing to the other party delivered within forty five (45) days after
actual notice of such condemnation or fire or other casualty to terminate this
Agreement, and thereupon the parties shall be released and discharged from any
further obligations to each other. If this Agreement is not terminated or in the
event of fire or other casualty or condemnation not giving rise to a right to
terminate this Agreement, all of the proceeds of fire or other casualty
insurance proceeds and the rent insurance proceeds payable with respect to the
period after Closing or, of the condemnation award, as the case may be, shall
remain with the entity owning the affected property.
17. Mutual Conditions. Neither the H/SIC General Partners, H/SIC, nor
Royale will be obligated to complete or cause to be completed the transactions
contemplated by this Agreement unless the following conditions have been
satisfied prior to or at the Closing, unless waived by the H/SIC General
Partners, H/SIC, and Royale:
(a) No order to restrain, enjoin or otherwise prevent the consummation
of this Agreement or the Transactions shall have been entered by any court
or administrative body and shall remain in full force and effect (other
than order sought by any of the parties to this Agreement).
(b) The obligations to consummate the transactions contemplated hereby
shall not have been terminated pursuant to Section 30 hereof.
<PAGE>
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18. Conditions Precedent to Obligations of H/SIC General Partners and
H/SIC. The obligations of the H/SIC General Partners and H/SIC to consummate the
transactions contemplated by this Agreement are subject to the fulfillment,
prior to or upon the Closing Date, of the following conditions precedent, unless
waived by the H/SIC General Partners and H/SIC:
(a) Royale and Crown shall have complied with and performed in all
material respects all of the covenants contained in this Agreement to be
performed by Royale at or prior to the Closing Date. Without limitation on
the other obligations of Royale under this Agreement, all actions required
under Section 4 of this Agreement shall have been taken and shall be in
effect concurrent with Closing.
(b) From and after the date hereof, there shall have been no material
adverse change in the business or financial condition of Royale. For the
purpose hereof, a material adverse change shall only mean a change which
results in a significant diminution of the value of any of the Royale
Properties or of Royale as a whole; and the following shall be deemed not
to be a material adverse change: (i) changes in the ordinary course of
business which are not in the aggregate material adverse, and (ii) changes
resulting from general economic conditions.
(c) Royale shall have obtained from tenants occupying at least eighty
percent (80%) of each of the Royale Properties an estoppel certificate in
accordance with Section 12(l).
(d) Royale shall have delivered to the H/SIC General Partners a letter
from each of the holders of the Royale Properties Indebtedness dated no
earlier than thirty (30) days prior to the Closing, stating the outstanding
principal balance under the mortgage held by such holder, and accrued
interest thereon, if any, and stating that there has not been, and there
does not currently exist any default under the Royale Properties
Indebtedness.
(e) The representations and warranties set forth in Section 9 and
Section 12 shall be true and accurate in all material respects on and as of
the Closing Date with the same force and effect as if they had been made at
the Closing Date.
<PAGE>
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(f) Title policies, in the form contemplated by Sections 14 and
Section 15 of this Agreement, shall have been delivered to the UPREIT as to
the H/SIC Properties and the state of title of the Royale Properties shall
be as set provided in Section 15.
(g) The Registration Rights Agreement and the UPREIT Agreement shall
have been executed and delivered by all required parties.
(h) The H/SIC Properties Indebtedness shall have been obtained, funded
and closed.
(i) All consents and approvals necessary under the H/SIC Properties
Indebtedness documents shall have been obtained.
(j) The H/SIC Partners shall have delivered all documents required to
be delivered by the H/SIC Partners under this Agreement and otherwise to
consummate the Transactions.
(k) Royale shall have executed and delivered, or caused to be executed
and delivered, all documents contemplated by this Agreement to be executed
by Royale or caused to be executed by Royale or as necessary or desirable
to consummate the Transactions.
19. Conditions Precedent to Royale's Obligations.
The obligations of Royale and Crown to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, prior to or upon
the Closing Date, of the following conditions precedent, unless waived by
Royale.
(a) The H/SIC General Partners and H/SIC shall have complied with and
performed in all material respects all of the covenants contained in this
Agreement to be performed by the H/SIC General Partners at or prior to the
Closing Date.
(b) From and after the date hereof, there shall have been no material
adverse change in the business or financial condition of the H/SIC
Partnerships or H/SIC.
(c) The H/SIC General Partners shall have obtained from tenants
occupying at least eighty percent (80%) of
<PAGE>
-35-
each of the H/SIC Properties an estoppel certificate in accordance with
Section 10(h).
(d) The H/SIC General Partners shall have delivered to Royale a letter
from each of the holders of the H/SIC Properties Indebtedness dated no
earlier than thirty (30) days prior to the Closing, approving the
conveyance of the H/SIC Partnership Interests to the UPREIT, and stating
that there has not been, and there does not currently exist any default
under the H/SIC Properties Indebtedness.
(e) The H/SIC General Partners shall have received a commitment from a
reputable lender for the Royale Acquisition Facility.
(f) The representations and warranties set forth in Section 10 shall
be true and accurate in all material respects on and as of the Closing Date
with the same force and effect as if they had been made at the Closing
Date.
(g) The H/SIC General Partners shall have executed and delivered, or
caused to be executed and delivered, all documents contemplated by this
Agreement to be executed by the H/SIC Partners or caused to be executed by
the H/SIC Partners or as necessary or desirable to consummate the
Transactions.
20. Deliveries by H/SIC General Partners. At Closing, the H/SIC General
Partners shall deliver, or cause the delivery of, the following documents:
(a) The UPREIT Agreement.
(b) Contribution and assumption agreements ("Assignments") and
amendments to partnership agreements and limited partnership certificates
("Amendments") setting forth the assignment by each of the Contributors of
their Contributed Interests and his, her or its withdrawal from the H/SIC
Partnerships (or reduction in interest, in the case of Contributors holding
Retained Interests) and the admission of UPREIT (and/or its designee(s)) as
partners of the H/SIC Partnerships, which Assignments and Amendments shall
be executed and acknowledged by the Contributors and the UPREIT (or its
designees).
(c) A release from each Contributor releasing the H/SIC Partnerships
and the UPREIT (and its designee(s)) as partners of the H/SIC Partnerships
from any obligations
<PAGE>
-36-
and liabilities with respect to the original formation of the H/SIC
Partnerships, and any other matter arising from business done, transactions
entered into or events occurring prior to the Closing Date.
(d) The original H/SIC Leases and schedule from the H/SIC General
Partners updating the H/SIC Rent Schedule for the H/SIC Properties and
setting forth all arrearages in rents and all prepayments of rents.
(e) An original letter executed by the H/SIC General Partners advising
the tenants of the H/SIC Properties of the change in control and management
of the H/SIC Properties and directing that rents and other payments
thereafter be sent to the UPREIT or as UPREIT may direct.
(f) Possession of the H/SIC Properties from the H/SIC General Partners
in the condition required by this Agreement, and the keys therefor.
(g) From each Contributor, a certification of non-foreign status as
required by the Code.
(h) The Registration Rights Agreement.
(i) All such documents and instruments (including, without limitation,
an accredited investor's questionnaire from each of the Contributors for
the purposes of confirming accredited investor status) as may be reasonably
required to allow the UPREIT or Royale to comply with federal and state
securities law requirements with respect to the issuance of the Common
Units and Preferred Units or Royale Common Stock, as the case may be.
(j) Such other documents and items (including, without limitation,
legal opinions customarily delivered in transactions similar to the
Transactions) as may be reasonably required under the terms of this
Agreement or relating to the Transactions to reasonably effect the purposes
of this Agreement or consummate the Transactions.
<PAGE>
-37-
21. Royale Performance and Deliveries by Royale. At the Closing,
simultaneously with the deliveries pursuant to the provisions of Section 20
above, the UPREIT shall issue to Contributors the Common Units and Preferred
Units in the amount and manner specified in Section 7, and the UPREIT (or its
designee) and Royale shall execute and deliver those documents (including
without limitation those documents described in Section 20 above to which the
UPREIT (or its designees) or Royale is a party or a required signatory) and take
such other actions required to be taken by Royale at Closing as required under
this Agreement. Without limitation on the foregoing provisions of this Section
21 Royale shall deliver, or cause the delivery of the following documents:
(a) The original signed Royale Leases and a schedule updating the
Royale Rent Schedule for the Royale Properties and setting forth all
arrearages in rents and all prepayments of rents.
(b) Originally executed Royale Service Contracts and copies of books,
records, operating reports, files and other materials related to the
ownership, use and operation of the Royale Properties, to the extent that
any exist and are in the possession of Royale.
(c) The Registration Rights Agreement.
(d) A transfer and assignment agreement by Crown to Royale
transferring all of Crown's assets to Royale in accordance with Section 6,
and Royale's written confirmation of the termination of the Advisory
Agreement.
(e) The Management Agreement in accordance with Section 6.
(f) Then currently dated and effective resolutions of the Board of
Directors of Royale authorizing this Agreement and the Transactions, and
the execution and delivery by Royale of all documents necessary or
desirable to consummate the Transactions.
(g) All of the corporate and financial books and records of Royale.
(h) Such other documents and items (including, without limitation,
legal opinions customarily in delivered in transactions similar to the
Transactions) as may be reasonably required under the terms of this
Agreement or re-
<PAGE>
-38-
lating to the Transactions to reasonably effect the purposes of this
Agreement or to consummate the Transactions.
22. Closing Charges; Prorations and Adjustments.
(a) Royale or H/SIC General Partners on behalf of the H/SIC
Partnerships and out of the funds of such H/SIC Partnerships), as the case
may be, shall pay the title examination charges, the title insurance
premium, survey costs, environmental assessment charges, notary fees and
other such charges relating to the Royale Properties and the H/SIC
Properties respectively.
(b) Although H/SIC General Partners and Royale believe that no real
estate transfer or recording fees or taxes will be due in connection with
the contribution of the H/SIC Partnership Interests, if it is finally
determined that such taxes are due and payable in connection herewith, then
the H/SIC Partnership for which the transfer of whose H/SIC Partnership
Interests shall be deemed subject to real estate transfer tax shall pay the
costs of contesting such taxes and shall pay the full amount of such taxes
if they are finally determined to be payable. (c) The H/SIC General
Partners and Royale shall each pay their own due diligence costs and legal,
brokerage, lenders', investment banking and accounting costs and fees
related to the Transaction and preparation of this Agreement and all
documents required to settle the transaction contemplated hereby.
(d) With respect to each of the H/SIC Properties, as of the 11:59 p.m.
of the calendar day immediately preceding the Closing Date, there shall be
apportioned between the H/SIC Partnership owning such H/SIC Property and
the UPREIT (1) rent under the H/SIC Leases, (2) interest under the H/SIC
Properties Indebtedness, (3) taxes, insurance and operating expenses of
such H/SIC Property to the extent borne by the owning H/SIC Partnership,
and (4) payments with respect to the items listed in the preceding clause
(3) that are received from tenants to the extent prepaid (including all
security deposits) or paid in arrears to the owning H/SIC Partnership. All
management agreements between the H/SIC Partnerships and H/SIC (or any
affiliate) shall be terminated as of Closing Date, and all fees due under
such agreements through Closing shall be paid by the H/SIC Partnership. Any
amount due pursuant to this Section 22(d) shall be paid in cash at the
Clos-
<PAGE>
-39-
ing. To the extent that the amount of the items to be adjusted are not
reasonably ascertainable as of the Closing Date, such as tenant chargebacks
or collections for tenant reimbursements, they shall be adjusted promptly
after the determination of the amount thereof.
(e) It is acknowledged and agreed that, on or prior to the Closing,
the H/SIC General Partners shall cause the H/SIC Partnerships to distribute
to the H/SIC Partners all cash and assets of the Partnership other than the
H/SIC Properties.
23. Partnership Liabilities and Sales of H/SIC Properties.
(a) Subject to the provisions of Section 23(b) hereof, for a period of
three (3) years following the Closing Date (the "Non Taxable Disposition
Period"), Royale and the UPREIT shall use their good faith, reasonable and
diligent efforts:
(1) to cause any sale or other voluntary disposition (other than
through a deed in lieu of foreclosure, a foreclosure action, or an act
of eminent domain) of the H/SIC Properties to qualify for
non-recognition of gain under the Code, whether by means of exchanges
contemplated under Code Sections 351, 354, 355, 368, 721, 1031, 1033,
or otherwise; provided, however, that the foregoing shall not require
Royale and the UPREIT, in their sole and absolute discretion, to sell,
or otherwise dispose of, or prevent Royale and the UPREIT in their
sole and absolute discretion, from selling or otherwise disposing of
any of the H/SIC Properties in transactions qualifying for
non-recognition of loss;
(2) to avoid a distribution of property that would cause any
Contributor to recognize income or gain pursuant to the provisions of
either or both of Code Sections 704(c)(1)(B) and 737; and
(3) to avoid a termination of the UPREIT pursuant to the
provisions of Code Section 708(b)(1)(B).
(b) Notwithstanding the above provisions of Section 23(a), the
obligation of either or both of Royale and the UPREIT to undertake those
activities set forth in Section 23(a) hereof shall, in all events, be
subject to, and oth-
<PAGE>
-40-
erwise interpreted consistent with Royale's fiduciary and statutory
obligations to all partners (both present and future) in the UPREIT, and to
its stockholders, both present and future. Notwithstanding the preceding
sentence, however, the UPREIT and/or Royale shall use every reasonable
effort (but shall not be required) to engage in a non-taxable disposition
of an H/SIC Property.
(c) In addition to the foregoing, and again consistent with and
subject to Royale's fiduciary, statutory and other obligations to all
partners (present and future) in the UPREIT, and to all of Royale's
stockholders, and likewise in all events consistent with and subject to the
exercise of sound and prudent business judgment in furtherance of the
interests of all such partners and stockholders, for a period of three (3)
years after the Closing Date, the UPREIT and Royale shall use their
respective good faith, reasonable and diligent efforts to deal with the
aggregate of non-recourse indebtedness ("Aggregate Debt") secured by the
H/SIC Properties ("Project Specific Mortgages") and excess non-recourse
indebtedness secured by properties owned by the UPREIT other than the H/SIC
Properties ("Other Mortgages") in such manner as shall provide Contributors
that collective allocation of taxable basis derived from either or both of
Project-Specific and Other Mortgages that is set forth in Exhibit "Schedule
of H/SIC Debt Allocations." In the event that Royale or the UPREIT
determines, during the three (3) year period following the Closing, that it
is necessary or desirable to pay down or retire all or any balance due
under the Project-Specific Mortgages or Other Mortgages, then the Royale
and the UPREIT shall be free to do so, subject to the terms of Section
23(d). In addition, Royale and the UPREIT shall be free from time to time
and at any time to make scheduled periodic and other payments required
under the Project Specific Mortgages and Other Mortgages, without notice or
accountability to any Contributor.
(d) At Closing, the UPREIT and Royale shall confirm, in writing, to
the Contributors their respective acknowledgments of, and agreements to
comply with, the undertakings set forth in Sections 23(a), 23(b), 23(c) and
23(d).
(1) In the event, on or before the third anniversary of the
Closing Date, of (each, a "Tax-Related Event"): (A) a post-Closing
sale of an H/SIC Property occurs; or (B) an attempt by the UPREIT to
effect an H/SIC Property transfer as permitted by Section 23(a)
<PAGE>
-41-
above occurs, but the terms of Section 1031 of the Code or the
regulations promulgated thereunder have changed such that the
mechanics for implementing a tax-deferred exchange of real estate are
materially and adversely altered (whether with respect to the timing
required to identify and close upon an exchange property or otherwise)
from those mechanics in place as of the date of this Agreement, and,
in any case, provided that the obligations of the Royale and the
UPREIT under Section 23 shall not have otherwise terminated by the
terms of such Section, the H/SIC shall give written notice of such
Tax-Related Event (a "Tax-Related Notice") to the relevant
Contributors for the subject H/SIC Property as soon as practicable
after the occurrence of such event becomes reasonably likely, or, if
later, on the date on which the UPREIT is, in the reasonable judgment
of its securities counsel, legally permitted, under applicable federal
and state securities laws and regulations, and the rules and
regulations of any securities exchange on which Royale Common Stock
may be listed, to disseminate such Tax-Related Notice to such
Contributors.
(2) Upon their receipt of a Tax-Related Notice, the Contributors
who were H/SIC Partners in the affected H/SIC Property shall designate
Jay Shidler, or if he is unable or unwilling to serve, a person
selected by a majority in H/SIC Partnership Interests of the
Contributors who were H/SIC Partners in the affected H/SIC Property to
represent them in connection with the Tax-Related Event that triggers
the delivery of the applicable Tax-Related Notice (the
"Spokesperson"). The UPREIT and Royale shall be entitled to rely on
the first written notice either of them receives that designates a
Spokesperson with respect to a given Tax-Related Event, and shall be
under no obligation to deal with any person other than that
Spokesperson in connection with the subject Tax-Related Event. The
UPREIT and Royale shall have no obligation to deal with any person or
entity whatsoever in connection with a Tax-Related Event unless and
until a Spokesperson is properly designated. The UPREIT and Royale and
their respective independent accountants, attorneys and other
representatives and advisors, shall cooperate With the Spokesperson in
order to consider strategies proposed by or through the Spokesperson
(it being understood that neither Royale or the UPREIT shall have any
obligation what-
<PAGE>
-42-
soever to propose any such strategies), on behalf of affected
Contributors, which strategies are designed or intended to defer or
mitigate any recognition of gain under the Code by any Contributor or
any shareholder or partner in any Contributor (any such gain
recognition being referred to herein as an "Adverse Tax Consequence")
that may result from a Tax-Related Event, whether such strategies
involve any or all of the Contributors on a basis independent of
Royale and the UPREIT, or in conjunction with Royale and the UPREIT.
The requesting party shall pay its own fees and expenses, and the fees
and expenses of Royale and the UPREIT, incurred in connection with the
procedure delineated in this Section 23(d)(2). Under this Section
23(d), the UPREIT and Royale are only obligated to cooperate with the
Spokesperson on behalf of any Contributor (or any partner, shareholder
or member of any Contributor) who may be facing an Adverse Tax
Consequence, in connection with such Contributor's determination of
the efficacy of tax-deferral or tax-mitigation alternatives proposed
by or through the Spokesperson that may involve Royale or the UPREIT.
In no event shall either Royale or the UPREIT be required to incur any
expense (other than administrative expenses incurred in complying with
this Section 23(d)(2)) in connection its cooperation under this
Section 23(d)(2), nor shall any transaction duly approved by the Board
of Directors of Royale that results in a Tax-Related Event be required
to be suspended, postponed, impeded or otherwise adversely affected by
virtue of any potential Adverse Tax Consequence.
(e) The provisions of this Section 23 shall not be amended or modified
without the consent of (1) the H/SIC General Partners and (2) other
Contributors holding at least seventy percent (70%) of the H/SIC
Partnership Interests.
24. Preparation of Documents.
(a) Royale shall direct its counsel to prepare all documentation
relating to changes in the directors and senior management of Royale, and
all Board of Directors resolutions in connection with the Transactions all
such documents to be subject to the reasonable approval of the H/SIC
General Partners and their counsel.
<PAGE>
-43-
(b) The H/SIC General Partners shall direct their counsel to prepare
the UPREIT Agreement, all documents relating to the formation and
governance of the UPREIT and the UPREIT Subsidiary, all documents
pertaining to the issuance of the Common Units and Preferred Units, all
documents pertaining to the contribution of the H/SIC Partnership
Interests, all documents pertaining to the H/SIC Properties, documents
relating to the commitment for the Royale Acquisition Facility, the H/SIC
Properties Indebtedness (including negotiation of documents prepared by
lenders' counsel), and all documents pertaining to the transfer of H/SIC's
management of the H/SIC Properties to Royale.
(c) Royale and the H/SIC General Partners shall cooperate in good
faith and with due diligence to complete in a timely manner all documents
necessary or desirable to consummate the Transactions.
25. Transfer of H/SIC Management. The terms and conditions of the transfer
of H/SIC's management of the H/SIC Properties to Royale are set forth on Exhibit
"H/SIC Management Transfer" attached hereto.
26. Lease Guarantee Agreement. In order to maintain the projected net lease
income for the H/SIC Property known as 429 Ridge Road, Dayton, New Jersey and
the H/SIC Property known as 2601 Market Place, Harrisburg, Pennsylvania, the net
lease income from the operation of such properties shall be assured by
collateralized security and as otherwise more particularly described in Exhibit
"Lease Guarantee Agreement."
27. Notices. All notices and other communications under this Agreement
shall be addressed as follows, shall be sent by a reputable national overnight
delivery service and shall be deemed given one (1) business day after delivery
and acceptance by such reputable national overnight delivery service:
If to H/SIC General Partners or H/SIC:
Mr. Clay W. Hamlin, III
The Shidler Group
One Logan Square - Suite 1105
Philadelphia, PA 19103
with a copy to:
<PAGE>
-44-
F. Michael Wysocki, Esquire
Saul, Ewing, Remick & Saul
3800 Centre Square West
Philadelphia, PA 19102
If to Royale:
Mr. Vernon R. Beck, Chairman
Royale Investments, Inc.
3430 List Place
Minneapolis, MN 55416-4547
with a copy to:
John Parsinen, Esquire
Parsinen, Kaplan, Levy, Rosberg & Gotlieb, P.A.
100 South 5th Street - Suite 1100
Minneapolis, MN 55402
28. Due Diligence. Royale and the H/SIC General Partners shall cooperate in
good faith to assist each other in their respective due diligence efforts and
will provide information as reasonably requested, including, without limitation,
copies of all existing corporate documentation, partnership documentation,
financial information, market studies, leases, engineering reports,
environmental reports, surveys, building plans, property contracts, title
policies and title reports, zoning and other information, subject at all times
to the disclosure requirements of the United States Securities Exchange
Commission. In addition, the H/SIC General Partners and Royale shall provide to
each other access to their respective properties for inspections (excluding any
invasive tests or investigations) of their respective properties, subject to the
rights of tenants.
29. No Public Disclosure. Subject to compliance with federal and state
securities law disclosure requirements, Royale and the H/SIC General Partners
agree that no press releases or other public disclosures shall be made by Royale
(or any person or entity affiliated with or controlled by Royale) or any of the
H/SIC General Partners (or any person or entity affiliated with or controlled by
any H/SIC General Partner) regarding the Transactions without the prior written
approval of Royale and the H/SIC General Partners.
30. Termination; Default.
(a) At any time prior to the Closing Date, this Agreement may be
terminated (1) by mutual written consent of Royale, the H/SIC General
Partners and H/SIC; (2) by
<PAGE>
-45-
Royale or the H/SIC General Partners if (A) there shall be any order, or
any proceedings for the purpose of obtaining such an order, in effect
preventing consummation of the transactions contemplated by this Agreement
(other than an order sought by any of the parties), or (B) there shall be
any action taken, or any statute, rule, regulation or order enacted,
promulgated, issued or deemed applicable to the transactions contemplated
by this Agreement by any governmental entity that makes consummation of the
transactions contemplated by this Agreement illegal, or the economic effect
of which would be materially and adversely burdensome to any party to this
Agreement or, in the case of any H/SIC Partnership, to the H/SIC Partners
of such Partnership (and the party so burdened may elect to terminate), or
(3) by Royale or the H/SIC General Partners if the Closing Date is not on
or prior to one hundred twenty (120) days from the date of this Agreement.
(b) If this Agreement shall be terminated as provided in Section
30(a), this Agreement shall forthwith become void and there shall be no
liability on the part of any party hereto to any other party, except that
nothing set forth herein shall relieve a party hereto from liability for
its willful breach of this Agreement or its own costs incurred with respect
to costs agreed upon by each party prior to such termination. If this
Agreement is terminated, each party hereto agrees to return or destroy all
documents and other information received from any other party hereto as
soon as practicable after the termination of this Agreement.
(c) Notwithstanding anything contained in this Section 30 or elsewhere
in this Agreement to the contrary,
(1) if Royale defaults in the performance of any of Royale's
obligations under this Agreement, the H/SIC General Partners and H/SIC
shall, as their sole and exclusive remedy, have the right either (A)
to seek specific performance of this Agreement by Royale, or (B) to be
paid One Hundred Fifty Thousand Dollars ($150,000) by Royale, and,
upon such election by the H/SIC General Partners and H/SIC, Royale
shall pay to the H/SIC General Partners and H/SIC One Hundred Fifty
Thousand Dollars ($150,000) as liquidated damages and the sole and
exclusive remedy, with no action for damages other than $150,000;
<PAGE>
-46-
(2) if the H/SIC General Partners or H/SIC default in the
performance of any of the obligations of the H/SIC General Partners or
H/SIC under the Agreement, Royale shall, as its sole and exclusive
remedy, have the right either (A) to seek specific performance of this
Agreement by the H/SIC General Partners and H/SIC or (B) to be paid
One Hundred Fifty Thousand Dollars ($150,000) by H/SIC General
Partners and H/SIC, and, upon such election by Royale, the H/SIC
General Partners and H/SIC shall pay to Royale One Hundred Fifty
Thousand Dollars ($150,000) as liquidated damages and the sole and
exclusive remedy of Royale, with no action for damages other than
$150,000.
31. Miscellaneous.
(a) This Agreement may not be amended except by an instrument in
writing signed by the parties to this Agreement.
(b) This Agreement together, including the Exhibits attached hereto
and the agreements contemplated by the terms of this Agreement (1)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof, (2) may be executed in several counterparts,
each of which will be deemed an original and all of which shall constitute
one and the same instrument and (3) shall be governed in all respects,
including validity, interpretation and effect, by the laws of the
Commonwealth of Pennsylvania. All Exhibits attached to this Agreement are
made a part of this Agreement.
(c) This Agreement shall be binding upon, and shall be enforceable by
and inure to the benefit of, the parties named herein and their respective
successors; provided, however, that this Agreement may not be assigned by
any party without the prior written consent of the other parties and any
attempted assignment without such consent shall be void and of no effect.
(d) The titles and captions of the Sections and paragraphs of this
Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
<PAGE>
-47-
(e) The representations and warranties set forth in this Agreement
shall survive Closing.
(f) Other than with respect to Section 4 and Section 23, no provision
of this Agreement is intended, nor shall it be interpreted, to provide or
create any third party beneficiary rights or any other rights of any kind
in any client, customer, affiliate, stockholder, partner or employee or any
party hereto or any other person or entity.
(g) Royale and H/SIC General Partners each agree to execute and
deliver, or to cause the execution and delivery of, such other documents,
certificates, agreement and other writings and to take such other actions
as may be necessary or desirable in order to consummate expeditiously or
implement the Transactions.
(h) The parties to this Agreement understand that the structure of the
Transactions may be subject to change as a result of many factors,
including, without limitation, federal and state tax considerations,
securities laws considerations, the requirements of lenders, and corporate
and partnership law considerations. The parties to this Agreement agree to
cooperate in good faith to attempt to accommodate any required changes,
provided that the ultimate benefits to, and burdens of, this Agreement and
the Transactions to the parties remain as specified in this Agreement,
notwithstanding any such changes.
(i) If any provision of this Agreement, or the application thereof, is
for any reason held to any extent to be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable
provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
H/SIC CORPORATION, a Delaware
corporation
By:
------------------------------
<PAGE>
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STRATEGIC FACILITY INVESTORS, INC., a Delaware limited
partnership, the sole general partner of Blue Bell
Investment Company, L.P., a Delaware limited
partnership
By:
-------------------------------
SOUTH BRUNSWICK INVESTMENT COMPANY, LLC, a New Jersey
limited liability company, a general partner of South
Brunswick Investors, L.P., a Delaware limited
partnership
By:
-------------------------------
COMCOURT INVESTMENT CORPORATION, a Pennsylvania
corporation, the sole general partner of ComCourt
Investors, L.P., a Delaware limited partnership
By:
-------------------------------
GATEWAY SHANNON DEVELOPMENT CORPORATION, a
Pennsylvania corporation, the sole general partners of
6385 Flank Drive, L.P.
By:
-------------------------------
ROYALE INVESTMENTS, INC., a Minnesota corporation
By:
-------------------------------
<PAGE>
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Crown Advisors, Inc. and all of its shareholders hereby join in this Agreement
for the purpose of confirming its obligation to execute and deliver the
documents required to effectuate the provisions of Section 6 and consummate the
Transactions.
CROWN ADVISORS, INC.
By:
------------------------------
SHAREHOLDERS:
---------------------------------
Vernon R. Beck
---------------------------------
John Parsinen
<PAGE>
Exhibit
"H/SIC Partners Unit Consideration"
The allocation of Royale Common Stock, Common Units and Preferred Units
among H/SIC and the H/SIC Partners shall be determined by the H/SIC General
Partners and confirmed by H/SIC and the H/SIC Partners at least 10 days in
advance of the Closing.
<PAGE>
Exhibit "H/SIC Partners Authorization Agreements"
The Following agreements shall be executed by the H/SIC Partners and
provided at least 10 days prior to the Closing:
Consent, Authorization and Power of Attorney
UPREIT Partnership Signature Page
Subscription Agreement Signature Page
Accredited Investor Questionnaire
<PAGE>
Exhibit "H/SIC Properties Violations"
Blue Bell Investment Company, L.P.
The following violations refer to all three Blue Bell Properties, 751/753 Jolly
Road, 760 Jolly road, and 785 Jolly Road and the adjacent Option Land.
None
Comcourt Investors, L.P.
The following violations refer to 2605 Interstate Dr. and 2601 Market Place and
the adjacent Option Land.
None
South Brunswick Investors, L.P.
The following violations refer to all three South Brunswick Properties 429 Ridge
Road, 431 Ridge Road, and 437 Ridge Road along with the Adjacent Option Land.
None
6385 Flank Drive, L.P.
The following violations pertain to 6385 Flank Drive and the adjacent Option
Land.
None
<PAGE>
<TABLE>
<CAPTION>
Exhibit "H/SIC Leases"
Annual
Square Expiration Rental Rental Security
Property Address Tenant Feet Date Rate Revenue Deposit
-------- ------- ------ ---- ---- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Bell, PA
Unisys World
Headquarters 751/753 Jolly Road Unisys 537,338 Jun-09 $8.06 N $4,329,171 $12,750,000
Unisys World
Headquarters 760 Jolly Road Unisys 199,380 Jun-09 $12.50 N $2,492,000 None
Merck Building 785 Jolly Road Unisys/Merck(1) 218,219 Jun-09 $9.61 N $2,096,951 None
Harrisburg, PA
6385 Flank Drive 6385 Flank Drive Orion Capital 8,640 Oct-00 $10.79 N $93,226 None
Pitney Bowes 6,898 May-01 $10.42 N $71,877 None
Cowles Magazines 11,309 Mar-02 $10.38 N $117,387 None
Orion Consulting 3,566 May-02 $10.31 N $36,765 $2,424
Hershey Foods 2,387 May-02 $10.98 N $26,209 None
----- -------
32,800 $345,465
Commerce Court 2601 Market Place HealthAmerica 42,941 Jul-97 $17.21 G $738,808 None
Groundwater Sciences 4,293 Sep-99 $17.00 G $72,981 None
Texas Eastern 17,363 May-00 $16.50 G $286,490 None
McGraw-Hill 1,467 Apr-02 $17.50 G $25,673 None
Ernst & Young 17,499 Oct-07 $18.45 G $322,857 None
------ --------
66,064(2) $1,123,951(2)
Conrail Building 2605 Interstate Drive Health Central 12,699 Dec-00 $14.94 G $189,723 None
Aerotek 4,338 Apr-01 $15.00 G $65,070 None
PA Emergency Mgmt
Agency 43,828 Nov-01 $14.51 G $635,944 None
USF&G 19,903 Jun-02 $13.65 G $271,676 None
Vacant 3,500 Sep-02 G $0
----- --
84,268 $1,162,413
Princeton, NJ 429 Ridge Road Teleport Communications 113,975 Jul-07 $17.62 G $2,008,240 None
Teleport
Communications
Group Headquarters Group (TCG)
Vacant-Teleport
Option Space 28,410(3) Dec-08 $17.62 G $500,584 (3) None
------ --------
142,385 $2,508,824 None
Teleport National HQ 437 Ridge Road IBM/Teleport 30,000 Dec-06 $11.65 N $349,500 None
Communications Group(4)
IBM Building 431 Ridge Road IBM 170,000 Mar-02 $8.50 N $1,445,000 None
- -----------------------------------------------------------------------------------------------------------------------------
Total 1,480,454 $15,352,691
=============================================================================================================================
</TABLE>
- ----------
(1) Merck subleased 50% of building from Unisys and will be leasing the
remainder as of January 1, 1999.
(2) The Ernst & Young lease has not been included in the totals as the lease
does not commence until November 1, 1997 after the expiration of the
HealthAmerica lease (8/1/97).
(3) Teleport has one remaining option for 28,410 s.f. which would bring their
total square footage to 142,385. We anticipate this option being exercised
shortly.
(4) IBM has leased this building along with 431 Ridge Road under a single lease
until 3/31/02. Teleport has entered into a sub-lease with IBM ending
3/31/02 and a lease commencing 4/1/02 and ending 12/31/06 with Landlord.
<PAGE>
Exhibit
"H/SIC Properties Service Contracts"
ComCourt Investors L.P.
2601 Market Place
Allied Maintenance Janitorial Services
Bailey Landscape Maintenance Landscape Maintenance
Berkshire System Fire Alarm System Maintenance
Brickman Group Landscape Maintenance
Commonwealth Security Security System/Remote Alarms
Cummins Power Systems Diesel Generator Maintenance
First Industrial Management Corp. Management and Maintenance
George A. Kint, Inc. Fire Extinguisher Service
Greenhill's Plant Interiors Interior Plantscape Maintenance
Guardian Chemical Specialties Boiler Water Treatment
Home Paramount Pest Control Interior Pest Control
Lencioni's Window Cleaning Window Cleaning
McClure Mechanical Services HVAC Maintenance
Security Elevator Elevator Maintenance
Suppression Systems, Inc. Halon Fire Protection Service
The Protection Bureau Security System Maintenance
Waste Management, Inc. Trash Removal Services
Worldwide Services UPS System Maintenance
Blue Bell Investment Co., LP
None
6385 Flank Drive LP
Brickman Group Landscape Maintenance
Commonwealth Security Security System/Remote Alarms
First Industrial Management Corp. Management and Maintenance
Heintzelman's Window Cleaning Window Cleaning
Pealer's Florists Interior Plantscape Maintenance
USA Waste Trash Removal Services
Princeton Technology Center
Bell Atlantic Local phone service
Brickman Landscape maintenance
Comcast Metrophone Cellphone service
<PAGE>
Princeton Technology Center
continued
Cooper Electric Generator maintenance
Fluidics Chiller maintenance
Jackson-Cross Co. Property management
Klenzoid Equipment water treatment
Landis & Staefa Energy management system service
Manhattan Maintenance Cleaning service
MCI Long distance phone service
Metro Fire Protection Fire alarm system certification
Metrocall Pager service
Midco Recycling Trash recycling service
Midco Waste Systems Trash disposal
MobileComm Pager service
Public Service Gas & Electric Electricity & gas
Security Elevator co. Elevator maintenance
South Brunswick Township Water & sewer
Spectaguard Fire alarm system monitoring
Western Termite Pest control service
<PAGE>
<TABLE>
<CAPTION>
Exhibit
"H/SIC Properties Insurance"
Property Carrier Coverage
<S> <C> <C>
751 Jolly Road Sun Insurance Office of America All Risk up to $200,000,000
753 Jolly Road Sun Insurance Office of America All Risk up to $200,000,000
760 Jolly Road Sun Insurance Office of America All Risk up to $200,000,000
785 Jolly Road Sun Insurance Office of America All Risk up to $200,000,000
6385 Flank Drive Chubb All Risk up to $30,000,000
2601 Market Place Chubb All Risk up to $30,000,000
2605 Interstate Drive Chubb All Risk up to $30,000,000
429 Ridge Road Aon Risk Services- All Risk up to $30,000,000
Multiple Carriers
437 Ridge Road Aon Risk Services- All Risk up to $30,000,000
Multiple Carriers
431 Ridge Road Aon Risk Services- All Risk up to $30,000,000
Multiple Carriers
</TABLE>
<PAGE>
Exhibit
"H/SIC Litigation"
The only litigation involving any of the H/SIC properties is the lawsuit
captioned Nancy Kovac v. Unisys Corporation and Blue Bell Investment Co., L.P.
This is a personal injury claim for an alleged fall in Unisys' parking lot.
Under Unisys' lease, Unisys as Tenant completely indemnifies Blue Bell
Investment Company, L.P. in this matter.
<PAGE>
Exhibit "H/SIC Environmental Matters"
Blue Bell Investment Company, L.P.
The following reports refer to all three Blue Bell Properties, 751/753 Jolly
Road, 760 Jolly Road, and 785 Jolly Road and the adjacent Option Land.
- - Site Inspection and Supplemental Document Review performed by Leggette,
Brashears, & Graham, Inc. dated February 26, 1997
- - Revised Environmental Baseline Report for Unisys Corporation performed by
Douglas Burman, PE, REA dated January 1997
- - Environmental Indemnification Agreement for Unisys
Comcourt Investors, L.P.
2605 Interstate Drive
- - Phase I Environmental Site Assessment - Conrail Building performed by GZA
GeoEnvironmental dated September 13, 1996
2601 Market Place and Adjacent Option Land
- - Phase I Environmental site Assessment Update - Commerce Court performed by
GZA GeoEnvironmental dated September 13, 1996
South Brunswick Investors, L.P.
The following reports refer to all three South Brunswick Properties 429 Ridge
Road, 431 Ridge Road and 437 Ridge Road along with the Adjacent Option Land.
- - Phase I Environmental Site Assessment Report prepared by Groundwater
Technology, Inc. dated October 27, 1994
- - Phase I Environmental Update performed by Groundwater Technology, Inc.
dated April 19, 1296
- - Asbestos Investigation Report prepared by Galson Corporation dated June,
1995
- - Galson Summary Letter dated September 20, 1995
- - Remedial Investigation Summary Report for Remedial Activities prepared by
Kroll Environmental Enterprises, Inc. dated July 1995 submitted by IBM to
the New Jersey Department of Environmental Protection (NJDEP)
- - Remediation Agreement between NJDEP and IBM dated May 25, 1994
- - Amended Administrative Consent Order between NJDEP and IBM dated May 24,
1984
- - Environmental Indemnification Agreement from IBM
6385 Flank Drive, L.P.
The following report pertains to 6385 Flank Drive and the adjacent Option Land.
- - Phase I Environmental Site Assessment Report prepared by Groundwater
Technology dated February 25, 1994.
<PAGE>
Exhibit
"H/SIC Personal Property"
ComCourt Investors L.P.
2 Trash Cans - Cafeteria
2 Plastic Cones
1 Forklift
1 Volume-Air Air Balancer
1 Balometer
1 Pitot Tube
2 Temperature Recorders
2 Snapper 21' Mower w/Bag
1 STIHL String Trimmer
1 STIHL Blower/Vacuum
1 Gravely 36' Mower
1 Bench Grinder
2 Trash Cans - Lobbies
1 Wheelbarrow
Blue Bell Investment Co., LP
None
6385 Flank Drive LP
None
South Brunswick Investors, L.P.
1 Gateway Pentium desktop computer
2 Gateway 486 laptop computer
1 Hewlett Packard laser printer
1 Panasonic copier
1 Brother fax machine
1 IBM typewriter
1 Panasonic dictaphone transcriber
1 Olympus portable dictaphone unit
8 AT&T Merlin telephone sets
7 Motorola portable 2-way radios
3 Pager units
1 Small refrigerator
1 Bruning blueline drawing printer
8 Large drawing files
1 Secretarial station, files, chair
6 Office desks, credenzas, chairs
1 Conference table & 4 chairs
6 Picnic tables with benches
1 1981 Chevrolet Blazer with winch
1 Fork lift unit
1 Lift aloft bucket truck
Misc. tools, equipment, shelves
<PAGE>
Exhibit
Royale Personal Property
None that we are aware of.
<PAGE>
Exhibit
Royale Property Violations
None that we are aware of.
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Royale Leases
Square Expiration Annual
Property Address Tenant Feet Date Rental
<S> <C> <C> <C> <C> <C>
Cub Food Store 3550 Vicksburg Lane Fleming Companies, Inc. 67,510 Mar - 11
$522,813.48
Plymouth, MN
Cub Food Store Tenth & I-465 Wigest Corp. 67,541 Jul - 11
$548,196.48
Indianapolis, IN
Sentry Foods 7601 N. Port Washington Rd Fleming Companies, Inc. 36,248 Oct - 10
$158,300.00
Glendale, WI
Sentry Foods 3265 Golf Rd. Fleming Companies, Inc. 50,000 Nov - 14
$312,201.00
Delafield, WI
Supersaver Foods 630 E. Wisconsin Ave Fleming Companies, Inc. 39,272 May - 14
$249,125.00
Oconomowoc, WI
Sunmart 2100 S. Broadway Nash-Finch 46,134 Jan - 14
$305,773.94
Minot, ND
Econo Foods 1351 38th St. N. Nash-Finch 60,232 Jan - 14
$334,775.55
Peru, IL
</TABLE>
<PAGE>
Exhibit
Royale Purchase Options
Cub Food Store - Plymouth, MN None
Cub Food Store - Indianapolis, MN None
Sentry Foods - Glendale, WI None
Sentry Foods - Delafield, WI None
Supersaver Foods - Oconomowoc, WI None
Sunmart - Minot, ND None
Econo Foods - Peru, IL None
<PAGE>
Exhibit
"Royale Service Contracts"
None.
<PAGE>
Exhibit
"Royale Properties Insurance"
None.
<PAGE>
Exhibit
Royale Litigation
Evets Corp., a Minnesota Corporation which is owned by Steve Hoyt, is a
shareholder of Royale Investments, Inc. and has commenced a mandamus action to
compel Royale to produce a Non-Objecting Beneficiary List of shareholders (NOBO
List) and Royale has responded denying any obligation to provide any such list
to Evets Corp.
The action is pending.
<PAGE>
Exhibit
Royale Environmental Matters
Cub Food Store - Plymouth, MN None
Cub Food Store - Indianapolis, MN None
Sentry Foods - Glendale, WI None
Sentry Foods - Delafield, WI None
Supersaver Foods - Oconomowoc, WI None
Sunmart - Minot, ND None
Econo Foods - Peru, IL None
<PAGE>
"Schedule of H/SIC Debt Allocations"
The allocation of Project Specific Mortgages and Other Mortgages shall be
determined by the H/SIC General Partners and provided to all parties at least 15
days in advance of the closing.
<PAGE>
Exhibit
"H/SIC Management Transfer"
At Closing, H/SIC shall transfer to Royale all of its employees, current
and historical property and partnership files and records, management
agreements, market research, property submittal and offer databases, software,
and The Shidler Group confidential proprietary acquisition and management
systems, licenses and publications. In addition, the following furniture,
fixtures and equipment shall be transferred:
Office Equipment
Copy Machines Minolta 5430
Xerox
Fax Machine Xerox 7020
Printer HP LaserJet
Telephone Equipment Symantec
nine desk phones
two courtesy phones
Desks 4 desk layouts with overhead storage
File Cabinets 5 Steelcase 5' tall
1 Steelcase Storage Cabinet
3 Steelcase 3' tall
Kitchen Equipment Microwave
Refrigerator
Coffee Machine
Table & Chairs
Computers
Hardware 2 Dell Pentiums
2 Gateway Pentiums
1 Microcenter - 486
SMC elite 3609TP (10Base-T Concentrator)
Smart-UPS 400 (Battery Backup)
Network Novell - Netware v. 3.12
Software Microsoft Word & Excel
Lotus - spreadsheets Project C
- project analysis FileMaker
Pro - submittal & mailing
database Business Works -
accounting DayTimer - scheduler
Back-up System Mountain Filesafe v. 5.4
Internet Service Provider Erol's
<PAGE>
Virus Protection Symantec Norton AntiVirus
At Closing, H/SIC and its shareholders shall represent, covenant and
warrant to Royale, and hold Royale harmless, that all relevant and necessary
information with respect to the H/SIC Assets held by H/SIC has been transferred,
the non-existence of liens or obligations relating to the period of H/SIC's
ownership, including Bulk Sales and other unpaid taxes, absence of defaults,
valid ownership and authority, compliance with government requirements and other
standard provisions normally required in such instances and reasonably
acceptable to Royale's counsel. Such representations and warranties shall
survive the Closing.
The allocation of value attributable to the H/SIC Assets shall be
determined by the H/SIC General Partner and confirmed by H/SIC and the H/SIC
Partners at least 30 days in advance of the Closing.
<PAGE>
Exhibit
"Lease Guarantee Agreement"
Two separate agreements shall be entered into and funded at Closing between
the UPREIT and (i) the partners of Comcourt Investors, L.P. and (ii) the
partners of South Brunswick Investors, L.P. The substance of the agreements
shall be as follows:
Comcourt Investors, L.P. ("Comcourt")
1. Comcourt owns an office building of 66,064 rentable square fee, located
at 2601 Market Place, Commerce Park, Harrisburg, PA. The building is 100%
leased; however, on July 31, 1997, the lease for HealthAmerica, which occupies
42,941 sq. ft., is scheduled to expire (the "Vacant Space"). Comcourt has
executed a replacement lease dated May 30, 1997 between Comcourt as Landlord and
Ernst & Young U.S. LLP as Tenant for 17,499 sq. ft. of the Vacant Space,
commencing November 1, 1997 for a term of ten years, as well as a lease dated
August 8, 1997 with Penn State Geisinger System Services as Tenant for 17,665
sq. ft. of the Vacant Space, commencing November 1, 1997 for a term of ten
years, leaving a balance of 7,777 sq. ft. to be leased (the "Unleased Vacant
Space"). The Comcourt partners are negotiating with prospective tenants and
anticipate that leases for the Unleased Vacant Space will be quickly executed.
2. The partners are transferring their partnership interests to UPREIT at
Closing. As partial consideration for the transfer, the UPREIT has required that
the partners of Comcourt provide the UPREIT an agreement to insure that the
lease income attributable to the Vacant Space is beginning at the date of
Closing attained at the level projected, and, in addition, that the partners of
Comcourt by responsible for all tenant improvement and leasing commissions for
new leases on the Vacant Space, as well as the Ernst and Young and Penn State
Geisinger leases.
3. The Lease Income From the Vacant Space ("LEASE INCOME") means the
stabilized net rent determined on a GAAP basis.
4. The Comcourt partners shall fund two cash escrows at Closing. Comcourt
represents that the amounts escrowed are expected to cover all reasonably
anticipated amounts to be needed, based upon the lease terms and conservative
assumptions. The escrow amounts set forth below shall be reduced to the extent
that, prior to Closing, additional leasing of Vacant Space is achieved and/or
tenant improvements and/or leasing commissions are paid by Comcourt.
(a) The first escrow shall be in cash in the amount of $296,897 (the
"Comcourt LEASE INCOME Escrow") and shall be used by the UPREIT to the
extent required on a monthly basis to supplement the income as necessary to
achieve the LEASE INCOME, beginning at Closing.
(i) Upon lease up, commencement of occupancy and payment of rent
for the Vacant Space, the remaining balance of the Comcourt LEASE
INCOME Escrow shall be released to the Comcourt partners, provided
that the LEASE INCOME has been achieved. If the LEASE INCOME has not
been achieved, the amount retained shall be the present value
<PAGE>
of the amount of the annualized deficit below the LEASE INCOME from
such time multiplied by the number of years remaining on the lease.
(b) The second cash escrow shall be created by the Comcourt partners
in the amount of $945,104 for tenant improvements and leasing commissions
for the Vacant Space, as well as the full amount of improvements to be
incurred for the Ernst & Young space and the Penn State Geisinger space per
the attached schedule (the "Comcourt TI Escrow"). Such amount shall be
fully funded in cash at Closing. Payments from the Comcourt TI Escrow shall
be drawn for tenant improvements and leasing commissions for new tenants as
incurred by the UPREIT. Amounts not expended shall be refunded to the
Comcourt partners upon lease up of the Vacant Space.
South Brunswick Investors, L.P. ("SBI")
1. SBI owns an office building of 142,385 rentable square feet, located at
The Princeton Technology Center, 431 Ridge Road, Dayton, NJ. The building has
been undergoing a total renovation and lease up since 1996. 113,975 square feet
have been leased to the tenant, Teleport Communications Group, Inc. ("TCG"), for
a 10 year initial term. TCG has exercised an option to lease the remaining
28,410 sq. ft. (the "Vacant Space") for a ten year term commencing February 1,
1998. The SBI partners have represented to the UPREIT that all capital
improvements respecting the renovation and all tenant improvements for the
113,975 of leased space and the 28,410 option space shall be paid at Closing.
2. The SBI partners are transferring their partnership interests to the
UPREIT at Closing. As partial consideration for the transfer, the SBI partners
will provide one cash escrow to subsidize the net income attributable to the
Vacant Space from the date of Closing until the commencement of rent and another
cash escrow to fund all tenant improvement and leasing commissions for the new
lease on the Vacant Space.
3. The Lease Income From the Vacant Space ("LEASE INCOME") means the
stabilized net rent determined on a GAAP basis.
4. The SBI partners shall fund two cash escrows at Closing. SBI represents
that the amounts escrowed are expected to cover all reasonably anticipated
amounts to be needed, based upon the lease terms. The escrow amounts set forth
below shall be reduced to the extent that, prior to Closing, tenant
improvements, leasing commission or capital improvements are otherwise paid for
which escrowed monies are to be provided hereinafter.
(a) The first escrow shall be in cash in the amount of $245,563 (the
"SBI LEASE INCOME Escrow") and shall be used by the UPREIT to the extent
required on a monthly basis to supplement the income as necessary to
achieve the LEASE INCOME, beginning at Closing.
(i) Upon commencement of occupancy and payment of rent for the
Vacant Space, the remaining balance of the SBI LEASE INCOME Escrow, if
any, shall be released to the SBI partners.
(b) The second cash escrow shall be created by the SBI partners at
Closing in the amount of $3,435,350 for the full amount of improve-
<PAGE>
ments to be incurred for (i) any accrued but unpaid capital improvements
for the building renovation and unpaid leasing commissions and tenant
improvements for the 113,975 sq. ft. of leased space as of the date of
Closing, and (ii) tenant improvements and leasing commissions for the
Vacant Space, as per the attached schedule (collectively, the "SBI TI
Escrow"). Such amount shall be fully funded in cash at Closing. Payments
from the SBI TI Escrow shall be drawn for tenant improvements and leasing
commissions as incurred by the UPREIT. Amounts not expended shall be
refunded to the SBI partners upon rent commencement of the Vacant Space.
<PAGE>
Comcourt Lease Income
2601 Market Place
MONTH 1 2 3
Oct-97 Nov-97 (thereafter)
Square footage 7,777
Rent-E & Y 24,352
Rent-Penn State 24,289
Rent-Vacant Space 11,971 11,971 11,971
Reimbursements 0 0 0
--------------------------------------
Total Income 60,612 11,971 11,971
Less Expense Reduction (2,021) (2,021) (2,021)
======================================
Lease Income Guarantee 58,591 9,950 9,950
======================================
Years
Present Value @ 5% 2 296,897
<PAGE>
<TABLE>
<CAPTION>
Comcourt TI Escrow
2601 Market Place
Commerce Court
Tenant Capital
Tenant Square Footage Improvements Commissions Improvements Total
- ------ -------------- ------------ ----------- ------------ -----
<S> <C> <C> <C> <C> <C>
Ernst & Young 17,499 316,732 73,617 390,349
Penn State/Geisinger 17,665 247,310 121,087 368,397
Vacant Space 7,777 82,770 30,425 113,195
- ----------------------------------------------------------------------------------------------------
Total Commerce Court 646,812 225,129 0 871,941
- ----------------------------------------------------------------------------------------------------
Conrail Building
Tenant Capital
Tenant Square Footage Improvements Commissions Improvements Total
PEMA 73,163 73,163
- ----------------------------------------------------------------------------------------------------
Total Conrail 73,163 0 0 73,163
- ----------------------------------------------------------------------------------------------------
====================================================================================================
TOTAL 719,975 225,129 0 945,104
====================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SBI Lease Income
429 Ridge Road
Month 1 2 3 4
Oct-97 Nov-97 Dec-97 Jan-98 Total
<S> <C> <C> <C> <C> <C> <C>
Square footage 28,410
TCG Option Payment Refund 85,230 85,230
Rent 41,913 41,913 41,913 41,913 167,651
Reimbursements 988 988 988 988 3,951
- ----------------------------------------------------------------------------------------
Total Income 42,901 42,901 42,901 128,131 256,832
Less Expense Reduction (2,817) (2,817) (2,817) (2,817) (11,269)
========================================================================================
Less Income Guarantee 0,083 40,083 40,083 125,313 245,563
========================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SBI TI Escrow
429 Ridge Road
Tenants Capital
Tenant Square Footage Improvements Commissions Improvements
Total
<S> <C> <C> <C> <C> <C>
Teleport Communications Group 292,000 106,000
398,000
Initial Lease-Existing Obligations
Teleport Communications Group 26,425 1,057,000 285,950
1,342,950
First Option Space - already exercised
Teleport Communications Group 28,410 1,136,400 305,000 80,000
1,521,400
Second Option Space - already exercised
General Property Improvements 173,000
173,000
==================================================== =================
===============
Totals 2,485,400 696,950 253,000
3,435,350
==================================================== =================
===============
</TABLE>
<PAGE>
EXHIBIT 2
AMENDMENT TO
FORMATION/CONTRIBUTION AGREEMENT
THIS AMENDMENT TO FORMATION CONTRIBUTION AGREEMENT ("Amendment") dated as
of the 13th day of October, 1997 by and among ROYALE INVESTMENTS, INC., a
Minnesota corporation ("Royale"), H/SIC CORPORATION, a Delaware corporation
("H/SIC"), STRATEGIC FACILITY INVESTORS, INC., a Delaware corporation
("Strategic"), the sole general partner of BLUE BELL INVESTMENT COMPANY, L.P., a
Delaware limited partnership ("Blue Bell"), SOUTH BRUNSWICK INVESTMENT COMPANY,
LLC, a New Jersey limited liability company ("SBIC"), a general partner of SOUTH
BRUNSWICK INVESTORS, L.P., a Delaware limited partnership ("South Brunswick"),
COMCOURT INVESTMENT CORPORATION, a Pennsylvania corporation ("ComCourt
Corporation"), the sole general partner of COMCOURT INVESTORS, L.P., a Delaware
limited partnership ("Comcourt"), and GATEWAY SHANNON DEVELOPMENT CORPORATION, a
Pennsylvania corporation ("Gateway"), the sole general partner of 6385 FLANK
DRIVE, L.P., a Pennsylvania limited partnership ("Flank Drive") (collectively,
the "Parties").
BACKGROUND
The Parties are party to a certain Formation/Contribution Agreement dated
as of September 7, 1997 (the "Formation Agreement"), pursuant to which the
Parties agreed to pursue a series of transactions, the general structure of
which is set forth in the Formation Agreement. Capitalized terms used herein and
not otherwise defined shall have the meanings set forth in the Formation
Agreement.
Section 26 and Exhibit "Lease Guarantee Agreement" of the Formation
Agreement together outline terms calling for the funding of certain escrows by
the partners of Comcourt and South Brunswick (the "Partners") at Closing. The
Parties have agreed to modify these provisions in a manner intended to
facilitate the overall transaction.
The Parties also desire to amend the definition of H/SIC Assets, Section
9(d)(9) and Exhibit "UPREIT Agreement Terms" of the Formation Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree to the following
modifications of the terms of the Formation Agreement:
1. On the Closing Date, the Partners shall, in lieu of two escrows designed
to subsidize the lease income of Comcourt and South Brunswick (the "Receiving
Partnerships"), fund, or cause to be funded, a single rent escrow account (the
"Rent Escrow"). The Rent Escrow shall be in the amount set forth in the Exhibit
"Lease Income" attached hereto and shall be deposited in an account to be held
and disbursed by Bankers Trust Company pursuant to the provisions of that
certain Credit Agreement to be executed by Royale, FCO, L.P., FCO Holdings,
Inc., Blue Bell, Comcourt, South Brunswick, and Flank Drive in connection with
the H/SIC Properties Indebtedness (the "Credit Agreement"). The Rent Escrow
shall be delivered in its entirety to the Receiving Partnerships pursuant to the
schedule set forth in Exhibit "Lease Income", and the partners shall not be
entitled to the return of any portion of the Rent Escrow.
<PAGE>
-2-
2. On the Closing Date, the Partnerships (and not the Partners) shall, in
lieu of two escrows designed to finance certain tenant improvement obligations
of the Receiving Partnerships, fund a single tenant improvement escrow account
(the "Tenants Costs"). The TI Escrow shall be funded in the amount set forth in
the Exhibit "TI Escrow" attached hereto and shall be deposited in an account to
be held and disbursed by Bankers Trust Company pursuant to the provisions of the
Credit Agreement. The TI Escrow shall be delivered in its entirety to the
Receiving Partnerships pursuant to the schedule set forth in Exhibit "Tenants
Costs", and the Partners shall not be entitled to the return of any portion of
the TI Escrow.
3. The definition of H/SIC Assets in the Formation Agreement is amended to
read as follows:
"H/SIC Assets" shall mean H/SIC's furniture, fixtures, equipment and
proprietary assets.
4. Section 9(d)(9) of the Formation Agreement is hereby amended to read as
follows:
"(9) Except as otherwise provided in Section 7(f) and except to
the extent the UPREIT Agreement may provide for a shorter holding
period or for shorter holding periods, such Contributor acknowledges
and agrees that (A) the Common Units to be issued at Closing shall not
be exchangeable or exchanged for Royale Common Stock for a period of
thirteen (13) months from and after the date of Closing, and (B)
Preferred Units to be issued at Closing shall not be exchangeable or
exchanged for Royale Common Stock for a period of twenty-five (25)
months from and after the Closing Date. Common Units and Preferred
Units received by the Retained Partners at the Retained Interests
Closing shall not be subject to any holding period and the Retained
Partners shall have the right to exchange immediately for Royale
Common Stock such Common Units and Preferred Units received at the
Retained Interests Closing."
5. The paragraph captioned "Management Expenses" is hereby deleted from
Exhibit "UPREIT Agreement Terms" of the Formation Agreement. The Parties agree
that the Limited Partnership Agreement of FCO, L.P. to be executed at Closing
satisfies the requirements of Exhibit "UPREIT Agreement Terms."
6. This Amendment may not be amended except by an instrument in writing
signed by the parties to this Amendment.
7. This Amendment may be executed in several counterparts, each of which
will be deemed an original and all of which shall constitute one and the same
instrument and shall be governed in all respects by the laws of the Commonwealth
of Pennsylvania.
8. As amended by this Amendment, the Formation Agreement shall remain in
full force and effect.
<PAGE>
-3-
9. This Amendment shall be binding upon, and shall be enforceable by and
inure to the benefit of, the parties named herein and their respective
successors.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
H/SIC CORPORATION, a Delaware
corporation
By:
-------------------------------
STRATEGIC FACILITY INVESTORS, INC., a Delaware limited
partnership, the sole general partner of Blue Bell
Investment Company, L.P., a Delaware limited
partnership
By:
-------------------------------
SOUTH BRUNSWICK INVESTMENT COMPANY, LLC, a New Jersey
limited liability company, a general partner of South
Brunswick Investors, L.P., a Delaware limited
partnership
By:
-------------------------------
(SIGNATURES CONTINUED ON NEXT PAGE)
<PAGE>
-4-
COMCOURT INVESTMENT CORPORATION, a Pennsylvania
corporation, the sole general partner of ComCourt
Investors, L.P., a Delaware limited partnership
By:
-------------------------------
GATEWAY SHANNON DEVELOPMENT CORPORATION, a
Pennsylvania corporation, the sole general partners
of 6385 Flank Drive, L.P.
By:
-------------------------------
ROYALE INVESTMENTS, INC., a
Minnesota corporation
By:
-------------------------------
Crown Advisors, Inc. and its shareholders join in this Amendment.
CROWN ADVISORS, INC.
By:
-------------------------------
SHAREHOLDERS:
-----------------------------------
Vernon R. Beck
-----------------------------------
John D. Parsinen
<PAGE>
-5-
<TABLE>
<CAPTION>
Exhibit "TI Escrow"
Square Tenant Capital
Tenant Footage Improvements Commissions Improvements Total
<S> <C> <C> <C> <C> <C>
429 Ridge Road
Teleport Communications Group 87,550 291,805 103,723 30,000 425,528
Initial Lease - Existing Obligations
Teleport Communications Group 26,425 0 359,450 359,450
First Option Space - already exercised
Teleport Communication Group 28,410 1,136,400 335,790 70,000 1,542,190
Second Option Space - already exercised
General Property Improvements 104,00 104,000
------------------------------------------------------------------------------
Total Ridge Road 1,428,205 798,963 204,000 2,431,168
----------------------------------------------------------------------------
Commerce Court
Ernst & Young 17,499 197,091 98,617 295,708
Penn State/Geisinger 17,665 247,310 143,565 390,875
Groundwater Sciences 4,702 8,528 0 8,528
Penn State/Geisinger 1st Floor 7,763 33,500 15,053 48,553
----------------------------------------------------------------------------
Total Commerce Court 486,429 257,235 0 743,664
----------------------------------------------------------------------------
Conrail Building
PEMA 51,161 51,161
---------------------------------------------------------------------------
Total Conrail 51,161 0 0 51,161
---------------------------------------------------------------------------
TOTAL 1,965,795 1,056,198 204,000 3,225,993
==========================================================================
</TABLE>
<PAGE>
-6-
<TABLE>
<CAPTION>
Schedule 5.6
Lease Income
Oct-97 Nov-97 Dec-97 Jan-98 Total
<S> <C> <C> <C> <C> <C>
429 Ridge Road
TCG Option Payment Refund 92,333 92,333
Rent 24,222 41,715 41,715 41,715 149,368
Reimbursements 574 988 988 988 3,537
-----------------------------------------------------------------------------
Total Income 24,796 42,703 42,703 135,036 245,238
Less Expense Reduction (1,636) (2,817) (2,817) (2,817)
(10,088)
Lease Income Reserve 23,160 39,886 39,886 132,218 235,150
=============================================================================
Commerce Court Oct-97 Nov-97 Dec-97 Thereafter Total
Rent - E &Y 4,140
Rent - Penn State 14,103
Rent - Penn State - 1st Fl 5,785
Rent - Vacant Space 321 553 553 10,695
-----------------------------------------------------------------------------
Total Income 34,349 553 553 10,695 46,150
Less Expense Reduction 0 0 0 0 0
-----------------------------------------------------------------------------
Lease Income Reserve 34,349 553 553 10,695 46,150
=============================================================================
=============================================================================
Total Rent Reserve 57,509 40,439 40,439 142,913 281,300
=============================================================================
</TABLE>
AGREEMENT AND PLAN
OF REORGANIZATION
REGARDING
CROWN ADVISORS, INC.
THIS AGREEMENT AND PLAN OF REORGANIZATION, made this 13th day of October,
1997, by and between Royale Investments, Inc., a Minnesota corporation having
its principal place of business at 3430 List Place, Minneapolis, MN 55416
("Royale") and Crown Advisors, Inc., a Minnesota corporation having its
principal place of business at 3430 List Place, Minneapolis, MN 55416 ("Crown").
WHEREAS, Royale wishes to acquire and Crown wishes to transfer all of
Crown's assets in a transaction intended to qualify as a reorganization within
the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended.
NOW, THEREFORE, Royale and Crown adopt this Plan of Reorganization and
agree as follows:
ARTICLE I. EXCHANGE OF ASSETS FOR STOCK; LIQUIDATION OF CROWN
1.1. Transfer of Assets. At the Closing, Crown shall transfer to Royale all
of its assets, free and clear of encumbrances or Crown liabilities, which
include, without limitation, all of its furniture fixtures and equipment, that
certain Amended and Restated REIT Advisory Agreement dated as of November 22,
1995 between Royale and Crown (the "Advisory Agreement") and an aggregate of
27,646 shares of Common Stock of Royale together with the right to receive
dividends of $3,455.75 for the third quarter of 1997 (the "Shares")
(collectively, the "Assets") in exchange for an aggregate of 273,729 shares of
voting Common Stock of Royale (the "Royale Shares"), to be issued at the Closing
to Crown.
1.2. Bill of Sale. The transfer of the Assets shall be effected by the
delivery to Royale of a bill of sale in form and substance satisfactory to
Royale.
1.3. Restrictions on Royale Shares. The Royale Shares issuable pursuant to
this Plan of Reorganization will be "restricted securities" within the meaning
of Rule 144 under the Securities Act of 1933, as amended (the "Act"), and will
contain a legend restricting transfer thereof without registration under the Act
and applicable state securities laws or an exemption therefrom. Royale may also
place a "stop transfer"order with its transfer agent to such effect.
Notwithstanding the above, Royale acknowledges that immediately after
effectuating the exchange, the Royale Stares will be transferred to the
shareholders of Crown in liquidation of Crown.
1.4 Registration Rights on Royale Shares. The holders of the Royale shares
shall have the registration rights with respect to Royale Shares specified in
that certain Registration Rights Agreement dated October ___, 1997 executed by
Royale for the benefit of Holders of Limited Partnership Units and Preferred
Units of FC, L.P. and Holders of Common Stock of Royale, Investments, Inc.
1.5 Liquidation of Crown. Immediately after effectuating the exchange of
Assets for the Royale Shares, Crown shall liquidate and distribute all of the
Royale Shares to its shareholders.
<PAGE>
-2-
ARTICLE II. THE CLOSING
The Closing contemplated by Article I shall be held at such place and time
as shall be agreed upon by the parties, but in no event shall the Closing occur
later than October 31, 1997.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CROWN
Crown hereby represents and warrants to Royale as follows:
3.1. Title To Assets. Crown has good and marketable title to all of the
Assets, free and clear of any liens or encumbrances, except for the lien, if
any, held by National City Bank (the "National City Lien"), which shall be
released prior to or at the Closing.
3.2. Authorization. This Agreement has been duly authorized, executed, and
delivered by Crown, and constitutes a valid and binding agreement of Crown
enforceable in accordance with its terms.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF ROYALE
Royale represents and warrants to Crown, as follows:
4.1. Corporate Authority; Authorization. Royale has the full corporate
power and authority to enter into this Agreement, the execution of which has
been duly authorized by all requisite corporate action on the part of Royale.
4.2. Issuance of Shares. The Royale Shares, when issued in exchange for the
Assets, will be fully paid, validly issued and non-assessable.
ARTICLE V. COMMONS PRECEDENT TO ROYALE'S OBLIGATIONS
The obligations of Royale under this Agreement, are subject to fulfillment,
before or on the date of Closing, of each of the following conditions, any of
which may be waived in writing at the discretion of Royale:
5.1. Representations and Warranties of Crown. The representations and
warranties of Crown contained herein shall be true and correct, in all material
impacts, as of the date hereof, and shall continue to be true and correct, in
all material aspects, as of the Closing.
5.2. Covenants and Agreements of Crown. Crown shall have performed all
obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing.
<PAGE>
-3-
ARTICLE VI. CONDITIONS PRECEDENT TO CROWN'S OBLIGATIONS
The obligations of Crown under this Agreement, are subject to the
fulfillment, before or on the date of Closing, of each of the following
conditions, any of which may be waived in writing at the discretion of Crown:
6.1. Representations and Warranties of Royale. The representations and
warranties of Royale contained herein shall be true and correct, in all material
respects, as of the date hereof, and shall continue to be true and correct, in
all material aspects, as of the Closing.
6.2. Covenants and Agreements of Royale. Royale shall have performed all
obligations and complied with all covenants and conditions expired by this
Agreement to be performed or complied with by it at or prior to the Closing.
6.3. Approval of the Board of Directors of Royale. The Board of Directors
of Royale shall have approved the transaction as contemplated by this Agreement.
ARTICLE VII. TERMINATION
7.1. Circumstances of Termination. This Agreement may be terminated (1) by
mutual consent in writing; (2) by either Crown or Royale if there has been a
material misrepresentation or material breach of any warranty or covenant by the
other patty, which determination on behalf of Royale shall be made by its Board
of Directors in its sole discretion; or (3) if the Closing shall not have taken
place, unless adjourned to a later date by mutual consent in writing, by the
date set forth in Article II.
7.2. Effect of Termination. In the event of a termination of this Agreement
pursuant to Section 7.1, each party shall pay the costs and expenses incurred by
it in connection with this Agreement and no party (or any of its officers,
directors, and shareholders) shall be liable to any other party for any costs,
expenses, damage or loss of anticipated profits hereunder.
ARTICLE VIII. MISCELLANEOUS
8.1. Waivers. No action pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party shall be deemed to
constitute a waiver by the party taking such action of any representation,
warranty, covenant, or agreement contained herein, except that a breach of any
representation or warranty set forth herein that is known to a party hereto at
the time the transactions contemplated hereby are consummated shall not be
subsequently enforceable or actionable by such party. A waiver by any party, or
repeated waiver by any party hereto, of a breach or repeated series of breaches
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach.
8.2. Governing Law. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Minnesota applicable to agreements executed in Minnesota.
<PAGE>
-4-
8.3. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements, arrangements, and understandings
relating to the subject matter hereof.
8.4. Continuation of Representations and Warranties. The representations
and warranties of Articles III and IV of this Agreement shall survive the
closing of the transactions contemplated by thus Agreement.
8.5. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given, if sent by registered mail or certified
mail, postage prepaid, and addressed to the address set forth above with the
name of each party hereto.
8.6. Assignment. This Agreement may not be assigned by operation of law or
otherwise.
8.7. Headings. Readings in this Agreement are descriptive only, are
inserted for convenience, and do not constitute part of this Agreement.
8.8. Counterparts. This Agreement may be signed in any number of
counterparts, and all such counterparts taken together shall constitute a single
agreement of the parties.
IN WITNESS WHEREOF, each of the parties has executed or caused its duly
authorized representative to execute this Agreement and Plan of Reorganization
in the manner appropriate to each, all as of the date first above written.
ROYALE INVESTMENTS, INC.
By:_______________________________________________
Its ____________________________________________
CROWN ADVISORS, INC.
By:_______________________________________________
Its:____________________________________________
FCO, L.P.
LIMITED PARTNERSHIP AGREEMENT
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS PURSUANT TO A
REGISTRATION OR EXEMPTION THEREFROM
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - INTERPRETIVE PROVISIONS........................................1
SECTION 1.1 Certain Definitions.......................................1
SECTION 1.2 Rules of Construction....................................11
ARTICLE II - CONTINUATION.................................................12
SECTION 2.1 Continuation.............................................12
SECTION 2.2 Name ....................................................12
SECTION 2.3 Place of Business; Registered Agent......................12
ARTICLE III - BUSINESS PURPOSE............................................12
SECTION 3.1 Business ................................................12
SECTION 3.2 Authorized Activities....................................13
ARTICLE IV - CAPITAL CONTRIBUTION.........................................13
SECTION 4.1 Capital Contributions....................................13
SECTION 4.2 Additional Partnership Interests.........................14
SECTION 4.3 No Third Party Beneficiaries.............................14
SECTION 4.4 Capital Accounts.........................................15
SECTION 4.5 Return of Capital Account; Interest......................16
SECTION 4.6 Preemptive Rights........................................17
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS.................................17
SECTION 5.1 Limited Liability........................................17
SECTION 5.2 Profits, Losses and Distributive Shares..................17
SECTION 5.3 Distributions............................................22
SECTION 5.4 Distributions upon Liquidation...........................24
SECTION 5.5 Amounts Withheld.........................................24
ARTICLE VI - PARTNERSHIP MANAGEMENT.......................................24
SECTION 6.1 Management and Control of Partnership Business...........24
SECTION 6.2 No Management by Limited partners;
Limitation of Liability.................................25
SECTION 6.3 Limitations on Partners..................................25
SECTION 6.4 Business with Affiliates.................................26
SECTION 6.5 Compensation; Reimbursement of Expenses..................26
SECTION 6.6 Liability for Acts and Omissions.........................26
SECTION 6.7 Indemnification..........................................27
ARTICLE VII - ADMINISTRATIVE, FINANCIAL AND TAX MATTERS...................28
-i-
<PAGE>
Page
SECTION 7.1 Books and Records........................................28
SECTION 7.2 Annual Audit and Accounting..............................28
SECTION 7.3 Partnership Funds........................................28
SECTION 7.4 Reports and Notices......................................28
SECTION 7.5 Tax Matters..............................................29
SECTION 7.6 Withholding..............................................29
ARTICLE VIII - TRANSFER OF PARTNERSHIP INTERESTS; ADMISSION OF PARTNERS..30
SECTION 8.1 Transfer by General Partner..............................30
SECTION 8.2 Obligations of a Prior General Partner...................30
SECTION 8.3 Successor General Partner................................30
SECTION 8.4 Restrictions on Transfer and Withdrawal
by Limited Partner..................................31
SECTION 8.5 Substituted Limited Partner..............................32
SECTION 8.6 Timing and Effect of Transfers...........................33
SECTION 8.7 Additional Limited Partners..............................33
SECTION 8.8 Amendment of Agreement and Certificate...................33
ARTICLE IX REDEMPTION AND CONVERSION......................................33
SECTION 9.1 Right of Redemption......................................33
SECTION 9.2 Timing of Redemption.....................................34
SECTION 9.3 Redemption Price.........................................34
SECTION 9.4 Assumption of Redemption Obligation......................34
SECTION 9.5 Further Assurances; Certain Representations..............35
SECTION 9.6 Effect of Redemption.....................................35
SECTION 9.7 Registration Rights......................................35
SECTION 9.8 Conversion...............................................35
SECTION 9.9 Redemption Restriction...................................36
SECTION 9.10 Special Event............................................36
ARTICLE X - DISSOLUTION AND LIQUIDATION...................................37
SECTION 10.1 Term and Dissolution.....................................37
SECTION 10.2 Liquidation of Partnership Assets........................38
SECTION 10.3 Effect of Treasury Regulations...........................39
SECTION 10.4 Time for Winding-Up......................................40
ARTICLE XI - AMENDMENTS AND MEETINGS......................................40
SECTION 11.1 Amendment Procedure......................................40
SECTION 11.2 Meetings and Voting......................................41
ARTICLE XII - MISCELLANEOUS PROVISIONS....................................41
SECTION 12.1 Title to Property........................................41
-ii-
<PAGE>
Page
SECTION 12.2 Other Activities of Limited Partners
and Preferred Limited Partners.........................42
SECTION 12.3 Power of Attorney........................................42
SECTION 12.4 Notices .................................................43
SECTION 12.5 Further Assurances.......................................43
SECTION 12.6 Titles and Captions......................................43
SECTION 12.7 Applicable Law...........................................44
SECTION 12.8 Binding Agreement........................................44
SECTION 12.9 Waiver of Partition......................................44
SECTION 12.10 Counterparts and Effectiveness...........................44
SECTION 12.11 Survival of Representations..............................44
SECTION 12.12 Entire Agreement.........................................44
SECTION 12.13 Temporary Allocation.....................................44
SECTION 12.14 Authorization and Consent................................44
Exhibit 1 - Schedule of Partners
Exhibit 2 - Form of Redemption or Conversion Notice
Exhibit 3 - Form of Registration Rights Agreement
-iii-
<PAGE>
FCO, L.P.
LIMITED PARTNERSHIP AGREEMENT
The undersigned, being the sole general partner and the initial Limited
Partners of FCO, L.P. (the "Partnership"), a limited partnership formed under
the Delaware Revised Uniform Limited Partnership Act, do hereby enter into this
Partnership Agreement this 14th day of October 1997.
R E C I T A L S:
A. The Partnership was formed pursuant to a Certificate of Limited
Partnership filed on October 10, 1997 with the Secretary of State of the State
of Delaware under the name "FCO, L.P."
B. The General Partner and the initial Limited Partners desire to set forth
the understandings and agreements, including certain rights and obligations,
among the Partners (as hereinafter defined) with respect to the Partnership.
- -------------------------------------------------------------------------------
ARTICLE I - INTERPRETIVE PROVISIONS
- -------------------------------------------------------------------------------
SECTION 1.1 Certain Definitions. The following terms have the definitions
hereinafter indicated whenever used in this Agreement with initial capital
letters:
Act: The Delaware Revised Uniform Limited Partnership Act, ss.ss. 17-101 to
171 -1111 of the Delaware Code Annotated. Title 6, as amended from time to time.
Additional Limited Partner/Preferred Limited Partner: A Person admitted to
the Partnership as a Limited Partner or Preferred Limited Partner in accordance
with Section 8.7 hereof and who is shown as such on the books and records of the
Partnership.
Adjusted Capital Account: With respect to any Partner, such Partner's
Capital Account maintained in accordance with Section 4.4 hereof, as of the end
of the relevant Fiscal Year of the Partnership, after giving effect to the
following adjustments:
(A) Credit to such Capital Account such Partner's share of Partnership
Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(g)(1) and such Partner's share of Partner Minimum Gain determined in
accordance with Treasury Regulations Section 1.7042(i)(5).
<PAGE>
-2-
(B) Debit to such Capital Account the items described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account" is intended to
comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2)(ii)
and 1.704-2 and shall he interpreted consistently therewith.
Adjusted Capital Account Deficit: With respect to any Partner, the deficit
balance, if any, in that Partner's Adjusted Capital Account as of the end of the
relevant Fiscal Year of the Partnership.
Affiliate: With respect to any referenced Person, (i) a member of such
Person's immediate family; (ii) any Person who directly or indirectly owns,
controls or holds the power to vote ten percent (10%) or more of the outstanding
voting securities of the Person in question; (iii) any Person ten percent (10%)
or more of whose outstanding securities are directly or indirectly owned,
controlled, or held with power to vote by the Person in question; (iv) any
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with the Person in question; (v) if the Person in
question is a corporation, any executive officer or director of such Person or
of any corporation directly or indirectly controlling such Person: and (vi) if
the Person in question is a partnership, any general partner of the partnership
or any limited partner owning or controlling ten percent (10%) or more of either
the capital or profits interest in such partnership. As used herein, "control"
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities. by contract. or otherwise.
Agreed Value: In the case of any (i) Contributed Property acquired pursuant
to a Contribution Agreement, the value of such Contributed Property as set forth
in or determined pursuant to such Contribution Agreement or, if no such value is
set forth or determined for such Contributed Property, the portion of the
consideration provided for under such Contribution Agreement allocable to such
Contributed Property, as determined by the General Partner in its reasonable
discretion, (ii) Contributed Property acquired other than pursuant to a
Contribution Agreement, the fair market value of such property at the time of
contribution, as determined by the General Partner using such method of
valuation as it may adopt in its reasonable discretion and (iii) property
distributed to a Partner by the Partnership. the Partnership's Book Value of
such property at the time such property is distributed without taking into
account, in the case of each of (i), (ii) and (iii)), the amount of any related
indebtedness assumed by the Partnership (or the Partner in the case of clause
(iii)) or to which the Contributed Property is taken subject.
Agreement: This Limited Partnership Agreement and all Exhibits attached
hereto, as the same may be amended or restated and in effect from time to time.
Assignee: Any Person to whom one or more Partnership Units have been
Transferred as permitted under this Agreement but who has not become a
Substituted Limited Partner in accordance with the provisions hereof.
<PAGE>
-3-
Bankruptcy: Either (i) a referenced Person's making an assignment for the
benefit of creditors, (ii) the filing by a referenced Person of a voluntary
petition in bankruptcy, (iii) a referenced Person's being adjudged insolvent or
having entered against him an order for relief in any bankruptcy or insolvency
proceeding, (iv) the filing by a referenced Person of an answer seeking any
reorganization, composition, readjustment, liquidation, dissolution, or similar
relief under any law or regulation, (v) the filing by a referenced Person of an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against him in any proceeding of reorganization,
composition, readjustment, liquidation, dissolution, or for similar relief under
any statute, law or regulation or (vi) a referenced Person's seeking, consenting
to, or acquiescing in the appointment of a trustee, receiver or liquidator for
all or substantially all of his property (or court appointment of such trustee,
receiver or liquidator).
Book-Tax Disparity: With respect to any item of Contributed Property, or
property the Book Value of which has been adjusted in accordance with Section
4.4(D), as of the date of determination, the difference between the Book Value
of such property and the adjusted basis of such property for federal income tax
purposes.
Book Value: With respect to any Contributed Property, the Agreed Value of
such property reduced (but not below zero) by all Depreciation with respect to
such property properly charged to the Partners' Capital Accounts and with
respect to any other asset, the asset's adjusted basis for federal income tax
purposes; provided, however, (a) the Book Value of all Partnership Assets shall
be adjusted in the event of a revaluation of Partnership Assets in accordance
with Section 4.4(D) hereof, N the Book Value of any Partnership Asset
distributed to any Partner shall be the fair market value of such asset on the
date of distribution as determined by the General Partner and (c) such Book
Value shall be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
Capital Account: The account maintained by the Partnership for each Partner
described in Section 4.4 hereof.
Capital Contribution: The total amount of cash or cash equivalents and the
Agreed Value (reduced to take into account the amount of any related
indebtedness assumed by the Partnership, or to which the Contributed Property is
subject) of Contributed Property which a Partner contributes or is deemed to
contribute to the Partnership pursuant to the terms of this Agreement.
Cash Payment: The payment to a Redeeming Party of a cash amount determined
by multiplying (i) the number of Partnership Units tendered for redemption by
such Redeeming Party pursuant to a validly proffered Redemption Notice by (ii)
the Unit Value with respect to such Partnership Units.
Certificate: The Partnership's Certificate of Limited Partnership filed in
the office of the Secretary of State of the State of Delaware, as amended from
time to time.
Code: The Internal Revenue Code of 1986, as amended from time to time.
<PAGE>
-4-
Consent: Either the written consent of a Person or the affirmative vote of
such Person at a meeting duly called and held pursuant to this Agreement, as the
case may be, to do the act or thing for which the consent or vote is required or
solicited, or the act of granting such consent or vote, as the context may
require.
Contributed Property: Each property or other asset (excluding cash and cash
equivalents) contributed or deemed contributed to the Partnership (whether as a
result of a Code Section 708 termination or otherwise). For the avoidance of
doubt, the properties and assets held by the partnership constituting the
Contributed Interests (as defined in the Formation Agreement) shall constitute
Contributed Properties to the extent the Contributed Interests are acquired by
the Partnership.
Contribution Agreements: Those certain agreements among one or more of the
Initial Limited Partners (or Persons in which such Initial Limited Partners have
direct or indirect interests) and the Partnership pursuant to which, inter alia,
the Initial Limited Partners (or such Persons), directly or indirectly are
contributing property to the Partnership on the date of this agreement in
exchange for Partnership Units including, without limitation, the Formation
Agreement.
Conversion Factor: The factor (carried out to four decimal places) applied
for converting Partnership Units to REIT Shares, which shall initially be 1.0;
provided, however, in the event that on or after the date of this Agreement the
General Partner (i) declares or pays a dividend on its outstanding REIT Shares
in REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares, (H) subdivides its outstanding REIT Shares or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Factor shall be adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date (assuming for such purposes that such dividend,
distribution, subdivision or combination has occurred as of such time), and the
denominator of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, subdivision or combination; provided_further, in the
event that the Partnership (a) declares or pays a distribution on the
outstanding Partnership Units in Partnership Units or makes a distribution to
all Partners in Partnership Units. (b) subdivides the outstanding Partnership
Units or (c) combines the outstanding Partnership Units into a smaller number of
Partnership Units, the Conversion Factor shall be adjusted by multiplying the
Conversion Factor by a fraction, the numerator of which shall he the actual
number of Partnership Units issued and outstanding on the record date
(determined without giving effect to such dividend, distribution, subdivision or
combination), and the denominator of which shall be the actual number of
Partnership Units (determined after giving effect to such dividend.
distribution, subdivision or combination) issued and outstanding on such record
date. Any adjustment to the Conversion Factor shall become effective immediately
after the effective date of such event retroactive to the record date, if any,
for such event.
Depreciation: For each Fiscal Year or other period, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Book Value
of an asset differs from its adjusted basis for fed-
<PAGE>
-5-
eral income tax purposes at the beginning of such year or other period,
Depreciation shall be adjusted as necessary so as to be an amount which bears
the same ratio to such beginning Book Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such year or
other period bears to the beginning adjusted tax basis; provided, however, that
if the federal income tax depreciation, amortization or other cost recovery
deduction for such year or other period is zero, Depreciation for such year or
other period shall be determined with reference to such beginning Book Value
using any reasonable method approved by the General Partner.
Distributable Cash: with respect to any period, and without duplication:
(i) all cash receipts of the Partnership during such period from all
sources,
(ii) less all cash disbursements of the Partnership during such period.
including, without limitation, disbursements for operating expenses, taxes, debt
service (including, without limitation. the payment of principal, premium and
interest), redemption of Partnership Interests and capital expenditures;
(iii) less amounts added to reserves in the reasonable discretion of the
General Partner, plus amounts withdrawn from reserves in the reasonable
discretion of the General Partner.
Distribution Period: The quarterly period commencing on January 1, April 1,
July 1 and October 1 of each year and ending on and including the day preceding
the next Distribution Period Commencement Date with respect to the Preferred
Units.
ERISA: The Employee Retirement Income Security Act of 1976, as amended from
time to time.
Fiscal Year: The calendar year or such other twelve (12) month period
designated by the General Partner. Formation Agreement: The
Formation/Contribution Agreement dated as of September 7, 1997 by and among
Royale, H/SIC Corporation, Strategic Facility Investors, Inc., South Brunswick
Investment Company, LLC. Comcourt Investment Corporation, Gateway Shannon
Development Corporation, Crown Advisors, Inc., Vernon R. Beck and John Parsinen,
as the same has heretofore been and hereafter may at any time be amended,
modified and supplemented and in effect.
General Partner: Royale Investments, Inc., a Minnesota corporation
("Royale"), and its respective successor(s) who or which become Successor
General Partner(s) in accordance with the terms of this Agreement.
General Partner Interest: A Partnership Interest held by the General
Partner that is a general partner interest. A General Partner Interest may be
expressed as a number of Partnership Units.
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Involuntary Withdrawal: As to any (i) individual shall mean such
individual's death, incapacity or adjudication of incompetence, (ii) corporation
shall mean its dissolution or revocation of its charter (unless such revocation
is promptly corrected upon notice thereof). (iii) partnership shall mean the
dissolution and commencement of winding up of its affairs, (iv) trust shall mean
the termination of the trust (but not the substitution of trustees). (v) estate
shall mean the distribution by the fiduciary of the estate's complete interest
in the Partnership and (vi) any Partner shall mean the Bankruptcy of such
Partner.
IRS: The Internal Revenue Service, which administers the internal revenue
laws of the United States.
Limited Partner: Those Persons listed as such on Exhibit 1 attached hereto
and made a part hereof, as such Exhibit may be amended from time to time,
including any Person who becomes a Substituted Limited Partner or an Additional
Limited Partner in accordance with the terms of this Agreement; provided that
such term shall not include the Preferred Limited Partners.
Limited Partner Interest: A Partnership Interest held by a Limited Partner
that is a limited partner interest. A Limited Partner Interest may be expressed
as a number of Partnership Units.
Nonrecourse Liability: A liability as defined in Treasury Regulations
Section 1.704-2(b)(3).
Notice: A writing containing the information required by this Agreement to
be communicated to a Person and delivered to such Person in accordance with
Section 12.4; provided, however, that any written communication containing such
information actually received by such Person shall constitute Notice for all
purposes of this Agreement.
Partner Minimum Gain: The gain (regardless of character) which would be
realized by the Partnership if property of the Partnership subject to a partner
nonrecourse debt (as such term is defined in Treasury Regulation Section
1.704-2(b)(4)) were disposed of in full satisfaction of such debt on the
relevant date. The adjusted basis of property subject to more than one partner
nonrecourse debt shall be allocated in a manner consistent with the allocation
of basis for purposes of determining Partnership Minimum Gain hereunder. Partner
Minimum Gain shall be computed hereunder using the Book Value, rather than the
adjusted tax basis, of the Partnership property in accordance with Treasury
Regulations Section 1.704-2(d)(3).
Partner Nonrecourse Deductions: With respect to any partner nonrecourse
debt (as such term is defined in Treasury Regulation Section 1.704-2(b)(4)), the
increase in Partner Minimum Gain during the tax year plus any increase in
Partner Minimum Gain for a prior tax year which has not previously generated a
Partner Nonrecourse Deduction hereunder. The determination of which Partnership
items constitute Partner Nonrecourse Deductions shall be made in a manner
consistent with the manner in which Partnership Nonrecourse Deductions are
determined hereunder.
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Partners: The General Partner, the Preferred Limited Partners and the
Limited Partners as a group. The term "Partner" shall mean a General Partner, a
Preferred Limited Partner or a Limited Partner. Such terms shall be deemed to
include such other Persons who become Partners pursuant to the terms of this
Agreement.
Partnership: The Delaware limited partnership referred to herein as FCO,
L.P., as such partnership may from time to time be constituted.
Partnership Assets: At any particulartime, any assets or property (real or
personal, tangible or intangible, cboate or inchoate, fixed or contingent) owned
by the Partnership.
Partnership Interest or Interest: As to any Partner, such Partner's
ownership interest in the Partnership and including such Partner's right to
distributions under this Agreement and any other rights or benefits which such
Partner has in the Partnership, together with any and all obligations of such
Person to comply with the terms and provisions of this Agreement. A Partnership
Interest may be expressed as a number of Partnership Units.
Partnership Minimum Gain: The aggregate gain (regardless of character)
which would be realized by the Partnership if all of the property of the
Partnership subject to nonrecourse debt (other than partner nonrecourse debt as
such term is defined in Treasury Regulations Section 1.704-2(b)(4)) were
disposed of in full satisfaction of such debt and for no other consideration on
the relevant date. In the case of any Nonrecourse Liability of the Partnership
which is not secured by a mortgage with respect to any specific property of the
Partnership, any and all property of the Partnership to which the holder of said
liability has recourse shall be treated as subject to such Nonrecourse Liability
for purposes of the preceding sentence. Partnership Minimum Gain shall be
computed separately for each Nonrecourse Liability of the Partnership. For this
purpose, the adjusted basis of property subject to two or more liabilities of
equal priority shall be allocated among such liabilities in proportion to the
outstanding balance of such liabilities, and the adjusted basis of property
subject to two or more liabilities of unequal priority shall be allocated to the
liability of inferior priority only to the extent of the excess, if any, of the
adjusted basis of such property over the outstanding balance of the liability of
superior priority. Partnership Minimum Gain shall be computed hereunder using
the Book Value, rather than the adjusted tax basis, of the Partnership property
in accordance with Treasury Regulations Section 1.704-2(d)(3).
Partnership Nonrecourse Deductions: The amount of Partnership deductions
equal to the increase, if any, in the amount of the aggregate Partnership
Minimum Gain during the tax year (plus any increase in Partnership Minimum Gain
for a prior tax year which has not previously generated a Partnership
Nonrecourse Deduction) reduced (but not below zero) by the aggregate
distributions made during the tax year of the proceeds of a Nonrecourse
Liability of the Partnership which are attributable to an increase in
Partnership Minimum Gain within the meaning of Treasury Regulations Section
1.704-2(d). The Partnership Nonrecourse Deductions for a Partnership tax year
shall consist first of depreciation or cost recovery deductions with respect to
each property of the Partnership giving rise to such increase in Partnership
Minimum Gain on a pro rata
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basis to the extent of each such increase, with any excess made up pro rata of
all items of deduction.
Partnership Unit: A fractional, undivided share of the Partnership
Interests of all Partners (other than the Preferred Limited Partners) issued
pursuant to Section 4.1 hereof.
Percentage Interest: As to any Partner (other than the Preferred Limited
Partners), the percentage in the Partnership, as determined by dividing the
Partnership Units then owned by such Partner by the total number of Partnership
Units then outstanding, as the same may be automatically adjusted from time to
time to reflect the issuance and redemption of Partnership Units in accordance
with this Agreement, without requiring the amendment of Exhibit 1 to reflect any
such issuance or redemption.
Person: Any individual, partnership, corporation, trust or other entity.
Preferred Conversion: As described in Section 9.8 hereof.
Preferred Limited Partner: Those persons listed as such on Exhibit 1
attached hereto and made a part hereof, as such Exhibit may be amended from time
to time, in their capacity as limited partners in the Partnership holding
Preferred Units, including any person who becomes a Substituted Preferred
Limited Partner or an Additional Preferred Limited Partner in accordance with
the terms of this Agreement.
Preferred Unit: The Partnership Interest held by a Preferred Limited
Partner.
Priority Return Amount: For each Distribution Period, an amount equal to
1.625% of that portion of the Capital Contribution of the Preferred Limited
Partner allocable to each Preferred Unit.
Profits and Losses: For each Fiscal Year or other period, an amount equal
to the Partnership's taxable income or loss (as the case may be) for such year
or period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
a. Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
b. Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition, shall be subtracted from such taxable income or loss;
<PAGE>
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c. Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of notwithstanding that the adjusted tax basis of such property
differs from such Book Value;
d. In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or
other period, computed in accordance with the definition of "Depreciation"
herein; and
e. In the event that any item of income, gain, loss or deduction that
has been included in the initial computation of Profit or Loss is subject
to the special allocation rules of Sections 5.2(C) and 5.2(D), Profit or
Loss shall be recomputed without regard to such item.
Recourse Liabilities: The amount of liabilities owed by the Partnership
(other than nonrecourse liabilities and liabilities to which Partner Nonrecourse
Deductions are attributable in accordance with Treasury Regulations Section
1.704-2(i)).
Redeeming Party: A Limited Partner or Assignee (other than the General
Partner) who tenders Partnership Units for redemption pursuant to a Redemption
Notice.
Redemption Date: The date for redemption of Partnership Units as set forth
in Section 9.2.
Redemption Notice: A Notice to the General Partner by a Redeeming Party,
substantially in the form attached as Exhibit 2, pursuant to which the Redeeming
Party requests the redemption of Partnership Units in accordance with Article
IX.
Redemption Obligation: The obligation of the Partnership to redeem the
Partnership Units as set forth in Section 9. 1 (A).
Redemption Period: The 45-day period immediately following the filing with
the SEC by the General Partner of an annual report of the General Partner on
Form 10-K or a quarterly report of the General Partner on Form 10-Q or such
other period or periods as the General Partner may otherwise determine.
Redemption Price: As defined in Section 9.3 hereof.
Redemption Restriction: A restriction on the ability of the Partnership to
redeem the Partnership Units as set forth in Section 9. 1 (A).
Registration Rights Agreement: A Registration Rights Agreement,
substantially in the form of Exhibit 3 hereto, pursuant to which Royale will
agree, among other things, to register under the Securities Act of 1933, as
amended, REIT Shares issued in connection with Share Payments made under Article
IX hereof.
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REIT: A real estate investment trust, as defined in Code Section 856.
REIT Charter: The Amended and Restated Articles of Incorporation of Royale
filed with the Department of State of the State of Minnesota on November 2,
1990, as the same may hereafter be amended or restated and in effect from time
to time.
REIT Share: A share of common stock representing an ownership interest in
the General Partner.
REIT Share Rights: Rights to acquire additional REIT Shares issued to all
holders of REIT Shares, whether in the form of rights. options. warrants or
convertible or exchangeable securities, to the extent the same have been issued
without additional consideration after the initial acquisition of such REIT
Shares.
Royale: Royale Investments, Inc., a Minnesota corporation.
SEC: The Securities and Exchange Commission.
Share Payment: The payment to a Redeeming Party of a number of REIT Shares
determined by multiplying (i) the number of Partnership Units tendered for
redemption by such Redeeming Party pursuant to a validly proffered Redemption
Notice by (ii) the Conversion Factor. In the event the General Partner grants
any REIT Share Rights on or after the date of this Agreement and prior to such
payment, any Share Payment shall include for the Redeeming Party such Redeeming
Party's ratable share of such REIT Share Rights other than REIT Share Rights
which have expired.
Subsidiary: With respect to any Person, any corporation or other entity of
which a majority of (i) the voting power of the voting equity securities or (ii)
the outstanding equity interests is owned, directly or indirectly, by such
Person.
Substituted Limited Partner/Preferred Limited Partner: That Person or those
Persons admitted to the Partnership as a substitute Limited Partner or
substitute Preferred Limited Partner, in accordance with the provisions of this
Agreement. A Substituted Limited Partner or Substituted Preferred Limited
Partner, upon admission as such, shall succeed to the rights, privileges and
liabilities of the predecessor in interest as a Limited Partner or Preferred
Limited Partner.
Successor General Partner: Any Person who is admitted to the Partnership as
substitute General Partner pursuant to this Agreement. A Successor General
Partner, upon its admission as such, shall succeed to the rights, privileges and
liabilities of its predecessor in interest as General Partner, in accordance
with the provisions of the Act.
Tax Matters Partner: The General Partner or such other Partner who becomes
Tax Matters Partner pursuant to the terms of this Agreement.
<PAGE>
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Terminating Capital Transaction: The sale or other disposition of all or
substantially all of the Partnership Assets or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the Partnership Assets.
Transfer: With respect to any Partnership Unit shall mean a transaction in
which a Partner assigns his Partnership Interest to another Person and includes
any sale. assignment, gift. pledge, mortgage, exchange, hypothecation,
encumbrance or other disposition by law or otherwise; provided, however, the
redemption of any Partnership Interest pursuant to Article IX hereof shall not
constitute a "transfer" for purposes hereof.
Treasury Regulations: The Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time.
Unit Value: With respect to any Partnership Unit, the average of the daily
market price for a REIT Share for the ten (10) consecutive trading days
immediately preceding the date of receipt of a Redemption Notice by the General
Partner multiplied by the Conversion Factor. If the REIT Shares are traded on a
securities exchange or the NASDAQ Small Cap Market or National Market System,
the market price for each such trading day shall be the reported last sale price
on such day or, if no sales take place on such day, the average of the closing
bid and asked prices on such day. If the REIT Shares are not traded on a
securities exchange or the NASDAQ Small Cap Market or National Market System,
the market price for each such trading day shall be determined by the General
Partner using any reasonable method of valuation. If a Share Payment would
include any REIT Share Rights, the value of such REIT Share Rights shall be
determined by the General Partner using any reasonable method of valuation,
taking into account the Unit Value determined hereunder and the factors used to
make such determination and the value of such REIT Share Rights shall be
included in the Unit Value.
SECTION 1.2 Rules of Construction. The following rules of construction
shall apply to this Agreement:
(A) All section headings in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section.
(B) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders, the
singular shall include the plural, and vice versa, as the context may require.
(C) Each provision of this Agreement shall be considered severable from the
rest, and if any provision of this Agreement or its application to any Person or
circumstances shall be held invalid and contrary to any existing or future law
or unenforceable to any extent, the remainder of this Agreement and the
application of any other provision to any Person or circumstances shall not be
affected thereby and shall be interpreted and enforced to the greatest extent
permitted by law so as to give effect to the original intent of the parties
hereto.
<PAGE>
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(D) Unless otherwise specifically and expressly limited in the context, any
reference herein to a decision, determination, act, action, exercise of a right,
power or privilege, or other procedure by the General Partner shall mean and
refer to the decision, determination. act, action, exercise or other procedure
by the General Partner in its sole and absolute discretion.
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ARTICLE II - CONTINUATION
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SECTION 2.1 Continuation. The Partners hereby continue the Partnership as a
limited partnership under the Act. The General Partner shall take all action
required by law to perfect and maintain the Partnership as a limited partnership
under the Act and under the laws of all other . urisdictions in which the
Partnership may elect to conduct business, including but not limited to the
filing of amendments to the Certificate with the Delaware Secretary of State,
and qualification of the Partnership as a foreign limited partnership in the
jurisdictions in which such qualification shall be required, as determined by
the General Partner. The General Partner shall also promptly register the
Partnership under applicable assumed or fictitious name statutes or similar
laws.
SECTION 2.2 Name. The name of the Partnership is FCO, L.P. The General
Partner may adopt such assumed or fictitious names as it deems appropriate in
connection with the qualifications and registrations referred to in Section 2.
1.
SECTION 2.3 Place of Business; Registered Agent. The principal office of
the Partnership is located at 1209 Orange Street, Wilmington, Delaware 19801,
which office may be changed to such other place as the General Partner may from
time to time designate. The Partnership may establish offices for the
Partnership within or without the State of Delaware as may be determined by the
General Partner. The initial registered agent for the Partnership in the State
of Delaware is The Corporation Trust Company, whose address is c/o Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
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ARTICLE III - BUSINESS PURPOSE
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SECTION 3.1 Business. The business of the Partnership shall be (i)
conducting any business that may be lawfully conducted by a limited partnership
pursuant to the Act including, without limitation, acquiring, owning, managing,
developing, leasing, marketing, operating and, if and when appropriate, selling,
commercial, industrial, office and net leased retail properties, (ii) entering
into any partnership, joint venture or other relationship to engage in any of
the foregoing or the ownership of interests in any entity engaged in any of the
foregoing, (iii) making loans, guarantees, indemnities or other financial
accommodations and borrowing money and pledging its assets to secure the
repayment thereof, (iv) to do any of the foregoing with respect to any Affiliate
or Subsidiary and (v) doing anything necessary or incidental to the foregoing;
provided, however, that
<PAGE>
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business of the Partnership shall be limited so as to permit the General Partner
to elect and maintain its status as a REIT (unless the General Partner
determines no longer to qualify as a REIT).
SECTION 3.2 Authorized Activities. In carrying out the purposes of the
Partnership, but subject to all other provisions of this Agreement, the
Partnership is authorized to engage in any kind of lawful activity, and perform
and carry out contracts of any kind, necessary or advisable in connection with
the accomplishment of the purposes and business of the Partnership described
herein and for the protection and benefit of the Partnership; provided that the
General Partner shall not be obligated to cause the Partnership to take, or
refraining from taking, any action which, in the judgment of the General
Partner, (i) could adversely affect the ability of the General Partner to
qualify and continue to qualify as a REIT, (ii) could subject the General
Partner to additional taxes under Code Section 857 or 4981 or (iii) could
violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities.
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ARTICLE IV - CAPITAL CONTRIBUTION
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SECTION 4.1 Capital Contributions.
(A) Upon the contribution to the Partnership of property in accordance with
a Contribution Agreement. Partnership Units and/or Preferred Units shall be
issued in accordance with. and as contemplated by, such Contribution Agreement,
and the Persons receiving such Partnership Units and/or Preferred Units shall
become Partners and shall be deemed to have made a Capital Contribution as set
forth on Exhibit 1. The Capital Contribution made by each Partner contributing
assets to the Partnership as of the date hereof under the Formation Agreement
shall be determined by multiplying the number of Partnership Units issued to
such Partner by $5.50 and by multiplying the number of Preferred Units issued to
such Partner by $25.00. Exhibit I also sets forth the initial number of
Partnership Units and Preferred Units owned by each Partner and the Percentage
Interest of each Partner, which Percentage Interest shall be adjusted from time
to time by the General Partner to reflect the issuance of additional Partnership
Units, the redemption of Partnership Units, the conversion of Preferred Units
into Partnership Units, additional Capital Contributions and similar events
having an effect on a Partner's Percentage Interest. Except as set forth in
Section 4.2 (regarding issuance of additional Partnership Units) or Section 7.6
(regarding withholding obligations), no Partner shall be required under any
circumstances to contribute to the capital of the Partnership any amount beyond
that sum required pursuant to this Article IV.
(B) Anything in the foregoing Section 4. 1 (A) or elsewhere in this
Agreement notwithstanding, the Partnership Units held by the General Partner
shall, at all times, be deemed to be General Partner units and shall constitute
the General Partner Interest.
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SECTION 4.2 Additional Partnership Interests.
(A) The Partnership may issue additional limited partnership interests in
the form of Partnership Units or Preferred Units for any Partnership purpose at
any time or from time to time. to any Partner or other Person (other than the
General Partner, except in accordance with Section 4.2(B) below).
(B) The Partnership also may from time to time issue to the General Partner
additional Partnership Units, Preferred Units or other Partnership Interests in
such classes and having such designations, preferences and relative rights
(including preferences and rights senior to the existing Limited Partner
Interests) as shall be determined by the General Partner in accordance with the
Act and governing law. Except as provided in Article IX, any such issuance of
Partnership Units, Preferred Units or Partnership Interests to the General
Partner shall be conditioned upon (i) the undertaking by the General Partner of
a related issuance of its capital stock (with such shares having designations,
rights and preferences such that the economic rights of the holders of such
capital stock are substantially similar to the rights of the additional
Partnership Interests issued to the General Partner) and the General Partner
making a Capital Contribution (a) in an amount equal to the net proceeds raised
in the issuance of such capital stock, in the event such capital stock is sold
for cash or cash equivalents or (b) the property received in consideration for
such capital stock, in the event such capital stock is issued in consideration
for other property or (ii) the issuance by the General Partner of capital stock
under any stock option or bonus plan and the General Partner making a Capital
Contribution in an amount equal to the exercise price of the option exercised
pursuant to such stock option or other bonus plan.
(C) Except as contemplated by Article IX (regarding redemptions) or Section
4.2(B), the General Partner shall not issue any (i) additional RETT Shares, (ii)
rights, options or warrants containing the right to subscribe for or purchase
REIT Shares (other than options granted under the General Partner's Stock Option
Plan for Non-Employee Directors or any stock option or similar plan for
officers, directors and employees of the General Partner or any of its
Affiliates) or (iii) securities convertible or exchangeable into REIT Shares
(collectively, "Additional REIT Securities") other than to all holders of REIT
Shares, pro rata, unless (x) the Partnership issues to the General Partner (i)
Partnership Interests, (ii) rights, options or warrants containing the right to
subscribe for or purchase Partnership Interests or (iii) securities convertible
or exchangeable into Partnership Interests such that the General Partner
receives an economic interest in the Partnership substantially similar to the
economic interest in the General Partner represented by the Additional REIT
Securities and (y) the General Partner contributes to the Partnership the net
proceeds from, or the property received in consideration for, the issuance of
the Additional REIT Securities and the exercise of any rights contained in any
Additional REIT Securities.
SECTION 4.3 No Third Party Beneficiaries. The foregoing provisions of this
Article IV are not intended to be for the benefit of any creditor of the
Partnership or other Person to whom any debts, liabilities or obligations are
owed by (or who otherwise has any claim against) the Partnership or any of the
Partners and no such creditor or other Person shall obtain any right under
<PAGE>
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any such foregoing provision against the Partnership or any of the Partners by
reason of any debt, liability or obligation (or otherwise).
SECTION 4.4 Capital Accounts.
(A) The Partnership shall establish and maintain a separate Capital Account
for each Partner in accordance with Code Section 704 and Treasury Regulations
Section 1.7041(b)(2)(iv). The Capital Account of each Partner shall be credited
with:
(1) the amount of all Capital Contributions made to the Partnership by
such Partner in accordance with this Agreement; plus
(2) all income and gain of the Partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V
(including for purposes of this Section 4.4(A), income and gain exempt from
tax);
and shall be debited with the sum of:
(1) all losses or deductions of the Partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V,
(2) such Partner's distributive share of expenditures of the Partnership
described in Code Section 705(a)(2)(B). and
(3) all cash and the Agreed Value (reduced to take into account the amount
of any related indebtedness assumed by the Partner, or to which the distributed
property is subject) of any property actually distributed or deemed distributed
by the Partnership to such Partner pursuant to the terms of this Agreement.
Any reference in any section or subsection of this Agreement to the Capital
Account of a Partner shall be deemed to refer to such Capital Account as the
same may be credited or debited from time to time as set forth above.
(B) For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of each such item shall be the
same as its determination, recognition and classification for federal income tax
purposes, determined in accordance with Code Section 703(a), with the following
adjustments:
(1) any income, gain or loss attributable to the taxable disposition of any
Partnership Asset shall be determined by treating the adjusted basis of such
property as of the date of such disposition as equal to the Book Value of such
property as of such date;
(2) the computation of all items of income, gain, loss and deduction shall
be made without regard to any Code Section 754 election that may be made by the
Partnership, except
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to the extent required in accordance with the provisions of Treasury Regulations
Section 1.7041(b)(2)(iv)(m);
(3) in lieu of depreciation, amortization and other cost recovery
deductions taken into account in computing Profit and Loss, there shall be taken
into account Depreciation for such Fiscal Year;
(4) in the event the Book Value of any Partnership Asset is adjusted
pursuant to Section 4.4(D) below, the amount of such adjustment shall be treated
as gain or loss from the disposition of such asset.
(C) Any transferee of a Partnership Interest shall succeed to a pro rata
portion of the transferor's Capital Account transferred unless such Transfer
causes a Code Section 708 termination of the Partnership, in which case the Book
Value of all Partnership Assets shall be adjusted immediately prior to the
deemed distribution pursuant thereto as provided in Section 4.4(D).
(D) Consistent with the provisions of Treasury Regulations Section 1.7041
(b)(2)(iv)(f), (i) immediately prior to the acquisition of an additional
Partnership Interest by any new or existing Partner in connection with the
contribution of money or other property (other than a de minimis amount) to the
Partnership, (ii) immediately prior to the distribution by the Partnership to a
Partner of Partnership property (other than a de minimis amount) as
consideration for a Partnership Interest and (iii) immediately prior to the
liquidation of the Partnership as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(g), the Book Value of all Partnership Assets shall be revalued
upward or downward to reflect the fair market value of each such Partnership
Asset as determined by the General Partner using such reasonable method of
valuation as it may adopt unless the General Partner shall determine that such
revaluation is not necessary to maintain Capital Accounts in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv).
(E) The foregoing provisions of this Section 4.4 are intended to comply
with Treasury Regulations Section 1.704- 1(b) and shall be interpreted and
applied in a manner consistent with such Treasury Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in which
the Partners' Capital Accounts are computed hereunder in order to comply with
such Treasury Regulations. the General Partner may make such modification if
such modification is not likely to have a material effect on the amount or
timing of any distribution to any Partner under the terms of this Agreement and
the General Partner notifies the other Partners in writing of such modification
prior to making such modification.
SECTION 4.5 Return of Capital Account; Interest. Except as otherwise
specifically provided in this Agreement, (i) no Partner shall have any right to
withdraw or reduce its Capital Contributions or Capital Account, or to demand
and receive property other than cash from the Partnership in return for its
Capital Contributions or Capital Account; (ii) no Partner shall have any
priority over any other Partners as to the return of its Capital Contributions
or Capital Account; (iii) any return of Capital Contributions or Capital
Accounts to the Partners shall be solely from the Partnership Assets, and no
Partner shall be personally liable for any such return; and (iv) no interest
<PAGE>
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shall be paid by the Partnership on Capital Contributions or on balances in
Partners' Capital Accounts.
SECTION 4.6 Preemptive Rights. No Person shall have any preemptive or
similar rights with respect to the issuance or sale of additional Partnership
Units.
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ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS
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SECTION 5.1 Limited Liability. For bookkeeping purposes, the Profits of the
Partnership shall be shared, and the Losses of the Partnership shall be borne,
by the Partners as provided in Section 5.2 below; provided, however, that except
as expressly provided in this Agreement, neither any Limited Partner (in its
capacity as a Limited Partner) nor any Preferred Limited Partner (in its
capacity as a Preferred Limited Partner) shall be personally liable for losses,
costs, expenses, liabilities or obligations of the Partnership in excess of its
Capital Contribution required under Article IV hereof.
SECTION 5.2 Profits, Losses and Distributive Shares.
(A) Profits. After giving effect to the special allocations, if any,
provided in Sec-tion 5.2(C) and (D). Profits in each Fiscal Year shall be
allocated in the following order:
(1) First, to the General Partner until the cumulative Profits allocated to
the General Partner under this Section 5.2(A)(1) equal the cumulative Losses
allocated to such Partner under Section 5.2(B)(4);
(2) Second, to the Preferred Limited Partners in the proportion to the
cumulative Losses allocated to such Partners under Section 5.2(B)(3) until the
cumulative Profits allocated to such Partners under this Section 5.2(A)(2) equal
the cumulative Losses allocated to such Partners under Section 5.2(B)(3);
(3) Third, to each Partner in proportion to the cumulative Losses allocated
to such Partner under Section 5.2(B)(2), until the cumulative Profits allocated
to such Partner under this Section 5.2(A)(3) equal the cumulative Losses
allocated to such Partner under Section 5.2(B)(2);
(4) Fourth, to each Partner in proportion to the cumulative Losses
allocated to such Partner under Section 5.2(B)(1), until the cumulative Profits
allocated to such Partner under this Section 5.2(A)(4) equal the cumulative
Losses allocated to such Partner under Section 5.2(B)(1);
(5) Fifth, to the Preferred Limited Partners in an amount equal to the
excess of (x) the Priority Return Amount for each Distribution Period or portion
thereof that ends on or prior
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to the close of the Fiscal Year over (y) the cumulative Profits previously
allocated under this Section 5.2(B)(5); and
(6) Then, the balance, if any, to the Partners (other than the Preferred
Limited Partners, with respect to their Preferred Units) in accordance with
their respective Percentage Interests.
The allocation of Profits to any Preferred Limited Partner under Section
5.2(A)(5) shall be appropriately prorated in the case of Preferred Units that
are outstanding for less than all of any Distribution Period.
(B) Losses. After giving effect to the special allocations, if any,
provided in Section 5.2(C) and (D), Losses in each Fiscal Year shall be
allocated in the following order of priority:
(1) First, to the Partners (other than the Preferred Limited Partners, with
respect to their Preferred Units), in accordance with their respective
Percentage Interests, but not in excess of the positive Capital Account balance
of any Partner prior to the allocation provided for in this Section 5.2(B)(1);
(2) Second, to the Partners (other than the Preferred Limited Partners,
with respect to their Preferred Units) with positive Adjusted Capital Account
balances prior to the allocation provided for in this Section 5.2(B)(2), in
proportion to the amount of such balances until all such balances are reduced to
zero;
(3) Third, to the Preferred Limited Partners in proportion to their
Adjusted Capital Account balances until their Adjusted Capital Accounts are
reduced to zero; and
(4) Thereafter, to the General Partner;
provided, however, that this Section 5.2(B) shall control, notwithstanding any
reallocation or adjustment of taxable income. loss or other items by the
Internal Revenue Service or any other taxing authority.
(C) Special Allocations. Except as otherwise provided in this Agreement,
the following special allocations will be made in the following order and
priority:
(1) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Article V, if there is a net decrease in Partnership Minimum
Gain during any tax year or other period for which allocations are made, each
Partner will be specially allocated items of Partnership income and gain for
that tax year or other period (and, if necessary, subsequent periods) in an
amount equal to such Partner's share of the net decrease in Partnership Minimum
Gain during such tax year or other period determined in accordance with Treasury
Regulations Section 1.7042(g). Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2).
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This Section 5.2(C)(1) is intended to comply with the minimum gain chargeback
requirements set forth in Treasury Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith, including the exceptions to the minimum gain
chargeback requirement set forth in Treasury Regulations Section 1.704-2(f) and
(3). If the General Partner concludes, after consultation with tax counsel, that
the Partnership meets the requirements for a waiver of the minimum gain
chargeback requirement as set forth in Treasury Regulations Section
1.704-2(f)(4), the General Partner may take steps reasonably necessary or
appropriate in order to obtain such waiver.
(2) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any
other provision of this Section (other than Section 5.2(C)(1) which shall be
applied before this Section 5.2(C)(2)), if there is a net decrease in Partner
Minimum Gain during any tax year or other period for which allocations are made,
each Partner with a share of Partner Minimum Gain determined in accordance with
Treasury Regulations Section 1.704-2(i)(5) shall be specially allocated items of
Partnership income and gain for that period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
Partner Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(i)(4). The items to be so allocated shall be determined in accordance
with Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii). This
Section 5.2(C)(2) is intended to comply with the minimum gain chargeback
requirements of Treasury Regulations Section 1.704-2(i)(4) and shall be
interpreted consistently therewith, including the exceptions set forth in
Treasury Regulations Section 1.704-2(f)(2) and (3) to the extent such exceptions
apply to Treasury Regulations Sections 1.704-2(i)(4). If the General Partner
concludes, after consultation with tax counsel, that the Partnership meets the
requirements for a waiver of the Partner Minimum Gain chargeback requirement set
forth in Treasury Regulation 1.704-2(f), but only to the extent such exception
applies to Treasury Regulations Section 1.704-2(i)(4), the General Partner may
take steps necessary or appropriate to obtain such waiver.
(3) Qualified Income Offset. A Partner who unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be specially allocated items of
Partnership income and gain in an amount and manner sufficient to eliminate, to
the extent required by Treasury Regulations 1.704-1(b)(2)(ii)(d), the Adjusted
Capital Account Deficit of the Partner as quickly as possible, provided that an
allocation pursuant to this Section 5.2(C)(3) shall be made if and only to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article V have been tentatively made
as if this Section 5.2(C)(3) were not contained in this Agreement.
(4) Partnership Nonrecourse Deductions. Partnership Nonrecourse Deductions
for any taxable year or other period for which allocations are made will be
allocated among the Partners in proportion tot heir respective Partnership
Interests in the Partnership.
(5) Partner Nonrecopurse Deductions. Notwithstanding anything tot he
contrary in this Agreement, any Partner Nonrecourse Deductions for any taxable
year or other period for which allocations are madewill be allocated to the
Partner who bears the economic risk of loss with respect to the liability to
which the Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulations Section 1.704-2(i).
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(6) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset under Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital Accounts under
Treasury Regulations Section --1.704-1(b)(2)(iv)(m)(2) or (4), the amount of the
adjustment to the Capital Accounts will be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustinent
decreases the basis of the asset), and the gain or loss will be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted under Treasury Regulations Section
1.704-1(b)(2)(iv)(m).
(7) Depreciation Recapture. In the event there is any recapture of
Depreciation or investment tax credit, the allocation thereof shall be made
among the Partners in the same proportion as the deduction for such Depreciation
or investment tax credit was allocated.
(8) Interest in Partnership. Notwithstanding any other provision of this
Agreement, no allocation of Profit or Loss (or item of Profit or Loss) will be
made to a Partner if the allocation would not have "economic effect" under
Treasury Regulations Section 1.704-1(b)(2)(ii)(a) or otherwise would not be in
accordance with the Partner's interest in the Partnership within the meaning of
Treasury Regulations Section 1.704-1(b)(3).
(D) Curative Allocations. The allocations set forth in Section 5.2(C)(1)
through (8) (the "Regulatory Allocations") are intended to comply with certain
requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. The
Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is authorized to further allocate Profits, Losses, and other items among
the Partners in a reasonable manner so as to prevent the Regulatory Allocations
from distorting the manner in which Partnership distributions would be divided
among the Partners under Section 5.3, but for application of the Regulatory
Allocations. In general, the reallocation will be accomplished by specially
allocating other Profits, Losses and items of income, gain, loss and deduction,
to the extent they exist, among the Partners so that the net amount of the
Regulatory Allocations and the special allocations to each Partner is zero. The
General Partner may accomplish this result in any reasonable manner that is
consistent with Code Section 704 and the related Treasury Regulations.
(E) Tax Allocations.
(1) Except as otherwise provided in Section 5.2(E)(2), each item of income,
gain, loss and deduction shall be allocated for federal income tax purposes in
the same manner as each correlative item of income, gain, loss or deduction, is
allocated for book purposes pursuant to the provisions of Section 5.2 hereof.
(2) Notwithstanding anything to the contrary in this Article V, in an
attempt to eliminate any Book-Tax Disparity with respect to a Contributed
Property, items of income, gain, loss or deduction with respect to each such
property shall be allocated for federal income tax purposes among the Partners
as follows:
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(a) Depreciation, Amortization and Other Cost Recovery Iterns. In the
case of each Contributed Property with a Book-Tax Disparity, any item of
depreciation, amortization or other cost recovery allowance attributable to
such property shall be allocated as follows: (x) first, to Partners (the
"Non-Contributing Partners") other than the Partners who contributed such
property to the Partnership (or are deemed to have contributed the property
pursuant to Section 4.1(A) (the "Contributing Partners') in an amount up to
the book allocation of such items made to the Non-Contributing Partners
pursuant to Section 5.2 hereof, pro rata in proportion to the respective
amount of book items so allocated to the Non-Contributing Partners pursuant
to Section 5.2 hereof; and (y) any remaining depreciation, amortization or
other cost recovery allowance to the Contributing Partners in proportion to
their Percentage Interests. In no event shall the total depreciation,
amortization or other cost recovery allowance allocated hereunder exceed
the amount of the Partnership's depreciation, amortization or other cost
recovery allowance with respect to such property.
(b) Gain or Loss on Disposition. In the event the Partnership sells or
otherwise disposes of a Contributed Property with a Book-Tax Disparity, any
gain or loss recognized by the Partnership in connection with such sale or
other disposition shall be allocated among the Partners as follows: (x)
first, any gain or loss shall be allocated to the Contributing Partners in
proportion to their Percentage Interests to the extent required to
eliminate any Book-Tax Disparity with respect to such property; and (y) any
remaining gain or loss shall be allocated among the Partners in the same
manner that the correlative items of book gain or loss are allocated among
the Partners pursuant to Section 5.2 hereof.
(3) In the event the Book Value of a Partnership Asset (including a
Contributed Property) is adjusted pursuant to Section 4.4(D) hereof, and such
asset has not been deemed contributed to a new partnership, with the
contributing partnership then being liquidated pursuant to Code Section 708
subsequent thereto, all items of income, gain. loss or deduction in respect of
such property shall be allocated for federal income tax purposes among the
Partners in the same manner as provided in Section 5.2(E)(2) hereof to take into
account any variation between the fair market value of the property, as
determined by the General Partner using such reasonable method of valuation as
it may adopt, and the Book Value of such property, both determined as of the
date of such adjustment.
(4) The General Partner shall have the authority to elect alternative
methods to eliminate the Book-Tax Disparity with respect to one or more
Contributed Properties, as permitted by Treasury Regulations Sections 1.704-3
and 1.704-3T, and such election shall be binding on all of the Partners.
(5) The Partners hereby intend that the allocation of tax items pursuant to
this Section 5.2(E) comply with the requirements of Code Section 704(c) and
Treasury Regulations Sections 1.704-3 and 1.704-3T.
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(6) The allocation of items of income, gain, loss or deduction pursuant to
this Section 5.2(E) are solely for federal, state and local income tax purposes,
and the Capital Account balances of the Partners shall be adjusted solely for
allocations of "book" items in respect of Partnership Assets pursuant to Section
5.2(A), (B), (C), (D) and (F) hereof
(F) Other Allocation Rules. The following rules will apply to the
calculation and allocation of Profits, Losses and other items:
(1) Except as otherwise provided in the Agreement. all Profits, Losses and
other items allocated to the Partners will be allocated among them in proportion
to their Percentage Interests.
(2) For purposes of determining the Profits, Losses or any other item
allocable to any period, Profits, Losses and other items will be determined on a
daily, monthly or other basis, as determined by the General Partner using any
permissible method under Code Section 706 and the related Treasury Regulations.
(3) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss and deduction, and other allocations not provided
for in this Agreement will be divided among the Partners in the same proportions
as they share Profits and Losses, provided that any credits shall be allocated
in accordance with Treasury Regulations Section 1.704-1(b)(4)(ii).
(4) For purposes of Treasury Regulations Section 1.752-3(a), the Partners
hereby agree that any nonrecourse liabilities of the Partnership in excess of
the sum of (i) the Partnership Minimum Gain and (ii) the aggregate amount of
taxable gain that would be allocated to the Partners under Section 704(c) (or in
the same manner as Section 704(c) in connection with a revaluation of
Partnership property) if the Partnership disposed of (in a taxable transaction)
all Partnership property subject to one or more nonrecourse liabilities of the
Partnership in full satisfaction of such liabilities and for no other
consideration, shall be allocated among the Partners in accordance with their
respective shares of Profits. The General Partner shall have discretion in any
Fiscal Year to allocate such excess nonrecourse liabilities among the Partners
(a) in a manner reasonably consistent with allocations (that have substantial
economic effect) of some other significant item of Partnership income or gain or
(b) in accordance with the manner in which it is reasonably expected that the
deductions attributable to the excess nonrecourse liabilities will be allocated.
(G) Partner Acknowledgment. The Partners agree to be bound by the
provisions of this Section 5.2 in reporting their shares of Partnership income,
gain, loss, deduction and credit for income tax purposes.
(H) Regulatory Compliance. The foregoing provisions of this Section 5.2
relating to the allocation of Profits, Losses and other items for federal income
tax purposes are intended to comply with Treasury Regulations Sections
1.704-1(b), 1.704-2, 1.704-3 and 1.704-3T and shall be interpreted and applied
in a manner consistent with such Treasury Regulations.
SECTION 5.3 Distributions.
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(A) Distributable Cash for each Fiscal Year shall be distributed in the
following order of priority:
(1) First, the General Partner shall cause the Partnership to distribute to
the holder of each Preferred Unit an amount in cash equal to the cumulative
undistributed Priority Return Amount on December 31, March 31, June 30 and
September 30 of each year, commencing on December 31, 1997 (or in the case of a
Preferred Unit with an issuance date after December 31, 1997, on the first such
distribution date following the applicable issuance date); provided that, if any
such distribution date shall be a Saturday, Sunday or day on which banking
institutions in the State of New York are authorized or obligated by law to
close, or a day which is declared a national or New York State holiday (any of
the foregoing, a "Non-business Day"), then such distribution shall be made on
the next succeeding day which is not a Non-business Day. In any case in which a
Preferred Unit is outstanding for less than all of one or more Distribution
Periods, the amount distributable to the Preferred Limited Partner in respect of
such Unit shall be appropriately adjusted on the basis of a 360 day year
consisting of twelve 30 day months.
(2) Second, there shall be distributed with respect to each Limited Partner
Unit (other than a Preferred Unit) an amount equal on a per Unit basis to the
amount (other than in General Partner common shares) distributed by the General
Partner on its common shares during the Fiscal Year (other than a liquidating
distribution), except that the first distribution paid on Units issued on
October 15, 1997 shall be pro rated to reflect the actual portion of the period
for which the distribution is being paid during which such Units were
outstanding. To the extent practicable, distributions under this paragraph shall
be made at the same time as the dividend distributions on the General Partner's
common shares.
(3) Third, there shall be distributed to each holder of a Limited Partner
Interest (other than the Preferred Limited Partners) an amount equal to (x) the
product of the taxable income and gain allocated to such holder for the Fiscal
Year under Section 5.2(E) and the maximum federal income tax rate plus 7%
reduced by (y) the distributions received by such holder under Section 5.3(A)(2)
during the Fiscal Year. To the extent practicable, distributions under this
paragraph shall be made in sufficient time to permit Limited Partners to pay
required installments of estimated tax and the final tax payment for the taxable
year.
(B) After giving effect to Section 5.3(A), the General Partner shall have
the authority to cause the Partnership to make other distributions from time to
time as it determines, including without limitation, distributions that are
sufficient to enable the General Partner to (i) maintain its status as a REIT,
(ii) avoid the imposition of any tax under Code Section 857 and (iii) avoid the
imposition of any excise tax under Code Section 4981.
(C) Distributions pursuant to Section 5.3(B) shall be made pro rata among
the Partners of record on the Record Date established by the General Partner for
the distribution, in accordance with their respective Percentage Interests,
without regard to the length of time the record holder has been such.
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(D) The General Partner shall use its reasonable efforts to make
distributions to the Partners so as to preclude any distribution or portion
thereof from being treated as part of a sale of property to the Partnership by a
Partner under Section 707 of the Code or the Treasury Regulations thereunder;
provided that the General Partner and the Partnership shall not have liability
to a Limited Partner under any circumstances as a result of any distribution to
a Partner being so treated.
SECTION 5.4 Distributions upon Liquidation. Notwithstanding any other
provision hereof, proceeds of a Terminating Capital Transaction shall be
distributed to the Partners in accordance with Section 10.2.
SECTION 5.5 Amounts Withheld. All amounts withheld pursuant to the Code or
any provision of state or local tax law and Section 7.6 of this Agreement with
respect to any allocation, payment or distribution to the General Partner, the
Preferred Limited Partners, the Limited Partners or Assignees shall be treated
as amounts distributed to such General Partner, the Preferred Limited Partners,
the Limited Partners or Assignees, as applicable, pursuant to Section 5.3 of
this Agreement.
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ARTICLE VI - PARTNERSHIP MANAGEMENT
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SECTION 6.1 Management and Control of Partnership Business.
(A) Except as otherwise expressly provided or limited by the provisions of
this Agreement, the General Partner shall have full, exclusive and complete
discretion to manage the business and affairs of the Partnership, to make all
decisions affecting the business and affairs of the Partnership and to take all
such action as it deems necessary or appropriate to accomplish the purposes of
the Partnership as set forth herein. Except as set forth in this Agreement, the
Limited Partners shall not have any authority, right, or power to bind the
Partnership, or to manage. or to participate in the management of the business
and affairs of the Partnership in any manner whatsoever. Such management shall
in every respect be the full and complete responsibility of the General Partner
alone as herein provided.
(B) In carrying out the purposes of the Partnership, the General Partner
shall be authorized to take all actions it deems necessary and appropriate to
carry on the business of the Partnership. The Limited Partners and the Preferred
Limited Partners, by execution hereof, agree that the General Partner is
authorized to execute, deliver and perform any agreement and/or transaction on
behalf of the Partnership.
(C) The General Partner and its Affiliates may acquire Limited Partner
Interests or Preferred Units from Limited Partners or Preferred Limited Partners
who agree so to transfer Limited Partner Interests or Preferred Units from the
Partnership in accordance with Section 4.2(A).
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Any Limited Partner Interest or Preferred Unit acquired by the General Partner
shall be converted into a General Partner Interest. Upon acquisition of any
Limited Partner Interest or Preferred Unit by an Affiliate of the General
Partner, such Affiliate shall have all the rights of a Limited Partner or
Preferred Limited Partner, as the case may be.
SECTION 6.2 No Management by Limited partners; Limitation of Liability.
(A) Neither the Limited Partners, in their capacity as Limited Partners,
nor the Preferred Limited Partners, in their capacity as Preferred Limited
Partners, shall take part in the day-to-day management, operation or control of
the business and affairs of the Partnership or have any right, power, or
authority to act for or on behalf of or to bind the Partnership or transact any
business in the name of the Partnership. Neither the Limited Partners nor the
Preferred Limited Partners, in their capacity as Preferred Limited Partners,
shall have any rights other than those specifically provided herein or granted
by law where consistent with a valid provision hereof. Any approvals rendered or
withheld by the Limited Partners or the Preferred Limited Partners pursuant to
this Agreement shall be deemed as consultation with or advice to the General
Partner in connection with the business of the Partnership and, in accordance
with the Act, shall not be deemed as participation by the Limited Partners or
the Preferred Limited Partners in the business of the Partnership and are not
intended to create any inference that the Limited Partners or the Preferred
Limited Partners should be classified as general partners under the Act.
(B) Neither any Limited Partner nor any Preferred Limited Partner shall
have any liability under this Agreement except with respect to withholding under
Section 7104, in connection with a violation of any provision of this Agreement
by such Limited Partner or Preferred Limited Partner or as provided in the Act.
(C) The General Partner shall not take any action which would subject a
Limited Partner (in its capacity as Limited Partner) or a Preferred Limited
Partner (in its capacity as a Preferred Limited Partner) to liability as a
general partner.
(D) No Partner shall take any action that would result in the Partnership
being treated as an association taxable as a corporation, or as a corporation,
for federal income tax purposes.
SECTION 6.3 Limitations on Partners.
(A) No Partner or Affiliate of a Partner shall have any authority to
perform (i) any act in violation of any applicable law or regulation thereunder,
(ii) any act prohibited by Section 6.2(C). or (iii) any act which is required to
be Consented to or ratified pursuant to this Agreement without such Consent or
ratification.
(B) No action shall be taken by a Partner if it would cause the Partnership
to be treated as an association taxable as a corporation for federal income tax
purposes or, without the consent of the General Partner, as a publicly-traded
partnership within the meaning of Section 7.6 of the Code. A determination of
whether such action will have the above described effect shall be
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based upon a declaratory judgment or similar relief obtained from a court of
competent jurisdiction, a favorable ruling from the IRS or the receipt of a
written opinion of counsel.
SECTION 6.4 Business with Affiliates.
(A) The General Partner, in its discretion, may cause the Partnership to
transact business with any Partner or its Affiliates for goods or services
reasonably required in the conduct of the Partnership's business; provided that
any such transaction shall be effected only on terms competitive with those that
may be obtained in the marketplace from unaffiliated Persons. The foregoing
proviso shall not apply to transactions between the Partnership and its
Subsidiaries. In addition, neither the General Partner nor any Affiliate of the
General Partner may sell, transfer or otherwise convey any property to, or
purchase any property from, the Partnership, except (i) on terms competitive
with those that may be obtained in the marketplace from unaffiliated Persons or
(ii) where the General Partner determines, in its sole judgment, that such sale,
transfer or conveyance confers benefits on the General Partner or the
Partnership in respect of matters of tax or corporate or financial structure;
provided, in the case of this clause (ii), such sale, transfer. or conveyance is
not being effected for the purpose of materially disadvantaging the Limited
Partners.
(B) In furtherance of Section 6.4(A), the Partnership may lend or
contribute to its Subsidiaries on terms and conditions established by the
General Partner.
SECTION 6.5 Compensation; Reimbursement of Expenses. In consideration for
the General Partner's services to the Partnership in its capacity as General
Partner, the Partnership shall pay on behalf of or reimburse to the General
Partner all expenses of the General Partner incurred in connection with the
management of the business and affairs of the Partnership, including all
employee compensation of employees of the General Partner related to services
performed for the Partnership and indemnity or other payments made pursuant to
agreements entered into in furtherance of the Partnership's business. Except as
otherwise set forth in this Agreement, the General Partner shall be fully and
entirely reimbursed by the Partnership for any and all direct and indirect costs
and expenses incurred in connection with the organization and continuation of
the Partnership pursuant to this Agreement. In addition, the General Partner
shall be reimbursed for all expenses incurred by the General Partner in
connection with issuance of additional Partnership Interests.
SECTION 6.6 Liability for Acts and Omissions.
(A) The General Partner shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or any of the other Partners for any act
or omission performed or omitted in good faith on behalf of the Partnership and
in a manner reasonably believed to be (i) within the scope of the authority
granted by this Agreement and (ii) in the best interests of the Partnership or
the shareholders of the General Partner. In exercising its authority hereunder,
the General Partner may, but shall not be under any obligation to, take into
account the tax consequences to any Partner of any action it undertakes on
behalf of the Partnership. Neither the General Partner nor the Partnership shall
have any liability as a result of any income tax liability incurred by a Partner
as a result of any action or inaction of the General Partner hereunder and, by
their execution of
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this Agreement, the Limited Partners and the Preferred Limited Partners
acknowledge the foregoing.
(B) Unless otherwise prohibited hereunder, the General Partner shall be
entitled to exercise any of the powers granted to it and perform any of the
duties required of it under this Agreement directly or through any agent. The
General Partner shall not be responsible for any misconduct or negligence on the
part of any agent; provided that the General Partner selected or appointed such
agent in good faith.
(C) The General Partner acknowledges that it owes fiduciary duties both to
its shareholders and to the Limited Partners and the Preferred Limited Partners
and it shall use its reasonable efforts to discharge such duties to each-,
provided, however, that in the event of a conflict between the interests of the
shareholders of the General Partner and the interests of the Limited Partners or
the Preferred Limited Partners, the Limited Partners and the Preferred Limited
Partners agree that the General Partner shall discharge its fiduciary duties to
the Limited Partners and the Preferred Limited Partners by acting in the best
interests of the General Partner's shareholders. Nothing contained in the
preceding sentence shall be construed as entitling the General Partner to
realize any profit or gain from any transaction between the General Partner and
the Partnership (except in connection with a distribution in accordance with
this Agreement), including from the lending of money by the General Partner to
the Partnership or the contribution of property by the General Partner to the
Partnership, it being understood that in any such transaction the General
Partner shall be entitled to cost recovery only.
SECTION 6.7 Indemnification.
(A) The Partnership shall indemnify the General Partner and each director,
officer and shareholder of the General Partner and each Person (including any
Affiliate) designated as an agent by the General Partner in its reasonable
discretion (each, an "Indemnified Party") to the fullest extent permitted under
the Act (including any procedures set forth therein regarding advancement of
expenses to such Indemnified Party) from and against any and all losses, claims,
damages, liabilities, expenses (including reasonable attorneys' fees),
judgments, fines, settlements and any other amounts arising out of or in
connection with any claims, demands, actions, suits or proceedings (civil,
criminal or administrative) relating to or resulting (directly or indirectly)
from the operations of the Partnership, in which such Indemnified Party becomes
involved, or reasonably believes it may become involved, as a result of the
capacity referred to above.
(B) The Partnership shall have the authority to purchase and maintain such
insurance policies on behalf of the Indemnified Parties as the General Partner
shall determine, which policies may cover those liabilities the General Partner
reasonably believes may be incurred by an Indemnified Party in connection with
the operation of the business of the Partnership. The right to procure such
insurance on behalf of the Indemnified Parties shall in no way mitigate or
otherwise affect the right of any such Indemnified Party to indemnification
pursuant to Section 6.7(A) hereof.
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(C) The provisions of this Section 6.7 are for the benefit of the
Indemnified Parties, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights in or benefit to any other Person.
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ARTICLE VII - ADMINISTRATIVE, FINANCIAL AND TAX MATTERS
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SECTION 7.1 Books and Records. The General Partner shall maintain at the
office of the Partnership full and accurate books of the Partnership showing all
receipts and expenditures, assets and liabilities, profits and losses, names and
current addresses of Partners, and all other records necessary for recording the
Partnership's business and affairs. Each Limited Partner and Preferred Limited
Partner shall have, upon written demand and at such Limited Partner's or
Preferred Limited Partner's expense, as the case may be, the right to receive
true and complete information regarding Partnership matters to the extent
required (and subject to the limitations) under Delaware law.
SECTION 7.2 Annual Audit and Accounting. The books and records of the
Partnership shall be kept for financial and tax reporting purposes on the
accrual basis of accounting in accordance with generally accepted accounting
principles ("GAAP"). The accounts of the Partnership shall be audited annually
by a nationally recognized accounting firm of independent public accountants
selected by the General Partner (the "Independent Accountants").
SECTION 7.3 Partnership Funds. The General Partner shall have
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in its direct or indirect possession or control. All
funds of the Partnership not otherwise invested shall be deposited in one or
more accounts maintained in such banking institutions as the General Partner
shall determine, and withdrawals shall be made only in the regular course of
Partnership business on such signatures as the General Partner may from time to
time determine.
SECTION 7.4 Reports and Notices. The General Partner shall provide all
Partners with the following reports no later than the dates indicated or as soon
thereafter as circumstances permit:
(A) By March 31 of each year, IRS Form 1065 and Schedule K-1, or similar
forms as may be required by the IRS, stating each Partner's allocable share of
income, gain, loss, deduction or credit for the prior Fiscal Year;
(B) Within ninety (90) days after the end of each of the first three (3)
fiscal quarters. as of the last day of the fiscal quarter, a report containing
unaudited financial statements of the Partnership, or of the General Partner if
such statements are prepared on a consolidated basis with the General Partner,
and such other information as may be legally required or determined to be
appropriate by the General Partner; and
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(C) Within one hundred twenty (120) days after the end of each Fiscal Year,
as of the close of the Fiscal Year, an annual report containing audited
financial statements of the Partnership, or of the General Partner if such
statements are prepared on a consolidated basis with the General Partner,
presented in accordance with GAAP and certified by the Independent Accountants.
SECTION 7.5 Tax Matters.
(A) The General Partner shall be the Tax Matters Partner of the Partnership
for federal income tax matters pursuant to Code Section 6231(a)(7)(A). The Tax
Matters Partner is authorized and required to represent the Partnership (at the
expense of the Partnership) in connection with all examinations of the affairs
of the Partnership by any federal, state, or local tax authorities, including
any resulting administrative and judicial proceedings, and to expend funds of
the Partnership for professional services and costs associated therewith. The
Tax Matters Partner shall deliver to the Limited Partners and Preferred Limited
Partners within ten (10) business days of the receipt thereof a copy of any
notice or other communication with respect to the Partnership received from the
IRS (or other governmental tax authority), or any court, in each case with
respect to any administrative or judicial proceeding involving the Partnership.
The Partners agree to cooperate with each other in connection without the
conduct of all proceedings pursuant to this Section 7.5(A).
(B) The Tax Matters Partner shall receive no compensation for its services
in such capacity. If the Tax Matters Partner incurs any costs related to any tax
audit, declaration of any tax deficiency or any administrative proceeding or
litigation involving any Partnership tax matter, such amount shall be an expense
of the Partnership and the Tax Matters Partner shall be entitled to full
reimbursement therefor.
(C) The General Partner shall cause to be prepared all federal, state and
local income tax returns required of the Partnership at the Partnership's
expense.
(D) Except as set forth herein, the General Partner shall determine whether
to make (and, if necessary, revoke) any tax election available to the
Partnership under the Code or any state tax law; provided, however, upon the
request of any Partner, the General Partner shall make the election under code
Section 754 and the Treasury Regulations promulgated thereunder. The Partnership
shall elect to deduct expenses, if any, incurred by it in organizing the
Partnership in accordance with the provisions of Code Section 709.
SECTION 7.6 Withholding. Each Partner hereby authorizes the Partnership to
withhold from or pay to any taxing authority on behalf of such Partner any tax
that the General Partner determines the Partnership is required to withhold or
pay with respect to any amount distributable or allocable to such Partner. Any
amount paid to any taxing authority which does not constitute a reduction in the
amount otherwise distributable to such Partner shall be treated as a loan from
the Partnership to such Partner, which loan shall
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bear interest at the "prime rate" as published from time to time in The Wall
Street Journal plus two (2) percentage points, and shall be repaid within ten
(10) business days after request for repayment from the General Partner. The
obligation to repay any such loan shall be secured by such Partner's Partnership
Interest and each Partner hereby grants the Partnership a security interest in
his Partnership Interest for the purposes set forth in this Section 7.6, this
Section 7.6 being intended to serve as a security agreement for purposes of the
Uniform Commercial Code with the General Partner having in respect hereof all of
the remedies of a secured party under the Uniform Commercial Code. Each Partner
agrees to take such reasonable actions as the General Partner may request to
perfect and continue the perfection of the security interest granted hereby. In
the event any Partner fails to repay any deemed loan pursuant to this Section
7.6 the Partnership shall be entitled to avail itself of any rights and remedies
it may have. Furthermore, upon the expiration of ten (10) business days after
demand for payment, the General Partner shall have the right, but not the
obligation, to make the payment to the Partnership on behalf of the defaulting
Partner and thereupon be subrogated to the rights of the Partnership with
respect to such defaulting Partner.
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ARTICLE VIII - TRANSFER OF PARTNERSHIP INTERESTS; ADMISSION OF
PARTNERS
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SECTION 8.1 Transfer by General Partner. The General Partner may not
voluntarily withdraw or Transfer all or any portion of its General Partner
Interest. Notwithstanding the foregoing, the General Partner may pledge its
General Partner Interest in furtherance of the Partnership's business (including
without limitation, in connection with a loan agreement under which the
Partnership is a borrower) without the consent of any Partner.
SECTION 8.2 Obligations of a Prior General Partner. Upon an Involuntary
Withdrawal of the General Partner and the subsequent Transfer of the General
Partner's Interest, such General Partner shall (i) remain liable for all
obligations and liabilities (other than Partnership liabilities payable solely
from Partnership Assets) incurred by it as General Partner before the effective
date of such event and (ii) pay all costs associated with the admission of its
Successor General Partner. However, such General Partner shall be free of and
held harmless by the Partnership against any obligation or liability incurred on
account of the activities of the Partnership from and after the effective date
of such event, except as provided in this Agreement.
SECTION 8.3 Successor General Partner. A successor to all of a General
Partner's General Partner Interest who is proposed to be admitted to the
Partnership as a Successor General Partner shall be admitted as the General
Partner, effective upon the Transfer. Any such
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transferee shall carry on the business of the Partnership without dissolution.
In addition, the following conditions must be satisfied:
(A) The Person shall have accepted and agreed to be bound by all the terms
and provisions of this Agreement by executing a counterpart thereof and such
other documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner; and
(B) An amendment to this Agreement evidencing the admission of such Person
as a General Partner shall have been executed by all General Partners and an
amendment to the Certificate shall have been filed for recordation as required
by the Act.
(C) Any consent required under Section 10.1(A) shall have been obtained.
SECTION 8.4 Restrictions on Transfer and Withdrawal by Limited Partner.
(A) Subject to the provisions of Section 8.4(D), no Limited Partner or
Preferred Limited Partner may Transfer all or any portion of its Partnership
Interest without first obtaining the Consent of the General Partner, which
Consent may be granted or withheld in the sole and absolute discretion of the
General Partner. Any such purported transfer undertaken without such Consent
shall be considered to be null and void ab initio and shall not be given effect.
(B) No Limited Partner or Preferred Limited Partner may withdraw from the
Partnership other than as a result of a permitted Transfer (i.e., a Transfer
consented to as contemplated by clause (A) above or clause (D) below or a
Transfer pursuant to clause (C) below) of all of his Partnership Units pursuant
to this Article VIII or pursuant to a redemption or exchange of all of his
Partnership Units pursuant to Article IX. Upon the permitted Transfer or
redemption of all of a Limited Partner's or Preferred Limited Partners
Partnership Units, such Limited Partner or Preferred Limited Partner shall cease
to be a Limited Partner or Preferred Limited Partner.
(C) Upon the Involuntary Withdrawal of any Limited Partner or Preferred
Limited Partner (which shall under no circumstance cause the dissolution of the
Partnership), the executor, administrator, trustee, guardian, receiver or
conservator of such Limited Partner's or Preferred Limited Partners estate shall
become a Substituted Limited Partner or Substituted Preferred Limited Partner
upon compliance with the provisions of Section 8.5(A)(l)-(3).
(D) Subject to clause (E) below, a Limited Partner or Preferred Limited
Partner may Transfer, with the Consent of the General Partner, all or a portion
of his Partnership Units to (a) a parent or parents, spouse, natural or adopted
descendant or brother or sister, or a trust created by such Limited Partner or
Preferred Limited Partner for the benefit of such Limited Partner or Preferred
Limited Partner and/or any such person(s), of which trust such Limited Partner
or Preferred Limited Partner or any such person(s) is a trustee, (b) a
corporation controlled by a Person or Persons named in (a) above, (c) if the
Limited Partner or Preferred Limited Partner is an entity, its beneficial
owners, or (d) a family limited partnership comprised of members of the family
of a Limited Partner or a Preferred Limited Partner, and the General Partner
shall grant its Consent to any
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Transfer pursuant to this Section 8.4(D) unless such Transfer, in the reasonable
judgment of the General Partner, would cause (or have the potential to cause)
the General Partner to fail to qualify for taxation as a REIT, in which case the
General Partner shall have the absolute right to refuse to permit such Transfer,
and any purported Transfer in violation of this Section 8.4(D) shall be null and
void ab initio.
(E) No Transfer of Limited Partnership Units or Preferred Units shall be
made if such Transfer would (i) in the opinion of Partnership counsel, cause the
Partnership to be terminated for federal income tax purposes or to be treated as
an association taxable as a corporation (rather than a partnership) for federal
income tax purposes; (h) be effected through an "established securities market"
or a "secondary market (or the substantial equivalent thereof)" within the
meaning of Code Section 7704 and the Treasury Regulations thereunder, (iii) in
the opinion of Partnership counsel, violate the provisions of applicable
securities laws; (iv) violate the terms of (or result in a default or
acceleration under) any law, rule, regulation, agreement or commitment binding
on the Partnership; (v) cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(e) of the Code), (vi) in the opinion of counsel to the Partnership,
cause any portion of the underlying assets of the Partnership to constitute
assets of any employee benefit plan pursuant to Department of Labor Regulations
Section 2510.3-101; or (vii) result in a deemed distribution to any Partner
attributable to a failure to meet the requirements of Treasury Regulations
Section 1.752-2(d)(1), unless such Partner consents thereto.
(F) Prior to the consummation of any Transfer under this Section 8.4, the
transferor and/or the transferee shall deliver to the General Partner such
opinions, certificates and other documents as the General Partner shall request
in connection with such Transfer.
SECTION 8.5 Substituted Limited Partner.
(A) No transferee shall become a Substituted Limited Partner or Substituted
Preferred Limited Partner in place of its assignor unless and until the
following conditions have been satisfied:
(1) The assignor and transferee file a Notice or other evidence of Transfer
and such other information reasonably required by the General Partner,
including, without limitation, names, addresses and telephone numbers of the
assignor and transferee;
(2) The transferee executes, adopts and acknowledges this Agreement, or a
counterpart hereto, and such other documents as may be reasonably requested by
the General Partner, including without limitation, all documents necessary to
comply with applicable tax and/or securities rules and regulations; and
(3) The assignor or transferee pays all costs and fees incurred or charged
by the Partnership to effect the Transfer and substitution.
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(B) If a transferee of a Limited Partner or Preferred Limited Partner does
not become a Substituted Limited Partner or Substituted Preferred Limited
Partner pursuant to Section 8.5(A), such transferee shall be an Assignee and
shall not have any rights to require any information on account of the
Partnership's business, to inspect the Partnership's books or to vote or
otherwise take part in the affairs of the Partnership (such Partnership Units
being deemed to have been voted in the same proportion as all other Partnership
Units held by Limited Partners or Preferred Limited Partners have been voted).
Such Assignee shall be entitled, however, to all the rights of an assignee of a
limited partnership interest under the Act. Any Assignee wishing to Transfer the
Partnership Units acquired shall be subject to the restrictions set forth in
this Article VIII.
SECTION 8.6 Timing and Effect of Transfers. Unless the General Partner
agrees otherwise, Transfers under this Article VIII may only be made as of the
first day of a fiscal quarter of the Partnership. Upon any Transfer of a
Partnership Interest in accordance with this Article VIII or redemption of a
Partnership Interest in accordance with Article IX, the Partnership shall
allocate all items of Profit and Loss between the assignor Partner and the
transferee Partner in accordance with Section 5.2(F)(2) hereof. The assignor
Partner shall have the right to receive all distributions as to which the Record
Date precedes the date of Transfer and the transferee Partner shall have the
right to receive all distributions thereafter.
SECTION 8.7 Additional Limited Partners. Other than in accordance with the
transactions specified in the Contribution Agreements, after the initial
execution of this Agreement and the admission to the Partnership of the Initial
Limited Partners, any Person making a Capital Contribution to the Partnership in
accordance herewith shall be admitted as an Additional Limited Partner or
Additional Preferred Limited Partner of the Partnership only (i) with the
Consent of the General Partner and (ii) upon execution, adoption and
acknowledgment of this Agreement, or a counterpart hereto, and such other
documents as may be reasonably requested by the General Partner, including
without limitation, the power of attorney required under Section 12.3. Upon
satisfaction of the foregoing requirements, such Person shall be admitted as an
Additional Limited Partner or Additional Preferred Limited Partner effective on
the date upon which the name of such Person is recorded on the books of the
Partnership.
SECTION 8.8 Amendment of Agreement and Certificate. Upon any admission of a
Person as a Partner to the Partnership, the General Partner shall make any
necessary amendment to this Agreement to reflect such admission and, if required
by the Act, to cause to be filed an amendment to the Certificate.
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ARTICLE IX REDEMPTION AND CONVERSION
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SECTION 9.1 Right of Redemption
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(A) Subject to compliance with (w) the terms and conditions of the REIT
Charter,(x) all requirements under the Code applicable to real estate investment
trusts, (y) the Minnesota Business Corporation Act or any other law as in effect
from time to time and (z) any applicable rule or policy of any stock exchange or
self-regulatory organization (a "Redemption Restriction"), beginning on
September 1, 1998, during each Redemption Period each Redeeming Party shall have
the right to require the Partnership to redeem all or a portion of the
Partnership Units held by such Redeeming Party by providing the General Partner
with a Redemption Notice. A Limited Partner may invoke its rights under this
Article IX with respect to one or more Partnership Units or all of the
Partnership Units held by such Limited Partner. Upon the General Partner's
receipt of a Redemption Notice from a Redeeming Party, the Partnership shall be
obligated (subject to the existence of any Redemption Restriction) to redeem the
Partnership Units from such Redeeming Party (the "Redemption Obligation").
(B) Upon receipt of a Redemption Notice from a Redeeming Party, the General
Partner shall either (i) cause the Partnership to redeem the Partnership Units
tendered in the Redemption Notice, (ii) assume the Redemption Obligation, as set
forth in Section 9.4, or (iii) provide written Notice to the Redeeming Party of
each applicable Redemption Restriction.
SECTION 9.2 Timing of Redemption. The Redemption Obligation (or the
obligation to provide Notice of an applicable Redemption Restriction, if one
exists) shall mature on the date which is seven (7) business days after the
receipt by the General Partner of a Redemption Notice from the Redeeming Party
(the "Redemption Date").
SECTION 9.3 Redemption Price. On or before the Redemption Date, the
Partnership (or the General Partner if it elects pursuant to Section 9.4) shall
deliver to the Redeeming Party, in the sole and absolute discretion of the
General Partner, either (i) a Share Payment or (ii) a Cash Payment; provided,
however, that a Share Payment shall not be made, and a Cash Payment shall
instead be made in all cases, if, in the sole discretion of the General Partner,
the making of a Share Payment would result in a material risk of termination of
the General Partner's status as a REIT under the Code. In order to enable the
Partnership to effect a redemption by making a Share Payment pursuant to this
Section 9.3, the General Partner in its sole and absolute discretion may issue
to the Partnership the number of REIT Shares required to make such Share Payment
in exchange for the issuance to the General Partner of Partnership Units equal
in number to the quotient of the number of REIT Shares issued and the Conversion
Factor.
SECTION 9.4 Assumption of Redemption Obligation. Upon receipt of a
Redemption Notice, the General Partner, in its sole and absolute discretion,
shall have the right to assume the Redemption Obligation of the Partnership. In
such case, the General Partner shall be substituted for the Partnership for all
purposes of this Article IX and, upon acquisition of the Partnership Units
tendered by the Redeeming Party pursuant to the Redemption Notice shall be
treated for all purposes of this Agreement as the owner of such Partnership
Units. Such exchange transaction shall be treated for federal income tax
purposes by the Partnership, the General Partner and the Redeeming Party as a
sale by the Redeeming Party as seller to the General Partner as purchaser.
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SECTION 9.5 Further Assurances; Certain Representations. Each party to this
Agreement agrees to execute any documents deemed reasonably necessary by the
General Partner to evidence the issuance of any Share Payment to a Redeeming
Party. Each Limited Partner and Preferred Limited Partner, by executing this
Agreement, shall be deemed to have represented to the General Partner and the
Partnership that (i) its acquisition of its Partnership Interest is or will be
made as a principal for its own account, for investment purposes only and not
with a view to the resale or distribution of such Partnership Interest and (ii)
if it shall receive REIT Shares pursuant to this Article IX other than pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, that its acquisition of such REIT Shares is or will be made as a
principal for its own account, for investment purposes only and not with a view
to the resale or distribution of such REIT Shares and agrees that such REIT
Shares may be bear a legend to the effect that such REIT Shares have not been so
registered and may not be sold other than pursuant to such a registration
statement or an exemption from the registration requirements of such Act.
SECTION 9.6 Effect of Redemption. Upon the satisfaction of the Redemption
Obligation by the Partnership or the General Partner, as the case may be, the
Redeeming Party shall have no further right to receive any Partnership
distributions in respect of the Partnership Units so redeemed and shall be
deemed to have represented to the Partnership and the General Partner that the
Partnership Units tendered for redemption are not subject to any liens, claims
or encumbrances.
SECTION 9.7 Registration Rights. In the event a Limited Partner receives
REIT Shares in connection with a redemption of Partnership Units pursuant to
this Article IX, such Limited Partner shall be entitled to have such REIT Shares
registered under the Securities Act of 1933, as amended, as provided in the
Registration Rights Agreement.
SECTION 9.8 Conversion. (A) Each Preferred Limited Partner shall have the
right, at any time or from time to time, to convert on or after October 1, 1999
some or all of its Preferred Units into Limited Partner Interests, effective
upon January 1, April 1, July I or October I of any year, by providing the
General Partner with a Conversion Notice not less than 30 days prior to the
effective date of such conversion. Upon the effective date of any such
conversion, the Preferred Units which are the subject of such conversion shall
be converted, without necessity of any further action by the General Partner,
into Units of Limited Partner Interest on the basis of 3.5714 Units of Limited
Partner Interest for each Preferred Unit being converted plus an amount in cash
equal to the accrued Priority Return Amount in respect of such Preferred Units.
In any case in which the conversion into Limited Partner Interests under this
Section would result in the issuance of a fractional Limited Partner Interest,
the General Partner shall pay the converting Limited Partner cash in lieu of
issuance of a fractional Limited Partner Interest, with the value of such
fractional interest being determined by reference to the Unit Value applicable
on the date of conversion.
(B) In any case in which there is an unpaid Priority Return Amount with
respect to a Preferred Unit that is converted pursuant to paragraph (A) of this
Section, the converting partner shall continue to have the right to
distributions (and allocations) under Article V and Section 10.2 of this
Agreement as if the converting partner continued to hold the converted Preferred
Unit until the unpaid distributions (and related allocations) have been paid (or
allocated).
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SECTION 9.9 Redemption Restriction.
(A) The General Partner shall not take, or cause to be taken, any action
which would cause a Redemption Restriction to exist or continue.
(B) The General Partner shall, at its cost and expense, take, or cause to
be taken, all such actions that may be necessary or desirable to mitigate the
existence or effect of any Redemption Restriction and to facilitate and make
effective the rights of redemption and conversion provided in this Article IX.
SECTION 9.10 Special Event.
(A) Notwithstanding any provision of this Agreement to the contrary, upon
the occurrence of a Special Event (whether before or after September 1, 1998),
each Redeeming Party shall immediately have the unconditional right
(irrespective of whether a Redemption Restriction exists or could thereby be
created) to require the Partnership to redeem all or a portion of the
Partnership Units held by such Redeeming Party by providing the General Partner
with a Redemption Notice. A Limited Partner may invoke its rights under this
Section 9. 10 with respect to one or more Partnership Units or all of the
Partnership Units held by such Limited Partner. Any such redemption shall
otherwise be governed by and effected and implemented pursuant to this Article
IX as if no Redemption Restriction existed.
(B) Notwithstanding any provision of this Agreement to the contrary, upon
the occurrence of a Special Event (whether before or after October 1, 1999),
each Preferred Limited Partner shall have the right effective upon the happening
of such Special Event, at any time or from time to time, to convert some or all
of its Preferred Units into Limited Partner Interests by providing the General
Partner with a Conversion Notice. Anv such conversion shall otherwise be
governed by and effected and implemented pursuant to this Article IX.
(C) "Special Event" means the occurrence of any of the following:
(I) any person or group (as such terms are used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended ("Exchange Act")) other than
the Permitted Holders, directly or indirectly, makes an offer to purchase or
commences a tender offer for REIT Shares such that, after acquiring all such
REIT Shares offered to be acquired or tendered for, such person or group would
then be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of 20% or more of the total number of
REIT Shares then issued and outstanding; or
(II) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (C)(1) above, except that for purposes of
this clause (II) such person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or indi-
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rectly, of more than 20% of the total voting power represented by all the REIT
Shares then outstanding; or
(III) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Royale (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of Royale was approved by a vote of
66 2/3 % of the directors of Royale then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of Royale then in office; or
(IV) the merger or consolidation of Royale with or into another Person or
the merger or consolidation of another Person with or into Royale, or the sale
of all or substantially all the assets of Royale to another Person (other than a
Person that is controlled by the Permitted Holders in the aggregate), and, in
the case of any such merger or consolidation, the securities of Royale that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the REIT Shares are changed into or exchanged for
cash, securities or property.
(D) "Permitted Holders" means Jay H. Shidler, Clay W. Hamlin III, Westbrook
Real Estate Fund I, L.P. and Westbrook Real Estate Co. Investment Partnership I,
L.P. and any corporation, partnership, trust, estate or other legal entity
controlled by any of the foregoing Persons (or jointly controlled by Messrs.
Shidler and Hamlin).
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ARTICLE X - DISSOLUTION AND LIQUIDATION
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SECTION 10.1 Term and Dissolution. The Partnership commenced as of October
10, 1997, and shall continue until October 31, 2096, at which time the
Partnership shall dissolve or until dissolution occurs prior to that date for
any one of the following reasons:
(A) An Involuntary Withdrawal or a voluntary withdrawal, even though in
violation of this Agreement, of the General Partner unless, within ninety (90)
days after such event of withdrawal of a majority of the Limited Partners
remaining agree in writing to the continuation of the Partnership and to the
appointment of a Successor General Partner;
(B) Entry of a decree of judicial dissolution of the Partnership under the
Act; or
(C) The sale, exchange or other disposition of all or substantially all of
the Partnership Assets; or
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(D) The affirmative vote of the holders of not less than two-thirds of the
Limited Partner Interests (for this purpose Preferred Units shall be treated as
if they have been converted on the date of such vote into Limited Partner
Interests pursuant to Section 9.8 and the Preferred Limited Partners holding
such Preferred Units shall be treated as Limited Partners).
SECTION 10.2 Liquidation of Partnership Assets.
(A) Subject to Section 10. 2(E), in the event of dissolution pursuant to
Section 10.1, the Partnership shall continue solely for purposes of winding up
the affairs of, achieving a final termination of, and satisfaction of the
creditors of, the Partnership. The General Partner (or, if there is no General
Partner remaining, any Person elected by a majority in interest of the Limited
Partners (the "Liquidator")) shall be responsible for oversight of the winding
up and dissolution of the Partnership. The Liquidator shall obtain a full
accounting of the assets and liabilities of the Partnership and such Partnership
Assets shall be liquidated (including, at the discretion of the Liquidator, in
exchange, in whole or in part, for REIT Shares) as promptly as the Liquidator is
able to do so without any undue loss in value, with the proceeds therefrom
applied and distributed in the following order:
(1) First, to creditors, including partners who are creditors, in
satisfaction of liabilities of the Partnership, other than liabilities for
distributions to Partners and former Partners;
(2) Second, to the Preferred Limited Partners in amounts equal to any
unpaid Priority Return Amounts;
(3) Third, to Partners and former Partners in satisfaction of liabilities
for distributions; and
(4) The balance, if any, to the Partners in accordance with their positive
Capital Accounts after giving effect to all contributions, distributions, and
allocations for all periods.
(B) In accordance with Section 10.2(A), the Liquidator shall proceed
without any unnecessary delay to sell and otherwise liquidate the Partnership
Assets; provided, however, that if the Liquidator shall determine that an
immediate sale of part or all of the Partnership Assets would cause undue loss
to the Partners, the Liquidator may defer the liquidation except (i) to the
extent provided by the Act or (ii) as may be necessary to satisfy the debts and
liabilities of the Partnership to Persons other than the Partners.
(C) If, in the sole and absolute discretion of the Liquidator, there are
Partnership Assets that the Liquidator will not be able to liquidate, or if the
liquidation of such assets would result in undue loss to the Partners, the
Liquidator may distribute such Partnership Assets to the Partners in-kind, in
lieu of cash, as tenants-in-common in accordance with the provisions of Section
10.2(A). The foregoing notwithstanding, such in-kind distributions shall only be
made if in the Liquidator's good faith judgment that is in the best interest of
the Partners.
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(D) Upon the complete liquidation and distribution of the Partnership
Assets, the Partners shall cease to be Partners of the Partnership, and the
Liquidator shall execute, acknowledge and cause to be filed all certificates and
notices required by law to terminate the Partnership. Upon the dissolution of
the Partnership pursuant to Section 10.1, the Liquidator shall cause to be
prepared, and shall furnish to each Partner, a statement setting forth the
assets and liabilities of the Partnership. Promptly following the complete
liquidation and distribution of the Partnership Assets, the Liquidator shall
furnish to each Partner a statement showing the manner in which the Partnership
Assets were liquidated and distributed.
(E) Notwithstanding the foregoing provisions of this Section 10.2, in the
event that the Partnership shall dissolve as a result of the expiration of the
term provided for herein or as a result of the occurrence of an event of the
type described in Section 10.1(B) or (C), then each Limited Partner shall be
deemed to have delivered a Redemption Notice on the date of such dissolution. In
connection with each such Redemption Notice, the General Partner shall have the
option of either (i) complying with the redemption procedures contained in
Article IX or (ii) at the request of any Limited Partner, delivering to such
Limited Partner, Partnership property approximately equal in value (after taking
into account the liabilities hereto referred to) the amount otherwise
distributable to such Partner under Section 10.4(A)(4) hereof upon the
assumption by such Limited Partner of such Limited Partner's proportionate share
of the Partnership's liabilities and payment by such Limited Partner (or the
Partnership) of any excess (or deficiency) of the value of the property so
delivered over the amount otherwise distributable to such Partner under Section
10.4(A)(4). In lieu of requiring such Limited Partner to assume its
proportionate share of Partnership liabilities, the General Partner may deliver
to such Limited Partner unencumbered Partnership property approximately equal in
value to the amount otherwise distributable to such Partner under Section
10.4(A)(4).
SECTION 10.3 Effect of Treasury Regulations.
(A) In the event the Partnership is "liquidated" within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article X to the General Partner, the Limited Partners, the
Preferred Limited Partners who have positive Capital Accounts in compliance with
Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a
deficit balance in its Capital Account (after giving effect to all contributions
(without regard to this Section 10.3(A)), distributions and allocations), such
Partner shall have no obligation to make any contribution to the capital of the
Partnership. Any deficit restoration obligation pursuant to the provisions
hereof shall be for the benefit of creditors of the Partnership or any other
Person to whom any debts, liabilities, or obligations are owed by (or who
otherwise has any claim against) the Partnership or the general partner, in its
capacity as General Partner of the Partnership.
(B) In the event the Partnership is "liquidated" within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but there has been no
dissolution of the Partnership under Section 10.1. I hereof, then the
Partnership Assets shall not be liquidated, the Partnership's liabilities shall
not be paid or discharged and the Partnership's affairs shall not be wound up.
In the event of such a liquidation there shall be deemed to have been a
distribution of Partnership Assets in kind
<PAGE>
-40-
to the Partners in accordance with their respective Capital Accounts followed by
a recontribution of the Partnership Assets by the Partners also in accordance
with their respective Capital Accounts.
SECTION 10.4 Time for Winding-Up. Anything in this Article X
notwithstanding, a reasonable time shall be allowed for the orderly winding-up
of the business and affairs of the Partnership and the liquidation of the
Partnership Assets in order to minimize any potential for losses as a result of
such process. During the period of winding-up, this Agreement shall remain in
full force and effect and shall govern the rights and relationships of the
Partners inter se.
- -------------------------------------------------------------------------------
ARTICLE XI - AMENDMENTS AND MEETINGS
- -------------------------------------------------------------------------------
SECTION 11.1 Amendment Procedure.
(A) Amendments to this Agreement may be proposed by the General Partner. An
amendment proposed at any time when the General Partner holds less than 90% of
all Partnership Units will be adopted and effective only if it receives the
Consent of the holders of a majority of the Partnership Units and Preferred
Units, voting separately, not then held by the General Partner and an amendment
proposed at any time when the General Partner holds 90% or more of all
Partnership Units and Preferred Units may be made by the General Partner without
the Consent of any Limited Partner or Preferred Limited Partner; provided,
however, no amendment shall be adopted if it would (i) convert a Limited
Partner's Partnership Interest or Preferred Limited Partner's Preferred Units
into a general partner interest, (ii) increase the liability of a Limited
Partner or a Preferred Limited Partner under this Agreement, (iii) except as
otherwise permitted in this Agreement, alter the amount or the Partner's rights
to distributions set forth in Article V or X, or the allocations set forth in
Article IV, (iv) alter or modify any aspect of the Partners' rights with respect
to redemption of Partnership Units or conversion of Preferred Units, (v) cause
the early termination of the Partnership (other than pursuant to the terms
hereof) or (vi) amend this Section 11.1(A), in each case without the Consent of
each Partner adversely affected thereby. In connection with any proposed
amendment of this Agreement requiring Consent, the General Partner shall either
call a meeting to solicit the vote of the Partners or seek the written vote of
the Partners to such amendment. In the case of a request for a written vote, the
General Partner shall be authorized to impose such reasonable time limitations
for response, but in no event less than ten (10) days, with the failure to
respond being deemed a vote consistent with the vote of the General Partner.
(B) Notwithstanding the foregoing, amendments may be made to this Agreement
by the General Partner, without the Consent of any Limited Partner or Preferred
Limited Partner, to (i) add to the representations, duties or obligations of the
General Partner or surrender any right or power granted to the General Partner
herein, (ii) cure any ambiguity, correct or supplement any provision herein
which may be inconsistent with any other provision herein or make any other
provisions with respect to matters or questions arising hereunder which will not
be inconsistent with any other provision hereof; (iii) reflect the admission,
substitution, termination or withdrawal of
<PAGE>
-41-
Partners in accordance with this Agreement; or (iv) satisfy any requirements,
conditions or guidelines contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in federal or state law.
The General Partner shall reasonably promptly notify the Limited Partners and
Preferred Limited Partners whenever it exercises its authority pursuant to this
Section 11.1(B).
(C) Within ten (10) days of the making of any proposal to amend this
Agreement, the General Partner shall give all Partners Notice of such proposal
(along with the text of the proposed amendment and a statement of its purposes).
SECTION 11.2 Meetings and Voting.
(A) Meetings of Partners may be called by the General Partner. The General
Partner shall give all Partners Notice of the purpose of such proposed meeting
not less than seven (7) days nor more than thirty (30) days prior to the date of
the meeting. Meetings shall be held at a reasonable time and place selected by
the General Partner. Whenever the vote or Consent of Partners is permitted or
required hereunder, such vote or Consent shall be requested by the General
Partner and may be given by the Partners in the same manner as set forth for a
vote with respect to an amendment to this Agreement in Section 11.1(A).
(B) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action to be taken is signed by the Partners owning Percentage Interests
required to vote in favor of such action, which consent may be evidenced in one
or more instruments (for this purpose Preferred Units and Preferred Limited
Partners shall be treated as provided in Section 10.1(D) in the case of a vote
pursuant to such Section). Consents need not be solicited from any other Partner
if the written consent of a sufficient number of Partners has been obtained to
take the action for which such solicitation was required.
(C) Each Limited Partner and each Preferred Limited Partner may authorize
any Person or Persons, including without limitation the General Partner, to act
for him by proxy on all matters on which a Limited Partner or a Preferred
Limited Partner may participate. Every proxy (i) must be signed by the Limited
Partner or his attomey-in-fact, (ii) shall expire eleven (11) months from the
date thereof unless the proxy provides otherwise and (iii) shall be revocable at
the discretion of the Limited Partner or Preferred Limited Partner granting such
proxy.
- -------------------------------------------------------------------------------
ARTICLE XII - MISCELLANEOUS PROVISIONS
- -------------------------------------------------------------------------------
SECTION 12.1 Title to Property. All property owned by the Partnership,
whether real or personal, tangible or intangible. shall be deemed to be owned by
the Partnership as an entity, and no Partner, individually, shall have any
ownership of such property. The Partnership
<PAGE>
-42-
may hold any of its assets in its own name or, in the name of its nominee, which
nominee may be one or more individuals, corporations, partnerships, trusts or
other entities.
SECTION 12.2 Other Activities of Limited Partners and Preferred Limited
Partners. Except as expressly provided otherwise in this Agreement or in any
other agreement entered into by a Limited Partner or a Preferred Limited Partner
or any Affiliate of a Limited Partner or a Preferred Limited Partner and the
Partnership, the General Partner or any Subsidiary of the Partnership or the
General Partner, any Limited Partner or Preferred Limited Partner or any
Affiliate of any Limited Partner or Preferred Limited Partner may engage in, or
possess an interest in, other business ventures of every nature and description,
independently or with others, including, without limitation, real estate
business ventures, whether or not such other enterprises shall be in competition
with any activities of the Partnership, the General Partner or any Subsidiary of
the Partnership or the General Partner; and neither the Partnership, the General
Partner, any such Subsidiary nor the other Partners shall have any right by
virtue of this Agreement in and to such independent ventures or to the income or
profits derived therefrom.
SECTION 12.3 Power of Attorney.
(A) Each Partner hereby irrevocably appoints and empowers the General
Partner (which term shall include the Liquidator, in the event of a liquidation,
for purposes of this Section 12.3) and each of their authorized officers and
attorneys-in-fact with full power of substitution as his true and lawful agent
and attorney-in-fact, with full power and authority in his name, place and stead
to:
(1) make, execute, acknowledge, publish and file in the appropriate public
offices (a) any duly approved amendments to the Certificate pursuant to the Act
and to the laws of any state in which such documents are required to be filed;
(b) any certificates, instruments or documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction in which the
Partnership is doing or intends to do business; (c) any other instrument which
may be required to be filed by the Partnership under the laws of any state or by
any governmental agency, or which the General Partner deems advisable to file;
(d) any documents which may be required to effect the continuation of the
Partnership, the admission, withdrawal or substitution of any Partner pursuant
to Article VIII, dissolution and termination of the Partnership pursuant to
Article X, or the surrender of any rights or the assumption of any additional
responsibilities by the General Partner; (e) any document which may be required
to effect an amendment to this Agreement to correct any mistake, omission or
inconsistency, or to cure any ambiguity herein, to the extent such amendment is
permitted by Section 11.1(B); and (f) all instruments (including this Agreement
and amendments and restatements hereof) relating to the determination of the
rights, preferences and privileges of any class or series of Partnership Units
issued pursuant to Section 4.2(B) of this Agreement; and
(2) sign, execute, swear to and acknowledge all voting ballots, consents,
approvals, waivers, certificates and other instruments appropriate or necessary.
in the sole discretion of the General Partner, to make, evidence, give, confirm
or ratify any vote, consent, approval,
<PAGE>
-43-
agreement or other action which is made or given by the Partners hereunder or is
consistent with the terms of this Agreement and appropriate or necessary, in the
sole discretion of the General Partner, to effectuate the terms or intent of
this Agreement.
(B) Nothing herein contained shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article XI or as may
be otherwise expressly provided for in this Agreement.
(C) The foregoing grant of authority (i) is a special power of attorney,
coupled with an interest, and it shall survive the Involuntary Withdrawal of any
Partner and shall extend to such Partner's heirs, successors, assigns and
personal representatives; (ii) may be exercised by the General Partner for each
and every Partner acting as attorney-in-fact for each and every Partner; and
(iii) shall survive the Transfer by a Limited Partner of all or any portion of
its Interest and shall be fully binding upon such transferee; except that the
power of attorney shall survive such assignment with respect to the assignor
Limited Partner for the sole purpose of enabling the General Partner to execute,
acknowledge and file any instrument necessary to effect the admission of the
transferee as a Substitute Limited Partner. Each Partner hereby agrees to be
bound by any representations made by the General Partner, acting in good faith
pursuant to such power of attorney. Each Partner shall execute and deliver to
the General Partner, within fifteen (15) days after receipt of the General
Partner's request therefor, such further designations, powers of attorney and
other instruments as the General Partner deems necessary to effectuate this
Agreement and the purposes of the Partnership.
SECTION 12.4 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery, (i) if to a Limited Partner or a Preferred Limited Partner, at the
most current address given by such Limited Partner or Preferred Limited Partner
to the General Partner by means of a notice given in accordance with the
provisions of this Section 12.4, which address initially is the address
contained in the records of the General Partner, or (ii) if to the General
Partner, Royale Investments, Inc., 3430 List Place, Minneapolis, MN 55416-4547
Attn: Chairman.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if hand delivered, five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; or when receipt is acknowledged, if telecopied.
SECTION 12.5 Further Assurances. The parties agree to execute and deliver
all such documents, provide all such information and take or refrain from taking
any action as may be necessary or desirable to achieve the purposes of this
Agreement and the Partnership.
SECTION 12.6 Titles and Captions. All article or section titles or captions
in this Agreement are solely for convenience and shall not be deemed to be part
of this Agreement or otherwise define, limit or extend the scope or intent of
any provision hereof.
<PAGE>
-44-
SECTION 12.7 Applicable Law. This Agreement, and the application or
interpretation thereof, shall be governed exclusively by its terms and by the
law of the State of Delaware, without regard to its principles of conflicts of
laws.
SECTION 12.8 Binding Agreement. This Agreement shall be binding upon the
parties hereto, their heirs, executors, personal representatives, successors and
assigns.
SECTION 12.9 Waiver of Partition. Each of the parties hereto irrevocably
waives during the term of the Partnership any right that it may have to maintain
any action for partition with respect to any property of the Partnership.
SECTION 12.10 Counterparts and Effectiveness. This Agreement may be
executed in several counterparts, which shall be treated as originals for all
purposes, and all so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all the parties are not signatory to
the original or the same counterpart. Any such counterpart shall be admissible
into evidence as an original hereof against each Person who executed it. The
execution of this Agreement and delivery thereof by facsimile shall be
sufficient for all purposes, and shall be binding upon any party who so
executes.
SECTION 12.11 Survival of Representations. All representations and
warranties herein shall survive the dissolution and final liquidation of the
Partnership.
SECTION 12.12 Entire Agreement. This Agreement (and all Exhibits hereto)
contains the entire understanding among the parties hereto and supersedes all
prior written or oral agreements among them respecting the within subject
matter, unless otherwise provided herein. There are no representations,
agreements, arrangements or understandings, oral or written, among the Partners
hereto relating to the subject matter of this Agreement which are not fully
expressed herein and in said Exhibits.
SECTION 12.13 Temporary Allocation. With respect to the period from
inception of the Partnership through December 31, 2000, in lieu of the
allocation provided by Section 5.2(A)(6), the portion of Profits resulting from
Partnership operations for each fiscal year shall be allocated (x) 19.8% to the
General Partner and (y) 80.2% to all Partners (including the General Partner,
but other than the Preferred Limited Partners) in accordance with their
Percentage Interests. Profits from Partnership operations for a Fiscal Year
shall mean the portion of Partnership Profits in excess of the amounts allocated
pursuant to Sections 5.2(C) and (D) and 5.2(A)(1) through (5) of this Agreement,
but shall not include Profits that arise from sales or dispositions of
Partnership Assets, except in the ordinary course of business. The foregoing
allocation of Profits shall be considered to occur pursuant to Section 5.2(A) of
this Agreement.
SECTION 12.14 Authorization and Consent. The General Partner, each Limited
Partner and each Preferred Limited Partner hereby authorizes the General
Partner, in the name and on behalf of the Partnership, to execute, deliver and
perform the Senior Secured Credit Agreement dated as of September 30, 1997
("Credit Agreement") between Royale Investments, Inc. ("Royale") the
Partnership, FCO Holdings, Inc., Blue Bell Investment Company, L.P., South
Brunswick In-
<PAGE>
-45-
vestors, L.P. Comcourt Investors, L.P. and 6385 Flank Drive, L.P., as Loan
parties and Bankers Trust Company, as Banker and each of Security Documents (as
defined in the Credit Agreement) to which it is to be a party or by which it is
to be bound and to execute and deliver in the name and on behalf of the
Partnership such instruments, agreements and documents and to take or refrain
from taking all such action as it in its sole discretion shall deem necessary,
desirable or advisable in connection with the foregoing and in connection with
the Formation/Contribution Agreement.
<PAGE>
-46-
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the day and year first above written.
General Partner: ROYALE INVESTMENTS, INC., as sole
General Partner of the Partnership
By:
---------------------------------------
LIMITED PARTNERS:
SHIDLER EQUITIES, L.P.
By: SHIDLER EQUITIES CORP.
By:
------------------------------
Name:
Title:
LBCW LIMITED PARTNERSHIP
By:
-----------------------------------------
Clay W. Hamlin III, General Partner
- ---------------------------------------------
Robert L. Denton
- ---------------------------------------------
John E. de B. Blockey, Trustee of
the John E. de B. Blockey
Living Trust dated 9/12/88
- ---------------------------------------------
Henry D. Bullock
- ---------------------------------------------
Frederick K. Ito
<PAGE>
-47-
- ---------------------------------------------
Jay H. Shidler
- ---------------------------------------------
Clay W. Hamlin III
- ---------------------------------------------
James K. Davis
TIGER SOUTH BRUNSWICK, L.L.C.
By:
-----------------------------------------
Name:
Title:
WESTBROOK REAL ESTATE FUND T, L.P.
By: WESTBROOK REAL ESTATE
PARTNERS MANAGEMENT T, L.L.C.
By:
-----------------------------------------
Name:
Title:
WESTBROOK REAL ESTATE
CO. INVESTMENT PARTNERSHIP T, L.P.
By: WESTBROOK REAL ESTATE
PARTNERS MANAGEMENT I, L.L.C.
By:
-----------------------------------------
Name:
Title:
<PAGE>
-48-
CHLB PARTNERSHIP
By:
-----------------------------------------------
Name: Clay W. Hamlin III, General Partner
LGR INVESTMENT FUND, LTD.
By:
----------------------------------------------
Name:
- ---------------------------------------------------
Denise J. Liszewski
- ---------------------------------------------------
Samuel Tang
- ---------------------------------------------------
David P. Hartsfield
- ---------------------------------------------------
Laurence J. Taff
- ---------------------------------------------------
Kimberly F. Aquino
<PAGE>
Exhibit 1
<TABLE>
<CAPTION>
Schedule Of Partners
---------------------------- ---------------------------- --------------------------
No. of Units Percentage Interest Preferred partnership
Units
---------------------------- ---------------------------- --------------------------
<S> <C> <C> <C>
General Partner
Royale Investments, Inc. 600,000 20.6946%
Limited Partners and
Preferred Limited Partners
Jay H. Shidler 2,600 0.0897% 126,079
Shidler Equities, L.P. 582,103 20.0773% 457,826
Clay W. Hamlin, III 5,235 0.1805% 115,334
LBCW Limited Partnership 875,284 30.1894% 663,808
CHLB Partnership 63,243 2.1813% 41,741
Robert L. Denton 129,549 4.4683% 85,502
James K. Davis 15,368 0.5300% 10,142
John E. deB. Blockey. 89,549 3.0886% 59,102
Trustee of the John E. de
B. Blockey Living Trust
dated 9/12/88
Henry D. Bullock 34,718 1.1975% 22,914
Frederick R. Ito 17,359 0.5987% 11,457
LGR investment Fund, Ltd. 80,030 2.7603% 52,820
Tiger South Brunswick, 2,875 0.0992% 1,898
L.L.C.
Westbrook Real Estate Fund 336,121 11.5931% 221,840
I, L.P.
Westbrook Real Estate Co. 33,299 1.1485% 21,977
Investment Partnership I,
L.P.
Denise J. Liszewski 10,227 0.3527% 6,750
Samuel Tang 6,818 0.2352% 4,500
David P. Hartsfield 9,091 0.3136% 6,000
Lawrence J. Taff `4,091 0.1411% 2,700
Kimberly F. Acquino 1,750 0.0604% 1,155
---------------------------- --------------------------- ---------------------------
2,899,310 100.0000% 1,913,545
============================ =========================== ===========================
</TABLE>
<PAGE>
FCO, L.P.
EXHIBIT 2
TO
LIMITED PARTNERSHIP AGREEMENT
Form of Redemption or Conversion Notice
<PAGE>
Exhibit 2
Redemption Conversion Notice
The undersigned hereby irrevocably (i) elects to exercise its [redemption]
[conversion] rights contained in ARTICLE IX of the Limited Partnership Agreement
of First Commercial, L.P. (the "Partnership Agreement") with respect to an
aggregate of ________ [Partnership Units] [Preferred Units], (ii) surrenders
such [Partnership Units] [Preferred Units] and all right, title and interest
therein and (iii) directs that the [REIT shares (or applicable cash amount if so
determined by the General Partner in accordance with the Partnership Agreement)]
[Units of Limited Partner Interest] deliverable upon [redemption] [conversion]
of such [Partnership Units] [Preferred Units] be delivered to the address
specified below. Terms used above which are defined in the Partnership Agreement
are used herein are defined therein.
Dated:
--------------------------------
Name of Limited Partner or Preferred
Limited Partner:
--------------------
Social Security or
Federal Employer ID Number:
--------------------
-------------------------------------------
(Signature of Limited Partner or Preferred
Limited Partner)
-------------------------------------------
(Street Address)
-------------------------------------------
(City) (State)(Zip Code)
Signature Guaranteed by:
-------------------------------------------
<PAGE>
FCO, L.P.
EXHIBIT 3
TO
LIMITED PARTNERSHIP AGREEMENT
Form of Registration Rights Agreement
BLUE BELL INVESTMENT COMPANY, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (the "Agreement")
is made this ____ day of October, 1997, by and among FCO Holdings, Inc., a
Delaware corporation and a wholly-owned subsidiary of Royale Investments, Inc.,
as General Partner (the "General Partner"), and the persons set forth on the
signature page hereof as Limited Partners (the "Limited Partners"). The General
Partner and the Limited Partners are collectively referred to herein as the
"Partners."
RECITALS:
A. Blue Bell Investment Company, L.P. (the "Partnership") was originally
formed pursuant to the terms of an Agreement of Limited Partnership dated April
__, 1992 ( the "Original Agreement").
B. The Original Agreement has previously been amended to reflect, inter
alia, a refinancing of the Partnership's indebtedness, the admission to the
Partnership of FCO Holdings, Inc. as a General Partner, the conversion of
certain General Partner interests in the Partnership into Limited Partner
interests in the Partnership and the transfer to FCO, L.P. of certain Limited
Partner interests in the Partnership.
C. The General Partner and the Limited Partners desire to amend and restate
the Original Agreement in its entirety as set forth herein.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, intending to be legally bound hereby, agree that the
Original Agreement shall be amended and restated in its entirety to provide as
follows:
1. ARTICLE I. INTERPRETIVE PROVISIONS
1.1. Certain Definitions.
The following terms have the definitions hereinafter indicated whenever
used in this Agreement with initial capital letters:
Act: The Delaware Revised Uniform Limited Partnership Act, ss.ss. 17-101 to
17-1109 of the Delaware Code Annotated, Title 6, as amended from time to time.
Additional Limited Partner: A Person admitted to the Partnership as a
Limited Partner in accordance with Section 4.2 hereof and who is shown as such
on the books and records of the Partnership.
<PAGE>
Adjusted Capital Account: With respect to any Partner, such Partner's
Capital Account maintained in accordance with Section 4.4 hereof, as of the end
of the relevant Fiscal Year of the Partnership, after giving effect to the
following adjustments:
(a) Credit to such Capital Account such Partner's share of Partnership
Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(g)(1) and such Partner's share of Partner Minimum Gain determined in
accordance with Treasury Regulations Section 1.704-2(i)(5).
(b) Debit to such Capital Account the items described in Treasury
Regulations Section 1.7041(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account" is intended to
comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2)(ii)
and 1.704-2 and shall be interpreted consistently therewith.
Adjusted Capital Account Deficit: With respect to any Partner, the deficit
balance, if any, in that Partner's Adjusted Capital Account as of the end of the
relevant Fiscal Year of the Partnership.
Affiliate: With respect to any referenced Person, (i) a member of such
Person's immediate family; (ii) any Person who directly or indirectly owns,
controls or holds the power to vote ten percent (10%) or more of the outstanding
voting securities of the Person in question; (iii) any Person ten percent (10%)
or more of whose outstanding securities are directly or indirectly owned,
controlled, or held with power to vote by the Person in question; (iv) any
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with the Person in question; (v) if the Person in
question is a corporation, any executive officer or director of such Person or
of any corporation directly or indirectly controlling such Person; and (vi) if
the Person in question is a partnership, any general partner of the partnership
or any limited partner owning or controlling ten percent (10%) or more of either
the capital or profits interest in such partnership. As used herein, 'control'
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise.
Agreed Value: In the case of any (i) Contributed Property, the allocated
value of such property at the time of contribution (exclusive of any related
indebtedness assumed by the Partnership), as determined by the General Partner
using such method of valuation as it may adopt in its reasonable discretion and
(ii) property distributed to a Partner by the Partnership, the Partnership's
Book Value of such property at the time such property is distributed, reduced by
any indebtedness either assumed by such Partner upon such distribution or to
which such property is subject at the time of distribution as determined under
Code Section 752 and the Treasury Regulations thereunder.
Agreement: This Amended and Restated Limited Partnership Agreement and the
Schedule attached hereto, as the same may be amended or restated and in effect
from time to time.
Bankruptcy: Any of (i) a referenced Person's making an assignment for the
benefit of creditors, (ii) the filing by a referenced Person of a voluntary
petition in bankruptcy, (iii) a referenced Person's being adjudged insolvent or
having entered against him an order for relief in any bankruptcy or insolvency
proceeding, (iv) the filing by a referenced Person of an answer seeking any
reorganization, composition, readjustment, liquidation, dissolution or similar
relief under any law or regulation, (v) the filing by a referenced Person of an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against him in any proceeding of reorganization,
composition, readjustment, liquidation, dissolution, or for similar relief under
any statute, law or regulation or (vi) a referenced Person's seeking, consenting
to or acquiescing in the appointment of a trustee, receiver or liquidator for
all or substantially all of his property (or court appointment of such trustee,
receiver or liquidator).
2
<PAGE>
Bankruptcy Code: 11 U. S. C. Sections 101 - 1330, as amended from time to
time.
Book Tax Disparity: With respect to any item of Contributed Property, or
property the Book Value of which has been adjusted in accordance with Section
4.4(c), as of the date of determination, the difference between the Book Value
of such property and the adjusted basis of such property for federal income tax
purposes.
Book Value: With respect to any Contributed Property, the Agreed Value of
such property reduced (but not below zero) by all Depreciation with respect to
such property properly charged to the Partners' Capital Accounts and with
respect to any other asset, the asset's adjusted basis for federal income tax
purposes; provided, however, (a) the Book Value of all Partnership Assets shall
be adjusted in the event of a revaluation of Partnership Assets in accordance
with Section 4.4(c) hereof, (b) the Book Value of any Partnership Asset
distributed to any Partner shall be the fair market value of such asset on the
date of distribution as determined by the General Partner and (c) such Book
Value shall be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
Capital Account: The account maintained by the Partnership for each Partner
described in Section 4.4 hereof.
Capital Contribution: The total amount of cash or cash equivalents and the
Agreed Value of Contributed Property which a Partner contributes or is deemed to
contribute to the Partnership pursuant to the terms of this Agreement.
Certificate: The Partnership's Certificate of Limited Partnership filed in
the office of the Secretary of State of the State of Delaware, as amended from
time to time.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Company: Royale Investments, Inc., a Minnesota corporation.
Consent: Either the written consent of a Person or the affirmative vote of
such Person at a meeting duly called and held pursuant to this Agreement, as the
case may be, to do the act or thing for which the consent is required or
solicited, or the act of granting such consent, as the context may require.
Contributed Property: Each property or other asset (excluding cash and cash
equivalents) contributed or deemed contributed to the Partnership.
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Depreciation: For each Fiscal Year or other period, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Book Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such year or other period, Depreciation shall be adjusted as
necessary so as to be an amount which bears the same ratio to such beginning
Book Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to the beginning adjusted
tax basis; provided, however, that if the federal income tax depreciation,
amortization or other cost recovery deduction for such year or other period is
zero, Depreciation for such year or other period shall be determined with
reference to such beginning Book Value using any reasonable method approved by
the General Partner.
Fiscal Year: The calendar year or such other twelve (12) month period
designated by the General Partner.
General Partner: FCO Holdings, Inc., a Delaware corporation, and its
respective successor(s) who or which become Successor General Partner(s) in
accordance with the terms of this Agreement.
General Partner Interest: A Partnership Interest held by the General
Partner that is a general partner interest.
Involuntary Withdrawal: As to any (i) individual shall mean such
individual's death, incapacity or adjudication of incompetence, (ii) corporation
shall mean its dissolution or revocation of its charter (unless such revocation
is promptly corrected upon notice thereof), (iii) partnership shall mean the
dissolution and commencement of winding up of its affairs, (iv) trust shall mean
the termination of the trust (but not the substitution of trustees), (v) estate
shall mean the distribution by the fiduciary of the estate's complete interest
in the Partnership any (vi) any Partner shall mean the Bankruptcy of such
Partner.
IRS: The Internal Revenue Service, which administers the internal revenue
laws of the United States.
Limited Partner: Each of the Persons set forth on the signature page hereof
as a Limited Partner and any Person who becomes an Additional Limited Partner in
accordance with the terms of this Agreement.
Limited Partner Interest: A Partnership Interest held by a Limited Partner
that is a limited partner interest.
Nonrecourse Liability: A liability as defined in Treasury Regulations
Section 1.704-2(b)(3).
Notice: A writing containing the information required by this Agreement to
be communicated and delivered to such Person in accordance with Section 11.4;
provided, however, that any written communication containing such information
actually received by such Person shall constitute Notice for all purposes of
this Agreement.
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Partner Minimum Gain: The gain (regardless of character) which would be
realized by the Partnership if property of the Partnership subject to a partner
nonrecourse debt (as such term is defined in Treasury Regulations Section
1.704-2(b)(4)) were disposed of in full satisfaction of such debt on the
relevant date. The adjusted basis of property subject to more than one partner
nonrecourse debt shall be allocated in a manner consistent with the allocation
of basis for purposes of determining Partnership Minimum Gain hereunder. Partner
Minimum Gain shall be computed hereunder using the Book Value, rather than the
adjusted tax basis, of the Partnership accordance with Treasury Regulations
Section 1.704-2(d)(3).
Partner Nonrecourse Deductions: With respect to any partner nonrecourse
debt (as such term is defined in Treasury Regulation Section 1.704-2(b)(4)), the
increase in Partner Minimum Gain during the tax year plus any increase in
Partner Minimum Gain for a prior tax year which has not previously generated a
Partner Nonrecourse Deduction hereunder. The determination of which Partnership
items constitute Partner Nonrecourse Deductions shall be made in a manner
consistent with the manner in which Partnership Nonrecourse Deductions are
hereunder.
Partners: The General Partner and the Limited Partners as a group. The term
"Partner" means a General Partner or a Limited Partner. Such terms shall be
deemed to include such other Persons who may become Partners pursuant to the
terms of this Agreement.
Partnership: The Delaware limited partnership referred to herein as such
partnership may from time to time be constituted.
Partnership Assets: At any particular time, any assets or property
(tangible or intangible choate or inchoate, fixed or contingent) owned by the
Partnership.
Partnership Interest or Interest: As to any Partner, such Partner's
ownership interest in the and including such Partner's right to distributions
under this Agreement and any other rights or benefits such Partner has in the
Partnership, together with any and all obligations of such Partner to comply
with the provisions of this Agreement.
Partnership Minimum Gain: The aggregate gain (regardless of character)
which would be realized by the Partnership if all of the property of the
Partnership subject to nonrecourse debt (other than partner nonrecourse debt as
such term is defined in Treasury Regulations Section 1.704-2(b)(4)) were
disposed of in full satisfaction of such debt and for no other consideration on
the relevant date. In the case of any Nonrecourse Liability of the Partnership
which is not secured by a mortgage with respect to any specific property of the
Partnership, any and all property of the Partnership to which the holder of said
liability has recourse shall be treated as subject to such Nonrecourse Liability
for purposes of the preceding sentence. Partnership Minimum Gain shall be
computed separately for each Nonrecourse Liability of the partnership. For this
purpose, the adjusted basis of property subject to two or more liabilities of
equal priority shall be allocated among such liabilities in proportion to the
outstanding balance of such liabilities, and the adjusted basis of property
subject to two or more liabilities of unequal priority shall be allocated to the
liability of inferior priority only to the extent of the excess, if any, of the
adjusted basis of such property over the outstanding balance of the liability of
superior priority. Partnership Minimum Gain shall be computed hereunder using
the Book Value, rather than the adjusted tax basis, of the Partnership property
in accordance with Treasury Regulation Section 1.704-2(d)(3).
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Partnership Nonrecourse Deductions: The amount of Partnership deductions
equal to the increase, if any, in the amount of the aggregate Partnership
Minimum Gain during the tax year (plus any increase in Partnership Minimum Gain
for a prior tax year which has not previously generated a Partnership
Nonrecourse Deduction) reduced (but not below zero) by the aggregate
distributions made during the tax year of the proceeds of a Nonrecourse
Liability of the Partnership which are attributable to an increase in
Partnership Minimum Gain within the meaning of Treasury Regulations Section
1.704-2(d). The Partnership Nonrecourse Deductions for a Partnership tax year
shall consist first of depreciation or cost recovery deductions with respect to
each property of the Partnership giving rise to such increase in Partnership
Minimum Gain on a pro rata basis to the extent of each such increase, with any
excess made up pro rata of all items of deduction.
Percentage Interest: As to any Partner, the percentage in the Partnership
as initially shown opposite the name of such Partner on Schedule I attached
hereto, as such percentage interest may be adjusted from time to time in
accordance with the provisions of this Agreement.
Person: Any individual, partnership, corporation, trust or other entity.
Profits and Losses: For each Fiscal Year or other period, an amount equal
to the Partnership's taxable income or loss (as the case may be) for such year
or period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
a. Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
b. Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)vi , and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition, shall be subtracted from such taxable income or loss;
c. Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of notwithstanding that the adjusted tax basis of such property
differs from such Book Value;
d. In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or
other period, computed in accordance with the definition of 'Depreciation'
herein; and
e. In the event that any item of income, gain, loss or deduction that
has been included in the initial computation of Profit or Loss is subject
to the special allocation rules of Sections 5.2(c) and 5.2(d), Profit or
Loss shall be recomputed without regard to such item.
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REIT: A real estate investment trust, as defined in Code Section 856.
Subsidiary: With respect to any Person, any corporation or other entity of
which a majority of (i) the voting power of the voting equity securities or (ii)
the outstanding equity interests, is owned, directly or indirectly, by such
Person.
Successor General Partner: Any Person who is admitted to the Partnership as
substitute General Partner pursuant to this Agreement. A Successor General
Partner, upon its admission as such, shall succeed to the rights, privileges and
liabilities of its predecessor in interest as General Partner, in accordance
with the provisions of the Act.
Tax Matters Partner. The General Partner or such other Partner who becomes
Tax Matters Partner pursuant to the terms of this Agreement.
Terminating Capital Transaction: The sale or other disposition of all or
substantially all of the Partnership Assets or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the Partnership Assets.
Transfer. A transaction in which a Partner assigns all or a portion of its
Partnership Interest to another Person and includes any sale, assignment, gift,
pledge, mortgage, exchange, hypothecation, encumbrance or other disposition by
law or otherwise.
Treasury Regulations: The Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
1.2. Rules of Construction.
The following rules of construction shall apply to this Agreement:
(a) All section headings in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section.
(b) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders, the
singular shall include the plural, and vice versa, as the context may require.
(c) Each provision of this Agreement shall be considered severable from the
rest, and if any provision of this Agreement or its application to any Person or
circumstances shall be held invalid and contrary to any existing or future law
or unenforceable to any extent, the remainder of this Agreement and the
application of any other provision to any Person or circumstances shall not be
affected thereby and shall be interpreted and enforced to the greatest extent
permitted by law so as to give effect to the original intent of the parties
hereto.
(d) Unless otherwise specifically and expressly limited in the context, any
reference herein to a decision, determination, act, action, exercise of a right,
power or
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privilege, or other procedure by the General Partner shall mean and refer to the
decision, determination, act, action, exercise or other procedure by the General
Partner in its sole and absolute discretion.
2. ARTICLE II. FORMATION
2.1. Formation.
The Partners hereby continue the Partnership as a limited partnership under
the Act and in accordance with the terms and conditions of this Agreement. The
General Partner shall take all action required by law to perfect and maintain
the Partnership as a limited partnership under the Act and under the laws of all
other jurisdictions in which the Partnership may elect to conduct business,
including but not limited to the filing of amendments to the Certificate with
the Delaware Secretary of State, and qualification of the Partnership as a
foreign limited partnership in the jurisdictions in which such qualification
shall be required, as determined by the General Partner. The General Partner
shall also promptly register the Partnership under applicable assumed or
fictitious name statutes or similar laws.
2.2. Name.
The name of the Partnership is Blue Bell Investment Company, L.P. The
General Partner may adopt such assumed or fictitious names as it deems
appropriate in connection with the qualifications and registrations referred to
in Section 2.1.
2.3. Place of Business; Registered Agent.
The principal office of the Partnership shall be located at such place as
the General Partner may from time to time designate. The Partnership may
establish offices for the Partnership within or without the State of Delaware as
may be determined by the General Partner. The initial registered agent for the
Partnership in the State of Delaware is The Corporation Trust Company, whose
address is c/o Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801.
ARTICLE III. BUSINESS PURPOSE
3.1. Business.
The business of the Partnership shall be (i) conducting any business that
may be lawfully conducted by a limited partnership pursuant to the Act
including, without limitation, acquiring, owning, managing, developing, leasing,
marketing, operating and, if and when appropriate, selling,real property, (ii)
entering into any partnership, joint venture or other relationship to engage in
any of the foregoing or the ownership of interests in any entity engaged in any
of the foregoing, (iii) making loans, guarantees, indemnities or other financial
accommodations and borrowing money and pledging its assets to secure the
repayment thereof, (iv) to do any of the foregoing with respect to any Affiliate
or Subsidiary and (v) doing anything necessary or incidental to the foregoing;
provided, however, that business of the Partnership shall be limited so as to
permit the Company to elect and maintain its status as a REIT (unless the
Company determines no longer to qualify as a REIT).
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3.2. Authorized Activities.
In carrying out the purposes of the Partnership, but subject to all other
provisions of this Agreement, the Partnership is authorized to engage in any
kind of lawful activity, and perform and carry out contracts of any kind,
necessary or advisable in connection with the accomplishment of the purposes and
business of the Partnership described herein and for the protection and benefit
of the Partnership; provided that the General Partner shall not be obligated to
cause the Partnership to take, or refraining from taking, any action which, in
the judgment of the General Partner, (i) could adversely affect the ability of
the Company to qualify and continue to qualify as a REIT under the Code, (ii)
could subject the Company to additional taxes under Code Section 857 or 4981 or
(iii) could violate any law or regulation of any governmental body or agency
having jurisdiction over the General Partner or the Company or their securities.
ARTICLE IV. CAPITAL CONTRIBUTIONS
4.1. Capital Contributions.
The Partners, or their predecessors in interest, have contributed cash and
property in the aggregate amounts set forth on Schedule 1. No Partner shall be
required to contribute additional funds or other property to the Partnership.
Any additional funds or other property required by the Partnership, as
determined by the General Partner, may, at the option of the General Partner and
without an obligation so to do, be contributed by the General Partner as
additional Capital Contributions. If the General Partner determines to make any
such Capital Contribution, it shall give notice of such determination to the
Limited Partners and permit each Limited Partner to contribute a portion of such
Capital Contribution equal to the product of such Limited Partner's Percentage
Interest and the total amount of such Capital Contribution. The General Partner
shall also have the right (but not the obligation) to raise additional funds
required for the Partnership by lending the money to the Partnership or by
causing the Partnership to borrow the money needed from third parties, in either
case on such terms and conditions as the General Partner shall deem appropriate.
4.2. Additional Partnership Interests.
The Partnership may issue additional limited partnership interests for any
Partnership purpose at any time or from time to time, to any Partner or other
Person. Any such other Person shall be admitted as an Additional Limited Partner
of the Partnership only upon execution, adoption and acknowledgment of this
Agreement by such Partner or Person, or a counterpart hereto, and such other
documents as may be reasonably requested by the General Partner, including
without limitation, the power of attorney required under Section 11.3. Upon
satisfaction of the foregoing requirements, such Person shall be admitted as an
Additional Limited Partner effective on the date upon which the name of such
Person is recorded on the books of the Partnership.
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4.3. No Third Party Beneficiaries.
The foregoing provisions of this Article IV are not intended to be for the
benefit of any creditor of the Partnership or other Person to whom any debts,
liabilities or obligations are owed by (or who otherwise has any claim against)
the Partnership or any of the Partners and no such creditor or other Person
shall obtain any right under any such foregoing provision against the
Partnership or any of the Partners by reason of any debt, liability or
obligation (or otherwise).
4.4. Capital Accounts.
(a) The Partnership shall establish and maintain a separate Capital Account
for each Partner in accordance with Code Section 704 and Treasury Regulations
Section 1.704-1 (b)(2)(iv). The Capital Account of each Partner shall be
credited with:
(i) the amount of all Capital Contributions made to the Partnership by such
Partner in accordance with this Agreement; plus
(ii) all income and gain of the Partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V (including
for purposes of this Section 4.4(a), income and gain exempt from tax);
and shall be debited with the sum of:
(i) all losses or deductions of the partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V,
(ii) such Partner's distributive share of expenditures of the Partnership
described in Code Section 705(a)(2)(B), and
(iii) all cash and the Agreed Value of any property actually distributed or
deemed distributed by the Partnership to such Partner pursuant to the terms of
this Agreement.
Any reference in any section or subsection of this Agreement to the Capital
Account of a Partner shall be deemed to refer to such Capital Account as the
same may be credited or debited from time to time as set forth above.
(b) For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of each such item shall be the
same as its determination, recognition and classification for federal income tax
purposes, determined in accordance with Code Section 703(a), with the following
adjustments:
(i) any income, gain or loss attributable to the taxable disposition of any
Partnership Asset shall be determined by treating the adjusted basis of such
property as of the date of such disposition as equal to the Book Value of such
property as of such date;
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(ii) the computation of all items of income, gain, loss and deduction shall
be made without regard to any Code Section 754 election that may be made by the
Partnership, except to the extent required in accordance with the provisions of
Treasury Regulations Section 1.704-1(b)(2)(iv)(m);
(iii) in lieu of depreciation, amortization and other cost recovery
deductions taken into account in computing Profit and Loss, there shall be taken
into account Depreciation for such Fiscal Year;
(iv) in the event the Book Value of any Partnership Asset is adjusted
pursuant to Section 4.4(c) below, the amount of such adjustment shall be treated
as gain or loss from the disposition of such asset.
(c) Consistent with the provisions of Treasury Regulations Section
1.704-1(b)(2)(iv)(f), (i) immediately prior to the acquisition of an additional
Partnership Interest by any new or existing Partner in connection with the
contribution of money or other property (other than a de minimis amount) to the
Partnership, (ii) immediately prior to the distribution by the Partnership to a
Partner of Partnership property (other than a de minimis amount) as
consideration for a Partnership Interest and (iii) immediately prior to the
liquidation of the Partnership as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(g), the Book Value of all Partnership Assets shall be revalued
upward or downward to reflect the fair market value of each such Partnership
Asset as determined by the General Partner using such reasonable method of
valuation as it may adopt.
(d) The foregoing provisions of this Section 4.4 are intended to comply
with Treasury Regulations Section 1.704-1(b) and shall be interpreted and
applied in a manner consistent with such Treasury Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in which
the Partners' Capital Accounts are computed hereunder in order to comply with
such Treasury Regulations, the General Partner may make such modification if
such modification is not likely to have a material effect on the amount
distributable to any Partner under the terms of this Agreement and the General
Partner notifies the other Partners in writing of such modification prior to
making such modification.
4.5. Return of Capital Account; Interest.
Except as otherwise specifically provided in this Agreement, (i) no Partner
shall have any right to withdraw or reduce its Capital Contributions or Capital
Account, or to demand and receive property other than cash from the Partnership
in return for its Capital Contributions or Capital Account; (ii) no Partner
shall have any priority over any other Partners as to the return of its Capital
Contributions or Capital Account; (iii) any return of Capital Contributions or
Capital Accounts to the Partners shall be solely from the Partnership Assets,
and no Partner shall be personally liable for any such return; and (iv) no
interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners' Capital Accounts.
4.6. Preemptive Rights.
No Person shall have any preemptive or similar rights with respect to the
issuance or sale of additional Partnership Interests.
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ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS
5.1. Limited Liability.
For bookkeeping purposes, the Profits of the Partnership shall be shared,
and the Losses of the Partnership shall be borne, by the Partners as provided in
Section 5.2 below; provided, however, that except as expressly provided in this
Agreement, no Limited Partner (in its capacity as a Limited Partner) shall be
personally liable for losses, costs, expenses, liabilities or obligations of the
Partnership in excess of its Capital Contribution required under Article IV
hereof.
5.2. Profits, Losses and Distributive Shares.
(a) Profits. After giving effect to the special allocations, if any,
provided in Section 5.2(c) and (d), Profits in each Fiscal Year shall be
allocated in the following order:
(i) First, to each Partner in proportion to the cumulative Losses allocated
to such Partner under Section 5.2(b)(ii), until the cumulative Profits allocated
to such Partner under this Section 5.2(a)(i) equal the cumulative Losses
allocated to such Partner under Section 5.2(b)(ii);
(ii) Second, to each Partner in proportion to the cumulative losses
allocated to such Partner under Section 5.2(b)(i), until the cumulative Profits
allocated to such Partner under this Section 5.2(a)(ii) equal the cumulative
Losses allocated to such Partner under Section 5.2(b)(i); and
(iii) Then, the balance, if any, to the Partners in proportion to their
respective Percentage Interests.
(b) Losses. After giving effect to the special allocations, if any,
provided in Section 5.2(c) and (d), Losses in each Fiscal Year shall be
allocated in the following order:
(i) First, to the Partners in proportion to their respective Percentage
Interests, but not in excess of the positive Adjusted Capital Account balance of
any Partner prior to the allocation provided for in this Section 5.2(b)(i);
(ii) Second, to the Partners with positive Adjusted Capital Account
balances prior to the allocation provided for in this Section 5.2(b)(ii), in
proportion to the amount of such balances.
(c) Special Allocations. Except as otherwise provided in this Agreement,
the following special allocations will be made in the following order and
priority:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Article V. If there is a net decrease in Partnership Minimum
Gain during any tax year or other period for which allocations are made, each
Partner will be specially allocated items of Partnership income and gain for
that tax year or other period (and, if necessary, subsequent periods) in an
amount equal to such Partner's share of the net decrease in Partnership Minimum
Gain during such tax year or other period determined in accordance with Treasury
Regulations Section 1.704-2(g). Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts
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required to be allocated to each Partner pursuant thereto. The items to be so
allocated shall be determined in accordance with Treasury Regulations Sections
1.704-2(f)(6) and 1.704-(j)(2). This Section 5.2(c) (i) is intended to comply
with the minimum gain chargeback requirements set forth in Treasury Regulations
Section 1.704-2(f) and shall be interpreted consistently therewith, including
the exceptions to the minimum gain chargeback requirement set forth in Treasury
Regulations Section 1.704-2(f)(2) and (3). If the General Partner concludes,
after consultation with tax counsel, that the Partnership meets the requirements
for a waiver of the minimum gain chargeback requirement as set forth in Treasury
Regulations Section 1.704-2(f)(4), the General Partner may take steps reasonably
necessary or appropriate in order to obtain such waiver.
(ii) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any
other provision of this Section (other than Section 5.2(c)(i) which shall be
applied before this Section 5.2(c)(ii)), if there is a net decrease in Partner
Minimum Gain during any tax year or other period for which allocations are made,
each Partner with a share of Partner Minimum Gain determined in accordance with
Treasury Regulations Section 1.704-2(i)(5) shall be specially allocated items of
Partnership income and gain for that period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
Partner Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(i)(4). Allocations pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
thereunder. The items to be so allocated shall be determined in accordance with
Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii). This Section
5.2(c)(ii) is intended to comply with the minimum gain chargeback requirements
of Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith, including the exceptions set forth in Treasury
Regulations Section 1.704-2(f)(2) and (3) to the extent such exceptions apply to
Treasury Regulations Sections 1.704-2(i)(4). If the General Partner concludes,
after consultation with tax counsel, that the Partnership meets the requirements
for a waiver of the Partner Minimum Gain chargeback requirement set forth in
Treasury Regulations Section 1.704-2(f)(4), but only to the extent such
exception applies to Treasury Regulations Section 1.704-2(i)(4), the General
Partner may take steps necessary or appropriate to obtain such waiver.
(iii) Qualified Income Offset. A Partner who unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be specially allocated items of
Partnership income and gain in an amount and manner sufficient to eliminate, to
the extent required by Treasury Regulations 1.704-1(b)(2)(ii)(d) , the Adjusted
Capital Account Deficit of the Partner as quickly as possible, provided that an
allocation pursuant to this Section 5.2(c)(3) shall be made if and only to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article V have been tentatively made
as if this Section 5.2(c)(3) were not contained in this Agreement.
(iv) Partnership Nonrecourse Deductions. Partnership Nonrecourse Deductions
for any taxable year or other period for which allocations are made will be
allocated among the Partners in proportion to their respective Percentage
Interests in the Partnership.
(v) Partner Nonrecourse Deductions. Notwithstanding anything to the
contrary in this Agreement, any Partner Nonrecourse Deductions for any taxable
year or other period for which allocations are made will be allocated to the
Partner who bears the economic risk of loss with respect to the liability to
which the Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulations Section 1.704-2(i).
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(vi) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership Asset under Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital Accounts under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4), the amount of the
adjustment to the Capital Accounts will be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset), and the gain or loss will be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted under Treasury Regulations Section
1.704-1(b)(2)(iv)(m).
(vii) Depreciation Recapture. In the event there is any recapture of
Depreciation or investment tax credit, the allocation thereof shall be made
among the Partners in the same proportion as the deduction for such Depreciation
or investment tax credit was allocated.
(viii) Interest in Partnership. Notwithstanding any other provision of this
Agreement, no allocation of Profit or Loss (or item of Profit or Loss) will be
made to a Partner if the allocation would not have "economic effect' under
Treasury Regulations Section 1.704-1(b)(2)(ii) or otherwise would not be in
accordance with the Partner's interest in the Partnership within the meaning of
Treasury Regulations Section 1.704-1(b)(3).
(d) Curative Allocations. The allocations set forth in Section 5.2(c)(i)
through (viii) (the "Regulatory Allocations") are intended to comply with
certain requirements of Treasury Regulations Sections 1.704-l(b) and 1.704-2.
The Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is authorized to further allocate Profits, Losses, and other items among
the Partners in a reasonable manner so as to prevent the Regulatory Allocations
from distorting the manner in which Partnership distributions would be divided
among the Partners under Section 5.3, but for application of the Regulatory
Allocations. In general, the reallocation will be accomplished by specially
allocating other Profits, Losses and items of income, gain, loss and deduction,
to the extent they exist, among the Partners so that the net amount of the
Regulatory Allocations and the special allocations to each Partner is zero. The
General Partner may accomplish this result in any reasonable manner that is
consistent with Code Section 704 and the related Treasury Regulations.
(e) Tax Allocations.
(i) Except as otherwise provided in Section 5.2(e)(ii), each item of
income, gain, loss and deduction shall be allocated for federal income tax
purposes in the same manner as each correlative item of income, gain, loss or
deduction, is allocated for book purposes pursuant to the provisions of Section
5.1 hereof.
(ii) Notwithstanding anything to the contrary in this Article V, in an
attempt to eliminate any Book Tax Disparity with respect to a Contributed
Property, items of income, gain, loss or deduction with respect to each such
property shall be allocated for federal income tax purposes among the Partners
as follows:
(A) Depreciation, Amortization and Other Cost Recovery Items. In the case
of each Contributed Property with a Book-Tax Disparity, any item of
depreciation, amortization or other cost recovery allowance attributable to such
property shall be allocated as
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follows: (x) first, to Partners (the 'Non-Contributing Partners') other than the
Partners who contributed such property to the Partnership in an amount up to the
book allocation of such items made to the Non-Contributing Partners pursuant to
Section 5.2 hereof, pro rata in proportion to the respective amount of book
items so allocated to the Non-Contributing Partners pursuant to Section 5.2
hereof, and (y) any remaining depreciation, amortization or other cost recovery
allowance to the Contributing Partners in proportion to their Percentage
Interests. In no event shall the total depreciation, amortization or other cost
recovery allowance allocated hereunder exceed the amount of the Partnership's
depreciation, amortization or other cost recovery allowance with respect to such
property.
(B) Gain or Loss on Disposition. In the event the Partnership sells or
otherwise disposes of a Contributed Property with a Book-Tax Disparity, any gain
or loss recognized by the Partnership in connection with such sale or other
disposition shall be allocated among the Partners as follows: (x) first, any
gain or loss shall be allocated to the Contributing Partners in proportion to
their Percentage Interests to the extent required to eliminate any Book-Tax
Disparity with respect to such property; and (y) any remaining gain or loss
shall be allocated among the Partners in the same manner that the correlative
items of book gain or loss are allocated among the Partners pursuant to Section
5.2 hereof.
(iii) In the event the Book Value of a Partnership Asset (including a
Contributed Property) is adjusted pursuant to Section 4.4(c) hereof, and such
asset has not been deemed distributed by, and recontributed to the Partnership
pursuant to Code Section 708 subsequent thereto, all items of income, gain, loss
or deduction in respect of such property shall be allocated for federal income
tax purposes among the Partners in the same manner as provided in Section
5.2(e)(ii) hereof to take into account any variation between the fair market
value of the property, as determined by the General Partner using such
reasonable method of valuation as it may adopt, and the Book Value of such
property, both determined as of the date of such adjustment.
(iv) The General Partner shall have the authority to elect alternative
methods to eliminate the Book Tax Disparity with respect to one or more
Contributed Properties, as permitted by Treasury Regulations Sections 1.704-3
and 1.704-3T, and such election shall be binding on all of the Partners.
(v) The Partners hereby intend that the allocation of tax items pursuant to
this Section 5.2(e) comply with the requirements of Code Section 704(c) and
Treasury Regulations Section 1.704-3.
(vi) The allocation of items of income, gain, loss or deduction pursuant to
this Section 5.2(e) are solely for federal, state and local income tax purposes,
and the Capital Account balances of the Partners shall be adjusted solely for
allocations of 'book' items in respect of Partnership Assets pursuant to
Sections 5.2(a) through (d).
(f) Other Allocation Rules. The following rules will apply to the
calculation and allocation of Profits, Losses and other items:
(i) Except as otherwise provided in this Agreement, all Profits, Losses and
other items allocated to the Partners will be allocated among them in proportion
to their Percentage Interests.
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(ii) For purposes of determining the Profits, Losses or any other item
allocable to any period, Profits, Losses and other items will be determined on a
daily, monthly or other basis, as determined by the General Partner using any
permissible method under Code Section 706 and the related Treasury Regulations.
(iii) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss and deduction, and other allocations not provided
for in this Agreement will be divided among the Partners in the same proportions
as they share Profits and Losses, provided that any credits shall be allocated
in accordance with Treasury Regulations Section 1.704-1(b)(4)(ii).
(iv) For purposes of Treasury Regulations Section 1.752-3(a), the Partners
hereby agree that any Nonrecourse Liabilities of the Partnership in excess of
the sum of (i) the Partnership Minimum Gain and (ii) the aggregate amount of
taxable gain that would be allocated to the Partners under Section 704(c) (or in
the same manner as Section 704(c) in connection with a revaluation of
Partnership property) if the Partnership disposed of (in a taxable transaction)
all Partnership property subject to one or more Nonrecourse Liabilities of the
Partnership in full satisfaction of such liabilities and for no other
consideration, shall be allocated among the Partners in accordance with their
respective shares of Profits. The General Partner shall have discretion in any
Fiscal Year to allocate such excess Nonrecourse Liabilities among the Partners
(a) in a manner reasonably consistent with allocations (that have substantial
economic effect) of some other significant item of Partnership income or gain or
(b) in accordance with the manner in which it is reasonably expected that the
deductions attributable to the excess nonrecourse liabilities will be allocated.
(g) Partner Acknowledgment. The Partners agree to be bound by the
provisions of this Section 5.2 in reporting their shares of Partnership income,
gain, loss, deduction and credit for income tax purposes.
(h) Regulatory Compliance. The foregoing provisions of this Section 5.2
relating to the allocation of Profits, Losses and other items for federal income
tax purposes are intended to comply with Treasury Regulations Sections
1.704-1(b), 1.704-2 and 1.704-3 and shall be interpreted and applied in a manner
consistent with such Treasury Regulations.
5.3. Distributions.
(a) The General Partner shall cause the Partnership to make distributions
from time to time to the Partners pro rata in accordance with their respective
Percentage Interests.
(b) The General Partner shall use its reasonable efforts to make
distributions to the Partners so as to preclude any distribution or portion
thereof from being treated as part of a sale of property to the Partnership by a
Partner under Section 707 of the Code or the Treasury Regulations thereunder;
provided that the General Partner and the Partnership shall not have liability
to a Limited Partner under any circumstances as a result of any distribution to
a Partner being so treated.
5.4. Distributions upon Liquidation.
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Notwithstanding any other provision hereof, proceeds of a Terminating
Capital Transaction shall be distributed to the Partners in accordance with
Section 9.2.
5.5. Amounts Withheld.
All amounts withheld pursuant to the Code or any provision of state or
local tax law and Section 7.6 of this Agreement with respect to any allocation,
payment or distribution to a General Partner or a Limited Partner shall be
treated as amounts distributed to a General Partner or aLimited Partner, as
applicable, pursuant to Section 5.3 of this Agreement.
ARTICLE VI. PARTNERSHIP MANAGEMENT
6.1. Management and Control of Partnership Business.
(a) The General Partner shall have full, exclusive and complete discretion
to manage the business and affairs of the Partnership, to make all decisions
affecting the business and affairs of the Partnership and to take all such
action as it deems necessary or appropriate to accomplish the purposes of the
Partnership as set forth herein. The Limited Partners shall not have any
authority, right, or power to bind the Partnership, or to manage, or to
participate in the management of the business and affairs of the Partnership in
any manner whatsoever. Such management shall in every respect be the full and
complete responsibility of the General Partner alone as herein provided.
(b) In carrying out the purposes of the Partnership, the General Partner
shall be authorized to take all actions it deems necessary and appropriate to
carry on the business of the Partnership. The Limited Partners, by execution
hereof, agree that the General Partner is authorized to execute, deliver and
perform any agreement and/or transaction on behalf of the Partnership.
6.2. No Management by Limited Partner; Limitation of Liability.
(a) No Limited Partner, in its capacity as a limited partner, shall take
part in the day-to-day management, operation or control of the business and
affairs of the Partnership or have any right, power, or authority to act for or
on behalf of or to bind the Partnership or transact any business in the name of
the Partnership. The Limited Partners shall have no rights other than those
specifically provided herein or granted by law where consistent with a valid
provision hereof. Any approvals rendered or withheld by the Limited Partners
pursuant to this Agreement shall be deemed as consultation with or advice to the
General Partner in connection with the business of the Partnership and, in
accordance with the Act, shall not be deemed as participation by the Limited
Partners in the business of the Partnership and are not intended to create any
inference that a Limited Partner should be classified as a general partner under
the Act.
(b) No Limited Partner shall have any liability under this Agreement except
with respect to withholding under Section 7.6, in connection with a violation of
any provision of this Agreement by such Limited Partner or as provided in the
Act.
(c) The General Partner shall not take any action which would subject a
Limited Partner (in its capacity as Limited Partner) to liability as a general
partner.
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6.3. Limitations on Partners.
(a) No Partner shall have any authority to perform (i) any act in violation
of any applicable law or regulation thereunder, (ii) any act prohibited by
Section 6.2(c), or (iii) any act which is required to be Consented to or
ratified pursuant to this Agreement without such Consent or ratification.
(b) No action shall be taken by a Partner if it would cause the Partnership
to be treated as an association taxable as a corporation for federal income tax
purposes or, without the consent of the General Partner, as a publicly-traded
partnership within the meaning of Section 7704 of the Code. A determination of
whether such action will have the above described effect shall be based upon a
declaratory judgment or similar relief obtained from a court of competent
jurisdiction, a favorable ruling from the IRS or the receipt of an opinion of
counsel.
6.4. Business with Affiliates.
The General Partner, in its discretion, may cause the Partnership to
transact business with any Partner or its Affiliates for goods or services
reasonably required in the conduct of the Partnership's business; provided that
any such transaction shall be effected only on terms competitive with those that
may be obtained in the marketplace from unaffiliated Persons. The foregoing
proviso shall not apply to transactions between the Partnership and any
Subsidiaries of the Partnership. In addition, neither the General Partner nor
any Affiliate of the General Partner may sell, transfer or otherwise convey any
property to, or purchase any property from, the Partnership, except (i) on terms
competitive with those that may be obtained in the marketplace from unaffiliated
Persons, or (ii) where the General Partner determines, in its sole judgment,
that such sale, transfer or conveyance confers benefits on the General Partner
in respect of matters of tax or corporate or financial structure and where the
Partnership obtains or retains at least a majority interest in the Person to
whom such sale, transfer or conveyance is made; provided, in the case of this
clause (ii), such sale, transfer or conveyance is not being effected for the
primary purpose of materially disadvantaging the Limited Partners.
6.5. Reimbursement of Expenses.
The General Partner shall be fully and entirely reimbursed by the
Partnership for any and all direct and indirect costs and expenses incurred in
connection with the organization and continuation of the Partnership pursuant to
this Agreement. In addition, the General Partner shall be reimbursed for all
expenses incurred by the General Partner in connection with any issuance of
additional Partnership Interests.
6.6. Liability for Acts and Omissions.
(a) The General Partner shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or any of the other Partners for any act
or emission performed or omitted in good faith on behalf of the Partnership and
in a manner reasonably believed to be (i) within the scope of the authority
granted by this Agreement and (ii) in the best interests of the Partnership. In
exercising its authority hereunder, the General Partner may, but shall not be
under any obligation to, take into account the tax consequences to any Partner
of any action it undertakes on behalf of the Partnership. Neither the General
Partner nor the Partnership shall have any liability as a result of any
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income tax liability incurred by a Partner as a result of any action or inaction
of the General Partner hereunder and, by its execution of this Agreement, the
Limited Partner acknowledges the foregoing.
(b) Unless otherwise prohibited hereunder, the General Partner shall be
entitled to exercise any of the powers granted to it and perform any of the
duties required of it under this Agreement directly or through any agent. The
General Partner shall not be responsible for any misconduct or negligence on the
part of any agent; provided that the General Partner selected or appointed such
agent in good faith.
6.7. Indemnification.
(a) The Partnership shall indemnify the General Partner and each director,
officer and stockholder of the General Partner and each Person (including any
Affiliate) designated as agent by a General Partner in its reasonable discretion
(each, an "Indemnified Party") to the fullest extent permitted under the Act
(including any procedures set forth therein regarding advancement of expenses to
such Indemnified Party) from and against any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' fees), judgments, fines,
settlements and any other amounts arising out of or in connection with any
claims, demands, actions, suits or proceedings (civil, criminal or
administrative) relating to or resulting (directly or indirectly) from the
operations of the Partnership, in which such Indemnified Party becomes involved,
or reasonably believes it may become involved, as a result of the capacity
referred to above.
(b) The Partnership shall have the authority to purchase and maintain such
insurance policies on behalf of the Indemnified Parties as the General Partner
shall determine, which policies may cover those liabilities the General Partner
reasonably believes may be incurred by an Indemnified Party in connection with
the operation of the business of the Partnership. The right to procure such
insurance on behalf of the Indemnified Parties shall in no way mitigate or
otherwise affect the right of any such Indemnified Party to indemnification
pursuant to Section 6.7(a) hereof.
(c) The provisions of this Section 6.7 are for the benefit of the
Indemnified Parties, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights in or benefit to any other Person.
ARTICLE VII. ADMINISTRATIVE, FINANCIAL AND TAX MATTERS
7.1. Books and Records.
The General Partner shall maintain at the office of the Partnership full
and accurate books of the Partnership showing all receipts and expenditures,
assets and liabilities, profits and losses, names and current addresses of
Partners, and all other records necessary for recording the Partnership's
business and affairs. Each Limited Partner shall have, upon written demand and
at such Limited Partner's expense, the right to receive true and complete
information regarding Partnership matters to the extent required (and subject to
the limitations) under Delaware law.
7.2. Annual Audit and Accounting.
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The books and records of the Partnership shall be kept for financial and
tax reporting purposes on the accrual basis of accounting in accordance with
generally accepted accounting principles ("GAAP"). The accounts of the
Partnership shall be audited annually by a nationally recognized accounting firm
of independent public accountants selected by the General Partner (the
"Independent Accountants").
7.3. Partnership Funds.
The General Partner shall have responsibility for the safekeeping and use
of all funds and assets of the Partnership, whether or not in its direct or
indirect possession or control. All funds of the Partnership not otherwise
invested shall be deposited in one or more accounts maintained in the name of
the Partnership in such banking institutions as the General Partner shall
determine, and withdrawals shall be made only in the regular course of
Partnership business on such signatures as the General Partner may from time to
time, determine.
7.4. Reports and Notices.
(a) The General Partner shall provide all Partners with IRS Form 1065 and
Schedule K-1, or similar forms as may be required by the IRS, stating each
Partner's allocable share of income, gain, loss, deduction or credit for the
prior Fiscal Year by March 31 of each year or as soon thereafter as
circumstances permit.
7.5. Tax Matters.
(a) The General Partner shall be the Tax Matters Partner of the Partnership
for federal income tax matters pursuant to Code Section 6231(a)(7)(A). The Tax
Matters Partner is authorized and required to represent the Partnership (at the
expense of the Partnership) in connection with all examinations of the affairs
of the Partnership by any federal, state, or local tax authorities, including
any resulting administrative and judicial proceedings, and to expend funds of
the Partnership for professional services and costs associated therewith. The
Tax Matters Partner shall deliver to each Limited Partner within ten (10)
business days of the receipt thereof a copy of any notice or other communication
with respect to the Partnership received from the IRS (or other governmental tax
authority), or any court, in each case with respect to any administrative or
judicial proceeding involving the Partnership. The Partners agree to cooperate
with each other in connection with the conduct of all proceedings pursuant to
this Section 7.5(a).
(b) The Tax Matters Partner shall receive no compensation for its services
in such capacity. If the Tax Matters Partner incurs any costs related to any tax
audit, declaration of any tax deficiency or any administrative proceeding or
litigation involving any Partnership tax matter, such amount shall be an expense
of the Partnership and the Tax Matters Partner shall be entitled to full
reimbursement therefor.
(c) The General Partner shall cause to be prepared all federal, state and
local income tax returns required of the Partnership at the Partnership's
expense.
(d) Except as set forth herein, the General Partner shall determine whether
to make (and, if necessary, revoke) any tax election available to the
Partnership under the Code or any state tax
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law. The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership in accordance with the provisions of Code Section
709.
7.6. Withholding.
Each Partner hereby authorizes the Partnership to withhold from or pay to
any taxing authority on behalf of such Partner any tax that the General Partner
determines the Partnership is required to withhold or pay with respect to any
amount distributable or allocable to such Partner.
ARTICLE VIII. TRANSFER OF PARTNERSHIP INTERESTS
8.1. Transfers Prohibited.
No Partner may voluntarily withdraw or Transfer all or any portion of its
Partnership Interest without the prior written consent of the General Partner,
provided that a Limited Partner may transfer all or any portion of its Limited
partnership Interest to another Partner or to the Company without such consent.
Notwithstanding the foregoing, any Partner may pledge its Partnership Interest
as collateral for or otherwise in connection with a loan agreement under which
the Partnership or an Affiliate of the Partnership is a borrower.
8.2. Obligations of a Prior General Partner.
Upon an Involuntary Withdrawal of the General Partner and the subsequent
Transfer of the General Partner's Interest, such General Partner shall (i)
remain liable for all obligations and liabilities (other than Partnership
liabilities payable solely from Partnership Assets) incurred by it as General
Partner before the effective date of such event and (ii) pay all costs
associated with the admission of its Successor General Partner. However, such
General Partner shall be free of and held harmless by the Partnership against
any obligation or liability incurred on account of the activities of the
Partnership from and after the effective date of such event, except as provided
in this Agreement.
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8.3. Successor General Partner.
A successor to all of a General Partner's General Partner Interest who is
proposed to be admitted to the Partnership as a Successor General Partner shall
be admitted as the General Partner, effective upon the Transfer. Any such
transferee shall carry on the business of the Partnership without dissolution.
In addition, the following conditions must be satisfied:
(a) The Person shall have accepted and agreed to be bound by all the terms
and provisions of this Agreement by executing a counterpart thereof and such
other documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner;
(b) An amendment to this Agreement evidencing the admission of such Person
as a General Partner shall have been executed by all General Partners and an
amendment to the Certificate shall have been filed for recordation as required
by the Act; and
(c) Any consent required under Section 10.1(a) shall have been obtained.
ARTICLE IX. DISSOLUTION AND LIQUIDATION
9.1. Term and Dissolution.
The Partnership shall continue until December 31, 2047 at which time the
Partnership shall dissolve or until dissolution occurs prior to that date for
any one of the following reasons:
(a) An Involuntary Withdrawal or a voluntary withdrawal, even though in
violation of this Agreement, of the General Partner;
(b) Entry of a decree of judicial dissolution of the Partnership under the
Act; or
(c) The sale, exchange or other disposition of all or substantially all of
the Partnership Assets.
If an event of the type described in clause (a) shall occur, the
Partnership shall not dissolve unless, by the ninetieth (90th) day following
such event, the Limited Partner shall not have elected to continue the
Partnership. If the Limited Partner shall, during such time, elect to continue
the Partnership, it may also determine to admit a Successor General Partner.
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9.2. Liquidation of Partnership Assets.
(a) Subject to Section 9.2(e), in the event of dissolution pursuant to
Section 9.1, the Partnership shall continue solely for purposes of winding up
the affairs of, achieving a final termination of, and satisfaction of the
creditors of, the Partnership. The General Partner (or, if there is no General
Partner remaining, any Person elected by a majority in interest of the Limited
Partners (the "Liquidator")) shall be responsible for oversight of the winding
up and dissolution of the Partnership. The Liquidator shall obtain a full
accounting of the assets and liabilities of the Partnership and such Partnership
Assets shall be liquidated as promptly as the Liquidator is able to do so
without any undue loss in value, with the proceeds therefrom applied and
distributed in the following order:
(i) First, to the discharge of Partnership debts and liabilities to
creditors other than Partners;
(ii) Second, to the discharge of Partnership debts and liabilities to the
Partners;
(iii) The balance, if any, to the Partners in accordance with their
positive Capital Accounts after giving effect to all contributions,
distributions and allocations for all periods.
(b) In accordance with Section 9.2(a), the Liquidator shall proceed without
any unnecessary delay to sell and otherwise liquidate the Partnership Assets;
provided, however, that if the Liquidator shall determine that an immediate sale
of part or all of the Partnership Assets would cause undue loss to the Partners,
the Liquidator may defer the liquidation except (i) to the extent provided by
the Act or (ii) as may be necessary to satisfy the debts and liabilities of the
Partnership to Persons other than the Partners.
(c) If, in the sole and absolute discretion of the Liquidator, there are
Partnership Assets that the Liquidator will not be able to liquidate, or if the
liquidation of such assets would result in undue loss to the Partners, the
Liquidator may distribute such Partnership Assets to the Partners in-kind, in
lieu of cash, as tenants-in-common in accordance with the provisions of Section
9.2(a). The foregoing notwithstanding, such in-kind distributions shall only be
made if in the Liquidator's good faith judgment that is in the best interest of
the Partners.
(d) Upon the complete liquidation and distribution of the Partnership
Assets, the Partners shall cease to be Partners of the Partnership, and the
Liquidator shall execute, acknowledge and cause to be filed all certificates and
notices required by law to terminate the Partnership. Upon the dissolution of
the Partnership pursuant to Section 9.1, the Liquidator shall cause to be
prepared, and shall furnish to each Partner, a statement setting forth the
assets and liabilities of the Partnership. Promptly following the complete
liquidation and distribution of the Partnership Assets, the Liquidator shall
furnish to each Partner a statement showing the manner in which the Partnership
Assets were liquidated and distributed.
(e) In the event that the Partnership shall dissolve as a result of the
expiration of the term provided for herein or as a result of the occurrence of
an event of the type described in Section 9.1 (b) or (c), the General Partner
shall have the option of either (i) delivering to the Limited Partner,
Partnership property approximately equal in value to the value of such Limited
Partner's Partnership Interest upon the assumption by such Limited Partner of
such Limited Partner's
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proportionate share of the Partnership's liabilities and payment by such Limited
Partner (or the Partnership) of any excess (or deficiency) of the value of the
property so delivered over the value of such Limited Partner's Partnership
Interest or (ii) in lieu of requiring such Limited Partner to assume its
proportionate share of Partnership liabilities, delivering to such Limited
Partner unencumbered Partnership property approximately equal in value to the
net value of such Limited Partner's Partnership Interest.
9.3. Effect of Treasury Regulations.
(a) In the event the Partnership is "liquidated" within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article IX to the General Partner and the Limited Partners who
have positive Capital Accounts in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital
Account (after giving effect to all contributions, distributions and
allocations), such Partner shall have no obligation to make any contribution to
the capital of the Partnership.
(b) In the event the Partnership is "liquidated' within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but there has been no
dissolution of the Partnership under Section 9.1 hereof, then the Partnership
Assets shall not be liquidated, the Partnership's liabilities shall not be paid
or discharged and the Partnership's affairs shall not be wound up. In the event
of such a liquidation there shall be deemed to have been a distribution of
Partnership Assets in kind to the Partners in accordance with their respective
Capital Accounts followed by a recontribution of the Partnership Assets by the
Partners also in accordance with their respective Capital Accounts.
9.4. Time for Winding-Up.
Anything in this Article IX notwithstanding, a reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of the Partnership Assets in order to minimize
any potential for losses as a result of such process. During the period of
winding-up, this Agreement shall remain in full force and effect and shall
govern the rights and relationships of the Partners inter se.
ARTICLE X. AMENDMENTS AND MEETINGS
10.1. Amendment Procedure.
(a) Amendments to this Agreement may be made only with the Consent of
Partners owning Percentage Interests of no less than eighty eight percent (88%)
of all Percentage Interests. In connection with any proposed amendment of this
Agreement requiring Consent, the General Partner shall either call a meeting to
solicit the vote of the Partners or seek the written vote of the Partners to
such amendment. In the case of a request for a written vote, the General Partner
shall be authorized to impose such reasonable time limitations for response, but
in no event less than ten (10) days, with the failure to respond being deemed a
vote consistent with the vote of the General Partner.
(b) Notwithstanding the foregoing, amendments may be made to this Agreement
by the General Partner, without the Consent of any Limited Partner, to (i) add
to the representations,
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duties or obligations of the General Partner or surrender any right or power
granted to the General Partner herein; (ii) cure any ambiguity, correct or
supplement any provision herein which may be inconsistent with any other
provision herein or make any other provisions with respect to matters or
questions arising hereunder which will not be inconsistent with any other
provision hereof; (iii) reflect the admission, substitution, termination or
withdrawal of Partners in accordance with this Agreement; or (iv) satisfy any
requirements, conditions or guidelines contained in any order, directive,
opinion, ruling or regulation of a federal or state agency or contained in
federal or state law. The General Partner shall reasonably promptly notify each
Limited Partner whenever it exercises its authority pursuant to this Section 10.
l(b).
10.2. Meetings and Voting.
(a) Meetings of Partners may be called by the General Partner. The General
Partner shall give all Partners Notice of the purpose of such proposed meeting
not less than seven (7) days nor more than thirty (30) days prior to the date of
the meeting. Meetings shall be held at a reasonable time and place selected by
the General Partner. Whenever the vote or Consent of Partners is permitted or
required hereunder, such vote or Consent shall be requested by the General
Partner and may be given by the Partners in the same manner as set forth for a
vote with respect to an amendment to this Agreement in Section 10.1(a).
(b) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action to be taken is signed by the Partners owning Percentage Interests
required to vote in favor of such action, which consent may be evidenced in one
or more instruments. Consents need not be solicited from any other Partner if
the written consent of a sufficient number of Partners has been obtained to take
the action for which such solicitation was required.
(c) Each Limited Partner may authorize any Person or Persons, including
without limitation the General Partner, to act for him by proxy on all matters
on which a Limited Partner may participate. Every Proxy (i) must be signed by
the Limited Partner or his attorney-in-fact, (ii) shall expire eleven (11)
months from the date thereof unless the proxy provides otherwise and (iii) shall
be revocable at the discretion of the Limited Partner granting such proxy.
ARTICLE XI. MISCELLANEOUS PROVISIONS
11.1. Title to Property.
All property owned by the Partnership, whether real or personal, tangible
or intangible, shall be deemed to be owned by the Partnership as an entity, and
no Partner, individually, shall have any ownership of such property. The
Partnership shall hold its assets in its own name.
11.2. Other Activities of Limited Partners.
Except as expressly provided otherwise in this Agreement or in any other
agreement entered into by a Limited Partner or any Affiliate of a Limited
Partner and the Partnership, the General Partner or any Subsidiary of the
Partnership or the General Partner, any Limited Partner or any Affiliate of any
Limited Partner may engage in, or possess an interest in, other business
ventures of every nature and description, independently or with others,
including, without limitations real estate business ventures,
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whether or not such other enterprises shall be in competition with-any
activities of the Partnership, the General Partner or any Subsidiary of the
Partnership or the General Partner; and neither the Partnership, the General
Partner, any such Subsidiary nor the other Partners shall have any right by
virtue of this Agreement in and to such independent ventures or to the income or
profits derived therefrom.
11.3. Power of Attorney.
(a) Each Partner hereby irrevocably appoints and empowers the General
Partner (which term shall include the Liquidator, in the event of a liquidation,
for purposes of this Section 11.3) and each of their authorized officers and
attorneys-in-fact with full power of substitution as his true and lawful agent
and attorney-in-fact, with full power and authority in his name, place and stead
to make, execute, acknowledge, publish and file in the appropriate public
offices (a) any duly approved amendments to the Certificate pursuant to the Act
and to the laws of any state in which such documents are required to be filed;
(b) any certificates, instruments or documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction in which the
Partnership is doing or intends to do business; (c) any other instrument which
may be required to be filed by the Partnership under the laws of any state or by
any governmental agency, or which the General Partner deems advisable to file;
(d) any documents which may be required to effect the continuation of the
Partnership, the admission, withdrawal or substitution of any Partner pursuant
to Article VIII, dissolution and termination of the Partnership pursuant to
Article IX, or the surrender of any rights or the assumption of any additional
responsibilities by the General Partner; and (e) any document which may be
required to effect an amendment to this Agreement to correct any mistake,
omission or inconsistency, or to cure any ambiguity herein, to the extent such
amendment is permitted by Section 10.1(b).
(b) Nothing herein contained shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article X or as may be
otherwise expressly provided for in this Agreement.
(c) The foregoing grant of authority (i) is a special power of attorney,
coupled with an interest, and it shall survive the Involuntary Withdrawal of any
Partner and shall extend to such Partner's heirs, successors, assigns and
personal representatives; (ii) may be exercised by the General Partner for each
and every Partner acting as attorney-in-fact for each and every Partner; and
(iii) shall survive the Involuntary Withdrawal by a Limited Partner. Each
Partner hereby agrees to be bound by any representations made by the General
Partner, acting in good faith pursuant to such power of attorney. Each Partner
shall execute and deliver to the General Partner, within fifteen (15) days after
receipt of the General Partner's request therefor, such further designations,
powers of attorney and other instruments as the General Partner deems necessary
to effectuate this Agreement and the purposes of the Partnership.
11.4. Notices.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand delivery, registered first-class mail, telex,
telecopier, or any courier guaranteeing overnight delivery, (i) if to a Limited
Partner, to the address set forth on Schedule I hereto, or (ii) if to the
General Partner, _____________________________________________________, Attn:
President.
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All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if hand delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; or when receipt is acknowledged, if telecopied.
11.5. Further Assurances.
The parties agree to execute and deliver all such documents, provide all
such information and take or refrain from taking any action as may be necessary
or desirable to achieve the purposes of this Agreement and the Partnership.
11.6. Titles and Captions.
All article or section titles or captions in this Agreement are solely for
convenience and shall not be deemed to be part of this Agreement or otherwise
define, limit or extend the scope or intent of any provision hereof.
11.7. Applicable Law.
This Agreement, and the application or interpretation thereof, shall be
governed exclusively by its terms and by the law of the State of Delaware,
without regard to its principles of conflicts of laws.
11.8. Binding Agreement.
This Agreement shall be binding upon the parties hereto, their heirs,
executors, personal representatives, successors and assigns.
11.9. Waiver of Partition.
Each of the parties hereto irrevocably waives during the term of the
Partnership any right that it may have to maintain any action for partition with
respect to any property of the Partnership.
11.10. Counterparts and Effectiveness.
This Agreement may be executed in several counterparts, which shall be
treated as originals for all purposes, and all so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that all the
parties are not signatory to the original or the same counterpart. Any such
counterpart shall be admissible into evidence as an original hereof against each
Person who executed it. The execution of this Agreement and delivery thereof by
facsimile shall be sufficient for all purposes, and shall be binding upon any
party who so executes.
11.11. Survival of Representations.
All representations and warranties herein shall survive the dissolution and
final liquidation of the Partnership.
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11.12. Entire Agreement.
This Agreement (and all Exhibits hereto) contains the entire understanding
among the parties hereto and supersedes all prior written or oral agreements
among them respecting the within subject matter, unless otherwise provided
herein. There are no representations, agreements, arrangements or
understandings, oral or written, among the Partners hereto relating to the
subject matter of this Agreement which are not fully expressed herein and in
said Exhibits.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the day and year first above written.
General Partner FCO HOLDINGS, INC.
By: ________________________________
Limited Partners: FCO, L.P.
By: ROYALE INVESTMENTS, INC.
its General Partner
By:_________________________________
SHIDLER EQUITIES, L.P.
By: SHIDLER EQUITIES CORP.,
its General Partner
By:_________________________________
28
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SCHEDULE I
SCHEDULE OF PARTNERS
===============================================================================
NAME INTEREST IN THE CAPITAL PERCENTAGE
PARTNERSHIP CONTRIBUTION INTEREST
FCO Holdings, Inc. General Partner 00.10 Percent
FC, L.P. Limited Partner 88.90 Percent
Shidler Equities, L.P. Limited Partner 11.00 Percent
================================================================================
29
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TABLE OF CONTENTS
1. INTERPRETIVE PROVISIONS...................................................1
1.1. CERTAIN DEFINITIONS.....................................................1
1.2. RULES OF CONSTRUCTION...................................................7
2. FORMATION.................................................................8
2.1. FORMATION...............................................................8
2.2. NAME....................................................................8
2.3. PLACE OF BUSINESS; REGISTERED AGENT.....................................8
3. BUSINESS PURPOSE..........................................................8
3.1. BUSINESS................................................................8
3.2. AUTHORIZED ACTIVITIES...................................................8
4. CAPITAL CONTRIBUTIONS.....................................................9
4.1. CAPITAL CONTRIBUTIONS...................................................9
4.2. ADDITIONAL PARTNERSHIP INTERESTS........................................9
4.3. NO THIRD PARTY BENEFICIARIES...........................................10
4.4. CAPITAL ACCOUNTS.......................................................10
4.5. RETURN OF CAPITAL ACCOUNT; INTEREST....................................11
4.6. PREEMPTIVE RIGHTS......................................................11
5. ALLOCATIONS AND DISTRIBUTIONS............................................12
5.1. LIMITED LIABILITY......................................................12
5.2. PROFITS, LOSSES AND DISTRIBUTIVE SHARES................................12
5.3. DISTRIBUTIONS..........................................................16
5.4. DISTRIBUTIONS UPON LIQUIDATION.........................................16
5.5. AMOUNTS WITHHELD.......................................................17
6. PARTNERSHIP MANAGEMENT...................................................17
6.1. MANAGEMENT AND CONTROL OF PARTNERSHIP BUSINESS.........................17
6.2. NO MANAGEMENT BY LIMITED PARTNER; LIMITATION OF LIABILITY..............17
6.3. LIMITATIONS ON PARTNERS................................................18
6.4. BUSINESS WITH AFFILIATES...............................................18
6.5. REIMBURSEMENT OF EXPENSES..............................................18
6.6. LIABILITY FOR ACTS AND OMISSIONS.......................................18
6.7. INDEMNIFICATION........................................................19
7. ADMINISTRATIVE, FINANCIAL AND TAX MATTERS..................................
7.1. BOOKS AND RECORDS......................................................19
7.2. ANNUAL AUDIT AND ACCOUNTING............................................19
7.3. PARTNERSHIP FUNDS......................................................20
7.4. REPORTS AND NOTICES....................................................20
7.5. TAX MATTERS............................................................20
7.6. WITHHOLDING............................................................21
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8. TRANSFER OF PARTNERSHIP INTERESTS........................................21
8.1. TRANSFERS PROHIBITED...................................................21
8.2. OBLIGATIONS OF A PRIOR GENERAL PARTNER.................................21
8.3. SUCCESSOR GENERAL PARTNER..............................................22
9. DISSOLUTION AND LIQUIDATION..............................................22
9.1. TERM AND DISSOLUTION...................................................22
9.2. LIQUIDATION OF PARTNERSHIP ASSETS......................................23
9.3. EFFECT OF TREASURY REGULATIONS.........................................24
9.4. TIME FOR WINDING-UP....................................................24
10. AMENDMENTS AND MEETINGS.................................................25
10.1. AMENDMENT PROCEDURE...................................................24
10.2. MEETINGS AND VOTING...................................................25
11. MISCELLANEOUS PROVISIONS................................................26
11.1. TITLE TO PROPERTY.....................................................25
11.2. OTHER ACTIVITIES OF LIMITED PARTNERS..................................25
11.3. POWER OF ATTORNEY.....................................................26
11.4. NOTICES...............................................................26
11.5. FURTHER ASSURANCES....................................................27
11.6. TITLES AND CAPTIONS...................................................27
11.7. APPLICABLE LAW........................................................27
11.8. BINDING AGREEMENT.....................................................27
11.9. WAIVER OF PARTITION...................................................27
11.10. COUNTERPARTS AND EFFECTIVENESS.......................................27
11.11. SURVIVAL OF REPRESENTATIONS..........................................27
11.12. ENTIRE AGREEMENT.....................................................28
2
SOUTH BRUNSWICK INVESTORS, L.P.
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (the "Agreement")
is made this ____ day of October, 1997, by and among FCO Holdings, Inc., a
Delaware corporation and a wholly-owned subsidiary of Royale Investments, Inc.,
as General Partner (the 'General Partner"), and the persons set forth on the
signature page hereof as Limited Partners (the "Limited Partners"). The General
Partner and the Limited Partners are collectively referred to herein as the
"Partners."
RECITALS:
A. South Brunswick Investors, L.P., L.P. (the "Partnership") was originally
formed pursuant to the terms of an Agreement of Limited Partnership dated as of
March 29, 1995, which Agreement was amended and restated on April 21, 1995 and
April 22, 1995 (the "Original Agreement").
B. The Original Agreement has previously been amended to reflect, inter
alia, a refinancing of the Partnership's indebtedness, the admission to the
Partnership of FCO Holdings, Inc. as a General Partner, the conversion of
certain General Partner interests in the Partnership into Limited Partner
interests in the Partnership and the transfer to FCO, L.P. of certain Limited
Partner interests in the Partnership.
C. The General Partner and the Limited Partners desire to amend and restate
the Original Agreement in its entirety as set forth herein.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, intending to be legally bound hereby, agree that the
Original Agreement shall be amended and restated in its entirety to provide as
follows:
1. ARTICLE I. INTERPRETIVE PROVISIONS
1.1. Certain Definitions.
The following terms have the definitions hereinafter indicated whenever
used in this Agreement with initial capital letters:
Act: The Delaware Revised Uniform Limited Partnership Act, ss.ss. 17-101 to
17-1109 of the Delaware COde Annotated, Title 6, as amended from time to time.
Additional Limited Partner: A Person admitted to the Partnership as a
Limited Partner in accordance with Section 4.2 hereof and who is shown as such
on the books and records of the Partnership.
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Adjusted Capital Account: With respect to any Partner, such Partner's
Capital Account maintained in accordance with Section 4.4 hereof, as of the end
of the relevant Fiscal Year of the Partnership, after giving effect to the
following adjustments:
(a) Credit to such Capital Account such Partner's share of Partnership
Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(g)(1) and such Partner's share of Partner Minimum Gain determined in
accordance with Treasury Regulations Section 1.704-2(i)(5).
(b) Debit to such Capital Account the items described in Treasury
Regulations Section 1.7041(b)(2)(ii)(d)(4), (5) and U6 .
The foregoing definition of "Adjusted Capital Account" is intended to
comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2)(ii)
and 1.704-2 and shall be interpreted consistently therewith.
Adjusted Capital Account Deficit: With respect to any Partner, the deficit
balance, if any, in that Partner's Adjusted Capital Account as of the end of the
relevant Fiscal Year of the Partnership.
Affiliate: With respect to any referenced Person, (i) a member of such
Person's immediate family; (ii) any Person who directly or indirectly owns,
controls or holds the power to vote ten percent (10%) or more of the outstanding
voting securities of the Person in question; (iii) any Person ten percent (10%)
or more of whose outstanding securities are directly or indirectly owned,
controlled, or held with power to vote by the Person in question; (iv) any
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with the Person in question; (v) if the Person in
question is a corporation, any executive officer or director of such Person or
of any corporation directly or indirectly controlling such Person; and (vi) if
the Person in question is a partnership, any general partner of the partnership
or any limited partner owning or controlling ten percent (10%) or more of either
the capital or profits interest in such partnership. As used herein, 'control'
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise.
Agreed Value: In the case of any (i) Contributed Property, the allocated
value of such property at the time of contribution (exclusive of any related
indebtedness assumed by the Partnership), as determined by the General Partner
using such method of valuation as it may adopt in its reasonable discretion and
(ii) property distributed to a Partner by the Partnership, the Partnership's
Book Value of such property at the time such property is distributed, reduced by
any indebtedness either assumed by such Partner upon such distribution or to
which such property is subject at the time of distribution as determined under
Code Section 752 and the Treasury Regulations thereunder.
Agreement: This Limited Partnership Agreement and the Schedule attached
hereto, as the same may be amended or restated and in effect from time to time.
Bankruptcy: Any of (i) a referenced Person's making an assignment for the
benefit of creditors, (ii) the filing by a referenced Person of a voluntary
petition in bankruptcy, (iii) a referenced Person's being adjudged insolvent or
having entered against him an order for relief in any bankruptcy or insolvency
proceeding, (iv) the filing by a referenced Person of an answer seeking any
2
<PAGE>
reorganization, composition, readjustment, liquidation, dissolution or similar
relief under any law or regulation, (v) the filing by a referenced Person of an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against him in any proceeding of reorganization,
composition, readjustment, liquidation, dissolution, or for similar relief under
any statute, law or regulation or (vi) a referenced Person's seeking, consenting
to or acquiescing in the appointment of a trustee, receiver or liquidator for
all or substantially all of his property (or court appointment of such trustee,
receiver or liquidator).
Bankruptcy Code: I 1 U. S. C. Sections 10 I - 1330, as amended from time to
time.
Book Tax Disparity: With respect to any item of Contributed Property, or
property the Book Value of which has been adjusted in accordance with Section
4.4(c), as of the date of determination, the difference between the Book Value
of such property and the adjusted basis of such property for federal income tax
purposes.
Book Value: With respect to any Contributed Property, the Agreed Value of
such property reduced (but not below zero) by all Depreciation with respect to
such property properly charged to the Partners' Capital Accounts and with
respect to any other asset, the asset's adjusted basis for federal income tax
purposes; provided, however, (a) the Book Value of all Partnership Assets shall
be adjusted in the event of a revaluation of Partnership Assets in accordance
with Section 4.4(c) hereof, (b) the Book Value of any Partnership Asset
distributed to any Partner shall be the fair market value of such asset on the
date of distribution as determined by the General Partner and (c) such Book
Value shall be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
Capital Account: The account maintained by the Partnership for each Partner
described in Section 4.4 hereof.
Capital Contribution: The total amount of cash or cash equivalents and the
Agreed Value of Contributed Property which a Partner contributes or is deemed to
contribute to the Partnership pursuant to the terms of this Agreement.
Certificate: The Partnership's Certificate of Limited Partnership filed in
the office of the Secretary of State of the State of Delaware, as amended from
time to time.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Company: Royale Investments, Inc., a Minnesota corporation.
Consent: Either the written consent of a Person or the affirmative vote of
such Person at a meeting duly called and held pursuant to this Agreement, as the
case may be, to do the act or thing for which the consent is required or
solicited, or the act of granting such consent, as the context may require.
Contributed Property: Each property or other asset (excluding cash and cash
equivalents) contributed or deemed contributed to the Partnership (whether as a
result of a Code Section 708 termination or otherwise).
3
<PAGE>
Depreciation: For each Fiscal Year or other period, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Book Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such year or other period, Depreciation shall be adjusted as
necessary so as to be an amount which bears the same ratio to such beginning
Book Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to the beginning adjusted
tax basis; provided, however, that if the federal income tax depreciation,
amortization or other cost recovery deduction for such year or other period is
zero, Depreciation for such year or other period shall be determined with
reference to such beginning Book Value using any reasonable method approved by
the General Partner.
Fiscal Year: The calendar year or such other twelve (12) month period
designated by the General Partner.
General Partner: FCO Holdings, Inc., a Delaware corporation, and its
respective successor(s) who or which become Successor General Partner(s) in
accordance with the terms of this Agreement.
General Partner Interest: A Partnership Interest field by the General
Partner that is a general partner interest.
Involuntary Withdrawal: As to any (i) individual shall mean such
individual's death, incapacity or adjudication of incompetence, (ii) corporation
shall mean its dissolution or revocation of its charter (unless such revocation
is promptly corrected upon notice thereof), (iii) partnership shall mean the
dissolution and commencement of winding up of its affairs, (iv) trust shall mean
the termination of the trust (but not the substitution of trustees), (v) estate
shall mean the distribution by the fiduciary of the estate's complete interest
in the Partnership any Partner shall mean the Bankruptcy of such Partner.
IRS: The Internal Revenue Service, which administers the internal revenue
laws of the United States.
Limited Partner: Each of the Persons set forth on the signature page hereof
as a Limited Partner and any Person who becomes an Additional Limited accordance
with the terms of this Agreement.
Limited Partner Interest: A Partnership Interest held by a Limited Partner
that is a limited partner interest.
Nonrecourse Liability: A liability as defined in Treasury Regulations
Section 1.704-2(b)(3).
Notice: A writing containing the information required by this Agreement to
be communicated and delivered to such Person in accordance with Section 11.4;
provided, however, that any written communication containing such information
actually received by such Person shall constitute Notice for all purposes
Agreement.
4
<PAGE>
Partner Minimum Gain: The gain (regardless of character) which would be
realized by the if property of the Partnership subject to a partner nonrecourse
debt (as such term is defined in Treasury Section 1.704-2(b)(4)) were disposed
of in full satisfaction of such debt on the relevant date. The adjusted basis of
property subject to more than one partner nonrecourse debt shall be allocated in
a manner consistent with the allocation of basis for purposes of determining
Partnership Minimum Gain hereunder. Partner Minimum Gain shall be computed
hereunder using the Book Value, rather than the adjusted tax basis, of the
Partnership accordance with Treasury Regulations Section 1.704-2(d)(3).
Partner Nonrecourse Deductions: With respect to any partner nonrecourse
debt (as such term in Treasury Regulation Section 1.704-2(b)(4)), the increase
in Partner Minimum Gain during the tax y increase in Partner Minimum Gain for a
prior tax year which has not previously generated a Partner N Deduction
hereunder. The determination of which Partnership items constitute Partner
Nonrecourse shall be made in a manner consistent with the manner in which
Partnership Nonrecourse Deductions are hereunder.
Partners: The General Partner and the Limited Partners as a group. The term
"Partner" means a General Partner or a Limited Partner. Such terms shall be
deemed to include such other Persons who may become Partners pursuant to the
terms of this Agreement.
Partnership: The Delaware limited partnership referred to herein as such
partnership may from time to time be constituted.
Partnership Assets: At any particular time, any assets or property
(tangible or intangible choate or inchoate, fixed or contingent) owned by the
Partnership.
Partnership Interest or Interest: As to any Partner, such Partner's
ownership interest in the and including such Partner's right to distributions
under this Agreement and any other rights or benefits Partner has in the
Partnership, together with any and all obligations of such Person to comply with
the provisions of this Agreement.
Partnership Minimum Gain: The aggregate gain (regardless of character)
which would be realized by the Partnership if all of the property of the
Partnership subject to nonrecourse debt (other than partner nonrecourse debt as
such term is defined in Treasury Regulations Section 1.704-2(b)(4)) were
disposed of in fall satisfaction of such debt and for no other consideration on
the relevant date. In the case of any Nonrecourse Liability of the Partnership
which is not secured by a mortgage with respect to any specific property of the
Partnership, any and all property of the Partnership to which the holder of said
liability has recourse shall be treated as subject to such Nonrecourse Liability
for purposes of the preceding sentence. Partnership Minimum Gain shall be
computed separately for each Nonrecourse Liability of the partnership. For this
purpose, the adjusted basis of property subject to two or more liabilities of
equal priority shall be allocated among such liabilities in proportion to the
outstanding balance of such liabilities, and the adjusted basis of property
subject to two or more liabilities of unequal priority shall be allocated to the
liability of inferior priority only to the extent of the excess, if any, of the
adjusted basis of such property over the outstanding balance of the liability of
superior priority. Partnership Minimum Gain shall be computed hereunder using
the Book Value, rather than the adjusted tax basis, of the Partnership property
in accordance with Treasury Regulations Section 1.704-2(d)(3).
5
<PAGE>
Partnership Nonrecourse Deductions: The amount of Partnership deductions
equal to the increase, if any, in the amount of the aggregate Partnership
Minimum Gain during the tax year (plus any increase in Partnership Minimum Gain
for a prior tax year which has not previously generated a Partnership
Nonrecourse Deduction) reduced (but not below zero) by the aggregate
distributions made during the tax year of the proceeds of a Nonrecourse
Liability of the Partnership which are attributable to an increase in
Partnership Minimum Gain within the meaning of Treasury Regulations Section
1.704-2(d). The Partnership Nonrecourse Deductions for a Partnership tax year
shall consist first of depreciation or cost recovery deductions with respect to
each property of the Partnership giving rise to such increase in Partnership
Minimum Gain on a pro rata basis to the extent of each such increase, with any
excess made up pro rata of all items of deduction.
Percentage Interest: As to any Partner, the percentage in the Partnership
as initially shown opposite the name of such Partner on Schedule I attached
hereto, as such percentage interest may be adjusted from time to time in
accordance with the provisions of this Agreement.
Person: Any individual, partnership, corporation, trust or other entity.
Profits and Losses: For each Fiscal Year or other period, an amount equal
to the Partnership's taxable income or loss (as the case may be) for such year
or period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
a. Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
b. Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)0i , and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition, shall be subtracted from such taxable income or loss;
c. Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of notwithstanding that the adjusted tax basis of such property
differs from such Book Value;
d. In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or
other period, computed in accordance with the definition of 'Depreciation'
herein; and
e. In the event that any item of income, gain, loss or deduction that
has been included in the initial computation of Profit or Loss is subject
to the special allocation rules of Sections 5.2(C) and 5.2(D), Profit or
Loss shall be recomputed without regard to such item.
REIT: A real estate investment trust, as defined in Code Section 856.
6
<PAGE>
Subsidiary: With respect to any Person, any corporation or other entity of
which a majority of (i) the voting power of the voting equity securities or (ii)
the outstanding equity interests, is owned, directly or indirectly, by such
Person.
Successor General Partner: Any Person who is admitted to the Partnership as
substitute General Partner pursuant to this Agreement. A Successor General
Partner, upon its admission as such, shall succeed to the rights, privileges and
liabilities of its predecessor in interest as General Partner, in accordance
with the provisions of the Act.
Tax Matters Partner. The General Partner or such other Partner who becomes
Tax Matters Partner pursuant to the terms of this Agreement.
Terminating Capital Transaction: The sale or other disposition of all or
substantially all of the Partnership Assets or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the Partnership Assets.
Transfer. A transaction in which a Partner assigns all or a portion of its
Partnership Interest to another Person and includes any sale, assignment, gift,
pledge, mortgage, exchange, hypothecation, encumbrance or other disposition by
law or otherwise.
Treasury Regulations: The Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
1.2. Rules of Construction.
The following rules of construction shall apply to this Agreement:
(a) All section headings in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section.
(b) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders, the
singular shall include the plural, and vice versa, as the context may require.
(c) Each provision of this Agreement shall be considered severable from the
rest, and if any provision of this Agreement or its application to any Person or
circumstances shall be held invalid and contrary to any existing or future law
or unenforceable to any extent, the remainder of this Agreement and the
application of any other provision to any Person or circumstances shall not be
affected thereby and shall be interpreted and enforced to the greatest extent
permitted by law so as to give effect to the original intent of the parties
hereto.
(d) Unless otherwise specifically and expressly limited in the context, any
reference herein to a decision, determination, act, action, exercise of a right,
power or privilege, or other procedure by the General Partner shall mean and
refer to the decision, determination, act, action, exercise or other procedure
by the General Partner in its sole and absolute discretion.
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2. ARTICLE II. FORMATION
2.1. Formation.
The Partners hereby confirm that the Partnership has been formed as a
limited partnership under the Act. The General Partner shall take all action
required by law to perfect and maintain the Partnership as a limited partnership
under the Act and under the laws of all other jurisdictions in which the
Partnership may elect to conduct business, including but not limited to the
filing of amendments to the Certificate with the Delaware Secretary of State,
and qualification of the Partnership as a foreign limited partnership in the
jurisdictions in which such qualification shall be required, as determined by
the General Partner. The General Partner shall also promptly register the
Partnership under applicable assumed or fictitious name statutes or similar
laws.
2.2. Name.
The name of the Partnership is South Brunswick Investors, L.P. The General
Partner may adopt such assumed or fictitious names as it deems appropriate in
connection with the qualifications and registrations referred to in Section 2.1.
2.3. Place of Business; Registered Agent.
The principal office of the Partnership shall be located at such place as
the General Partner may from time to time designate. The Partnership may
establish offices for the Partnership within or without the State of Delaware as
may be determined by the General Partner. The initial registered agent for the
Partnership in the State of Delaware is The Corporation Trust Company, whose
address is c/o Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801.
ARTICLE III. BUSINESS PURPOSE
3.1. Business.
The business of the Partnership shall be (i) conducting any business that
may be lawfully conducted by a limited partnership pursuant to the Act
including, without limitation, acquiring, owning, managing, developing, leasing,
marketing, operating and, if and when appropriate, selling, industrial
properties, (ii) entering into any partnership, joint venture or other
relationship to engage in any of the foregoing or the ownership of interests in
any entity engaged in any of the foregoing, (iii) making loans, guarantees,
indemnities or other financial accommodations and borrowing money and pledging
its assets to secure the repayment thereof, (iv) to do any of the foregoing with
respect to any Affiliate or Subsidiary and (v) doing anything necessary or
incidental to the foregoing; provided, however, that business of the Partnership
shall be limited so as to permit the Company to elect and maintain its status as
a REIT (unless the Company determines no longer to qualify as a REIT).
3.2. Authorized Activities.
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In carrying out the purposes of the Partnership, but subject to all other
provisions of this Agreement, the Partnership is authorized to engage in any
kind of lawful activity, and perform and carry out contracts of any kind,
necessary or advisable in connection with the accomplishment of the purposes and
business of the Partnership described herein and for the protection and benefit
of the Partnership; provided that the General Partner shall not be obligated to
cause the Partnership to take, or refraining from taking, any action which, in
the judgment of the General Partner, (i) could adversely affect the ability of
the Company to qualify and continue to qualify as a REIT under the Code, (ii)
could subject the Company to additional taxes under Code Section 857 or 4981 or
(iii) could violate any law or regulation of any governmental body or agency
having jurisdiction over the General Partner or the Company or their securities.
ARTICLE IV. CAPITAL CONTRIBUTIONS
4.1. Capital Contributions.
The Partners have contributed cash and property in the aggregate amounts
set forth on Schedule 1. No Partner shall be required to contribute additional
funds or other property to the Partnership; provided that, upon any future
contribution of capital by any limited partner to the Partnership, the General
Partner will contribute to the Partnership an amount equal to not less than
0.10% thereof. Any additional funds or other property required by the
Partnership, as determined by the General Partner, may, at the option of the
General Partner and without an obligation so to do, be contributed by the
General Partner as additional Capital Contributions. If the General Partner
determines to make any such Capital Contribution, it shall give notice of such
determination to the Limited Partners and permit each Limited Partner to
contribute a portion of such Capital Contribution equal to the product of such
Limited Partner's Percentage Interest and the total amount of such Capital
Contribution. The General Partner shall also have the right (but not the
obligation) to raise additional funds required for the Partnership by lending
the money to the Partnership or by causing the Partnership to borrow the money
needed from third parties, in either case on such terms and conditions as the
General Partner shall deem appropriate.
4.2. Additional Partnership Interests.
The Partnership may issue additional limited partnership interests for any
Partnership purpose at any time or from time to time, to any Partner or other
Person. Any such other Person shall be admitted as an Additional Limited Partner
of the Partnership only upon execution, adoption and acknowledgment of this
Agreement by such Partner or Person, or a counterpart hereto, and such other
documents as may be reasonably requested by the General Partner, including
without limitation, the power of attorney required under Section 11.3. Upon
satisfaction of the foregoing requirements, such Person shall be admitted as an
Additional Limited Partner effective on the date upon which the name of such
Person is recorded on the books of the Partnership.
4.3. No Third Party Beneficiaries.
The foregoing provisions of this Article IV are not intended to be for the
benefit of any creditor of the Partnership or other Person to whom any debts,
liabilities or obligations are owed by (or who otherwise has any claim against)
the Partnership or any of the Partners and no such creditor or otheR
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Person shall obtain any right under any such foregoing provision against the
Partnership or any of the Partners by reason of any debt, liability or
obligation (or otherwise).
4.4. Capital Accounts.
(a) The Partnership shall establish and maintain a separate Capital Account
for each Partner in accordance with Code Section 704 and Treasury Regulations
Section 1.704- 1 (b)(2)(iv). The Capital Account of each Partner shall be
credited with:
(i) the amount of all Capital Contributions made to the Partnership by such
Partner in accordance with this Agreement; plus
(ii) all income and gain of the Partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V (including
for purposes of this Section 4.4(A), income and gain exempt from tax);
and shall be debited with the sum of:
(i) all losses or deductions of the partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V,
(ii) such Partner's distributive share of expenditures of the Partnership
described in Code Section 705(a)(2)(B), and
(iii) all cash and the Agreed Value of any property actually distributed or
deemed distributed by the Partnership to such Partner pursuant to the terms of
this Agreement.
Any reference in any section or subsection of this Agreement to the Capital
Account of a Partner shall be deemed to refer to such Capital Account as the
same may be credited or debited from time to time as set forth above.
(b) For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of each such item shall be the
same as its determination, recognition and classification for federal income tax
purposes, determined in accordance with Code Section 703(a), with the following
adjustments:
(i) any income, gain or loss attributable to the taxable disposition of any
Partnership Asset shall be determined by treating the adjusted basis of such
property as of the date of such disposition as equal to the Book Value of such
property as of such date;
(ii) the computation of all items of income, gain, loss and deduction shall
be made without regard to any Code Section 754 election that may be made by the
Partnership, except to the extent required in accordance with the provisions of
Treasury Regulations Section 1.704-1(b)(2)(iv)(m);
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(iii) in lieu of depreciation, amortization and other cost recovery
deductions taken into account in computing Profit and Loss, there shall be taken
into account Depreciation for such Fiscal Year;
(iv) in the event the Book Value of any Partnership Asset is adjusted
pursuant to Section 4.4(c) below, the amount of such adjustment shall be treated
as gain or loss from the disposition of such asset.
(c) Consistent with the provisions of Treasury Regulations Section
1.704-1(b)(2)(iv)(f), (i) immediately prior to the acquisition of an additional
Partnership Interest by any new or existing Partner in connection with the
contribution of money or other property (other than a de minimis amount) to the
Partnership, (ii) immediately prior to the distribution by the Partnership to a
Partner of Partnership property (other than a de minimis amount) as
consideration for a Partnership Interest and (iii) immediately prior to the
liquidation of the Partnership as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(g), the Book Value of all Partnership Assets shall be revalued
upward or downward to reflect the fair market value of each such Partnership
Asset as determined by the General Partner using such reasonable method of
valuation as it may adopt.
(d) The foregoing provisions of this Section 4.4 are intended to comply
with Treasury Regulations Section 1.704-1(b) and shall be interpreted and
applied in a manner consistent with such Treasury Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in which
the Partners' Capital Accounts are computed hereunder in order to comply with
such Treasury Regulations, the General Partner may make such modification if
such modification is not likely to have a material effect on the amount
distributable to any Partner under the terms of this Agreement and the General
Partner notifies the other Partners in writing of such modification prior to
making such modification.
4.5. Return of Capital Account; Interest.
Except as otherwise specifically provided in this Agreement, (i) no Partner
shall have any right to withdraw or reduce its Capital Contributions or Capital
Account, or to demand and receive property other than cash from the Partnership
in return for its Capital Contributions or Capital Account; (ii) no Partner
shall have any priority over any other Partners as to the return of its Capital
Contributions or Capital Account; (iii) any return of Capital Contributions or
Capital Accounts to the Partners shall be solely from the Partnership Assets,
and no Partner shall be personally liable for any such return; and (iv) no
interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners' Capital Accounts.
4.6. Preemptive Rights.
No Person shall have any preemptive or similar rights with respect to the
issuance or sale of additional Partnership Interests.
ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS
5.1. Limited Liability.
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For bookkeeping purposes, the Profits of the Partnership shall be shared,
and the Losses of the Partnership shall be borne, by the Partners as provided in
Section 5.2 below; provided, however, that except as expressly provided in this
Agreement, no Limited Partner (in its capacity as a Limited Partner) shall be
personally liable for losses, costs, expenses, liabilities or obligations of the
Partnership in excess of its Capital Contribution required under Article IV
hereof.
5.2. Profits, Losses and Distributive Shares.
(a) Profits. After giving effect to the special allocations, if any,
provided in Section 5.2(C) and (D), Profits in each Fiscal Year shall be
allocated in the following order:
(i) First, to each Partner in proportion to the cumulative Losses allocated
to such Partner under Section 5.2(b)(2), until the cumulative Profits allocated
to such Partner under this Section 5.2(A)(1) equal the cumulative Losses
allocated to such Partner under Section 5.2(b)(2);
(ii) Second, to each Partner in proportion to the cumulative losses
allocated to such Partner under Section 5.2(b)(1), until the cumulative Profits
allocated to such Partner under this Section 5.2(a)(2) equal the cumulative
Losses allocated to such Partner under Section 5.2(b)(1); and
(iii) Then, the balance, if any, to the Partners in proportion to their
respective Partnership Interests.
(b) Losses. After giving effect to the special allocations, if any,
provided in Section 5.2(c) and (d), Losses in each Fiscal Year shall be
allocated in the following order:
(i) First, to the Partners in proportion to their respective Partnership
Interests, but not in excess of the positive Adjusted Capital Account balance of
any Partner prior to the allocation provided for in this Section 5.2(b)(1);
(ii) Second, to the Partners with positive Adjusted Capital Account
balances prior to the allocation provided for in this Section 5.2(b)(2), in
proportion to the amount of such balances.
(c) Special Allocations. Except as otherwise provided in this Agreement,
the following special allocations will be made in the following order and
priority:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Article V. If there is a net decrease in Partnership Minimum
Gain during any tax year or other period for which allocations are made, each
Partner will be specially allocated items of Partnership income and gain for
that tax year or other period (and, if necessary, subsequent periods) in an
amount equal to such Partner's share of the net decrease in Partnership Minimum
Gain during such tax year or other period determined in accordance with Treasury
Regulations Section 1.704-2(g). Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and
1.704-20)(2). This Section 5.2(c) (1) is intended to comply with the minimum
gain chargeback requirements set forth in Treasury Regulations Section
1.704-2(f) and shall be interpreted consistently therewith, including the
exceptions to the minimum gain chargeback requirement set forth in Treasury
Regulations Section 1.704-2(f)(2) and (3).
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If the General Partner concludes, after consultation with tax counsel, that the
Partnership meets the requirements for a waiver of the minimum gain chargeback
requirement as set forth in Treasury Regulations Section 1.704-2(f)(4), the
General Partner may take steps reasonably necessary or appropriate in order to
obtain such waiver.
(ii) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any
other provision of this Section (other than Section 5.2(c)(1) which shall be
applied before this Section 5.2(c(2)), if there is a net decrease in Partner
Minimum Gain during any tax year or other period for which allocations are made,
each Partner with a share of Partner Minimum Gain determined in accordance with
Treasury Regulations Section 1.704-2(i)(5) shall be specially allocated items of
Partnership income and gain for that period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
Partner Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(i)(4). Allocations pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
thereunder. The items to be so allocated shall be determined in accordance with
Treasury Regulations Sections 1.704-2(i)(4) and 1.70420)(2)(ii). This Section
5.2(c)(2) is intended to comply with the minimum gain chargeback requirements of
Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith, including the exceptions set forth in Treasury Regulations Section
1.704-2(f)(2) and (3) to the extent such exceptions apply to Treasury
Regulations Sections 1.704-2(i)(4). If the General Partner concludes, after
consultation with tax counsel, that the Partnership meets the requirements for a
waiver of the Partner Minimum Gain chargeback requirement set forth in Treasury
Regulations Section 1.704-2(f)(4), but only to the extent such exception applies
to Treasury Regulations Section 1.704-2(i)(4), the General Partner may take
steps necessary or appropriate to obtain such waiver.
(iii) Qualified Income Offset. A Partner who unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be specially allocated items of
Partnership income and gain in an amount and manner sufficient to eliminate, to
the extent required by Treasury Regulations 1.704-1(b)(2)(ii)(d) , the Adjusted
Capital Account Deficit of the Partner as quickly as possible, provided that an
allocation pursuant to this Section 5.2(c)(3) shall be made if and only to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article V have been tentatively made
as if this Section 5.2(c)(3) were not contained in this Agreement.
(iv) Partnership Nonrecourse Deductions. Partnership Nonrecourse Deductions
for any taxable year or other period for which allocations are made will be
allocated among the Partners in proportion to their respective Partnership
Interests in the Partnership.
(v) Partner Nonrecourse Deductions. Notwithstanding anything to the
contrary in this Agreement, any Partner Nonrecourse Deductions for any taxable
year or other period for which allocations are made will be allocated to the
Partner who bears the economic risk of loss with respect to the liability to
which the Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulations Section 1.704-2(i).
(vi) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset under Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital Accounts under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4), the amount of the
adjustment to the Capital Accounts will be treated as an item
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of gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset), and the gain or loss will be
specially allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted under Treasury
Regulations Section 1.704-1(b)(2)(iv)(m).
(vii) Depreciation Recapture. In the event there is any recapture of
Depreciation or investment tax credit, the allocation thereof shall be made
among the Partners in the same proportion as the deduction for such Depreciation
or investment tax credit was allocated.
(viii) Interest in Partnership. Notwithstanding any other provision of this
Agreement, no allocation of Profit or Loss (or item of Profit or Loss) will be
made to a Partner if the allocation would not have "economic effect' under
Treasury Regulations Section 1.704-1(b)(2)(ii) or otherwise would not be in
accordance with the Partner's interest in the Partnership within the meaning of
Treasury Regulations Section 1.704-1(b)(3).
(d) Curative Allocations. The allocations set forth in Section 5.2(c)(1)
through (8) (the "Regulatory Allocations") are intended to comply with certain
requirements of Treasury Regulations Sections 1.704l(b) and 1.704-2. The
Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is authorized to further allocate Profits, Losses, and other items among
the Partners in a reasonable manner so as to prevent the Regulatory Allocations
from distorting the manner in which Partnership distributions would be divided
among the Partners under Section 5.3, but for application of the Regulatory
Allocations. In general, the reallocation will be accomplished by specially
allocating other Profits, Losses and items of income, gain, loss and deduction,
to the extent they exist, among the Partners so that the net amount of the
Regulatory Allocations and the special allocations to each Partner is zero. The
General Partner may accomplish this result in any reasonable manner that is
consistent with Code Section 704 and the related Treasury Regulations.
(e) Tax Allocations.
(i) Except as otherwise provided in Section 5.2(e)(2), each item of income,
gain, loss and deduction shall be allocated for federal income tax purposes in
the same manner as each correlative item of income, gain, loss or deduction, is
allocated for book purposes pursuant to the provisions of Section 5.1 hereof.
(ii) Notwithstanding anything to the contrary in this Article V, in an
attempt to eliminate any Book Tax Disparity with respect to a Contributed
Property, items of income, gain, loss or deduction with respect to each such
property shall be allocated for federal income tax purposes among the Partners
as follows:
(A) Depreciation, Amortization and Other Cost Recovery Items. In the case
of each Contributed Property with a Book-Tax Disparity, any item of
depreciation, amortization or other cost recovery allowance attributable to such
property shall be allocated as follows: (x) first, to Partners (the
'Non-Contributing Partners') other than the Partners who contributed such
property to the Partnership (or are deemed to have contributed the property
pursuant to Section 4. I (A) (the 'Contributing Partners') in an amount up to
the book allocation of such items made to the Non-Contributing Partners pursuant
to Section 5.1 hereof, pro rata in proportion to the respective amount of book
items so allocated to the Non-Contributing Partners pursuant to Section 5.1
hereof, and
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(y) any remaining depreciation, amortization or other cost recovery allowance to
the Contributing Partners in proportion to their Percentage Interests. In no
event shall the total depreciation, amortization or other cost recovery
allowance allocated hereunder exceed the amount of the Partnership's
depreciation, amortization or other cost recovery allowance with respect to such
property.
(B) Gain or Loss on Disposition. In the event the Partnership sells or
otherwise disposes of a Contributed Property with a Book-Tax Disparity, any gain
or loss recognized by the Partnership in connection with such sale or other
disposition shall be allocated among the Partners as follows: (x) first, any
gain or loss shall be allocated to the Contributing Partners in proportion to
their Percentage Interests to the extent required to eliminate any Book-Tax
Disparity with respect to such property; and (y) any remaining gain or loss
shall be allocated among the Partners in the same manner that the correlative
items of book gain or loss are allocated among the Partners pursuant to Section
5.1 hereof.
(iii) In the event the Book Value of a Partnership Asset (including a
Contributed Property) is adjusted pursuant to Section 4.4(C) hereof, and such
asset has not been deemed distributed by, and recontributed to the Partnership
pursuant to Code Section 708 subsequent thereto, all items of income, gain, loss
or deduction in respect of such property shall be allocated for federal income
tax purposes among the Partners in the same manner as provided in Section
5.2(E)(2) hereof to take into account any variation between the fair market
value of the property, as determined by the General Partner using such
reasonable method of valuation as it may adopt, and the Book Value of such
property, both determined as of the date of such adjustment.
(iv) The General Partner shall have the authority to elect alternative
methods to eliminate the Book Tax Disparity with respect to one or more
Contributed Properties, as permitted by Treasury Regulations Sections 1.704-3
and 1.704-3T, and such election shall be binding on all of the Partners.
(v) The Partners hereby intend that the allocation of tax items pursuant to
this Section 5.2(e) comply with the requirements of Code Section 704(c) and
Treasury Regulations Section 1.704-3.
(vi) The allocation of items of income, gain, loss or deduction pursuant to
this Section 5.2(E) are solely for federal, state and local income tax purposes,
and the Capital Account balances of the Partners shall be adjusted solely for
allocations of 'book' items in respect of Partnership Assets pursuant to Section
S. I hereof.
(f) Other Allocation Rules. The following rules will apply to the
calculation and allocation of Profits. Losses and other items:
(i) Except as otherwise provided in the Agreement, all Profits, Losses and
other items allocated to the Partners will be allocated among them in proportion
to their Percentage Interests.
(ii) For purposes of determining the Profits, Losses or any other item
allocable to any period, Profits, Losses and other items will be determined on a
daily, monthly or other basis, as determined by the General Partner using any
permissible method under Code Section 706 and the related Treasury Regulations.
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(iii) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss and deduction, and other allocations not provided
for in this Agreement will be divided among the Partners in the same proportions
as they share Profits and Losses, provided that any credits shall be allocated
in accordance with Treasury Regulations Section 1.704-1(b)(4)(ii).
(iv) For purposes of Treasury Regulations Section 1.752-3(a), the Partners
hereby agree that any nonrecourse liabilities of the Partnership in excess of
the sum of (i) the Partnership Minimum Gain and (ii) the aggregate amount of
taxable gain that would be allocated to the Partners under Section 704(c) (or in
the same manner as Section 704(c) in connection with a revaluation of
Partnership property) if the Partnership disposed of (in a taxable transaction)
all Partnership property subject to one or more nonrecourse liabilities of the
Partnership in full satisfaction of such liabilities and for no other
consideration, shall be allocated among the Partners in accordance with their
respective shares of Profits. The General Partner shall have discretion in any
Fiscal Year to allocate such excess nonrecourse liabilities among the Partners
(a) in a manner reasonably consistent with allocations (that have substantial
economic effect) of some other significant item of Partnership income or gain or
(b) in accordance with the manner in which it is reasonably expected that the
deductions attributable to the excess nonrecourse liabilities will be allocated.
(g) Partner Acknowledgment. The Partners agree to be bound by the
provisions of this Section 5.2 in reporting their shares of Partnership income,
gain, loss, deduction and credit for income tax purposes.
(h) Regulatory Compliance. The foregoing provisions of this Section 5.2
relating to the allocation of Profits, Losses and other items for federal income
tax purposes are intended to comply with Treasury Regulations Sections
1.704-1(b), 1.704-2 and 1.704-3 and shall be interpreted and applied in a manner
consistent with such Treasury Regulations.
5.3. Distributions.
(a) The General Partner shall cause the Partnership to make distributions
from time to time to the Partners pro rata in accordance with their respective
Percentage Interests.
(b) The General Partner shall use its reasonable efforts to make
distributions to the Partners so as to preclude any distribution or portion
thereof from being treated as part of a sale of property to the Partnership by a
Partner under Section 707 of the Code or the Treasury Regulations thereunder;
provided that the General Partner and the Partnership shall not have liability
to a Limited Partner under any circumstances as a result of any distribution to
a Partner being so treated.
5.4. Distributions upon Liquidation.
Notwithstanding any other provision hereof, proceeds of a Terminating
Capital Transaction shall be distributed to the Partners in accordance with
Section 9.2.
5.5. Amounts Withheld.
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All amounts withheld pursuant to the Code or any provision of state or
local tax law and Section 7.6 of this Agreement with respect to any allocation,
payment or distribution to the General Partner or the Limited Partner shall be
treated as amounts distributed to the General Partner or the Limited Partner, as
applicable, pursuant to Section 5.3 of this Agreement.
ARTICLE VI. PARTNERSHIP MANAGEMENT
6.1. Management and Control of Partnership Business.
(a) The General Partner shall have full, exclusive and complete discretion
to manage the business and affairs of the Partnership, to make all decisions
affecting the business and affairs of the Partnership and to take all such
action as it deems necessary or appropriate to accomplish the purposes of the
Partnership as set forth herein. The Limited Partners shall not have any
authority, right, or power to bind the Partnership, or to manage, or to
participate in the management of the business and affairs of the Partnership in
any manner whatsoever. Such management shall in every respect be the full and
complete responsibility of the General Partner alone as herein provided.
(b) In carrying out the purposes of the Partnership, the General Partner
shall be authorized to take all actions it deems necessary and appropriate to
carry on the business of the Partnership. The Limited Partners, by execution
hereof, agree that the General Partner is authorized to execute, deliver and
perform any agreement and/or transaction on behalf of the Partnership.
6.2. No Management by Limited Partner; Limitation of Liability.
(a) No Limited Partner, in its capacity as a limited partner, shall take
part in the day-to-day management, operation or control of the business and
affairs of the Partnership or have any right, power, or authority to act for or
on behalf of or to bind the Partnership or transact any business in the name of
the Partnership. The Limited Partners shall have no rights other than those
specifically provided herein or granted by law where consistent with a valid
provision hereof. Any approvals rendered or withheld by the Limited Partners
pursuant to this Agreement shall be deemed as consultation with or advice to the
General Partner in connection with the business of the Partnership and, in
accordance with the Act, shall not be deemed as participation by the Limited
Partners in the business of the Partnership and are not intended to create any
inference that a Limited Partner should be classified as a general partner under
the Act.
(b) No Limited Partner shall have any liability under this Agreement except
with respect to withholding under Section 7.6, in connection with a violation of
any provision of this Agreement by such Limited Partner or as provided in the
Act.
(c) The General Partner shall not take any action which would subject a
Limited Partner (in its capacity as Limited Partner) to liability as a general
partner.
6.3. Limitations on Partners.
(a) No Partner shall have any authority to perform (i) any act in violation
of any applicable law or regulation thereunder, (ii) any act prohibited by
Section 6.2(C), or (iii) any act which
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is required to be Consented to or ratified pursuant to this Agreement without
such Consent or ratification.
(b) No action shall be taken by a Partner if it would cause the Partnership
to be treated as al association taxable as a corporation for federal income tax
purposes or, without the consent of the General Partner, as a publicly-traded
partnership within the meaning of Section 7704 of the Code. A determination of
whether such action will have the above described effect shall be based upon a
declaratory judgment or similar relief obtained from a court of competent
jurisdiction, a favorable ruling from the IRS or the receipt of an opinion of
counsel.
6.4. Business with Affiliates.
The General Partner, in its discretion, may cause the Partnership to
transact business with any Partner or its Affiliates for goods or services
reasonably required in the conduct of the Partnership's business; provided that
any such transaction shall be effected only on terms competitive with those that
may be obtained in the marketplace from unaffiliated Persons. The foregoing
proviso shall not apply to transactions between the Partnership and any
Subsidiaries of the Partnership. In addition, neither the General Partner nor
any Affiliate of the General Partner may sell, transfer or otherwise convey any
property to, or purchase any property from, the Partnership, except (i) on terms
competitive with those that may be obtained in the marketplace from unaffiliated
Persons, or (ii) where the General Partner determines, in its sole judgment,
that such sale, transfer or conveyance confers benefits on the General Partner
in respect of matters of tax or corporate or financial structure and where the
Partnership obtains or retains at least a majority interest in the Person to
whom such sale, transfer or conveyance is made; provided, in the case of this
clause (ii), such sale, transfer or conveyance is not being effected for the
primary purpose of materially disadvantaging the Limited Partners.
6.5. Reimbursement of Expenses.
The General Partner shall be fully and entirely reimbursed by the
Partnership for any and all direct and indirect costs and expenses incurred in
connection with the organization and continuation of the Partnership pursuant to
this Agreement. In addition, the General Partner shall be reimbursed for all
expenses incurred by the General Partner in connection with any issuance of
additional Partnership Interests.
6.6. Liability for Acts and Omissions.
(a) The General Partner shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or any of the other Partners for any act
or emission performed or omitted in good faith on behalf of the Partnership and
in a manner reasonably believed to be (i) within the scope of the authority
granted by this Agreement and (ii) in the best interests of the partnership. In
exercising its authority hereunder, the General Partner may, but shall not be
under any obligation to, take into account the tax consequences to any Partner
of any action it undertakes on behalf of the Partnership. Neither the General
Partner nor the Partnership shall have any liability as a result of any income
tax liability incurred by a Partner as a result of any action or inaction of the
General Partner hem-under and, by its execution of this Agreement, the Limited
Partner acknowledges the foregoing.
(b) Unless otherwise prohibited hereunder, the General Partner shall be
entitled to exercise any of the powers granted to it and perform any of the
duties required of it under this
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Agreement directly or through any agent. The General Partner shall not be
responsible for any misconduct or negligence on the part of any agent; provided
that the General Partner selected or appointed such agent in good faith.
6.7. Indemnification.
(a) The Partnership shall indemnify the General Partner and each director,
officer and stockholder of the General Partner and each Person (including any
Affiliate) designated as agent by a General Partner in its reasonable discretion
(each, an 'Indemnified Party") to the fullest extent permitted under the Act
(including any procedures set forth therein regarding advancement of expenses to
such Indemnified Party) from and against any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' fees), judgments, fines,
settlements and any other amounts arising out of or in connection with any
claims, demands, actions, suits or proceedings (civil, criminal or
administrative) relating to or resulting (directly or indirectly) from the
operations of the Partnership, in which such Indemnified Party becomes involved,
or reasonably believes it may become involved, as a result of the capacity
referred to above.
(b) The Partnership shall have the authority to purchase and maintain such
insurance policies on behalf of the Indemnified Parties as the General Partner
shall determine, which policies may cover those liabilities the General Partner
reasonably believes may be incurred by an Indemnified Party in connection with
the operation of the business of the Partnership. The right to procure such
insurance on behalf of the Indemnified Parties shall in no way mitigate or
otherwise affect the right of any such Indemnified Party to indemnification
pursuant to Section 6.7(a) hereof.
(c) The provisions of this Section 6.7 are for the benefit of the
Indemnified Parties, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights in or benefit to any other Person.
ARTICLE VII. ADMINISTRATIVE, FINANCIAL AND TAX MATTERS
7.1. Books and Records.
The General Partner shall maintain at the office of the Partnership full
and accurate books of the Partnership showing all receipts and expenditures,
assets and liabilities, profits and losses, names and current addresses of
Partners, and all other records necessary for recording the Partnership's
business and affairs. Each Limited Partner shall have, upon written demand and
at such Limited Partner's expense, the right to receive true and complete
information regarding Partnership matters to the extent required (and subject to
the limitations) under Delaware law.
7.2. Annual Audit and Accounting.
The books and records of the Partnership shall be kept for financial and
tax reporting purposes on the accrual basis of accounting in accordance with
generally accepted accounting principles ("GAAP"). The accounts of the
Partnership shall be audited annually by a nationally recognized accounting firm
of independent public accountants selected by the General Partner (the
'Independent Accountants').
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7.3. Partnership Funds.
The General Partner shall have responsibility for the safekeeping and use
of all funds and assets of the Partnership, whether or not in its direct or
indirect possession or control. All funds of the Partnership not otherwise
invested shall be deposited in one or more accounts maintained in the name of
the Partnership in such banking institutions as the General Partner shall
determine, and withdrawals shall be made only in the regular course of
Partnership business on such signatures as the General Partner may from time to
time, determine.
7.4. Reports and Notices.
The General Partner shall provide all Partners with the following reports
no later than the dates indicated or as soon thereafter as circumstances permit:
(a) By March 31 of each year, IRS Form 1065 and Schedule K-1, or similar
forms as may be required by the IRS, stating each Partner's allocable share of
income, gain, loss, deduction or credit for the prior Fiscal Year.
(b) Within ninety (90) days after the end of each of the first three (3)
fiscal quarters, as of the last day of the fiscal quarter, a report containing
unaudited financial statements of the Partnership, or of the General Partner if
such statements are prepared on a consolidated basis with the General Partner,
and such other information as may be legally required or determined to be
appropriate by the General Partner; and
(c) Within one hundred twenty (120) days after the end of each Fiscal Year,
as of the close of the Fiscal Year, an annual report containing audited
financial statements of the Partnership, or of the General Partner if such
statements are prepared on a consolidated basis with the General Partner,
presented in accordance with GAAP and certified by the Independent Accountants.
7.5. Tax Matters.
(a) The General Partner shall be the Tax Matters Partner of the Partnership
for federal income tax matters pursuant to Code Section 6231(a)(7)(a). The Tax
Matters Partner is authorized and required to represent the Partnership (at the
expense of the Partnership) in connection with all examinations of the affairs
of the Partnership by any federal, state, or local tax authorities, including
any resulting administrative and judicial proceedings, and to expend funds of
the Partnership for professional services and costs associated therewith. The
Tax Matters Partner shall deliver to each Limited Partner within ten (10)
business days of the receipt thereof a copy of any notice or other communication
with respect to the Partnership received from the IRS (or other governmental tax
authority), or any court, ' in each case with respect to any administrative or
judicial proceeding involving the Partnership. The Partners agree to cooperate
with each other in connection with the conduct of all proceedings pursuant to
this Section 7.5(a).
(b) The Tax Matters Partner shall receive no compensation for its services
in such capacity. If the Tax Matters Partner incurs any costs related to any tax
audit, declaration of any tax deficiency or any administrative proceeding or
litigation involving any Partnership tax matter, such amount shall be an expense
of the Partnership and the Tax Matters Partner shall be entitled to full
reimbursement therefor.
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(c) The General Partner shall cause to be prepared all federal, state and
local income tax returns required of the Partnership at the Partnership's
expense.
(d) Except as set forth herein, the General Partner shall determine whether
to make (and, if necessary, revoke) any tax election available to the
Partnership under the Code or any state tax law. The Partnership shall elect to
deduct expenses, if any, incurred by it in organizing the Partnership in
accordance with the provisions of Code Section 709.
7.6. Withholding.
Each Partner hereby authorizes the Partnership to withhold from or pay to
any taxing authority on behalf of such Partner any tax that the General Partner
determines the Partnership is required to withhold or pay with respect to any
amount distributable or allocable to such Partner.
ARTICLE VIII. TRANSFER OF PARTNERSHIP INTERESTS
8.1. Transfers Prohibited.
No Partner may voluntarily withdraw or Transfer all or any portion of its
Partnership Interest. Any such purported withdrawal or Transfer shall be void ab
initio and shall not be given effect. Notwithstanding the foregoing, any Partner
may pledge its Partnership Interest as collateral for or otherwise in connection
with a loan agreement under which the Partnership or an Affiliate of the
Partnership is a borrower.
8.2. Obligations of a Prior General Partner.
Upon an Involuntary Withdrawal of the General Partner and the subsequent
Transfer of the General Partner's Interest, such General Partner shall (i)
remain liable for all obligations and liabilities (other than Partnership
liabilities payable solely from Partnership Assets) incurred by it as General
Partner before the effective date of such event and (h) pay all costs associated
with the admission of its Successor General Partner. However, such General
Partner shall be free of and held harmless by the Partnership against any
obligation or liability incurred on account of the activities of the Partnership
from and after the effective date of such event, except as provided in this
Agreement.
8.3. Successor General Partner.
A successor to all of a General Partner's General Partner Interest who is
proposed to be admitted to the Partnership as a Successor General Partner shall
be admitted as the General Partner, effective upon the Transfer. Any such
transferee shall carry on the business of the Partnership without dissolution.
In addition, the following conditions must be satisfied:
(a) The Person shall have accepted and agreed to be bound by all the terms
and provisions of this Agreement by executing a counterpart thereof and such
other documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner;
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(b) An amendment to this Agreement evidencing the admission of such Person
as a General Partner shall have been executed by all General Partners and an
amendment to the Certificate shall have been filed for recordation as required
by the Act; and
(c) Any consent required under Section 10. I (a) shall have been obtained.
ARTICLE IX. DISSOLUTION AND LIQUIDATION
9.1. Term and Dissolution.
The Partnership shall continue until December 31, 2047 at which time the
Partnership shall dissolve or until dissolution occurs prior to that date for
any one of the following reasons:
(a) An Involuntary Withdrawal or a voluntary withdrawal, even though in
violation of this Agreement, of the General Partner;
(b) Entry of a decree of judicial dissolution of the Partnership under the
Act; or
(c) The sale, exchange or other disposition of all or substantially all of
the Partnership Assets.
If an event of the type described in clause (a) shall occur, the
Partnership shall not dissolve unless, by the ninetieth (90th) day following
such event, the Limited Partner shall not have elected to continue the
Partnership. if the Limited Partner shall, during such time, elect to continue
the Partnership, it may also determine to admit a Successor General Partner.
9.2. Liquidation of Partnership Assets.
(a) Subject to Section 9.2(e), in the event of dissolution pursuant to
Section 9. 1, the Partnership shall continue solely for purposes of winding up
the affairs of, achieving a final termination of, and satisfaction of the
creditors of, the Partnership. The General Partner (or, if there is no General
Partner remaining, any Person elected by a majority in interest of the Limited
Partners (the 'Liquidator')) shall be responsible for oversight of the winding
up and dissolution of the Partnership. The Liquidator shall obtain a full
accounting of the assets and liabilities of the Partnership and such Partnership
Assets shall be liquidated as promptly as the Liquidator is able to do so
without any undue loss in value, with the proceeds therefrom applied and
distributed in the following order:
(i) First, to the discharge of Partnership debts and liabilities to
creditors other than Partners;
(ii) Second, to the discharge of Partnership debts and liabilities to the
Partners;
(iii) The balance, if any, to the Partners in accordance with their
positive Capital Accounts after giving effect to all contributions,
distributions and allocations for all periods.
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(b) In accordance with Section 9.2(a), the Liquidator shall proceed without
any unnecessary delay to sell and otherwise liquidate the Partnership Assets;
provided, however, that if the Liquidator shall determine that an immediate sale
of part or all of the Partnership Assets would cause undue loss to the Partners,
the Liquidator may defer the liquidation except (i) to the extent provided by
the Act or (ii) as may be necessary to satisfy the debts and liabilities of the
Partnership to Persons other than the Partners.
(c) If, in the sole and absolute discretion of the Liquidator, there are
Partnership Assets that the Liquidator will not be able to liquidate, or if the
liquidation of such assets would result in undue loss to the Partners, the
Liquidator may distribute such Partnership Assets to the Partners in-kind, in
lieu of cash, as tenants-in-common in accordance with the provisions of Section
9.2(a). The foregoing notwithstanding, such in-kind distributions shall only be
made if in the Liquidator's good faith judgment that is in the best interest of
the Partners.
(d) Upon the complete liquidation and distribution of the Partnership
Assets, the Partners shall cease to be Partners of the Partnership, and the
Liquidator shall execute, acknowledge and cause to be filed all certificates and
notices required by law to terminate the Partnership. Upon the dissolution of
the Partnership pursuant to Section 9.1, the Liquidator shall cause to be
prepared, and shall furnish to each Partner, a statement setting forth the
assets and liabilities of the Partnership. Promptly following the complete
liquidation and distribution of the Partnership Assets, the Liquidator shall
furnish to each Partner a statement showing the manner in which the Partnership
Assets were liquidated and distributed.
(e) In the event that the Partnership shall dissolve as a result of the
expiration of the term provided for herein or as a result of the occurrence of
an event of the type described in Section 9. 1 (B) or (C), the General Partner
shall have the option of either (i) delivering to the Limited Partner,
Partnership property approximately equal in value to the value of such Limited
Partner's Partnership Interest upon the assumption by such Limited Partner of
such Limited Partner's proportionate share of the Partnership's liabilities and
payment by such Limited Partner (or the Partnership) of any excess (or
deficiency) of the value of the property so delivered over the value of such
Limited Partner's Partnership Interest or (ii) in lieu of requiring such Limited
Partner to assume its proportionate share of Partnership liabilities, delivering
to such Limited Partner unencumbered Partnership property approximately equal in
value to the net value of such Limited Partner's Partnership Interest.
9.3. Effect of Treasury Regulations.
(a) In the event the Partnership is "liquidated" within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article IX to the General Partner and the Limited Partners who
have positive Capital Accounts in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital
Account (after giving effect to all contributions, distributions and
allocations), such Partner shall have no obligation to make any contribution to
the capital of the Partnership.
(b) In the event the Partnership is "liquidated' within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but there has been no
dissolution of the Partnership under Section 9.1 hereof, then the Partnership
Assets shall not be liquidated, the Partnership's liabilities shall not be paid
or discharged and the Partnership's affairs shall not be wound up. In the event
of such a
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liquidation there shall be deemed to have been a distribution of Partnership
Assets in kind to the Partners in accordance with their respective Capital
Accounts followed by a recontribution of the Partnership Assets by the Partners
also in accordance with their respective Capital Accounts.
9.4. Time for Winding-Up.
Anything in this Article IX notwithstanding, a reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of the Partnership Assets in order to minimize
any potential for losses as a result of such process. During the period of
winding-up, this Agreement shall remain in full force and effect and shall
govern the rights and relationships of the Partners inter se.
ARTICLE X. AMENDMENTS AND MEETINGS
10.1. Amendment Procedure.
(a) Amendments to this Agreement may be made only with the Consent of
Partners owning Percentage Interests of no less than eighty eight percent (88%)
of all Percentage Interests. In connection with any proposed amendment of this
Agreement requiring Consent, the General Partner shall either call a meeting to
solicit the vote of the Partners or seek the written vote of the Partners to
such amendment. In the case of a request for a written vote, the General Partner
shall be authorized to impose such reasonable time limitations for response, but
in no event less than ten (10) days, with the failure to respond being deemed a
vote consistent with the vote of the General Partner.
(b) Notwithstanding the foregoing, amendments may be made to this Agreement
by the General Partner, without the Consent of any Limited Partner, to (i) add
to the representations, duties or obligations of the General Partner or
surrender any right or power granted to the General Partner herein; (ii) cure
any ambiguity, correct or supplement any provision herein which may be
inconsistent with any other provision herein or make any other provisions with
respect to matters or questions arising hereunder which will not be inconsistent
with any other provision hereof; (iii) reflect the admission, substitution,
termination or withdrawal of Partners in accordance with this Agreement; or (iv)
satisfy any requirements, conditions or guidelines contained in any order,
directive, opinion, ruling or regulation of a federal or state agency or
contained in federal or state law. The General Partner shall reasonably promptly
notify each Limited Partner whenever it exercises its authority pursuant to this
Section 10. l(b).
10.2. Meetings and Voting.
(a) Meetings of Partners may be called by the General Partner. The General
Partner shall give all Partners Notice of the purpose of such proposed meeting
not less than seven (7) days nor more than thirty (30) days prior to the date of
the meeting. Meetings shall be held at a reasonable time and place selected by
the General Partner. Whenever the vote or Consent of Partners is permitted or
required hereunder, such vote or Consent shall be requested by the General
Partner and may be given by the Partners in the same manner as set forth for a
vote with respect to an amendment to this Agreement in Section 10. I (a).
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(b) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action to be taken is signed by the Partners owning Percentage Interests
required to vote in favor of such action, which consent may be evidenced in one
or more instruments. Consents need not be solicited from any other Partner if
the written consent of a sufficient number of Partners has been obtained to take
the action for which such solicitation was required.
(c) Each Limited Partner may authorize any Person or Persons, including
without limitation the General Partner, to act for him by proxy on all matters
on which a Limited Partner may participate. Every Proxy (i) must be signed by
the Limited Partner or his attorney-in-fact, (ii) shall expire eleven (11)
months from the date thereof unless the proxy provides otherwise and (iii) shall
be revocable at the discretion of the Limited Partner granting such proxy.
ARTICLE XI. MISCELLANEOUS PROVISIONS
11.1. Title to Property.
All property owned by the Partnership, whether real or personal, tangible
or intangible, shall be deemed to be owned by the Partnership as an entity, and
no Partner, individually, shall have any ownership of such property. The
Partnership shall hold its assets in its own name.
11.2. Other Activities of Limited Partners.
Except as expressly provided otherwise in this Agreement or in any other
agreement entered into by a Limited Partner or any Affiliate of a Limited
Partner and the Partnership, the General Partner or any Subsidiary of the
Partnership or the General Partner, any Limited Partner or any Affiliate of any
Limited Partner may engage in, or possess an interest in, other business
ventures of every nature and description, independently or with others,
including, without limitations real estate business ventures, whether or not
such other enterprises shall be in competition with-any activities of the
Partnership, the General Partner or any Subsidiary of the Partnership or the
General Partner; and neither the Partnership, the General Partner, any such
Subsidiary nor the other Partners shall have any right by virtue of this
Agreement in and to such independent ventures or to the income or profits
derived therefrom.
11.3. Power of Attorney.
(a) Each Partner hereby irrevocably appoints and empowers the General
Partner (which term shall include the Liquidator, in the event of a liquidation,
for purposes of this Section 1 1.3) and each of their authorized officers and
attorneys-in-fact with full power of substitution as his true and lawful agent
and attorney-in-fact, with full power and authority in his name, place and stead
to make, execute, acknowledge, publish and file in the appropriate public
offices (a) any duly approved amendments to the Certificate pursuant to the Act
and to the laws of any state in which such documents are required to be filed;
(b) any certificates, instruments or documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction in which the
Partnership is doing or intends to do business; (c) any other instrument which
may be required to be filed by the Partnership under the laws of any state or by
any governmental agency, or which the General Partner deems advisable to file;
(d) any documents which may be required to effect the continuation of the
Partnership, the admission, withdrawal or substitution of any Partner pursuant
to Article VIII,
25
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dissolution and termination of the Partnership pursuant to Article IX, or the
surrender of any rights or the assumption of any additional responsibilities by
the General Partner; and (e) any document which may be required to effect an
amendment to this Agreement to correct -any mistake, omission or inconsistency,
or to cure any ambiguity herein, to the extent such amendment is permitted by
Section 10.1(B).
(b) Nothing herein contained shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article X or as may be
otherwise expressly provided for in this Agreement.
(c) The foregoing grant of authority (i) is a special power of attorney,
coupled with an interest, and it shall survive the Involuntary Withdrawal of any
Partner and shall extend to such Partner's heirs, successors, assigns and
personal representatives; (ii) may be exercised by the General Partner for each
and every Partner acting as attorney-in-fact for each and every Partner; and
(iii) shall survive the Involuntary Withdrawal by a Limited Partner. Each
Partner hereby agrees to be bound by any representations made by the General
Partner, acting in good faith pursuant to such power of attorney. Each Partner
shall execute and deliver to the General Partner, within fifteen (15) days after
receipt of the General Partner's request therefor, such further designations,
powers of attorney and other instruments as the General Partner deems necessary
to effectuate this Agreement and the purposes of the Partnership.
11.4. Notices.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand delivery, registered first-class mail, telex,
telecopier, or any courier guaranteeing overnight delivery, (i) if to a Limited
Partner, to the address set forth on Schedule I hereto, or (ii) if to the
General Partner, One Logan Square, Suite 1105, Philadelphia, PA 19103, Attn:
President.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if hand delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; or when receipt is acknowledged, if telecopied.
11.5. Further Assurances.
The parties agree to execute and deliver all such documents, provide all
such information and take or refrain from taking any action as may be necessary
or desirable to achieve the purposes of this Agreement and the Partnership.
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11.6. Titles and Captions.
All article or section titles or captions in this Agreement are solely for
convenience and shall not be deemed to be part of this Agreement or otherwise
define, limit or extend the scope or intent of any provision hereof.
11.7. Applicable Law.
This Agreement, and the application or interpretation thereof, shall be
governed exclusively by its terms and by the law of the State of Delaware,
without regard to its principles of conflicts of laws.
11.8. Binding Agreement.
This Agreement shall be binding upon the parties hereto, their heirs,
executors, personal representatives, successors and assigns.
11.9. Waiver of Partition.
Each of the parties hereto irrevocably waives during the term of the
Partnership any right that it may have to maintain any action for partition with
respect to any property of the Partnership.
11.10. Counterparts and Effectiveness.
This Agreement may be executed in several counterparts, which shall be
treated as originals for all purposes, and all so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that all the
parties are not signatory to the original or the same counterpart. Any such
counterpart shall be admissible into evidence as an original hereof against each
Person who executed it. The execution of this Agreement and delivery thereof by
facsimile shall be sufficient for all purposes, and shall be binding upon any
party who so executes.
11.11. Survival of Representations.
All representations and warranties herein shall survive the dissolution and
final liquidation of the Partnership.
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11.12. Entire Agreement.
This Agreement (and all Exhibits hereto) contains the entire understanding
among the parties hereto and supersedes all prior written or oral agreements
among them respecting the within subject matter, unless otherwise provided
herein. There are no representations, agreements, arrangements or
understandings, oral or written, among the Partners hereto relating to the
subject matter of this Agreement which are not fully expressed herein and in
said Exhibits.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the day and year first above written.
General Partner FCO HOLDINGS, INC.
By: ________________________________
Limited Partners: FCO, L.P.
By: ROYALE INVESTMENTS, INC.
its General Partner
By: ________________________________
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SCHEDULE I
SCHEDULE OF PARTNERS
===============================================================================
NAME INTEREST IN THE CAPITAL PERCENTAGE
PARTNERSHIP CONTRIBUTION INTEREST
FCO Holdings, Inc. General Partner 00.10 Percent
FC, L.P. Limited Partner 99.90 Percent
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TABLE OF CONTENTS
1. INTERPRETIVE PROVISIONS...................................................1
1.1. CERTAIN DEFINITIONS.....................................................1
1.2. RULES OF CONSTRUCTION...................................................7
2. FORMATION.................................................................8
2.1. FORMATION...............................................................8
2.2. NAME....................................................................8
2.3. PLACE OF BUSINESS; REGISTERED AGENT.....................................8
3. BUSINESS PURPOSE..........................................................8
3.1. BUSINESS................................................................8
3.2. AUTHORIZED ACTIVITIES...................................................8
4. CAPITAL CONTRIBUTIONS.....................................................9
4.1. CAPITAL CONTRIBUTIONS...................................................9
4.2. ADDITIONAL PARTNERSHIP INTERESTS........................................9
4.3. NO THIRD PARTY BENEFICIARIES............................................9
4.4. CAPITAL ACCOUNTS.......................................................10
4.5. RETURN OF CAPITAL ACCOUNT; INTEREST....................................11
4.6. PREEMPTIVE RIGHTS......................................................11
5. ALLOCATIONS AND DISTRIBUTIONS............................................12
5.1. LIMITED LIABILITY......................................................11
5.2. PROFITS, LOSSES AND DISTRIBUTIVE SHARES................................12
5.3. DISTRIBUTIONS..........................................................16
5.4. DISTRIBUTIONS UPON LIQUIDATION.........................................16
5.5. AMOUNTS WITHHELD.......................................................16
6. PARTNERSHIP MANAGEMENT...................................................17
6.1. MANAGEMENT AND CONTROL OF PARTNERSHIP BUSINESS.........................17
6.2. NO MANAGEMENT BY LIMITED PARTNER; LIMITATION OF LIABILITY..............17
6.3. LIMITATIONS ON PARTNERS................................................17
6.4. BUSINESS WITH AFFILIATES...............................................18
6.5. REIMBURSEMENT OF EXPENSES..............................................18
6.6. LIABILITY FOR ACTS AND OMISSIONS.......................................18
6.7. INDEMNIFICATION........................................................19
7. ADMINISTRATIVE, FINANCIAL AND TAX MATTERS..................................
7.1. BOOKS AND RECORDS......................................................19
7.2. ANNUAL AUDIT AND ACCOUNTING............................................19
7.3. PARTNERSHIP FUNDS......................................................20
7.4. REPORTS AND NOTICES....................................................20
7.5. TAX MATTERS............................................................20
7.6. WITHHOLDING............................................................21
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8. TRANSFER OF PARTNERSHIP INTERESTS........................................21
8.1. TRANSFERS PROHIBITED...................................................21
8.2. OBLIGATIONS OF A PRIOR GENERAL PARTNER.................................21
8.3. SUCCESSOR GENERAL PARTNER..............................................21
9. DISSOLUTION AND LIQUIDATION..............................................22
9.1. TERM AND DISSOLUTION...................................................22
9.2. LIQUIDATION OF PARTNERSHIP ASSETS......................................22
9.3. EFFECT OF TREASURY REGULATIONS.........................................23
9.4. TIME FOR WINDING-UP....................................................24
10. AMENDMENTS AND MEETINGS.................................................25
10.1. AMENDMENT PROCEDURE...................................................24
10.2. MEETINGS AND VOTING...................................................24
11. MISCELLANEOUS PROVISIONS................................................26
11.1. TITLE TO PROPERTY.....................................................25
11.2. OTHER ACTIVITIES OF LIMITED PARTNERS..................................25
11.3. POWER OF ATTORNEY.....................................................25
11.4. NOTICES...............................................................26
11.5. FURTHER ASSURANCES....................................................26
11.6. TITLES AND CAPTIONS...................................................27
11.7. APPLICABLE LAW........................................................27
11.8. BINDING AGREEMENT.....................................................27
11.9. WAIVER OF PARTITION...................................................27
11.10. COUNTERPARTS AND EFFECTIVENESS.......................................27
11.11. SURVIVAL OF REPRESENTATIONS..........................................27
11.12. ENTIRE AGREEMENT.....................................................28
2
COMCOURT INVESTORS L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (the "Agreement")
is made this ____ day of October, 1997, by and among FCO Holdings, Inc., a
Delaware corporation and a wholly-owned subsidiary of Royale Investments, Inc.,
as General Partner (the "General Partner"), and the persons set forth on the
signature page hereof as Limited Partners (the "Limited Partners"). The General
Partner and the Limited Partners are collectively referred to herein as the
"Partners."
RECITALS:
A. Cmcourt investors, L.P. (the "Partnership") was originally formed
pursuant to the terms of an Agreement of Limited Partnership dated October 8,
1996 ( the "Original Agreement").
B. The Original Agreement has previously been amended to reflect, inter
alia, a refinancing of the Partnership's indebtedness, the admission to the
Partnership of FCO Holdings, Inc. as a General Partner, the conversion of
certain General Partner interests in the Partnership into Limited Partner
interests in the Partnership and the transfer to FCO, L.P. of certain Limited
Partner interests in the Partnership.
C. The General Partner and the Limited Partners desire to amend and restate
the Original Agreement in its entirety as set forth herein.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, intending to be legally bound hereby, agree that the
Original Agreement shall be amended and restated in its entirety to provide as
follows:
1. ARTICLE I. INTERPRETIVE PROVISIONS
1.1. Certain Definitions.
The following terms have the definitions hereinafter indicated whenever
used in this Agreement with initial capital letters:
Act: The Delaware Revised Uniform Limited Partnership Act, ss.ss. 17-101 to
17-1109 of the Delaware COde Annotated, Title 6, as amended from time to time.
Additional Limited Partner: A Person admitted to the Partnership as a
Limited Partner in accordance with Section 4.2 hereof and who is shown as such
on the books and records of the Partnership.
Adjusted Capital Account: With respect to any Partner, such Partner's
Capital Account maintained in accordance with Section 4.4 hereof, as of the end
of the relevant Fiscal Year of the Partnership, after giving effect to the
following adjustments:
(a) Credit to such Capital Account such Partner's share of Partnership
Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(g)(1) and such Partner's share of Partner Minimum Gain determined in
accordance with Treasury Regulations Section 1.704-2(i)(5).
(b) Debit to such Capital Account the items described in Treasury
Regulations Section 1.7041(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account" is intended to
comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2)(ii)
and 1.704-2 and shall be interpreted consistently therewith.
Adjusted Capital Account Deficit: With respect to any Partner, the deficit
balance, if any, in that Partner's Adjusted Capital Account as of the end of the
relevant Fiscal Year of the Partnership.
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Affiliate: With respect to any referenced Person, (i) a member of such
Person's immediate family; (ii) any Person who directly or indirectly owns,
controls or holds the power to vote ten percent (10%) or more of the outstanding
voting securities of the Person in question; (iii) any Person ten percent (10%)
or more of whose outstanding securities are directly or indirectly owned,
controlled, or held with power to vote by the Person in question; (iv) any
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with the Person in question; (v) if the Person in
question is a corporation, any executive officer or director of such Person or
of any corporation directly or indirectly controlling such Person; and (vi) if
the Person in question is a partnership, any general partner of the partnership
or any limited partner owning or controlling ten percent (10%) or more of either
the capital or profits interest in such partnership. As used herein, 'control'
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise.
Agreed Value: In the case of any (i) Contributed Property, the allocated
value of such property at the time of contribution (exclusive of any related
indebtedness assumed by the Partnership), as determined by the General Partner
using such method of valuation as it may adopt in its reasonable discretion and
(ii) property distributed to a Partner by the Partnership, the Partnership's
Book Value of such property at the time such property is distributed, reduced by
any indebtedness either assumed by such Partner upon such distribution or to
which such property is subject at the time of distribution as determined under
Code Section 752 and the Treasury Regulations thereunder.
Agreement: This Amended and Restated Limited Partnership Agreement and the
Schedule attached hereto, as the same may be amended or restated and in effect
from time to time.
Bankruptcy: Any of (i) a referenced Person's making an assignment for the
benefit of creditors, (ii) the filing by a referenced Person of a voluntary
petition in bankruptcy, (iii) a referenced Person's being adjudged insolvent or
having entered against him an order for relief in any bankruptcy or insolvency
proceeding, (iv) the filing by a referenced Person of an answer seeking any
reorganization, composition, readjustment, liquidation, dissolution or similar
relief under any law or regulation, (v) the filing by a referenced Person of an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against him in any proceeding of reorganization,
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composition, readjustment, liquidation, dissolution, or for similar relief under
any statute, law or regulation or (vi) a referenced Person's seeking, consenting
to or acquiescing in the appointment of a trustee, receiver or liquidator for
all or substantially all of his property (or court appointment of such trustee,
receiver or liquidator).
Bankruptcy Code: 11 U. S. C. Sections 101 - 1330, as amended from time to
time.
Book Tax Disparity: With respect to any item of Contributed Property, or
property the Book Value of which has been adjusted in accordance with Section
4.4(c), as of the date of determination, the difference between the Book Value
of such property and the adjusted basis of such property for federal income tax
purposes.
Book Value: With respect to any Contributed Property, the Agreed Value of
such property reduced (but not below zero) by all Depreciation with respect to
such property properly charged to the Partners' Capital Accounts and with
respect to any other asset, the asset's adjusted basis for federal income tax
purposes; provided, however, (a) the Book Value of all Partnership Assets shall
be adjusted in the event of a revaluation of Partnership Assets in accordance
with Section 4.4(c) hereof, (b) the Book Value of any Partnership Asset
distributed to any Partner shall be the fair market value of such asset on the
date of distribution as determined by the General Partner and (c) such Book
Value shall be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
Capital Account: The account maintained by the Partnership for each Partner
described in Section 4.4 hereof.
Capital Contribution: The total amount of cash or cash equivalents and the
Agreed Value of Contributed Property which a Partner contributes or is deemed to
contribute to the Partnership pursuant to the terms of this Agreement.
Certificate: The Partnership's Certificate of Limited Partnership filed in
the office of the Secretary of State of the State of Delaware, as amended from
time to time.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Company: Royale Investments, Inc., a Minnesota corporation.
Consent: Either the written consent of a Person or the affirmative vote of
such Person at a meeting duly called and held pursuant to this Agreement, as the
case may be, to do the act or thing for which the consent is required or
solicited, or the act of granting such consent, as the context may require.
Contributed Property: Each property or other asset (excluding cash and cash
equivalents) contributed or deemed contributed to the Partnership.
Depreciation: For each Fiscal Year or other period, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Book Value
of an asset differs from its adjusted basis for federal income tax
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purposes at the beginning of such year or other period, Depreciation shall be
adjusted as necessary so as to be an amount which bears the same ratio to such
beginning Book Value as the federal income tax depreciation, amortization or
other cost recovery deduction for such year or other period bears to the
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
other period is zero, Depreciation for such year or other period shall be
determined with reference to such beginning Book Value using any reasonable
method approved by the General Partner.
Fiscal Year: The calendar year or such other twelve (12) month period
designated by the General Partner.
General Partner: FCO Holdings, Inc., a Delaware corporation, and its
respective successor(s) who or which become Successor General Partner(s) in
accordance with the terms of this Agreement.
General Partner Interest: A Partnership Interest held by the General
Partner that is a general partner interest.
Involuntary Withdrawal: As to any (i) individual shall mean such
individual's death, incapacity or adjudication of incompetence, (ii) corporation
shall mean its dissolution or revocation of its charter (unless such revocation
is promptly corrected upon notice thereof), (iii) partnership shall mean the
dissolution and commencement of winding up of its affairs, (iv) trust shall mean
the termination of the trust (but not the substitution of trustees), (v) estate
shall mean the distribution by the fiduciary of the estate's complete interest
in the Partnership any (vi) any Partner shall mean the Bankruptcy of such
Partner.
IRS: The Internal Revenue Service, which administers the internal revenue
laws of the United States.
Limited Partner: Each of the Persons set forth on the signature page hereof
as a Limited Partner and any Person who becomes an Additional Limited Partner in
accordance with the terms of this Agreement.
Limited Partner Interest: A Partnership Interest held by a Limited Partner
that is a limited partner interest.
Nonrecourse Liability: A liability as defined in Treasury Regulations
Section 1.704-2(b)(3).
Notice: A writing containing the information required by this Agreement to
be communicated and delivered to such Person in accordance with Section 11.4;
provided, however, that any written communication containing such information
actually received by such Person shall constitute Notice for all purposes of
this Agreement.
Partner Minimum Gain: The gain (regardless of character) which would be
realized by the Partnership if property of the Partnership subject to a partner
nonrecourse debt (as such term is defined in Treasury Regulations Section
1.704-2(b)(4)) were disposed of in full satisfaction of such debt on the
relevant date. The adjusted basis of property subject to more than one partner
nonrecourse debt shall
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be allocated in a manner consistent with the allocation of basis for purposes of
determining Partnership Minimum Gain hereunder. Partner Minimum Gain shall be
computed hereunder using the Book Value, rather than the adjusted tax basis, of
the Partnership accordance with Treasury Regulations Section 1.704-2(d)(3).
Partner Nonrecourse Deductions: With respect to any partner nonrecourse
debt (as such term is defined in Treasury Regulation Section 1.704-2(b)(4)), the
increase in Partner Minimum Gain during the tax year plus any increase in
Partner Minimum Gain for a prior tax year which has not previously generated a
Partner Nonrecourse Deduction hereunder. The determination of which Partnership
items constitute Partner Nonrecourse Deductions shall be made in a manner
consistent with the manner in which Partnership Nonrecourse Deductions are
hereunder.
Partners: The General Partner and the Limited Partners as a group. The term
"Partner" means a General Partner or a Limited Partner. Such terms shall be
deemed to include such other Persons who may become Partners pursuant to the
terms of this Agreement.
Partnership: The Delaware limited partnership referred to herein as such
partnership may from time to time be constituted.
Partnership Assets: At any particular time, any assets or property
(tangible or intangible choate or inchoate, fixed or contingent) owned by the
Partnership.
Partnership Interest or Interest: As to any Partner, such Partner's
ownership interest in the and including such Partner's right to distributions
under this Agreement and any other rights or benefits such Partner has in the
Partnership, together with any and all obligations of such Partner to comply
with the provisions of this Agreement.
Partnership Minimum Gain: The aggregate gain (regardless of character)
which would be realized by the Partnership if all of the property of the
Partnership subject to nonrecourse debt (other than partner nonrecourse debt as
such term is defined in Treasury Regulations Section 1.704-2(b)(4)) were
disposed of in full satisfaction of such debt and for no other consideration on
the relevant date. In the case of any Nonrecourse Liability of the Partnership
which is not secured by a mortgage with respect to any specific property of the
Partnership, any and all property of the Partnership to which the holder of said
liability has recourse shall be treated as subject to such Nonrecourse Liability
for purposes of the preceding sentence. Partnership Minimum Gain shall be
computed separately for each Nonrecourse Liability of the partnership. For this
purpose, the adjusted basis of property subject to two or more liabilities of
equal priority shall be allocated among such liabilities in proportion to the
outstanding balance of such liabilities, and the adjusted basis of property
subject to two or more liabilities of unequal priority shall be allocated to the
liability of inferior priority only to the extent of the excess, if any, of the
adjusted basis of such property over the outstanding balance of the liability of
superior priority. Partnership Minimum Gain shall be computed hereunder using
the Book Value, rather than the adjusted tax basis, of the Partnership property
in accordance with Treasury Regulation Section 1.704-2(d)(3).
Partnership Nonrecourse Deductions: The amount of Partnership deductions
equal to the increase, if any, in the amount of the aggregate Partnership
Minimum Gain during the tax year (plus any increase in Partnership Minimum Gain
for a prior tax year which has not previously generated a
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Partnership Nonrecourse Deduction) reduced (but not below zero) by the aggregate
distributions made during the tax year of the proceeds of a Nonrecourse
Liability of the Partnership which are attributable to an increase in
Partnership Minimum Gain within the meaning of Treasury Regulations Section
1.704-2(d). The Partnership Nonrecourse Deductions for a Partnership tax year
shall consist first of depreciation or cost recovery deductions with respect to
each property of the Partnership giving rise to such increase in Partnership
Minimum Gain on a pro rata basis to the extent of each such increase, with any
excess made up pro rata of all items of deduction.
Percentage Interest: As to any Partner, the percentage in the Partnership
as initially shown opposite the name of such Partner on Schedule I attached
hereto, as such percentage interest may be adjusted from time to time in
accordance with the provisions of this Agreement.
Person: Any individual, partnership, corporation, trust or other entity.
Profits and Losses: For each Fiscal Year or other period, an amount equal
to the Partnership's taxable income or loss (as the case may be) for such year
or period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
a. Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
b. Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)vi , and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition, shall be subtracted from such taxable income or loss;
c. Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of notwithstanding that the adjusted tax basis of such property
differs from such Book Value;
d. In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or
other period, computed in accordance with the definition of 'Depreciation'
herein; and
e. In the event that any item of income, gain, loss or deduction that
has been included in the initial computation of Profit or Loss is subject
to the special allocation rules of Sections 5.2(c) and 5.2(d), Profit or
Loss shall be recomputed without regard to such item.
REIT: A real estate investment trust, as defined in Code Section 856.
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Subsidiary: With respect to any Person, any corporation or other entity of
which a majority of (i) the voting power of the voting equity securities or (ii)
the outstanding equity interests, is owned, directly or indirectly, by such
Person.
Successor General Partner: Any Person who is admitted to the Partnership as
substitute General Partner pursuant to this Agreement. A Successor General
Partner, upon its admission as such, shall succeed to the rights, privileges and
liabilities of its predecessor in interest as General Partner, in accordance
with the provisions of the Act.
Tax Matters Partner. The General Partner or such other Partner who becomes
Tax Matters Partner pursuant to the terms of this Agreement.
Terminating Capital Transaction: The sale or other disposition of all or
substantially all of the Partnership Assets or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the Partnership Assets.
Transfer. A transaction in which a Partner assigns all or a portion of its
Partnership Interest to another Person and includes any sale, assignment, gift,
pledge, mortgage, exchange, hypothecation, encumbrance or other disposition by
law or otherwise.
Treasury Regulations: The Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
1.2. Rules of Construction.
The following rules of construction shall apply to this Agreement:
(a) All section headings in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section.
(b) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders, the
singular shall include the plural, and vice versa, as the context may require.
(c) Each provision of this Agreement shall be considered severable from the
rest, and if any provision of this Agreement or its application to any Person or
circumstances shall be held invalid and contrary to any existing or future law
or unenforceable to any extent, the remainder of this Agreement and the
application of any other provision to any Person or circumstances shall not be
affected thereby and shall be interpreted and enforced to the greatest extent
permitted by law so as to give effect to the original intent of the parties
hereto.
(d) Unless otherwise specifically and expressly limited in the context, any
reference herein to a decision, determination, act, action, exercise of a right,
power or privilege, or other procedure by the General Partner shall mean and
refer to the decision, determination, act, action, exercise or other procedure
by the General Partner in its sole and absolute discretion.
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2. ARTICLE II. FORMATION
2.1. Formation.
The Partners hereby continue the Partnership as a limited partnership under
the Act and in accordance with the terms and conditions of this Agreement. The
General Partner shall take all action required by law to perfect and maintain
the Partnership as a limited partnership under the Act and under the laws of all
other jurisdictions in which the Partnership may elect to conduct business,
including but not limited to the filing of amendments to the Certificate with
the Delaware Secretary of State, and qualification of the Partnership as a
foreign limited partnership in the jurisdictions in which such qualification
shall be required, as determined by the General Partner. The General Partner
shall also promptly register the Partnership under applicable assumed or
fictitious name statutes or similar laws.
2.2. Name.
The name of the Partnership is Comcourt Investors, L.P. The General Partner
may adopt such assumed or fictitious names as it deems appropriate in connection
with the qualifications and registrations referred to in Section 2.1.
2.3. Place of Business; Registered Agent.
The principal office of the Partnership shall be located at such place as
the General Partner may from time to time designate. The Partnership may
establish offices for the Partnership within or without the State of Delaware as
may be determined by the General Partner. The initial registered agent for the
Partnership in the State of Delaware is The Corporation Trust Company, whose
address is c/o Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801.
ARTICLE III. BUSINESS PURPOSE
3.1. Business.
The business of the Partnership shall be (i) conducting any business that
may be lawfully conducted by a limited partnership pursuant to the Act
including, without limitation, acquiring, owning, managing, developing, leasing,
marketing, operating and, if and when appropriate, selling,real property, (ii)
entering into any partnership, joint venture or other relationship to engage in
any of the foregoing or the ownership of interests in any entity engaged in any
of the foregoing, (iii) making loans, guarantees, indemnities or other financial
accommodations and borrowing money and pledging its assets to secure the
repayment thereof, (iv) to do any of the foregoing with respect to any Affiliate
or Subsidiary and (v) doing anything necessary or incidental to the foregoing;
provided, however, that business of the Partnership shall be limited so as to
permit the Company to elect and maintain its status as a REIT (unless the
Company determines no longer to qualify as a REIT).
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3.2. Authorized Activities.
In carrying out the purposes of the Partnership, but subject to all other
provisions of this Agreement, the Partnership is authorized to engage in any
kind of lawful activity, and perform and carry out contracts of any kind,
necessary or advisable in connection with the accomplishment of the purposes and
business of the Partnership described herein and for the protection and benefit
of the Partnership; provided that the General Partner shall not be obligated to
cause the Partnership to take, or refraining from taking, any action which, in
the judgment of the General Partner, (i) could adversely affect the ability of
the Company to qualify and continue to qualify as a REIT under the Code, (ii)
could subject the Company to additional taxes under Code Section 857 or 4981 or
(iii) could violate any law or regulation of any governmental body or agency
having jurisdiction over the General Partner or the Company or their securities.
ARTICLE IV. CAPITAL CONTRIBUTIONS
4.1. Capital Contributions.
The Partners, or their predecessors in interest, have contributed cash and
property in the aggregate amounts set forth on Schedule 1. No Partner shall be
required to contribute additional funds or other property to the Partnership.
Any additional funds or other property required by the Partnership, as
determined by the General Partner, may, at the option of the General Partner and
without an obligation so to do, be contributed by the General Partner as
additional Capital Contributions. If the General Partner determines to make any
such Capital Contribution, it shall give notice of such determination to the
Limited Partners and permit each Limited Partner to contribute a portion of such
Capital Contribution equal to the product of such Limited Partner's Percentage
Interest and the total amount of such Capital Contribution. The General Partner
shall also have the right (but not the obligation) to raise additional funds
required for the Partnership by lending the money to the Partnership or by
causing the Partnership to borrow the money needed from third parties, in either
case on such terms and conditions as the General Partner shall deem appropriate.
4.2. Additional Partnership Interests.
The Partnership may issue additional limited partnership interests for any
Partnership purpose at any time or from time to time, to any Partner or other
Person. Any such other Person shall be admitted as an Additional Limited Partner
of the Partnership only upon execution, adoption and acknowledgment of this
Agreement by such Partner or Person, or a counterpart hereto, and such other
documents as may be reasonably requested by the General Partner, including
without limitation, the power of attorney required under Section 11.3. Upon
satisfaction of the foregoing requirements, such Person shall be admitted as an
Additional Limited Partner effective on the date upon which the name of such
Person is recorded on the books of the Partnership.
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4.3. No Third Party Beneficiaries.
The foregoing provisions of this Article IV are not intended to be for the
benefit of any creditor of the Partnership or other Person to whom any debts,
liabilities or obligations are owed by (or who otherwise has any claim against)
the Partnership or any of the Partners and no such creditor or other Person
shall obtain any right under any such foregoing provision against the
Partnership or any of the Partners by reason of any debt, liability or
obligation (or otherwise).
4.4. Capital Accounts.
(a) The Partnership shall establish and maintain a separate Capital Account
for each Partner in accordance with Code Section 704 and Treasury Regulations
Section 1.704-1 (b)(2)(iv). The Capital Account of each Partner shall be
credited with:
(i) the amount of all Capital Contributions made to the Partnership by such
Partner in accordance with this Agreement; plus
(ii) all income and gain of the Partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V (including
for purposes of this Section 4.4(a), income and gain exempt from tax);
and shall be debited with the sum of:
(i) all losses or deductions of the partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V,
(ii) such Partner's distributive share of expenditures of the Partnership
described in Code Section 705(a)(2)(B), and
(iii) all cash and the Agreed Value of any property actually distributed or
deemed distributed by the Partnership to such Partner pursuant to the terms of
this Agreement.
Any reference in any section or subsection of this Agreement to the Capital
Account of a Partner shall be deemed to refer to such Capital Account as the
same may be credited or debited from time to time as set forth above.
(b) For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of each such item shall be the
same as its determination, recognition and classification for federal income tax
purposes, determined in accordance with Code Section 703(a), with the following
adjustments:
(i) any income, gain or loss attributable to the taxable disposition of any
Partnership Asset shall be determined by treating the adjusted basis of such
property as of the date of such disposition as equal to the Book Value of such
property as of such date;
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(ii) the computation of all items of income, gain, loss and deduction shall
be made without regard to any Code Section 754 election that may be made by the
Partnership, except to the extent required in accordance with the provisions of
Treasury Regulations Section 1.704-1(b)(2)(iv)(m);
(iii) in lieu of depreciation, amortization and other cost recovery
deductions taken into account in computing Profit and Loss, there shall be taken
into account Depreciation for such Fiscal Year;
(iv) in the event the Book Value of any Partnership Asset is adjusted
pursuant to Section 4.4(c) below, the amount of such adjustment shall be treated
as gain or loss from the disposition of such asset.
(c) Consistent with the provisions of Treasury Regulations Section
1.704-1(b)(2)(iv)(f), (i) immediately prior to the acquisition of an additional
Partnership Interest by any new or existing Partner in connection with the
contribution of money or other property (other than a de minimis amount) to the
Partnership, (ii) immediately prior to the distribution by the Partnership to a
Partner of Partnership property (other than a de minimis amount) as
consideration for a Partnership Interest and (iii) immediately prior to the
liquidation of the Partnership as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(g), the Book Value of all Partnership Assets shall be revalued
upward or downward to reflect the fair market value of each such Partnership
Asset as determined by the General Partner using such reasonable method of
valuation as it may adopt.
(d) The foregoing provisions of this Section 4.4 are intended to comply
with Treasury Regulations Section 1.704-1(b) and shall be interpreted and
applied in a manner consistent with such Treasury Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in which
the Partners' Capital Accounts are computed hereunder in order to comply with
such Treasury Regulations, the General Partner may make such modification if
such modification is not likely to have a material effect on the amount
distributable to any Partner under the terms of this Agreement and the General
Partner notifies the other Partners in writing of such modification prior to
making such modification.
4.5. Return of Capital Account; Interest.
Except as otherwise specifically provided in this Agreement, (i) no Partner
shall have any right to withdraw or reduce its Capital Contributions or Capital
Account, or to demand and receive property other than cash from the Partnership
in return for its Capital Contributions or Capital Account; (ii) no Partner
shall have any priority over any other Partners as to the return of its Capital
Contributions or Capital Account; (iii) any return of Capital Contributions or
Capital Accounts to the Partners shall be solely from the Partnership Assets,
and no Partner shall be personally liable for any such return; and (iv) no
interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners' Capital Accounts.
4.6. Preemptive Rights.
No Person shall have any preemptive or similar rights with respect to the
issuance or sale of additional Partnership Interests.
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ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS
5.1. Limited Liability.
For bookkeeping purposes, the Profits of the Partnership shall be shared,
and the Losses of the Partnership shall be borne, by the Partners as provided in
Section 5.2 below; provided, however, that except as expressly provided in this
Agreement, no Limited Partner (in its capacity as a Limited Partner) shall be
personally liable for losses, costs, expenses, liabilities or obligations of the
Partnership in excess of its Capital Contribution required under Article IV
hereof.
5.2. Profits, Losses and Distributive Shares.
(a) Profits. After giving effect to the special allocations, if any,
provided in Section 5.2(c) and (d), Profits in each Fiscal Year shall be
allocated in the following order:
(i) First, to each Partner in proportion to the cumulative Losses allocated
to such Partner under Section 5.2(b)(ii), until the cumulative Profits allocated
to such Partner under this Section 5.2(a)(i) equal the cumulative Losses
allocated to such Partner under Section 5.2(b)(ii);
(ii) Second, to each Partner in proportion to the cumulative losses
allocated to such Partner under Section 5.2(b)(i), until the cumulative Profits
allocated to such Partner under this Section 5.2(a)(ii) equal the cumulative
Losses allocated to such Partner under Section 5.2(b)(i); and
(iii) Then, the balance, if any, to the Partners in proportion to their
respective Percentage Interests.
(b) Losses. After giving effect to the special allocations, if any,
provided in Section 5.2(c) and (d), Losses in each Fiscal Year shall be
allocated in the following order:
(i) First, to the Partners in proportion to their respective Percentage
Interests, but not in excess of the positive Adjusted Capital Account balance of
any Partner prior to the allocation provided for in this Section 5.2(b)(i);
(ii) Second, to the Partners with positive Adjusted Capital Account
balances prior to the allocation provided for in this Section 5.2(b)(ii), in
proportion to the amount of such balances.
(c) Special Allocations. Except as otherwise provided in this Agreement,
the following special allocations will be made in the following order and
priority:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Article V. If there is a net decrease in Partnership Minimum
Gain during any tax year or other period for which allocations are made, each
Partner will be specially allocated items of Partnership income and gain for
that tax year or other period (and, if necessary, subsequent periods) in an
amount equal to such Partner's share of the net decrease in Partnership Minimum
Gain during such tax year or other period determined in accordance with Treasury
Regulations Section 1.704-2(g). Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts
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required to be allocated to each Partner pursuant thereto. The items to be so
allocated shall be determined in accordance with Treasury Regulations Sections
1.704-2(f)(6) and 1.704-(j)(2). This Section 5.2(c) (i) is intended to comply
with the minimum gain chargeback requirements set forth in Treasury Regulations
Section 1.704-2(f) and shall be interpreted consistently therewith, including
the exceptions to the minimum gain chargeback requirement set forth in Treasury
Regulations Section 1.704-2(f)(2) and (3). If the General Partner concludes,
after consultation with tax counsel, that the Partnership meets the requirements
for a waiver of the minimum gain chargeback requirement as set forth in Treasury
Regulations Section 1.704-2(f)(4), the General Partner may take steps reasonably
necessary or appropriate in order to obtain such waiver.
(ii) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any
other provision of this Section (other than Section 5.2(c)(i) which shall be
applied before this Section 5.2(c)(ii)), if there is a net decrease in Partner
Minimum Gain during any tax year or other period for which allocations are made,
each Partner with a share of Partner Minimum Gain determined in accordance with
Treasury Regulations Section 1.704-2(i)(5) shall be specially allocated items of
Partnership income and gain for that period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
Partner Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(i)(4). Allocations pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
thereunder. The items to be so allocated shall be determined in accordance with
Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii). This Section
5.2(c)(ii) is intended to comply with the minimum gain chargeback requirements
of Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith, including the exceptions set forth in Treasury
Regulations Section 1.704-2(f)(2) and (3) to the extent such exceptions apply to
Treasury Regulations Sections 1.704-2(i)(4). If the General Partner concludes,
after consultation with tax counsel, that the Partnership meets the requirements
for a waiver of the Partner Minimum Gain chargeback requirement set forth in
Treasury Regulations Section 1.704-2(f)(4), but only to the extent such
exception applies to Treasury Regulations Section 1.704-2(i)(4), the General
Partner may take steps necessary or appropriate to obtain such waiver.
(iii) Qualified Income Offset. A Partner who unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be specially allocated items of
Partnership income and gain in an amount and manner sufficient to eliminate, to
the extent required by Treasury Regulations 1.704-1(b)(2)(ii)(d) , the Adjusted
Capital Account Deficit of the Partner as quickly as possible, provided that an
allocation pursuant to this Section 5.2(c)(3) shall be made if and only to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article V have been tentatively made
as if this Section 5.2(c)(3) were not contained in this Agreement.
(iv) Partnership Nonrecourse Deductions. Partnership Nonrecourse Deductions
for any taxable year or other period for which allocations are made will be
allocated among the Partners in proportion to their respective Percentage
Interests in the Partnership.
(v) Partner Nonrecourse Deductions. Notwithstanding anything to the
contrary in this Agreement, any Partner Nonrecourse Deductions for any taxable
year or other period for which allocations are made will be allocated to the
Partner who bears the economic risk of loss with respect to the liability to
which the Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulations Section 1.704-2(i).
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(vi) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership Asset under Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital Accounts under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4), the amount of the
adjustment to the Capital Accounts will be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset), and the gain or loss will be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted under Treasury Regulations Section
1.704-1(b)(2)(iv)(m).
(vii) Depreciation Recapture. In the event there is any recapture of
Depreciation or investment tax credit, the allocation thereof shall be made
among the Partners in the same proportion as the deduction for such Depreciation
or investment tax credit was allocated.
(viii) Interest in Partnership. Notwithstanding any other provision of this
Agreement, no allocation of Profit or Loss (or item of Profit or Loss) will be
made to a Partner if the allocation would not have "economic effect' under
Treasury Regulations Section 1.704-1(b)(2)(ii) or otherwise would not be in
accordance with the Partner's interest in the Partnership within the meaning of
Treasury Regulations Section 1.704-1(b)(3).
(d) Curative Allocations. The allocations set forth in Section 5.2(c)(i)
through (viii) (the "Regulatory Allocations") are intended to comply with
certain requirements of Treasury Regulations Sections 1.704-l(b) and 1.704-2.
The Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is authorized to further allocate Profits, Losses, and other items among
the Partners in a reasonable manner so as to prevent the Regulatory Allocations
from distorting the manner in which Partnership distributions would be divided
among the Partners under Section 5.3, but for application of the Regulatory
Allocations. In general, the reallocation will be accomplished by specially
allocating other Profits, Losses and items of income, gain, loss and deduction,
to the extent they exist, among the Partners so that the net amount of the
Regulatory Allocations and the special allocations to each Partner is zero. The
General Partner may accomplish this result in any reasonable manner that is
consistent with Code Section 704 and the related Treasury Regulations.
(e) Tax Allocations.
(i) Except as otherwise provided in Section 5.2(e)(ii), each item of
income, gain, loss and deduction shall be allocated for federal income tax
purposes in the same manner as each correlative item of income, gain, loss or
deduction, is allocated for book purposes pursuant to the provisions of Section
5.1 hereof.
(ii) Notwithstanding anything to the contrary in this Article V, in an
attempt to eliminate any Book Tax Disparity with respect to a Contributed
Property, items of income, gain, loss or deduction with respect to each such
property shall be allocated for federal income tax purposes among the Partners
as follows:
(A) Depreciation, Amortization and Other Cost Recovery Items. In the case
of each Contributed Property with a Book-Tax Disparity, any item of
depreciation, amortization or other cost recovery allowance attributable to such
property shall be allocated as
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follows: (x) first, to Partners (the 'Non-Contributing Partners') other than the
Partners who contributed such property to the Partnership in an amount up to the
book allocation of such items made to the Non-Contributing Partners pursuant to
Section 5.2 hereof, pro rata in proportion to the respective amount of book
items so allocated to the Non-Contributing Partners pursuant to Section 5.2
hereof, and (y) any remaining depreciation, amortization or other cost recovery
allowance to the Contributing Partners in proportion to their Percentage
Interests. In no event shall the total depreciation, amortization or other cost
recovery allowance allocated hereunder exceed the amount of the Partnership's
depreciation, amortization or other cost recovery allowance with respect to such
property.
(B) Gain or Loss on Disposition. In the event the Partnership sells or
otherwise disposes of a Contributed Property with a Book-Tax Disparity, any gain
or loss recognized by the Partnership in connection with such sale or other
disposition shall be allocated among the Partners as follows: (x) first, any
gain or loss shall be allocated to the Contributing Partners in proportion to
their Percentage Interests to the extent required to eliminate any Book-Tax
Disparity with respect to such property; and (y) any remaining gain or loss
shall be allocated among the Partners in the same manner that the correlative
items of book gain or loss are allocated among the Partners pursuant to Section
5.2 hereof.
(iii) In the event the Book Value of a Partnership Asset (including a
Contributed Property) is adjusted pursuant to Section 4.4(c) hereof, and such
asset has not been deemed distributed by, and recontributed to the Partnership
pursuant to Code Section 708 subsequent thereto, all items of income, gain, loss
or deduction in respect of such property shall be allocated for federal income
tax purposes among the Partners in the same manner as provided in Section
5.2(e)(ii) hereof to take into account any variation between the fair market
value of the property, as determined by the General Partner using such
reasonable method of valuation as it may adopt, and the Book Value of such
property, both determined as of the date of such adjustment.
(iv) The General Partner shall have the authority to elect alternative
methods to eliminate the Book Tax Disparity with respect to one or more
Contributed Properties, as permitted by Treasury Regulations Sections 1.704-3
and 1.704-3T, and such election shall be binding on all of the Partners.
(v) The Partners hereby intend that the allocation of tax items pursuant to
this Section 5.2(e) comply with the requirements of Code Section 704(c) and
Treasury Regulations Section 1.704-3.
(vi) The allocation of items of income, gain, loss or deduction pursuant to
this Section 5.2(e) are solely for federal, state and local income tax purposes,
and the Capital Account balances of the Partners shall be adjusted solely for
allocations of 'book' items in respect of Partnership Assets pursuant to
Sections 5.2(a) through (d).
(f) Other Allocation Rules. The following rules will apply to the
calculation and allocation of Profits, Losses and other items:
(i) Except as otherwise provided in this Agreement, all Profits, Losses and
other items allocated to the Partners will be allocated among them in proportion
to their Percentage Interests.
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(ii) For purposes of determining the Profits, Losses or any other item
allocable to any period, Profits, Losses and other items will be determined on a
daily, monthly or other basis, as determined by the General Partner using any
permissible method under Code Section 706 and the related Treasury Regulations.
(iii) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss and deduction, and other allocations not provided
for in this Agreement will be divided among the Partners in the same proportions
as they share Profits and Losses, provided that any credits shall be allocated
in accordance with Treasury Regulations Section 1.704-1(b)(4)(ii).
(iv) For purposes of Treasury Regulations Section 1.752-3(a), the Partners
hereby agree that any Nonrecourse Liabilities of the Partnership in excess of
the sum of (i) the Partnership Minimum Gain and (ii) the aggregate amount of
taxable gain that would be allocated to the Partners under Section 704(c) (or in
the same manner as Section 704(c) in connection with a revaluation of
Partnership property) if the Partnership disposed of (in a taxable transaction)
all Partnership property subject to one or more Nonrecourse Liabilities of the
Partnership in full satisfaction of such liabilities and for no other
consideration, shall be allocated among the Partners in accordance with their
respective shares of Profits. The General Partner shall have discretion in any
Fiscal Year to allocate such excess Nonrecourse Liabilities among the Partners
(a) in a manner reasonably consistent with allocations (that have substantial
economic effect) of some other significant item of Partnership income or gain or
(b) in accordance with the manner in which it is reasonably expected that the
deductions attributable to the excess nonrecourse liabilities will be allocated.
(g) Partner Acknowledgment. The Partners agree to be bound by the
provisions of this Section 5.2 in reporting their shares of Partnership income,
gain, loss, deduction and credit for income tax purposes.
(h) Regulatory Compliance. The foregoing provisions of this Section 5.2
relating to the allocation of Profits, Losses and other items for federal income
tax purposes are intended to comply with Treasury Regulations Sections
1.704-1(b), 1.704-2 and 1.704-3 and shall be interpreted and applied in a manner
consistent with such Treasury Regulations.
5.3. Distributions.
(a) The General Partner shall cause the Partnership to make distributions
from time to time to the Partners pro rata in accordance with their respective
Percentage Interests.
(b) The General Partner shall use its reasonable efforts to make
distributions to the Partners so as to preclude any distribution or portion
thereof from being treated as part of a sale of property to the Partnership by a
Partner under Section 707 of the Code or the Treasury Regulations thereunder;
provided that the General Partner and the Partnership shall not have liability
to a Limited Partner under any circumstances as a result of any distribution to
a Partner being so treated.
5.4. Distributions upon Liquidation.
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Notwithstanding any other provision hereof, proceeds of a Terminating
Capital Transaction shall be distributed to the Partners in accordance with
Section 9.2.
5.5. Amounts Withheld.
All amounts withheld pursuant to the Code or any provision of state or
local tax law and Section 7.6 of this Agreement with respect to any allocation,
payment or distribution to a General Partner or a Limited Partner shall be
treated as amounts distributed to a General Partner or aLimited Partner, as
applicable, pursuant to Section 5.3 of this Agreement.
ARTICLE VI. PARTNERSHIP MANAGEMENT
6.1. Management and Control of Partnership Business.
(a) The General Partner shall have full, exclusive and complete discretion
to manage the business and affairs of the Partnership, to make all decisions
affecting the business and affairs of the Partnership and to take all such
action as it deems necessary or appropriate to accomplish the purposes of the
Partnership as set forth herein. The Limited Partners shall not have any
authority, right, or power to bind the Partnership, or to manage, or to
participate in the management of the business and affairs of the Partnership in
any manner whatsoever. Such management shall in every respect be the full and
complete responsibility of the General Partner alone as herein provided.
(b) In carrying out the purposes of the Partnership, the General Partner
shall be authorized to take all actions it deems necessary and appropriate to
carry on the business of the Partnership. The Limited Partners, by execution
hereof, agree that the General Partner is authorized to execute, deliver and
perform any agreement and/or transaction on behalf of the Partnership.
6.2. No Management by Limited Partner; Limitation of Liability.
(a) No Limited Partner, in its capacity as a limited partner, shall take
part in the day-to-day management, operation or control of the business and
affairs of the Partnership or have any right, power, or authority to act for or
on behalf of or to bind the Partnership or transact any business in the name of
the Partnership. The Limited Partners shall have no rights other than those
specifically provided herein or granted by law where consistent with a valid
provision hereof. Any approvals rendered or withheld by the Limited Partners
pursuant to this Agreement shall be deemed as consultation with or advice to the
General Partner in connection with the business of the Partnership and, in
accordance with the Act, shall not be deemed as participation by the Limited
Partners in the business of the Partnership and are not intended to create any
inference that a Limited Partner should be classified as a general partner under
the Act.
(b) No Limited Partner shall have any liability under this Agreement except
with respect to withholding under Section 7.6, in connection with a violation of
any provision of this Agreement by such Limited Partner or as provided in the
Act.
(c) The General Partner shall not take any action which would subject a
Limited Partner (in its capacity as Limited Partner) to liability as a general
partner.
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6.3. Limitations on Partners.
(a) No Partner shall have any authority to perform (i) any act in violation
of any applicable law or regulation thereunder, (ii) any act prohibited by
Section 6.2(c), or (iii) any act which is required to be Consented to or
ratified pursuant to this Agreement without such Consent or ratification.
(b) No action shall be taken by a Partner if it would cause the Partnership
to be treated as an association taxable as a corporation for federal income tax
purposes or, without the consent of the General Partner, as a publicly-traded
partnership within the meaning of Section 7704 of the Code. A determination of
whether such action will have the above described effect shall be based upon a
declaratory judgment or similar relief obtained from a court of competent
jurisdiction, a favorable ruling from the IRS or the receipt of an opinion of
counsel.
6.4. Business with Affiliates.
The General Partner, in its discretion, may cause the Partnership to
transact business with any Partner or its Affiliates for goods or services
reasonably required in the conduct of the Partnership's business; provided that
any such transaction shall be effected only on terms competitive with those that
may be obtained in the marketplace from unaffiliated Persons. The foregoing
proviso shall not apply to transactions between the Partnership and any
Subsidiaries of the Partnership. In addition, neither the General Partner nor
any Affiliate of the General Partner may sell, transfer or otherwise convey any
property to, or purchase any property from, the Partnership, except (i) on terms
competitive with those that may be obtained in the marketplace from unaffiliated
Persons, or (ii) where the General Partner determines, in its sole judgment,
that such sale, transfer or conveyance confers benefits on the General Partner
in respect of matters of tax or corporate or financial structure and where the
Partnership obtains or retains at least a majority interest in the Person to
whom such sale, transfer or conveyance is made; provided, in the case of this
clause (ii), such sale, transfer or conveyance is not being effected for the
primary purpose of materially disadvantaging the Limited Partners.
6.5. Reimbursement of Expenses.
The General Partner shall be fully and entirely reimbursed by the
Partnership for any and all direct and indirect costs and expenses incurred in
connection with the organization and continuation of the Partnership pursuant to
this Agreement. In addition, the General Partner shall be reimbursed for all
expenses incurred by the General Partner in connection with any issuance of
additional Partnership Interests.
6.6. Liability for Acts and Omissions.
(a) The General Partner shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or any of the other Partners for any act
or emission performed or omitted in good faith on behalf of the Partnership and
in a manner reasonably believed to be (i) within the scope of the authority
granted by this Agreement and (ii) in the best interests of the Partnership. In
exercising its authority hereunder, the General Partner may, but shall not be
under any obligation to, take into account the tax consequences to any Partner
of any action it undertakes on behalf of the Partnership. Neither the General
Partner nor the Partnership shall have any
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liability as a result of any income tax liability incurred by a Partner as a
result of any action or inaction of the General Partner hereunder and, by its
execution of this Agreement, the Limited Partner acknowledges the foregoing.
(b) Unless otherwise prohibited hereunder, the General Partner shall be
entitled to exercise any of the powers granted to it and perform any of the
duties required of it under this Agreement directly or through any agent. The
General Partner shall not be responsible for any misconduct or negligence on the
part of any agent; provided that the General Partner selected or appointed such
agent in good faith.
6.7. Indemnification.
(a) The Partnership shall indemnify the General Partner and each director,
officer and stockholder of the General Partner and each Person (including any
Affiliate) designated as agent by a General Partner in its reasonable discretion
(each, an "Indemnified Party") to the fullest extent permitted under the Act
(including any procedures set forth therein regarding advancement of expenses to
such Indemnified Party) from and against any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' fees), judgments, fines,
settlements and any other amounts arising out of or in connection with any
claims, demands, actions, suits or proceedings (civil, criminal or
administrative) relating to or resulting (directly or indirectly) from the
operations of the Partnership, in which such Indemnified Party becomes involved,
or reasonably believes it may become involved, as a result of the capacity
referred to above.
(b) The Partnership shall have the authority to purchase and maintain such
insurance policies on behalf of the Indemnified Parties as the General Partner
shall determine, which policies may cover those liabilities the General Partner
reasonably believes may be incurred by an Indemnified Party in connection with
the operation of the business of the Partnership. The right to procure such
insurance on behalf of the Indemnified Parties shall in no way mitigate or
otherwise affect the right of any such Indemnified Party to indemnification
pursuant to Section 6.7(a) hereof.
(c) The provisions of this Section 6.7 are for the benefit of the
Indemnified Parties, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights in or benefit to any other Person.
ARTICLE VII. ADMINISTRATIVE, FINANCIAL AND TAX MATTERS
7.1. Books and Records.
The General Partner shall maintain at the office of the Partnership full
and accurate books of the Partnership showing all receipts and expenditures,
assets and liabilities, profits and losses, names and current addresses of
Partners, and all other records necessary for recording the Partnership's
business and affairs. Each Limited Partner shall have, upon written demand and
at such Limited Partner's expense, the right to receive true and complete
information regarding Partnership matters to the extent required (and subject to
the limitations) under Delaware law.
7.2. Annual Audit and Accounting.
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The books and records of the Partnership shall be kept for financial and
tax reporting purposes on the accrual basis of accounting in accordance with
generally accepted accounting principles ("GAAP"). The accounts of the
Partnership shall be audited annually by a nationally recognized accounting firm
of independent public accountants selected by the General Partner (the
"Independent Accountants").
7.3. Partnership Funds.
The General Partner shall have responsibility for the safekeeping and use
of all funds and assets of the Partnership, whether or not in its direct or
indirect possession or control. All funds of the Partnership not otherwise
invested shall be deposited in one or more accounts maintained in the name of
the Partnership in such banking institutions as the General Partner shall
determine, and withdrawals shall be made only in the regular course of
Partnership business on such signatures as the General Partner may from time to
time, determine.
7.4. Reports and Notices.
(a) The General Partner shall provide all Partners with IRS Form 1065 and
Schedule K-1, or similar forms as may be required by the IRS, stating each
Partner's allocable share of income, gain, loss, deduction or credit for the
prior Fiscal Year by March 31 of each year or as soon thereafter as
circumstances permit.
7.5. Tax Matters.
(a) The General Partner shall be the Tax Matters Partner of the Partnership
for federal income tax matters pursuant to Code Section 6231(a)(7)(A). The Tax
Matters Partner is authorized and required to represent the Partnership (at the
expense of the Partnership) in connection with all examinations of the affairs
of the Partnership by any federal, state, or local tax authorities, including
any resulting administrative and judicial proceedings, and to expend funds of
the Partnership for professional services and costs associated therewith. The
Tax Matters Partner shall deliver to each Limited Partner within ten (10)
business days of the receipt thereof a copy of any notice or other communication
with respect to the Partnership received from the IRS (or other governmental tax
authority), or any court, in each case with respect to any administrative or
judicial proceeding involving the Partnership. The Partners agree to cooperate
with each other in connection with the conduct of all proceedings pursuant to
this Section 7.5(a).
(b) The Tax Matters Partner shall receive no compensation for its services
in such capacity. If the Tax Matters Partner incurs any costs related to any tax
audit, declaration of any tax deficiency or any administrative proceeding or
litigation involving any Partnership tax matter, such amount shall be an expense
of the Partnership and the Tax Matters Partner shall be entitled to full
reimbursement therefor.
(c) The General Partner shall cause to be prepared all federal, state and
local income tax returns required of the Partnership at the Partnership's
expense.
(d) Except as set forth herein, the General Partner shall determine whether
to make (and, if necessary, revoke) any tax election available to the
Partnership under the Code or any state tax
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law. The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership in accordance with the provisions of Code Section
709.
7.6. Withholding.
Each Partner hereby authorizes the Partnership to withhold from or pay to
any taxing authority on behalf of such Partner any tax that the General Partner
determines the Partnership is required to withhold or pay with respect to any
amount distributable or allocable to such Partner.
ARTICLE VIII. TRANSFER OF PARTNERSHIP INTERESTS
8.1. Transfers Prohibited.
No Partner may voluntarily withdraw or Transfer all or any portion of its
Partnership Interest without the prior written consent of the General Partner,
provided that a Limited Partner may transfer all or any portion of its Limited
partnership Interest to another Partner or to the Company without such consent.
Notwithstanding the foregoing, any Partner may pledge its Partnership Interest
as collateral for or otherwise in connection with a loan agreement under which
the Partnership or an Affiliate of the Partnership is a borrower.
8.2. Obligations of a Prior General Partner.
Upon an Involuntary Withdrawal of the General Partner and the subsequent
Transfer of the General Partner's Interest, such General Partner shall (i)
remain liable for all obligations and liabilities (other than Partnership
liabilities payable solely from Partnership Assets) incurred by it as General
Partner before the effective date of such event and (ii) pay all costs
associated with the admission of its Successor General Partner. However, such
General Partner shall be free of and held harmless by the Partnership against
any obligation or liability incurred on account of the activities of the
Partnership from and after the effective date of such event, except as provided
in this Agreement.
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8.3. Successor General Partner.
A successor to all of a General Partner's General Partner Interest who is
proposed to be admitted to the Partnership as a Successor General Partner shall
be admitted as the General Partner, effective upon the Transfer. Any such
transferee shall carry on the business of the Partnership without dissolution.
In addition, the following conditions must be satisfied:
(a) The Person shall have accepted and agreed to be bound by all the terms
and provisions of this Agreement by executing a counterpart thereof and such
other documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner;
(b) An amendment to this Agreement evidencing the admission of such Person
as a General Partner shall have been executed by all General Partners and an
amendment to the Certificate shall have been filed for recordation as required
by the Act; and
(c) Any consent required under Section 10.1(a) shall have been obtained.
ARTICLE IX. DISSOLUTION AND LIQUIDATION
9.1. Term and Dissolution.
The Partnership shall continue until December 31, 2047 at which time the
Partnership shall dissolve or until dissolution occurs prior to that date for
any one of the following reasons:
(a) An Involuntary Withdrawal or a voluntary withdrawal, even though in
violation of this Agreement, of the General Partner;
(b) Entry of a decree of judicial dissolution of the Partnership under the
Act; or
(c) The sale, exchange or other disposition of all or substantially all of
the Partnership Assets.
If an event of the type described in clause (a) shall occur, the
Partnership shall not dissolve unless, by the ninetieth (90th) day following
such event, the Limited Partner shall not have elected to continue the
Partnership. If the Limited Partner shall, during such time, elect to continue
the Partnership, it may also determine to admit a Successor General Partner.
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9.2. Liquidation of Partnership Assets.
(a) Subject to Section 9.2(e), in the event of dissolution pursuant to
Section 9.1, the Partnership shall continue solely for purposes of winding up
the affairs of, achieving a final termination of, and satisfaction of the
creditors of, the Partnership. The General Partner (or, if there is no General
Partner remaining, any Person elected by a majority in interest of the Limited
Partners (the "Liquidator")) shall be responsible for oversight of the winding
up and dissolution of the Partnership. The Liquidator shall obtain a full
accounting of the assets and liabilities of the Partnership and such Partnership
Assets shall be liquidated as promptly as the Liquidator is able to do so
without any undue loss in value, with the proceeds therefrom applied and
distributed in the following order:
(i) First, to the discharge of Partnership debts and liabilities to
creditors other than Partners;
(ii) Second, to the discharge of Partnership debts and liabilities to the
Partners;
(iii) The balance, if any, to the Partners in accordance with their
positive Capital Accounts after giving effect to all contributions,
distributions and allocations for all periods.
(b) In accordance with Section 9.2(a), the Liquidator shall proceed without
any unnecessary delay to sell and otherwise liquidate the Partnership Assets;
provided, however, that if the Liquidator shall determine that an immediate sale
of part or all of the Partnership Assets would cause undue loss to the Partners,
the Liquidator may defer the liquidation except (i) to the extent provided by
the Act or (ii) as may be necessary to satisfy the debts and liabilities of the
Partnership to Persons other than the Partners.
(c) If, in the sole and absolute discretion of the Liquidator, there are
Partnership Assets that the Liquidator will not be able to liquidate, or if the
liquidation of such assets would result in undue loss to the Partners, the
Liquidator may distribute such Partnership Assets to the Partners in-kind, in
lieu of cash, as tenants-in-common in accordance with the provisions of Section
9.2(a). The foregoing notwithstanding, such in-kind distributions shall only be
made if in the Liquidator's good faith judgment that is in the best interest of
the Partners.
(d) Upon the complete liquidation and distribution of the Partnership
Assets, the Partners shall cease to be Partners of the Partnership, and the
Liquidator shall execute, acknowledge and cause to be filed all certificates and
notices required by law to terminate the Partnership. Upon the dissolution of
the Partnership pursuant to Section 9.1, the Liquidator shall cause to be
prepared, and shall furnish to each Partner, a statement setting forth the
assets and liabilities of the Partnership. Promptly following the complete
liquidation and distribution of the Partnership Assets, the Liquidator shall
furnish to each Partner a statement showing the manner in which the Partnership
Assets were liquidated and distributed.
(e) In the event that the Partnership shall dissolve as a result of the
expiration of the term provided for herein or as a result of the occurrence of
an event of the type described in Section 9.1 (b) or (c), the General Partner
shall have the option of either (i) delivering to the Limited Partner,
Partnership property approximately equal in value to the value of such Limited
Partner's Partnership Interest upon the assumption by such Limited Partner of
such Limited Partner's
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proportionate share of the Partnership's liabilities and payment by such Limited
Partner (or the Partnership) of any excess (or deficiency) of the value of the
property so delivered over the value of such Limited Partner's Partnership
Interest or (ii) in lieu of requiring such Limited Partner to assume its
proportionate share of Partnership liabilities, delivering to such Limited
Partner unencumbered Partnership property approximately equal in value to the
net value of such Limited Partner's Partnership Interest.
9.3. Effect of Treasury Regulations.
(a) In the event the Partnership is "liquidated" within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article IX to the General Partner and the Limited Partners who
have positive Capital Accounts in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital
Account (after giving effect to all contributions, distributions and
allocations), such Partner shall have no obligation to make any contribution to
the capital of the Partnership.
(b) In the event the Partnership is "liquidated' within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but there has been no
dissolution of the Partnership under Section 9.1 hereof, then the Partnership
Assets shall not be liquidated, the Partnership's liabilities shall not be paid
or discharged and the Partnership's affairs shall not be wound up. In the event
of such a liquidation there shall be deemed to have been a distribution of
Partnership Assets in kind to the Partners in accordance with their respective
Capital Accounts followed by a recontribution of the Partnership Assets by the
Partners also in accordance with their respective Capital Accounts.
9.4. Time for Winding-Up.
Anything in this Article IX notwithstanding, a reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of the Partnership Assets in order to minimize
any potential for losses as a result of such process. During the period of
winding-up, this Agreement shall remain in full force and effect and shall
govern the rights and relationships of the Partners inter se.
ARTICLE X. AMENDMENTS AND MEETINGS
10.1. Amendment Procedure.
(a) Amendments to this Agreement may be made only with the Consent of
Partners owning Percentage Interests of no less than eighty eight percent (88%)
of all Percentage Interests. In connection with any proposed amendment of this
Agreement requiring Consent, the General Partner shall either call a meeting to
solicit the vote of the Partners or seek the written vote of the Partners to
such amendment. In the case of a request for a written vote, the General Partner
shall be authorized to impose such reasonable time limitations for response, but
in no event less than ten (10) days, with the failure to respond being deemed a
vote consistent with the vote of the General Partner.
(b) Notwithstanding the foregoing, amendments may be made to this Agreement
by the General Partner, without the Consent of any Limited Partner, to (i) add
to the representations,
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duties or obligations of the General Partner or surrender any right or power
granted to the General Partner herein; (ii) cure any ambiguity, correct or
supplement any provision herein which may be inconsistent with any other
provision herein or make any other provisions with respect to matters or
questions arising hereunder which will not be inconsistent with any other
provision hereof; (iii) reflect the admission, substitution, termination or
withdrawal of Partners in accordance with this Agreement; or (iv) satisfy any
requirements, conditions or guidelines contained in any order, directive,
opinion, ruling or regulation of a federal or state agency or contained in
federal or state law. The General Partner shall reasonably promptly notify each
Limited Partner whenever it exercises its authority pursuant to this Section 10.
l(b).
10.2. Meetings and Voting.
(a) Meetings of Partners may be called by the General Partner. The General
Partner shall give all Partners Notice of the purpose of such proposed meeting
not less than seven (7) days nor more than thirty (30) days prior to the date of
the meeting. Meetings shall be held at a reasonable time and place selected by
the General Partner. Whenever the vote or Consent of Partners is permitted or
required hereunder, such vote or Consent shall be requested by the General
Partner and may be given by the Partners in the same manner as set forth for a
vote with respect to an amendment to this Agreement in Section 10.1(a).
(b) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action to be taken is signed by the Partners owning Percentage Interests
required to vote in favor of such action, which consent may be evidenced in one
or more instruments. Consents need not be solicited from any other Partner if
the written consent of a sufficient number of Partners has been obtained to take
the action for which such solicitation was required.
(c) Each Limited Partner may authorize any Person or Persons, including
without limitation the General Partner, to act for him by proxy on all matters
on which a Limited Partner may participate. Every Proxy (i) must be signed by
the Limited Partner or his attorney-in-fact, (ii) shall expire eleven (11)
months from the date thereof unless the proxy provides otherwise and (iii) shall
be revocable at the discretion of the Limited Partner granting such proxy.
ARTICLE XI. MISCELLANEOUS PROVISIONS
11.1. Title to Property.
All property owned by the Partnership, whether real or personal, tangible
or intangible, shall be deemed to be owned by the Partnership as an entity, and
no Partner, individually, shall have any ownership of such property. The
Partnership shall hold its assets in its own name.
11.2. Other Activities of Limited Partners.
Except as expressly provided otherwise in this Agreement or in any other
agreement entered into by a Limited Partner or any Affiliate of a Limited
Partner and the Partnership, the General Partner or any Subsidiary of the
Partnership or the General Partner, any Limited Partner or any Affiliate of any
Limited Partner may engage in, or possess an interest in, other business
ventures of every nature and description, independently or with others,
including, without limitations real estate business ventures,
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whether or not such other enterprises shall be in competition with-any
activities of the Partnership, the General Partner or any Subsidiary of the
Partnership or the General Partner; and neither the Partnership, the General
Partner, any such Subsidiary nor the other Partners shall have any right by
virtue of this Agreement in and to such independent ventures or to the income or
profits derived therefrom.
11.3. Power of Attorney.
(a) Each Partner hereby irrevocably appoints and empowers the General
Partner (which term shall include the Liquidator, in the event of a liquidation,
for purposes of this Section 11.3) and each of their authorized officers and
attorneys-in-fact with full power of substitution as his true and lawful agent
and attorney-in-fact, with full power and authority in his name, place and stead
to make, execute, acknowledge, publish and file in the appropriate public
offices (a) any duly approved amendments to the Certificate pursuant to the Act
and to the laws of any state in which such documents are required to be filed;
(b) any certificates, instruments or documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction in which the
Partnership is doing or intends to do business; (c) any other instrument which
may be required to be filed by the Partnership under the laws of any state or by
any governmental agency, or which the General Partner deems advisable to file;
(d) any documents which may be required to effect the continuation of the
Partnership, the admission, withdrawal or substitution of any Partner pursuant
to Article VIII, dissolution and termination of the Partnership pursuant to
Article IX, or the surrender of any rights or the assumption of any additional
responsibilities by the General Partner; and (e) any document which may be
required to effect an amendment to this Agreement to correct any mistake,
omission or inconsistency, or to cure any ambiguity herein, to the extent such
amendment is permitted by Section 10.1(b).
(b) Nothing herein contained shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article X or as may be
otherwise expressly provided for in this Agreement.
(c) The foregoing grant of authority (i) is a special power of attorney,
coupled with an interest, and it shall survive the Involuntary Withdrawal of any
Partner and shall extend to such Partner's heirs, successors, assigns and
personal representatives; (ii) may be exercised by the General Partner for each
and every Partner acting as attorney-in-fact for each and every Partner; and
(iii) shall survive the Involuntary Withdrawal by a Limited Partner. Each
Partner hereby agrees to be bound by any representations made by the General
Partner, acting in good faith pursuant to such power of attorney. Each Partner
shall execute and deliver to the General Partner, within fifteen (15) days after
receipt of the General Partner's request therefor, such further designations,
powers of attorney and other instruments as the General Partner deems necessary
to effectuate this Agreement and the purposes of the Partnership.
11.4. Notices.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand delivery, registered first-class mail, telex,
telecopier, or any courier guaranteeing overnight delivery, (i) if to a Limited
Partner, to the address set forth on Schedule I hereto, or (ii) if to the
General Partner, _____________________________________________________, Attn:
President.
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All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if hand delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; or when receipt is acknowledged, if telecopied.
11.5. Further Assurances.
The parties agree to execute and deliver all such documents, provide all
such information and take or refrain from taking any action as may be necessary
or desirable to achieve the purposes of this Agreement and the Partnership.
11.6. Titles and Captions.
All article or section titles or captions in this Agreement are solely for
convenience and shall not be deemed to be part of this Agreement or otherwise
define, limit or extend the scope or intent of any provision hereof.
11.7. Applicable Law.
This Agreement, and the application or interpretation thereof, shall be
governed exclusively by its terms and by the law of the State of Delaware,
without regard to its principles of conflicts of laws.
11.8. Binding Agreement.
This Agreement shall be binding upon the parties hereto, their heirs,
executors, personal representatives, successors and assigns.
11.9. Waiver of Partition.
Each of the parties hereto irrevocably waives during the term of the
Partnership any right that it may have to maintain any action for partition with
respect to any property of the Partnership.
11.10. Counterparts and Effectiveness.
This Agreement may be executed in several counterparts, which shall be
treated as originals for all purposes, and all so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that all the
parties are not signatory to the original or the same counterpart. Any such
counterpart shall be admissible into evidence as an original hereof against each
Person who executed it. The execution of this Agreement and delivery thereof by
facsimile shall be sufficient for all purposes, and shall be binding upon any
party who so executes.
11.11. Survival of Representations.
All representations and warranties herein shall survive the dissolution and
final liquidation of the Partnership.
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11.12. Entire Agreement.
This Agreement (and all Exhibits hereto) contains the entire understanding
among the parties hereto and supersedes all prior written or oral agreements
among them respecting the within subject matter, unless otherwise provided
herein. There are no representations, agreements, arrangements or
understandings, oral or written, among the Partners hereto relating to the
subject matter of this Agreement which are not fully expressed herein and in
said Exhibits.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the day and year first above written.
General Partner FCO HOLDINGS, INC.
By: ________________________________
Limited Partners: FCO, L.P.
By: ROYALE INVESTMENTS, INC.
its General Partner
By:_________________________________
-----------------------------------
CLAY W. HAMLIN, III
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SCHEDULE I
SCHEDULE OF PARTNERS
=============================================================================
NAME INTEREST IN THE CAPITAL PERCENTAGE
PARTNERSHIP CONTRIBUTION INTEREST
FCO Holdings, Inc. General Partner 00.10 Percent
FC, L.P. Limited Partner 88.90 Percent
Clay W. Hamlin, III. Limited Partner 11.00 Percent
29
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TABLE OF CONTENTS
1. INTERPRETIVE PROVISIONS...................................................1
1.1. CERTAIN DEFINITIONS.....................................................1
1.2. RULES OF CONSTRUCTION...................................................7
2. FORMATION.................................................................8
2.1. FORMATION...............................................................8
2.2. NAME....................................................................8
2.3. PLACE OF BUSINESS; REGISTERED AGENT.....................................8
3. BUSINESS PURPOSE..........................................................8
3.1. BUSINESS................................................................8
3.2. AUTHORIZED ACTIVITIES...................................................8
4. CAPITAL CONTRIBUTIONS.....................................................9
4.1. CAPITAL CONTRIBUTIONS...................................................9
4.2. ADDITIONAL PARTNERSHIP INTERESTS........................................9
4.3. NO THIRD PARTY BENEFICIARIES...........................................10
4.4. CAPITAL ACCOUNTS.......................................................10
4.5. RETURN OF CAPITAL ACCOUNT; INTEREST....................................11
4.6. PREEMPTIVE RIGHTS......................................................11
5. ALLOCATIONS AND DISTRIBUTIONS............................................12
5.1. LIMITED LIABILITY......................................................12
5.2. PROFITS, LOSSES AND DISTRIBUTIVE SHARES................................12
5.3. DISTRIBUTIONS..........................................................16
5.4. DISTRIBUTIONS UPON LIQUIDATION.........................................16
5.5. AMOUNTS WITHHELD.......................................................17
6. PARTNERSHIP MANAGEMENT...................................................17
6.1. MANAGEMENT AND CONTROL OF PARTNERSHIP BUSINESS.........................17
6.2. NO MANAGEMENT BY LIMITED PARTNER; LIMITATION OF LIABILITY..............17
6.3. LIMITATIONS ON PARTNERS................................................18
6.4. BUSINESS WITH AFFILIATES...............................................18
6.5. REIMBURSEMENT OF EXPENSES..............................................18
6.6. LIABILITY FOR ACTS AND OMISSIONS.......................................18
6.7. INDEMNIFICATION........................................................19
7. ADMINISTRATIVE, FINANCIAL AND TAX MATTERS..................................
7.1. BOOKS AND RECORDS......................................................19
7.2. ANNUAL AUDIT AND ACCOUNTING............................................19
7.3. PARTNERSHIP FUNDS......................................................20
7.4. REPORTS AND NOTICES....................................................20
7.5. TAX MATTERS............................................................20
7.6. WITHHOLDING............................................................21
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8. TRANSFER OF PARTNERSHIP INTERESTS........................................21
8.1. TRANSFERS PROHIBITED...................................................21
8.2. OBLIGATIONS OF A PRIOR GENERAL PARTNER.................................21
8.3. SUCCESSOR GENERAL PARTNER..............................................22
9. DISSOLUTION AND LIQUIDATION..............................................22
9.1. TERM AND DISSOLUTION...................................................22
9.2. LIQUIDATION OF PARTNERSHIP ASSETS......................................23
9.3. EFFECT OF TREASURY REGULATIONS.........................................24
9.4. TIME FOR WINDING-UP....................................................24
10. AMENDMENTS AND MEETINGS.................................................25
10.1. AMENDMENT PROCEDURE...................................................24
10.2. MEETINGS AND VOTING...................................................25
11. MISCELLANEOUS PROVISIONS................................................26
11.1. TITLE TO PROPERTY.....................................................25
11.2. OTHER ACTIVITIES OF LIMITED PARTNERS..................................25
11.3. POWER OF ATTORNEY.....................................................26
11.4. NOTICES...............................................................26
11.5. FURTHER ASSURANCES....................................................27
11.6. TITLES AND CAPTIONS...................................................27
11.7. APPLICABLE LAW........................................................27
11.8. BINDING AGREEMENT.....................................................27
11.9. WAIVER OF PARTITION...................................................27
11.10. COUNTERPARTS AND EFFECTIVENESS.......................................27
11.11. SURVIVAL OF REPRESENTATIONS..........................................27
11.12. ENTIRE AGREEMENT.....................................................28
2
6385 FLANK DRIVE, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (the "Agreement")
is made this ____ day of October, 1997, by and among FCO Holdings, Inc., a
Delaware corporation and a wholly-owned subsidiary of Royale Investments, Inc.,
as General Partner (the "General Partner"), and the persons set forth on the
signature page hereof as Limited Partners (the "Limited Partners"). The General
Partner and the Limited Partners are collectively referred to herein as the
"Partners."
RECITALS:
A. 6385 Flank Drive, L.P. (the "Partnership") was originally formed
pursuant to the terms of an Agreement of Limited Partnership dated August 8,
1995 (the "Original Agreement").
B. The Original Agreement has previously been amended to reflect, inter
alia, a refinancing of the Partnership's indebtedness, the admission to the
Partnership of FCO Holdings, Inc. as a General Partner, the conversion of
certain General Partner interests in the Partnership into Limited Partner
interests in the Partnership and the transfer to FCO, L.P. of certain Limited
Partner interests in the Partnership.
C. The General Partner and the Limited Partners desire to amend and restate
the Original Agreement in its entirety as set forth herein.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, intending to be legally bound hereby, agree that the
Original Agreement shall be amended and restated in its entirety to provide as
follows:
1. ARTICLE I. INTERPRETIVE PROVISIONS
1.1. Certain Definitions.
The following terms have the definitions hereinafter indicated whenever
used in this Agreement with initial capital letters:
Act: The Pennsylvania Revised Uniform Limited Partnership Act, as set forth
in Title 15, Chapters 81 and 85 of the Pennsylvania Consolidated Statutes , as
amended from time to time.
Additional Limited Partner: A Person admitted to the Partnership as a
Limited Partner in accordance with Section 4.2 hereof and who is shown as such
on the books and records of the Partnership.
Adjusted Capital Account: With respect to any Partner, such Partner's
Capital Account maintained in accordance with Section 4.4 hereof, as of the end
of the relevant Fiscal Year of the Partnership, after giving effect to the
following adjustments:
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(a) Credit to such Capital Account such Partner's share of Partnership
Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(g)(1) and such Partner's share of Partner Minimum Gain determined in
accordance with Treasury Regulations Section 1.704-2(i)(5).
(b) Debit to such Capital Account the items described in Treasury
Regulations Section 1.7041(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account" is intended to
comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2)(ii)
and 1.704-2 and shall be interpreted consistently therewith.
Adjusted Capital Account Deficit: With respect to any Partner, the deficit
balance, if any, in that Partner's Adjusted Capital Account as of the end of the
relevant Fiscal Year of the Partnership.
Affiliate: With respect to any referenced Person, (i) a member of such
Person's immediate family; (ii) any Person who directly or indirectly owns,
controls or holds the power to vote ten percent (10%) or more of the outstanding
voting securities of the Person in question; (iii) any Person ten percent (10%)
or more of whose outstanding securities are directly or indirectly owned,
controlled, or held with power to vote by the Person in question; (iv) any
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with the Person in question; (v) if the Person in
question is a corporation, any executive officer or director of such Person or
of any corporation directly or indirectly controlling such Person; and (vi) if
the Person in question is a partnership, any general partner of the partnership
or any limited partner owning or controlling ten percent (10%) or more of either
the capital or profits interest in such partnership. As used herein, 'control'
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise.
Agreed Value: In the case of any (i) Contributed Property, the allocated
value of such property at the time of contribution (exclusive of any related
indebtedness assumed by the Partnership), as determined by the General Partner
using such method of valuation as it may adopt in its reasonable discretion and
(ii) property distributed to a Partner by the Partnership, the Partnership's
Book Value of such property at the time such property is distributed, reduced by
any indebtedness either assumed by such Partner upon such distribution or to
which such property is subject at the time of distribution as determined under
Code Section 752 and the Treasury Regulations thereunder.
Agreement: This Amended and Restated Limited Partnership Agreement and the
Schedule attached hereto, as the same may be amended or restated and in effect
from time to time.
Bankruptcy: Any of (i) a referenced Person's making an assignment for the
benefit of creditors, (ii) the filing by a referenced Person of a voluntary
petition in bankruptcy, (iii) a referenced Person's being adjudged insolvent or
having entered against him an order for relief in any bankruptcy or insolvency
proceeding, (iv) the filing by a referenced Person of an answer seeking any
reorganization, composition, readjustment, liquidation, dissolution or similar
relief under any law or regulation, (v) the filing by a referenced Person of an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against him in any proceeding of reorganization,
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<PAGE>
composition, readjustment, liquidation, dissolution, or for similar relief under
any statute, law or regulation or (vi) a referenced Person's seeking, consenting
to or acquiescing in the appointment of a trustee, receiver or liquidator for
all or substantially all of his property (or court appointment of such trustee,
receiver or liquidator).
Bankruptcy Code: 11 U. S. C. Sections 101 - 1330, as amended from time to
time.
Book Tax Disparity: With respect to any item of Contributed Property, or
property the Book Value of which has been adjusted in accordance with Section
4.4(c), as of the date of determination, the difference between the Book Value
of such property and the adjusted basis of such property for federal income tax
purposes.
Book Value: With respect to any Contributed Property, the Agreed Value of
such property reduced (but not below zero) by all Depreciation with respect to
such property properly charged to the Partners' Capital Accounts and with
respect to any other asset, the asset's adjusted basis for federal income tax
purposes; provided, however, (a) the Book Value of all Partnership Assets shall
be adjusted in the event of a revaluation of Partnership Assets in accordance
with Section 4.4(c) hereof, (b) the Book Value of any Partnership Asset
distributed to any Partner shall be the fair market value of such asset on the
date of distribution as determined by the General Partner and (c) such Book
Value shall be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
Capital Account: The account maintained by the Partnership for each Partner
described in Section 4.4 hereof.
Capital Contribution: The total amount of cash or cash equivalents and the
Agreed Value of Contributed Property which a Partner contributes or is deemed to
contribute to the Partnership pursuant to the terms of this Agreement.
Certificate: The Partnership's Certificate of Limited Partnership filed in
the office of the Secretary of State of the Commonwealth of Pennsylvania, as
amended from time to time.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Company: Royale Investments, Inc., a Minnesota corporation.
Consent: Either the written consent of a Person or the affirmative vote of
such Person at a meeting duly called and held pursuant to this Agreement, as the
case may be, to do the act or thing for which the consent is required or
solicited, or the act of granting such consent, as the context may require.
Contributed Property: Each property or other asset (excluding cash and cash
equivalents) contributed or deemed contributed to the Partnership.
Depreciation: For each Fiscal Year or other period, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Book Value
of an asset differs from its adjusted basis for federal income tax
3
<PAGE>
purposes at the beginning of such year or other period, Depreciation shall be
adjusted as necessary so as to be an amount which bears the same ratio to such
beginning Book Value as the federal income tax depreciation, amortization or
other cost recovery deduction for such year or other period bears to the
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
other period is zero, Depreciation for such year or other period shall be
determined with reference to such beginning Book Value using any reasonable
method approved by the General Partner.
Fiscal Year: The calendar year or such other twelve (12) month period
designated by the General Partner.
General Partner: FCO Holdings, Inc., a Delaware corporation, and its
respective successor(s) who or which become Successor General Partner(s) in
accordance with the terms of this Agreement.
General Partner Interest: A Partnership Interest held by the General
Partner that is a general partner interest.
Involuntary Withdrawal: As to any (i) individual shall mean such
individual's death, incapacity or adjudication of incompetence, (ii) corporation
shall mean its dissolution or revocation of its charter (unless such revocation
is promptly corrected upon notice thereof), (iii) partnership shall mean the
dissolution and commencement of winding up of its affairs, (iv) trust shall mean
the termination of the trust (but not the substitution of trustees), (v) estate
shall mean the distribution by the fiduciary of the estate's complete interest
in the Partnership any (vi) any Partner shall mean the Bankruptcy of such
Partner.
IRS: The Internal Revenue Service, which administers the internal revenue
laws of the United States.
Limited Partner: Each of the Persons set forth on the signature page hereof
as a Limited Partner and any Person who becomes an Additional Limited Partner in
accordance with the terms of this Agreement.
Limited Partner Interest: A Partnership Interest held by a Limited Partner
that is a limited partner interest.
Nonrecourse Liability: A liability as defined in Treasury Regulations
Section 1.704-2(b)(3).
Notice: A writing containing the information required by this Agreement to
be communicated and delivered to such Person in accordance with Section 11.4;
provided, however, that any written communication containing such information
actually received by such Person shall constitute Notice for all purposes of
this Agreement.
Partner Minimum Gain: The gain (regardless of character) which would be
realized by the Partnership if property of the Partnership subject to a partner
nonrecourse debt (as such term is defined in Treasury Regulations Section
1.704-2(b)(4)) were disposed of in full satisfaction of such debt on the
relevant date. The adjusted basis of property subject to more than one partner
nonrecourse debt shall
4
<PAGE>
be allocated in a manner consistent with the allocation of basis for purposes of
determining Partnership Minimum Gain hereunder. Partner Minimum Gain shall be
computed hereunder using the Book Value, rather than the adjusted tax basis, of
the Partnership accordance with Treasury Regulations Section 1.704-2(d)(3).
Partner Nonrecourse Deductions: With respect to any partner nonrecourse
debt (as such term is defined in Treasury Regulation Section 1.704-2(b)(4)), the
increase in Partner Minimum Gain during the tax year plus any increase in
Partner Minimum Gain for a prior tax year which has not previously generated a
Partner Nonrecourse Deduction hereunder. The determination of which Partnership
items constitute Partner Nonrecourse Deductions shall be made in a manner
consistent with the manner in which Partnership Nonrecourse Deductions are
hereunder.
Partners: The General Partner and the Limited Partners as a group. The term
"Partner" means a General Partner or a Limited Partner. Such terms shall be
deemed to include such other Persons who may become Partners pursuant to the
terms of this Agreement.
Partnership: The Pennsylvania limited partnership referred to herein as
such partnership may from time to time be constituted.
Partnership Assets: At any particular time, any assets or property
(tangible or intangible choate or inchoate, fixed or contingent) owned by the
Partnership.
Partnership Interest or Interest: As to any Partner, such Partner's
ownership interest in the and including such Partner's right to distributions
under this Agreement and any other rights or benefits such Partner has in the
Partnership, together with any and all obligations of such Partner to comply
with the provisions of this Agreement.
Partnership Minimum Gain: The aggregate gain (regardless of character)
which would be realized by the Partnership if all of the property of the
Partnership subject to nonrecourse debt (other than partner nonrecourse debt as
such term is defined in Treasury Regulations Section 1.704-2(b)(4)) were
disposed of in full satisfaction of such debt and for no other consideration on
the relevant date. In the case of any Nonrecourse Liability of the Partnership
which is not secured by a mortgage with respect to any specific property of the
Partnership, any and all property of the Partnership to which the holder of said
liability has recourse shall be treated as subject to such Nonrecourse Liability
for purposes of the preceding sentence. Partnership Minimum Gain shall be
computed separately for each Nonrecourse Liability of the partnership. For this
purpose, the adjusted basis of property subject to two or more liabilities of
equal priority shall be allocated among such liabilities in proportion to the
outstanding balance of such liabilities, and the adjusted basis of property
subject to two or more liabilities of unequal priority shall be allocated to the
liability of inferior priority only to the extent of the excess, if any, of the
adjusted basis of such property over the outstanding balance of the liability of
superior priority. Partnership Minimum Gain shall be computed hereunder using
the Book Value, rather than the adjusted tax basis, of the Partnership property
in accordance with Treasury Regulation Section 1.704-2(d)(3).
Partnership Nonrecourse Deductions: The amount of Partnership deductions
equal to the increase, if any, in the amount of the aggregate Partnership
Minimum Gain during the tax year (plus any increase in Partnership Minimum Gain
for a prior tax year which has not previously generated a
5
<PAGE>
Partnership Nonrecourse Deduction) reduced (but not below zero) by the aggregate
distributions made during the tax year of the proceeds of a Nonrecourse
Liability of the Partnership which are attributable to an increase in
Partnership Minimum Gain within the meaning of Treasury Regulations Section
1.704-2(d). The Partnership Nonrecourse Deductions for a Partnership tax year
shall consist first of depreciation or cost recovery deductions with respect to
each property of the Partnership giving rise to such increase in Partnership
Minimum Gain on a pro rata basis to the extent of each such increase, with any
excess made up pro rata of all items of deduction.
Percentage Interest: As to any Partner, the percentage in the Partnership
as initially shown opposite the name of such Partner on Schedule I attached
hereto, as such percentage interest may be adjusted from time to time in
accordance with the provisions of this Agreement.
Person: Any individual, partnership, corporation, trust or other entity.
Profits and Losses: For each Fiscal Year or other period, an amount equal
to the Partnership's taxable income or loss (as the case may be) for such year
or period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
a. Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
b. Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)vi , and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition, shall be subtracted from such taxable income or loss;
c. Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of notwithstanding that the adjusted tax basis of such property
differs from such Book Value;
d. In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or
other period, computed in accordance with the definition of 'Depreciation'
herein; and
e. In the event that any item of income, gain, loss or deduction that
has been included in the initial computation of Profit or Loss is subject
to the special allocation rules of Sections 5.2(c) and 5.2(d), Profit or
Loss shall be recomputed without regard to such item.
REIT: A real estate investment trust, as defined in Code Section 856.
6
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Subsidiary: With respect to any Person, any corporation or other entity of
which a majority of (i) the voting power of the voting equity securities or (ii)
the outstanding equity interests, is owned, directly or indirectly, by such
Person.
Successor General Partner: Any Person who is admitted to the Partnership as
substitute General Partner pursuant to this Agreement. A Successor General
Partner, upon its admission as such, shall succeed to the rights, privileges and
liabilities of its predecessor in interest as General Partner, in accordance
with the provisions of the Act.
Tax Matters Partner. The General Partner or such other Partner who becomes
Tax Matters Partner pursuant to the terms of this Agreement.
Terminating Capital Transaction: The sale or other disposition of all or
substantially all of the Partnership Assets or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the Partnership Assets.
Transfer. A transaction in which a Partner assigns all or a portion of its
Partnership Interest to another Person and includes any sale, assignment, gift,
pledge, mortgage, exchange, hypothecation, encumbrance or other disposition by
law or otherwise.
Treasury Regulations: The Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
1.2. Rules of Construction.
The following rules of construction shall apply to this Agreement:
(a) All section headings in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section.
(b) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders, the
singular shall include the plural, and vice versa, as the context may require.
(c) Each provision of this Agreement shall be considered severable from the
rest, and if any provision of this Agreement or its application to any Person or
circumstances shall be held invalid and contrary to any existing or future law
or unenforceable to any extent, the remainder of this Agreement and the
application of any other provision to any Person or circumstances shall not be
affected thereby and shall be interpreted and enforced to the greatest extent
permitted by law so as to give effect to the original intent of the parties
hereto.
(d) Unless otherwise specifically and expressly limited in the context, any
reference herein to a decision, determination, act, action, exercise of a right,
power or privilege, or other procedure by the General Partner shall mean and
refer to the decision, determination, act, action, exercise or other procedure
by the General Partner in its sole and absolute discretion.
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2. ARTICLE II. FORMATION
2.1. Formation.
The Partners hereby continue the Partnership as a limited partnership under
the Act and in accordance with the terms and conditions of this Agreement. The
General Partner shall take all action required by law to perfect and maintain
the Partnership as a limited partnership under the Act and under the laws of all
other jurisdictions in which the Partnership may elect to conduct business,
including but not limited to the filing of amendments to the Certificate with
the Pennsylvania Secretary of State, and qualification of the Partnership as a
foreign limited partnership in the jurisdictions in which such qualification
shall be required, as determined by the General Partner. The General Partner
shall also promptly register the Partnership under applicable assumed or
fictitious name statutes or similar laws.
2.2. Name.
The name of the Partnership is 6385 Flank Drive, L.P. The General Partner
may adopt such assumed or fictitious names as it deems appropriate in connection
with the qualifications and registrations referred to in Section 2.1.
2.3. Place of Business; Registered Agent.
The principal office of the Partnership shall be located at such place as
the General Partner may from time to time designate. The Partnership may
establish offices for the Partnership within or without the State of
Pennsylvania as may be determined by the General Partner.
ARTICLE III. BUSINESS PURPOSE
3.1. Business.
The business of the Partnership shall be (i) conducting any business that
may be lawfully conducted by a limited partnership pursuant to the Act
including, without limitation, acquiring, owning, managing, developing, leasing,
marketing, operating and, if and when appropriate, selling,real property, (ii)
entering into any partnership, joint venture or other relationship to engage in
any of the foregoing or the ownership of interests in any entity engaged in any
of the foregoing, (iii) making loans, guarantees, indemnities or other financial
accommodations and borrowing money and pledging its assets to secure the
repayment thereof, (iv) to do any of the foregoing with respect to any Affiliate
or Subsidiary and (v) doing anything necessary or incidental to the foregoing;
provided, however, that business of the Partnership shall be limited so as to
permit the Company to elect and maintain its status as a REIT (unless the
Company determines no longer to qualify as a REIT).
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3.2. Authorized Activities.
In carrying out the purposes of the Partnership, but subject to all other
provisions of this Agreement, the Partnership is authorized to engage in any
kind of lawful activity, and perform and carry out contracts of any kind,
necessary or advisable in connection with the accomplishment of the purposes and
business of the Partnership described herein and for the protection and benefit
of the Partnership; provided that the General Partner shall not be obligated to
cause the Partnership to take, or refraining from taking, any action which, in
the judgment of the General Partner, (i) could adversely affect the ability of
the Company to qualify and continue to qualify as a REIT under the Code, (ii)
could subject the Company to additional taxes under Code Section 857 or 4981 or
(iii) could violate any law or regulation of any governmental body or agency
having jurisdiction over the General Partner or the Company or their securities.
ARTICLE IV. CAPITAL CONTRIBUTIONS
4.1. Capital Contributions.
The Partners, or their predecessors in interest, have contributed cash and
property in the aggregate amounts set forth on Schedule 1. No Partner shall be
required to contribute additional funds or other property to the Partnership.
Any additional funds or other property required by the Partnership, as
determined by the General Partner, may, at the option of the General Partner and
without an obligation so to do, be contributed by the General Partner as
additional Capital Contributions. If the General Partner determines to make any
such Capital Contribution, it shall give notice of such determination to the
Limited Partners and permit each Limited Partner to contribute a portion of such
Capital Contribution equal to the product of such Limited Partner's Percentage
Interest and the total amount of such Capital Contribution. The General Partner
shall also have the right (but not the obligation) to raise additional funds
required for the Partnership by lending the money to the Partnership or by
causing the Partnership to borrow the money needed from third parties, in either
case on such terms and conditions as the General Partner shall deem appropriate.
4.2. Additional Partnership Interests.
The Partnership may issue additional limited partnership interests for any
Partnership purpose at any time or from time to time, to any Partner or other
Person. Any such other Person shall be admitted as an Additional Limited Partner
of the Partnership only upon execution, adoption and acknowledgment of this
Agreement by such Partner or Person, or a counterpart hereto, and such other
documents as may be reasonably requested by the General Partner, including
without limitation, the power of attorney required under Section 11.3. Upon
satisfaction of the foregoing requirements, such Person shall be admitted as an
Additional Limited Partner effective on the date upon which the name of such
Person is recorded on the books of the Partnership.
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4.3. No Third Party Beneficiaries.
The foregoing provisions of this Article IV are not intended to be for the
benefit of any creditor of the Partnership or other Person to whom any debts,
liabilities or obligations are owed by (or who otherwise has any claim against)
the Partnership or any of the Partners and no such creditor or other Person
shall obtain any right under any such foregoing provision against the
Partnership or any of the Partners by reason of any debt, liability or
obligation (or otherwise).
4.4. Capital Accounts.
(a) The Partnership shall establish and maintain a separate Capital Account
for each Partner in accordance with Code Section 704 and Treasury Regulations
Section 1.704-1 (b)(2)(iv). The Capital Account of each Partner shall be
credited with:
(i) the amount of all Capital Contributions made to the Partnership by such
Partner in accordance with this Agreement; plus
(ii) all income and gain of the Partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V (including
for purposes of this Section 4.4(a), income and gain exempt from tax);
and shall be debited with the sum of:
(i) all losses or deductions of the partnership computed in accordance with
this Section 4.4 and allocated to such Partner pursuant to Article V,
(ii) such Partner's distributive share of expenditures of the Partnership
described in Code Section 705(a)(2)(B), and
(iii) all cash and the Agreed Value of any property actually distributed or
deemed distributed by the Partnership to such Partner pursuant to the terms of
this Agreement.
Any reference in any section or subsection of this Agreement to the Capital
Account of a Partner shall be deemed to refer to such Capital Account as the
same may be credited or debited from time to time as set forth above.
(b) For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of each such item shall be the
same as its determination, recognition and classification for federal income tax
purposes, determined in accordance with Code Section 703(a), with the following
adjustments:
(i) any income, gain or loss attributable to the taxable disposition of any
Partnership Asset shall be determined by treating the adjusted basis of such
property as of the date of such disposition as equal to the Book Value of such
property as of such date;
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(ii) the computation of all items of income, gain, loss and deduction shall
be made without regard to any Code Section 754 election that may be made by the
Partnership, except to the extent required in accordance with the provisions of
Treasury Regulations Section 1.704-1(b)(2)(iv)(m);
(iii) in lieu of depreciation, amortization and other cost recovery
deductions taken into account in computing Profit and Loss, there shall be taken
into account Depreciation for such Fiscal Year;
(iv) in the event the Book Value of any Partnership Asset is adjusted
pursuant to Section 4.4(c) below, the amount of such adjustment shall be treated
as gain or loss from the disposition of such asset.
(c) Consistent with the provisions of Treasury Regulations Section
1.704-1(b)(2)(iv)(f), (i) immediately prior to the acquisition of an additional
Partnership Interest by any new or existing Partner in connection with the
contribution of money or other property (other than a de minimis amount) to the
Partnership, (ii) immediately prior to the distribution by the Partnership to a
Partner of Partnership property (other than a de minimis amount) as
consideration for a Partnership Interest and (iii) immediately prior to the
liquidation of the Partnership as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(g), the Book Value of all Partnership Assets shall be revalued
upward or downward to reflect the fair market value of each such Partnership
Asset as determined by the General Partner using such reasonable method of
valuation as it may adopt.
(d) The foregoing provisions of this Section 4.4 are intended to comply
with Treasury Regulations Section 1.704-1(b) and shall be interpreted and
applied in a manner consistent with such Treasury Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in which
the Partners' Capital Accounts are computed hereunder in order to comply with
such Treasury Regulations, the General Partner may make such modification if
such modification is not likely to have a material effect on the amount
distributable to any Partner under the terms of this Agreement and the General
Partner notifies the other Partners in writing of such modification prior to
making such modification.
4.5. Return of Capital Account; Interest.
Except as otherwise specifically provided in this Agreement, (i) no Partner
shall have any right to withdraw or reduce its Capital Contributions or Capital
Account, or to demand and receive property other than cash from the Partnership
in return for its Capital Contributions or Capital Account; (ii) no Partner
shall have any priority over any other Partners as to the return of its Capital
Contributions or Capital Account; (iii) any return of Capital Contributions or
Capital Accounts to the Partners shall be solely from the Partnership Assets,
and no Partner shall be personally liable for any such return; and (iv) no
interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners' Capital Accounts.
4.6. Preemptive Rights.
No Person shall have any preemptive or similar rights with respect to the
issuance or sale of additional Partnership Interests.
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ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS
5.1. Limited Liability.
For bookkeeping purposes, the Profits of the Partnership shall be shared,
and the Losses of the Partnership shall be borne, by the Partners as provided in
Section 5.2 below; provided, however, that except as expressly provided in this
Agreement, no Limited Partner (in its capacity as a Limited Partner) shall be
personally liable for losses, costs, expenses, liabilities or obligations of the
Partnership in excess of its Capital Contribution required under Article IV
hereof.
5.2. Profits, Losses and Distributive Shares.
(a) Profits. After giving effect to the special allocations, if any,
provided in Section 5.2(c) and (d), Profits in each Fiscal Year shall be
allocated in the following order:
(i) First, to each Partner in proportion to the cumulative Losses allocated
to such Partner under Section 5.2(b)(ii), until the cumulative Profits allocated
to such Partner under this Section 5.2(a)(i) equal the cumulative Losses
allocated to such Partner under Section 5.2(b)(ii);
(ii) Second, to each Partner in proportion to the cumulative losses
allocated to such Partner under Section 5.2(b)(i), until the cumulative Profits
allocated to such Partner under this Section 5.2(a)(ii) equal the cumulative
Losses allocated to such Partner under Section 5.2(b)(i); and
(iii) Then, the balance, if any, to the Partners in proportion to their
respective Percentage Interests.
(b) Losses. After giving effect to the special allocations, if any,
provided in Section 5.2(c) and (d), Losses in each Fiscal Year shall be
allocated in the following order:
(i) First, to the Partners in proportion to their respective Percentage
Interests, but not in excess of the positive Adjusted Capital Account balance of
any Partner prior to the allocation provided for in this Section 5.2(b)(i);
(ii) Second, to the Partners with positive Adjusted Capital Account
balances prior to the allocation provided for in this Section 5.2(b)(ii), in
proportion to the amount of such balances.
(c) Special Allocations. Except as otherwise provided in this Agreement,
the following special allocations will be made in the following order and
priority:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Article V. If there is a net decrease in Partnership Minimum
Gain during any tax year or other period for which allocations are made, each
Partner will be specially allocated items of Partnership income and gain for
that tax year or other period (and, if necessary, subsequent periods) in an
amount equal to such Partner's share of the net decrease in Partnership Minimum
Gain during such tax year or other period determined in accordance with Treasury
Regulations Section 1.704-2(g). Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts
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required to be allocated to each Partner pursuant thereto. The items to be so
allocated shall be determined in accordance with Treasury Regulations Sections
1.704-2(f)(6) and 1.704-(j)(2). This Section 5.2(c) (i) is intended to comply
with the minimum gain chargeback requirements set forth in Treasury Regulations
Section 1.704-2(f) and shall be interpreted consistently therewith, including
the exceptions to the minimum gain chargeback requirement set forth in Treasury
Regulations Section 1.704-2(f)(2) and (3). If the General Partner concludes,
after consultation with tax counsel, that the Partnership meets the requirements
for a waiver of the minimum gain chargeback requirement as set forth in Treasury
Regulations Section 1.704-2(f)(4), the General Partner may take steps reasonably
necessary or appropriate in order to obtain such waiver.
(ii) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any
other provision of this Section (other than Section 5.2(c)(i) which shall be
applied before this Section 5.2(c)(ii)), if there is a net decrease in Partner
Minimum Gain during any tax year or other period for which allocations are made,
each Partner with a share of Partner Minimum Gain determined in accordance with
Treasury Regulations Section 1.704-2(i)(5) shall be specially allocated items of
Partnership income and gain for that period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
Partner Minimum Gain determined in accordance with Treasury Regulations Section
1.704-2(i)(4). Allocations pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
thereunder. The items to be so allocated shall be determined in accordance with
Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii). This Section
5.2(c)(ii) is intended to comply with the minimum gain chargeback requirements
of Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith, including the exceptions set forth in Treasury
Regulations Section 1.704-2(f)(2) and (3) to the extent such exceptions apply to
Treasury Regulations Sections 1.704-2(i)(4). If the General Partner concludes,
after consultation with tax counsel, that the Partnership meets the requirements
for a waiver of the Partner Minimum Gain chargeback requirement set forth in
Treasury Regulations Section 1.704-2(f)(4), but only to the extent such
exception applies to Treasury Regulations Section 1.704-2(i)(4), the General
Partner may take steps necessary or appropriate to obtain such waiver.
(iii) Qualified Income Offset. A Partner who unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be specially allocated items of
Partnership income and gain in an amount and manner sufficient to eliminate, to
the extent required by Treasury Regulations 1.704-1(b)(2)(ii)(d) , the Adjusted
Capital Account Deficit of the Partner as quickly as possible, provided that an
allocation pursuant to this Section 5.2(c)(3) shall be made if and only to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article V have been tentatively made
as if this Section 5.2(c)(3) were not contained in this Agreement.
(iv) Partnership Nonrecourse Deductions. Partnership Nonrecourse Deductions
for any taxable year or other period for which allocations are made will be
allocated among the Partners in proportion to their respective Percentage
Interests in the Partnership.
(v) Partner Nonrecourse Deductions. Notwithstanding anything to the
contrary in this Agreement, any Partner Nonrecourse Deductions for any taxable
year or other period for which allocations are made will be allocated to the
Partner who bears the economic risk of loss with respect to the liability to
which the Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulations Section 1.704-2(i).
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(vi) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership Asset under Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital Accounts under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4), the amount of the
adjustment to the Capital Accounts will be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset), and the gain or loss will be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted under Treasury Regulations Section
1.704-1(b)(2)(iv)(m).
(vii) Depreciation Recapture. In the event there is any recapture of
Depreciation or investment tax credit, the allocation thereof shall be made
among the Partners in the same proportion as the deduction for such Depreciation
or investment tax credit was allocated.
(viii) Interest in Partnership. Notwithstanding any other provision of this
Agreement, no allocation of Profit or Loss (or item of Profit or Loss) will be
made to a Partner if the allocation would not have "economic effect' under
Treasury Regulations Section 1.704-1(b)(2)(ii) or otherwise would not be in
accordance with the Partner's interest in the Partnership within the meaning of
Treasury Regulations Section 1.704-1(b)(3).
(d) Curative Allocations. The allocations set forth in Section 5.2(c)(i)
through (viii) (the "Regulatory Allocations") are intended to comply with
certain requirements of Treasury Regulations Sections 1.704-l(b) and 1.704-2.
The Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is authorized to further allocate Profits, Losses, and other items among
the Partners in a reasonable manner so as to prevent the Regulatory Allocations
from distorting the manner in which Partnership distributions would be divided
among the Partners under Section 5.3, but for application of the Regulatory
Allocations. In general, the reallocation will be accomplished by specially
allocating other Profits, Losses and items of income, gain, loss and deduction,
to the extent they exist, among the Partners so that the net amount of the
Regulatory Allocations and the special allocations to each Partner is zero. The
General Partner may accomplish this result in any reasonable manner that is
consistent with Code Section 704 and the related Treasury Regulations.
(e) Tax Allocations.
(i) Except as otherwise provided in Section 5.2(e)(ii), each item of
income, gain, loss and deduction shall be allocated for federal income tax
purposes in the same manner as each correlative item of income, gain, loss or
deduction, is allocated for book purposes pursuant to the provisions of Section
5.1 hereof.
(ii) Notwithstanding anything to the contrary in this Article V, in an
attempt to eliminate any Book Tax Disparity with respect to a Contributed
Property, items of income, gain, loss or deduction with respect to each such
property shall be allocated for federal income tax purposes among the Partners
as follows:
(A) Depreciation, Amortization and Other Cost Recovery Items. In the case
of each Contributed Property with a Book-Tax Disparity, any item of
depreciation, amortization or other cost recovery allowance attributable to such
property shall be allocated as
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follows: (x) first, to Partners (the 'Non-Contributing Partners') other than the
Partners who contributed such property to the Partnership in an amount up to the
book allocation of such items made to the Non-Contributing Partners pursuant to
Section 5.2 hereof, pro rata in proportion to the respective amount of book
items so allocated to the Non-Contributing Partners pursuant to Section 5.2
hereof, and (y) any remaining depreciation, amortization or other cost recovery
allowance to the Contributing Partners in proportion to their Percentage
Interests. In no event shall the total depreciation, amortization or other cost
recovery allowance allocated hereunder exceed the amount of the Partnership's
depreciation, amortization or other cost recovery allowance with respect to such
property.
(B) Gain or Loss on Disposition. In the event the Partnership sells or
otherwise disposes of a Contributed Property with a Book-Tax Disparity, any gain
or loss recognized by the Partnership in connection with such sale or other
disposition shall be allocated among the Partners as follows: (x) first, any
gain or loss shall be allocated to the Contributing Partners in proportion to
their Percentage Interests to the extent required to eliminate any Book-Tax
Disparity with respect to such property; and (y) any remaining gain or loss
shall be allocated among the Partners in the same manner that the correlative
items of book gain or loss are allocated among the Partners pursuant to Section
5.2 hereof.
(iii) In the event the Book Value of a Partnership Asset (including a
Contributed Property) is adjusted pursuant to Section 4.4(c) hereof, and such
asset has not been deemed distributed by, and recontributed to the Partnership
pursuant to Code Section 708 subsequent thereto, all items of income, gain, loss
or deduction in respect of such property shall be allocated for federal income
tax purposes among the Partners in the same manner as provided in Section
5.2(e)(ii) hereof to take into account any variation between the fair market
value of the property, as determined by the General Partner using such
reasonable method of valuation as it may adopt, and the Book Value of such
property, both determined as of the date of such adjustment.
(iv) The General Partner shall have the authority to elect alternative
methods to eliminate the Book Tax Disparity with respect to one or more
Contributed Properties, as permitted by Treasury Regulations Sections 1.704-3
and 1.704-3T, and such election shall be binding on all of the Partners.
(v) The Partners hereby intend that the allocation of tax items pursuant to
this Section 5.2(e) comply with the requirements of Code Section 704(c) and
Treasury Regulations Section 1.704-3.
(vi) The allocation of items of income, gain, loss or deduction pursuant to
this Section 5.2(e) are solely for federal, state and local income tax purposes,
and the Capital Account balances of the Partners shall be adjusted solely for
allocations of 'book' items in respect of Partnership Assets pursuant to
Sections 5.2(a) through (d).
(f) Other Allocation Rules. The following rules will apply to the
calculation and allocation of Profits, Losses and other items:
(i) Except as otherwise provided in this Agreement, all Profits, Losses and
other items allocated to the Partners will be allocated among them in proportion
to their Percentage Interests.
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(ii) For purposes of determining the Profits, Losses or any other item
allocable to any period, Profits, Losses and other items will be determined on a
daily, monthly or other basis, as determined by the General Partner using any
permissible method under Code Section 706 and the related Treasury Regulations.
(iii) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss and deduction, and other allocations not provided
for in this Agreement will be divided among the Partners in the same proportions
as they share Profits and Losses, provided that any credits shall be allocated
in accordance with Treasury Regulations Section 1.704-1(b)(4)(ii).
(iv) For purposes of Treasury Regulations Section 1.752-3(a), the Partners
hereby agree that any Nonrecourse Liabilities of the Partnership in excess of
the sum of (i) the Partnership Minimum Gain and (ii) the aggregate amount of
taxable gain that would be allocated to the Partners under Section 704(c) (or in
the same manner as Section 704(c) in connection with a revaluation of
Partnership property) if the Partnership disposed of (in a taxable transaction)
all Partnership property subject to one or more Nonrecourse Liabilities of the
Partnership in full satisfaction of such liabilities and for no other
consideration, shall be allocated among the Partners in accordance with their
respective shares of Profits. The General Partner shall have discretion in any
Fiscal Year to allocate such excess Nonrecourse Liabilities among the Partners
(a) in a manner reasonably consistent with allocations (that have substantial
economic effect) of some other significant item of Partnership income or gain or
(b) in accordance with the manner in which it is reasonably expected that the
deductions attributable to the excess nonrecourse liabilities will be allocated.
(g) Partner Acknowledgment. The Partners agree to be bound by the
provisions of this Section 5.2 in reporting their shares of Partnership income,
gain, loss, deduction and credit for income tax purposes.
(h) Regulatory Compliance. The foregoing provisions of this Section 5.2
relating to the allocation of Profits, Losses and other items for federal income
tax purposes are intended to comply with Treasury Regulations Sections
1.704-1(b), 1.704-2 and 1.704-3 and shall be interpreted and applied in a manner
consistent with such Treasury Regulations.
5.3. Distributions.
(a) The General Partner shall cause the Partnership to make distributions
from time to time to the Partners pro rata in accordance with their respective
Percentage Interests.
(b) The General Partner shall use its reasonable efforts to make
distributions to the Partners so as to preclude any distribution or portion
thereof from being treated as part of a sale of property to the Partnership by a
Partner under Section 707 of the Code or the Treasury Regulations thereunder;
provided that the General Partner and the Partnership shall not have liability
to a Limited Partner under any circumstances as a result of any distribution to
a Partner being so treated.
5.4. Distributions upon Liquidation.
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Notwithstanding any other provision hereof, proceeds of a Terminating
Capital Transaction shall be distributed to the Partners in accordance with
Section 9.2.
5.5. Amounts Withheld.
All amounts withheld pursuant to the Code or any provision of state or
local tax law and Section 7.6 of this Agreement with respect to any allocation,
payment or distribution to a General Partner or a Limited Partner shall be
treated as amounts distributed to a General Partner or aLimited Partner, as
applicable, pursuant to Section 5.3 of this Agreement.
ARTICLE VI. PARTNERSHIP MANAGEMENT
6.1. Management and Control of Partnership Business.
(a) The General Partner shall have full, exclusive and complete discretion
to manage the business and affairs of the Partnership, to make all decisions
affecting the business and affairs of the Partnership and to take all such
action as it deems necessary or appropriate to accomplish the purposes of the
Partnership as set forth herein. The Limited Partners shall not have any
authority, right, or power to bind the Partnership, or to manage, or to
participate in the management of the business and affairs of the Partnership in
any manner whatsoever. Such management shall in every respect be the full and
complete responsibility of the General Partner alone as herein provided.
(b) In carrying out the purposes of the Partnership, the General Partner
shall be authorized to take all actions it deems necessary and appropriate to
carry on the business of the Partnership. The Limited Partners, by execution
hereof, agree that the General Partner is authorized to execute, deliver and
perform any agreement and/or transaction on behalf of the Partnership.
6.2. No Management by Limited Partner; Limitation of Liability.
(a) No Limited Partner, in its capacity as a limited partner, shall take
part in the day-to-day management, operation or control of the business and
affairs of the Partnership or have any right, power, or authority to act for or
on behalf of or to bind the Partnership or transact any business in the name of
the Partnership. The Limited Partners shall have no rights other than those
specifically provided herein or granted by law where consistent with a valid
provision hereof. Any approvals rendered or withheld by the Limited Partners
pursuant to this Agreement shall be deemed as consultation with or advice to the
General Partner in connection with the business of the Partnership and, in
accordance with the Act, shall not be deemed as participation by the Limited
Partners in the business of the Partnership and are not intended to create any
inference that a Limited Partner should be classified as a general partner under
the Act.
(b) No Limited Partner shall have any liability under this Agreement except
with respect to withholding under Section 7.6, in connection with a violation of
any provision of this Agreement by such Limited Partner or as provided in the
Act.
(c) The General Partner shall not take any action which would subject a
Limited Partner (in its capacity as Limited Partner) to liability as a general
partner.
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6.3. Limitations on Partners.
(a) No Partner shall have any authority to perform (i) any act in violation
of any applicable law or regulation thereunder, (ii) any act prohibited by
Section 6.2(c), or (iii) any act which is required to be Consented to or
ratified pursuant to this Agreement without such Consent or ratification.
(b) No action shall be taken by a Partner if it would cause the Partnership
to be treated as an association taxable as a corporation for federal income tax
purposes or, without the consent of the General Partner, as a publicly-traded
partnership within the meaning of Section 7704 of the Code. A determination of
whether such action will have the above described effect shall be based upon a
declaratory judgment or similar relief obtained from a court of competent
jurisdiction, a favorable ruling from the IRS or the receipt of an opinion of
counsel.
6.4. Business with Affiliates.
The General Partner, in its discretion, may cause the Partnership to
transact business with any Partner or its Affiliates for goods or services
reasonably required in the conduct of the Partnership's business; provided that
any such transaction shall be effected only on terms competitive with those that
may be obtained in the marketplace from unaffiliated Persons. The foregoing
proviso shall not apply to transactions between the Partnership and any
Subsidiaries of the Partnership. In addition, neither the General Partner nor
any Affiliate of the General Partner may sell, transfer or otherwise convey any
property to, or purchase any property from, the Partnership, except (i) on terms
competitive with those that may be obtained in the marketplace from unaffiliated
Persons, or (ii) where the General Partner determines, in its sole judgment,
that such sale, transfer or conveyance confers benefits on the General Partner
in respect of matters of tax or corporate or financial structure and where the
Partnership obtains or retains at least a majority interest in the Person to
whom such sale, transfer or conveyance is made; provided, in the case of this
clause (ii), such sale, transfer or conveyance is not being effected for the
primary purpose of materially disadvantaging the Limited Partners.
6.5. Reimbursement of Expenses.
The General Partner shall be fully and entirely reimbursed by the
Partnership for any and all direct and indirect costs and expenses incurred in
connection with the organization and continuation of the Partnership pursuant to
this Agreement. In addition, the General Partner shall be reimbursed for all
expenses incurred by the General Partner in connection with any issuance of
additional Partnership Interests.
6.6. Liability for Acts and Omissions.
(a) The General Partner shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or any of the other Partners for any act
or emission performed or omitted in good faith on behalf of the Partnership and
in a manner reasonably believed to be (i) within the scope of the authority
granted by this Agreement and (ii) in the best interests of the Partnership. In
exercising its authority hereunder, the General Partner may, but shall not be
under any obligation to, take into account the tax consequences to any Partner
of any action it undertakes on behalf of the Partnership. Neither the General
Partner nor the Partnership shall have any liability as a result of any
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income tax liability incurred by a Partner as a result of any action or inaction
of the General Partner hereunder and, by its execution of this Agreement, the
Limited Partner acknowledges the foregoing.
(b) Unless otherwise prohibited hereunder, the General Partner shall be
entitled to exercise any of the powers granted to it and perform any of the
duties required of it under this Agreement directly or through any agent. The
General Partner shall not be responsible for any misconduct or negligence on the
part of any agent; provided that the General Partner selected or appointed such
agent in good faith.
6.7. Indemnification.
(a) The Partnership shall indemnify the General Partner and each director,
officer and stockholder of the General Partner and each Person (including any
Affiliate) designated as agent by a General Partner in its reasonable discretion
(each, an "Indemnified Party") to the fullest extent permitted under the Act
(including any procedures set forth therein regarding advancement of expenses to
such Indemnified Party) from and against any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' fees), judgments, fines,
settlements and any other amounts arising out of or in connection with any
claims, demands, actions, suits or proceedings (civil, criminal or
administrative) relating to or resulting (directly or indirectly) from the
operations of the Partnership, in which such Indemnified Party becomes involved,
or reasonably believes it may become involved, as a result of the capacity
referred to above.
(b) The Partnership shall have the authority to purchase and maintain such
insurance policies on behalf of the Indemnified Parties as the General Partner
shall determine, which policies may cover those liabilities the General Partner
reasonably believes may be incurred by an Indemnified Party in connection with
the operation of the business of the Partnership. The right to procure such
insurance on behalf of the Indemnified Parties shall in no way mitigate or
otherwise affect the right of any such Indemnified Party to indemnification
pursuant to Section 6.7(a) hereof.
(c) The provisions of this Section 6.7 are for the benefit of the
Indemnified Parties, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights in or benefit to any other Person.
ARTICLE VII. ADMINISTRATIVE, FINANCIAL AND TAX MATTERS
7.1. Books and Records.
The General Partner shall maintain at the office of the Partnership full
and accurate books of the Partnership showing all receipts and expenditures,
assets and liabilities, profits and losses, names and current addresses of
Partners, and all other records necessary for recording the Partnership's
business and affairs. Each Limited Partner shall have, upon written demand and
at such Limited Partner's expense, the right to receive true and complete
information regarding Partnership matters to the extent required (and subject to
the limitations) under Pennsylvania law.
7.2. Annual Audit and Accounting.
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The books and records of the Partnership shall be kept for financial and
tax reporting purposes on the accrual basis of accounting in accordance with
generally accepted accounting principles ("GAAP"). The accounts of the
Partnership shall be audited annually by a nationally recognized accounting firm
of independent public accountants selected by the General Partner (the
"Independent Accountants").
7.3. Partnership Funds.
The General Partner shall have responsibility for the safekeeping and use
of all funds and assets of the Partnership, whether or not in its direct or
indirect possession or control. All funds of the Partnership not otherwise
invested shall be deposited in one or more accounts maintained in the name of
the Partnership in such banking institutions as the General Partner shall
determine, and withdrawals shall be made only in the regular course of
Partnership business on such signatures as the General Partner may from time to
time, determine.
7.4. Reports and Notices.
(a) The General Partner shall provide all Partners with IRS Form 1065 and
Schedule K-1, or similar forms as may be required by the IRS, stating each
Partner's allocable share of income, gain, loss, deduction or credit for the
prior Fiscal Year by March 31 of each year or as soon thereafter as
circumstances permit.
7.5. Tax Matters.
(a) The General Partner shall be the Tax Matters Partner of the Partnership
for federal income tax matters pursuant to Code Section 6231(a)(7)(A). The Tax
Matters Partner is authorized and required to represent the Partnership (at the
expense of the Partnership) in connection with all examinations of the affairs
of the Partnership by any federal, state, or local tax authorities, including
any resulting administrative and judicial proceedings, and to expend funds of
the Partnership for professional services and costs associated therewith. The
Tax Matters Partner shall deliver to each Limited Partner within ten (10)
business days of the receipt thereof a copy of any notice or other communication
with respect to the Partnership received from the IRS (or other governmental tax
authority), or any court, in each case with respect to any administrative or
judicial proceeding involving the Partnership. The Partners agree to cooperate
with each other in connection with the conduct of all proceedings pursuant to
this Section 7.5(a).
(b) The Tax Matters Partner shall receive no compensation for its services
in such capacity. If the Tax Matters Partner incurs any costs related to any tax
audit, declaration of any tax deficiency or any administrative proceeding or
litigation involving any Partnership tax matter, such amount shall be an expense
of the Partnership and the Tax Matters Partner shall be entitled to full
reimbursement therefor.
(c) The General Partner shall cause to be prepared all federal, state and
local income tax returns required of the Partnership at the Partnership's
expense.
(d) Except as set forth herein, the General Partner shall determine whether
to make (and, if necessary, revoke) any tax election available to the
Partnership under the Code or any state tax
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law. The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership in accordance with the provisions of Code Section
709.
7.6. Withholding.
Each Partner hereby authorizes the Partnership to withhold from or pay to
any taxing authority on behalf of such Partner any tax that the General Partner
determines the Partnership is required to withhold or pay with respect to any
amount distributable or allocable to such Partner.
ARTICLE VIII. TRANSFER OF PARTNERSHIP INTERESTS
8.1. Transfers Prohibited.
No Partner may voluntarily withdraw or Transfer all or any portion of its
Partnership Interest without the prior written consent of the General Partner,
provided that a Limited Partner may transfer all or any portion of its Limited
partnership Interest to another Partner or to the Company without such consent.
Notwithstanding the foregoing, any Partner may pledge its Partnership Interest
as collateral for or otherwise in connection with a loan agreement under which
the Partnership or an Affiliate of the Partnership is a borrower.
8.2. Obligations of a Prior General Partner.
Upon an Involuntary Withdrawal of the General Partner and the subsequent
Transfer of the General Partner's Interest, such General Partner shall (i)
remain liable for all obligations and liabilities (other than Partnership
liabilities payable solely from Partnership Assets) incurred by it as General
Partner before the effective date of such event and (ii) pay all costs
associated with the admission of its Successor General Partner. However, such
General Partner shall be free of and held harmless by the Partnership against
any obligation or liability incurred on account of the activities of the
Partnership from and after the effective date of such event, except as provided
in this Agreement.
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8.3. Successor General Partner.
A successor to all of a General Partner's General Partner Interest who is
proposed to be admitted to the Partnership as a Successor General Partner shall
be admitted as the General Partner, effective upon the Transfer. Any such
transferee shall carry on the business of the Partnership without dissolution.
In addition, the following conditions must be satisfied:
(a) The Person shall have accepted and agreed to be bound by all the terms
and provisions of this Agreement by executing a counterpart thereof and such
other documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner;
(b) An amendment to this Agreement evidencing the admission of such Person
as a General Partner shall have been executed by all General Partners and an
amendment to the Certificate shall have been filed for recordation as required
by the Act; and
(c) Any consent required under Section 10.1(a) shall have been obtained.
ARTICLE IX. DISSOLUTION AND LIQUIDATION
9.1. Term and Dissolution.
The Partnership shall continue until December 31, 2047 at which time the
Partnership shall dissolve or until dissolution occurs prior to that date for
any one of the following reasons:
(a) An Involuntary Withdrawal or a voluntary withdrawal, even though in
violation of this Agreement, of the General Partner;
(b) Entry of a decree of judicial dissolution of the Partnership under the
Act; or
(c) The sale, exchange or other disposition of all or substantially all of
the Partnership Assets.
If an event of the type described in clause (a) shall occur, the
Partnership shall not dissolve unless, by the ninetieth (90th) day following
such event, the Limited Partner shall not have elected to continue the
Partnership. If the Limited Partner shall, during such time, elect to continue
the Partnership, it may also determine to admit a Successor General Partner.
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9.2. Liquidation of Partnership Assets.
(a) Subject to Section 9.2(e), in the event of dissolution pursuant to
Section 9.1, the Partnership shall continue solely for purposes of winding up
the affairs of, achieving a final termination of, and satisfaction of the
creditors of, the Partnership. The General Partner (or, if there is no General
Partner remaining, any Person elected by a majority in interest of the Limited
Partners (the "Liquidator")) shall be responsible for oversight of the winding
up and dissolution of the Partnership. The Liquidator shall obtain a full
accounting of the assets and liabilities of the Partnership and such Partnership
Assets shall be liquidated as promptly as the Liquidator is able to do so
without any undue loss in value, with the proceeds therefrom applied and
distributed in the following order:
(i) First, to the discharge of Partnership debts and liabilities to
creditors other than Partners;
(ii) Second, to the discharge of Partnership debts and liabilities to the
Partners;
(iii) The balance, if any, to the Partners in accordance with their
positive Capital Accounts after giving effect to all contributions,
distributions and allocations for all periods.
(b) In accordance with Section 9.2(a), the Liquidator shall proceed without
any unnecessary delay to sell and otherwise liquidate the Partnership Assets;
provided, however, that if the Liquidator shall determine that an immediate sale
of part or all of the Partnership Assets would cause undue loss to the Partners,
the Liquidator may defer the liquidation except (i) to the extent provided by
the Act or (ii) as may be necessary to satisfy the debts and liabilities of the
Partnership to Persons other than the Partners.
(c) If, in the sole and absolute discretion of the Liquidator, there are
Partnership Assets that the Liquidator will not be able to liquidate, or if the
liquidation of such assets would result in undue loss to the Partners, the
Liquidator may distribute such Partnership Assets to the Partners in-kind, in
lieu of cash, as tenants-in-common in accordance with the provisions of Section
9.2(a). The foregoing notwithstanding, such in-kind distributions shall only be
made if in the Liquidator's good faith judgment that is in the best interest of
the Partners.
(d) Upon the complete liquidation and distribution of the Partnership
Assets, the Partners shall cease to be Partners of the Partnership, and the
Liquidator shall execute, acknowledge and cause to be filed all certificates and
notices required by law to terminate the Partnership. Upon the dissolution of
the Partnership pursuant to Section 9.1, the Liquidator shall cause to be
prepared, and shall furnish to each Partner, a statement setting forth the
assets and liabilities of the Partnership. Promptly following the complete
liquidation and distribution of the Partnership Assets, the Liquidator shall
furnish to each Partner a statement showing the manner in which the Partnership
Assets were liquidated and distributed.
(e) In the event that the Partnership shall dissolve as a result of the
expiration of the term provided for herein or as a result of the occurrence of
an event of the type described in Section 9.1 (b) or (c), the General Partner
shall have the option of either (i) delivering to the Limited Partner,
Partnership property approximately equal in value to the value of such Limited
Partner's Partnership Interest upon the assumption by such Limited Partner of
such Limited Partner's
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proportionate share of the Partnership's liabilities and payment by such Limited
Partner (or the Partnership) of any excess (or deficiency) of the value of the
property so delivered over the value of such Limited Partner's Partnership
Interest or (ii) in lieu of requiring such Limited Partner to assume its
proportionate share of Partnership liabilities, delivering to such Limited
Partner unencumbered Partnership property approximately equal in value to the
net value of such Limited Partner's Partnership Interest.
9.3. Effect of Treasury Regulations.
(a) In the event the Partnership is "liquidated" within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article IX to the General Partner and the Limited Partners who
have positive Capital Accounts in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital
Account (after giving effect to all contributions, distributions and
allocations), such Partner shall have no obligation to make any contribution to
the capital of the Partnership.
(b) In the event the Partnership is "liquidated' within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but there has been no
dissolution of the Partnership under Section 9.1 hereof, then the Partnership
Assets shall not be liquidated, the Partnership's liabilities shall not be paid
or discharged and the Partnership's affairs shall not be wound up. In the event
of such a liquidation there shall be deemed to have been a distribution of
Partnership Assets in kind to the Partners in accordance with their respective
Capital Accounts followed by a recontribution of the Partnership Assets by the
Partners also in accordance with their respective Capital Accounts.
9.4. Time for Winding-Up.
Anything in this Article IX notwithstanding, a reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of the Partnership Assets in order to minimize
any potential for losses as a result of such process. During the period of
winding-up, this Agreement shall remain in full force and effect and shall
govern the rights and relationships of the Partners inter se.
ARTICLE X. AMENDMENTS AND MEETINGS
10.1. Amendment Procedure.
(a) Amendments to this Agreement may be made only with the Consent of
Partners owning Percentage Interests of no less than eighty eight percent (88%)
of all Percentage Interests. In connection with any proposed amendment of this
Agreement requiring Consent, the General Partner shall either call a meeting to
solicit the vote of the Partners or seek the written vote of the Partners to
such amendment. In the case of a request for a written vote, the General Partner
shall be authorized to impose such reasonable time limitations for response, but
in no event less than ten (10) days, with the failure to respond being deemed a
vote consistent with the vote of the General Partner.
(b) Notwithstanding the foregoing, amendments may be made to this Agreement
by the General Partner, without the Consent of any Limited Partner, to (i) add
to the representations,
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duties or obligations of the General Partner or surrender any right or power
granted to the General Partner herein; (ii) cure any ambiguity, correct or
supplement any provision herein which may be inconsistent with any other
provision herein or make any other provisions with respect to matters or
questions arising hereunder which will not be inconsistent with any other
provision hereof; (iii) reflect the admission, substitution, termination or
withdrawal of Partners in accordance with this Agreement; or (iv) satisfy any
requirements, conditions or guidelines contained in any order, directive,
opinion, ruling or regulation of a federal or state agency or contained in
federal or state law. The General Partner shall reasonably promptly notify each
Limited Partner whenever it exercises its authority pursuant to this Section 10.
l(b).
10.2. Meetings and Voting.
(a) Meetings of Partners may be called by the General Partner. The General
Partner shall give all Partners Notice of the purpose of such proposed meeting
not less than seven (7) days nor more than thirty (30) days prior to the date of
the meeting. Meetings shall be held at a reasonable time and place selected by
the General Partner. Whenever the vote or Consent of Partners is permitted or
required hereunder, such vote or Consent shall be requested by the General
Partner and may be given by the Partners in the same manner as set forth for a
vote with respect to an amendment to this Agreement in Section 10.1(a).
(b) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action to be taken is signed by the Partners owning Percentage Interests
required to vote in favor of such action, which consent may be evidenced in one
or more instruments. Consents need not be solicited from any other Partner if
the written consent of a sufficient number of Partners has been obtained to take
the action for which such solicitation was required.
(c) Each Limited Partner may authorize any Person or Persons, including
without limitation the General Partner, to act for him by proxy on all matters
on which a Limited Partner may participate. Every Proxy (i) must be signed by
the Limited Partner or his attorney-in-fact, (ii) shall expire eleven (11)
months from the date thereof unless the proxy provides otherwise and (iii) shall
be revocable at the discretion of the Limited Partner granting such proxy.
ARTICLE XI. MISCELLANEOUS PROVISIONS
11.1. Title to Property.
All property owned by the Partnership, whether real or personal, tangible
or intangible, shall be deemed to be owned by the Partnership as an entity, and
no Partner, individually, shall have any ownership of such property. The
Partnership shall hold its assets in its own name.
11.2. Other Activities of Limited Partners.
Except as expressly provided otherwise in this Agreement or in any other
agreement entered into by a Limited Partner or any Affiliate of a Limited
Partner and the Partnership, the General Partner or any Subsidiary of the
Partnership or the General Partner, any Limited Partner or any Affiliate of any
Limited Partner may engage in, or possess an interest in, other business
ventures of every nature and description, independently or with others,
including, without limitations real estate business ventures,
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whether or not such other enterprises shall be in competition with-any
activities of the Partnership, the General Partner or any Subsidiary of the
Partnership or the General Partner; and neither the Partnership, the General
Partner, any such Subsidiary nor the other Partners shall have any right by
virtue of this Agreement in and to such independent ventures or to the income or
profits derived therefrom.
11.3. Power of Attorney.
(a) Each Partner hereby irrevocably appoints and empowers the General
Partner (which term shall include the Liquidator, in the event of a liquidation,
for purposes of this Section 11.3) and each of their authorized officers and
attorneys-in-fact with full power of substitution as his true and lawful agent
and attorney-in-fact, with full power and authority in his name, place and stead
to make, execute, acknowledge, publish and file in the appropriate public
offices (a) any duly approved amendments to the Certificate pursuant to the Act
and to the laws of any state in which such documents are required to be filed;
(b) any certificates, instruments or documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction in which the
Partnership is doing or intends to do business; (c) any other instrument which
may be required to be filed by the Partnership under the laws of any state or by
any governmental agency, or which the General Partner deems advisable to file;
(d) any documents which may be required to effect the continuation of the
Partnership, the admission, withdrawal or substitution of any Partner pursuant
to Article VIII, dissolution and termination of the Partnership pursuant to
Article IX, or the surrender of any rights or the assumption of any additional
responsibilities by the General Partner; and (e) any document which may be
required to effect an amendment to this Agreement to correct any mistake,
omission or inconsistency, or to cure any ambiguity herein, to the extent such
amendment is permitted by Section 10.1(b).
(b) Nothing herein contained shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article X or as may be
otherwise expressly provided for in this Agreement.
(c) The foregoing grant of authority (i) is a special power of attorney,
coupled with an interest, and it shall survive the Involuntary Withdrawal of any
Partner and shall extend to such Partner's heirs, successors, assigns and
personal representatives; (ii) may be exercised by the General Partner for each
and every Partner acting as attorney-in-fact for each and every Partner; and
(iii) shall survive the Involuntary Withdrawal by a Limited Partner. Each
Partner hereby agrees to be bound by any representations made by the General
Partner, acting in good faith pursuant to such power of attorney. Each Partner
shall execute and deliver to the General Partner, within fifteen (15) days after
receipt of the General Partner's request therefor, such further designations,
powers of attorney and other instruments as the General Partner deems necessary
to effectuate this Agreement and the purposes of the Partnership.
11.4. Notices.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand delivery, registered first-class mail, telex,
telecopier, or any courier guaranteeing overnight delivery, (i) if to a Limited
Partner, to the address set forth on Schedule I hereto, or (ii) if to the
General Partner, _____________________________________________________, Attn:
President.
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All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if hand delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; or when receipt is acknowledged, if telecopied.
11.5. Further Assurances.
The parties agree to execute and deliver all such documents, provide all
such information and take or refrain from taking any action as may be necessary
or desirable to achieve the purposes of this Agreement and the Partnership.
11.6. Titles and Captions.
All article or section titles or captions in this Agreement are solely for
convenience and shall not be deemed to be part of this Agreement or otherwise
define, limit or extend the scope or intent of any provision hereof.
11.7. Applicable Law.
This Agreement, and the application or interpretation thereof, shall be
governed exclusively by its terms and by the law of the State of Pennsylvania,
without regard to its principles of conflicts of laws.
11.8. Binding Agreement.
This Agreement shall be binding upon the parties hereto, their heirs,
executors, personal representatives, successors and assigns.
11.9. Waiver of Partition.
Each of the parties hereto irrevocably waives during the term of the
Partnership any right that it may have to maintain any action for partition with
respect to any property of the Partnership.
11.10. Counterparts and Effectiveness.
This Agreement may be executed in several counterparts, which shall be
treated as originals for all purposes, and all so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that all the
parties are not signatory to the original or the same counterpart. Any such
counterpart shall be admissible into evidence as an original hereof against each
Person who executed it. The execution of this Agreement and delivery thereof by
facsimile shall be sufficient for all purposes, and shall be binding upon any
party who so executes.
11.11. Survival of Representations.
All representations and warranties herein shall survive the dissolution and
final liquidation of the Partnership.
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11.12. Entire Agreement.
This Agreement (and all Exhibits hereto) contains the entire understanding
among the parties hereto and supersedes all prior written or oral agreements
among them respecting the within subject matter, unless otherwise provided
herein. There are no representations, agreements, arrangements or
understandings, oral or written, among the Partners hereto relating to the
subject matter of this Agreement which are not fully expressed herein and in
said Exhibits.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the day and year first above written.
General Partner FCO HOLDINGS, INC.
By: ________________________________
Limited Partners: FCO, L.P.
By: ROYALE INVESTMENTS, INC
its General Partner
By: ________________________________
-----------------------------------
CLAY W. HAMLIN, III]
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SCHEDULE I
SCHEDULE OF PARTNERS
===============================================================================
NAME INTEREST IN THE CAPITAL PERCENTAGE
PARTNERSHIP CONTRIBUTION INTEREST
FCO Holdings, Inc. General Partner 00.10 Percent
FC, L.P. Limited Partner 88.90 Percent
Clay W. Hamlin, III Limited Partner 11.00 Percent
29
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TABLE OF CONTENTS
1. INTERPRETIVE PROVISIONS.................................................1
1.1. CERTAIN DEFINITIONS...................................................1
1.2. RULES OF CONSTRUCTION.................................................7
2. FORMATION...............................................................8
2.1. FORMATION.............................................................8
2.2. NAME..................................................................8
2.3. PLACE OF BUSINESS; REGISTERED AGENT...................................8
3. BUSINESS PURPOSE........................................................8
3.1. BUSINESS..............................................................8
3.2. AUTHORIZED ACTIVITIES.................................................8
4. CAPITAL CONTRIBUTIONS...................................................9
4.1. CAPITAL CONTRIBUTIONS.................................................9
4.2. ADDITIONAL PARTNERSHIP INTERESTS......................................9
4.3. NO THIRD PARTY BENEFICIARIES.........................................10
4.4. CAPITAL ACCOUNTS.....................................................10
4.5. RETURN OF CAPITAL ACCOUNT; INTEREST..................................11
4.6. PREEMPTIVE RIGHTS....................................................11
5. ALLOCATIONS AND DISTRIBUTIONS..........................................12
5.1. LIMITED LIABILITY....................................................12
5.2. PROFITS, LOSSES AND DISTRIBUTIVE SHARES..............................12
5.3. DISTRIBUTIONS........................................................16
5.4. DISTRIBUTIONS UPON LIQUIDATION.......................................16
5.5. AMOUNTS WITHHELD.....................................................17
6. PARTNERSHIP MANAGEMENT.................................................17
6.1. MANAGEMENT AND CONTROL OF PARTNERSHIP BUSINESS.......................17
6.2. NO MANAGEMENT BY LIMITED PARTNER; LIMITATION OF LIABILITY............17
6.3. LIMITATIONS ON PARTNERS..............................................18
6.4. BUSINESS WITH AFFILIATES.............................................18
6.5. REIMBURSEMENT OF EXPENSES............................................18
6.6. LIABILITY FOR ACTS AND OMISSIONS.....................................18
6.7. INDEMNIFICATION......................................................19
7. ADMINISTRATIVE, FINANCIAL AND TAX MATTERS................................
7.1. BOOKS AND RECORDS....................................................19
7.2. ANNUAL AUDIT AND ACCOUNTING..........................................19
7.3. PARTNERSHIP FUNDS....................................................20
7.4. REPORTS AND NOTICES..................................................20
7.5. TAX MATTERS..........................................................20
7.6. WITHHOLDING..........................................................21
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8. TRANSFER OF PARTNERSHIP INTERESTS......................................21
8.1. TRANSFERS PROHIBITED.................................................21
8.2. OBLIGATIONS OF A PRIOR GENERAL PARTNER...............................21
8.3. SUCCESSOR GENERAL PARTNER............................................22
9. DISSOLUTION AND LIQUIDATION............................................22
9.1. TERM AND DISSOLUTION.................................................22
9.2. LIQUIDATION OF PARTNERSHIP ASSETS....................................23
9.3. EFFECT OF TREASURY REGULATIONS.......................................24
9.4. TIME FOR WINDING-UP..................................................24
10. AMENDMENTS AND MEETINGS...............................................25
10.1. AMENDMENT PROCEDURE.................................................24
10.2. MEETINGS AND VOTING.................................................25
11. MISCELLANEOUS PROVISIONS..............................................26
11.1. TITLE TO PROPERTY...................................................25
11.2. OTHER ACTIVITIES OF LIMITED PARTNERS................................25
11.3. POWER OF ATTORNEY...................................................26
11.4. NOTICES.............................................................26
11.5. FURTHER ASSURANCES..................................................27
11.6. TITLES AND CAPTIONS.................................................27
11.7. APPLICABLE LAW......................................................27
11.8. BINDING AGREEMENT...................................................27
11.9. WAIVER OF PARTITION.................................................27
11.10. COUNTERPARTS AND EFFECTIVENESS.....................................27
11.11. SURVIVAL OF REPRESENTATIONS........................................27
11.12. ENTIRE AGREEMENT...................................................28
2
EMPLOYMENT AGREEMENT
CLAY W. HAMLIN, III
This Employment Agreement (this "Agreement"), is made and entered into as
of the 14th day of October, 1997 (the "Effective Date"), by and between FCO,
L.P., a Delaware limited partnership (the "Employer"), and Clay W. Hamlin, III
(the "Executive").
RECITALS
A. The Employer desires to employ the Executive as an officer of the
Employer for a specified term, and the Executive is willing to accept such
employment upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter contained, it is covenanted and agreed by and between the
parties hereto as follows:
AGREEMENTS
1. POSITION AND DUTIES. The Employer hereby employs the Executive as the
President and Chief Executive Officer of the Employer, or in such other capacity
as shall be mutually agreed between the Employer and the Executive. During the
period of the Executive's employment hereunder, the Executive shall devote his
best efforts and full business time, energy, skills and attention to the
business and affairs of the Employer. The Executive's duties and authority shall
consist of and include all duties and authority customarily performed and held
by persons holding equivalent positions with business organizations similar in
nature and size to the Employer, as such duties and authority are reasonably
defined, modified and delegated from time to time by the Board of Directors of
the Employer (the "Board"). The Executive shall have the powers necessary to
perform the duties assigned to him, and shall be provided such supporting
services, staff, secretarial and other assistance, office space and
accouterments as shall be reasonably necessary and appropriate in the light of
such assigned duties.
2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:
<PAGE>
-2-
(a) BASE SALARY. The Executive shall receive an aggregate annual
minimum "Base Salary" at the rate of Ninety Thousand dollars ($90,000) per
annum, payable in periodic installments in accordance with the regular
payroll practices of the Employer. Such Base Salary shall be subject to
review annually by the Compensation Committee of the Board during the term
hereof, in accordance with the Employers established compensation policies.
(b) PERFORMANCE BONUS. The Executive shall receive an annual cash
"Performance Bonus," payable within forty-five (45) days after the end of
the fiscal year of the Employer, which for the initial year shall depend
upon achievement of the Company's minimum no - growth budget, and also
shall be based upon company-wide and individual performance criteria
mutually agreed upon from time to time by the Executive and the Board, and
which shall be determined by the Board based upon the recommendation of the
Compensation Committee thereof.
(c) BENEFITS. The Executive shall be entitled to all perquisites
extended to similarly situated executives, as such are stated in the
Employer's Executive Perquisite Policy (the "Perquisite Policy")
promulgated for the Board by the Compensation Committee of the Board, and
which Perquisite Policy is hereby incorporated by reference, as amended
from time to time. In addition, the Executive shall be entitled to
participate in all plans and benefits generally, from time to time,
accorded to employees of the Employer ("Benefit Plans"), all as determined
by the Board from time to time based upon the input of its Compensation
Committee.
(d) WITHHOLDING. The Employer shall be entitled to withhold from
amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which it is from time to time
required to withhold. The Employer shall be entitled to rely upon the
opinion of its independent accountants, with regard to any question
concerning the amount or requirement of any such withholding.
3. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be for a
continuous and self-renewing two (2) year term, commencing as of the
Effective Date, unless terminated by either party, with or without cause,
effec-
<PAGE>
-3-
tive as of the first (1st) business day after written notice to that effect
is delivered to the other party.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment of the
Executive under this Agreement by the Employer because of failure to
meet the minimum no-growth budget (attached hereto) or for any reason
other than expiration of the term hereof or a "for-cause" termination
in accordance with the provisions of paragraph (d) of this Section 3,
then notwithstanding any actual or allegedly available alternative
employment or other mitigation of damages by or available to the
Executive, the Executive shall be entitled to a "Lump Sum Payment"
equal to the sum of: (w) his monthly Base Salary then payable,
multiplied by the remaining number of months or partial months until
expiration of the Basic Term or renewal term, if any, and an
annualized and proportional amount equal to the average of the two (2)
most recent annual Performance Bonuses that the Executive received;
For purposes of calculating the Lump Sum Payment amounts due, the
Executive's employment with the Employer shall be agreed to have
commenced on October , 1997. In the event of a termination governed by
this subparagraph (b)(i) of Section 3, the Employer shall also: (y)
notwithstanding the vesting schedule otherwise applicable, fully vest
all of Executive's options outstanding under any option or stock
incentive plan herein after established by Employer ("Option Plan")
and allow a period of eighteen (18) months following the termination
of employment for the Executive to exercise any such options; and (z)
continue for the Executive (provided that such items are not available
to him by virtue of other employment secured after termination) the
perquisites. plans and benefits provided under the Employer's
Perquisite Policy and Benefit Plans as of and after the date of
termination, [all items in (z) being collectively referred to as
"Post-Termination Perquisites and Benefits"], for the lesser of the
number of full months the Executive has theretofore been employed by
the Employer or twenty four (24) months following such termination.
The payments and benefits provided under (w), (x), (y) and (z) above
by the Employer shall not be offset against or diminish any other
compensa-
<PAGE>
-4-
tion or benefits accrued as of the date of termination.
(ii) Payment to the Executive under this Section 3(b) will be
made monthly over twelve (12) months.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term of this
Agreement, except in connection with a "for-cause" termination pursuant to
paragraph (d) of this Section 3, the Executive is Constructively Discharged
(as hereinafter defined), then the Executive shall have the right, by
written notice to the Employer given within one hundred and twenty (120)
days of such Constructive Discharge, to terminate his services hereunder,
effective as of thirty (30) days after such notice, and the Executive shall
have no rights or obligations under this Agreement other than as provided
in Section 5 hereof. The Executive shall in such event be entitled to a
Lump Sum Payment of Base Salary and Performance Bonus compensation as well
as all of the Post-Termination Prerequisites and Benefits, as if such
termination of his employment had been effectuated pursuant to paragraph
(b) of this Section 3.
For purposes of this Agreement, the Executive shall be deemed to have been
"Constructively Discharged" upon the occurrence of any one of the following
events.
(i) The Executive is not re-elected to, or is removed from, both
of the positions with the Employer set forth in Section I hereof,
other than as a result of the Executive's election or appointment to
positions of equal or superior scope and responsibility; or
(ii) The Executive shall fail to be vested by the Employer with
the powers, authority and support services normally attendant to any
of said offices; or
(iii) The Employer shall notify the Executive that the employment
of the Executive will be terminated or materially modified in the
future or that the Executive will be Constructively Discharged in the
future; or
(iv) The Employer changes the primary employment location of the
Executive to a place that is more
<PAGE>
-5-
than fifty (50) miles from the primary employment location as of the
Effective Date of this Agreement; or
(v) The Employer otherwise commits a material breach of its
obligations under this Agreement.
(d) TERMINATION FOR CAUSE. The employment of the Executive and this
Agreement may be terminated "for-cause" as hereinafter defined. Termination
"for-cause" shall mean the termination of employment on the basis or as a
result of: (i) the Executive's death or his permanent disability, which
latter term shall mean the Executive's inability, as a result of physical
or mental incapacity, substantially to perform his duties hereunder for a
period of either six (6) consecutive months, or one hundred and twenty
(120) business days within a consecutive twelve (12) month period; (ii) a
material violation by the Executive of any applicable material law or
regulation respecting the business of the Employer, (iii) the Executive
being found guilty of, or being publicly associated with, to the Employer's
detriment, a felony or an act of dishonesty in connection with the
performance of his duties as an officer of the Employer, or the Executive's
commission of an act which disqualifies the Executive from serving as an
officer or director of the Employer, or (iv) the willful or negligent
failure of the Executive to perform his duties hereunder in any material
respect. The Executive shall be entitled to at least thirty (30) days'
prior written notice of the Employer's intention to terminate his
employment for any cause (except the Executive's death), specifying the
grounds for such termination, affording the Executive a reasonable
opportunity to cure any conduct or act (if curable) alleged as grounds for
such termination and a reasonable opportunity to present to the Board his
position regarding any dispute relating to the existence of such cause.
(e) TERMINATION UPON DEATH. In the event payments are due and owing
under this Agreement at the death of the Executive, such payments shall be
made to such beneficiary, designee or fiduciary as Executive may have
designated in writing, or failing such designation, to the executor or
administrator of his estate, in full settlement and satisfaction of all
claims and demands on behalf of the Executive. Such payments shall be in
addition to any other death benefits of the Employer made available for the
benefit of the Executive, and in full settlement and
<PAGE>
-6-
satisfaction of all payments provided for in this Agreement.
(f) TERMINATION UPON DISABILITY. The Employer may terminate the
Executive's employment after the Executive is determined to be disabled
under the current Employer program or by a physician engaged by the
Employer. In the event of a dispute regarding the Executive's "disability,"
such dispute shall be resolved through arbitration as provided in paragraph
(d) of Section 9 hereof except that the arbitrator appointed by the
American Arbitration Association shall be a duly licensed medical doctor.
The Executive shall be entitled to the compensation and benefits provided
for under this Agreement during any period of incapacitation occurring
during the term of this Agreement, and occurring prior to the establishment
of the Executive's "disability" during which the Executive is unable to
work due to a physical or mental infirmity. Notwithstanding anything
contained in this Agreement to the contrary, until the date specified in a
notice of termination relating to the Executive's disability, the Executive
shall be entitled to return to his positions with the Employer as set forth
in this Agreement, in which event no disability of the Executive will be
deemed to have occurred.
(g) TERMINATION UPON CHANGE OF CONTROL.
(i) In the event of a Change in Control (as defined below) of the
Employer and the termination of the Executive's employment by
Executive or by the Employer under either 1 or 2 below, the Executive
shall be entitled to a Lump Sum Payment equal to the sum of: (w) his
monthly Base Salary then payable, multiplied by the lesser of the
number of full months the Executive has theretofore been employed by
the Employer or twenty-four (24); plus (x) two (2) times the average
of the two (2) most recent annual Performance Bonuses that the
Executive received; provided, however, that if the Executive has been
employed by the Employer for fewer than two (2) years, then the amount
set forth in (x) above shall be equal to two (2) times the average of
the annual Performance Bonuses that the Executive has theretofore
received from the Employer. The Employer shall also: (y)
notwithstanding the vesting schedule otherwise applicable, fully vest
all of Executive's options outstanding under any Option Plan and allow
a period
<PAGE>
-7-
of eighteen (18) months following the termination of employment of the
Executive for the Executive's exercise of such options; and (z)
continue for the Executive (provided that such items are not available
to him by virtue of other employment secured after termination) all of
the perquisites, plans and benefits provided under paragraph (c) of
Section z, for the lesser of the number of full months the Executive
has been employed by the Employer or twenty-four (24) months following
such termination. The payments and benefits provided under (w), (x),
(y) and (z) above by the Employer shall not be offset against or
diminish any other compensation or benefits accrued as of the date of
termination. The following shall constitute termination under this
paragraph:
1. The Executive terminates his employment under this Agreement
pursuant to a written notice to that effect delivered to the
Board within six (6) months after the occurrence of the
Change in Control.
2. Executive's employment is terminated, including
Constructively Discharged, by the Employer or its successor
either in contemplation of or after Change in Control, other
than on a for-cause basis.
(ii) For Purposes of this paragraph, the term "Change in Control"
shall mean the following occurring after the date of this Agreement:
1. The Consummation of the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the " 1934 Act")) of
beneficial ownership (within the meaning of Rule l3d-3
promulgated under the 1934 Act) of forty percent (40%) or
more of the combined voting power embodied in the
then-outstanding voting securities of the Employer; or
2. Approval by the stockholders of the Employer of: (1) a
merger or consoli-
<PAGE>
-8-
dation of the Employer, if the stockholders of the Employer
immediately before such merger or consolidation do not, as a
result of such merger or consolidation, own, directly or
indirectly, more than fifty percent (500%) of the combined
voting power of the then outstanding voting securities of
the entity resulting from such merger or consolidation in
substantially the same proportion as was represented by
their ownership of the combined voting power of the voting
securities of the Employer outstanding immediately before
such merger or consolidation; or (2) a complete or
substantial liquidation or dissolution or an agreement for
the sale or other disposition, of all or substantially all
of the assets of the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because forty percent (40%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or directly or
indirectly by the stockholders of the Employer immediately prior to such
acquisition.
(iii) If it is determined, in the opinion of the Employer's
independent accountants, in consultation with the Employer's
independent counsel, that any amount payable to the Executive by
the Employer under this Agreement, or any other plan or agreement
under which the executive participates or is a party, would
constitute an "Excess Parachute Payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") and be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), the Employer shall pay to
the Executive a "grossing-up" amount equal to the amount of such
Excise Tax and all federal and state income or other taxes with
respect payment of the amount of such Excise Tax, including all
such taxes with respect to any such grossing-up amount. If at a
later date, the Internal Revenue Service assesses a defi-
<PAGE>
-9-
ciency against the Executive for the Excise Tax which is greater
than that which was determined at the time such amounts were
paid, the Employer shall pay to the Executive the amount of such
unreimbursed Excise Tax plus any interest, penalties and
professional fees or expenses, incurred by the Executive as a
result of such assessment, including all such taxes with respect
to any such additional amount. The highest marginal tax rate
applicable to individuals at the time of payment of such amounts
will be used for purposes of determining the federal and state
income and other taxes with respect thereto. The Employer shall
withhold from any amounts paid under this Agreement the amount of
any Excise Tax or other federal, state or local taxes then
required to be withheld. Computations of the amount of any
grossing-up supplemental compensation paid under this
subparagraph shall be made by the Employer's independent
accountants, in consultation with the Employer's independent
legal counsel. The Employer shall pay all accountant and legal
counsel fees and expenses.
4. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that heretofore
or hereafter during the course of his employment he has produced and received,
and may hereafter produce, receive and otherwise have access to various
materials, records, data trade secrets and information not generally available
to the public (collectively, "Confidential Information") regarding the Employer
and its subsidiaries and affiliates. Accordingly, during and subsequent to
termination of this Agreement, the Executive shall hold in confidence and not
directly or indirectly disclose, use, copy or make lists of any such
Confidential Information, except to the extent that such information is or
thereafter becomes lawfully available from public sources, or such disclosure is
authorized in writing by the Employer, required by law or by any competent
administrative agency or judicial authority, or otherwise as reasonably
necessary or appropriate in connection with the performance by the Executive of
his duties hereunder. All records, files, documents, computer diskettes,
computer programs and other computer-generated material , as well as all other
materials or copies thereof relating to the Employer's business, which the
Executive shall prepare or use, shall be and remain the sole property of the
Employer, shall not be removed from the Employer's premises without its written
consent, and shall be promptly returned to the Employer upon termination of the
Executive's employment hereunder. The Executive agrees to abide by the
Employer's reasonable policies, as in effect from time
<PAGE>
-10-
to time, respecting confidentiality and the avoidance of interests conflicting
with those of the Employer.
5. NON-COMPETITION OF COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have jointly
reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Employer, and have agreed that as an essential ingredient
of and in consideration of this Agreement and the payment of the amounts
described in Sections 2 and 3 hereof, the Executive hereby agrees that,
except with the express prior written consent of the Employer, for a period
equal to the lesser of the number of full months the Executive has at any
time been employed by the Employer or twenty-four (24) months after the
termination of the Executive's employment with the Employer (the
"Restrictive Period"), he will not directly or indirectly compete with the
business of the Employer, including, but not by way of limitation, by
directly or indirectly owning, managing, operating, controlling, financing,
or by directly or indirectly serving as an employee, officer or director of
or consultant to, or by soliciting or inducing, or attempting to solicit or
induce, any employee or agent of Employer to terminate employment with
Employer and become employed by any person, firm, partnership, corporation,
trust or other entity which owns or operates a business similar to that of
the Employer (the "Restrictive Covenant"). For purposes of this
subparagraph (a) a business shall be considered "similar" to that of the
Employer if it is engaged in the acquisition, development, ownership,
operation, management or leasing of office or net leased retail property
(i) in any geographic market or territory in which the Employer owns
properties either as of the date hereof or as of the date of termination of
the Executive's employment; or (ii) in any market in which an acquisition
is pending at the time of the termination of the Executive's employment. If
the Executive violates the Restrictive Covenant and the Employer brings
legal action for injunctive or other relief, the Employer shall not, as a
result of the time involved in obtaining such relief, be deprived of the
benefit of t he full period of the Restrictive Covenant. Accordingly, the
Restrictive Covenant shall be deemed to have the duration specified in this
paragraph (a) computed from the date the relief is granted but reduced by
the time between the period when the Restrictive Period began to run and
the date of the first violation of the Restrictive Covenant by the
Executive. In the event that a suc-
<PAGE>
-11-
cessor of the Employer assumes and agrees to perform this Agreement or
otherwise acquires the Employer, this Restrictive Covenant shall continue
to apply only to the primary service area of the Employer as it existed
immediately before such assumption or acquisition and shall not apply to
any of the successor's other offices or markets. The foregoing Restrictive
Covenant shall not prohibit the Executive from owning directly or
indirectly, capital stock or similar securities which are listed on a
securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System which do not represent more than five
percent (5%) of the outstanding capital stock of any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 4 and 5 of this
Agreement are reasonable and necessary for the protection of the legitimate
proprietary business interests of the Employer, that any violation of these
restrictions would cause substantial injury to the Employer and such
interests; that the Employer would not have entered into this Agreement
with the Executive without receiving the additional consideration offered
by the Executive in binding himself to these restrictions; and that such
restrictions were a material inducement to the Employer to enter into this
Agreement. In the event of any violation or threatened violation of these
restrictions, the Employer shall be relieved of any further obligations
under this Agreement, shall be entitled to any rights, remedies or damages
available at law, in equity or otherwise under this Agreement, and shall be
entitled to preliminary and temporary injunctive relief granted by a court
of competent jurisdiction to prevent or restrain any such violation by the
Executive and any and all persons directly or indirectly acting for or with
him, as the case may be, while awaiting the decision of the arbitrator
selected in accordance with paragraph (d) of Section 9 of this Agreement,
which decision, if rendered adverse to the Executive, may include permanent
injunctive relief to be granted by the court.
6. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement, and the employing corporation to which
the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as the Employer
as of the date of such transfer. For all rele-
<PAGE>
-12-
vant purposes hereof, the tenure of the Executive shall be deemed to include the
aggregate term of his employment by the Employer or its affiliate.
7. INTEREST IN ASSETS. Neither the Executive nor his estate shall acquire
hereunder any rights in funds or assets of the Employer, otherwise than by and
through the actual payment of amounts payable hereunder; nor shall the Executive
or his estate have any power to transfer, assign, anticipate, hypothecate or
otherwise encumber in advance any of said payments; nor shall any of such
payments be subject to seizure for the payment of any debt, judgment, alimony,
separate maintenance or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise of the Executive.
8. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his heirs,
personal representatives, executors and administrators), during the term of
this Agreement and thereafter throughout all applicable limitations
periods, with coverage under the Employer's then-current directors' and
officers' liability insurance policy, at the Employer's expense.
(b) In addition to the insurance coverage provided for in paragraph
(a) of this Section 8, the Employer shall defend, hold harmless and
indemnify the Executive (and his heirs, executors and administrators) to
the fullest extent permitted under applicable law, and subject to the
requirements, limitations and specifications set forth in the Bylaws and
other organization documents of the Employer, against all expenses and
liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been an officer of the Employer (whether of not he continues to be
an officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments,
court costs and attorney's fees and the cost of reasonable settlements.
(c) In the event the Executive becomes a party, or is threatened to be
made a party, to any action, suit or proceeding for which other Employer
has agreed to provide insurance coverage or indemnification under Section
8, the Employer shall, to the full extent permitted under applicable law,
advance all expenses (including the reasonable
<PAGE>
-13-
attorneys' fees of the attorneys selected by Employer and approved by
Executive for the representation of the Executive), judgments, fines and
amounts paid in settlement (collectively "Expenses") incurred by the
Executive in connection with the investigation, defense, settlement, or
appeal of any threatened, pending or completed action, suit or proceeding,
subject to receipt by the Employer of a written undertaking from the
Executive covenanting: (i) to reimburse the Employer for all Expenses
actually paid by the Employer to or on behalf of the Executive in the event
it shall be ultimately determined that the Executive is not entitled to
indemnification by the Employer for such Expenses; and (ii) to assign to
the Employer all rights of the Executive to insurance proceeds, under any
policy of directors' and officers' liability insurance or otherwise, to the
extent of the amount of Expenses actually paid by the Employer to or on
behalf of the Executive.
9. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Executive, the Employer and his and its
respective personal representatives, successors and assigns, and any
successor or assign of the Employer shall be deemed the "Employer"
hereunder. The Employer shall require any successor to all or substantially
all of the business and/or assets of the Employer, whether directly or
indirectly, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent as the Employer would be required to
perform if no such succession had taken place. (b) ENTIRE AGREEMENT;
MODIFICATIONS. This Agreement constitutes the entire agreement between the
parties respecting the subject matter hereof, and supersedes all prior
negotiations, undertakings, agreements and arrangements with respect
thereto, whether written or oral. Except as otherwise explicitly provided
herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this Agreement
shall be regarded as divisible and separate; if any of said provisions
should be declared invalid
<PAGE>
-14-
or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remaining provisions shall not be affected thereby.
This Agreement shall be construed and the legal relations of the parties
hereto shall be determined in accordance with the laws of the State of
Pennsylvania as it constitutes the situs of the corporation and the
employment hereunder, without reference to the law regarding conflicts of
law.
(d) ARBITRATION. Except as provided in paragraph (b) of Section 5, any
dispute or controversy arising under or in connection with this Agreement
or the Executive's employment by the Employer shall be settled exclusively
by arbitration, conducted by a single arbitrator sitting in Philadelphia,
Pennsylvania in accordance with the rules of the American Arbitration
Association (the "AAA") then in effect. The arbitrator shall be selected by
the parties from a list of eleven (11) arbitrators provided by the AAA,
provided that no arbitrator shall be related to or affiliated with either
of the parties. No later than ten (10) days after the list of proposed
arbitrators is received by the parties, the parties, or their respective
representatives, shall meet at a mutually convenient location in
Philadelphia, Pennsylvania, or telephonically. At that meeting, the party
who sought arbitration shall eliminate one (1) proposed arbitrator and then
the other party shall eliminate one (1) proposed arbitrator. The parties
shall continue to alternatively eliminate names from the list of proposed
arbitrators in this manner until each party has eliminated five (5)
proposed arbitrators. The remaining arbitrator shall arbitrate the dispute.
Each party shall submit, in writing, the specific requested action or
decision it wishes to take, or make, with respect to the matter in dispute,
and the arbitrator shall be obligated to choose one (i) party's specific
requested action or decision, without being permitted to effectuate any
compromise or "new" position, provided, however, that the arbitrator is
authorized to award amounts not in dispute during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
The Employer shall beat the cost of all counsel, experts or other
representatives that are retained by both parties, together with all costs
of the arbitration proceeding, including, without limitation, the fees,
costs and expenses imposed or incurred by the arbitrator. Judgment may be
entered on the arbitrator's award in any court having jurisdiction;
including, if applicable, entry of a permanent injunction under paragraph
(b) of Section 5-
<PAGE>
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(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or other
public communication by either the Executive or the Employer with any other
person concerning the terms, conditions or circumstances of Executive's
employment, or the termination of such employment, shall be subject to
prior written approval of both the Executive and the Employer, subject to
the proviso that the Employer shall be entitled to make requisite and
appropriate public disclosure of the terms of this Agreement, without the
Executive's consent or approval, as required under applicable statutes, and
the rules and regulations of the Securities and Exchange Commission and the
Stock Exchange on which the shares of Employer may from time to time be
listed.
(f) WAIVER. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party, shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same time or any
prior or subsequent time.
(g) NOTICES. Notices given pursuant to this Agreement shall be in
writing, and shall be deemed given when received, and, if mailed, shall be
mailed by United States registered or certified mail, return receipt
requested, postage prepaid. Notices to the Employer shall be addressed to
the principal headquarters of the Employer, Attention: Chairman. Notices to
the Executive, shall be sent to the address set forth below the Executives
signature on this Agreement, or to such other address as the party to be
notified shall have given to the other.
<PAGE>
-16-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
FCO, L.P. CLAY W. HAMLIN, III
a Delaware limited partnership
by its general partner,
Royale Investment Inc.
By: _______________________ ____________________
Clay W. Hamlin, III
REGISTRATION RIGHTS AGREEMENT
Dated as of October 1, 1997
of
ROYALE INVESTMENTS, INC.
for the benefit of
HOLDERS OF LIMITED PARTNERSHIP UNITS AND PREFERRED UNITS
of
FCO, L.P.
and
HOLDERS OF COMMON STOCK
of
ROYALE INVESTMENTS, INC.
<PAGE>
-2-
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agmement") is made and entered
into as of October 1, 1997 by Royale Investments, Inc., a Minnesota corporation
(the "Company"), for the benefit of (w) the persons who own limited partnership
units ("Partnership Units") and/or preferred units ("Preferred Units"), whether
owned as of the date hereof or hereafter acquired, of FCO, L.P., a limited
partnership formed under the Delaware Revised Uniform Limited Partnership Act
(the "Partnership"), (x) Vernon Beck, Robert L. Denton, Clay W. Hamlin III, John
Parsinen and Jay H. Shidler, (y) persons issued shares of Common Stock of the
Company ("Common Stock") pursuant to the Contribution Agreement (as defined
below), and (z) the respective successors. assigns, transferees and estates of
the persons identified in clauses (w), (x) and (y) (herein referred to
collectively as the "Holders" and individually as a "Holder"). The Partnership
Units and Preferred Units are herein sometimes collectively called the "Units."
WHEREAS, on the date hereof certain Holden have become the owner of Units
in connection with the contributions (the "Contributions") of certain general
and limited partnership interests and other assets to the Partnership pursuant
to the Formation/Contribution Agreement dated as of September 7, 1997 by and
among the Company, H/SIC Corporation, Strategic Facility Investors, Inc., South
Brunswick Investment Company, LLC, Comcourt investment Corporation and Gateway
Shannon Development Corporation, as the same may at any time be amended,
modified and supplemented and in effect (the "Contribution Agreement");
WHEREAS, pursuant to the Partnership Agreement the Holders of Preferred
Units have the right to convert them into Partnership Units;
WHEREAS, on the date hereof, the Company has become the sole general
partner of the Partnership;
WHEREAS, on the date hereof. certain Holders have become the owner of
Common Stock pursuant to the Contribution Agreement in consideration of assets
transferred to the Company;
WHEREAS, on the date hereof, the Common Stock is publicly held and traded
and the Company is an issuer which is subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended from time to time (the "Exchange
Act");
WHEREAS, in connection with the foregoing, the Company has agreed, subject
to the terms, conditions and limitations set forth in this Agreement, to provide
the Holders with certain registration rights in respect of shares of Common
Stock either (x) issued pursuant to the Contribution Agreement or (y) upon
redemption of Partnership Units as and to the extent set forth in that certain
Limited Partnership Agreement of the Partnership dated October 14, 1997 among
the sole general and initial limited parties party thereto, as the same may be
amended. modified or supplemented from time to time and in effect (the
"Partnership Agreement").
NOW, THEREFORE, the Company and the Partnership for the benefit of the
Holders each agrees as follows:
<PAGE>
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Section 1. Definitions.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
Commission: The Securities and Exchange Commission.
Common Stock: Shares of common stock, $.01 par value, of the Company.
Contribution Agreement: As set forth in the preamble.
Contributions: As set forth in the preamble.
Exchange Act: As set forth in the preamble.
Holder or Holders: As set forth in the preamble.
Holders Entitled to Registration Rights: As set forth in Section 2(b).
Majority Holders: At any time, Holders of Registrable Securities, Preferred
Units then convertible into Units and Units then redeemable for Registrable
Securities who, if all such Preferred Units were converted and all such Units
were so redeemed, would then hold a majority of the Registrable Securities.
Minimum Registrable Amount: At any date of determination, Registrable
Securities having an aggregate fair market value of at least $3 million.
NASD: The National Association of Securities Dealers, Inc.
Partnership: As set forth in the preamble.
Partnership Agreement: As set forth in the preamble.
Person: Any individual, partnership, corporation, trust or other legal
entity.
Preferred Units: As set forth in the Partnership Agreement.
Prospectus: A prospectus included in a Registration Statement, including
any preliminary prospectus, and any such prospectus as amended or supplemented
by any prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement,
and by all other amendments and supplements to such prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
Registrable Securities: The Shares, excluding (i) Shares as to which a
Registration Statement shall have become effective under the Securities Act
pursuant to Section 2, 3 or Section 4 of this Agreement and which shall have
been disposed of under such Registration Statement, (ii) Shares sold or
otherwise distributed pursuant to Rule 144 under the Securities Act and (iii)
Shares as to which registration under the Securities Act is not required to
permit the sale thereof to the public.
<PAGE>
-4-
Sale Period: The 45-day period immediately following the filing with the
Commission by the Company of an annual report of the Company on Form 10-K or a
quarterly report of the Company on Form 10-Q or such other period as the Company
may determine.
Securities Act: The Securities Act of 1933, as amended from time to time.
Shares: The shares of Common Stock issued to Holders of Units upon
redemption or exchange of their Units pursuant to the Partnership Agreement Or
to Holders pursuant to the Contribution Agreement.
Shelf Registration Statement: shall mean a "shelf" registration statement
of the Company and any other entity required to be a registrant with respect to
such shelf registration statement pursuant to the requirements of the Securities
Act which covers all of the Registrable Securities then issued and outstanding
or which may thereafter be issued in redemption or exchange of any Units
(including, without limitation, Units issuable upon conversion of Preferred
Units) on an appropriate form under Rule 415 under the Securities Act, Or any
similar rule that may be adopted by the Commission, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all materials incorporated by reference therein.
Units: Limited partnership interests in the Partnership issued to Holders
in connection with the Contributions.
Section 2. Shelf Registration Under the Securities Act.
(a) Filing of Shelf Registration Statement. Within ten months following the
date hereof, the Company shall cause to be filed a Shelf Registration Statement
providing for the sale by the Holders of all of the Registrable Securities in
accordance with the terms hereof and will use its reasonable best efforts to
cause such Shelf Registration Statement to be declared effective by the SEC as
soon as reasonably practicable. The Company agrees to use its reasonable best
efforts to keep the Shelf Registration Statement continuously effective under
the Securities Act until such time as the aggregate number of Registrable
Securities outstanding (computed for this purpose as if all outstanding
Preferred Units have been converted into Units and all thereafter outstanding
Units have been redeemed or exchanged for Common Stock) is less than 5% of the
aggregate number of Registrable Securities outstanding on the date hereof (after
giving effect to the Contributions, including, without limitation, in respect of
Retained Interests (as defined in the Contribution Agreement), and further
agrees to supplement or amend the Shelf Registration Statement, if and as
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the Securities Act or by any other rules and regulations thereunder for Shelf
Registration. Each Holder who sells Shares as part of the Shelf Registration
shall be deemed to have agreed to all of the terms and conditions of this
Agreement and to have agreed to perform any an all obligations of a Holder
hereunder.
(b) Inclusion in Shelf Registration Statement. Not later than 30 days prior
to filing the Shelf Registration Statement with the Commission, the Company
shall notify each Holder (including any Person who is then entitled to become a
Holder pursuant to the Partnership Agreement by reason of owning Units or
Preferred Units, including, without limitation, Persons holding Retained
Interests) ("Holders Entitled to Registration Rights") of its intention to make
such filing and request advice from each such Holder as to whether such Holder
desires to have Registrable Securities held by it or which it is entitled to
receive not later than the last day of the first Sale Period occurring in whole
or in part after the date of such notice included in
<PAGE>
-5-
the Shelf Registration Statement at such time. Any such Holder who does not
provide the information reasonably requested by the Company in connection with
the Shelf Registration Statement as promptly as practicable after receipt of
such notice, but in no event later than 20 days thereafter, shall not be
entitled to have its Registrable Securities included in the Shelf Registration
Statement at the time it becomes effective, but shall have the right thereafter
to deliver to the Company a Registration Notice as contemplated by Section 3(b).
Section 3. Shelf Registration Procedures.
In connection with the obligations of the Company with respect to the Shelf
Registration Statement pursuant to Section 2 hereof, the Company shall:
(a) prepare and file with the SEC, within the time period set forth in
Section 2(a) hereof, a Shelf Registration Statement, which Shelf
Registration Statement (i) shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distril4ion by the selling Holders thereof and (ii) shall comply as to form
in all material respects with the requirements of the applicable form and
include all financial statements required by the Commission to be filed
therewith.
(b) subject to the last three sentences of this Section 3(b) and to
Section 3(i) hereof, (i) prepare and file with the Commission such
amendments and post-effective amendments to the Shelf Registration
Statement as may be necessary to keep the Shelf Registration Statement
effective for the applicable period; (ii) cause each Prospectus to be
supplemented by any required prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 or any similar rule that may be adopted
under the Securities Act; (iii) respond promptly to any comments received
from the Commission with respect to the Shelf Registration Statement, or
any amendment, post-effective amendment or supplement relating thereto; and
(iv) comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by the Shelf Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the selling Holders thereof. Notwithstanding
anything to the contrary contained herein, the Company shall not be
required to take any of the actions described in clauses (i), (ii) or (iii)
above with respect to each particular Holder of Registrable Securities
unless and until the Company has received either a written notice (a
"Registration Notice") from a Holder that such Holder intends to make
offers or sales under the Shelf Registration Statement as specified in such
Registration Notice or a written response from such Holder of the type
contemplated by Section 2(b); provided, however, that the Company shall
have 7 business days to prepare and file any such amendment or supplement
after receipt of a Registration Notice. Once a Holder has delivered such a
written response or a Registration Notice to the Company, such Holder shall
promptly provide to the Company such information as the Company reasonably
requests in order to identify such Holder and the method of distribution in
a post-effective amendment to the Shelf Registration Statement or a
supplement to a Prospectus. Offers or sales under the Shelf Registration
Statement may be made only during a Sale Period. Such Holder also shall
notify the Company in writing upon completion of such offer or sale or at
such time as such Holder no longer intends to make offers or sales under
the Shelf Registration Statement.
(c) furnish to each Holder of Registrable Securities that has
delivered a Registration Notice to the Company, without charge, as many
copies of each applicable Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other
documents as such Holder may reasonably request, in order to facilitate the
public sale or other disposition of the Registrable Securities; the Company
consents to the use of such Prospectus, including each preliminary
<PAGE>
-6-
Prospectus, by each such Holder of Registrable Securities in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or the preliminary Prospectus.
(d) use its reasonable best efforts to register or qualify the
Registrable Securities by the time the Shelf Registration Statement is
declared effective by the SEC under all applicable state securities or
"blue sky" laws of such jurisdictions as any Holder of Registrable
Securities covered by the Shelf Registration Statement shall reasonably
request in writing, keep each such registration or qualification effective
during the period the Shelf Registration Statement is required to be kept
effective or during the period offers or sales are being made by a Holder
that has delivered a Registration Notice to the Company, whichever is
shorter, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition
in each such jurisdiction of such Registrable Securities owned by such
Holder; provided, however, that the Company shall not be required (i) to
qualify generally to do business in any jurisdiction or to register as a
broker or dealer in such jurisdiction where it would not be required so to
qualify or register but for this Section 3(d), (ii) to subject itself to
taxation in any such jurisdiction or (iii) to submit to the general service
of process in any such jurisdiction.
(e) notify each Holder when the Shelf Registration Statement has
become effective and notify each Holder of Registrable Securities that has
delivered a Registration Notice to the Company promptly and, if requested
by such Holder, confirm such advice in writing (i) when any post-effective
amendments and supplements to the Shelf Registration Statement become
effective, (ii) of the issuance by the Commission or any state securities
authority of any stop order suspending the effectiveness of the Shelf
Registration Statement or the initiation of any proceedings for that
purpose, (iii) if the Company receives any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such purpose and
(iv) of the happening of any event during the period the Shelf Registration
Statement is effective as a result of which the Shelf Registration
Statement or a related Prospectus contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading.
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Shelf Registration Statement at the
earliest possible moment.
(g) furnish to each Holder of Registrable Securities that has
delivered a Registration Notice to the Company, without charge, at least
one conformed copy of the Shelf Registration Statement and any
post-effective amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested).
(h) cooperate with the selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any Securities Act
legend; and enable certificates for such Registrable Securities to be
issued for such numbers of shares and registered in such names as the
selling Holders may reasonably request at least two business days prior to
any sale of Registrable Securities.
(i) subject to the last three sentences of Section 3(b) hereof, upon
the occurrence of any event contemplated by Section 3(e)(iv) hereof, use
its reasonable best efforts promptly to prepare and file a supplement or
prepare, file and obtain effectiveness of a post-effective amendment to the
Shelf
<PAGE>
-7-
Registration Statement or a related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities, such
Prospectus will not contain any 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 the light of the circumstances under which they
were made, not misleading.
(j) make available for inspection by representatives of the Holders of
the Registrable Securities and any counsel or accountant retained by such
Holders, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the respective officers, directors and
employees of the Company to supply all information reasonably requested by
any such representative, counsel or accountant in connection with the Shelf
Registration Statement; provided, however, that such records, documents or
information which the Company determines in good faith to be confidential,
and notifies such representatives, counsel or accountants in writing that
such records, documents or information are confidential, shall not be
disclosed by the representatives, counsel or accountants unless (i) the
disclosure of such records, documents or information is necessary to avoid
or correct a material misstatement or omission in the Shelf Registration
Statement, (ii) the release of such records, documents or information is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) such records, documents or information have been
generally made available to the public otherwise than in violation of this
Agreement.
(k) a reasonable time prior to the filing of any Prospectus, any
amendment to the Shelf Registration Statement or amendment or supplement to
a Prospectus, provide copies of such document (not including any documents
incorporated by reference therein unless requested) to the Holders of
Registrable Securities that have provided a Registration Notice to the
Company.
(l) use its reasonable best efforts to cause all Registrable
Securities to be listed on any securities exchange on which similar
securities issued by the Company are then listed.
(m) obtain a CUSIP number for all Registrable Securities, not later
than the effective date of the Shelf Registration Statement.
(n) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
at least 12 months which shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder.
(o) use its reasonable best efforts to cause the Registrable
Securities covered by the Shelf Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may
be necessary by virtue of the business and operations of the Company to
enable Holders that have delivered Registration Notices to the Company to
consummate the disposition of such Registrable Securities.
The Company may require each Holder of Registrable Securities to furnish to
the Company in writing such information regarding the proposed distribution by
such Holder of such Registrable Securities as the Company may from time to time
reasonably request in writing.
In connection with and as a condition to the Company's obligations with
respect to the Shelf Registration Statement pursuant to Section 2 hereof and
this Section 3, each Holder agrees that (i) it will not
<PAGE>
-8-
offer or sell its Registrable Securities under the Shelf Registration Statement
until (A) it has either (1) provided a Registration Notice pursuant to Section
3(b) hereof or (2) had Registrable Securities included in the Shelf Registration
Statement at the time it became effective pursuant to Section 2(b) hereof and
(B) it has received copies of the supplemented or amended Prospectus
contemplated by Section 3(b) hereof and receives notice that any post-effective
amendment has become effective; (ii) upon receipt of any notice from the Company
of the happening of anv event of the kind described in Section 3(b)(iv) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the Shelf Registration Statement until such Holder receives copies
of the supplemented or amended Prospectus contemplated by Section 3(i) hereof
and receives notice that any post-effective amendment has become effective, and,
if so directed by the Company, such Holder will deliver to the Company (at the
expense of the Company) all copies in its possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
registrable Securities current at the time of receipt of such notice; and (iii)
all offers and sales under the Shelf Registration statement shall be completed
within forty-five (45) days after the first date on which offers or sales can be
made pursuant to clause (i) above, and upon expiration of such forty-five (45)
day period the Holder will not offer or sell its Registrable Securities under
the Shelf Registration Statement until it has again complied with the provisions
of clauses (i)(A)(1) and (B) above, except that if the applicable Registration
Notice was delivered to the Company at a time which was not part of a Sale
Period, such forty-five (45) day period shall be the next succeeding Sale
Period.
Section 4. Piggyback Registration.
(a) Right to Piggyback. Whenever (x) the Company proposes to register any
shares of its Common Stock (or securities convertible into or exchangeable or
exercisable for such Common Stock) under the Securities Act for its own account
or the account of any shareholder of the Company (other than offerings pursuant
to employee plans, or noncash offerings in connection with a proposed
acquisition, exchange offer, recapitalization or similar transaction) and (y)
the registration form may be used for the registration of Registrable Securities
(a "Piggyback Registration"), the Company will give prompt written notice to all
of the Holders Entitled to Registration Rights of its intention to effect such a
registration and will, subject to Section 4(b) and Section 10 hereof, include in
such registration all Registrable Securities with respect to which such Holders
request in writing to be so included within 20 days after the receipt of the
Company's notice.
(b) Priority. If a registration pursuant to this Section 4 involves an
underwritten offering and the managing underwriter advises the Company in good
faith that in its opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering without
having an adverse effect on such offering, including the price at which such
securities can be sold, then the Company will be required to include in such
registration the maximum number of shares that such underwriter advises can be
so sold, allocated (x) first, to the securities the Company proposes to sell,
(y) second, among the shares of Common Stock requested to be included in such
registration by the Holders Entitled to Registration Rights, considered in the
aggregate (if such registration was initiated by the Company), and any other
shareholder of the Company with shares of Common Stock eligible for
registration, pro rata, on the basis of the number of shares of Common Stock
such holder requests be included in such registration, and (z) third, among
other securities, if any, requested and otherwise eligible to be included in
such registration.
(c) Nothing contained herein shall prohibit the Company from determining,
at any time, not to file a registration statement or, if filed, to withdraw such
registration or terminate or abandon the registration related thereto.
<PAGE>
-9-
Section 5. Requested Registration.
(a) Right to Request Registration. Upon the written request of Holders
Entitled to Registration Rights owning 6% or more of the outstanding Registrable
Securities then owned in the aggregate by such Holders (the "Requesting
Holders") (computed for these purposes as if all Preferred Units have been
converted into Units and an thereafter outstanding Units have been redeemed or
exchanged for Common Stock), requesting that the Company effect the registration
under the Securities Act of at least the Minimum Registration Amount, the
Company shall use its best efforts to effect, as expeditiously as possible,
following the prompt (but in no event later than 15 days following the receipt
of such written request) delivery of notice to all Holders Entitled to
Registration Rights, the registration under the Securities Act of such number of
shares of Registrable Securities owned by the Requesting Holders and requested
by the Requesting Holders to be so registered (subject to Section 5(c) hereof),
together with (x) all other shares of Common Stock entitled to registration, and
(y) securities of the Company which the Company elects to register and offer for
its own account; provided, however, that the Company shall not be required to
(i) subject to Section 5(b) below, effect more than a total of three such
registrations pursuant to this Agreement or (ii) file a registration statement
relating to a registration request pursuant hereto within a period of six months
after the effective date of any other registration statement of the Company
requested hereunder (other than pursuant to Section 2) or pursuant to which the
Requesting Holders shall have been given an opportunity to participate pursuant
to Section 4 hereof and which opportunity they declined or which registration
statement under Section 4 hereof included shares of Registrable Securities owned
by Holders Entitled to Registration Rights (so long as such registration
statement became and was effective for sufficient, time to permit the sales
contemplated thereby); provided further, that the Company shall not be required
to file a registration statement relating to an offering of Common Stock on a
delayed or continuous basis pursuant to Rule 415 (or any successor rule to
similar effect) promulgated under the Securities Act if the Company is not, at
the time, eligible to register shares of Common Stock on form S-3 (or a
successor form).
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in its good faith judgment, (x) after consultation with a nationally
recognized investment banking fim, that there will be an adverse effect on a
then contemplated public offering of the Company's securities, (y) that the
disclosures that would be required to be made by the Company in connection with
such registration would be materially harmful to the Company because of
transactions then being considered by, or other events then concerning, the
Company, or (z) the registration at the time would require the inclusion of pro
forma or other information, which requirements the Company is reasonably unable
to comply with, then the Company may defer the filing (but not the preparation)
of the registration statement which is required to effect any registration
pursuant to this Section 5 for a reasonable period of time, but not in excess of
90 calendar days (or any longer period agreed to by the Holders Entitled to
Registration Rights), provided that at all times the Company is in good faith
using all reasonable efforts to file such registration statement as soon as
practicable.
(b) Effective Registration. A registration requested pursuant to this
Section 5 shall not be deemed to have been effected (and, therefore, not
requested for purposes of Section 5(a) above) (w) unless the registration
statement relating thereto has become effective under the Securities Act, (x) if
after it has become effective such registration is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason other than a misrepresentation or an
omission by a Holder and, as a result thereof, the shares of Registrable
Securities requested to be registered cannot be completely distributed in
accordance with the plan of distribution, (y) if the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied or waived other than by
reason of some act or omission by a participating Holder or (z) if with respect
to what would otherwise be deemed the fourth, or last, request under Section
5(a) hereof, less
<PAGE>
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than all of the shares of Common Stock that the Holders Entitled to Registration
Rights requested be registered were actually registered due to the operation of
Section 5(c) hereof; provided that clause (z) above may not be invoked by the
Holders Entitled to Registration Rights unless (I) such request includes at
least the Minimum Registration Amount or (II) if such request includes an amount
that is less than the Minimum Registration Amount, Rule 144 under the Securities
Act is not available to the Holders for the sale of all of the shares of Common
Stock owned by the Holders; and provided further that clause (z) above may be
invoked only at the request of Holders meeting the foregoing requirements and
owning more than 10% of the shares of Registrable then owned (computed as
aforesaid) in the aggregate by the Holders.
(c) Priority. If a requested registration pursuant to this Section 5
involves an underwritten offering and the managing underwriter shall advise the
Company that in its opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering without
having an adverse effect on such offering, including the price at which such
securities can be sold, then the Company will be required to include in such
registration the maximum number of shares that such underwriter advises can be
so sold, allocated (x) first, among all shares of Common Stock requested by the
Holders Entitled to Registration Rights to be included in such registration, pro
rata on the basis of the number of shares of Common Stock then owned by each of
them (or, if such holder requests that less than all of the shares of Common
Stock owned by such holder be included in such registration, such lesser number
of shares) (y) second, to any securities requested to be included in such
registration by any other shareholder of the Company having registration rights
and (z) third, to any securities the Company proposes to sell.
Section 6. Registration Procedures. If and whenever the Company is required
to use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement pursuant to
Section 4 or 5 hereof, the Company shall:
(a) prepare and file with the Commission as expeditiously as possible
but in no event later than 90 days after receipt of a request for
registration with respect to such Registrable Shares, a registration
statement on any form for which the Company then qualifies or which counsel
for the Company shall deem appropriate, which form shall be available for
the sale of the Registrable Securities in accordance with the intended
methods of distribution thereof, and use its best efforts to cause such
registration statement to become effective; provided that before filing
with the Commission a registration statement or prospectus or any
amendments or supplements thereto, including documents incorporated by
reference after the initial filing of any registration statement, the
Company shall (x) furnish to each participating Holder and to one firm of
attorneys selected collectively by the participating Holders and the
holders of other securities covered by such registration statement, but in
no event to more than one such counsel for all such selling
securityholders, copies of all such documents proposed to be filed, which
documents shall be subject to the review of the participating Holders and
such counsel, and (y) notify the participating Holders of any stop order
issued or threatened by the Commission and take all reasonable actions
required to prevent the entry of such stop order or to remove it if
entered;
(b) prepare and file with the Commission such 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 a period of not less than 180 days or such shorter
period which shall terminate when all Registrable Securities covered by
such registration statement have been sold (but not before the expiration
of the 90-day period referred to in Section 4(3) of the Securities Act and
Rule 174, or any successor thereto, thereunder, if applicable), and comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registra-
<PAGE>
-11-
tion statement during such period in accordance with the intended methods
of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish, without charge, to the participating Holders and each
underwriter, if any, such number of copies of such registration statement,
each amendment and supplement thereto (including one conformed copy to each
participating Holder and one signed copy to each managing underwriter and
in each case including all exhibits thereto), and the prospectus included
in such registration statement (including each preliminary prospectus), in
conformity with the requirements of the Securities Act, and such other
documents as the participating Holders may reasonably request in order to
facilitate the disposition of the Registrable Securities registered
thereunder;
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdiction as the participating
Holders, and the managing underwriter, if any, reasonably requests and do
any and all other acts and things which may be reasonable necessary or
advisable to enable the participating Holders and each underwriter, if any,
to consummate the disposition in such jurisdiction of the Registrable
Securities registered thereunder; provided that the Company shall not be
required to (x) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 6(d),
(y) subject itself to taxation in any such jurisdiction or (z) consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such
insurance regulatory authorities may be necessary by virtue of the business
and operations of the Company to enable the participating Holders and other
holders, if any, of securities covered by such registration statement to
consummate the disposition of Registrable Securities registered thereunder;
(f) immediately notify the managing underwriter, if any, and the
Company at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event which
comes to the Company's attention if as a result of such event the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and the Company shall promptly prepare and furnish to the
participating Holders and any other holder of securities covered by such
registration statement and prospectus a supplement or amendment to such
prospectus so that as thereafter delivered, such prospectus shall not
contain an 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 not misleading; provided, however, that if the Company
determines in good faith that the disclosure that would be required to be
made by the Company would be materially harmful to the Company because of
transactions then being considered by, or other events then concerning, the
Company, or a supplement or amendment to such prospectus at such time would
require the inclusion of pro forma or other information, which requirement
the Company is reasonably unable to comply with, then the Company may defer
for a reasonable period of time, not to exceed 90 days, furnishing to the
participating Holders and any other holder of securities covered by such
registration statement and prospectus a supplement or amendment to such
prospectus; provided, further, that at all times the Company is in good
faith using all reasonable efforts to file such amendment as soon as
practicable,
<PAGE>
-12-
(g) use its best efforts to cause all such securities being registered
to be listed on each securities exchange on which similar securities issued
by the Company are then listed, and enter into such customary agreements
including a listing application and indemnification agreement in customary
form (provided that the applicable listing requirements are satisfied), and
to provide a transfer agent and register for such Registrable Shares
covered by such registration statement no later than the effective date of
such registration statement;
(h) make available for inspection by any of the participating Holders
and any holder of securities covered by such registration statement, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such
persons (collectively, the "Inspectors"), all financial and other records
of the Company and its subsidiaries (collectively, "Records"), if any, as
shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's and its subsidiaries'
officers, directors and employees to supply all information and respond to
all inquiries reasonably requested by any such Inspector in connection with
such registration statement. Notwithstanding the foregoing, the Company
shall have no obligation to disclose any Records to the Inspector in the
event the Company determines that such disclosure is reasonably likely to
have an adverse effect on the Company's ability to assert the existence of
an attorney-client privilege with respect thereto;
(i) if requested, use its best efforts to obtain a "cold comfort"
letter and a "bring-down cold comfort" letter from the Company's
independent public accountants in customary form and covering such matters
of the type customarily covered by such letters;
(j) enter into a form of underwriting agreement that contains
customary terms and provisions for similar securities offerings;
(k) make available senior management personnel to participate in, and
cause them to cooperate with the underwriters in connection with, "road
show" and other customary marketing activities, including "one-on-one"
meetings with prospective purchasers of the Registrable Securities; and
(l) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering a
period of at least 12 months, beginning with the first month after the
effective date of the registration statement (as the term "effective date"
is defined in Rule 158(c) under the Securities Act), which earning
statement shall satisfy the provisions of Section 11 (a) of the Securities
Act and Rule 158 thereunder.
It shall be a condition precedent to the obligation of the Company to take
any action pursuant to this Agreement in respect of Registrable Securities which
are to be registered at the request of any of the participating Holders that the
participating Holders shall fumish to the Company such information regarding the
securities held by the participating Holders and the intended method of
disposition thereof as the Company shall reasonably request and as shall be
required in connection with the action taken by the Company.
Each of the Holders agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 6(f)
hereof, the Holders shall discontinue disposition of Registrable Shares pursuant
to the registration statement covering such Registrable Securities until receipt
of the copies of the supplemented or amended prospectus contemplated by Section
5(c)(vi) hereof or until other-
<PAGE>
-13-
wise notified by the Company, and, if so directed by the Company, the
participating Holders shall deliver to the Company (at the Company's expense)
all copies (including, without limitation, any and all drafts), other than
permanent file copies, then in any participating Holder's possession, of the
prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
specified in Section 6(b) hereof shall be extended by the greater of (x) three
months of (y) the number of days during the period from and including the date
of the giving of such notice pursuant to Section 6(f) hereof to and including
the date when each of the participating Holders shall have received the copies
of the supplemented or amended prospectus contemplated by, Section 6(f) hereof.
Section 7. Selection or Underwriters. If any offering pursuant to a
registration statement is to be an underwritten offering, the Company will
select a managing underwriter or underwriters to administer the offering,
provided that in the case of a registration statement pursuant to Section 5
hereof, the Holders holding more than 50% of the shares of Registrable
Securities held by the Holders to be included in such underwritten offering
shall select the managing underwriter or underwriters, subject to the consent of
the Company which shall not be unreasonably withheld.
Section 8. Registration Expenses. The Company shall pay, in connection with
any registration pursuant to Section 2, 4 or 5, the following registration
expenses incurred in connection there with: (i) all Commission, stock exchange
or NASD registration and filing fees, (ii) all fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with the blue sky qualifications of the Registrable
Securities), (iii) printing expenses, (iv) internal expenses (including without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses incurred in connection
with the listing of the Registrable Securities on any national securities
exchange or interdealer quotation system, (vi) the reasonable fees and
disbursements of counsel for the Company and customary fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort
letters), (vii) the reasonable fees and disbursements of not more than one firm
of attorneys acting as legal counsel for (x) all of the selling shareholders,
collectively, in respect of a registration pursuant to Section 3 hereof or (y)
all of the participating Holders, collectively, in respect of a registration
pursuant to Section 4 hereof, (viii) the fees and expenses of any registrar and
transfer agent for the Common Stock, (ix) the underwriting fees, discounts and
commissions applicable to any shares of Common Stock sold for the account of the
Company and (x) all expenses of any Person in preparing or assisting in
preparing, word processing, printing and distributing any registration
statement, prospectus, certificates and other documents relating to the
performance of and compliance with this Agreement. Except as otherwise provided
in clause (ix) of this Section 4(e), the Company shall have no obligation to pay
any underwriting fees, discounts or commissions attributable to the sale of
Registrable Shares.
Section 9. Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless each Indemnitee 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, registration statement or 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 a participating Holder furnished in writing to
the Company by or
<PAGE>
-14-
on behalf of a participating Holder expressly for use in connection therewith.
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 an
Indemnitee in respect of which indemnity may be sought against the Company, such
Indemnitee shall promptly notify the Company, and the Company shall assume the
defense thereof, including the employment of counsel and payment of all fees and
expenses. "The Indemnitee shall have the right to employ separate 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 Indemnitee
unless (x) the Company has agreed in writing to pay such fees and expenses, (y)
the Company has failed to assume the defense and employ counsel, or (z) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Indemnitce and the Company, and such Indemnitee shall
have been advised by its counsel that representation of such Indemnitee and the
Company 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 shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Indemnitee). 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 Indemnitees not having actual or potential differing interests among
themselves, and that all such fees and expenses shall be reimbursed as they are
incurred. The Company 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 agrees to indemnify and hold
harmless such Indemnitee, to the extent provided in the preceding paragraph,
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each of the participating Holders, severally and not jointly, agree to
indemnify and hold harmless the Company, its directors, its officers who sign
the registration statement, and any person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity from the Company to an Indemnitee,
but only with respect to information relating to such Holder furnished in
writing by or on behalf of such Holder expressly for use in the registration
statement, 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, any such officer, or any such controlling
person based on the registration statement, prospectus or any prepricing
prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Holder pursuant to this Section 9(c), such
Holder shall have the rights and duties given to the Company by Section 9(b)
hereof (except that if the Company shall have assumed the defense thereof such
Holder 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 the Holder's expense), and the Company, its directors, any
such officer, and any such controlling person shall have the rights and duties
given to an Indemnitee by Section 9(b) hereof. The foregoing indemnity agreement
shall be in addition to any liability which the participating Holders may
otherwise have.
(d) If the indemnification provided for in this Section 9 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
<PAGE>
-15-
or expenses in such proportion as is appropriate to reflect the relative fault
of the Company and of the participating Holders in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses. The relative fault of the Company on the one hand and a
participating Holder 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 such participating
Holder on the other hand and the parties' relative intent, knowledge, access or
information and opportunity to correct or prevent such statement or omission.
(e) The Company and the participating Holders agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
a pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 9(d) hereof. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in Section 9(d) hereof
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 participating
Holder shall be required to contribute any amount in excess of the amount by
which the proceeds to such participating Holder exceeds the amount of any
damages which such participating Holder 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 Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(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 9 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 9 shall remain
operative and in full force and effect, regardless of (i) any investigation made
by or on behalf of an Indemnitee, the Company, its directors or officers, or any
person controlling the Company, and (ii) any termination of this Agreement.
Section 10. Participation in Underwritten Registrations. A Holder may not
participate in any underwritten offering pursuant to Section 4 or 5 hereof
unless such Holder (i) agrees to sell its Registrable Securities on the basis
provided in any underwriting arrangements which, to the extent applicable solely
to the participating Holders, are approved by the participating Holders in their
reasonable discretion or which, to the extent applicable to the Company and the
participating Holders, are approved by the Company in its reasonable discretion
and (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents (including lock-up
agreements) reasonably required under the terra of such underwriting
arrangements which are not inconsistent with the terms of this Agreement.
Section 11. Other Registration Rights. The Company agrees that it shall not
enter into any agreement which provides registration rights to any Person that
are inconsistent with the provisions contained in this Agreement. If the Company
does become a party to such an agreement, the Company agrees
<PAGE>
-16-
that to the extent that the provisions of such agreement conflict with this
Agreement, the provisions of this Agreement shall control.
Section 12. Rule 144 Sales.
(a) The Company covenants that it will file the reports required to be
filed by the Company under the Securities Act and the Exchange Act, so as to
enable any Holder to sell Registrable Securities pursuant to Rule 144 under the
Securities Act.
(b) In connection with any sale, transfer or other disposition by any
Holder of any Registrable Securities pursuant to Rule 144 under the Securities
Act, the Company shall cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any Securities Act legend, and enable certificates for
such Registrable Securities to be for such number of shares and registered in
such names as the selling Holders may reasonably request at least two business
days prior to any sale of Registrable Securities. ,
Section 13. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
without the written consent of the Company and Holders constituting Majority
Holders; provided, however, that no amendment, modification or supplement or
waiver or consent to the departure with respect to the provisions of Sections 1
through 12, inclusive, hereof or which would impair the rights of any Holder
under such provisions, shall be effective as against any Holder of Registrable
Securities, Preferred Units or Units unless consented to in writing by such
Holder of Registrable Securities, Preferred Units or Units. Notice of any
amendment, modification or supplement to this Agreement adopted in accordance
with this Section 13(a) shall be provided by Company to each Holder of
Registrable Securities, Preferred Units or Units at least thirty (30) days prior
to the effective date of such amendment, modification or supplement.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, registered first-class
mail, telex, telecopier or any courier guaranteeing overnight delivery, (i) 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 13(b),
which address initially is, with respect to each Holder, the address set forth
in the Partnership Agreement, or (ii) if to the Company, at .
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed when answered
back, if telexed; when receipt is acknowledged, if telecopied; or at the time
delivered if delivered by an air courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
Company and the Holders, including without limitation and without the need for
an express assignment, subsequent Holders. If any successor, assignee or
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking
<PAGE>
-17-
and holding such Registrable Securities such Person shall be entitled to receive
the benefits hereof and shall be conclusively deemed to have agreed to be bound
by all of the terms and provisions hereof.
(d) Headings. The headings in this Agreement are for the convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAW PROVISIONS THEREOF.
(f) Specific Performance. The Company and the Holders acknowledge that
there would be no adequate remedy at law if any party fails to perform any of
its obligations hereunder, and accordingly agree that the Company and each
Holder, in addition to any other remedy to which it may be entitled at law or in
equity, shall be entitled to compel specific performance of the obligations of
another under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction.
(g) Entire Agreement. This Agreement is intended by the Company as a final
expression of its agreement and is intended to be a complete and exclusive
statement of the agreement and understanding of the Company in respect of the
subject matter contained herein. This Agreement supersedes all prior agreements
and understandings of the Company with respect to such subject matter.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the date
first written above.
ROYALE INVESTMENTS, INC.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
ROYALE INVESTMENTS, INC.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is entered into between ROYALE INVESTMENTS, INC.,
a Minnesota corporation (the "Company") and GLACIER REALTY LLC (or another name
to be selected prior to execution), a Minnesota limited liability company (the
"Manager").
WHEREAS, the Company intends to continue to qualify as a real estate
investment trust ("REIT"), as defined in the Internal Revenue Code of
1986, as amended (the "Code"), and to make investments by and through
the Company of the type permitted to be made by qualified REITs under
the Code; and
WHEREAS, the Manager is a corporation organized for the purpose of
managing the assets of the Company. as to its ownership of real estate
properties and providing certain management and administrative services
in connection with the Company's business affair, and the acquisition,
administration, operation and disposition of its net-leased retail
properties which is further defined in Section 1.11; and
WHEREAS, the Company plans and intends to continue a business plan for
the investing and acquisition of net-leased retail properties and also
office properties and in connection with its investments in net-leased
retail properties the Company desires to make use of the advice and
assistance of the Manager and the sources of information and certain
facilities available to the Manager, and to have the Manager undertake
the duties and responsibilities hereinafter set forth, on behalf of and
subject to the supervision of the Board of Directors of the Company
("Directors"), all as provided for herein; and
WHEREAS, the Manager is willing to render such services, subject to the
supervision of the Directors, on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
ARTICLE I - DUTIES OF THE MANAGER
The Manager shall use its best efforts to present to the Company a
continuing and suitable investment program consistent with the investment
policies and objectives of the Company for investment in net-leased retail
properties, subject to the supervision of the Directors and upon their
direction, and to perform the following duties:
<PAGE>
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1.1. Investment Program. The Manager shall work with the Company to develop
and present to the Company a continuing and suitable investment program and
opportunities to make investments in net-leased retail properties consistent
with the investment policies of the Company.
1.2. Investment Advice. The Manager shall serve as the Company's investment
Manager in connection with policy decisions to be made by the Directors and, as
requested, furnish the Directors with advice with respect to the making of real
estate acquisitions, holdings, and dispositions of net-leased retail real estate
assets and investments.
1.3. Investment and General Management. The Manager shall administer the
day to-day operations of the Company as they relate to net -eased retail assets
and investments and shall investigate and evaluate investment opportunities in
net-leased retail properties and recommend them to the Directors and the
Company, (subject to the prior approval of the Directors) to investigate,
select, and conduct relations with the developers, builders, co-venturers, or
partners of or with the Company, sellers and purchasers of real estate, tenants,
banks, other lenders, borrowers, consultants, accountants, mortgage loan
originators, brokers, participants, property managers, attorneys, appraisers
insurers, and person acting in any other capacity relevant to the activities of
the Company, and as necessary, negotiate contracts with, retain, and supervise
services performed by such parties in connection with net-leased retail assets
and investments which have been or may be acquired or disposed of by the
Company.
1.4. Financial Administration. The Manager shall administer such day-to-day
bookkeeping and accounting functions relating to the income and expenses as are
required or reasonably necessary for the proper management of the net-leased
retail property portfolio of the Company and prepare or cause to be prepared
such reports as may be required by any governmental authority in connection with
the ordinary conduct of the Company's business, but excluding periodic reports,
returns, or statements required under the Securities Exchange Act of 1934, as
amended (the "Act"), the Code, the securities and tax statutes of any
jurisdiction in which the Company is obligated to file such reports or the rules
and regulations promulgated under any of the foregoing and excluding any
reporting function or reports to the Company's stockholders. The Manager shall
maintain the books of account and records relating to services performed for the
Company accessible for inspection by the Company at any time during ordinary
business hours and shall provide reasonable statements on a monthly basis. The
Manager shall also prepare by November 1 of each calendar year, an annual budget
of income and expenses which relate to the net-leased retail portion of the
Company's portfolio for review and approval of the Company and its Directors and
thereafter Manager shall implement such budget for such calendar year provided
that the changes in the total expenses of the budget for such year do not
increase more than 5%.
<PAGE>
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1.5. Agent. Subject to prior approval of the Directors, the Manager shall
act as agent of the Company in making, acquiring, and disposing of net-leased
retail real estate assets and investments. The Manager shall be responsible for
disbursing and collecting the income and funds, paying the debts, and fulfilling
the obligations of the Company relating to the Company's net-leased retail
assets and (subject to approval of the Company and the Directors) handling,
prosecuting, and settling any claims of or against the Company. The Manager
.shall also investigate, select and conduct relations on behalf of the Company
with individuals, corporations, and entities in furtherance of the investment
activities of the Company.
1.6. Exchanges, Dealers. The manager shall not conduct relations on behalf
of the Company with securities exchanges or with dealers making markets in the
Company's securities.
1.7. Investment of Cash. Subject to the prior approval of the Directors,
the Manager shall invest and reinvest any monies of the Company generated from
net-leased retail assets, , and manage the Company's short-term investments
including the acquisition and sale of money market instruments provided such
instruments am consistent with the Company's policies and are only those
instruments in which a real estate investment trust is permitted to invest under
the Code from time to time.
1.8. Bank Accounts. The Manager may establish one or more reasonable bank
accounts in the name of the Company reasonably necessary for conducting expected
activities of the Company and may deposit into and disburse from such accounts
any monies on behalf of the, Company under such terms and conditions as the
Directors may approve, provided that no funds in any such account shall be
commingled with funds of the Manager, and the Manager shall from time to time as
requested by the Directors render appropriate accounting of such deposits and
payments to the Directors and to the auditors of the Company.
1.9. Offices and Personnel. Subject to Section 5.2(k), the Manager shall
provide, keep and maintain at Minneapolis, Minnesota office space, equipment,
personnel, accounting facilities, and other facilities as required for the
performance of the foregoing services and operation of the Company's business.
1.10. Reports. The Manager shall, as requested by the Directors, make
reports to the Directors on its performance of the foregoing services and
furnish advice and recommendations with respect to other aspects of the business
of the Company.
1.11. Interest of the Parties and Information Furnished Manager. The
Company and the Directors shall at all times keep the Manager fully informed
with regard to the investment policy of the Company, the capitalization policy
of the Company, and generally their then current intentions as to the future of
the Company. the Company's immediate in-
<PAGE>
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vestment policy for the present and near future is to invest in net-leased
retail real estate, properties and office properties. This Management Agreement
is an exclusive arrangement by and between the Company and Manager only with
respect to the net-leased retail assets of the Company, whether held in the name
of the Company or any of its related or affiliated companies, partnerships,
trusts, business associations or entities; however this Management Agreement
shall not be effective for any office type assets of the Company. Net-Leased
retail assets or investments as used in this Agreement shall include any and all
such real estate assets or investments of the Company or any of its related or
affiliated companies, partnerships, trusts, business associations or entities
whose use a reasonable person would conclude are or would be intended primarily
for normal retail sales of goods or products to consumers whether or not a net
lease exists. If such a property is leased on a net or gross rental basis shall
be irrelevant and if such an asset of investment shall become vacant or unleased
shall not affect its inclusion hereunder as a net-leased retail asset or
investment and such a classification is further intended to distinguish between
other assets and investments primarily for office use. In particular, the
Directors shall notify the Manager promptly of their intention to sell or
otherwise dispose of any of the Company's net-leased retail assets, or to make
any new investment in such assets. The Company shall furnish the Manager with a
certified copy of all financial statements, a signed copy of each report
prepared by independent certified public accountants, and such other information
with regard to its affairs all as is circulated to the officers and Directors or
its committees of the Company as and when so circulated or as the Manager may
from time to time reasonably request.
1.12. Net-Leased Retail Assets and Investments. Notwithstanding any
provision of this Agreement to the contrary, the rights and obligations of the
Manager hereunder shall relate and pertain solely to net-leased retail assets
and investments and to no other properties, assets or investments of the
Company, except for the consideration payable to Manager for referrals of
non-net-leased retail assets specified in Section 4.1(a) hereof, and all
provisions of this Agreement otherwise relating to the payment of compensation
and fees to the Manager shall be specifically limited to and based solely upon
net-leased retail properties owned by the Company. The Manager shall have no
rights to exercise any power or authority over or with respect to First
Commercial, LP.
ARTICLE II - QUALIFICATION AS A REAL ESTATE INVESTAIENT TRUST
2.1. REIT Qualification. Notwithstanding any provision in this Agreement to
the contrary, the Manager shall refrain from any action (including without
limitation the furnishing or rendering of services to tenants of property or
managing any real property) which, in the reasonable business judgment of the
Directors of which the Manager has actual notice, would (1) materially and
adversely affect the status of the Royale Investments, Inc., an affiliate of the
Company, as a REIT, as defined in the Code, or (2) materially violate any law,
rule, regulation, or statement of policy of any governmental body or agency
having jurisdiction
<PAGE>
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over the Company or over its securities, or (3) otherwise not be permitted by
the corporate governance documents of the Company.
2.2. Preservation of REIT Status. In the event that the terms of this
Agreement at any time shall, in the opinion of counsel for the Company, threaten
to impair the status of the Company as a REIT in a manner materially adverse to
the interests of the members of the Company, the Company shall propose such
amendment to or substitute arrangements for this Agreement, with prospective or
retroactive effect, as may in its opinion be necessary to protect and preserve
the status of the Company as a REIT provided the substantive business terms
hereof are not altered.
ARTICLE III - LIMITATION OF LIABILITY
3.1. Fidelity Bond. The Manager need not maintain a fidelity bond.
3.2. Limitation of Liability of the Manager. The Manager assumes no
responsibility other than to render the services described herein in good faith
and shall not be responsible for any action of theDirectors in following or
declining to follow any advice or recommendation of the Manager. The Manager
will not be liable to the Company, its partners, or others, except by reason of
acts constituting bad faith, misconduct, or negligence. The Company shall
reimburse, indemnify, and hold the Manager harmless for and from any and all
expenses, losses, damages, liabilities, demands, charges, and claims of any
nature whatsoever in respect to or arising from. any acts or omissions of the
Manager undertaken in good faith and pursuant to the authority granted to the
Manager by this Agreement. The Manager may consult with legal counsel (which may
be the regular counsel of the Manager or other counsel), independent public
accountants, or other professional Managers and shall not be liable for any
action taken or omitted in good faith or by the Manager in accordance with the
advice of such counsel, accountants, or Managers, provided such action is not
the result of misconduct of negligence.
ARTICLE IV - COMPENSATION
4.1. Compensation. The Company shall pay compensation to the Manager for
its services hereunder as follows:
(a) Manager's Acquisition Fee. The Manager shall be paid in connection
with and at the time of the acquisition by the Company or any of its
affiliated or related companies, partnerships, trusts, business
associations or other entities of any net-leased retail real estate
asset or investment a fee equal to 1% of the Adjusted Purchase Price
of each real estate investment; provided, however, that any other
commissions or points, to be paid to any other entities in connection
<PAGE>
-6-
with such a purchase shall be the responsibility of the Company, and
shall be paid by the Company. Any points, fees or commissions that may
be then or thereafter payable in connection with the securing of any
financing of the Company or its assets, which shall remain the
responsibility of the Company. Adjusted Purchase Price shall include
any and all costs relating to the purchase of any real estate
investment or asset which is capitalized pursuant to generally
accepted accounting principles, including but not limited to, the
purchase price paid to sellers, closing costs, legal fees, accounting
fees, travel expenses, property acquisition items, fees and/or
commissions paid to brokers or dealers (exclusive of the Manager's
Acquisition Fee), title insurance premiums and charges, fees and costs
of securing engineering, environmental and appraisal reports and/or
studies, similar items relating to any such asset acquisition, and any
fees or charges for securing any credit enhancement or guarantees;
however, it is the intent of the parties that any fees paid to the
Manager shall not be included in the Adjusted Purchase Price for
purposes of calculating the Manager's Acquisition Fee i.e. 1% of the
1% fee should not be charged as part of the Manager's Acquisition Fee.
In the event that Manager refers a non-net-leased retail asset or
investment to the Company and such asset or investment is acquired by
the Company or any of its affiliated or related companies,
partnerships, trusts, business associations or other entities then the
Company shall pay the Manager an Acquisition Fee; provided however
that it is the intent of the parties that the Manager shall not
actively market or search for such properties or investments in the
trade areas other than Minnesota, Wisconsin and North Dakota and such
fee shall be payable on an ad hoc basis only if such a property or
investment would not have otherwise been available to the Company at
such time except for the efforts of the Manager. The Acquisition Fee
shall be fully earned and payable at the time the closing of a
property acquisition occurs. Also, it is contemplated from time to
time that the Company may acquire a property and pay all cash for the
property before construction completion with a condition that in the
event construction is not completed and other matters submitted for
approval by the Company in a timely manner by the tenant, the Company
may require the tenant or seller of the original property to
re-acquire the property back from the Company and in the event such
events take place and any property is "put back" to such tenant or
seller of the property, the Manager shall refund any Acquisition Fee
previously paid by the Company to the Manager.
(b) Annual Management Fee. The Manager shall be paid, for the services the
Manager renders to the Company pursuant to this Agreement, an annual
management fee, payable monthly, which fee shall be comprised of (i) a
net mini-
<PAGE>
-7-
mum annual amount of $250,000 plus (ii) 1% of the first $35 million of
Average Invested Assets relating to net-leased retail assets acquired
by or invested in by the Company or its related or affiliated
companies, partnerships, rings, business associations, or entities
after the date hereof and 6/10 of 1% of the next $40 million of such
Average Invested Assets, and 4/10 of 1% of such Average Invested
Assets in excess of $75 million (the "Management Fee"). Such annual
fee shall be payable monthly in the amount of $20,833 in advance, plus
an amount equal to 1/12 of the annual fee referenced in Section 4. 1
(b)(ii) based on the monthly Average Investment Assets. For purposes
of this Agreement, monthly "Average Invested Assets" of the Company
shall be deemed to mean the aggregate book value of the net-leased
retail assets of the Company invested, directly or indirectly, in
equity interests in and loans secured by net-leased retail real estate
(only for such assets so invested in or acquired by the Company after
the date hereof) but all before reserves for depreciation or bad debts
or other similar cash or non-cash reserves, computed by taking the
monthly average of such values at the beginning and the end of each
month during such period. It is the intent of the parties that such
$250,000 net minimum annual fee shall continue and such fee shall be
increased only pursuant to the schedule specified in Section
4.1(b)(ii) hereof with respect to net-leased retail assets or
investments of the Company acquired or invested in after the date
hereof.
(c) Disposition Fee. The Manager shall be paid for services rendered in
connection with and at the time of the sale or other disposition of
any individual net-leased real estate asset or investment a fee equal
to 1% of the sale or disposition price with respect to such real
estate asset or investment provided, however, that if all or a
substantial portion of all of the net-leased real estate properties,
assets or investments of the Company are being sold or disposed of
(other than by termination of this Agreement pursuant to Section 7.2
hereof) the Disposition Fee shall be 3% of the sale or disposition
price of such real estate investment. It is the intent of the parties
that if all or a substantial portion of the net-leased real estate
assets, properties or investments are sold in a single transaction or
serial or sequential transactions, the Termination Fee specified in
Section 7.2 should be due and payable and that the 1% Disposition Fee
should be payable only if the individual assets, properties or
investments are not part of a course of action, considering all
surrounding facts and circumstances, to sell or dispose of all or a
substantial portion of the real estate assets, properties or
investments. To the extent it is necessary to engage independent real
estate brokers to sell any such assets, the aggregate of the
Disposition Fee for the Manager and any commission or fee to any
independent broker may not exceed
<PAGE>
-8-
6% of the sale price and to the extent the independent broker's
commission is more than 3%, the Manager's Disposition Fee portion
shall be reduced accordingly so that the total Disposition Fees to the
Manager and any commission or fee to any independent broker are 6%.
The Management Fee payable" monthly and the scheduled percentage portion
referenced in Section 4.1(b)(ii) shall be estimated for the upcoming month and
shall be finally computed within thirty (30) days following the end of each
month by the Company's accountants or by the Manager and shall be then adjusted
in the following month as shall be appropriate. A copy of such computations
shall promptly be delivered to the Manager or calculated by the Manager and
shall be paid as a monthly expense by the Manager out of Company's funds.
4.2. Use of Affiliates. The Manager has the right to use affiliates and
personnel of affiliates, in its sole discretion, and is not required to perform
all duties with its own employees.
4.3. Additional Services. If the Company shall request the Manager to
render services to the Company other than those required to be rendered by the
Manager hereunder, such additional services, if performed, shall be compensated
separately on terms to be agreed upon from time to time between the Manager and
the Company, which terms shall not exceed either (1) the terms under which the
Manager or such affiliate is then performing similar services for others or (2)
the terms under which qualified unaffiliated persons are then performing such
services for comparable organizations.
4.4. Placement and Loan Fees. Subject to the prior approval of the
Directors, the Manager may negotiate its own placement fees, loan fees, loan
origination fees, or similar fees with developers of properties in which the
Company invests. Any such fee may not, however, be higher than such loan fee or
other similar fee being paid to the Company on the same transaction unless the
Manager discloses such fee to the Company and the Directors approve such fee.
The Manager shall be entitled to placement fees, loan fees, loan origination
fees, or other similar fees for securing mortgage loan commitments or other
secured or unsecured loans to the Company from third parties on terms and fees
to be negotiated between the Company and the Manager from time to time on an ad
hoc, basis.
4.5. Fees - General. Notwithstanding anything therein to the contrary, the
Manager may elect at its sole discretion, to defer (without any accrual of
interest) all or any portion of any fees to which it is entitled to such future
date as shall be determined by the Manager.
<PAGE>
-9-
ARTICLE V - EXPENSES AND LIMITATIONS
5.1. Expenses of the Manager. Without regard to the compensation the
Manager receives from the Company pursuant to this Agreement, the Manager shall
bear the following expenses incurred in connection with the performance of its
duties under this Agreement.
(a) employment expenses of the personnel employed by the Manager,
including but not limited to salaries, wages, payroll taxes, and the
cost of employee benefit plans;
(b) subject to Section 5.2(e), travel and other expenses of directors,
officers, and employees of the Manager, except expenses of such
persons for travel expenses and other costs of attendance of such
officers, directors and employees of the Manager who are also
officers, directors or employees of the Company for attending the
National Association of Real Estate Investment Trusts ("NAREIT")
conferences, seminars, and meetings and similar conferences, seminars,
and meetings of real estate industry associations or other groups
relevant to the Company's business;
(c) subject to Section 5.2(k), rent, telephone, utilities, office
furniture, equipment and machinery (including computers, to the extent
utilized), and other office expenses of the Manager, except to the
extent such expenses relate solely to an office maintained by the
Company separate from the office of the Manager, and
(d) subject to Section 5.2 (e), miscellaneous administrative expenses
incurred in supervising and monitoring real property (other than fees
and costs of third parties for inspecting Properties and creating or
updating engineers' or environmental reports or appraisals or other
reports or analyses relating to the assets of the Company) and other
investments of the Company or relating to performance by the Manager
of its obligations hereunder.
5.2. Expenses of the Company. Except as otherwise expressly provided in
this Agreement, the Company shall pay all its expenses not assumed by the
Manager as set forth in Section 5.1, and without limiting the generality of the
foregoing it is specifically agreed that the following expenses of the Company
(reference in this Section to the Company shall include its related and
affiliated companies, partnerships, trusts, business associates or entities)
shall be paid by the Company and shall not be paid by the Manager:
<PAGE>
-10-
(a) the cost of borrowed money, including the repayment of funds borrowed
by the Company, interest thereon and all other costs, fees and
expenses in connection with such borrowings;
(b) taxes on income and taxes and assessments on real property, if any,
and all other taxes applicable to the Company and its investments;
(c) legal, auditing, accounting, underwriting, brokerage, listing,
reporting, registration, and other fees, and printing, engraving, and
other expenses and taxes incurred in connection with the issuance,
distribution, transfer, trading, registration, and stock exchange
listing of the Company's, the Directors' or affiliates of the
Company's securities or good faith attempts thereof, whether or not
such issuance, distribution, transfer, trading, registration or
listing shall materialize or be implemented;
(d) fees and expenses paid to the Directors, independent Managers,
consultants, managers, local property managers, or management firms,
and other agents employed by or on behalf of the Company including
third party inspectors, engineers, environmental people or entities,
and appraisers who create or update reports or inspections or other
reports or analyses relating to the assets of the Company;
(e) expenses directly connected with the acquisition, disposition, and
ownership of real estate interests or other property (including the
costs of foreclosure, insurance premiums, legal services, brokerage
and sales commissions, maintenance, repair, improvement, and local
management of property) including but not limited to travel and other
expenses incurred by Directors, officers, partners, employees of the
Company or Directors, officers, directors or employees of the Manager
which shall be deemed expenses directly connected with the
acquisition, disposition, inspection and ownership of real estate
interests or other property, whether incurred prior to closing of any
such acquisition or disposition or thereafter, and even if the closing
and acquisition or disposition shall never take place or materialize
and shall also include such out-of-pocket costs, and expenses incurred
by any such officers, employees or Directors of the Company or Manager
(if reasonably necessary or requested by the Company) in establishing
or maintaining relationships with underwriters. Any fees or similar
costs paid in securing guarantees or other credit enhancement
agreements shall be the obligation of the Company. In the event the
Manager advances such monies on behalf of the Company, they shall be
reimbursable expenses to the Manager upon demand and presentation;
<PAGE>
-11-
(f) insurance as required by the Directors (including director's liability
insurance, if applicable);
(g) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by
the Company or the Directors to holders of securities of the Company,
the Directors or affiliates of the Company;
(h) all expenses connected with communications to holders of securities of
the Company or affiliates of the Company or the Directors and the
other bookkeeping and clerical work necessary in maintaining relations
with holders of securities including the cost of printing and mailing
certificates for securities and proxy solicitation materials and
reports to holders of such securities;
(i) transfer agents', registrars' and indenture trustees' fees and
charges;
(j) legal, accounting, and auditing fees and expenses of the Company,
affiliates of the Company or the Directors; and
(k) a reasonable allocation of the Manager's rent and overhead costs and
expenses reasonably necessary for the officers, Directors and agents
of the Company to conduct business in space leased or owned by the
Manager including storage of documents and files.
ARTICLE VI - OTHER ACTIVITIES OF MANAGER
6.1. Other Activities of Manager. The Manager shall not engage in other
activities or businesses similar to those to be performed pursuant hereto for
others or as an advisor or manager to any other real estate investment trust
without the consent, and approval of the Company which consent and approval
shall not be unreasonably withheld. No provision in this Agreement shall limit
or restrict the right of any present or future principal, governor, director,
officer, employee, member or shareholder of the Manager or an affiliate of the
Manager to engage in any other business or to render services of any kind to any
other corporation, partnership, individual, or other entity, including but not
limited to activities similar to those to be performed pursuant hereto or as an
advisor to a real estate investment trust. The Manager shall not, however,
disclose any confidential information of the Company to other persons or
entities, unless such information is then public knowledge through no fault of
Manager, is properly provided to the Manager without restriction by a third
party or is already in the Manager's possession at the time of receipt by the
company.
<PAGE>
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6.2. Investment Opportunities. Manager shall act on a basis which is fair
and reasonable to the Company in selecting, from among the investment
opportunities that come to the attention of the Manager, those investment
opportunities which it offers to the Company, it being the intent of the Company
and its affiliates to invest in retail net-leased properties and investments and
office properties and investments, provided further that any opportunity for
real estate investment in a retail net-leased property shall first be offered to
the Company or in the case of office properties, they shall be first offered to
affiliates of the Company investing in office properties and if the Company or
its affiliate declines to so invest, then the Manager shall be free to offer
such retail net-leased property to others or the Manager or its present or
future principals, Directors, officers, employees, members or shareholders or
any of their affiliates may invest in such property. The Manager or its
principals, Directors, officers, employees, members or shareholders or any of
their affiliates may invest in assets, properties or other investments which are
not within the investment objectives of the Company or its affiliates which
investments objective is for the acquisition of net-leased retail properties and
office properties (which does not include traditional office-warehouse type
properties but may include "flex" type office-warehouse facilities which are
more than 20 % office space).
6.3. No Partnership or Joint Venture. The Company and the Manager are not
partners or joint venturers with each other and neither the terms of this
Agreement nor the fact that the Company and the Manager have Joint interests in
any one or more investments shall be construed to make them such partners or
joint venturers or impose any liability as such on either of them.
6.4. Signing Authority. Directors, officers, employees and agents of the
Manager or of its affiliates may serve as directors, officers, employees,
agents, nominees, or signatories of the Company. When executing documents or
otherwise acting in such capacities for the Company, such persons shall use
their respective designation or titles in the Company.
ARTICLE VII - TERM AND TERMINATION
7.1. Term and Renewal. This Agreement shall continue in force from the date
hereof for a five (5) year period ending , 2002 and may be terminated by either
party by written notice one hundred eighty (180) days prior to the expiration of
the initial term or renewal term, as the case may be. Absent written notice of
termination and nonrenewal as provided in this section, this Agreement shall be
automatically renewed for successive one-year terms upon the expiration of the
initial term and each renewal term. Notice of termination and nonrenewal shall
be given in writing by the Company to the Manager not less than one hundred
eighty (180) days before the expiration of the initial term of this Agreement or
of any renewal term thereof. Notwithstanding anything contained herein to the
contrary, the termination or nonrenewal of this Agreement for any- reason, by
either party, shall be subject to the Termination Fee specified in Section 7.2.
<PAGE>
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7.2. Termination Fee. In the event that this Agreement terminates for any
reason, including but not limited to nonrenewal, the Company immediately shall
pay the Manager, in addition to any other compensation due hereunder, a
Termination Fee equal to three percent (3%) of Invested Real Estate Assets of
the Company or as related or affiliated companies, partnerships, trusts,
business associations or entities as of the date of termination by the Company
from the date of termination by the Company (as shown on the books and records
of the Company). It is the intent of the parties that the Termination Fee shall
not apply to such assets which are or were purchased by the Company, or its
related or affiliated companies partnerships, trusts, business associations or
entities as of the date hereof but shall only apply to such Invested Real Estate
Assets that are then owned and that were acquired or purchased after the date
hereof Invested Real P-state Assets shall mean the aggregate book value of the
net-leased retail assets or investments of the Company invested directly or
indirectly in equity interests in and loans secured by real estate, before
reserves for depreciation or bad debts or other similar cash or non-cash
reserves.
7.3. Assignment. In the event the Manager assigns or transfers its interest
in this Agreement, without the written consent of the Company being first
obtained, which consent will not be unreasonably withheld, or if Vernon R. Beck,
John Parsinen or John D. Parsinen, Jr. singularly or together, or their estates,
families, family members or heirs at law (or a trust, partnership or other legal
entity establishment established for the benefit of their estates, families,
family members or heirs at law) do not own and control the majority of the
voting interests of the Manager, then the Company shall have the right to
terminate this Agreement abject to the terms and conditions of Section 7.2 and
Section 7.5. Nothing contained herein shall be deemed a default hereunder or
permit the termination of this Agreement by the Company because of the transfer
or conveyance of either of said individual interest or shares in the Manager to
his estate, family, family members, or to his heirs at law, or to a trust,
partnership, or other legal entity established for the benefit of his estate,
family, family members, or heirs at law, all of which shall be permitted
hereunder. This Agreement shall not be assignable by the Company without the
prior written consent of the Manager, except in the case of any assignment by
the Company to a corporation or other organization which is the successor to the
Company, and/or which will hold title to the Company's assets including those
which am or become the subject of this Agreement, in which case such successor
shall be bound hereby and by the terms of said assignment in the same manner and
to the same extent as the Company is bound hereby and the Company shall not be
released of its primary obligations hereunder. Nothing contained herein shall
prohibit the principal, shareholders or members of the Manager from pledging
their interest or shares in the Manager.
7.4. Default or Bankruptcy of the Manager. At the sole option of the
Company, this Agreement shall terminate immediately upon written notice of such
termination from the Directors of the Company to the Manager if any of the
following events shall have occurred:
<PAGE>
-14-
(a) the Manager shall have materially violated any provision of this
Agreement and, after notice of such violation, shall have failed to
cure such default within sixty (60) days or in the event such default
cannot be reasonably cured within sixty (60) days, then a reasonable
period of time if the Manager is diligently pursuing a course of
action to so cure;
(b) a petition shall have been filed against the Manager for an
involuntary proceeding under any applicable bankruptcy, insolvency, or
other similar law now or hereafter in effect, and such petition shall
not have been dismissed within ninety (90) days of filing; or a court
have jurisdiction shall have appointed a receiver, liquidator,
assignee, custodian, trustee, sequestrator, or similar official of the
Manager for any substantial portion of its property, or ordered the
winding up or liquidation of its affairs; or
(c) the Manager shall have commenced a voluntary proceeding under any
applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect, or shall have made any general assignment for the
benefit of creditors,, or shall have failed generally to pay its debts
as they became due.
The Manager agrees that, if any of the events specified 'in Section 7.4 (b) or
(c) shall occur, the Manager will give written notice thereto to the Directors
within twenty business days following the occurrence of such event.
7.5. Action upon Termination. From and after the date of any termination of
this Agreement, the Manager shall be entitled to no further compensation for
services rendered hereunder in the case of termination pursuant to this Article
VII, but shall be paid, on a pro rata basis, all compensation due for services
performed prior to such termination and all compensation due pursuant to the
Termination Fee and Section 7.2. Upon such termination, the Manager immediately
shall:
(a) pay over to the Company all monies collected and held for the account
of the Company pursuant to this Agreement, after declining therefrom
any accrued compensation and reimbursements for the expenses to which
the Manager is then entitled;
(b) deliver to the Directors a full and complete accounting, including a
statement showing all sums, collected by the Manager and a statement
of all sums held by the Manager for the period commencing with the
date following the date of the Manager' s last accounting to the
Directors; and
<PAGE>
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(c) deliver to the Company all property and documents of the Company then
in the Manager's custody or possession provided that the Manager shaft
have the right to copy and retain copies of all such documents.
Notwithstanding the foregoing, after the termination of this Agreement, the
Manager shall, upon reimbursement of its out-of-pocket costs, if any, provide
such services and documents to the Company as may be reasonably requested by the
Company to enable it to complete accounting reports, tax returns, audit
functions, Internal Revenue Service audits and other similar financial and tax
accounting functions.
7.6. Rights of Termination Cumulative. The rights of termination
specifically provided shall be considered to be cumulative and shall be in
addition to the rights of termination for breach of this Agreement otherwise
inuring to the parties by operation of law.
ARTICLE VIII - MISCELLANEOUS
8.1. Notices. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report, or other communication is accepted by the party to
whom it is given, and shall be given by being delivered at the following
addresses to the parties hereto:
The Directors and/or the Company
One Logan Square
Suite 1105
Philadelphia, PA 19103
Attn: Clay W. Hamlin III The Manager.
The Manager
Glacier Realty LLC
3430 List Place
Minneapolis, Minnesota 55416
Attn: Vernon R. Beck
with a copy to:
Parsinen Kaplan Levy Rosberg & Gotlieb P.A.
100 South Fifth Street, Suite 1100
Minneapolis, Minnesota 55402
Attention: John Parsinen
<PAGE>
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Either party hereto may at any time give notice to the other party in writing of
a change of its address for purposes of this Section 8.1.
8.2. Amendments. This Agreement shall not be amended, changed, modified,
terminated, or discharged in whole or in part except by an instrument in writing
signed by each of the parties or their respective successors or assigns.
8.3. Successors and Assigns. This Agreement shall be binding upon the
parties, their successors or assigns and with respect to the Company shall
relate to and include the assets and/or investments of the Company and its
related or affiliated companies, partnerships, trusts, business associations or
other entities.
8.4. Governing Law. The provisions of this Agreement shall be governed by
and construed in accordance with the laws of the State of Minnesota and
Minnesota shall be the place for venuing any and all actions relative to this
Agreement. In the event a party commences litigation to enforce the terms and
conditions of this Agreement, the party successful in establishing a breach by
the other party or successfully defending against an alleged breach of this
Agreement shall be entitled to recover reasonable attorneys and witness fees and
costs and any such court having jurisdiction over such matter shall so award
such fees and costs.
8.5. Captions. The captions included in this Agreement have been inserted
for ease of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.
8.6. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes and cancels
any preexisting agreements with respect to such subject matter.
8.7. Separability. If any term or provision of this Agreement or the
application thereof to any person, property or circumstance shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons, properties and circumstances other than
those as to which it is invalid or unenforceable, shall not be affected thereby,
and each term and provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Management
Agreement to be executed by their duly authorized officers.
Dated: October 14, 1997 ROYALE INVESTMENTS, INC.
A Minnesota corporation
By: _____________________________
Its: ________________________
GLACIER REALTY LLC
By: _____________________________
Its: ________________________
- --------------------------------------------------------------------------------
SENIOR SECURED CREDIT AGREEMENT
$100,000,000
DATED AS OF OCTOBER 13, 1997
BETWEEN
ROYALE INVESTMENTS, INC.,
FCO, L.P.,
FCO HOLDINGS, INC.,
BLUE BELL INVESTMENT COMPANY, L.P.,
SOUTH BRUNSWICK INVESTORS, L.P.,
COMCOURT INVESTORS, L.P.,
AND
6385 FLANK DRIVE, L.P.
as Loan Parties,
and
BANKERS TRUST COMPANY,
as Lender
- --------------------------------------------------------------------------------
<PAGE>
CREDIT AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE 1 INTERPRETATION......................................................2
1.1 Appendix of Defined Terms..............................................2
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement; Pro Forma .............................2
1.3 Certain References, Captions, Persons, and Expressions.................2
1.4 Drafter................................................................2
1.5 Knowledge..............................................................2
ARTICLE 2 TERMS OF THE LOAN...................................................3
2.1 Agreement to Lend and Borrow...........................................3
2.2 Disbursement of Funds..................................................3
2.3 Evidence of Indebtedness and Maturity..................................3
2.4 Extension of Maturity Date.............................................3
2.5 Fees...................................................................4
2.6 Interest on the Loan...................................................4
2.7 Repayments and Prepayments; General Provisions
Regarding Payments...................................................5
2.7.1 Scheduled Payments of the Loan.....................................5
2.7.2 Prepayments........................................................5
2.7.3 Application of Payments to Principal and Interest..................5
2.7.4 General Provisions Regarding Payments..............................5
2.8 Releases of Properties.................................................6
2.8.1 Conditions to Release..............................................6
2.8.2 Release of Blue Bell Vacant Land...................................7
2.8.3 Effect of Release..................................................7
2.9 Use of Loan Proceeds...................................................7
2.9.1 Loans..............................................................7
2.9.2 Margin Regulations.................................................7
2.10 Special Provisions Governing Eurodollar Rate..........................8
2.10.1 Special Eurodollar Interest Rate Provisions.......................8
2.10.2 Determination of Applicable Interest Rate.........................9
2.10.3 Inability to Determine Applicable Interest Rate...................9
2.10.4 Illegality or Impracticability of Eurodollar Rate.................9
2.10.5 Compensation For Breakage or Non-Commencement
of Interest Periods.............................................9
2.10.6 Booking of Eurodollar Rate Loans..................................9
2.10.7 Assumptions Concerning Funding of Eurodollar Rate Loans..........10
2.10.8 Increased Costs; Taxes; Capital Adequacy.........................10
2.10.9 Withholding of Taxes.............................................11
2.10.10 Capital Adequacy Adjustment.....................................12
2.10.11 Obligation of the Lender to Mitigate............................13
ARTICLE 3 CONDITIONS.........................................................13
3.1 Conditions Precedent to Lender's Obligations..........................13
3.1.1 Corporate Documents...............................................13
3.1.2 Partnership Documents.............................................14
3.1.3 Operating Statements..............................................15
3.1.4 Officer's Certificates............................................15
3.1.5 Establishment of Rent Reserve Account and
Tenanting Costs Account.........................................15
3.1.6 Payment of Fees...................................................15
3.1.7 No Material Adverse Effect........................................15
3.1.8 Security Interests................................................16
3.1.9 Insurance.........................................................18
3.1.10 Management Agreements............................................18
3.1.11 Material Leases; Tenant Estoppel Certificates....................18
3.1.12 Environmental Audits.............................................18
3.1.13 Engineering Reports..............................................19
3.1.14 Appraisals.......................................................19
3.1.15 Opinions of Loan Parties' Counsel; Auditor's Letter..............19
3.1.16 Opinion of Lender's Counsel......................................19
3.1.17 No Adverse Litigation............................................20
(i)
<PAGE>
3.1.18 Existing Indebtedness............................................20
3.1.19 Contingent Obligations...........................................20
3.1.20 Payment of Fees and Expenses.....................................20
3.1.21 Completion of Proceedings........................................20
3.1.22 Other Documents..................................................20
3.2 Conditions Subsequent to Lender's Obligations.........................20
3.2.1 Formation of FCOLP and FCO; Assignment of
Partnership Interests in Borrowers to FCOLP and FCO.............21
3.2.2 Execution of this Agreement.......................................21
3.2.3 Pledge of Partnership Interests...................................21
3.2.4 Stock Certificates................................................21
3.2.5 Other Documents...................................................21
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.....................................22
4.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries...........................................22
4.1.1 Organization and Powers...........................................22
4.1.2 Qualification and Good Standing...................................22
4.1.3 Conduct of Business...............................................22
4.1.4 Formation.........................................................22
4.2 Authorization of Borrowing, etc.......................................22
4.2.1 Authorization of Borrowing........................................23
4.2.2 No Conflict.......................................................23
4.2.3 Governmental Consents.............................................23
4.2.4 Binding Obligation................................................23
4.3 Financial Condition; Contingent Obligations...........................24
4.3.1 Financial Condition...............................................24
4.3.2 Contingent Obligations............................................24
4.4 Existing General Partners.............................................24
4.5 Properties; Agreements; Licenses......................................24
4.5.1 Title to Properties; Liens........................................24
4.5.2 Material Leases...................................................25
4.6 Litigation; Adverse Facts.............................................25
4.7 Taxes.................................................................25
4.7.1 Payment of Taxes..................................................26
4.7.2 REIT Status.......................................................26
4.7.3 Foreign Person....................................................26
4.7.4 Classification as a Partnership...................................26
4.8 Performance of Agreements; Materially Adverse Agreements..............26
4.9 Governmental Regulation; Securities Activities........................27
4.10 Employee Benefit Plans...............................................27
4.11 Certain Fees.........................................................27
4.12 Solvency.............................................................27
4.13 Disclosure...........................................................28
4.14 Liens on the Collateral..............................................28
4.14.1 General..........................................................28
4.14.2 Mortgages........................................................28
4.14.3 Assignments of Rents and Leases..................................29
(ii)
<PAGE>
4.14.4 Mechanics' Liens.................................................29
4.14.5 Filings and Recordings...........................................29
4.15 Zoning; Authorizations...............................................29
4.15.1 Zoning...........................................................29
4.15.2 Authorizations...................................................29
4.16 Physical Condition; Encroachment; Capital Expenditures...............30
4.16.1 Physical Condition; Encroachment.................................30
4.16.2 Capital Expenditures.............................................30
4.17 Insurance............................................................30
4.18 Leases...............................................................30
4.19 Environmental Reports; Engineering Reports;
Appraisals; Market Studies.........................................31
4.20 No Condemnation or Casualty..........................................31
4.21 Utilities and Access.................................................31
4.22 Wetlands.............................................................31
4.23 Labor Matters........................................................31
4.24 Employment and Labor Agreements......................................32
ARTICLE 5 AFFIRMATIVE COVENANTS..............................................32
5.1 Financial Statements and Other Reports................................32
5.2 Entity Existence; Financial Matters; Control..........................38
5.2.1 Entity Existence..................................................38
5.2.2 Financial Matters.................................................38
5.2.3 Change in Control.................................................38
5.2.4 Employment of Controlling Principals..............................38
5.3 Qualified Income Covenant; Common Stock...............................38
5.4 Taxes and Claims; Tax Consolidation...................................39
5.4.1 Taxes and Claims..................................................39
5.4.2 Tax Consolidation.................................................39
5.5 Maintenance of Properties; Repair; Alteration.........................39
5.6 Rent Reserve Account..................................................40
5.7 Tenanting Costs Reserve Account.......................................40
5.8 Inspection; Lenders' Meeting; Appraisals..............................41
5.8.1 Inspection and Lender Meeting.....................................41
5.8.2 Appraisals........................................................41
5.9 Compliance with Laws, Authorizations, etc.............................42
5.10 Performance of Loan Documents and Related Documents..................42
5.11 Payment of Liens.....................................................42
5.11.1 Removal by Loan Parties..........................................42
5.11.2 Removal by Lender................................................42
5.11.3 Title Searches...................................................43
5.12 Insurance............................................................43
5.12.1 Risks to be Insured..............................................43
5.12.2 Policy Provisions................................................46
5.12.3 Increases in Coverage............................................47
5.12.4 Payment of Proceeds..............................................47
5.12.5 Delivery of Counterpart Policies; Evidence.......................47
5.12.6 Replacement or Renewal Policies..................................47
5.12.7 Material Change in Policy........................................48
5.12.8 Separate Insurance...............................................48
5.13 Casualty and Condemnation; Restoration...............................48
5.13.1 Notice of Casualty...............................................48
5.13.2 Insurance Proceeds...............................................48
5.13.3 Notice of Condemnation; Negotiation and
Settlement of Claims...........................................49
(iii)
<PAGE>
5.13.4 Condemnation Proceeds............................................49
5.13.5 Repayment of Loan; Payment of Release Price;
Conditions to Restoration......................................50
5.13.6 Restoration......................................................52
5.13.7 Engineer's Inspection............................................54
5.14 Brundage Clause......................................................54
5.15 Further Assurances...................................................55
5.15.1 Assurances.......................................................55
5.15.2 Filing and Recording Obligations.................................55
5.15.3 Costs of Defending and Upholding the Lien........................56
5.15.4 Costs of Enforcement.............................................56
ARTICLE 6 NEGATIVE COVENANTS.................................................56
6.1 Indebtedness of Borrower..............................................57
6.2 Indebtedness of FCOLP.................................................57
6.3 Liens and Related Matters.............................................57
6.3.2 No Further Negative Pledges.......................................58
6.4 Investments...........................................................58
6.5 Contingent Obligations................................................58
6.6 Distributions.........................................................59
6.7 Financial Covenants...................................................59
6.7.1 Adjusted Consolidated Net Worth...................................59
6.7.2 Minimum Property Interest Coverage................................59
6.7.3 Minimum Property Hedged Interest Coverage.........................59
6.7.4 Minimum Consolidated Interest Coverage............................59
6.7.5 Maximum Consolidated Unhedged Floating Rate Debt..................59
6.7.6 Maximum Consolidated Total Indebtedness...........................59
6.8 Fundamental Changes...................................................59
6.9 Zoning and Contract Changes and Compliance............................60
6.10 No Joint Assessment; Separate Lots...................................60
6.11 Transactions with Affiliated Persons.................................61
6.12 Sale or Discount of Receivables......................................61
6.13 Ownership of Subsidiaries............................................61
6.14 Conduct of Business..................................................61
6.14.1 Conduct of Business..............................................61
6.15 Properties...........................................................62
6.15.1 Acquisition of Properties........................................62
6.15.2 Transfer of Properties...........................................62
6.16 Management Agreements................................................62
6.17 Changes in Certain Obligations and Documents;
Issuance of Equity Securities......................................62
6.17.1 Credit Agreement.................................................62
6.17.2 Royale Preferred Stock...........................................62
6.17.3 Equity Securities................................................63
6.17.4 Organization Documents...........................................63
6.18 Fiscal Year..........................................................63
ARTICLE 7 EVENTS OF DEFAULT; REMEDIES........................................64
7.1 Events of Default.....................................................64
7.1.1 Failure to Make Payments When Due.................................64
7.1.2 Other Defaults Under Loan Documents...............................64
7.1.3 Failure of Blue Bell Defeasance...................................64
7.1.4 Failure of Formation..............................................64
7.1.5 Default in Other Agreements.......................................64
7.1.6 Breach of Warranty................................................65
7.1.7 Invalidity of Loan Document; Failure of Security;
Repudiation of Obligations......................................65
7.1.8 Prohibited Transfers..............................................65
7.1.9 Involuntary Bankruptcy; Appointment of Receiver, etc..............66
7.1.10 Voluntary Bankruptcy; Appointment of Receiver, etc...............66
7.1.11 Judgments and Attachments........................................66
7.1.12 Dissolution......................................................66
(iv)
<PAGE>
7.1.13 Material Adverse Effect..........................................66
7.2 Certain Remedies......................................................67
7.3 Limitation on Recourse Against Non-Recourse Parties...................69
ARTICLE 8 MISCELLANEOUS......................................................70
8.1 Assignments and Participations in Loan................................70
8.1.1 General...........................................................70
8.1.2 Participations....................................................70
8.1.3 Assignments to Federal Reserve Banks..............................70
8.1.4 Information.......................................................70
8.2 Expenses..............................................................70
8.3 Indemnity.............................................................72
8.3.1 Indemnity.........................................................72
8.3.2 Procedure.........................................................73
8.3.3 Contribution......................................................73
8.3.4 No Limitation.....................................................74
8.3.5 Independence of Indemnity; No Enlargement.........................74
8.4 No Joint Venture or Partnership.......................................74
8.5 Amendments and Waivers................................................74
8.6 Independence of Covenants.............................................75
8.7 Notices...............................................................75
8.8 Survival of Representations, Warranties and Agreements................75
8.9 Obligations Several; Independent Nature of the
Lenders' Rights.....................................................75
8.10 Remedies of Borrower.................................................76
8.11 Maximum Amount.......................................................76
8.12 Marshalling; Payments Set Aside......................................77
8.13 Agreement to Contribute..............................................77
8.14 Suretyship Waivers...................................................78
8.15 Severability.........................................................80
8.16 Headings.............................................................80
8.17 Applicable Law.......................................................81
8.18 Successors and Assigns...............................................81
8.19 Consent to Jurisdiction and Service of Process.......................82
8.20 Waiver of Jury Trial.................................................82
8.21 Counterparts; Effectiveness..........................................83
8.22 Material Inducement..................................................83
8.23 Entire Agreement.....................................................84
(v)
<PAGE>
EXHIBITS
Exhibit A The Properties
Exhibit B The Note
Exhibit C Property Amounts
Exhibit D Compliance Certificate
(vi)
<PAGE>
SCHEDULES
Schedule 2.2 - Disbursement of Funds
Schedule 2.8.2 - Blue Bell Vacant Land
Schedule 4.1.1 - Loan Party Jurisdictions
Schedule 4.5.2 - Material Leases
Schedule 4.6 - Litigation
Schedule 4.8 - Materially Adverse Agreements
Schedule 5.1.14 - Form of Financial Plans
Schedule 5.2.3 - Initial Shareholdings of Controlling Principals
Schedule 5.6 - Rent Reserve Account
Schedule 5.7 - Tenant Costs Account
(vii)
<PAGE>
SENIOR SECURED CREDIT AGREEMENT
This SENIOR SECURED CREDIT AGREEMENT is dated as of October 13, 1997 and
entered into among ROYALE INVESTMENTS, INC., a Minnesota corporation ("Royale"),
FCO, L.P., a Delaware limited partnership ("FCOLP"), FCO HOLDINGS, INC., a
Delaware corporation ("FCO"), BLUE BELL INVESTMENT COMPANY, L.P., a Delaware
limited partnership ("Blue Bell"), SOUTH BRUNSWICK INVESTORS, L.P., a Delaware
limited partnership ("South Brunswick"), COMCOURT INVESTORS, L.P., a Delaware
limited partnership ("Comcourt"), and 6385 FLANK DRIVE, L.P., a Pennsylvania
limited partnership ("Flank Drive", or collectively with the foregoing parties,
the"Loan Parties"), and BANKERS TRUST COMPANY ("Lender").
R E C I T A L S
B. Blue Bell, South Brunswick, Comcourt and Flank Drive (collectively,
"Borrower") desire to obtain a loan from Lender, among other things, to
refinance certain existing financing secured by real and personal property
located in Blue Bell, Pennsylvania, Harrisburg Pennsylvania, and Princeton, New
Jersey.
C. Borrower desires to grant Liens in certain collateral in favor of Lender
to secure its obligations under this Agreement and the other Loan Documents.
D. Immediately following such refinancing the partners of Borrower intend
to admit FCO as a general partner of each Borrower and cause to be contributed
to FCOLP substantially all other Partnership Interests in Borrower. Following
such admission and contribution FCO will be the sole general partner of each
Borrower, having a 0.1% Partnership Interest in each Borrower, and FCOLP will
own all of the limited Partnership Interests in South Brunswick, and
approximately 88% of the limited Partnership Interests in each other Borrower.
The remaining limited Partnership Interests in the other Borrowers will be
contributed to FCOLP approximately 37 months after the Closing.
E. Royale is the sole general partner, and shall become a limited partner,
of FCOLP. Royale is the owner of all of the shares of FCO.
F. In order to induce Lender to make the Loan, Royale has agreed to pledge
to Lender as additional security for the Loan all of its interest in FCOLP and
FCO, and FCOLP has agreed to pledge to Lender as additional security for the
Loan all of its interest in each Borrower.
G. The making of the Loan contemplated by this Agreement is of substantial
benefit to all of the Loan Parties, including the facilitation of the
transactions described in these Recitals.
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Loan Parties and Lender agree as
follows:
ARTICLE 1
INTERPRETATION
This Agreement and the other Loan Documents shall be construed and
interpreted in accordance with this Article 1.
1.1 Appendix of Defined Terms
Appendix I to this Agreement, incorporated herein by this reference,
defines certain terms contained therein which are used in this Agreement and the
other Loan Documents. Such terms shall have the meanings ascribed to them in
Appendix I when used in this Agreement or the other Loan Documents with initial
capital letters.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement; Pro Forma
Except as otherwise expressly provided in this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
conformity with GAAP. Financial statements and other information required to be
delivered by the Borrower to Lender pursuant to Section 5.1 shall be prepared in
accordance with GAAP as in effect at the time of such preparation. Except as
otherwise expressly provided herein, calculations in connection with the
definitions, covenants and other provisions of this Agreement shall utilize
accounting principles and policies in conformity with those used to prepare the
financial statements referred to in Section 5.1.
1.3 Certain References, Captions, Persons, and Expressions.
In any Loan Document, except as otherwise specified therein: (a) all
references to Articles, Sections, clauses, Recitals, Exhibits, Schedules or
Attachments refer to those contained in or annexed to such Loan Document; (b)
all titles or captions are used for convenience and reference only and do not
limit or affect the meaning or effect of the provisions following them; (c) all
references in a Loan Document to any Person, other than the Borrower or any of
its Affiliates, includes the successors and assigns of such Person; (d)
"includes", "including" and similar terms mean "includes/including without
limitation"; and (e) whenever the context so requires, the neuter gender
includes the masculine or feminine and the singular number includes the plural,
and vice versa.
1.4 Drafter.
No inference against or in favor of any party to any Loan Document shall be
drawn from the fact that such party or its counsel has drafted any portion of
any Loan Document.
<PAGE>
3
1.5 Knowledge
As used in this Agreement or in any other Loan Document, the phrases "to
the actual knowledge", "to the knowledge of" and any variations thereof shall
mean, as of any date of determination and after inquiry that would be made by a
prudent operator of a business such as the business of the person making the
representation or an owner and manager of properties such as the Properties
owning or managing such Properties for its own account, the actual knowledge or
awareness, as of such date, of (i) Jay M. Shidler, Clay W. Hamlin III and James
K. Davis, (ii) or, at such times as any of such persons are not officers or
directors of the relevant entity, the persons who occupy the offices of such
person's or such person's sole general partner's Chairman of the Board, Chief
Executive Officer, President, Chief Operating Officer, Chief Financial Officer,
Senior Executive Vice President-Finance, Executive Vice President-Finance and
Development, Senior Vice President-Operations, and such other officers as shall
from time to time perform the functions that are performed by the foregoing
officers as of the date of this Agreement. Each Loan Party represents and
warrants for itself only that the foregoing Persons have executive and
administrative responsibility for its operations and assets and that in the
performance of their duties in the ordinary course of business one or more of
such Persons would customarily have knowledge of the matters referred to herein.
ARTICLE 2
TERMS OF THE LOAN
2.1 Agreement to Lend and Borrow.
Subject to the terms and conditions of this Agreement and in reliance upon
the representations and warranties of Borrower herein, Lender hereby agrees to
lend to Borrower, and Borrower agrees to borrow from Lender, the Loan Amount.
2.2. Disbursement of Funds. The Loan shall be disbursed at the Closing as
set forth on Schedule 2.2 hereto.
2.3 Evidence of Indebtedness and Maqturity. The Loan shall be evidenced by
the Note in the principal amount of the Loan Amount. The outstanding principal
balance of the Loan, together with accrued interest thereon and all other
amounts payable by Borrower under the terms of the Loan Documents, shall be due
and payable on the Maturity Date.
2.4 Extension of Maturity Date.
2.4.1 At any time prior to the date that is 90 days before the third
Anniversary, Borrower may deliver a written notice to Lender requesting
<PAGE>
4
that the Maturity Date be extended from the third Anniversary to the
fourth Anniversary and, if such notice is delivered, the Maturity Date
shall be so extended if the following conditions are satisfied:
2.4.1.1 as of the third Anniversary, no Event of Default or
Potential Event of Default shall have occurred and be
continuing and Borrower shall have delivered an Officers'
Certificate certifying thereto;
2.4.1.2 Borrower shall obtain Interest Rate Agreements in form
and substance reasonably acceptable to Lender (and with
security reasonably acceptable to Lender) sufficient to ensure
compliance with Section 6.7.5; and
2.4.1.3 on or prior to the third Anniversary, Borrower shall
have paid to Lender in immediately available funds a fee equal
to 0.25% of the Outstanding Loan Amount on the third
Anniversary.
2.4.2 If the Maturity Date has been extended pursuant to Section 2.4.1
above, at any time prior to the date that is 90 days before the fourth
Anniversary, Borrower may deliver a written notice to Lender requesting
that the Maturity Date be extended from the fourth Anniversary to the
fifth Anniversary and, if such notice is delivered, the Maturity Date
shall be so extended provided that the following conditions are
satisfied:
2.4.2.1 as of the fourth Anniversary, no Event of Default or
Potential Event of Default shall have occurred and be
continuing and Borrower shall have delivered an Officers'
Certificate certifying thereto;
2.4.2.2 Borrower shall obtain Interest Rate Agreements in form
and substance reasonably acceptable to Lender (and with
security reasonably acceptable to Lender) sufficient to ensure
compliance with Section 6.7.5; and
2.4.2.3 on or prior to the fourth Anniversary, Borrower shall
have paid to Lender in immediately available funds a fee equal
to 0.25% of the Outstanding Loan Amount on the third
Anniversary.
2.5 Fees.
Borrower shall pay the fees described in the Fee Letter in accordance with
the terms thereof.
2.6 Interest on the Loan.
2.6.1 Rates of Interest. Subject to the provisions of Section 2.6.3,
during the Initial Term the Outstanding Loan Amount shall bear interest from the
Closing Date to (but not including) the Maturity Date at the Fixed Rate. During
any Extension Terms the Outstanding Loan Amount shall bear interest from the
third Anniversary to (but not including) the Maturity Date at the Eurodollar
Rate.
2.6.2 Interest Payments. Subject to the provisions of Section 2.6.3,
interest on the Loan shall be payable monthly in arrears on and to each Payment
Date, upon any prepayment of the Loan (to the extent accrued on the amount being
prepaid) and at the Maturity Date.
2.6.3 Default Rate Interest. During the continuation of any Event of
Default, the Outstanding Loan Amount and, to the extent permitted by applicable
<PAGE>
5
law, any interest payments thereon not paid when due (other than any excess
interest payable solely pursuant to this Section) and any fees and other amounts
then due and payable hereunder, shall thereafter bear interest (including
post-petition interest in any proceeding under the Bankruptcy Code or other
applicable bankruptcy or insolvency laws) payable upon demand at a rate selected
by Lender at its sole option equal to (i) the sum of 2.0% and the interest rate
otherwise payable under this Agreement with respect to the Outstanding Loan
Amount (or, in the case of any such fees and other amounts, the sum of 2.0% and
the Eurodollar Rate), or (ii) the sum of 2.0% and the Eurodollar Rate, or (iii)
the sum of 2.0% and the Base Rate. Payment or acceptance of the increased rates
of interest provided for in this Section is not a permitted alternative to
timely payment and shall not constitute a waiver of any Event of Default or
otherwise prejudice or limit any rights or remedies of Lender or any Lender.
2.6.4 Computation of Interest. Interest on the Loan shall be computed
on the basis of a 360-day year and for the actual number of days elapsed in the
period during which it accrues. In computing interest, the date of the making of
the Loan or the first day of an Interest Period shall be included, and the date
of repayment of the Loan or the expiration date of an Interest Period shall be
excluded.
2.7 Repayments and Prepayments; General Provisions Regarding Payments.
2.7.1 Scheduled Payments of the Loan. On each Scheduled Principal Payment
Date, Borrower shall make a principal payment in an amount equal to one-twelfth
of the Principal Reduction Amount. Borrower shall repay the Outstanding Loan
Amount and pay all other Obligations in full no later than the Maturity Date.
2.7.2 Prepayments.Borrower may, without prepayment charge or penalty (but
subject to Section 2.10.5), upon not less than three Business Days' prior
notice, prepay the Loan on any Payment Date, in whole or in part in a minimum
amount of $3,000,000 and integral multiples of $500,000 in excess of that amount
(or, if less, the total amount of all outstanding Loans). If a prepayment is
made during an Extension Term, such prepayment shall be accompanied by the
payment of any amounts payable under Section 2.10.5 if then known, or if not
then known, then promptly following Lender's demand therefor. If such notice of
prepayment is given, the principal amount of the Loan specified in such notice
shall become due and payable on the prepayment date specified therein. Amounts
prepaid may not be reborrowed.
2.7.3 Application of Payments to Principal and Interest. All payments in
respect of the principal amount of the Loans shall include payment of accrued
interest on the principal amount being repaid or prepaid, and all such payments
shall be applied to the payment of unpaid interest before application to
principal.
2.7.4 General Provisions Regarding Payments
2.7.4.1 Manner and Time of Payment. All payments by Borrower of
principal, interest, fees and other Obligations hereunder and under the
Note and the other Loan Documents shall be made in same day funds and
<PAGE>
6
without defense, setoff or counterclaim, free of any restriction or
condition, and delivered to Lender not later than 12:00 Noon (New York
time) on the date due at its office located at One Bankers Trust Plaza, 130
Liberty Street, New York, New York 10006; funds received by Lender after
that time shall be deemed to have been paid on the next succeeding Business
Day.
2.7.4.2 Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder.
2.8 Releases of Properties.
2.8.1 At any time and from time to time after the Closing Date, in
connection with the refinancing, sale or other permanent disposition of any
Property, Borrower may obtain a Release of the Lien of the Security Documents on
such Property, subject to the following terms and conditions:
2.8.1.1 Borrower shall have delivered written notice to Lender (a) not
less than 30 days prior to the proposed Release Date specifying the
proposed Release Date and such Property, and (b) not less than 5 days prior
to the actual Release Date specifying such actual Release Date and such
Property;
2.8.1.2 no Event of Default shall have occurred and be continuing as
of the date of the delivery of the release notices (other than an Event of
Default or Potential Event of Default that either (x) pertains solely to
the Property or portion thereof which is the subject of such Release, or
(y) which will be cured by such Release and the transactions consummated in
connection therewith) and no Event of Default shall be continuing as of the
Release Date after giving effect to such Release and the transactions
consummated in connection therewith;
2.8.1.3 Borrower shall concurrently prepay the Loan in an amount equal
to the Release Price for such Property, plus such other amounts, if any, as
may be due by virtue of a prepayment of the Loan under Section 2.7.2;
2.8.1.4 Borrower shall have delivered to Lender (a) an Officers'
Certificate dated and effective as of the Release Date, certifying as to
the matters referred to in Section 2.8.1.2, and (b) an Officer's
Certificate, certified by the Chief Executive Officer or Chief Financial
Officer of Borrower, in detail reasonably satisfactory to Lender and
accompanied by the financial statements and other information used by
Borrower to calculate the information contained therein, demonstrating that
such Release will not cause violation of the covenants set forth in Section
6.7 of this Agreement.
2.8.1.5 Borrower, at its sole cost and expense, shall have (a)
delivered to Lender one or more endorsements to the Title Policy insuring
<PAGE>
7
that, after giving effect to such Release, the insured Liens created by the
Mortgages on the Properties which are not being Released are in full force
and effect and unaffected by such Release, (b) prepared any and all
documents and instruments necessary to effect such Release, all of which
shall be reasonably satisfactory in form and substance to Lender, and (c)
paid all costs and expenses incurred by Lender and its counsel in
connection with the review, execution and delivery of the release
documents; and
2.8.1.6 all other proceedings taken or to be taken in connection with
such Release and all documents incidental thereto shall be reasonably
satisfactory in form and substance to Lender and Lender's counsel, Lender
and such counsel shall have received all such counterpart originals or
certified copies of such documents as Lender may reasonably request and
counsel for Lender shall have received such documents and evidence that
such counsel shall require in order to establish compliance with the
conditions set forth in this Section.
Borrower may obtain a Release of the Lien of the Security Documents in respect
of a portion of any Property, if title to such portion has been permanently
Taken, by complying with the foregoing terms and conditions on the applicable
Release Date.
2.8.2 Release of Blue Bell Vacant Land. Blue Bell shall be entitled to a
release of the portion of the Blue Bell Property described on Schedule 2.8.2
upon compliance with the conditions set forth in Section 2.8.1, except that no
prepayment of the Loan shall be required in connection therewith, provided that
Blue Bell also provides to Lender evidence reasonably satisfactory to Lender
that, after giving effect to such release, the remainder of the Blue Bell
Properties may continue to be improved, used and occupied as it is currently
improved, used and occupied without restriction or additional improvement or
expense, in accordance with applicable law.
2.8.3 Effect of Release. Upon any Release of any Property in accordance
with this Section 2.8, such property shall cease to be a Property for the
purposes of this Agreement (other than for purposes of any indemnity contained
herein or in any of the other Loan Documents to the extent such indemnification
applies to such Property). From and after release of all Properties owned by any
Borrower, such Borrower shall cease to be a Borrower hereunder and shall
thereafter have no liability for obligations of the Loan Parties arising from
and after the date of such release.
2.9 Use of Loan Proceeds.
2.9.1 Loans. Subject to the other provisions of this Agreement, the
proceeds of the Loans shall be applied by Borrower (i) first, to the repayment
(or, in the case of the Blue Bell Properties, provision reasonably acceptable to
Lender for the repayment) of existing Indebtedness secured by Liens on the
Properties, and (ii) then to such other uses as Borrower shall deem appropriate.
2.9.2 Margin Regulations. No portion of the proceeds of any borrowing under
this Agreement shall be used by any Loan Party or any of its Subsidiaries in any
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8
manner that might cause the borrowing to violate Regulation G, Regulation U,
Regulation T or Regulation X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board or to violate the Exchange Act, in
each case as in effect on the date or dates of such borrowing.
2.10 Special Provisions Governing Eurodollar Rate.
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to the Eurodollar Rate Loans
as to the matters covered:
2.10.1 Special Eurodollar Interest Rate Provisions.
2.10.1.1 Applicable Rate. From time to time upon Borrower's request
during the Extension Term Lender shall advise Borrower of the interest rate
applicable to such Loan. Lender shall advise Borrower of the amount of each
interest payment in advance of each Payment Date in accordance with the
customary procedures of Lender with respect thereto, but the failure of
Lender to provide such advice accurately or timely shall not vary the
obligation of Borrower to pay the same in accordance with the terms of this
Agreement.
2.10.1.2 Interest Periods. At least five Business Days before the
Closing and expiration of each applicable Interest Period, Borrower shall
deliver to Lender a Notice of Interest Period Selection selecting an
interest period (each an "Interest Period") to be applicable to the Loan,
which Interest Period shall be at Borrower's option either a one, three or
six month period; provided, however, that:
(a) the initial Interest Period shall commence on the third
Anniversary;
(b) each successive Interest Period shall commence on the day on
which the next preceding Interest Period expires;
(c) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, unless the Interest Period would otherwise
expire on a day that is not a Business Day but is a day of the month
after which no further Business Day occurs in such month, in which
case such Interest Period shall expire on the next preceding Business
Day;
(d) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month;
(e) no Interest Period with respect to any portion of the Loans
shall extend beyond the Maturity Date; and
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9
(f) if Borrower fails to properly select an Interest Period,
Borrower shall be deemed to have selected an Interest Period of one
month.
2.10.2 Determination of Applicable Interest Rate. As soon as practicable
after 10:00 A.M. (New York time) on each Interest Rate Determination Date,
Lender shall determine the Eurodollar Rate for the applicable Interest Period
and shall promptly give notice thereof (in writing or by telephone confirmed in
writing) to Borrower. Lender's determination shall be final, conclusive and
binding upon all parties, absent manifest error.
2.10.3 Inability to Determine Applicable Interest Rate; Existence of
Default. If on any Interest Rate Determination Date Lender determines in good
faith that by reason of circumstances affecting the interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the Eurodollar Rate,
Lender shall on such date give notice to Borrower of such determination,
whereupon any Notice of Interest Period Selection given by Borrower with respect
to the Loans in respect of which such determination was made shall be deemed to
contain a request that the interest rate applicable to the Loan be the Base
Rate. Lender's determination shall be final and conclusive and binding upon all
parties hereto, absent manifest error.
2.10.4 Illegality or Impracticability of Eurodollar Rate. If at any time
Lender determines in good faith that the application of its Eurodollar Rate (i)
has become unlawful as a result of compliance by Lender in good faith with any
law, treaty, governmental rule, regulation, guideline or order (or would
conflict with any such treaty, governmental rule, regulation, guideline or order
not having the force of law even though the failure to comply therewith would
not be unlawful) or (ii) has become impracticable, or would cause such Lender
material hardship, as a result of contingencies occurring after the date of this
Agreement which materially and adversely affect the interbank Eurodollar market,
or the position of Lender in that market, then, and in any such event, Lender
shall give notice to Borrower of such determination. Thereafter, the Eurodollar
Rate shall be suspended until such notice shall be withdrawn by Lender the
applicable interest rate shall automatically convert to the Base Rate. Lender's
determination shall be final and conclusive and binding upon all parties hereto,
absent manifest error.
2.10.5 Compensation For Breakage or Non-Commencement of Interest Periods.
Borrower shall compensate Lender, upon written request by Lender setting forth
the basis for requesting such amounts, for all reasonable costs, expenses and
liabilities (including any interest paid by Lender to lenders of funds borrowed
by it to make or carry its Eurodollar Rate Loans and any costs, expense or
liability sustained by Lender in connection with the liquidation or
re-employment of such funds) which that Lender may sustain: (i) if for any
reason a continuation of the Eurodollar Rate does not occur on a date specified
therefor in a Notice of Interest Period Selection, (ii) if any prepayment occurs
on a date that is not the last day of an Interest Period, (iii) if any
prepayment (including any prepayment pursuant to Section 2.7.2) is not made by
Borrower on any date specified in a notice of prepayment given by Borrower or
(iv) as a consequence of any other default by Borrower.
2.10.6 Booking of Eurodollar Rate Loans. Lender may make, carry or transfer
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10
the Loan at, to, or for the account of any of its branch offices or the office
of an Affiliate of Lender, provided that at the time of such making or transfer
Borrower would not thereby be made subject to (x) suspension of the
applicability of the Eurodollar Rate under Section 2.10.4, (y) payment
obligations under Section 2.10.8, or (z) withholding for Taxes under Section
2.10.9.
2.10.7 Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation
of all amounts payable to a Lender under this Agreement shall be made as though
Lender had actually funded the Loan through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of the Loan and
having a maturity comparable to the relevant Interest Period and through the
transfer of such Eurodollar deposit from an offshore office of that Lender to a
domestic office of that Lender located in the United States of America.
Nevertheless, Lender may fund the Loan in any manner it sees fit and the
foregoing assumptions shall be utilized only for the purposes of calculating
amounts payable under this Agreement.
2.10.8 Increased Costs; Taxes; Capital Adequacy.
2.10.8.1 Compensation for Increased Costs and Taxes. Subject to Section
2.10.9 (which shall be controlling with respect to the matters covered thereby),
if Lender shall in good faith determine that any law, treaty or governmental
rule, regulation or order, or any change therein or in the governmental
interpretation, administration or application thereof (including the adoption of
any new law, treaty or governmental rule, regulation or order), or any
determination of a Governmental Authority, in each case that becomes effective
after the date hereof, or compliance by such Lender with any guideline, request
or directive issued or made after the date hereof by any central bank or other
Governmental Authority or quasi-governmental authority (whether or not having
the force of law):
(a) subjects such Lender (or its applicable lending office) to
any additional Tax (other than any Tax on the overall net income of
such Lender), with respect to this Agreement or any of its obligations
hereunder or any payments to such Lender (or its applicable lending
office) of principal, interest, fees or any other amount payable
hereunder;
(b) imposes, modifies or holds applicable any reserve (including
any marginal, emergency, supplemental, special or other reserve),
special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities
in or for the account of, or advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of
Lender (other than any such reserve or other requirements with respect
to the Loan that are already reflected in the definition of Adjusted
Eurodollar Rate); or
(c) imposes any other condition (other than with respect to a Tax
matter) on or affecting Lender (or its applicable lending office) or
its obligations hereunder or the interbank Eurodollar market;
<PAGE>
11
and the result of any of the foregoing is to increase the cost to Lender of
agreeing to make, making or maintaining Loans hereunder then bearing the
Eurodollar Rate or to reduce any amount received or receivable by such Lender
(or its applicable lending office) with respect thereto; then, in any such case,
Borrower shall promptly pay to Lender, upon receipt of the statement referred to
in the next sentence, such additional amount or amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender in its sole discretion shall determine) as may be necessary to
compensate Lender for any such increased cost or reduction in amounts received
or receivable hereunder. Lender shall deliver to Borrower (with a copy to
Lender) a written statement setting forth in reasonable detail the basis for
calculating the additional amounts owed to Lender under this Section, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.
2.10.9 Withholding of Taxes
2.10.9.1 Payments to Be Free and Clear. All sums payable by Borrower
under this Agreement and the other Loan Documents shall be paid free and
clear of and (except to the extent required by law) without any deduction
or withholding on account of any Tax (excluding Taxes imposed on any
Lender's or Participant's overall net income) imposed, levied, collected,
withheld or assessed by or within the United States of America or any
political subdivision in or of the United States of America or any other
jurisdiction from or to which a payment is made by or on behalf of
Borrower.
2.10.9.2 Grossing-up of Payments. If Borrower or any other Loan Party
is required by law to make any deduction or withholding on account of any
such Tax from any sum paid or payable by Borrower to Lender under any of
the Loan Documents:
(a) Borrower shall notify Lender of any such requirement or any
change in any such requirement promptly after Borrower becomes aware
of it;
(b) Borrower shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to
pay is imposed on Borrower) for its own account or (if that liability
is imposed on Lender) on behalf of and in the name of Lender;
(c) the sum payable by Borrower in respect of which such
deduction, withholding or payment is required shall be increased to
the extent necessary to ensure that, after the making of that
deduction, withholding or payment, Lender receives on the due date a
net sum equal to what it would have received had no such deduction,
withholding or payment been required or made; and
(d) within 30 days after paying any sum from
<PAGE>
12
which it is required by law to make any deduction or withholding, and
within 30 days after the due date of payment of any Tax which it is
required by Section 2.10.9.2(b) above to pay, Borrower shall deliver
to Lender evidence satisfactory to Lender of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided, however, that no such additional amount shall be required to
be paid to any Lender except to the extent that any change after the
date hereof (in the case of Lender) or after the date a Participant
became a Participant pursuant to Section 8.1 (in the case of each
Participant) in any such requirement for a deduction, withholding or
payment shall result in an increase in the rate of such deduction,
withholding or payment from that in effect at the date of this
Agreement (in the case of Lender) or at the date a Participant became
a Participant pursuant to Section 8.1 (in the case of each
Participant) in respect of payments to such Participant.
2.10.9.3 U.S. Tax Certificates. Each Lender or Participant that is
organized under the laws of any jurisdiction other than the United States
of America or any state or other political subdivision thereof shall
deliver to Borrower, on the date on which it becomes a Lender or a
Participant pursuant to Section 8.1, and at such other times as may be
necessary in the determination of Borrower or Lender (each in the
reasonable exercise of its discretion), such certificates, documents or
other evidence, properly completed and duly executed by such Lender or
Participant (including Internal Revenue Service Form 1001 or Form 4224 or
any other certificate or statement of exemption required by Treasury
Regulations Section 1.1441-4(a) or Section 1.1441-6(c) or any successor
thereto) to establish that such Lender or Participant is not subject to
deduction or withholding of United States federal income tax under Section
1441 or 1442 of the Internal Revenue Code or otherwise (or under any
comparable provisions of any successor statute) with respect to any
payments to such Lender or Participant of principal, interest, fees or
other amounts payable under any of the Loan Documents.
2.10.10 Capital Adequacy Adjustment. If any Participant shall have
reasonably determined that the adoption, effectiveness, phase-in or
applicability (after the date of this Agreement) of any law, rule or
regulation (or any provision thereof) regarding capital adequacy, or any
change therein or in the interpretation or administration thereof by any
Governmental Authority, including any central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
any Participant (or its applicable lending office) with any guideline,
request or directive regarding capital adequacy (whether or not having the
force of law (after the date of this Agreement)) of any such Governmental
Authority, has or would have the effect of reducing the rate of return on
the capital of such Participant or any corporation controlling such
Participant as a consequence of, or with reference to, such Participant's
interest in the Loan or other obligations hereunder with respect to the
Loan to a level below that which such Participant or such controlling
corporation could have achieved but for such adoption, effectiveness,
phase-in, applicability, change or compliance (taking into consideration
the policies of such Participant or such controlling corporation with
regard to capital adequacy), then from time to time, within five Business
<PAGE>
13
Days after receipt by Borrower from such Participant of the statement
referred to in the next sentence, Borrower shall pay to such Participant
such additional amount or amounts as will compensate such Participant or
such controlling corporation on an after-tax basis for such reduction. Such
Participant shall deliver to Borrower (with a copy to Lender) a written
statement, setting forth in reasonable detail the basis of the calculation
of such additional amounts, which statement shall be conclusive and binding
upon all parties hereto absent manifest error.
2.10.11 Obligation of the Lender to Mitigate.
Lender agrees that, as promptly as practicable after the officer of
Lender responsible for administering the Loans becomes aware of the
occurrence of an event or the existence of a condition that would entitle
Lender to (x) suspend the applicability of the Eurodollar Rate under
Section 2.10.4, (y) receive payments under Section 2.10.8, or (z) withhold
Taxes under Section 2.10.9, it will, to the extent not inconsistent with
its formally-adopted internal policies of general application and any
applicable legal or regulatory restrictions, use reasonable efforts to (i)
maintain the Loan or interest of Lender through another lending office of
Lender, or (ii) take such other measures as such Lender may deem
reasonable, if as a result thereof the effect of the matters described in
clauses (x), (y) and (z) above would be materially reduced and if, as
determined by such Lender in its reasonable judgment, the making, funding
or maintaining of the Loan through such other lending office or in
accordance with such other measures, as the case may be, would not
otherwise materially adversely affect the Loan or the interests of Lender;
provided, however, that Lender will not be obligated to utilize such other
lending office pursuant to this Section unless Borrower agrees to pay all
incremental expenses incurred by Lender as a result of utilizing such other
lending office as described in clause (i) above. A certificate as to the
amount of any such expenses payable by Borrower pursuant to this Section
(setting forth in reasonable detail the basis for requesting such amount)
submitted by Lender to Borrower shall be conclusive absent manifest error.
ARTICLE 3
CONDITIONS
3.1 Conditions Precedent to Lender's Obligations.
Lender's obligations under this Agreement are conditioned upon the
satisfaction prior to or concurrent with the Closing, at the expense of
Borrower, of the conditions specified in this Section 3.1, in each case as
reasonably determined by Lender:
3.1.1 Corporate Documents. Each Loan Party that is a corporation and each
corporate general partner of a Partnership Loan Party shall deliver or cause to
be delivered to Lender (with sufficient originally executed copies for each
Lender and Lender's counsel) the following, each dated the Closing Date unless
otherwise noted:
3.1.1.1 executed originals of each Loan Document to which it is a
party;
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14
3.1.1.2 certified copies of its Certificate of Incorporation, together
with a good standing certificate (including verification, where generally
available, of tax good standing) from the Secretary of State (or similar
official) of its jurisdiction of incorporation and each other state in
which a Property owned by such Loan Party is located), each dated not more
than 60 days prior to the Closing Date;
3.1.1.3 copies of its Bylaws, certified as of the Closing Date by its
corporate secretary or an assistant secretary;
3.1.1.4 resolutions of its Board of Directors approving and
authorizing (a) the execution, delivery and performance of each Loan
Document to which it is a party and (b) the consummation of the
transactions contemplated hereby and thereby, in each case certified as of
the Closing Date by its corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment; and
3.1.1.5 signature and incumbency certificates of its officers
executing this Agreement and the other Loan Documents to which it is a
party.
. Each Partnership Loan Party shall deliver to Lender (with sufficient
originally executed copies for Lender and Lender's counsel) the following, each
unless otherwise noted dated the Closing Date:
3.1.2.1 executed originals of each Loan Document to which it is a
party;
3.1.2.2 a conformed copy of its partnership agreement, certified by
each general partner of such partnership as of the Closing Date as being in
full force and effect without modification or amendment;
3.1.2.3 with respect to each Partnership Loan Party that is a limited
partnership, its Certificate of Limited Partnership, certified by the
Secretary of State (or similar official) of its jurisdiction of formation
and a certificate of existence or good standing, as the case may be, from
the Secretary of State (or similar official) of such jurisdiction, each
dated not more than 60 days prior to the Closing Date, and a good standing
certificate or certificate of existence, as the case may be, from the
Secretary of State (or similar official) of each state or other
jurisdiction in which a Property owned by such entity is located;
3.1.2.4 all documents of such Partnership Loan Party and its partners
(to the extent required by the applicable organizational documents)
approving or authorizing (a) the execution, delivery and performance of the
Loan Documents to which it is a party, and (b) the consummation of the
transactions contemplated hereby and thereby, each certified as of the
Closing Date by the general partner of such Partnership Loan Party; and
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15
3.1.2.5 a signature and incumbency certificate of the Person(s)
executing on behalf of such Partnership Loan Party any Loan Documents.
3.1.3 Operating Statements. Borrower shall have delivered to Lender the
following information, current as of a date not less than 45 days before the
Closing, and each in form and substance satisfactory to Lender:
3.1.3.1 quarterly rent roll for each Property;
3.1.3.2 quarterly operating statements for each Property;
3.1.3.3 current operating plans and budgets for each Property, with a
year to date analysis of variations from such plans and budgets; and
3.1.3.4 current capital expense budgets for each Property, with a year
to date analysis of variations from such budgets.
3.1.4 Officer's Certificates. Each Loan Party shall have delivered to
Lender an Officers' Certificate of the Chief Executive Officer or the Chief
Financial Officer of such Loan Party, or its general partner certifying as to
the following:
3.1.4.1 the accuracy of the financial and operating statements
delivered to Lender as of the Closing Date;
3.1.4.2 the Adjusted Consolidated Net Worth of the Loan Parties as of
the Closing Date;
3.1.4.3 since January 1, 1997, no Material Adverse Effect has
occurred; and
3.1.4.4 compliance of the Loan Parties with all of their obligations
hereunder as of such date, together with a calculation testing compliance
with financial and monetary covenants attached thereto in a form reasonably
satisfactory to Lender, each as of the Closing Date.
3.1.5 Establishment of Rent Reserve Account and Tenanting Costs Account.
Borrower shall have established the Rent Reserve Account and Tenanting Costs
Reserve Account.
3.1.6 Payment of Fees. Payment of all fees payable as of the Closing Date
pursuant to the Fee Letter.
3.1.7 No Material Adverse Effect. Since January 1, 1997, no condition or
event has occurred that has had or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
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16
3.1.8 security Interests. Borrower shall have taken or caused to be taken
all such actions as may be necessary or reasonably requested by Lender to give
Lender a valid, enforceable and perfected first priority Lien (or, in the case
of the Blue Bell Properties, provision shall have been made for Lender to obtain
a first priority Lien within 60 days after the Closing Date) on or first
priority security interest in the Collateral owned by Borrower as of the Closing
Date. Such actions shall include the following:
3.1.8.1 the delivery to Lender of fully executed and
acknowledged counterparts of the Mortgage, the Assignment of Rents and
Leases, the Security Agreement, and all other Security Documents with
respect to the Properties and the other Collateral owned by Borrower as
of the Closing Date, and the delivery of evidence satisfactory to
Lender that counterparts of the Mortgage, the Assignment of Rents and
Leases and all other of such documents as Lender desires to have
recorded have been or will be recorded in all places necessary or
desirable to create and maintain (a) valid and enforceable first
priority Liens on the fee simple interests of Borrower in the
Properties in favor of Lender, as mortgagee, (b) valid and enforceable
first priority Liens on the Rents and Leases in favor of Lender, (c)
valid and enforceable first priority Liens in all fixtures at the
Properties, in favor of Lender, as secured party, and (d) valid and
enforceable first priority Liens in all other items of Collateral owned
by Borrower as of the Closing Date in favor of Lender;
3.1.8.2 (a) the delivery to Lender for filing
pursuant to the Security Documents of properly executed financing
statements under the Uniform Commercial Code (or any equivalent or
similar legislation), or any other documents required to be filed by
other Applicable Laws, satisfactory in form and substance to Lender in
each jurisdiction as may be necessary (in Lender's reasonable judgment)
effectively to perfect and maintain the security interests in the
Collateral created by the Security Documents executed by Borrower and
(b) the delivery of evidence that such financing statements or other
documents will have been or will be recorded in all places necessary or
desirable, in the reasonable judgment of Lender, to create and maintain
valid and enforceable first priority Liens on such Collateral in favor
of Lender;
3.1.8.3 the delivery to Lender of a title commitment (together
with copies of all documents listed therein as exceptions to title)
dated not more than 40 days prior to the Closing Date with respect to
each Property and pro forma Title Policies dated not more than 20 days
prior to the Closing Date with respect to each such Property, each
reasonably satisfactory in form and substance to Lender;
3.1.8.4 the delivery to Lender of the Title Policies or marked
title commitments insuring fee simple or leasehold title to each of the
Properties vested in Borrower and insuring the first priority of the
Liens created under the Mortgages in an aggregate amount not less than
$100,000,000, in each case subject only to Permitted Encumbrances, and
such other title exceptions as are satisfactory to Lender. Such Title
Policies shall be reinsured with title insurance companies acceptable
<PAGE>
17
to Lender in amounts as required by Lender subject to facultative
reinsurance agreements in form satisfactory to Lender. Such Title
Policies shall also contain such endorsements and affirmative insurance
provisions as Lender may reasonably require and to the extent the same
are available in the applicable jurisdiction, including "comprehensive"
endorsements, revolving credit endorsements, affirmative insurance
against mechanic's liens, survey exceptions, violations of covenants,
conditions and restrictions, encroachments, gap insurance, contiguity
endorsements, tie-in endorsements, access endorsements, "Last-dollar"
endorsements, survey endorsements, contingent loss/first loss
endorsements, variable rate mortgage endorsements, and any other
endorsements reasonably required by Lender to address issues raised by
Lender's due diligence or as a matter of Applicable Law. In addition,
Borrower shall have paid to the Title Company and to the appropriate
Governmental Authority all expenses and premiums of the Title Company
in connection with the issuance of such Title Policies and in
connection with any Loan hereunder an amount equal to the recording and
stamp taxes (including mortgage recording, intangible and similar
taxes) payable in connection with recording each Mortgage, the
Assignment of Rents and Leases in the appropriate county land or
recorder's offices or otherwise payable in connection with the Loan;
3.1.8.5 the delivery to the Title Company of such certificates
and affidavits as the Title Company may reasonably require in
connection with the issuance of the Title Policies;
3.1.8.6 the delivery to Lender of a Survey with
respect to each of the Properties, dated or re-dated to within 180 days
prior to the Closing Date, which Surveys shall be reasonably
satisfactory in form and substance to Lender;
3.1.8.7 unless a title insurance zoning endorsement
is issued to Lender by the Title Company, the delivery to Lender of a
letter, to the extent generally available, from the applicable
Governmental Authority with respect to each of the Properties and
reasonably satisfactory to Lender stating that all Improvements on each
such Property have been constructed and are being used and operated in
material compliance with (a) all applicable zoning, subdivision, local
environmental, building and land use laws, ordinances, rules and
regulations of all Governmental Authorities or quasi-governmental
authorities having jurisdiction with respect to each such Property and
all applicable fire and building maintenance codes, and (b) all
building permits issued in respect of each such Property for work then
being conducted and the certificate of occupancy (if available) for
each such Property;
3.1.8.8 the delivery to Lender of an opinion of
counsel in each state or other jurisdiction in which each Property is
located, dated the Closing Date, addressed to Lender and in form and
substance reasonably satisfactory to Lender;
3.1.8.9 the delivery to Lender of evidence reasonably
satisfactory to Lender that all other filings, recordings and other
actions Lender deems necessary or advisable to establish, perfect and
preserve the Liens granted to Lender in the Collateral owned by
Borrower as of the Closing Date shall have been made.
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3.1.9 Insurance. Borrower shall have delivered to Lender (i) duplicate
originals or true and complete copies of each policy or other evidence of
insurance required by this Agreement evidencing (a) the issuance of such
policies, (b) that Borrower is not then in default in the payment of any premium
and (c) coverage which meets all of the requirements set forth in this
Agreement; and (ii) an Officers' Certificate dated the Closing Date to the
effect that the insurance coverage required by this Agreement is in full force
and effect and that all premiums therefor have been paid. To the maximum extent
permitted by law, Borrower hereby irrevocably waives, releases and discharges
any and all rights of action, demands and other claims of any kind or nature
against Lender arising from any failure of Lender or the Lenders to comply with
the National Flood Insurance Act of 1968 (42 U.S.C. " 4001, et seq.), the Flood
Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of
1994, including any failure of Lender or the Lenders to provide Borrower with
written notification within ten days prior to the Closing Date whether any
Property is in a special flood hazard area or whether federal disaster relief
assistance will be available in the event of flood damage to any Property.
3.1.10 Management Agreements. Borrower shall have delivered to Lender
executed or conformed, certified copies of each of the Management Agreements and
all amendments thereto entered into on or before the Closing Date, which
Management Agreements shall be reasonably satisfactory in form and substance to
Lender. The Management Agreements shall be in full force and effect and no term
or condition thereof shall have been amended or modified, or waived in any
material respect after the execution thereof (other than the waiver of any
Management Fee previously due and payable).
3.1.11 Material Leases; Tenant Estoppel Certificates. Borrower shall have
delivered to Lender (i) a Rent Roll for each Property, accompanied by an
Officers' Certificate with respect thereto, (ii) executed or conformed,
certified copies of each Material Lease with respect to each Property and all
amendments thereto entered into on or before the Closing Date, which Material
Leases shall be reasonably satisfactory in form and substance to Lender; the
Material Leases, as so amended, shall be in full force and effect and no term or
condition thereof shall have been further amended or modified, or waived after
the execution thereof; and no Person shall have failed in any material respect
to perform any material obligation or covenant or satisfy any material condition
required by the Material Leases to be performed or complied with on or before
the Closing Date; and (iii) original counterparts of Tenant Subordination
Agreements and estoppel certificates with respect to Leases demising at least
75% of the net rentable square footage of each Property (and including all
Material Leases), reasonably satisfactory in form and substance to Lender, duly
executed and delivered by each Tenant party to such Material Lease.
3.1.12 Environmental Audits. Borrower shall have delivered to Lender
evidence satisfactory to Lender, in its sole discretion, that (i) there are no
material pending or threatened claims, suits, actions or proceedings arising out
of or relating to the existence of any Hazardous Materials at, in, on, from,
around or under any of the Properties; (ii) each such Property is in compliance
in all material respects with all applicable Environmental Laws with respect to
such Property; and (iii) no Hazardous Materials exist at, in, on, from, around
or under any such Property, except in compliance in all material respects with
<PAGE>
19
applicable Environmental Laws and all other Hazardous Materials have been
removed from each Property to the extent required by Applicable Law. Such
evidence shall include a comprehensive environmental audit (which shall include
a Phase I environmental audit and, either if recommended or suggested by an
Approved Environmental Consultant or, if not so recommended or suggested, if
determined by Lender in its sole discretion to be necessary or desirable after
considering factors reasonably related to such determination, a Phase II
environmental audit), satisfactory in form and substance to Lender, conducted
and certified by an Approved Environmental Consultant. Such evidence shall also
include (a) a reliance letter from such Approved Environmental Consultant with
respect to each such environmental audit addressed to Lender, which reliance
letter shall be satisfactory in form and substance to Lender, (b) certification
that all required approvals from all Governmental Authorities having
jurisdiction with respect to the environmental condition of the Properties, if
any, have been obtained, and (c) such other environmental reports, inspections
and investigations as Lender shall in its sole discretion require after
considering factors reasonably related to such determination, prepared, in each
instance, by an Approved Environmental Consultant, which approvals, reports,
inspections and investigations shall be satisfactory in form and substance to
Lender, in its sole discretion. On or before the Closing Date, Borrower shall
have delivered to Lender evidence satisfactory to Lender, in its sole
discretion, that Borrower has complied with the recommendations and suggestions
of all environmental consultant(s) referred to above.
3.1.13 Engineering Reports. Borrower shall have delivered to Lender (i) a
written Engineering Report with respect to each Property prepared by an Engineer
acceptable to Lender, which Engineering Report shall contain current repair
recommendations for the first five years, and shall in all other respects be
reasonably satisfactory in form and substance to Lender; and (ii) a reliance
letter from such Engineer with respect to each such Engineering Report addressed
to Lender, which letter shall be in form and substance reasonably satisfactory
to Lender.
3.1.14 Appraisals. Lender shall have received (i) an Appraisal of each
Property prepared by an Appraiser designated by Lender, which Appraisal shall be
reasonably satisfactory in form and substance to Lender and shall satisfy all
applicable regulatory requirements; and (ii) copies of all appraisals, market
studies, and similar information with respect to each of the Properties in the
possession or under the control of the Loan Parties or any of their Subsidiaries
or partners.
3.1.15 Opinions of Loan Parties' Counsel; Auditor's Letter. On the Closing
Date Borrower shall have delivered to Lender and its counsel executed copies of
each of the favorable written opinions, each dated as of the Closing Date, of
Saul, Ewing, Remick and Saul, as counsel for Borrower, and Maun & Simon, as
counsel for Royale, FCOLP and FCO, which shall be in form and substance
reasonably approved by Lender and its counsel.
3.1.16 Opinion of Lender's Counsel. The Lenders shall have received
executed copies of the favorable written opinion of O'Melveny & Myers LLP,
counsel to Lender, dated as of the Closing Date.
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20
3.1.17 No Adverse Litigation. There shall not be pending or, to the
knowledge of Borrower, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Royale or any of its
Subsidiaries, or the Controlling Principals or any property of Royale or any of
its Subsidiaries that has not been disclosed by Borrower in writing pursuant to
Section 4.6 prior to the execution of this Agreement and that is reasonably
likely to have a Material Adverse Effect, and there shall have occurred no
development not so disclosed in any such action, suit, proceeding, governmental
investigation or arbitration so disclosed, that, in either event, in the
reasonable opinion of Lender, is likely to have a Material Adverse Effect; and
no injunction or other restraining order shall have been issued and no hearing
to cause an injunction or other restraining order to be issued shall be pending
or noticed with respect to any action, suit or proceeding seeking to enjoin or
otherwise prevent the consummation of, or to recover any damages or obtain
relief as a result of, the transactions contemplated by this Agreement or the
making of the Loan on the terms and conditions contained in this Agreement and
the other Loan Documents.
3.1.18 Existing Indebtedness. Borrower shall have caused the holders of all
Indebtedness secured by the Properties to deliver to Lender and the Title
Company pay-off or demand letters and other similar materials with respect to
such Indebtedness sufficient to enable the Title Company to use the proceeds of
the loan to pay off such Indebtedness and obtain releases and reconveyances of
mortgages, fixture filings, financing statements and other liens within
seventy-five days after the Closing, or, in the case of the Blue Bell
Properties, within seventy-five days after the Closing.
3.1.19 Contingent Obligations. Lender shall have received and approved a
list of any Contingent Obligations of the Borrower.
3.1.20 Payment of Fees and Expenses. Borrower shall have paid to Lender,
for distribution (as appropriate) to the Lenders and Lender, the fees payable
pursuant to Section 2.5 and the expenses payable pursuant to Section 8.2.
3.1.21 Completion of Proceedings. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable by Lender and its
counsel shall be reasonably satisfactory in form and substance to Lender and
such counsel, and Lender and such counsel shall have received all such
counterpart originals or certified copies of such documents as Lender may
reasonably request.
3.1.22 Other Documents. Each Loan Party shall have delivered to Lender such
other information and documents as Lender may reasonably request.
3.2 Conditions Subsequent to Lender's Obligations.
Lender's obligations under this Agreement are also conditioned upon the
satisfaction after the Closing, at the expense of Borrower, of the conditions
specified in this Section 3.2, in each case as reasonably determined by Lender:
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21
3.2.1 Formation of FCOLP and FCO; Assignment of Partnership Interests in
Borrowers to FCOLP and FCO. Within one day after the Closing, FCOLP and FCO
shall have been duly formed and qualified to do FCO. business in each
jurisdiction in which they are to do business, and the Loan Parties shall have
delivered to Lender an executed or conformed, certified copy of each of the
Formation Documents entered into on or prior to the Closing Date. Such
documents, as so amended, shall be in full force and effect and no term or
condition thereof shall have been further amended or modified, or waived after
the execution thereof. No Person shall have failed in any material respect to
perform any material obligation or covenant or satisfy any material obligation
or covenant or satisfy any material condition required thereunder to be
performed or complied with on or before the Closing Date. Royale shall have
delivered to Lender an Officers' Certificate of Royale certifying that, as of
the Closing Date, each transaction constituting the Formation has been duly
authorized by all necessary action of the parties thereto, and has been
consummated in accordance with, and is enforceable pursuant to, all Applicable
Laws. The admission of FCO as a general partner, and the assignment of all or
substantially all of the limited Partnership Interests, in each Borrower to
FCOLP and FCO in accordance with the Formation Agreement shall have occurred,
and all other transactions constituting the Formation shall have occurred.
3.2.2 Execution of this Agreement. Within one day after the Closing,
Royale, FCOLP and FCO shall have executed and delivered counterpart original
execution copies of this Agreement.
3.2.3 Pledge of Partnership Interests. Within one day after the Closing:
(a) the delivery to Lender of the Pledges, duly executed by Royale, FCOLP and
FCO; (b) the delivery to Lender for filing pursuant to the Security Documents of
properly executed financing statements under the Uniform Commercial Code (or any
equivalent or similar legislation), or any other documents required to be filed
by other Applicable Laws, satisfactory in form and substance to Lender in each
jurisdiction as may be necessary (in Lender's reasonable judgment) effectively
to perfect and maintain the security interests in the Collateral created by the
Pledges; and (c) the delivery of evidence that such financing statements or
other documents will have been or will be recorded in all places necessary or
desirable, in the reasonable judgment of Lender, to create and maintain valid
and enforceable first priority Liens on such Collateral in favor of Lender.
3.2.4 Stock Certificates. Within one day after the Closing, the delivery to
Lender pursuant to the Pledges of the stock certificates of FCO (which
certificates shall be accompanied by irrevocable undated stock powers duly
endorsed in blank and irrevocable proxies, all satisfactory in form and
substance to Lender).
3.2.5 Other Documents. The delivery to Lender of evidence reasonably
satisfactory to Lender that all other filings, recordings and other actions
Lender deems necessary or advisable to establish, perfect and preserve the Liens
granted to Lender in such Collateral (including any uncertificated partnership
interests) as of the Closing Date shall have been made.
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22
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make the
Loan and to induce Participants to purchase participations therein, Royale, as
to itself only, and each of the other Loan Parties, as to all other Loan Parties
(but not as to Royale), represents and warrants to Lender that, as of the
Closing Date, the following statements in this Article 4 are true, correct and
complete on the Closing Date.
4.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries
4.1.1 Organization and Powers. Each Loan Party (other than a Partnership
Loan Party or a Trust Loan Party) and each of its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation (which jurisdiction is set forth on Schedule 4.1.1
annexed hereto). Each such Loan Party and each such Subsidiary has the requisite
corporate power and authority to own and operate its properties (including the
Properties), to carry on its business as now conducted and as proposed to be
conducted, to enter into the Loan Documents to which it is a party, to carry out
the transactions contemplated hereby and thereby. Each Partnership Loan Party is
a limited partnership duly formed and validly existing under the laws of its
jurisdiction of organization (which jurisdiction is set forth on Schedule 4.1.1)
and each Partnership Loan Party has all requisite partnership power and
authority to own and operate its properties (including the Properties), to carry
on its business as now conducted and proposed to be conducted, to enter into
each Loan Document and Related Document to which it is a party and to carry out
the transactions contemplated hereby and thereby and, in the case of Borrower,
to issue and pay the Note.
4.1.2 Qualification and Good Stnading. Each Loan Party and each of its
Subsidiaries is qualified to do business and in good standing in every
jurisdiction necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. The jurisdictions in which each Loan Party
and each of its Subsidiaries owns property or otherwise conducts business as of
the Closing Date are set forth on Schedule 4.1.1 annexed hereto.
4.1.3 Conduct of Business. The Loan Parties are engaged only in the
businesses permitted to be engaged in by them pursuant to Section 6.14.
4.1.4 Formation. Each of the transactions constituting the Formation has
been duly authorized by all necessary corporate or partnership action of Royale,
FCOLP, Borrower and other Persons. Each of the transactions constituting the
Formation has been consummated in accordance with, and is effective under, all
Applicable Laws.
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23
4.2 Authorization of Borrowing, etc.
4.2.1 Authorization of Borrowing. The execution, delivery and performance
of this Agreement and the other Loan Documents to which each Loan Party is a
party and the issuance, delivery and payment of the Note have been duly
authorized by all necessary corporate, partnership or other action on the part
of each Loan Party, as the case may be.
4.2.2 No Conflict. The execution, delivery and performance by each Loan
Party of each Loan Document to which it is a party and the consummation of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of law applicable to any Loan Party, the Certificate of Incorporation
or Bylaws, partnership agreement, or other organizational document of any Loan
Party or any order, judgment or decree of any court or other agency of
government binding on any Loan Party, (ii) conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of any Loan Party, which default, individually or in the
aggregate, could have a Material Adverse Effect, (iii) result in or require the
creation or imposition of any Lien upon any of the properties or assets of any
Loan Party or any of its Subsidiaries (other than Liens securing the
Obligations), or (iv) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of any Loan Party the
absence of which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, other than (i) approvals or consents which
will be or have been obtained on or before the Closing Date and disclosed in
writing to Lender, and (ii) failure to comply with certain covenants contained
in the agreements evidencing and securing the indebtedness secured by the Blue
Bell Properties in favor of Blue Bell Funding, Inc., and now held by United
States Trust Company of New York.
4.2.3 Governmental Consents. The execution, delivery and performance by
each Loan Party of each Loan Document to which it is a party and the
consummation of the transactions contemplated hereby and thereby do not and will
not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Governmental Authority, except for (i) such of
the foregoing which will have been made or obtained on or before the Closing
Date and (ii) the recordings and filings required to perfect the Liens granted
pursuant to the Security Documents. As of the Closing Date, all consents or
approvals from or notices to or filings with any federal, state, or other
(domestic or foreign) regulatory authorities required to be obtained on or
before such date in connection with the documents or transactions described or
referred to in the preceding sentence will have been accomplished in all
material respects in compliance in all material respects with all Applicable
Laws. None of the transactions constituting the Formation or the consummation of
the other transactions contemplated by this Agreement, the other Loan Documents
violates any Applicable Law or regulation in any respect, which could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
4.2.4 Binding Obligation. This Agreement is, and the other Loan Documents
when executed and delivered hereunder will be, the legally valid and binding
obligations of the applicable Loan Parties, enforceable against the applicable
Loan Parties in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally, and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or law).
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24
4.3 Financial Condition; Contingent Obligations
4.3.1 Financial Condition. Borrower has heretofore delivered to Lender, at
Lender's request, the following financial statements and information: (i) the
audited balance sheet of Royale at June 30, 1997 and the related consolidated
statements of income, stockholders' equity and cash flows of Royale for the 12
months then ended, (ii) the unaudited statements of Property Gross Revenues and
Operating Expenses for each of the Properties for the calendar year ended
December 31, 1994, December 31, 1995 and December 31, 1996, respectively, and
(iii) the consolidated financial statements of Royale and its Subsidiaries
required to be delivered to Lender pursuant to this Agreement. The statements
referred to in clause (i) of the preceding sentence were prepared in conformity
with GAAP and fairly present, in all material respects, the consolidated
financial position of Royale and its Subsidiaries as at the date thereof and the
consolidated results of operations of Royale and its Subsidiaries for the period
then ended, subject to changes resulting from audit and normal year end
adjustments and there are no material differences between such consolidated
financial position and consolidated results of operations of Royale and its
Subsidiaries as presented in such consolidated financial statements and the
consolidated financial position and consolidated results of operations of
Borrower and its Subsidiaries as at the date of such consolidated financial
statements and for the period then ended. Royale and its Subsidiaries do not
have any Contingent Obligation, contingent liability or liability for taxes,
long-term lease or other long-term commitment not customarily involved in their
respective businesses that is not reflected in the foregoing financial
statements or the notes thereto and which is material in relation to the
business, operations, properties, assets or condition (financial or otherwise)
of Royale and its Subsidiaries.
4.3.2 Contingent Obligations. On the Closing Date, the Loan Parties and
their respective Subsidiaries will not be directly or indirectly liable with
respect to any Contingent Obligations. Other than in FCOLP and FCO, there have
been no Investments made by the Loan Parties and their respective Subsidiaries,
nor any Guaranties with respect to which the Loan Parties and their respective
Subsidiaries are liable as of the Closing Date, including all such Investments
and Guaranties that would be subject to Sections 6.4 and 6.7 if the same were
made or incurred on or after the Closing Date.
4.4 Existing General Partners. The general partners of Borrower who have
executed this Agreement as general partner of Borrower have no material assets
other than their respective interests in each Borrower.
4.5 Properties; Agreements; Licenses
4.5.1 Title to Properties; Liens. There are no outstanding options, rights
of first refusal, rights of first offer or similar rights to purchase or
otherwise acquire Borrower's interest in any Property, other than options and
rights owned by Loan Party or Subsidiary thereof, as applicable. Each Borrower
has good and marketable fee simple title to the Properties and good title to the
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25
remainder of the Collateral purported to be owned by it, free and clear of all
Liens, in each case except Permitted Encumbrances and Liens permitted under the
Loan Documents. All material fixtures, furnishings, attachments and equipment
necessary for the operation, use and occupancy of each such Property have been
installed or incorporated into such Property and each Borrower, as applicable,
is the sole owner of all of the same, free and clear of all chattel mortgages,
conditional vendor's liens and other liens, and security interests other than
Permitted Encumbrances and Liens permitted pursuant to Section 6.3. Except as
heretofore disclosed in writing by Borrower to Lender, no tax liens have been
filed against any Borrower and/or any of the Properties, other than Liens for
non-delinquent real property taxes.
4.5.2 Material Leases. Each Material Lease with respect to each Property
and all amendments thereto that have been or shall be entered into on or before
the Closing Date are listed on Schedule 4.5.2 annexed hereto. The Material
Leases, as so amended, shall be in full force and effect and no term or
condition thereof has been further amended or modified, or waived after the
execution thereof except in accordance with this Agreement; and no Person will
have failed in any respect to perform any obligation or covenant or satisfy any
condition required by the Material Leases to be performed or complied with,
except where failure to so comply will not then have had and could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
4.6 Litigation; Adverse Facts.
Except as set forth in Schedule 4.6 annexed hereto, as amended or
supplemented from time to time (which amendment or supplement shall be
reasonably satisfactory to Lender), there is no action, suit, proceeding,
arbitration or governmental investigation at law or in equity or before or by
any Governmental Authority, or to the knowledge of any of the Loan Parties,
changes to Applicable Law, pending or, to the knowledge of any of the Loan
Parties, threatened against or affecting any Loan Party or any of its
Subsidiaries, any Property or any other property of Royale or any of its
Subsidiaries that has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No Loan Party nor
any of its Subsidiaries is (i) in violation in any material respect of any
Applicable Law or (ii) subject to or in default with respect to any Applicable
Law in either case that has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. To the knowledge of
the Loan Parties, there are no pending or threatened actions, suits or
proceedings to revoke, attack, invalidate, rescind or modify the zoning
affecting any Property or any Authorizations heretofore issued with respect to
any Property or asserting that such Authorizations or the zoning affecting any
Property or any other property of any Loan Party or any of its Subsidiaries do
not permit the continued use of such Property or property as contemplated by the
Loan Documents. Except as set forth on Schedule 4.6, to the knowledge of
Borrower, no Person has asserted any claimed violation of Applicable Laws
arising from the operation, use or occupancy of the Properties which has not
been cured which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
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26
4.7 Taxes.
4.7.1 Payment of Taxes. Except to the extent set forth on the financial
statements delivered pursuant to this Agreement, all material federal, state and
local Tax returns and reports relating to any Loan Party or any of its
Subsidiaries or the Properties required to be filed have been timely filed, and
all material Taxes, Impositions, assessments, fees and other governmental
charges upon any Loan Party or any of its Subsidiaries or upon the Properties
which are due and payable have been paid prior to delinquency. Neither Royale
nor Borrower knows of any proposed Tax assessment against any Loan Party or any
of its Subsidiaries or the Properties that could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. Neither any
Loan Party nor any of its Subsidiaries (i) has executed or filed with the
Internal Revenue Service or any other Governmental Authority any agreement or
other document that remains in effect extending, or having the effect of
extending, the period for assessment or collection of any Taxes, assessments,
fees or other governmental charges or (ii) has any obligation under any written
Tax sharing agreement or agreement regarding payments in lieu of Taxes (other
than obligations pursuant to partnership agreements to make distributions of
cash for the payment of taxes).
4.7.2 REIT Status. Except as disclosed in that certain letter of Coopers &
Lybrand LLP, dated October 13, 1997, relating to a so-called "demand letter"
issue, Royale has at all times maintained its qualification as a REIT under the
Internal Revenue Code.
4.7.3 Foreign Person. None of the Loan Parties is a "foreign person" within
the meaning of Section 1445 or 7701 of the Internal Revenue Code.
4.7.4 Classification as a Partnership. Each of the Loan Parties that is a
Partnership Loan Party is properly classified as a partnership for federal
income tax purposes.
4.8 Performance of Agreements; Materially Adverse Agreements.
No Loan Party nor any of its Subsidiaries is in default in the performance,
observance or fulfillment of any of the material obligations, covenants or
conditions contained in any Contractual Obligation, and no condition exists
that, with the giving of notice or the lapse of time or both, would constitute
such a default, except where the consequences, direct or indirect, of such
default or defaults, if any, could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. Except as disclosed
on Schedule 4.8 annexed hereto, no Loan Party nor any of its Subsidiaries is a
party to or otherwise subject to any agreement or instrument (other than the
Loan Documents), any charge or other internal restriction or any Contractual
Obligation which by its terms or effect (i) prohibits or restricts such Loan
Party or Subsidiary from acquiring, loaning or disposing of any Property or
other asset, or any interest therein, or acquiring or entering into, or
providing any services under any management agreement or (ii) otherwise
restricts the conduct by such Loan Party or any of its Subsidiaries of any
business, except in each case where the consequences, direct or indirect, of any
violation thereof could not reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect. No Loan Party nor any of its
Subsidiaries is a party to or is otherwise subject to any agreement or
instrument, any charter or other internal restriction or any Contractual
Obligation which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
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27
4.9 Governmental Regulation; Securities Activities
No Loan Party nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which could limit its ability to incur
Indebtedness or which could otherwise render all or any portion of the
Obligations unenforceable. No Loan Party nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.
4.10 Employee Benefit Plans.
No Loan Party maintains any Employee Benefit Plan that is subject to
any provision of the Employee Retirement Income Security Act of 1974, as amended
from time to time.
4.11 Certain Fees.
No broker's or finder's fee or commission will be payable by any Loan
Party or any of its Subsidiaries with respect to this Agreement or any of the
transactions contemplated hereby (other than the fees payable pursuant to this
Agreement), and Borrower hereby indemnifies Lender against, and agrees that it
will hold Lender harmless from, any claim, demand or liability for any such
broker's or finder's fees or commissions payable by Borrower alleged to have
been incurred in connection herewith or therewith and any expenses (including
reasonable fees, expenses and disbursements of counsel) arising in connection
with any such claim, demand or liability.
4.12 Solvency.
After giving effect to the Formation and the consummation of the other
transactions contemplated by this Agreement and the other Loan Documents, as of
the Closing Date, with respect to all Loan Parties on a consolidated basis, (i)
(a) the then-current fair saleable value of the property of the Loan Parties
(including any rights to contribution from the other Loan Parties under the Loan
Documents) is (y) greater than the total amount of liabilities (including
contingent liabilities) of the Loan Parties and (z) not less than the amount
that will be required to pay the probable liabilities on the Loan Parties'
then-existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to the
Loan Parties; (b) the Loan Parties' capital is (or will be, as the case may be),
not unreasonably small in relation to its business or any contemplated or
undertaken transaction; and (c) the Loan Parties do not intend to incur, or
believe (nor should they reasonably believe) that they will incur debts beyond
their ability to pay such debts as they become due; and (ii) the Loan Parties
are (or will be, as the case may be), "solvent" within the meaning given that
term and similar terms under Applicable Laws relating to fraudulent transfers
and conveyances. For purposes of clause (i) of the preceding sentence, the
amount of any contingent liability at any time shall be computed as the amount
that, in light of all of the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
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28
4.13 Disclosure.
No representation or warranty of any Loan Party contained in this
Agreement, the other Loan Documents and the Related Documents to which it is a
party or in any other document, certificate or written statement furnished to
Lender or the Lenders by or on behalf of any Loan Party for use in connection
with the transactions contemplated by the Loan Documents and the Related
Documents contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact (known to such Loan Party, in the
case of any document not furnished by it) necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made or will be made, as the case may be.
The projections and pro forma financial information contained in such materials
are based or will be based upon good faith estimates and assumptions believed to
be reasonable at the time made, it being recognized by Lender that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
materially from the projected results. There is no fact known to any Loan Party
(other than matters of a general economic nature) that has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect and that has not been disclosed in any of the Loan
Documents and the Related Documents to which any Loan Party is a party as of the
date hereof or in such other documents, certificates and statements furnished to
the Lenders for use in connection with the transactions contemplated hereby.
4.14 Liens on the Collateral
4.14.1 General. Except as expressly provided in the legal opinions
delivered pursuant to this Agreement, the provisions of this Agreement and the
Security Documents are effective to create and maintain, upon proper filing or
recording or taking of possession, as applicable, in favor of Lender valid and
legally enforceable Liens on all of the Properties and all of the remainder of
the Collateral and, when all necessary and appropriate recordings and filings
have been effected in all necessary and appropriate public offices, and payment
is made of any applicable mortgage recording, intangible and/or similar taxes,
this Agreement and the Security Documents will constitute perfected Liens on all
of such Properties and all of the remainder of the Collateral prior and superior
to all other Liens except Permitted Encumbrances.
4.14.2 Mortgages. Each Mortgage upon execution and delivery by the
applicable Loan Party will be a valid and enforceable first priority Lien on the
Property that such Mortgage purports to encumber, except for Permitted
Encumbrances, and such Mortgage, when such Mortgage is recorded in the real
property records of the county in which such Property is located and upon
payment of any applicable mortgage recording, intangible and/or similar taxes,
will be a perfected, valid and enforceable first priority Lien on such Property
in favor of Lender, which Property will then be free and clear of all Liens
having priority over the first Lien of such Mortgage, except for Permitted
Encumbrances.
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4.14.3 Assignments of Rents and Leases. Except as expressly provided in the
legal opinions delivered pursuant to this Agreement, each Assignment of Rents
and Leases, upon execution and recordation of such Assignment of Rents and
Leases in the real property records of the county in which the Property affected
by such Assignment of Rents and Leases is located and upon payment of any
applicable recording or intangible taxes, will be, as to each Property, a
perfected, valid and enforceable first priority present assignment of or Lien on
the Leases affecting such Property and of the Rents of and from such Property,
which Properties will then otherwise be free and clear of all Liens having
priority over the Assignment of Rents and Leases, except for Permitted
Encumbrances. As of the Closing Date, Borrower represents that upon recordation
of each Assignment of Rents and Leases Lender has taken all actions necessary to
obtain, and as of the Closing Date Lender has, a valid and perfected first
priority (or, to the extent described in the immediately preceding sentence,
second priority) assignment of or Lien on the Rents from the Properties and of
all security for the Leases affecting such Properties, including cash or
securities deposited as security under such Leases subject to the prior right of
the Tenants making such deposits.
4.14.4 Mechanics' Liens. Except as bonded or contested in accordance with
the provisions of this Agreement or as insured over by Title Policies that are
then in effect, no mechanic's liens have been filed and remain in effect against
any Property.
4.14.5 Filings and Recordings. All filings (including all financing
statements and all assignments of financing statements under the Uniform
Commercial Code) have been delivered to Lender for filing in each public office
in which such filings and recordings are required or advisable to perfect the
Liens on each of the Properties and the other Collateral granted by the Loan
Parties pursuant to the Security Documents and, except for the filing of
continuation statements with respect to such financing statements as may be
required or advisable to be filed at periodic intervals, no periodic refiling or
periodic recording is presently required to protect and preserve such Liens and
security interests.
4.15 Zoning; Authorizations
4.15.1 Zoning. The use and operation by each Borrower of its Property as a
multi- or single- tenant office building or buildings, with related uses,
separate and apart from any other properties, constitutes a legal use under
applicable zoning regulations and complies in all material respects with all
Applicable Laws and all applicable Insurance Requirements, and does not violate
any Authorizations or other material approvals, material restrictions of record
or any material agreement affecting any Property (or any portion thereof) to
which such Borrower is a party or by which such Borrower or such Property (or
portion thereof) is bound, except for violations and failures to comply which
could not reasonably be expected to result, either individually or in the
aggregate, in a Material Adverse Effect. Neither the zoning nor any right of
access to or use of any Property is to any material extent dependent upon or
related to any real property other than such Property.
4.15.2 Authorizations. There have been issued in respect of each Property
all Authorizations necessary to own, operate, use and occupy such Property in
the manner operated by Borrower as of the Closing Date (including any required
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permits relating to Hazardous Materials). No Borrower has any knowledge that any
Authorization necessary or required to own, operate, use and occupy any Property
in the manner currently operated by the Tenants under any Material Lease and
contemplated to be operated by the Tenants on and after the Closing Date
(including any required permits relating to Hazardous Materials) has not been
issued and is not in full force and effect, other than any such Authorizations
which, if not obtained, could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No Borrower, nor,
to the knowledge of Borrower, any prior owner thereof, has received any notice
of violation or revocation thereof except for those which could not reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect.
4.16 Physical Condition; Encroachment; Capital Expenditures
4.16.1 Physical Condition; Encroachment. Except as disclosed on the
Engineering Reports delivered pursuant to this Agreement, each Property is free
of material structural defects and is in good repair (normal wear and tear
excepted) and all building systems contained therein and all other material
items of Collateral are in good working order in all material respects subject
to ordinary wear and tear, except as disclosed in the Engineering Reports, and
is free and clear of any damage that would affect materially and adversely the
value of such Property or the use of such Property for its intended purposes. To
the knowledge of Borrower, other than as described in the Title Policy and in
any Survey, no Improvement at any Property encroaches upon any building line,
setback line, side yard line or any recorded or visible easement.
4.16.2 Capital Expenditures. Neither Borrower nor any Property is subject
to any agreement pursuant to which any Borrower shall have incurred or may incur
any obligation to make capital improvements to any Property, except as set forth
on Schedule 5.7.
4.17 Insurance.
All insurance required to be maintained by the Loan Parties and their
respective Subsidiaries pursuant to this Agreement or any other Loan Document is
in full force and effect in accordance with the terms thereof. As to each
Property located in an area identified by the Federal Emergency Management
Agency as having special flood hazards, if flood insurance is available, a flood
insurance policy is in effect. All premiums have been paid with respect to each
insurance policy required to be maintained by the Loan Parties and their
Subsidiaries pursuant to this Agreement or any other Loan Document.
4.18 Leases
There is no default or event which with notice or lapse of time or both
would constitute a default under any of the provisions of any Material Lease
affecting any Property that has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. No
litigation is currently pending or has been threatened by any Tenant in
connection with any Material Lease affecting any Property that has had, or could
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31
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. All Material Leases and other Leases material to the
operation of the Properties are in full force and effect, except to the extent
such failure could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
4.19 Environmental Reports; Engineering Reports; Appraisals; Market Studies
Borrower has delivered to Lender correct and complete copies of all
environmental audits, engineering reports, appraisals and market studies with
respect to each Property that any Loan Party or any of its Subsidiaries has in
its possession. To Borrower's knowledge, the information contained in such
audits, reports, appraisals and market studies remains true, correct and
complete.
4.20 No Condemnation or Casualty
No condemnation or other like proceedings (including relocation of any
roadways abutting any Property or change in grade of such roadways or denial of
access to any Property) that has had, or could reasonably be expected to result
in, a Material Adverse Effect, are pending and served nor, to the knowledge of
any Loan Party, threatened against any Property in any manner whatsoever. No
casualty has occurred to any Property that has had or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect.
4.21 Utilities and Access
To the extent necessary for the full utilization of each Property in
accordance with its current use, telephone services, gas, steam, electric power,
storm sewers, sanitary sewers and water facilities and all other utility
services are available to each Property, are adequate to serve each such
Property, exist at the boundaries of the Land and are not subject to any
conditions, other than normal charges to the utility supplier, which would limit
the use of such utilities. All streets and easements necessary for the occupancy
and operation of each Property are available to the boundaries of the Land. All
necessary rights-of-way for all roads, which are sufficient to permit each
Property to be utilized fully for its current use, have been completed and are
serviceable, and, to the knowledge of the Loan Parties, all public rights-of-way
through or adjacent to the Properties have been acquired and dedicated and
accepted for maintenance and public use by the applicable Governmental
Authorities.
4.22 Wetlands
Except as disclosed in any of the written environmental audits and reports
delivered pursuant to this Agreement, none of the Improvements on any Property
are constructed on land designated by any Governmental Authority having land use
jurisdiction as wetlands.
4.23 Labor Matters
There are no strikes or other labor disputes against any Loan Party or any
of its Subsidiaries, pending or, to the knowledge of any Loan Party, threatened
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32
that have had or could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. Hours worked by and payments made by
any Loan Party or any of its Subsidiaries to their respective employees are not
in violation in any material respect of the Fair Labor Standards Act or any
other applicable law dealing with such matters.
4.24 Employment and Labor Agreements
Each Loan Party and each of its Subsidiaries is in compliance in all
material respects with the terms and conditions of any employment agreements to
which it is party.
ARTICLE 5
AFFIRMATIVE COVENANTS
Each Loan Party covenants and agrees that, from and after the Closing
Date and until payment in full of the Loan and the other Obligations (other than
indemnification obligations with respect to claims that have not been asserted
at the time that the Loan and all other Obligations have been paid in full),
each Loan Party shall perform and shall cause each of their respective
Subsidiaries to perform all covenants made by it in this Article 5.
5.1 Financial Statements and Other Reports.
Royale shall maintain and cause each of its Subsidiaries to maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of consolidated and consolidating
financial statements in conformity with GAAP. Borrower shall deliver to Lender:
5.1.1 Quarterly Property Operating Statements: as soon as available
and in any event within 60 days after the end of each calendar quarter,
commencing with respect to the calendar quarter ending December 31, 1997, a
current Rent Roll and a statement of Property Income and Property Operating
Expenses and any other expenses with respect to each Property separately,
in each case for the 12 month period ending on the last day of such
calendar quarter, in reasonable detail satisfactory to Lender and certified
by the Chief Executive Officer or Chief Financial Officer of Royale and
Borrower stating that, subject to normal adjustments following the
preparation of the financial statements referred to below in clauses (iii)
and (iv), respectively, (x) such statements of Property Income and
Operating Expenses and other expenses fairly present, in all material
respects, the results of operations of the Properties indicated for the
periods indicated and (y) all Property Operating Expenses and any other
expenses with respect to each Property which have become due and payable as
of the last day of the calendar month next preceding the delivery of such
income statement have been fully paid or recognized by Borrower;
5.1.2 Quarterly Financial Statements of Royale and Its Subsidiaries:
as soon as available and in any event within 60 days after the end of each
calendar quarter of each calendar year, commencing with respect to the
calendar quarter ending December 31, 1997, (a) the consolidated balance
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33
sheet of Royale and its Subsidiaries as at the end of such calendar quarter
and the related consolidated statements of income, reconciliation of
surplus, stockholders' equity and cash flows of Royale and its Subsidiaries
for such calendar quarter and for the period from the beginning of the then
current calendar year to the end of such calendar quarter, setting forth in
each case in comparative form the corresponding figures for the
corresponding periods of the previous year and the corresponding figures
from the plan and financial forecast for the current year delivered
pursuant to this Section, and (b) the consolidating financial statements of
Royale and its Subsidiaries (including balance sheets and income statements
segmenting any Subsidiaries of Royale or groups of Subsidiaries of Royale,
as requested by Lender in its reasonable discretion) together with any
adjustments and/or eliminations needed to reconcile such Subsidiary
financial statements to the consolidated financial statements of Royale,
all in reasonable detail (it being understood and agreed that, to the
extent Royale's quarterly report filed on Form 10-Q with the Securities and
Exchange Commission for such period contains the foregoing information,
such quarterly report shall be deemed to comply with the foregoing
requirements) and certified by the Chief Executive Officer or the Chief
Financial Officer of Royale and Borrower stating that (x) such consolidated
and consolidating financial statements fairly present, in all material
respects, the financial condition of Royale and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated, subject to changes resulting from audit and
normal year-end adjustments and (y) except as noted, there are no material
differences between such consolidated financial statements of Royale and
its Subsidiaries and the consolidated financial statements of Borrower and
its Subsidiaries with respect to such quarter;
5.1.3 Year-End Financial Statements: as soon as available and in any
event within 90 days after the end of each calendar year, commencing with
respect to the calendar year ending December 31, 1997, (a) the consolidated
balance sheet of Royale and its Subsidiaries as at the end of such calendar
year and the related consolidated statements of income, stockholders'
equity and cash flows of Royale and its Subsidiaries for such calendar
year, setting forth in each case in comparative form the corresponding
figures for the previous calendar year and the corresponding figures from
the plan and financial forecast delivered pursuant to this Section for the
calendar year covered by such consolidated financial statements, (b) the
balance sheets and related income statements of each Property, (c) the
consolidating financial statements of Royale and its Subsidiaries
(including balance sheets and income statements segmenting any Subsidiaries
of Royale or groups of Subsidiaries of Royale, as requested by Lender in
its reasonable discretion) together with any adjustments and/or
eliminations needed to reconcile such Subsidiary financial statements to
the consolidated financial statements of Royale, all of the foregoing in
reasonable detail and certified by the Chief Executive Officer or Chief
Financial Officer of Royale and Borrower stating that they present fairly,
in all material respects, the financial condition of Royale and its
Subsidiaries as at the dates indicated and the results of their operations
and their cash flows for the periods indicated, and (d) in the case of the
consolidated financial statements referred to in clause (a), a report
thereon of [Royale's accountants] or other independent accountants of
recognized national standing selected by Royale and reasonably satisfactory
to Lender, which report shall be unqualified, shall express no doubts about
the ability of Royale and its Subsidiaries to continue as a going concern
and shall state that such consolidated financial statements fairly present,
in all material respects, the financial position of Royale and its
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34
Subsidiaries as at the dates indicated and the results of their operations
and their cash flows for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years (except as otherwise
disclosed in such financial statements) and that the examination by such
accountants in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards;
5.1.4 Annual Operating Plan: as soon as available and in any event
within 45 days after the end of each calendar year, an annual operating
plan and budget for each Property, showing all anticipated operating
revenues and expenses, capital expenditures, leasing activity, repairs and
improvements, and such other matters as Lender shall reasonably require;
5.1.5 Officers' Certificates: together with each delivery of financial
statements of Royale and its Subsidiaries pursuant to this Section, an
Officers' Certificate of Royale and Borrower stating that (1) the signer
has reviewed the terms of this Agreement and has made, or caused to be made
under his or her supervision, a review in reasonable detail of the
transactions and condition of Royale and its Subsidiaries and the
Collateral during the accounting period covered by such financial
statements, (2) such review has not disclosed the existence during or at
the end of such accounting period, (3) the signer does not have knowledge
of the existence as at the date of such Officers' Certificate, of any
condition or event that constitutes an Event of Default or Potential Event
of Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
Royale and Borrower have taken, are taking and propose to take with respect
thereto and (4) except for the minority interest reflected on the balance
sheet of Borrower, such financial statements do not differ in any material
respect from the corresponding consolidated financial statements of
Borrower and its Subsidiaries;
5.1.6 Compliance Certificates: a Compliance Certificate demonstrating
in reasonable detail compliance during and at the end of the applicable
accounting periods with the covenants set forth in Section 6.7;
5.1.7 Accountants' Certification: together with each delivery of
financial statements of Royale pursuant to Section 5.1.3 above, a written
statement by the Loan Parties' Accountants or other independent accountants
of recognized national standing selected by Royale and reasonably
satisfactory to Lender giving the report thereon (a) stating in substance
that their audit examination has included a review of the terms of this
Agreement and the other Loan Documents as they relate to accounting
matters, and (b) stating whether, in connection with their audit
examination, any condition or event that constitutes an Event of Default or
Potential Event of Default has come to their attention and, if such a
condition or event has come to their attention, specifying the nature and
period of existence thereof; provided, however, that such accountants shall
not be liable by reason of any failure to obtain knowledge of any such
Event of Default or Potential Event of Default that would not be disclosed
in the course of their audit examination;
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35
5.1.8 Accountants' Reports: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of all reports
submitted to Royale or any of its Subsidiaries by the Loan Parties'
Accountants or any other independent accountants in connection with each
annual, interim or special audit of the consolidated financial statements
of Royale and its Subsidiaries made by such accountants, including any
comment letter submitted by such accountants to management in connection
with their annual audit;
5.1.9 Reconciliation Statements: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in Section 5.1.3, the
consolidated financial statements of the Royale and its Subsidiaries
delivered pursuant to this Section differ in any material respect from the
consolidated financial statements that would have been delivered pursuant
to such subdivisions had no such change in accounting principles and
policies been made, then (a) together with the first delivery of such
financial statements following such change, consolidated financial
statements of Royale and its Subsidiaries for (1) the current calendar year
to the effective date of such change and (2) the two full calendar years
immediately preceding the calendar year in which such change is made, in
each case prepared on a pro forma basis as if such change had been in
effect during such periods, and (b) together with each delivery of such
financial statements following such change, a written statement of the
Chief Financial Officer or Chief Executive Officer of Royale and Borrower
setting forth the differences which would have resulted in the calculation
of the Borrowing Base and the covenants set forth in Section 5 if such
Borrowing Base Certificate or financial statements, as the case may be, had
been prepared without giving effect to such change;
5.1.10 Evidence of Insurance: together with the delivery of the
foregoing statements, evidence reasonably satisfactory to Lender that the
monthly premiums with respect to the insurance required to be maintained
pursuant to the Loan Documents have been paid for the current month;
provided that evidence previously delivered pursuant to this Section with
respect to the prior payment of premiums for the current month need not be
redelivered;
5.1.11 SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by Royale to its security
holders, (b) all regular and periodic reports and all registration
statements (other than on Form S-8 or a similar form) and prospectuses, if
any, filed by Royale or any of its Subsidiaries with any securities
exchange or with the Securities and Exchange Commission or any Governmental
Authority or private regulatory authority, and (c) all press releases and
other statements made available generally by Royale or any of its
Subsidiaries to the public or to the security holders of Royale;
5.1.12 Events of Default, etc.: promptly upon any Loan Party obtaining
knowledge (a) of any condition or event that constitutes an Event of
Default or Potential Event of Default, or becoming aware that Lender has
given any notice or taken any other action with respect to a claimed Event
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36
of Default or Potential Event of Default, (b) that any Person has given any
notice to Royale or any of its Subsidiaries or taken any other action with
respect to a claimed default or event or condition of the type referred to
in Article 7 of any condition or event that constitutes or may (upon the
giving or receiving of notice or the lapse of time, later, or otherwise) a
default, a potential event of default, an event of default (in each case,
as defined in the agreement or instrument creating, evidencing or governing
any such Indebtedness) under or with respect to any Indebtedness of Royale
and its Subsidiaries (other than the Indebtedness hereunder), or becoming
aware that any agent, trustee, lender or security holder with respect
thereto has given any notice or taken any other action with respect to such
condition or event, (d) of any condition or event that would be required to
be disclosed in a current report filed by Royale with the Securities and
Exchange Commission on Form 8-K (Items 1, 2, 4, and 6 of such Form as in
effect on the date hereof) if Royale were required to file such reports
under the Exchange Act, or (e) of the occurrence of any event or change
that has had, or could reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect, an Officers' Certificate
specifying the nature and period of existence of such condition, event or
change, or specifying the notice given or action taken by any such Person
and the nature of such claimed Event of Default, Potential Event of
Default, default, event or condition, and what action Royale and Borrower
have taken, are taking and propose to take with respect thereto;
5.1.13 Litigation or Other Proceedings: (a) promptly upon Royale or
Borrower obtaining knowledge of (x) the institution of any action, suit,
proceeding (whether administrative, judicial or otherwise), governmental
investigation or arbitration against or affecting Royale or any of its
Subsidiaries, or any property of Royale or such Subsidiary (collectively,
"Proceedings") not previously disclosed in writing by Royale or Borrower to
the Lenders or (y) any material development in any Proceeding that, in any
case:
(i) if adversely determined, could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse
Effect; or
(ii) seeks to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, the
transactions contemplated hereby; or
(iii) threatens the validity or priority of the Liens granted
pursuant to the Loan Documents;
written notice thereof together with such other information as may be
reasonably available to Royale or Borrower to enable Lender and its
counsel to evaluate such matters; and (b) within 20 days after the end
of each calendar quarter of Royale, a schedule of all Proceedings
involving an alleged liability of, or claims against or affecting,
Royale and its Subsidiaries which, if adversely determined, could
reasonably be expected to result in a money judgment in excess of
$1,000,000 individually or $5,000,000 in the aggregate (in either case
<PAGE>
37
not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has accepted coverage), and promptly
after request by Lender, such other information as may be reasonably
requested by Lender to enable Lender and its counsel to evaluate any
of such Proceedings;
5.1.14 Financial Plans: as soon as practicable and in any event no
later than November 30 of each year, projected financial statements for
each Property for the three next succeeding calendar years setting forth in
detail each line item appearing in the form of financial statement set
forth in Schedule 5.1.14 annexed hereto, together with an explanation of
the assumptions on which such forecasts are based, and such other
information and projections as Lender may reasonably request for any
Property, all the Properties or Royale or any of its Subsidiaries; 5.1.15
Insurance: as soon as practicable and in any event by the last day of each
calendar year, a report in form and substance reasonably satisfactory to
Lender outlining all material insurance coverage maintained as of the date
of such report by Royale and its Subsidiaries or, in lieu thereof, copies
of such policies, and a report as to all material insurance coverage
planned to be maintained by Royale and its Subsidiaries in the next
succeeding calendar year to the extent varying from the description of that
delivered or described;
5.1.16 Environmental Audits and Reports: as soon as practicable
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of Royale or any of its Subsidiaries or by
independent consultants, with respect to material environmental matters at
any Property or which relate to an Environmental Claim which could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect;
5.1.17 Board of Directors: with reasonable promptness, written notice
of any change in the Board of Directors of Royale;
5.1.18 Change in Name or Chief Place of Business: (a) notification of
any change in any Loan Party's name, identity or corporate structure within
60 days of such change and (b) 60 days' prior written notice of any change
in any Loan Party's executive office or chief place of business;
5.1.19 Reduction of Property Amount or Property Adjusted Net Income:
promptly after Borrower's acquiring actual knowledge of the same, an
Officers' Certificate with respect to the occurrence or effectiveness of
any event or condition that could reasonably be expected to cause the
Property Amount or Property Adjusted Net Income with respect to any
Property, as of any date of determination thereafter, to be reduced by more
than the greater of (a) 10% as of such later date of determination or for
any period and (b) $100,000; and
5.1.20 Other Information: with reasonable promptness, (a) information
and other data revised to correct any erroneous information and other data
previously delivered by Royale or Borrower to Lender pursuant to this
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38
Agreement or included in any statement, report or certificate previously
delivered by Royale or Borrower to Lender pursuant to this Agreement,
together with such statement, report or certificate that shall have been
revised to reflect such revised information and data, and (b) such other
information and data with respect to the Loan Parties and their respective
Subsidiaries, the Properties (separately and for all Properties), the
Leases, the Management Agreements, the other Collateral and the other
assets and liabilities of the Loan Parties and their respective
Subsidiaries, all in form reasonably satisfactory to Lender, as from time
to time may be reasonably requested by Lender.
5.2 Entity Existence; Financial Matters; Control.
5.2.1 Entity Existence. Each Loan Party shall, and shall cause each of its
Subsidiaries to, at all times preserve and keep in full force and effect its
corporate or limited partnership existence and all Authorizations, rights and
franchises material to its business.
5.2.2 Financial Matters. Royale and its subsidiaries, taken as a whole,
shall (i) maintain financial statements, payroll records, accounting records and
other corporate records and other documents separate from any other Person; (ii)
maintain bank accounts in their own name or names, separate from any other
Person; (iii) pay their own expenses and other liabilities from their own assets
and incur (or endeavor to incur) obligations to other Persons based solely upon
their own assets and creditworthiness and not upon the creditworthiness of any
other Person; and (iv) file their own tax returns or join in the consolidated
tax return of such group as a separate member thereof.
5.2.3 Change in Control. Without Lender's prior written consent, the
Controlling Principals, in the aggregate, shall not cease at any time or for any
reason to maintain, free of any Lien, beneficial ownership (as defined under
Section 13(d) of the Exchange Act) of, and a direct economic interest in, at
least the number of shares of common stock of Royale set forth on Schedule
5.2.3. For purposes of this Section, the computation of such number of common
shares owned shall include the maximum number of such common shares into which
the Controlling Principals are entitled to convert Partnership Interest units in
FCOLP, without giving effect to applicable time limits and other restrictions on
such conversion, or to any right given to Royale or FCOLP to deliver cash in
lieu of shares upon any such conversion. The number of shares set forth on
Schedule 5.2.3 shall be appropriately adjusted for stock splits or similar
adjustments to the capitalization of Royale.
5.2.4 Employment of Controlling Principals. Prior to the first Anniversary,
Royale shall not fail to appoint, or remove from office, Clay W. Hamlin III as
its chief executive officer or other officer having substantially similar
authority with respect to the operations and direction of Royale, except by
reason of the death or disability of Clay W. Hamlin III.
5.3 Qualified Income Covenant; Common Stock.
5.3.1 Royale will conduct its affairs and the affairs of its
Subsidiaries in a manner so as to (i) continue to qualify as a REIT under
Sections 856-860 of the Internal Revenue Code and (ii) permit FCO to qualify as
a "qualified REIT subsidiary" under Section 856(i) of the Internal Revenue Code.
<PAGE>
39
5.3.2 Royale shall at all times hereafter (i) cause its Common Stock to
be duly listed on the NASDAQ (Small Cap Exchange) or NYSE and (ii) shall timely
file all reports required to be filed by it in connection therewith.
5.4 Taxes and Claims; Tax Consolidation.
5.4.1 Taxes and Claims. Each Loan Party shall, and shall cause each of its
Subsidiaries to, pay or discharge or cause to be paid or discharged all Taxes
and Impositions imposed upon any Loan Party or any of its Subsidiaries, or
payable by any Loan Party or any of its Subsidiaries with respect to any
Property or other assets or in respect of any of the franchises, business,
income or other property of any Loan Party or any of its Subsidiaries before the
same shall become delinquent and before any penalty accrues thereon, and will
pay, discharge or otherwise satisfy or cause to be paid, discharged or otherwise
satisfied at or before maturity or before they become delinquent, all
Indebtedness, obligations and other claims (including claims for labor,
supplies, materials and services that, if unpaid, might become a Lien on the
property of any Loan Party or any of its Subsidiaries) of any Loan Party and its
Subsidiaries; provided, however, that no such charge or claim needs to be paid
if (i) such charge or claim is being diligently contested in good faith by
appropriate proceedings, (ii) reserves reasonably required by Lender shall have
been made therefor by such Loan Party or such Subsidiary, (iii) none of the
Collateral is in jeopardy of being sold, forfeited or lost during or as a result
of such contest, (iv) none of any Loan Party, or any of its Subsidiaries, Lender
or any Lender is reasonably likely to become subject to any civil fine or
penalty not adequately reserved against (in the case of any Loan Party or
Subsidiary thereof) or criminal fine or penalty, in each case as a result of
non-payment of such charge or claim and (v) such contest has not had and could
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Each Loan Party shall, and shall cause each of its
Subsidiaries to, deliver to Lender all receipts evidencing the payment of all
such Taxes and Impositions with respect to any Property and, upon written
request by Lender, all other Taxes, Impositions, assessments, levies, permits,
fees, rents and other public charges imposed upon or in respect of or assessed
against any Loan Party, any of its Subsidiaries or any of their respective
properties or assets except for those being paid or contested as described in
the provisos above.
5.4.2 Tax Consolidation. Each Loan Party will not, and will not permit any
of its Subsidiaries to, file or consent to the filing of any consolidated income
tax return with any Person other than Royale and its Subsidiaries.
5.5 Maintenance of Properties; Repair; Alteration.
Borrower shall (i) maintain or cause to be maintained each Property and all
other items of Collateral in a manner consistent for suburban office properties
and related property, and shall keep or cause to be kept every part thereof in
good condition and repair, reasonable wear and tear excepted, and make all
reasonably necessary repairs, renewals or replacements thereto as may be
reasonably necessary to conduct the business of Borrower; (ii) not remove,
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40
demolish or structurally alter, or permit or suffer the removal, demolition or
structural alteration of, any of the Improvements in respect of a Property
except as required of Borrower or permitted for Tenants, or otherwise as
permitted with the prior written consent of Lender, which consent shall not be
unreasonably withheld, conditioned or delayed; (iii) complete promptly and in a
good and workmanlike manner any Improvements which may be now or hereafter
constructed on any Property and promptly restore in like manner any portion of
the Improvements in respect of a Property which may be damaged or destroyed
thereon from any cause whatsoever, and pay when due all claims for labor
performed and materials furnished therefor (subject to the right to contest the
amount of validity thereof in good faith); (iv) comply in all material respects
with all Applicable Laws, applicable Insurance Requirements and all covenants,
conditions and restrictions now or hereafter affecting any Property or other
item of Collateral or any part thereof or requiring any alterations or
Improvements; (v) not commit or permit any waste of the Collateral; and (vi) not
remove any item of the Collateral constituting tangible personal property or
fixtures without replacing it with a comparable item of equal or greater
quality, value and usefulness, except that Borrower may sell or dispose of in
the ordinary course of business any property which is obsolete or no longer
useful in its business.
5.6 Rent Reserve Account.
Pursuant to a separate agreement between Borrower and its constituent
partners, Borrower hereby directs Lender to fund the Rent Reserve Account by
disbursing a portion of the proceeds of the Loan in the amount shown on Schedule
5.6 as the "Initial Deposit" and depositing such proceeds into the Rent Reserve
Account. Lender shall have sole control over such account, and no Loan Party
shall have any right to withdraw funds therefrom except as set forth in this
Section. For so long as no Event of Default has occurred, Lender shall release
funds from the Rent Reserve Account and apply the released funds directly to
scheduled monthly payments of interest on the Loan the amounts shown on Schedule
5.6 at the times shown therein.
5.7 Tenanting Costs Reserve Account.
Borrower hereby directs Lender to fund the Tenanting Costs Reserve
Account by disbursing a portion of the proceeds of the Loan in the amount shown
on Schedule 5.7 as the "Initial Deposit" and depositing such proceeds into the
Tenanting Costs Reserve Account. Lender shall have sole control over such
account, and no Loan Party shall have any right to withdraw funds therefrom
except as set forth in this Section. Lender shall release funds to Borrower from
the Tenanting Costs Reserve Account following delivery to Lender of invoices and
such supporting documentation as Lender shall reasonably require for Tenanting
Costs which have been actually incurred by Borrower. Amounts on deposit in the
Tenanting Costs Reserve Account shall be disbursed upon the request of Borrower
only for the payment of expenses for capital improvements (including tenant
improvements) in space within the Property and leasing commissions with respect
to which funds have been budgeted for under the then-current approved capital
expenditures budget, made in accordance with the terms hereof (collectively, the
"Work") upon satisfaction of the following conditions:
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41
(i) Prior to the commencement of any such Work, the plans and
specifications for such Work, and the budgeted costs, shall be
submitted to Lender for Lender's approval, which shall not be
unreasonably withheld, conditioned or delayed.
(ii) Disbursements of such funds shall be made to Borrower
within thirty days after Borrower delivers to Lender a properly
completed request certificate in a form reasonably approved by Lender
(the "Request Certificate"), signed on behalf of Borrower by a duly
authorized representative of the general partner of Borrower, which
shall, among other things, certify (i) that Borrower has paid the
amounts being required or shall pay such amounts out of the
disbursement to the applicable general contractor, subcontractor of
materialman, accompanied by any conditional lien waivers or other
conditional releases it may reasonably request and (ii) that the
amounts being requested, together with the amounts disbursed to date
from the Tenanting Costs Reserve Account, do not exceed the budgeted
cost thereof as set forth in the then-current approved capital
expenditures budget.
(iii) Upon completion of such Work, final lien waivers shall
have been obtained from the applicable general contractor and Borrower
shall have furnished evidence reasonably satisfactory to Lender that
the subcontractors and materialmen and subcontractors and
submaterialmen have been paid in full.
5.8 Inspection; Lenders' Meeting; Appraisals.
5.8.1 Inspection and Lender Meeting. As often as may be reasonably
requested, each Loan Party shall, and shall cause each of its Subsidiaries to,
permit (i) any authorized representatives designated by Lender to visit and
inspect any Property, subject to the rights of Tenants, and (ii) any authorized
representatives designated by Lender to inspect the financial and accounting
records, tenant leasing files and other management books and records of such
Loan Party or Subsidiary, and to make copies and take extracts therefrom, and to
discuss its and their affairs, operations, finances and accounts with its and
their officers, property managers and independent accountants; provided that
each such visit, inspection and discussion shall be made upon reasonable notice
and at such reasonable times during normal business hours, with as little
disruption of Borrower's and Tenants' business and operations as is reasonably
practical.
5.8.2 Appraisals. If Lender shall advise Borrower by written notice that
Lender believes that the value of one or more Properties has been adversely
affected, for any reason, since the date of the most recent Appraisal thereof,
promptly thereafter Borrower shall, at its expense, cause the preparation and
delivery to Lender of an Appraisal of each such Property dated not more than 30
days prior to the date of such delivery, which Appraisal shall be prepared by an
Appraiser reasonably designated by Lender and shall be satisfactory in form and
substance to Lender; provided that, unless an Event of Default shall have
occurred and be continuing, no Property shall be appraised pursuant to this
Section more than once each calendar year. If any Loan Party or any of its
Subsidiaries obtains an appraisal of one or more of the Properties other than
pursuant to this Section, Borrower shall deliver a copy of such appraisal to
Lender promptly upon the completion thereof and Lender shall, subject to
Applicable Laws and provided that the Appraiser is satisfactory to Lender and
the appraisal is satisfactory in form and substance to Lender, treat such
appraisal as an "Appraisal."
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42
5.9 Compliance with Laws, Authorizations, etc.
Each Loan Party shall, and shall cause each of its Subsidiaries and all
Persons occupying any Properties to, comply in all material respects with the
requirements of all Applicable Laws. Each Loan Party shall, and shall cause each
of its Subsidiaries to, keep all material Authorizations which are from time to
time required for the use and operation of each Property in full force and
effect.
5.10 Performance of Loan Documents and Related Documents
Each Loan Party shall, and shall cause each of its Subsidiaries to,
observe and perform, or cause to be observed and performed, all its covenants,
agreements, conditions and requirements contained in each of the Loan Documents
to which it is or will be a party in accordance with the terms thereof and will
maintain the validity and effectiveness of such Loan Documents.
5.11 Payment of Liens
5.11.1 Removal by Loan Parties. If a Lien not permitted under this
Agreement may encumber any Property or other item of Collateral or any portion
thereof, Borrower shall promptly discharge or cause to be discharged by payment
to the lienor or lien claimant or promptly secure removal by bonding or deposit
with the county clerk or otherwise or, at Lender's option, promptly obtain
insurance against, any such Lien or mechanics' or materialmen's claims of lien
filed or otherwise asserted against any Property or any other item of Collateral
or any portion thereof within 60 days after the date of notice thereof, but
compliance with the provisions of this Section shall not be deemed to constitute
a waiver of the provisions of Section 6.3. Borrower shall exhibit to Lender upon
request all receipts or other satisfactory evidence of payment, bonding, deposit
of taxes, assessments, Liens or any other item which may cause any such Lien to
be filed against any Property or other item of Collateral of any Borrower. Each
Borrower shall fully preserve the Lien and the priority of each of the Mortgages
and the other Security Documents without cost or expense to Lender.
5.11.2 Removal of Lender. If any Borrower fails to promptly discharge,
remove or bond off any such Lien or mechanics' or materialmen's claim of lien as
described above within 60 days after the receipt of notice thereof, then Lender
may, but shall not be required to, procure the release and discharge of such
Lien, mechanics' or materialmen's claim of lien and any judgment or decree
thereon, and in furtherance thereof may, in its sole discretion, effect any
settlement or compromise with the lienor or lien claimant or post any bond or
furnish any security or indemnity as Lender, in its sole discretion, may elect.
In settling, compromising or arranging for the discharge of any Liens under this
Section, Lender shall not be required to establish or confirm the validity or
amount of the Lien. Borrower agrees that all costs and expenses expended or
otherwise incurred pursuant to this Section (including reasonable attorneys'
fees and disbursements) by Lender shall be paid by Borrower in accordance with
the terms hereof.
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43
5.11.3 Title Searches. Lender may, at any time and at the expense of
Borrower, obtain an updated title and/or lien search regarding any Property or
Collateral, or any portion thereof; provided that, unless Lender reasonably
believes that a Lien not otherwise permitted under this Agreement may encumber
any Property or Collateral or any portion thereof or an Event of Default shall
have occurred and be continuing, Lender may so obtain such search with respect
to such Property or Collateral or portion thereof not more than once each
calendar year.
5.12 Insurance
5.12.1 Risks to be Insured. With respect to each Property, each Borrower
shall procure and maintain continuously in effect, insurance coverage issued by
an insurer (i) authorized to issue such insurance in all applicable
jurisdictions, (ii) rated "A" (or its equivalent) or better by Alfred M. Best
Company, Inc., (iii) with a financial size rating of VIII (or its equivalent) or
better, by Alfred M. Best Company, Inc., and (iv) otherwise satisfactory to
Lender; provided, however, that (1) each insurer of Royale's or any of its
Subsidiaries' umbrella liability insurance policies as of the Closing Date (and
any renewal thereof by such insurers), may be rated "A-" (or its equivalent) by
Alfred M. Best Company, Inc.; it being understood and agreed that such
carrier(s) shall comply with the requirement set forth in clause (ii) above, and
(2) as of the Closing Date, the insurers of Royale's or any of its Subsidiaries'
earthquake, flood and wind insurance policies (and any renewals thereof by such
insurers, respectively) may be rated "A-" (or its equivalent) by Alfred M. Best
Company, Inc. and have a financial size rating of "VIII" (or its equivalent) by
Alfred M. Best Company, Inc.; it being understood and agreed that, in the event
Royale or any of its Subsidiaries procures any earthquake, flood or wind
insurance from a carrier other than the carrier providing such insurance on the
Closing Date, such carrier shall comply with the requirements set forth in
clauses (ii) and (iii) above unless otherwise approved by Lender. Each Loan
Party shall pay, and shall cause each of its Subsidiaries to pay, in a timely
manner all premiums due in connection therewith. All insurance policies shall be
issued by insurers doing business as admitted licensed carriers in the state
where such Property is located, and shall be authorized and licensed to issue
insurance in such state unless otherwise approved by Lender in its sole
discretion. The insurance to be procured and maintained by Royale and its
Subsidiaries is the following:
5.12.1.1 Casualty. Borrower shall keep each Property insured for the
benefit of Lender, in each case, as follows:
(a) All Risk of Physical Loss. Insurance with respect to the
Improvements now or hereafter located on the Properties and any
alterations or additions thereto and the furniture, fixtures and
equipment against any peril included within the classification "All
Risks of Physical Loss" with extended coverage (including fire,
lightning, windstorm, sprinkler, hail, explosion, riot, riot attending
a strike, civil commotion, vandalism, malicious mischief, terrorist
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44
acts, aircraft, vehicle, sinkholes and smoke) in an amount equal to
the full insurable value of such Improvements and such furniture,
fixtures and equipment. The term "full insurable value" shall mean the
actual replacement cost of such Improvements and such furniture,
fixtures and equipment (without taking into account any depreciation,
and exclusive of excavations, footings and foundations, landscaping
and paving) determined every five years by an insurer upon the request
of Lender, a recognized independent insurance broker or an appraiser
selected (and approved by Lender) and paid by the applicable Loan
Party or its Subsidiary; provided, however, that such amount shall be
sufficient to prevent such Loan Party or such Subsidiary from becoming
a co-insurer, and the policy shall contain a stated value endorsement
to that effect.
(b) Builder's Risk. During any period of construction of
Improvements and any repair, Restoration, Renovation or replacement
thereof, a standard builder's all risk policy (completed value
non-reporting form) or equivalent coverage under the policy described
in subclause (i)(a) above for an amount at least equal to the full
insurable value of the work to be performed and equipment, supplies
and materials to be furnished, as shall be reasonably approved by
Lender for such purpose, the coverage of which shall include the
hazards described in Section 5.12.1.1(a) and building collapse;
provided, however, that such policy may be obtained by a contractor if
it names Lender and Borrower as additional named insureds and if it
otherwise complies with this Agreement. Such policy shall contain a
stated value endorsement so that no co-insurance provision shall be
applicable to any loss thereunder. Such policy shall contain the
provision that "permission is hereby granted to complete and/or
occupy" upon the earlier to occur of substantial completion of any
discrete increment of the work or a Tenant taking occupancy of any
Property (or portion thereof) as to which work was being performed.
(c) Flood. Insurance against damage or loss by flood as to any
Property that is located in an area now or subsequently designated as
an area having special flood hazards and in which flood insurance has
been made available under the National Flood Insurance Act of 1968 or
the Flood Disaster Protection Act of 1973,or the National Flood
Insurance Reform Act of 1994, as such Acts may be amended, modified,
supplemented or replaced from time to time, on such basis and not less
than such amounts as shall be reasonably approved by Lender, but not
less than the amount required by law. If any Loan Party or any of its
Subsidiaries fails to obtain flood insurance as required, Lender may
purchase such flood insurance, and Borrower shall pay all premiums and
other costs and expenses incurred by Lender.
(d) Boilers. Broad form boiler and machinery insurance (without
exclusion for explosion) covering all boilers, boiler tanks, heating
and air conditioning equipment, pressure vessels, auxiliary piping and
similar apparatus, machinery and equipment located in, on or about
each Property insuring against damage or loss from boilers, boiler
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45
tanks, heating and air conditioning equipment, pressure vessels,
auxiliary piping and similar apparatus, machinery and equipment and
insurance against loss of occupancy or use arising from any such
breakdown in such amounts as are generally available at reasonable
premiums and are generally required by institutional lenders for
properties comparable to the Properties.
(e) Business Interruption or Rental Income Insurance. Business
interruption and/or loss of rental value or use and occupancy
insurance insuring against business interruption at and against loss
of rental income from each Property due to any of the hazards listed
in Section 5.12.1.1(a) above in an amount sufficient to avoid any
co-insurance penalty and to provide proceeds for a period not less
than one year of loss.
5.12.1.2 Workers' Compensation. Each Loan Party shall maintain, and
shall cause each of its Subsidiaries to maintain, for itself and for each
Property at which such Loan Party or such Subsidiary maintains employees,
statutory workers' compensation insurance (to the extent the risks to be
covered thereby are not already covered by other policies of insurance
maintained by such Loan Party or such Subsidiary), in statutory amounts as
required by law (including employer's liability insurance), except in those
states where such Loan Party elects to not subscribe to the workers'
compensation statute. If the applicable Loan Party elects to not subscribe
to the workers' compensation statute, such Loan Party shall have a benefit
program and employees' legal liability coverage to respond to claims that
would otherwise be covered by a standard policy of workers' compensation.
5.12.1.3 Liability. Royale and its Subsidiaries shall procure and
maintain:
(a) Comprehensive General Liability Insurance. Comprehensive
general liability insurance, on an occurrence basis in the amount of
$1,000,000 per occurrence per Property and $3,000,000 in the aggregate
per Property covering each Loan Party, each of its Subsidiaries and
Lender against claims for bodily injury, death and property damage
(including claims and legal liability to the extent insurable imposed
upon Lender and all court costs and attorneys' fees and expenses),
arising out of or connected with the possession, use, leasing,
operation, maintenance or condition of each Property or occurring in,
upon or about or resulting from each Property, or any drive, sidewalk,
curb or passageway adjacent thereto (to the extent insurable), which
insurance shall include blanket contractual liability coverage which
insures contractual liability (to the extent insurable) under the
indemnification set forth in Section 8.3 of this Agreement (but such
coverage or the amount thereof shall in no way limit such
indemnification), garage liability (if applicable), products liability
(if applicable) and elevator liability (if applicable) coverage and
during any period of construction of any Improvements, owner's and
contractor's protective liability coverage, including completed
operations liability coverage. If any of the coverages referred to in
this Section are obtained under a so called "blanket" policy with more
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46
than one Property covered, the policy shall contain an "individual
aggregate per location/project" endorsement.
(b) General Liability and Property Damage. Commercial general
liability and property damage insurance on an occurrence basis in
connection with any construction being performed at any Property, to
be carried by any contractor or construction manager or by any Person,
including any Loan Party or any of its Subsidiaries, performing a
similar function, including "Builders Risk" coverage in the amount of
$1,000,000 per occurrence and $3,000,000 in the aggregate.
(c) Liquor Liability and Dram Shop Insurance. For any Property on
which Borrower operates a liquor business in which liquor is served,
liquor liability and dram shop insurance on such basis and in such
amounts as shall be reasonably required by Lender in a minimum amount
of $1,000,000 per occurrence and $3,000,000 in the aggregate for
Properties.
(d) Umbrella or Excess Liability Insurance. Umbrella or excess
liability insurance, on an incurrence basis in the amount of at least
$50,000,000 per occurrence and in the aggregate per year covering each
Loan Party, each of its Subsidiaries and Lender against claims for
damages in excess of all primary liability policies.
5.12.1.4 Additional Insurance. Each Loan Party shall procure and
maintain, and shall cause each of its Subsidiaries to procure and maintain,
such other insurance with respect to the Properties against loss or damage
of the kinds from time to time customarily insured against and in such
amounts as are generally available at reasonable premiums and are generally
required by institutional lenders for properties comparable to the
Properties.
5.12.2 Policy Provisions. Each policy of insurance maintained in respect of
Borrower and/or any Property pursuant to this Section shall (a) in the case of
each category of public liability insurance, name Borrower as insured and name
Lender as an additional insured, and in the case of all other insurance required
under this Agreement, as an additional insured or as a loss payee, as Lender
shall require; (b) except in the case of public liability insurance and workers'
compensation insurance, provide that all proceeds thereunder shall be payable to
Lender pursuant to a standard first mortgagee endorsement, without contribution,
that all losses with respect to each Property shall be paid directly to Lender,
without contribution by any similar insurance carried by Lender and that
adjustment and settlement of any material loss shall be subject to the
reasonable approval of Lender; (c) include effective waivers by the insurer of
all rights of subrogation against any loss payee, additional insured or named
insured; (d) permit Lender to pay the premiums and continue any insurance upon
failure of such Loan Party or such Subsidiary, as the case may be, to pay
premiums when due, upon the insolvency of such Loan Party or such Subsidiary, as
the case may be, or through foreclosure; (e) to the extent such provisions are
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47
reasonably obtainable, provide that such insurance shall not be impaired or
invalidated by virtue of (i) any act, failure to act, negligence of, or
violation of declarations, warranties or conditions contained in such policy by
Borrower, Lender, or any other named insured, additional insured or loss payee,
except for the willful misconduct of Lender knowingly in violation of the
conditions of such policy, (ii) the occupation or use of such Property for
purposes more hazardous than permitted by the terms of the policy, (iii) any
foreclosure or other proceeding or notice of sale relating to such Property or
(iv) any change in the possession of such Property without a change in the
identity of the holder of actual title to such Property; (f) be subject to a
deductible, if any, not greater than $100,000 (or, with respect to coverage for
wind damage, such greater amount as shall not exceed 5.0% of the affected
Property's agreed value); (g) contain an endorsement providing that neither
Lender nor Borrower shall be, or shall be deemed to be, a co-insurer with
respect to any risk insured by such policy; and (h) provide that if all or any
part of such policy shall be canceled or terminated, or shall expire, the
insurer will forthwith give notice thereof to Lender and each additional insured
and loss payee and that no cancellation, termination, expiration, reduction in
amount of, or material change (other than an increase) in, coverage thereof
shall be effective until at least 30 days after receipt by Lender and each
additional insured and loss payee of written notice thereof.
5.12.3 Increases in Coverage.. The policy limits of any policy of insurance
required hereunder shall be increased from time to time to reflect what a
reasonable prudent owner of land and improvements similar in type and locality
to each Property would carry.
5.12.4 Payment of Proceeds. If any such insurance proceeds required to be
paid to Lender are instead made payable to Borrower, Royale or any Subsidiary
thereof, each of Borrower and Royale hereby appoints Lender as its
attorney-in-fact, irrevocably and coupled with an interest, to endorse and/or
transfer any such payment to Lender.
5.12.5 Delivery of Counterpart Policies; Evidence. Each Loan Party shall
deliver, and shall cause each of its Subsidiaries to deliver, to Lender on or
before the Closing Date evidence acceptable to Lender for the valid policies of
insurance required by this Agreement or any other Loan Document to be carried
evidencing (i) the issuance of such policies, (ii) the payment of all premiums
payable for the period ending not earlier than the first Anniversary and (iii)
coverage which meets all of the requirements set forth in this Agreement. At
each time after the Closing Date that any Loan Party or any of its Subsidiaries
is required by this Agreement or by any Security Document or any other Loan
Document to deliver evidence of insurance, such Loan Party shall deliver, or
shall cause such Subsidiary to deliver, such evidence of valid policies of
insurance acceptable to Lender evidencing (a) the issuance of the policies of
insurance required by this Agreement or other Loan Document to be carried, (b)
the payment of all premiums then due to the applicable insurer, (c) coverage
which meets all of the requirements set forth in this Agreement or other Loan
Document, and (d) that the required policies are in full force and effect.
5.12.6 Replacement or Renewal Policies. Not less than 30 days prior to the
expiration, termination or cancellation of any insurance policy which any Loan
Party or any of its Subsidiaries is required to maintain hereunder, such Loan
Party shall obtain, or shall cause such Subsidiary to obtain, a replacement or
renewal policy or policies (or a binding commitment for such replacement or
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48
renewal policy or policies), which shall be effective no later than the date of
the expiration, termination or cancellation of the previous policy, and shall
deliver to Lender a valid binder in respect of such policy or policies in the
same form and containing the same information as the expiring policy or policies
required to be delivered by each Loan Party and its Subsidiaries pursuant to
this Section or a copy of the binding commitment for such policy complying with
all the requirements of this Section, followed by a certified true copy of the
policy or policies when issued.
5.12.7 Material Change in Policy. Each Loan Party shall deliver, and shall
cause each of its Subsidiaries to deliver, to Lender concurrently with each
material change in any insurance policy covering any part of the Properties
required to be maintained by each Loan Party and its Subsidiaries hereunder, a
valid binder or policy endorsement with respect to such changed insurance policy
certified by the insurance company issuing such policy, in the same form and
containing the same information as the original evidence of insurance required
to be delivered by each Loan Party and its Subsidiaries pursuant to this
Section.
5.12.8 Separate Insurance. No Loan Party will take out, nor will it permit
any of its Subsidiaries to take out, separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained pursuant
to this Section unless such insurance complies with all of the requirements of
this Section.
5.13 Casualty and Condemnation; Restoration
5.13.1 Notice of Casualty. Upon the occurrence of any damage to or loss or
destruction of all or any portion of any Property, whether or not covered by
insurance, which will cost (or may reasonably be expected to cost) more than
$500,000 to Restore, as reasonably determined by Borrower and so certified in an
Officers' Certificate delivered to Lender, (i) Borrower shall promptly deliver
to Lender written notice of the same which shall, among other things, describe
such casualty, and (ii) as soon as practicable but in any event prior to the
commencement of Restoration of such Property, Borrower shall deliver to Lender a
notice of its intended course of action with respect to such Restoration, in
such detail as Lender shall reasonably require.
5.13.2 Insurance Proceeds. All Insurance Proceeds in respect of a Property
and the right thereto are hereby irrevocably assigned and pledged by each Loan
Party to Lender for the benefit of the Lenders, and Lender on behalf of the
Lenders is authorized, at its option, to collect and receive all of the same and
to give proper receipts and acquittances therefor; provided, however, that if no
Event of Default shall have occurred and be continuing such Loan Party shall
have the right to direct Lender to apply Insurance Proceeds in accordance with
Sections 5.13.6. If no Event of Default shall have occurred and be continuing,
to the extent not inconsistent with the requirements of Sections 5.13.5 and
5.13.6, such Loan Party shall have the right to direct Lender (1) to pay to such
Loan Party all Insurance Proceeds with respect to such casualty affecting a
Property which will cost (or may reasonably be expected to cost) less than
$500,000 to Restore and (2) to pay to such Loan Party all proceeds of any
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49
related business interruption insurance. Each Loan Party agrees to execute and
to cause each of its Subsidiaries to execute such further assignments and
pledges of any Insurance Proceeds in respect of the Properties as Lender may
reasonably require and shall otherwise cooperate with Lender in obtaining for
Lender the benefit of any Insurance Proceeds lawfully or equitably payable in
respect of any such Property, subject to the provisos above. If, prior to the
receipt by Lender of such Insurance Proceeds, any Property shall have been
transferred upon foreclosure of the applicable Mortgage (or by deed in lieu
thereof), Lender shall have the right to receive such Insurance Proceeds to the
extent (x) such Insurance Proceeds are attributable to a casualty occurring
prior to foreclosure or delivery of any deed in lieu thereof and (y) of any
deficiency found to be due upon such sale, with legal interest thereon, and
reasonable counsel fees, costs and disbursements incurred by Lender in
connection with the collection of such Insurance Proceeds. Lender may, but shall
not be obligated to, make proof of loss if not made promptly by the applicable
Loan Party or Subsidiary thereof. During the continuance of an Event of Default,
Lender is hereby authorized and empowered by each of Royale and Borrower to
settle, adjust or compromise any claims for damage, destruction or loss
thereunder, with or without the consent of any Loan Party or any of its
Subsidiaries (and each of Royale and Borrower hereby irrevocably appoints and
constitutes Lender as Royale's and Borrower's lawful attorney-in-fact, coupled
with an interest and with full power of substitution, for such purpose). In no
event shall any Loan Party or any of its Subsidiaries settle, adjust or
compromise any claim for Insurance Proceeds in respect of any Property in excess
of $500,000 without the prior written consent of Lender, which shall not be
unreasonably withheld, conditioned or delayed. If any Loan Party or any of its
Subsidiaries receives any Insurance Proceeds resulting from such casualty in
respect of any Property, such Loan Party or Subsidiary shall promptly endorse
and transfer, or cause such Subsidiary to endorse and transfer, such excess
Insurance Proceeds to Lender and each Loan Party covenants that until so paid
over to Lender, such Loan Party or such Subsidiary, as applicable, shall hold
such Insurance Proceeds in trust for the benefit of Lender and shall not
commingle such Insurance Proceeds with any other funds or assets of such Loan
Party or Subsidiary or any other Person.
5.13.3 Notice of Condemnation; Negotiation and Settlement of Claims. The
Loan Parties shall, and shall cause their respective Subsidiaries to, promptly
deliver written notice to Lender upon obtaining knowledge of the institution, or
the proposed institution, of any bona fide action or proceeding for the Taking
of all or any portion of any Property. Lender shall have the right to
participate in any negotiation, action or proceeding relating to any such action
or proceeding affecting any Property, and no settlement or compromise of any
claim in connection with any such action or proceeding shall be made without the
consent of Lender, which consent shall not be unreasonably withheld, conditioned
or delayed. Upon the occurrence of any Taking with respect to a Property which
will cost (or may reasonably be expected to cost) more than $500,000 to Restore,
as reasonably determined by Borrower and so certified in an Officers'
Certificate delivered to Lender, as soon as practicable thereafter but in any
event not less than 20 days prior to the commencement of any Restoration of such
Property, Borrower shall deliver to Lender a notice of its intentions with
respect to such renovation in such detail as Lender shall require.
5.13.4 Condemnation Proceeds. All Condemnation Proceeds in respect of each
of the Properties and the right thereto are hereby irrevocably assigned and
pledged by each Loan Party to Lender for the benefit of the Lenders, and Lender
on behalf of the Lenders is authorized, at its option, to collect and receive
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all such Condemnation Proceeds and to give proper receipts and acquittances
therefor; provided, however, (x) if no Event of Default shall have occurred and
be continuing, such Loan Party shall have the right to direct Lender to apply
Condemnation Proceeds in accordance with Section 2.7.2 (without application of
the minimum amount requirements contained therein) and (z) if no Event of
Default shall have occurred and be continuing, such Loan Party shall have the
right to direct Lender to pay such Loan Party all Condemnation Proceeds with
respect to a Taking affecting a Property which will cost (or may reasonably be
expected to cost) less than $500,000 to Restore. Each Loan Party agrees to
execute, and to cause each of its Subsidiaries to execute, such further
assignments of any Condemnation Proceeds in respect of any Property as Lender
may reasonably require and shall otherwise cooperate with Lender in obtaining
for Lender the benefit of any Condemnation Proceeds lawfully or equitably
payable in respect of such Property, subject to the provisos above. If, prior to
the receipt by Lender of such Condemnation Proceeds, the portion of the
Property, subject to such action or proceeding shall have been sold on
foreclosure of the applicable Mortgage (or by deed in lieu thereof), Lender
shall have the right to receive such Condemnation Proceeds to the extent (x)
such Condemnation Proceeds are attributable to a Taking occurring prior to
foreclosure or delivery of any deed in lieu thereof and (y) of any deficiency
found to be due upon such sale, with legal interest thereon, and reasonable
counsel fees, costs and disbursements incurred by Lender in connection with the
collection of such Condemnation Proceeds. Lender may, but shall not be obligated
to, make proof of loss if not made promptly by the applicable Loan Party or
Subsidiary thereof. Upon the occurrence and during the continuance of an Event
of Default (but not otherwise), Lender is hereby authorized and empowered by
each Loan Party to settle, adjust or compromise any claims for Condemnation
Proceeds with or without the consent of such Loan Party or any of its
Subsidiaries (and each of the Royale and Borrower hereby irrevocably appoints
and constitutes Lender as its lawful attorney-in-fact, coupled with an interest
and with full power of substitution, for such purpose). In no event shall any
Loan Party or any of its Subsidiaries settle, adjust or compromise any claim for
Condemnation Proceeds in respect of any Property without the prior written
consent of Lender, which shall not be unreasonably withheld, conditioned or
delayed. Each condemnor concerned is hereby authorized and directed to make
payment of all Condemnation Proceeds in respect of each of the Properties
payable by it directly to Lender. If any Loan Party or any of its Subsidiaries
receives any Condemnation Proceeds resulting from such condemnation in respect
of any Property, such Loan Party or such Subsidiary shall promptly endorse and
transfer such excess Condemnation Proceeds to Lender and each Loan Party
covenants that until so paid over to Lender, such Loan Party or Subsidiary, as
the case may be, shall hold such Condemnation Proceeds in trust for the benefit
of Lender and shall not commingle such Condemnation Proceeds with any other
funds or assets of such Loan Party or Subsidiary or any other Person.
5.13.5 Repayment of Loan; Payment of Release Price; Conditions to
Restoration. In the event of any casualty or Taking with respect to a Property,
which will cost (or may reasonably be expected to cost) more than $500,000 to
Restore, as reasonably determined by Borrower and so certified in an Officers'
Certificate delivered to Lender, Borrower shall elect by written notice
delivered to Lender as soon as practicable thereafter, but in any event before
the earlier of (x) 30 days after the occurrence of such casualty or Taking and
(y) the commencement of the Restoration of such Property, either:
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51
5.13.5.1 to prepay the Loan in an amount equal to the Net
Insurance/Condemnation Proceeds with respect to such Property; or
5.13.5.2 if all the following conditions shall be satisfied, to
Restore such Property in accordance with Section 5.13.6:
(a) the Maturity Date shall then not have occurred;
(b) no Potential Event of Default (other than any Potential Event
of Default caused solely by an event or condition with respect to
another Property) or Event of Default shall have occurred and be
continuing or would be caused by such Restoration;
(c) Lender shall have determined, in its reasonable discretion
and after considering such written opinions of architects and
engineers and other written information as Borrower shall timely
deliver to Lender, that Restoration of such Property is, under the
circumstances then existing, physically and economically feasible and
can be completed on or before a date not less than three months prior
to the Maturity Date;
(d) Borrower shall have business interruption or rental income
insurance complying with this Agreement in an amount at least equal to
the reduction in Property Adjusted Net Income with respect to such
Property, if any, which Borrower reasonably expects to suffer during
the period of Restoration;
(e) either (1) the Net Insurance/Condemnation Proceeds shall be
sufficient to complete the costs of such Restoration, as determined by
Lender in its reasonable discretion, or (2) Borrower shall have
provided, at Borrower's option, a cash deposit or a letter of credit
satisfactory to Lender, in its reasonable discretion (or other
collateral reasonably satisfactory to Lender), for the amount of any
shortfall in the amount of Net Insurance/Condemnation Proceeds
necessary to cover the costs to complete such Restoration; and
(f) Lender shall have received an Appraisal satisfactory to
Lender demonstrating that the aggregate Appraised Values of all
Properties following such Restoration shall not be less than the
then-current Outstanding Loan Amount.
If the Loan Parties and their respective Subsidiaries shall fail to satisfy the
conditions set forth herein with respect to the related Property, or shall fail
to diligently and continuously prosecute the Work to completion (other than as a
result of Excusable Delay), as determined by Lender, in its reasonable
discretion, then Borrower shall prepay the Loan in an amount equal to the
Release Price with respect to such Property and Lender shall apply any or all
remaining Insurance Proceeds or Condemnation Proceeds, as applicable, towards
such prepayment.
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52
5.13.6 Restoration with Net Insurance/Condemnation Proceeds. In the event
of any casualty or Taking with respect to a Property, which will cost (or may
reasonably be expected to cost) more than $500,000 to Restore, as reasonably
determined by Borrower and so certified in an Officers' Certificate delivered to
Lender, if any of the Loan Parties and their respective Subsidiaries elects to
Restore a Property, pursuant to this Section and the conditions set forth in
Section 5.13.5.2 are satisfied, all Net Insurance/Condemnation Proceeds shall be
held by Lender in an interest-bearing account at Lender, with all interest to be
held therein until completion and final inspection of the Work, and shall be
applied by Lender to the payment of the cost of Restoring such Property so
damaged or destroyed or of the portion or portions of such Property not so Taken
(the "Work") and shall be paid out from time to time to Borrower as the Work
progresses, subject to retainage as reasonably determined by Lender in
accordance with construction lending practices and otherwise in accordance with
any conditions reasonably imposed by Lender but subject to each of the following
conditions:
5.13.6.1 Subject to Excusable Delays, Borrower shall promptly (and in
any event within 120 days after the applicable casualty or Taking)
commence, or cause the commencement of, Restoration of such Property.
5.13.6.2 If the Work is structural or if the cost of the Work, as
estimated by Borrower, shall exceed 15% of the Property Amount with respect
to such Property the Work shall be in the charge of an architect or
Engineer (who may be an employee or Affiliate of Borrower only if the cost
of the Work does not exceed such lesser amount), and before Borrower
commences any Work, other than temporary work to protect property or
prevent interference with business, Lender shall have approved the plans
and specifications and the general contract for the Work to be submitted by
Borrower, which approval shall not be unreasonably withheld, conditioned or
delayed. Such plans and specifications shall provide for such Work that,
upon completion thereof, the Improvements shall (x) be in compliance in all
material respects with all legal requirements such that all representations
or warranties of the Loan Parties relating to the compliance of such
Property with Applicable Laws in this Agreement or any of the other Loan
Documents would then be true and correct, and (y) be at least equal in
value and general utility to the Improvements which were on such Property
prior to the damage, destruction or Taking. Such plans and specifications
shall be accompanied by (1) a signed estimate of Borrower, or, if an
architect or Engineer is required to supervise the Work, such architect or
Engineer, stating the estimated cost of completing the Work, which estimate
shall bear the architect's or Engineer's seal if not made by Borrower and
(2) to the extent necessary at such stage of the Work, certified copies of
all Authorizations required in connection with the commencement and
performance of the Work.
5.13.6.3 Each request for payment shall be made on seven days' prior
notice to Lender and shall be accompanied by paid invoices and by (a) a
certificate to be made by such architect or Engineer, if one be required
under clause (ii) above, otherwise by an Officers' Certificate of Borrower,
stating that (1) all of the Work completed has been done in substantial
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53
compliance with the approved plans and specifications, if any be required
under said clause (ii) above, and (2) the sum requested is justly required
to reimburse Borrower for payments made by Borrower to, or is justly due
to, the contractor, subcontractors, materialmen, laborers, engineers,
architects or other Persons rendering services or materials for the Work
(giving a brief description of such services and materials), and that when
added to all sums previously paid out by Lender does not exceed the cost of
the Work done to the date of such certificate, and (b) an Officers'
Certificate of Borrower stating either that (x) the amount of such proceeds
remaining in the hands of Lender, or (y) the amount of such funds, plus
funds in the hands of the applicable Loan Party or Subsidiary thereof from
other sources irrevocably committed to the completion of the Work in a
manner reasonably satisfactory to Lender (including delivery of such funds
to Lender for application to pay the costs of the Restoration), will be
sufficient on completion of the Work to pay for the same in full (giving in
such reasonable detail as Lender may require an estimate of the cost of
such completion). Lender may require that any such statements be
independently verified by an inspector approved by Lender.
5.13.6.4 Each request shall be accompanied by waivers of lien
satisfactory to Lender covering that part of the Work for which payment or
reimbursement has been made (or other evidence as shall be satisfactory to
Lender in its sole discretion confirming that no rights of mechanics,
contractors, subcontractors, materialmen or suppliers are outstanding in
respect of such Work) and by a search prepared by the Title Company
reasonably satisfactory to Lender establishing that there has not been
filed with respect to such Property any mechanics' or other lien or
instrument for the retention of title in respect of any part of the Work
not discharged of record or bonded to the reasonable satisfaction of Lender
and evidencing the continued priority of the Mortgage and Assignment of
Rents and Leases on such Property.
5.13.6.5 The available Insurance Proceeds or Condemnation Proceeds
which are paid or will be payable by the insurance company (together with
any cash, irrevocable letter of credit, payment or performance bond or
United States government obligation assigned to Lender as collateral, in
each case reasonably acceptable to Lender as to amount, obligor and
maturity) are, in the reasonable judgment of Lender, sufficient to pay in
full the costs of the Restoration.
5.13.6.6 There shall be no Event of Default or Potential Event of
Default (other than any Potential Event of Default caused solely by an
event or condition with respect to another Property).
5.13.6.7 The request for any payment after the Work has been completed
shall be accompanied by (a) a copy of any certificate or certificates
required by law to render occupancy of the improvements being rebuilt,
repaired or restored legal; and (b) final lien waivers for all labor,
materials and supplies from all contractors, subcontractors and
materialmen, except with respect to claims or rights being contested or
bonded in accordance with the provisions hereof.
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54
5.13.6.8 After commencing the Work, Borrower shall, subject to
Excusable Delays, perform the Work diligently and in good faith in a good
and workmanlike manner to completion in accordance with the approved plans
and specifications, if any.
5.13.6.9 Lender shall have received "agreements to complete" of the
general contractor and any independent architects or Engineers, which
agreements to complete shall be in form and substance reasonably
satisfactory to Lender.
5.13.6.10 Borrower shall have obtained and maintained, or shall have
caused the applicable Loan Party or Subsidiary thereof to obtain and
maintain, completed value builders' risk (all risk) insurance in accordance
with this Agreement.
All costs and expenses of any Restoration, including, without limitation,
any Work, Engineer's fees, architect's fees or contractors fees and the cost and
expenses of complying with this Section, shall be for the account of Borrower.
Upon completion of the Work and payment in full therefor, Borrower shall
promptly deliver to Lender a Completion Certificate with respect thereto,
together with all final lien waivers in form and substance reasonably
satisfactory to Lender, and Lender shall return to Borrower the amount of any
unspent Insurance Proceeds or Condemnation Proceeds then or thereafter in the
hands of Lender on account of the casualty or Taking that necessitated such
Work, together with all undisbursed accrued interest thereon. Nothing in this
Section shall prevent Lender from applying at any time all or any part of the
Insurance Proceeds or Condemnation Proceeds to the curing of any Event of
Default under this Agreement or any other Loan Document.
5.13.7 Engineer's Inspection. At any time after Lender becomes aware of a
casualty or Taking involving an aggregate amount in excess of $500,000 (as
reasonably determined by Borrower and so certified in an Officers' Certificate
delivered to Lender) Lender may hire an independent engineer to inspect the
applicable Property and Lender may deem any related Restoration not complete
unless the engineer reasonably determines that the Restoration was completed in
accordance with this Agreement. The cost of such inspection shall be for the
account of Borrower.
5.14 Brundage Clause
In the event of the enactment of or change in (including a change in
interpretation of) any Applicable Law (i) deducting or allowing any Loan Party
or any of its Subsidiaries to deduct from the value of any Property for the
purpose of taxation any Lien thereon, (ii) subjecting any Lender to any tax in
respect of, or changing the basis of taxation in respect of, the Mortgages, or
the manner of collection of such taxes (other than Taxes on net income,
franchise taxes and doing business taxes), or (iii) for the taxation of
mortgages or debts secured by mortgages or in the means of collection of any
such tax, in each such case, so as to affect any Lender or the Note or the
Mortgages or any other Loan Document, and the result is to increase the taxes
imposed upon or the cost to any Lender of maintaining the Loan, or to reduce the
amount of any payments receivable under the Note, the Mortgages or any other
Loan Document, or to invalidate the Lien created by any Security Document, then,
<PAGE>
55
in any such event, Borrower shall, within twenty Business Days of receipt of a
request therefor, accompanied by documentation verifying the nature, amount and
due date, pay to such Lender additional amounts to compensate for such increased
costs or reduced amounts; provided, however, that if any Lender makes such a
request, or if the Lien created by any Security Document may be invalidated,
then Borrower shall have the right, and, in the case of such invalidation, shall
have the obligation, to prepay the Loan, in accordance with the provisions of
this Agreement and the Note; provided further, however, that if any such payment
or reimbursement shall be unlawful or would constitute usury or render the Loan
wholly or partially usurious under Applicable Law, then Lender may, in its sole
discretion, declare the Loan so affected immediately due and payable (without
premium or penalty) and/or require Borrower to pay or reimburse the Lenders for
payment of the lawful and non-usurious portion thereof not less than 180 days
after notice of such declaration.
5.15 Further Assurances
5.15.1 Assurances. Without expense or cost to Lender or the Lenders, each
Loan Party shall, and shall cause each of its Subsidiaries to, from time to time
hereafter execute, acknowledge, file, record, do and deliver all and any further
acts, deeds, conveyances, mortgages, deeds of trust, deeds to secure debt,
security agreements, hypothecations, pledges, charges, assignments, financing
statements and continuations thereof, notices of assignment, transfers,
certificates, assurances and other instruments as Lender may from time to time
reasonably require in order to carry out more effectively the purposes of this
Agreement or the other Loan Documents, including to subject any Property or
other items of Collateral, intended to now or hereafter be covered, to the Liens
created by the Security Documents, to perfect and maintain such Liens, and to
assure, convey, assign, transfer and confirm unto Lender the property and rights
hereby conveyed and assigned or intended to now or hereafter be conveyed or
assigned or which any Loan Party or any such Subsidiary may be or may hereafter
become bound to convey or to assign to Lender or for carrying out the intention
of or facilitating the performance of the terms of this Agreement, or any other
Loan Documents or for filing, registering or recording this Agreement or any
other Loan Documents. Without limiting the foregoing, each Borrower shall
deliver to Lender, promptly upon receipt thereof, all instruments received by
Borrower after the Closing Date and take all actions and execute all documents
necessary or reasonably requested by Lender to perfect Lender's security
interest in any such instrument or any other Investment acquired by Borrower.
Promptly upon request or, in an emergency, upon demand, each Loan Party shall
execute and deliver, and hereby authorizes Lender to execute and file in the
name of such Loan Party, to the extent Lender may lawfully do so, one or more
financing statements, chattel mortgages or comparable security instruments to
evidence more effectively the Lien hereof upon the Collateral.
5.15.2 Filing and Recording Obligations. Each Loan Party shall pay all
filing, registration and recording fees and all expenses incident to the
execution and acknowledgement of any Mortgage or other Loan Document, including
any instrument of further assurance described in Section 5.15.1 and shall pay
all mortgage recording taxes, transfer taxes, general intangibles taxes and
governmental stamp and other taxes, duties, imposts, assessments and charges
arising out of or in connection with the execution, delivery, filing, recording
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56
or registration of any Mortgage or other Loan Document, including any instrument
of further assurance described in Section 5.15.1 or by reason of its interest
in, or measured by amounts payable under, the Note, the Mortgages or any other
Loan Document, including any instrument of further assurance described in
Section 5.15.1, and shall pay all stamp taxes and other taxes required to be
paid on the Note or any other Loan Document, but excluding in the case of each
Lender and Lender, Taxes imposed on its income by a jurisdiction under the laws
of which it is organized or in which its principal executive office is located
or in which its applicable lender office for funding or booking its Loan
hereunder is located. If any Loan Party fails to make any of the payments
described in the preceding sentence within 10 days after notice thereof from
Lender (or such shorter period as is necessary to protect the loss of or
diminution in value of any Collateral by reason of tax foreclosure or otherwise,
as determined by Lender, in its sole discretion) accompanied by documentation
verifying the nature and amount of such payments, Lender may (but shall not be
obligated to) pay the amount due and the Loan Parties shall reimburse all
amounts in accordance with the terms hereof upon demand. If Applicable Law
prohibits any Loan Party from paying such taxes, charges, filing, registration
and recording fees, excises, levies, stamp taxes or other taxes, then Lender may
declare the Loan immediately due and payable in accordance with the terms of
this Agreement, without premium or penalty not less than 30 days after such
declaration in a principal amount equal to the Property Amount with respect to
the applicable Property.
5.15.3 Costs of Defending and Upholding the Lien. Lender may, upon at least
five days' prior notice to Borrower, (i) appear in and defend any action or
proceeding, in the name and on behalf of Lender or Borrower in which Lender is
named or which Lender in its sole discretion determines is reasonably likely to
materially adversely affect any Property, any other Collateral, any Mortgage,
the Lien thereof or any other Loan Document and (ii) institute any action or
proceeding which Lender reasonably determines should be instituted to protect
the interest or rights of Lender in any Property or other Collateral or under
this Agreement or any other Loan Document. Borrower agrees that all reasonable
costs and expenses expended or otherwise incurred pursuant to this Section
(including reasonable attorneys' fees and disbursements) by Lender shall be paid
by Borrower or reimbursed to Lender, as the case may be, promptly after demand.
5.15.4 Costs of Enforcement. Borrower agrees to bear and shall pay or
reimburse Lender in accordance with the terms of this Agreement for all
reasonable sums, costs and expenses incurred by Lender (including reasonable
attorneys' fees and the expenses and fees of any receiver or similar official)
of or incidental to the collection of any of the Obligations, any foreclosure
(or Transfer in lieu of foreclosure) of any Mortgage or any other Loan Document
or any sale of all or any portion of any Property or all or any portion of the
other Collateral.
ARTICLE 6
NEGATIVE COVENANTS
Each Loan Party covenants and agrees that, until payment in full of the
Loan and the other Obligations (other than indemnification obligations with
respect to claims that have not been asserted at the time that the Loan and all
other Obligations have been paid in full), the Loan Parties shall perform and
shall cause each of their respective Subsidiaries to perform all of their
covenants in this Article 6.
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57
6.1 Indebtedness of Borrower.
Borrower shall not directly or indirectly create, incur, assume, Guarantee,
refinance, exchange, refund or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness, except:
6.1.1 the Obligations; and
6.1.2 Interest Rate Agreements otherwise required or permitted under
this Agreement; and
6.1.3 unsecured intercompany Indebtedness owed to Loan Parties, if all
such Indebtedness is evidenced by one or more promissory notes that are
pledged to Lender pursuant to the Security Documents to secure the
Obligations.
6.2 Indebtedness of FCOLP.
FCOLP shall not directly or indirectly create, incur, assume, Guarantee,
refinance, exchange, refund or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness, except:
6.2.1 the Obligations;
6.2.2 recourse Indebtedness to which Lender has given its prior
written consent, which it may give or withhold in its sole discretion;
6.2.3 non-recourse Indebtedness secured by property other than the
Collateral to which Lender has given its prior written consent, which shall
not be unreasonably withheld, delayed or conditioned;
6.2.4 non-recourse Guarantees of the Indebtedness of Subsidiaries of
FCOLP secured by pledges of FCOLP's interest in such Subsidiaries;
6.2.5 Interest Rate Agreements otherwise required or permitted under
this Agreement; and
6.2.6 unsecured intercompany Indebtedness owed to Loan Parties, if all
such Indebtedness is evidenced by one or more promissory notes that are
pledged to Lender pursuant to the Security Documents to secure the
Obligations.
6.3 Liens and Related Matters.
6.3.1 Prohibition on Liens. Borrower shall not directly or indirectly,
create, incur, assume or permit to exist any Lien on or with respect to any
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58
property or asset of any kind (including any document or instrument in respect
of goods, furniture, fixtures, equipment or accounts receivable) of Borrower,
whether now owned or hereafter acquired, or any income or profits therefrom, or
file or permit the filing of, or permit to remain in effect, any financing
statement or other similar notice of any Lien with respect to any such property,
asset, income or profits under the Uniform Commercial Code of any State or under
any similar recording or notice statute, except Permitted Encumbrances.
6.3.2 No Further Negative Pledges. Except with respect to agreements
entered into in the ordinary course of business which by their terms restrict
the assignment of rights thereunder (but not any other rights or interests and
otherwise consistent with industry practices) as security for the Obligations or
otherwise, Borrower shall not, directly or indirectly, enter into any agreement
prohibiting the creation or assumption of any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, except to the extent that Liens
to secure the Obligations are excluded therefrom.
6.4 Investments.
Borrower shall not, directly or indirectly, make any Investment in any
Person, including any Affiliate or Joint Venture, or any expenditure to acquire
any real property, except (i) any transaction permitted under Sections 6.1, 6.2
and 8.13, (ii) any renovations or improvements permitted under Section 5.5 or
elsewhere in this Agreement, (iii) Investments in wholly-owned Subsidiaries of
FCOLP or in other Borrowers or their wholly-owned Subsidiaries, or (iv)
Investments in Cash or Cash Equivalents. For the purpose of this Section and
without limiting any other method of making an Investment, Borrower and its
Subsidiaries shall be deemed to make an Investment in each Investment owned by a
Person at the time such Person becomes a Subsidiary of Borrower or any of its
Subsidiaries.
6.5 Contingent Obligations
Borrower shall not, directly or indirectly, create or become liable with
respect to any Contingent Obligation, except that:
6.5.1 Borrower may become liable with respect to Contingent
Obligations in respect of the Obligations and the Indebtedness;
6.5.2 Borrower may in the ordinary course of Borrower's business enter
into interest rate hedging agreements with respect to Indebtedness
otherwise permitted under this Agreement;
6.5.3 Borrower may become liable with respect to indemnification
agreements and Guaranties (whether now or existing or hereafter entered
into) with respect to performance, surety and similar bonds or guaranties
of completion provided in the ordinary course of business consistent with
past practices in respect of the restoration or renovation of any Property,
in an aggregate maximum amount not at any time exceeding $1,000,000;
6.5.4 Borrower may become liable to make Investments permitted by, and
in accordance with the terms of, this Article 6.
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6.6 Distributions.
Notwithstanding the terms of any agreement, articles or bylaws to the
contrary, neither FCOLP nor FCO shall, directly or indirectly, declare, order,
pay, make, give or publish notice or fix a date in respect of or set apart any
sum for any Distribution, except, if no Event of Default has occurred and is
then continuing, (i) to the extent the aggregate amount of such Distributions
over the preceding twelve months is less than 90% of Funds From Operations, or
(ii) as may otherwise be required in order to comply with Section 5.3.1.
6.7 Financial Covenants
6.7.1 Adjusted Consolidated Net Worth. The Loan Parties shall not permit at
any time the Adjusted Consolidated Net Worth of Royale and its Subsidiaries to
be less than (i) the Adjusted Consolidated Net Worth of Royale and its
Subsidiaries as of the Closing Date, plus (ii) 80% of any Equity Proceeds
received by Royale and its Subsidiaries (other than from Royale and its
Subsidiaries) after the Closing Date.
6.7.2 Minimum Property Interest Coverage. As of the last day of any
calendar quarter, Borrower shall not permit the ratio of Total Property Adjusted
Net Income to Property Interest Expense to be less than 1.4:1.0 (such amounts to
be determined with reference to the preceding 12-month period ending on such
last day, or, before the first Anniversary, with reference to the period from
the Closing Date to such last day).
6.7.3 Minimum Property Hedged Interest Coverage. As of the last day of any
calendar quarter, Borrower shall not permit the ratio of (i) Property Adjusted
Net Income for all Properties subject to Interest Rate Agreements, to (ii)
Property Hedged Interest Expense to be less than 1.15:1.0 (such amounts to be
determined with reference to the preceding 12-month period ending on such last
day, or, before the first Anniversary, with reference to the period from the
Closing Date to such last day).
6.7.4 Minimum Consolidated Interest Coverage. As of the last day of any
calendar quarter, the Loan Parties shall not permit the ratio of Total
Consolidated Adjusted Net Income to Consolidated Interest Expense to be less
than 1.4:1.0 (such amounts to be determined with reference to the preceding
12-month period ending on such last day, or, before the first Anniversary, with
reference to the period from the Closing Date to such last day).
6.7.5 Maximum Consolidated Unhedged Floating Rate Debt. The Loan Parties
shall not at any time permit Consolidated Total Indebtedness subject to a
variable interest rate that is not subject to Interest Rate Agreements to exceed
15% of Consolidated Total Assets.
6.7.6 Maximum Consolidated Total Indebtedness. The Loan Parties shall not
at any time permit Consolidated Total Indebtedness to exceed 70% of Consolidated
Total Assets.
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6.8 Fundamental Changes.
Except for the Formation, without the prior written approval of Lender,
which approval may be granted, withheld, conditioned or delayed in its sole
discretion, the Loan Parties shall not alter the legal structure of any Loan
Party, or enter into any transaction of merger or consolidation, or liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution), or make
or permit any Transfer or acquire by purchase or otherwise, directly or
indirectly, all or substantially all the business, property or fixed assets of,
or stock or other evidence of beneficial ownership of, any Person, make any
Acquisition, acquire or enter into any overall property management agreement
with respect to any Property or Transfer any Property, except that, from time to
time after the Closing Date:
6.8.1 the Loan Parties and their Subsidiaries may lease space in
Improvements and remove, sell or otherwise dispose of items of Collateral
and other property as expressly permitted under the Loan Documents;
6.8.2 Royale and FCOLP may incorporate or otherwise organize, and,
subject to Section 6.4 in the case of FCOLP, capitalize, one or more
Subsidiaries, provided that Royale or FCOLP, as the case may be, shall
within thirty days after such organization deliver to Lender a notice
informing Lender of such organization, the name and state of organization
of such Subsidiary, and such other information as Lender shall reasonably
require; and
6.8.3 the Loan Parties and their respective Subsidiaries may make
Acquisitions and transfer Properties to the extent expressly permitted in
Section 6.4 or otherwise in this Agreement.
6.9 Zoning and Contract Changes and Compliance
Without the prior written approval of Lender, which approval shall not be
unreasonably withheld, conditioned or delayed, Borrower shall not and shall not
initiate or consent to any zoning reclassification of any Property or seek any
material variance under any existing zoning ordinance or use or permit the use
of any Property in any manner that could result in such use becoming a
non-conforming use under any zoning ordinance or any other applicable land use
law, rule or regulation. Borrower shall not initiate or consent to any change in
any laws, requirements of Governmental Authorities or obligations created by
private contracts and Material Leases which now or hereafter could reasonably be
likely to materially and adversely affect the ownership, occupancy, use or
operation of any Property without the prior written consent of Lender.
6.10 No Joint Assessment; Separate Lots
Without the prior written approval of Lender, which approval may be
granted, withheld, conditioned or delayed in its sole discretion, Borrower shall
not suffer, permit or initiate the joint assessment of any Property (i) with any
other real property constituting a separate tax lot (other than another
Property) and (ii) with any portion of any Property which may be deemed to
constitute personal property, or any other procedure whereby the lien of any
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Taxes which may be levied against any such personal property shall be assessed
or levied or charged to any Property as a single lien. Borrower represents and
warrants that each Property is comprised of one or more parcels, each of which,
to the knowledge of Borrower, constitutes a separate tax lot (except with
respect to any lot constituting another Property) and none of which constitutes
a portion of any other tax lot, except that the portion of the Property to be
released from the Lien of the Loan Documents pursuant to Section 2.8.2 may not
be a separate tax lot until local property tax authorities have accounted for
the subdivision of such land from the remaining Blue Bell Properties.
6.11 Transactions with Affiliated Persons.
Without the prior written approval of Lender, which approval may be
granted, withheld, conditioned or delayed in its sole discretion, the Loan
Parties shall not, and shall not permit any of their respective Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property, the rendering of any service or the making of any Investment or
Guaranty, or the amendment, restatement, supplement or other change of, or
waiver or failure to enforce any obligations under, any agreement) with any
holder of 5% or more of any class of equity Securities of Borrower or Royale or
any Affiliate or Subsidiary of Royale unless the terms thereof are not less
favorable to such Loan Party or Subsidiary, as the case may be, than those that
might be obtained in a comparable transaction at the time on an arms-length
basis from Persons who are not such a holder or Affiliate.
6.12 Sale or Discount of Receivables
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, sell with recourse or, except in the
ordinary course of business and consistent with past practices, discount or
otherwise sell for less than the face value thereof, any of its notes or
accounts receivable.
6.13 Ownership of Subsidiaries.
The Loan Parties shall not permit any of their respective Wholly Owned
Subsidiaries to cease to be Wholly Owned Subsidiaries. Borrower shall not cease
to be a Subsidiary of Royale and the financial statements of Borrower shall not
cease to be consolidated with the financial statements of Royale in accordance
with GAAP.
6.14 Conduct of Business
6.14.1 Conduct of Business. The Loan Parties shall not, and shall not
permit any of their respective Subsidiaries to, directly or indirectly, do the
following:
6.14.1.1 engage in any business other than (a) the acquisition,
ownership, renovation, Restoration, management, operation and disposition
of real properties and related assets that are office and retail properties
located in the United States of America, (b) any business that is
ancillary, in purpose and extent, to any business referred to in the
preceding clause; or
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6.14.1.2 terminate, modify, amend, waive any material provision of, or
enter into any Material Lease without Lender's prior written consent, which
shall not be unreasonably withheld, conditioned or delayed, or enter into
any other agreement, or take any other action, if such other agreement or
action would materially change the business conducted at any Property,
including any such Material Lease, agreement or other action, that would
convert or reposition any Property into any office building of a quality
less than as of the Closing Date; or
6.14.1.3 materially deviate from the annual business plan submitted to
Lender pursuant to Section 5.1.4 without first notifying Lender in writing
and providing to Lender an explanation of the reasons for such deviation,
in such detail as Lender shall reasonably require.
6.15 Properties
6.15.1 Acquisition of Properties. Borrower shall not, and shall not permit
any of their respective Subsidiaries to, make an Acquisition of a fee or
leasehold interest in any real property after the Closing Date.
6.15.2 Transfer of Properties. Borrower shall not, and shall not permit any
of their respective Subsidiaries to, Transfer any Property, except to the extent
(i) required in connection with the Formation; or (ii) otherwise expressly
permitted under the Loan Documents, and Borrower complies with the provisions
set forth in Section 2.8 with respect to such Property, including the payment of
any Release Price required thereby.
6.16 Management Agreements
Borrower shall not enter into or otherwise be or become obligated with
respect to, any management agreement with respect to any Property after the
Closing Date, except (i) management agreements that Lender has approved in
writing, and (ii) that may be terminated by Lender without compensation upon the
occurrence of an Event of Default hereunder.
6.17 Changes in Certain Obligations and Documents; Issuance of Equity
Securities
6.17.1 Credit Agreement. Without the prior written approval of Lender,
which approval may be granted, withheld, conditioned or delayed in its sole
discretion, the Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to, enter into any agreement (other than this Agreement)
prohibiting or restricting the ability of any of the Loan Parties and any of
their respective Subsidiaries to amend or otherwise modify this Agreement or any
other Loan Document.
6.17.2 Royale Preferred Stock. Without the prior written approval of
Lender, which approval may not be unreasonably withheld, conditioned or delayed
if no optional redemption thereof is permitted until after the fifth
Anniversary, Royale shall not amend, restate, supplement or otherwise change its
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articles of incorporation if the effect of such amendment, restatement,
supplement or change is to provide for the issuance of any preferred stock of
Royale or the filing of any certificate of designation with respect thereto.
6.17.3 Equity Securities. The Loan Parties shall not, and shall not permit
any of their respective Subsidiaries to, issue any Capital Stock or other
Security which, by its terms (or by the terms of any Security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund or
otherwise, or redeemable in Cash at the option of the holder thereof, in whole
or in part, before the date that is 91 days after the Maturity Date.
6.17.4. Without the prior written approval of Lender, which approval may be
granted, withheld, conditioned or delayed in its sole discretion, except as
expressly permitted hereunder, the Loan Parties shall not, and shall not permit
any of their respective Subsidiaries to, amend or otherwise modify their
respective charters or partnership agreements in any material respect except as
expressly permitted under the Loan Documents.
6.18 Fiscal Year
Without the prior written approval of Lender, which approval may be
granted, withheld, conditioned or delayed in its sole discretion, neither Royale
nor any of its Subsidiaries shall change its fiscal year-end from December 31.
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ARTICLE 7
EVENTS OF DEFAULT; REMEDIES
7.1 Events of Default.
If any of the following conditions or events ("Events of Default") shall
occur:
7.1.1 Failure to Make Payments When Due. Failure to pay any installment of
principal of any Loan or any Release Price when due, whether at stated maturity,
by acceleration in accordance with the provisions of the applicable Loan
Document, by notice of voluntary prepayment, by mandatory prepayment or
otherwise; or failure to pay interest or any other amount due under this
Agreement within (i) two Business Days after the date of receipt of notice that
such payment has not been received as of the date due, until three such notices
have been delivered under this Agreement, or (ii) thereafter, five days after
the date due; or
7.1.2 Other Defaults Under Loan Documents. Any Loan Party or any of its
Subsidiaries shall default in the performance of or compliance with any term
contained in this Agreement or any other Loan Document other than any such term
in this Agreement or other Loan Document that is referred to in any other clause
of this Section and such default shall not have been remedied or waived within
30 days after the earlier of (i) such Loan Party's or such Subsidiary's
obtaining knowledge of such default or (ii) receipt by such Loan Party or such
Subsidiary of notice from Lender of such default; provided, however, that if
such default cannot be cured solely by the payment of money and the cure of such
default requires a period in excess of 30 days, and such default may reasonably
be expected to be cured on or before the 90th day after such Loan Party or such
Subsidiary obtains knowledge or notice thereof, and if and so long as such Loan
Party or such Subsidiary is diligently and continuously prosecuting such cure,
then such default shall not be an Event of Default unless such Loan Party or
such Subsidiary fails to cure such default before the 90th day after any Loan
Party or any of its Subsidiaries obtains knowledge or notice thereof, as the
case may be; or
7.1.3 Failure of Blue Bell Defeasance. The Mortgage encumbering the Blue
Bell Properties shall fail to become a first priority lien on or before the
sixtieth day following the Closing.
7.1.4 Failure of Formation. The Formation shall not occur within one day of
the Closing, or a court shall enter a judgment terminating or unwinding the
Formation.
7.1.5 Default in Other Agreements. (i) Failure of any Loan Party or any of
its Subsidiaries to pay when due any principal of or interest on any
Indebtedness the aggregate principal amount of which is equal to or greater than
$250,000, in each case beyond the end of any grace period provided therefor
(without extension); (ii) occurrence of any other event or condition (other than
an event or condition expressly described in another paragraph or provision of
this Section 7.1) which, with the giving of notice or the lapse of time or both,
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with respect to (a) any Indebtedness the aggregate principal amount of which is
equal to or greater than $250,000 or any Contingent Obligation(s) the aggregate
amount of which is equal to or greater than $250,000 or (b) any loan agreement,
mortgage, indenture or other agreement relating to such Indebtedness or
Contingent Obligation(s), would cause, or would permit the holder or holders of
that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such
holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to
become or be declared due and payable (upon the giving or receiving of notice,
lapse of time, both, or otherwise) prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be, in each case beyond
the end of any cure period therefor (without any extension thereof) or (iii) any
principal amount of Indebtedness of any Loan Party or any of its Subsidiaries
becoming or being declared due and payable prior to its stated maturity; or
7.1.6 Breach of Warranty. Any representation, warranty, certification or
other statement of any Loan Party or any of its Subsidiaries made in this
Agreement or in any other Loan Document or in any statement or certificate at
any time given in writing pursuant hereto or thereto or in connection herewith
or therewith shall be false in any material respect on the date as of which made
and such default shall not have been remedied or waived within 30 days after the
earlier of (i) such Loan Party's or such Subsidiary's obtaining knowledge of
such default and (ii) receipt by such Loan Party or such Subsidiary of notice
from Lender of such default; provided, however, that if such default cannot be
cured solely by the payment of money and the cure of such default requires a
period in excess of 30 days, and if such Loan Party or such Subsidiary, as
applicable, is diligently and continuously prosecuting such cure, then such
default shall not be an Event of Default unless such Loan Party or such
Subsidiary fails to cure such default within 90 days, after such Loan Party or
such Subsidiary obtain knowledge or notice thereof, as the case may be; or
7.1.7 Invalidity of Loan Document; Failure of Security; Repudiation of
Obligations. At any time after the execution and delivery thereof, (i) any Loan
Document (other than a Security Document) or any material provision thereof
shall cease to be in full force and effect (other than in accordance with its
terms) or shall be declared null and void; (ii) any Security Document or any
material provision thereof shall cease to be in full force and effect (other
than by reason of a release of Collateral thereunder in accordance with the
terms hereof or thereof or any other termination of such Security Document in
accordance with the terms hereof or thereof) or shall be declared null and void,
or Lender shall not have or shall cease to have a valid and perfected first
priority Lien or security interest, subject only to the Permitted Encumbrances,
in any material Collateral purported to be covered, in each case for any reason
other than the failure of Lender to take any action within its control; or (iii)
any Loan Party shall contest in writing the validity or enforceability of any
Loan Document in writing or deny in writing that it has any further liability,
including with respect to future advances by the Lenders, under any Loan
Document to which it is a party; or
7.1.8 Prohibited Transfers. Any Loan Party attempts to assign its rights
under this Agreement or any other Loan Document or any interest herein or
therein; or
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7.1.9 Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court
having jurisdiction shall enter a decree or order for relief in respect of any
Loan Party or any of its Subsidiaries in an involuntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, which decree or order is not stayed; or any
other similar relief shall be granted under any applicable federal or state law;
or (ii) an involuntary case shall be commenced against any Loan Party or any of
its Subsidiaries under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or
order of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over any Loan Party or any of its Subsidiaries, or over all or a
substantial part of its property, shall have been entered; or there shall have
occurred the involuntary appointment of an interim receiver, trustee or other
custodian of any Loan Party or any of its Subsidiaries for all or a substantial
part of its property; or a warrant of attachment, execution or similar process
shall have been issued against any substantial part of the property of any Loan
Party or any of its Subsidiaries, and any such event described in this clause
(ii) shall continue for 60 days unless dismissed, bonded or discharged; or
7.1.10 Voluntary Bankruptcy; Appointment of Receiver, etc. (i) Any Loan
Party or any of its Subsidiaries shall have an order for relief entered with
respect to it or commence a voluntary case under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or any Loan Party or any of its Subsidiaries shall make any assignment
for the benefit of creditors; or (ii) any Loan Party or any of its Subsidiaries
shall be unable, or shall fail generally, or shall admit in writing its
inability, to pay its debts as such debts become due; or the Board of Directors
of any Loan Party or any of its Subsidiaries (or any committee thereof) shall
adopt any resolution or otherwise authorize any action to approve any of the
actions referred to in clause (i) above or this clause (ii); or
7.1.11 Judgments and Attachments. Any money judgment, writ or warrant of
attachment or similar process involving individually or in the aggregate at any
time an amount in excess of $250,000 (in either case not adequately covered by
insurance as to which a solvent and unaffiliated insurance company has
acknowledged coverage) shall be entered or filed against Borrower or any of its
Subsidiaries or any of their respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of 60 days (or in any event later
than five days prior to the date of any proposed sale thereunder); or
7.1.12 Dissolution. Any order, judgment or decree shall be entered against
any Loan Party or any of its Subsidiaries decreeing the dissolution or split up
of such Loan Party or that Subsidiary and such order shall remain undischarged
or unstayed for a period in excess of 30 days; or
7.1.13 Material Adverse Effect. Any event or change (including, without
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limitation, any event or condition expressly described in another paragraph or
provision of this Section) shall occur that has caused or evidences, either in
any case or in the aggregate, a Material Adverse Effect;
THEN (i) upon the occurrence of any Event of Default described in Sections 7.1.9
or 7.1.10, the unpaid principal amount of and accrued interest on the Loan and
all other Obligations shall automatically become immediately due and payable,
without notice, presentment, demand, protest or other requirements of any kind,
all of which are hereby expressly waived by Borrower and the obligations of
Lender hereunder shall thereupon terminate, and (ii) during the continuance of
any other Event of Default, Lender may, in its sole discretion, by written
notice to Borrower, declare all or any portion of the amounts described in
clauses (i) above to be, and the same shall forthwith become, immediately due
and payable and the obligations of Lender hereunder shall thereupon terminate.
The occurrence of any condition or event may constitute an Event of Default
(or a Potential Event of Default) under more than one provision of this Section
7.1.
7.2 Certain Remedies
7.2.1 During the continuance of an Event of Default, all or any one or more
of the rights, powers, privileges and other remedies available to Lender or the
Lenders against Borrower under this Agreement, the Note, the Mortgages, the
Security Documents or any of the other Loan Documents, or at law or in equity,
may be exercised by Lender, acting in its own sole discretion at any time and
from time to time, whether or not all or any portion of the Obligations shall be
declared due and payable, and whether or not Lender shall have commenced any
foreclosure proceeding or other action for the enforcement of its rights and
remedies under any of the Loan Documents with respect to any Property or all or
any portion of the Mortgaged Property. Any such actions taken by Lender shall be
cumulative and concurrent and may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as Lender in
its sole discretion may determine, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents.
7.2.2 In the event of the foreclosure or other action by Lender to enforce
its remedies in connection with one or more of the Properties or any other
Collateral or all or any portion of the Properties, whether such foreclosure (or
other remedy) yields net proceeds in an amount less than, equal to or more than
the Property Amount with respect to such Property, Lender shall apply all net
proceeds received to repay the Obligations, the Obligations shall be reduced to
the extent of such net proceeds and the remaining portion of the Obligations
shall remain outstanding and secured by the Mortgages and the other Loan
Documents, it being understood and agreed by Borrower that Borrower is liable
for the repayment of the Obligations and that any "excess" foreclosure proceeds
are part of the cross-collateralized and cross-defaulted security granted to
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Lender on behalf of the Lenders pursuant to the Mortgages; provided, however,
that, if Lender so elects, at its sole discretion, the Loan and the Note shall
be deemed to have been accelerated only to the extent of the net proceeds
actually received by the Lenders with respect to any individual Property (or, in
the event that Lender on behalf of the Lenders is the purchaser of such Property
by Credit Bid at a foreclosure sale, the Loan and the Note shall be deemed to
have been accelerated only at such time as Lender subsequently disposes of such
Property and then only to the extent of the amount of such Credit Bid) and
applied in reduction of the Obligations in accordance with the provisions of
this Agreement and the Note, after payment by Borrower of all transaction costs
and expenses and costs of enforcement.
7.2.3 It is intended that the Liens of the Mortgages shall each be
construed and treated as a separate, distinct Lien for the purpose of securing
the entire Obligations secured thereby and each Loan Party acknowledges and
agrees that each Property is mortgaged and transferred to Lender on behalf of
the Lenders by a separate and distinct mortgage and security agreement, so that
if it should at any time appear or be held that any Mortgage fails to mortgage,
and transfer to Lender on behalf of the Lenders a Lien upon and the title to any
Property, or any part thereof, as against creditors of Borrower other than the
Lenders or otherwise, such failure shall not operate to affect in any way the
transfer of the other Properties or Mortgaged Property or any part thereof to
Lender on behalf of the Lenders; but nothing contained herein or in the
Mortgages shall be construed as requiring Lender on behalf of the Lenders to
resort to any Property for the satisfaction of the Obligations secured thereby
in preference or priority to any other Mortgaged Property thereby conveyed, but
Lender, acting in its sole discretion may seek satisfaction out of all of the
Mortgaged Property or any part thereof.
7.2.4 In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the continuance of any Event of Default Lender is hereby authorized by
Borrower at any time or from time to time, without notice to Borrower or to any
other Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, including
Indebtedness evidenced by certificates of deposit, whether matured or unmatured,
but not including trust accounts) and any other Indebtedness at any time held or
owing by Lender to or for the credit or the account of Borrower against and on
account of the obligations and liabilities of Borrower to Lender under this
Agreement and the Note, including all claims of any nature or description
arising out of or connected with this Agreement or any other Loan Document,
irrespective of whether or not (i) Lender shall have made any demand hereunder
or (ii) the principal of or the interest on the Loan or any other amounts due
hereunder shall have become due and payable pursuant to Section 7.1 and although
said obligations and liabilities, or any of them, may be contingent or
unmatured.
7.2.5 During the continuance of an Event of Default, Lender, in its sole
discretion, shall have the right, to the extent permitted by law, to impound and
take possession of books, records, notes, and other documents evidencing
Borrower's deposit accounts, accounts receivable and other claims for payment of
money (including Rents) arising in connection with the Properties, to give
notice to the obligors thereunder of Lender's interest therein, and to make
direct collections on such deposit accounts, accounts receivable and claims.
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7.2.6 During the occurrence of an Event of Default and upon the occurrence
and during the continuance of a default in the payment of any principal or
interest of any Indebtedness owed or alleged to be owed by the Loan Parties or
any of their respective Subsidiaries, and following the initiation of any
proceeding or the taking of any other action to collect the payment thereof by
the Person entitled to such payment, Lender may, in its sole discretion, advance
either to such Person or to Borrower, for payment to such Person, all or any
portion of the amount of such payment, whether or not the existence of such
obligation or amount thereof shall be disputed by Borrower or such Subsidiary.
Each such advance, to the extent not paid out of from funds of Royale, Borrower
or any of their respective Subsidiaries, shall be deemed a Loan hereunder and
shall be subject to the provisions of this Agreement.
7.2.7 The rights, powers and remedies of Lender under this Agreement shall
be cumulative and not exclusive of any other right, power or remedy which Lender
or the Lenders may have against any Loan Party pursuant to this Agreement or the
other Loan Documents executed by or with respect to such Loan Party, or existing
at law or in equity or otherwise. The rights, powers and remedies of Lender may
be pursued singly, concurrently or otherwise, at such time and in such order as
Lender, acting in its own sole discretion, may determine. No delay or omission
to exercise any remedy, right or power accruing upon an Event of Default shall
impair any such remedy, right or power or shall be construed as a waiver
thereof, but any such remedy, right or power may be exercised from time to time
and as often as may be deemed expedient. A waiver of any Event of Default or
Potential Event of Default with respect to any Loan Party shall not be construed
to be a waiver of any subsequent Event of Default or Potential Event of Default
by such Loan Party or to impair any remedy, right or power consequent thereon.
7.3 Limitation on Recourse Against Non-Recourse Parties.
The Non-Recourse Parties shall not be personally liable for the payment of
any sums now or hereafter owing Lender under the terms of the Loan Documents,
nor subject to mandatory or injunctive relief for enforcement of their
Obligations hereunder. If any Event of Default should occur under the Loan
Documents, Lender agrees that its rights, as to the Non-Recourse Parties only,
shall be limited to proceeding against any Collateral pledged by the
Non-Recourse Parties as security for the Obligations pursuant to the Security
Documents, and that it shall have no right otherwise to proceed directly against
the Non-Recourse Parties for the satisfaction of any monetary obligation of or
enforcement of any monetary claim hereunder, or for other equitable relief.
Nothing contained in this Section shall in any manner constitute or be deemed a
release of the Obligations or otherwise affect or impair the enforceability
against the other Loan Parties or the Collateral of the Loan Documents. Nothing
in this Section shall impair, in any manner, any right, remedy or recourse
Lender may have against the Non-Recourse Parties for fraud or any other claim
that is not to enforce a provision of the Loan Documents against the
Non-Recourse Parties.
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ARTICLE 8
MISCELLANEOUS
8.1 Assignments and Participations in Loan.
8.1.1 General. Lender shall have the right at any time to (i) sell, assign,
transfer or negotiate to any Eligible Assignee, or (ii) sell to any Eligible
Assignee participations in, all or any part of the Loan and the Loan Documents
or participations therein or any other interest herein or in any other
Obligations owed to it. In such event, Borrower shall be entitled to rely on
notices, waivers, consents and other communications from Lender or such other
single Lender or Participant as Lender may designate from time to time by notice
to Borrower. Wherever in this Agreement it is provided that Lender may take an
action or appear in or defend a proceeding, Lenders shall do so by and through
Lender or another single duly appointed agent, and then only under Lender's or
such agent's authority or with the consent of not less than 51% in interest of
the Lenders.
8.1.2 Participations. Borrower and each Lender hereby acknowledge and agree
that, to the extent specified by Lender in writing to the Loan Parties, (i) any
participation will give rise to a direct obligation of Borrower to the
participant and (ii) the participant shall thereafter be considered to be a
"Lender".
8.1.3 Assignments to Federal Reserve Banks. In addition to the assignments
and participations permitted under the foregoing provisions of this Section,
Lender may assign and pledge all or any portion of its Loan and the other
Obligations owed to such Lender to any Federal Reserve Bank as collateral
security pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any operating circular issued by such Federal Reserve Bank.
No Lender shall, as between Borrower and such Lender, be relieved of any of its
obligations hereunder as a result of any such assignment and pledge.
8.1.4 Information. Lender agrees to exercise commercially reasonable
efforts to keep any non-public information delivered or made available to it
pursuant to the Loan Documents, which any Loan Party or its authorized
representative has identified as confidential information, confidential from any
Person other than Persons employed by or retained by Lender who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loan and other extensions of credit or Obligations hereunder;
provided that nothing herein shall prevent Lender from disclosing such
information to any Eligible Assignee that has agreed to be bound by the
provisions of this Section 8.1.4 in connection with the contemplated assignment
or transfer of any interest or participation in the Loan or other Obligations
hereunder or as required or requested by any Governmental Authority or
representative thereof or pursuant to legal process or in connection with the
exercise of any remedy under the Loan Documents.
8.2 Expenses.
Whether or not the transactions contemplated hereby shall be consummated,
Borrower agrees to pay promptly (i) all the costs of furnishing all opinions of
counsel for Borrower and the other Loan Parties (including any opinions
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reasonably requested by Lender) as to any legal matters arising hereunder and of
each Loan Party's performance of and compliance with all agreements and
conditions on its part to be performed or complied with under this Agreement and
the other Loan Documents including with respect to confirming compliance with
environmental, insurance and solvency requirements and with respect to the
Security Documents and the Liens created pursuant thereto; (ii) all the actual
costs and expenses of creating, perfecting and maintaining Liens in favor of
Lender for the benefit of the Lenders pursuant to any Loan Document, including
filing and recording fees and expenses, mortgage recording taxes, intangible
taxes and transfer and stamp taxes, title searches, title insurance premiums,
UCC search and filing charges and expenses (including charges and expenses for
UCC searches evidencing the proper filing, recording and indexing of UCC
financing statements and listing all other effective financing statements that
name such Loan Party as debtor, and copies of all such other financing
statements); (iii) all reasonable out-of-pocket costs and expenses incurred by
Lender (including the reasonable fees, expenses and disbursements of any
auditors, accountants, architects, engineers or appraisers and any environmental
or other consultants, advisors and agents employed or retained by Lender or its
counsel) in connection with performing due diligence, including obtaining and
reviewing any Appraisals, any environmental audits or reports, market surveys,
title reports, surveys and similar information; (iv) all reasonable
out-of-pocket fees, expenses and disbursements of counsel for Lender and its
Affiliates (including allocated costs of internal counsel) in connection with
the negotiation, preparation, execution, participation, marketing and
syndication of the Loan Documents and any consents, amendments, waivers or other
modifications thereto and any other documents or matters requested by any Loan
Party; (v) all reasonable out-of-pocket costs and expenses incurred by Lender in
connection with (a) the negotiation, preparation and execution of the Loan
Documents, the syndication of the Loan and due diligence, (b) any consents,
amendments or waivers of or other modifications to any of the Loan Documents,
(c) any Acquisition, Transfer or release of any Property or other Collateral or
any proposal with respect to any of the foregoing, (d) the custody or
preservation of any of the Collateral and (e) the preparation, delivery or
review of other documents or matters requested by any Loan Party, including,
without limitation, all instruments, documents, boundary surveys, footing or
foundation surveys, certificates, plans and specifications, Appraisals, title
and other insurance reports and agreements, and each and every other document,
certificate, agreement and instrument required to be furnished pursuant to the
terms of the Loan Documents; and (vi) after the occurrence of an Event of
Default, all costs and expenses, including reasonable attorneys' fees (including
allocated costs of internal counsel) and costs of settlement, incurred by Lender
in enforcing any Obligations of or in collecting any payments due from Borrower
hereunder or under the other Loan Documents by reason of such Event of Default
or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or
pursuant to any insolvency or bankruptcy proceedings. Except as expressly
provided to the contrary in this Agreement or any other Loan Document, costs or
expenses that are payable by Borrower after the Closing Date shall be payable by
Borrower within five Business Days after Borrower's receipt of written demand
from Lender to pay same, accompanied by documentation in reasonable detail
sufficient to verify the nature and amount.
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8.3 Indemnity.
8.3.1 Indemnity. In addition to the payment of expenses as required by
Section 8.2, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to defend, indemnify and hold harmless Lender and
its Affiliates and Persons deemed to be "controlling persons" thereof within the
meaning of the Securities Act or the Exchange Act and the respective directors,
officers, employees, agents, attorneys and representatives of the foregoing
(collectively, "Indemnified Persons" and individually, an "Indemnified Person"),
to the full extent lawful, from and against any and all losses, claims, damages,
liabilities, costs and expenses or other obligations of any kind or nature
whatsoever incurred by each such Indemnified Person (including fees, charges and
disbursements of counsel and the allocated costs and expenses of internal
counsel for such Indemnified Person) which are related to, arise out of or
result from (a) any untrue statements or alleged untrue statements or omissions
or alleged omissions to state therein a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, in each case made or, to the extent contemplated by the Loan
Documents, to be made, by or on behalf of any Loan Party or any of its
Affiliates, (x) in the representations and warranties of the Loan Parties
contained in the Loan Documents, (b) information provided by or on behalf of any
Loan Party or any of their Affiliates for use in connection with any
syndication, assignment or participation of any portion of Loan, the Note, the
other Loan Documents or the Obligations, or in connection with any Loan Document
or any transactions contemplated hereby or thereby, (c) the transactions
contemplated by the Loan Documents (including Lender's agreements to make the
Loan or the use or intended use of the proceeds thereof) or any enforcement of
any of the Loan Documents (including any sale of, collection from, or other
realization upon any of the Collateral or the enforcement of the Affiliate
Guaranty), (d) any actions taken or omitted to be taken by an Indemnified Person
with the consent of Borrower or in conformity with the instructions of Borrower,
or (e) any other transactions contemplated by the Loan Documents, and Borrower
will reimburse each Indemnified Person for all reasonable costs and expenses,
including fees and disbursements of both outside and internal counsel for such
Indemnified Person, as they are incurred, in connection with investigating,
preparing for, or defending any formal or informal claim, action, suit,
investigation, inquiry or other proceeding, whether or not in connection with
pending or threatening litigation, caused by or arising out of or in connection
with the foregoing, whether or not such Indemnified Person is named as a party
thereto and whether or not any liability results therefrom. Borrower shall not,
however, be responsible for any losses, claims, damages, liabilities, costs or
expenses pursuant to clauses (c), (d) or (e) of the preceding sentence which
have resulted from the bad faith or recklessness of such Indemnified Person as
determined by a final judgment of a court of competent jurisdiction. Neither
Lender nor any other Indemnified Person shall have any liability (whether direct
or indirect, in contract or tort or otherwise) to any of the Loan Parties and
their respective Affiliates or any director, officer, employee, agent or
representative of any of the foregoing, or any other person, for or in
connection with the foregoing, or otherwise arising out of or in any way
relating to the matters contemplated by the Loan Documents or any commitment to
lend except for such liability for losses, claims, damages, liabilities, costs
or expenses of any Indemnified Person pursuant to clauses (c), (d) or (e) of the
preceding sentence to the extent they are determined to have resulted from the
bad faith, recklessness or negligence of such Indemnified Person as determined
by a final judgment of a court of competent jurisdiction and in no event shall
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73
Lender or any other Indemnified Person be responsible for or liable to any of
the Loan Parties or any of their respective Affiliates or any other Person for
consequential, punitive or exemplary damages. Borrower further agrees that the
Loan Parties shall not, nor shall they permit their respective Subsidiaries to,
without the prior written consent of Lender, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit,
investigation, inquiry or other proceeding in respect of which indemnification
is actually sought hereunder unless such settlement, compromise or consent
includes an unconditional release of Lender and each other Indemnified Person
hereunder from all liability arising out of such claim, action, suit,
investigation, inquiry or other proceeding.
8.3.2 Procedure. If any action, suit, investigation, inquiry or other
proceeding is commenced, as to which an Indemnified Person proposes to demand
indemnification hereunder, such Indemnified Person shall notify Borrower with
reasonable promptness; provided, however, that any failure by such Indemnified
Person to notify Borrower shall not relieve Borrower or any of its Affiliates
from its obligations hereunder (except to the extent that Borrower or such
Affiliate is prejudiced by such failure to so promptly notify). Borrower shall
be entitled to assume the defense of any such action, suit, investigation,
inquiry or other proceeding, including the employment of counsel reasonably
satisfactory to the Indemnified Person and the payment of all reasonable fees
and expenses incurred in connection therewith. The Indemnified Person shall have
the right to employ separate counsel in any such action, suit, investigation,
inquiry or other proceeding, or to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the Indemnified
Person unless (i) Borrower has agreed to pay such fees and expenses, (ii)
Borrower shall have failed promptly upon written demand therefor to assume the
defense of such action, suit, investigation, inquiry or other proceeding, and
employ counsel reasonably satisfactory to the Indemnified Person in connection
therewith or (iii) such Indemnified Person shall have been advised by counsel
that there exists actual or potential conflicting interests between Borrower and
such Indemnified Person, including situations in which one or more legal
defenses may be available to such Indemnified Person that are different from or
additional to those available to Borrower, in which case, if such Indemnified
Person notifies Borrower in writing that it elects to employ separate counsel at
the expense of Borrower, Borrower shall not have the right to assume the defense
of such action or proceeding on behalf of such Indemnified Person; provided,
however, that Borrower shall not, in connection with any one such action, suit,
investigation, inquiry or other proceeding or separate but substantially similar
or related actions, suits, investigations, inquiries or other proceedings in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
at any time for all such Indemnified Persons (in addition to local counsel),
which firm shall be designated in writing by Lender.
8.3.3 Contribution. In order to provide for just and equitable contribution
with respect to matters subject to this Section, if a claim for indemnification
is made pursuant to these provisions but is found in a final judgment by a court
of competent jurisdiction (not subject to further appeal) that such
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indemnification is not available for any reason, even though the express
provisions hereof provide for indemnification in such case, or is insufficient
to hold an Indemnified Party harmless, then the Loan Parties, on the one hand,
and Lender, on the other hand, shall contribute to such loss, claim, damage,
liability, cost or expense for which such indemnification or reimbursement is
held unavailable or is insufficient in such proportion as is appropriate to
reflect the relative benefits to the Loan Parties and their respective
Affiliates, on the one hand, and Lender, on the other hand, in connection with
the transactions described in the Loan Documents and Formation Documents, as
well as any other equitable considerations. The parties agree that for the
purpose of this Section, the relative benefits to the Loan Parties and their
respective Affiliates, on the one hand, and Lender, on the other hand, shall be
deemed to be in the same proportion as the proceeds received or to be received
by the Loan Parties from the Loan Documents bears to the fees paid or to be paid
to Lender under the Loan Documents. Notwithstanding the foregoing, Lender shall
not be required to contribute under this Section any amount in excess of the
amount of fees actually received by Lender in respect of the Loan Documents.
Borrower and Lender agree that it would not be just and equitable if
contribution pursuant to this Section were determined by pro rata allocation or
by any other method which does not take into account the equitable
considerations referred to in this Section.
8.3.4 No Limitation. The foregoing rights to indemnity and contribution
shall be in addition to any rights that any Indemnified Person and Loan Parties
may have at common law or otherwise and shall remain in full force and effect
following the completion or any termination of the transactions contemplated by
the Loan Documents. Lender shall not be responsible or liable to any person for
consequential damages which may be alleged as a result of the Loan Documents or
any transaction contemplated thereby.
8.3.5 Independence of Indemnity; No Enlargement. Borrower acknowledges and
agrees that the provisions of this Section are separate from and in addition to
the provisions contained in the Environmental Indemnity.
8.4 No Joint Venture or Partnership
Lender and the Loan Parties acknowledge and agree that the relationship
created hereunder or under the other Loan Documents is that of creditor/debtor.
Each of the Loan Parties acknowledges and agrees that (a) they are knowledgeable
and sophisticated business practitioners with particular expertise and broad
experience in the area of real estate acquisition, ownership, operation, finance
and management; (b) Lender does not owe, and expressly disclaims, any fiduciary
or special obligation to the Loan Parties or any of their partners, agents, or
representatives; and (c) nothing contained in this Agreement or any other Loan
Document shall affect the relationship between Lender and Borrower as that of
creditor/debtor hereunder and under the other Loan Documents. Nothing herein or
therein is intended to create a joint venture, partnership, tenancy-in-common,
or joint tenancy relationship between any Loan Party or Subsidiary thereof and
Lender nor to grant Lender any interest in the Mortgaged Property other than
that of mortgagee or lender.
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8.5 Amendments and Waivers.
No amendment, modification, termination or waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by any Loan
Party therefrom, shall in any event be effective without the written concurrence
of Lender. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on Borrower in any case shall entitle Borrower to any other or further
notice or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section shall be
binding upon each Lender at the time outstanding, each future Lender and, if
signed by Borrower, on Borrower.
8.6 Independence of Covenants.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
8.7 Notices.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served or sent by telefacsimile or courier service and shall
be deemed to have been given when delivered in person or by courier service or
upon receipt of the telefacsimile, as the case may be. For the purposes hereof,
the address of each party hereto shall be as set forth under such party's name
on the signature pages hereof or (i) as to Borrower and Lender, such other
address as shall be designated by such Person in a written notice delivered to
the other parties hereto and (ii) as to each other party, such other address as
shall be designated by such party in a written notice delivered to Lender.
8.8 Survival of Representations, Warranties and Agreements.
8.8.1 Except as provided below, all representations, warranties and
agreements made herein shall survive the execution and delivery of this
Agreement and the making of the Loan and shall terminate upon indefeasible
payment in full of the Obligations, notwithstanding anything in this Agreement
or implied by law to the contrary.
8.8.2 Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Borrower set forth in Sections 4.11 and 8.3 shall
survive the payment in full of the other Obligations and the termination of this
Agreement.
8.9 Obligations Several; Independent Nature of the Lenders' Rights.
The obligations of the Lenders hereunder are several and no Lender shall be
responsible for the obligations of any other Lender hereunder. Nothing contained
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herein or in any other Loan Document, and no action taken by the Lenders
pursuant hereto or thereto, shall be deemed to constitute the Lenders as a
partnership, an association, a Joint Venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
8.10 Remedies of Borrower
In the event that a claim or adjudication is made that Lender or any Lender
or their respective agents has acted unreasonably or unreasonably delayed acting
in any case where by law or under this Agreement, the Note, the Mortgages or the
other Loan Documents, Lender, such Lender or such agent, as the case may be, has
an obligation to act reasonably or promptly, Borrower agrees that none of Lender
or such agents, shall be liable for any monetary damages, and Borrower's sole
remedies shall be limited to commencing an action seeking injunctive relief or
declaratory judgement. The parties hereto agree that any action or proceeding to
determine whether Lender or any Lender has acted reasonably shall be determined
by an action seeking declaratory judgment.
8.11 Maximum Amount.
8.11.1 It is the intention of Borrower and the Lenders to conform strictly
to the usury and similar laws relating to interest from time to time in force,
and all agreements between the Loan Parties and their respective Subsidiaries
and the Lenders, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid in the aggregate to the Lenders as interest
(whether or not designated as interest, and including any amount otherwise
designated but deemed to constitute interest by a court of competent
jurisdiction) hereunder or under the other Loan Documents or in any other
agreement given to secure the indebtedness of Borrower to the Lenders, or in any
other document evidencing, securing or pertaining to the indebtedness evidenced
hereby, exceed the maximum amount permissible under applicable usury or such
other laws (the "Maximum Amount"). If under any circumstances whatsoever
fulfillment of any provision hereof, or any of the other Loan Documents, at the
time performance of such provision shall be due, shall involve exceeding the
Maximum Amount, then, ipso facto, the obligation to be fulfilled shall be
reduced to the Maximum Amount. For the purposes of calculating the actual amount
of interest paid and/or payable hereunder in respect of laws pertaining to usury
or such other laws, all sums paid or agreed to be paid to the holder hereof for
the use, forbearance or detention of the indebtedness of Borrower evidenced
hereby, outstanding from time to time shall, to the extent permitted by
Applicable Law, be amortized, pro-rated, allocated and spread from the date of
disbursement of the proceeds of the Note until payment in full of all of such
indebtedness, so that the actual rate of interest on account of such
indebtedness is uniform through the term hereof. The terms and provisions of
this Section shall control and supersede every other provision of all agreements
between Borrower or any endorser of the Note and the Lenders.
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8.11.2 If under any circumstances any Lender shall ever receive an amount
which would exceed the Maximum Amount, such amount shall be deemed a payment in
reduction of the principal amount of the Loan and shall be treated as a
voluntary prepayment and shall be so applied in accordance with this Agreement
hereof or if such excessive interest exceeds the unpaid balance of the Loan and
any other indebtedness of Borrower in favor of such Lender, the excess shall be
deemed to have been a payment made by mistake and shall be refunded to Borrower.
8.12 Marshalling; Payments Set Aside.
Lender shall not be under any obligation to marshal any assets in favor of
Borrower, any other Loan Party or any other party or against or in payment of
any or all of the Obligations. To the extent that Borrower or any other Loan
Party makes a payment or payments to the Lenders or Lender (or to Lender for the
benefit of the Lenders), or Lender or the Lenders enforce any security interests
or Lender exercises its rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, any other state or federal law, common law or any equitable
cause of action, then, to the extent of such recovery, the obligation or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor or related thereto, shall be revived and continued in full force and
effect as if such payment or payments had not been made or such enforcement or
setoff had not occurred.
8.13 Agreement to Contribute.
8.13.1 Right to Contribution. Except as otherwise expressly provided
herein, the Loan Parties are jointly and severally liable for the Obligations.
However, the benefits of this Agreement and the Loan will not necessarily
benefit each Loan Party to the same degree. In order to provide for just and
equitable contribution among the Loan Parties, if any payment is made by a Loan
Party (the "Funding Loan Party") in discharging more than its Proportionate
Share (hereinafter defined) of the Obligations, the Funding Loan Party shall be
entitled to a contribution from each other Loan Party (each a "Contributing Loan
Party") for all payments, damages and expenses incurred by the Funding Loan
Party in discharging the Obligations, as set forth in this Section 8.13.
8.13.2 Benefit Amount. For purposes of this Agreement, the "Benefit Amount"
of a Loan Party as of any date of determination shall be the net value of the
benefits to such Loan Party from the Loan. The "Proportionate Share" of a
Borrower shall be the ratio of (x) the Benefit Amount of such Borrower to (y)
the total amount of all Benefit Amounts of all Borrowers. The "Proportionate
Share" of FCOLP and FCO shall be the ratio of (x) the Benefit Amount of FCOLP or
FCO, as the case may be, to (y) the total amount of all Benefit Amounts of FCOLP
and FCO.
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8.13.3 Term Loan Contributions. Each Contributing Loan Party shall be
liable to a Funding Loan Party in an aggregate amount equal to its Proportionate
Share multiplied by the amount of Obligations paid by such Funding Loan Party.
The liability of the Non-Recourse Parties to a Funding Party under this Section
shall be limited as set forth in Section 7.3.
8.13.4 Subordination. The rights and claims of any Funding Loan Party
against any Contributing Loan Party under this Agreement shall be subject and
subordinate to the prior payment in cash in full of the Obligations, and no Loan
Party shall make or receive any contribution payment from any other Loan party
until such payment in cash in full of the Obligations.
8.13.5 Preservation of Rights. This Agreement shall not limit any right
which any Borrower may have against any other Person which is not a party
hereto.
8.13.6 Subsidiary Payment. The amount of contribution payable under this
Agreement by any Loan Party shall be reduced by the amount of any contribution
paid hereunder by a Subsidiary of such Loan Party.
8.13.7 Asset of Funding Loan Party. The parties hereto acknowledge that the
right to contribution hereunder shall constitute an asset of the party to which
such contribution is owing.
8.13.8 Date of Determination. Any amount payable as contribution under this
Contribution Agreement shall be determined as of the date on which the related
payment is made by a Funding Loan Party.
8.14 Suretyship Waivers.
8.14.1 Each Loan Party agrees that its obligations hereunder are
irrevocable, absolute, independent and unconditional and shall not be affected
by any circumstance which constitutes a legal or equitable discharge of a
guarantor or surety other than payment and performance in full of the
Obligations. In furtherance of the foregoing and without limiting the generality
thereof, each Loan Party agrees as follows: (i) Lender may from time to time,
without notice or demand and without affecting the validity or enforceability of
this Agreement or giving rise to any limitation, impairment or discharge of such
Loan Party's liability hereunder, (A) renew, extend, accelerate or otherwise
change the time, place, manner or terms of payment of the Obligations, (B)
settle, compromise, release or discharge, or accept or refuse any offer of
performance with respect to, or substitutions for, the Obligations or any
agreement relating thereto and/or subordinate the payment of the same to the
payment of any other obligations, (C) request and accept guaranties of the
Obligations and take and hold other security for the payment of the Obligations,
(D) release, exchange, compromise, subordinate or modify, with or without
consideration, any other security for payment of the Obligations, any guaranties
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of the Obligations, or any other obligation of any Person with respect to the
Obligations, (E) enforce and apply any other security now or hereafter held by
or for the benefit of Lender in respect of the Obligations and direct the order
or manner of sale thereof, or exercise any other right or remedy that Lender may
have against any such security, as Lenders in their discretion may determine
consistent with this Agreement and any other Loan Document including foreclosure
on any such security pursuant to one or more judicial or nonjudicial sales,
whether or not every aspect of any such sale is commercially reasonable, and (F)
exercise any other rights available to Lender under the Loan Documents, at law
or in equity; and (ii) this Agreement and the obligations of each Loan Party
hereunder shall be valid and enforceable and shall not be subject to any
limitation, impairment or discharge for any reason (other than payment in full
of the Obligations), including without limitation the occurrence of any of the
following, whether or not any Loan Party shall have had notice or knowledge of
any of them: (A) any failure to assert or enforce or agreement not to assert or
enforce, or the stay or enjoining, by order of court, by operation of law or
otherwise, of the exercise or enforcement of, any claim or demand or any right,
power or remedy with respect to the Obligations or any agreement relating
thereto, or with respect to any guaranty of or other security for the payment of
the Obligations, (B) any waiver, amendment or modification of, or any consent to
departure from, any of the terms or provisions (including without limitation
provisions relating to events of default) of the Credit Agreement, any of the
other Loan Documents or any agreement or instrument executed pursuant thereto,
or of any guaranty or other security for the Obligations, (C) the Obligations,
or any agreement relating thereto, at any time being found to be illegal,
invalid or unenforceable in any respect, (D) the application of payments
received from any source to the payment of indebtedness other than the
Obligations, even though Lender might have elected to apply such payment to any
part or all of the Obligations, (E) any failure to perfect or continue
perfection of a security interest in any other collateral which secures any of
the Obligations, (F) any defenses, set-offs or counterclaims which any other
Loan Party may allege or assert against any Lender in respect of the
Obligations, including but not limited to failure of consideration, breach of
warranty, payment, statute of frauds, statute of limitations, accord and
satisfaction and usury, and (G) any other act or thing or omission, or delay to
do any other act or thing, which may or might in any manner or to any extent
vary the risk of any Loan Party as an obligor in respect of the Obligations.
8.14.2 Each Loan Party waives, for the benefit of Lender: (i) any right to
require Lender, as a condition of payment or performance by such Loan Party, to
(A) proceed against any other Loan Party, any guarantor of the Obligations or
any other Person, (B) proceed against or exhaust any other security held from
any other Loan Party, any guarantor of the Obligations or any other Person, (C)
proceed against or have resort to any balance of any deposit account or credit
on the books of Lender in favor of any Loan Party or any other Person, or (D)
pursue any other remedy in the power of Lender whatsoever; (ii) any defense
arising by reason of the incapacity, lack of authority or any disability or
other defense of any Loan Party including, without limitation, any defense based
on or arising out of the lack of validity or the unenforceability of the
Obligations or any agreement or instrument relating thereto or by reason of the
cessation of the liability of any Loan Party from any cause other than payment
in full of the Obligations; (iii) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal; (iv)
any defense based upon Lender's errors or omissions in the administration of the
Obligations, except behavior which amounts to bad faith; (v) (A) any principles
or provisions of law, statutory or otherwise, which are or might be in conflict
with the terms of this Agreement and any legal or equitable discharge of such
Loan Party's obligations hereunder, (B) the benefit of any statute of
limitations affecting such Loan Party's liability hereunder or the enforcement
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hereof, (C) any rights to set-offs, recoupments and counterclaims, and (D)
promptness, diligence and any requirement that Lender protect, secure, perfect
or insure any other security interest or lien or any property subject thereto;
(vi) notices, demands, presentments, protests, notices of protest, notices of
dishonor and notices of any action or inaction, notices of default under the
Credit Agreement or any agreement or instrument related thereto, notices of any
renewal, extension or modification of the Obligations or any agreement related
thereto, notices of any extension of credit to Loan Parties and notices of any
of the matters referred to in the preceding paragraph and any right to consent
to any thereof; and (vii) to the fullest extent permitted by law, any defenses
or benefits that may be derived from or afforded by law which limit the
liability of or exonerate guarantors or sureties, or which may conflict with the
terms of this Agreement.
8.14.3 Until the Obligations shall have been paid in full, each Loan Party
shall withhold exercise of (i) any claim, right or remedy, direct or indirect,
that such Loan Party now has or may hereafter have against any other Loan Party
or any of its assets in connection with this Agreement or the performance by any
other Loan Party of its obligations hereunder, in each case whether such claim,
right or remedy arises in equity, under contract, by statute, under common law
or otherwise and including without limitation (A) any right of subrogation,
reimbursement or indemnification that any Loan Party now has or may hereafter
have against any other Loan Party, (B) any right to enforce, or to participate
in, any claim, right or remedy that Lender now has or may hereafter have against
any Loan Party, and (C) any benefit of, and any right to participate in, any
other collateral or security now or hereafter held by Lender, and (ii) any right
of contribution any Loan Party may have against any guarantor of the
Obligations. Each Loan Party further agrees that, to the extent the waiver of
its rights of subrogation, reimbursement, indemnification and contribution as
set forth herein is found by a court of competent jurisdiction to be void or
voidable for any reason, any rights of subrogation, reimbursement or
indemnification such Loan Party may have against any other Loan Party or against
any other collateral or security, and any rights of contribution such Loan Party
may have against any such guarantor, shall be junior and subordinate to any
rights Lender may have against any Loan Party, to all right, title and interest
Lender may have in any such other collateral or security, and to any right
Lender may have against any such guarantor.
8.15 Severability.
In case any provision in or obligation under this Agreement or any Note or
any other Loan Document shall be invalid, illegal or unenforceable in any
jurisdiction or under any set of circumstances, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction or under any other set of circumstances,
shall not in any way be affected or impaired thereby.
<PAGE>
81
8.16 Headings.
Section and Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
8.17 Applicable Law.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
UNDER THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT
AS SET FORTH BELOW. THE PARTIES ACKNOWLEDGE THAT NEW YORK HAS A SUBSTANTIAL
RELATIONSHIP TO THE UNDERLYING TRANSACTIONS RELATED TO THIS AGREEMENT AND TO THE
PARTIES INVOLVED.
NOTWITHSTANDING THE FOREGOING, THE PARTIES AGREE THAT:
(A) THE LAW OF THE STATE IN WHICH EACH PROPERTY IS SITUATED (THE "SITUS STATE")
GOVERNS PROCEDURES FOR ENFORCING, IN THE SITUS STATE, PROVISIONAL REMEDIES
DIRECTLY RELATED TO SUCH REAL PROPERTY, INCLUDING, WITHOUT LIMITATION,
APPOINTMENT OF A RECEIVER.
(B) THE LAW OF THE SITUS STATE ALSO APPLIES TO THE EXTENT, BUT ONLY TO THE
EXTENT, NECESSARY TO CREATE, TO PERFECT, AND TO FORECLOSE THE SECURITY
INTERESTS AND LIENS CREATED BY THE LOAN DOCUMENTS, BUT DOES NOT APPLY TO
ANY OBLIGATION SECURED THEREBY. THOSE OBLIGATIONS ARE GOVERNED BY NEW YORK
LAW. IN FURTHERANCE OF THE FOREGOING, THE PARTIES STIPULATE AND AGREE THAT
LENDER MAY ENFORCE IN ACCORDANCE WITH NEW YORK LAW ANY OR ALL OF ITS RIGHTS
TO SUE ANY LOAN PARTY OTHER THAN THE NON-RECOURSE PARTIES TO COLLECT ANY
INDEBTEDNESS, AND TO OBTAIN A DEFICIENCY JUDGMENT AGAINST BORROWER IN THE
SITUS STATE, NEW YORK, OR ELSEWHERE, BEFORE OR AFTER FORECLOSURE, AND IF
LENDER OBTAINS A DEFICIENCY JUDGMENT OUTSIDE THE SITUS STATE, IT MAY
ENFORCE THAT JUDGMENT IN THE SITUS STATE, AS WELL AS IN OTHER STATES.
8.18 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lender. Neither the Loan Parties'
rights or obligations hereunder nor any interest therein may be assigned or
delegated by the Loan Parties.
<PAGE>
82
8.19 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE LOAN PARTIES ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, EACH LOAN PARTY, FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO BORROWER AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
8.7;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDER RETAINS THE RIGHT TO SERVE PROCESS AND PURSUE
ITS REMEDIES IN ANY OTHER MANNER PERMITTED BY LAW AND TO BRING PROCEEDINGS
AGAINST THE LOAN PARTIES IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
8.20 Waiver of Jury Trial
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY DEALINGS BETWEEN THEM
RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER
<PAGE>
83
RELATIONSHIP THAT IS BEING ESTABLISHED HEREBY AND THEREBY. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each party hereto acknowledges that this waiver
is a material inducement to enter into a business relationship, that each has
already relied on this waiver in entering into this Agreement and the other Loan
Documents, and that each will continue to rely on this waiver in their related
future dealings. Each party hereto further warrants and represents that it has
reviewed this waiver with its legal counsel and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN MADE HEREUNDER. In the event
of litigation, this Agreement may be filed as a written consent to a trial by
the court.
8.21 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents or supplements hereto
or in connection herewith may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by Borrower and
Lender of written or telephonic notification of such execution and authorization
of delivery thereof.
8.22 Material Inducement
Each Loan Party acknowledges that its representations, warranties,
covenants and agreements contained in this Agreement and the other Loan
Documents, including its covenants and agreements to pay Release Prices, are
material inducements to the Lenders to enter into this Agreement and to make the
Loan, that the Lenders have already relied on such representations, warranties,
covenants and agreements in entering into this Agreement and agreeing to make
the Loan (notwithstanding any investigation heretofore or hereafter made by or
on behalf of the Lenders), and that the Lenders will continue to rely on such
representations, warranties, covenants and agreements in their future dealings
with the Loan Parties. The Loan Parties understand that the Release Prices are
<PAGE>
84
designed to afford to the Lenders a predictable return on their investment in
the Loan, that the Release Prices will be required to be paid by Borrower in
connection with voluntary and involuntary prepayments of the principal amount of
the Loan to the extent provided in this Agreement and that the payment of the
Release Prices in connection with involuntary prepayments beyond Borrower's
control (such as upon the occurrence of a casualty or a Taking) may be required.
Borrower agrees that its representations, warranties, covenants and agreements
contained in this Agreement and the other Loan Documents, including its
covenants and agreements to pay Release Prices, are reasonable in purpose and
scope. Borrower represents and warrants that it has reviewed this Agreement and
the other Loan Documents with its legal counsel and that it knowingly and
voluntarily is entering into this Agreement and the other Loan Documents
following consultation with legal counsel.
8.23 Entire Agreement
This Agreement is evidence of the indebtedness incurred pursuant hereto
and, taken together with all of the other Loan Documents and all certificates
and other documents delivered to Lender hereunder and thereunder, embodies the
entire agreement and supersedes all prior agreements, written and oral, relating
to the subject matter hereof. This Agreement and the other Loan Documents
constitute the final expression of the agreement between the parties hereto and
this Agreement and such other Loan Document may not be contradicted by evidence
of any alleged oral agreement.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
LOAN PARTIES:
ROYALE INVESTMENTS, INC., a Minnesota
corporation
By:
-----------------------------------
John Parsinen
Vice President and Secretary
Notice Address: The Shidler Group
One Logan Square, Suite 1105
Philadelphia, Pennsylvania 19103
FCO, L.P., a Delaware limited partnership
By: Royale Investments, Inc., a Minnesota
corporation, its sole general partner
By:
-----------------------------------
John Parsinen
Vice President and Secretary
Notice Address: The Shidler Group
One Logan Square, Suite 1105
Philadelphia, Pennsylvania 19103
FCO HOLDINGS, INC., a Delaware corporation
By:
-----------------------------------
John Parsinen
Vice President and Secretary
S-1
<PAGE>
Notice Address: The Shidler Group
One Logan Square, Suite 1105
Philadelphia, Pennsylvania 19103
BLUE BELL INVESTMENT COMPANY, L.P.,
a Delaware limited partnership
By: Strategic Facility Investors, Inc., a Delaware
corporation, its sole general partner
By:
--------------------------------
Clay W. Hamlin, III,
President
Notice Address: The Shidler Group
One Logan Square, Suite 1105
Philadelphia, Pennsylvania 19103
SOUTH BRUNSWICK INVESTORS, L.P.,
a Delaware limited partnership
By: South Brunswick Investment Company, L.L.C.,
a New Jersey limited liability company,
its authorized general partner
By:
--------------------------------
Clay W. Hamlin, III,
Manager
Notice Address: The Shidler Group
One Logan Square, Suite 1105
Philadelphia, Pennsylvania 19103
S-2
<PAGE>
COMCOURT INVESTORS, L.P.,
a Delaware limited partnership
By: ComCourt Investment Corporation,
a Pennsylvania corporation,
its sole general partner
By:
--------------------------------
Clay W. Hamlin, III,
President
Notice Address: The Shidler Group
One Logan Square, Suite 1105
Philadelphia, Pennsylvania 19103
6385 FLANK DRIVE, L.P.,
a Pennsylvania limited partnership
By: Gateway Shannon Development Corporation,
a Pennsylvania corporation,
its sole general partner
By:
--------------------------------
Clay W. Hamlin, III,
President
Notice Address: The Shidler Group
One Logan Square, Suite 1105
Philadelphia, Pennsylvania 19103
LENDER:
BANKERS TRUST COMPANY,
as Lender
S-3
<PAGE>
By:
------------------------------
Name:
Title:
Notice Address:
Bankers Trust Company
130 Liberty Street, 25th Floor
New York, New York 10006
Attention: Bruce P. Habig
S-4
<PAGE>
APPENDIX I
DEFINED TERMS
"Adjusted Consolidated Net Worth" means, as at any date of determination,
the Consolidated Total Assets plus accumulated depreciation, less Consolidated
Total Liabilities and intangible assets, on a consolidated basis determined in
conformity with GAAP.
"Adjusted Eurodollar Rate" means, for any Interest Rate Determination Date
the rate per annum obtained by dividing (i) the Eurodollar offered rate for
deposits with maturities comparable to the Interest Period for which such
Adjusted Eurodollar Rate will apply as of approximately 10:00 A.M. (New York
time) on such Interest Rate Determination Date as reasonably determined by
Lender, by (ii) a percentage equal to 100% minus the stated maximum rate of all
reserve requirements (including any marginal, emergency, supplemental, special
or other reserves) applicable on such Interest Rate Determination Date to any
member bank of the Federal Reserve System in respect of "Eurocurrency
liabilities" as defined in Regulation D (or any successor category of
liabilities under Regulation D).
"Affiliate" means with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"Agreement" means this Senior Secured Credit Agreement dated as of the date
first written above, as it may be amended, restated, supplemented or otherwise
modified from time to time.
"Anniversary" means each anniversary of the Closing Date.
"ALTA" means the American Land Title Association or any successor thereto.
"Applicable Laws" means, collectively, all statutes, laws, rules,
regulations, ordinances, orders, decisions, writs, judgments, decrees and
injunctions of Governmental Authorities (including Environmental Laws) affecting
Borrower, any Loan Party or the Collateral or any part thereof (including the
acquisition, development, construction, Renovation, occupancy, use, improvement,
alteration, management, operation, maintenance, repair or restoration thereof),
whether now or hereafter enacted and in force, and all Authorizations relating
thereto, and all covenants, conditions and restrictions contained in any
instruments, either of record or known to Borrower or any other Loan Party, at
any time in force affecting any Property or any part thereof, including any such
covenants, conditions and restrictions which may (i) require improvements,
repairs or alterations in or to such Property
<PAGE>
or any part thereof or (ii) in any way limit the use and enjoyment thereof; for
purposes of usury, Applicable Laws means the law of the State of New York
applicable to maximum rates of interest.
"Appraisal" means, with respect to any Property, a written appraisal of
such Property prepared by an Appraiser in form, content and methodology
satisfactory to Lender and in compliance with all applicable legal and
regulatory requirements (including the requirements of Title XI of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. " 3331, et
seq., as amended (or any successor statute thereto), and the regulations
promulgated thereunder).
"Appraiser" means Krauser, Welsh & Cirz, Inc., or any other independent
appraiser selected by Lender and reasonably acceptable to Borrower who meets all
regulatory requirements applicable to Lender, who is a member of the Appraisal
Institute with a national practice and who has at least 10 years experience with
real estate of the same type as the Property to be appraised.
"Appraised Value" means, as of any date of determination and with respect
to any Property, the lesser of (i) the appraised value of such Property, in each
case as most recently determined by an Appraisal approved by Lender on or before
such date of determination and (ii) the principal amount secured by the Mortgage
encumbering such Property, as expressly set forth in such Mortgage.
"Approved Environmental Consultant" means any of the environmental
consultants who prepared the environmental audits delivered to Lender pursuant
to Section 3.1.12 or any other qualified, independent environmental consultant
reasonably acceptable to Lender.
"Assignment of Rents and Leases" means each Assignment of Rents and Leases
executed and acknowledged by the Loan Party party thereto in favor of Lender for
the benefit of Lender substantially in the form delivered on or before the
Closing Date pursuant to this Agreement, as any such Assignment of Rents and
Leases may be amended, restated, supplemented, consolidated, extended or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"Authorization" means any authorization, approval, franchise, license,
variance, land use entitlement, sewer and waste water discharge permit, storm
water discharge permit, air pollution authorization to operate, certificate of
occupancy, municipal water and sewer connection permit, and any like or similar
permit now or hereafter required for the construction or renovation of any
Improvements located on any Property or for the use, occupancy or operation of
any Property and all amendments, modifications, supplements and addenda thereto.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
<PAGE>
"Base Rate" means, at any time, the rate per annum that is the higher of
(i) the Prime Rate or (ii) the sum of (a) the Federal Funds Effective Rate plus
(b) 1/2 of 1%. "Blue Bell" has the meaning set forth for it in the first
paragraph of this Agreement.
"Blue Bell Properties" means the Properties owned by Blue Bell as of
the Closing Date.
"Borrower" means, collectively, Blue Bell, South Brunswick, Comcourt and
Flank Drive, or, with respect to any Property, the Loan Party owning such
Property.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close.
"Capital Expenditures" means, with respect to any Property, for any period
and as of any date of determination, all expenditures for capital improvements,
determined in accordance with GAAP.
"Capital Stock" means, with respect to any Person, any capital stock,
partnership, limited liability company or joint venture interests of such Person
and shares, interests, participations or other ownership interests (however
designated) of any Person and any rights (other than debt securities convertible
into any of the foregoing), warrants or options to purchase any of the
foregoing.
"Cash" means money, currency or a credit balance in a Deposit Account.
"Cash Available for Debt Service" means, for any period and with respect to
any Property, the excess, if any, of the Property Income of such Property for
such period over the Property Expenses of such Property for such period.
"Cash Equivalents" means, as of any date of determination, (i) marketable
securities (a) issued or directly and unconditionally guaranteed as to interest
and principal by the United States of America or (b) issued by any agency of the
United States of America the obligations of which are backed by the full faith
and credit of the United States of America, in each case maturing within one
year after such date; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof, in each case maturing within one year after
such date and having, at the time of the acquisition thereof, the highest rating
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) Eurodollar deposits due within one year of any commercial banks
whose outstanding senior long-term debt securities are rated either A- or higher
by S&P or A-3 or higher by Moody's; (v) repurchase obligations with a term of
not more than 7 days for underlying securities of the types described in clause
(i) of this paragraph with any bank
<PAGE>
meeting the qualifications specified in clause (vi) of this paragraph; (vi)
certificates of deposit or bankers' acceptances maturing within one year after
such date and issued or accepted by Lender or by any commercial bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia that (a) is at least "adequately capitalized" (as defined
in the regulations of its primary Federal banking regulator) and (b) has Tier 1
capital (as defined in such regulations) of not less than $100,000,000; and
(vii) shares of any money market mutual fund that (a) has at least 95% of its
assets invested continuously in the types of investments referred to in clauses
(i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c)
has the highest rating obtainable from either S&P or Moody's.
"Cash Proceeds" means, with respect to any sale or other disposition or
refinancing of any Property, Cash payments received from such sale or
disposition or refinancing.
"Closing Date" means the first date on which all of the conditions set
forth in Article 3 are satisfied.
"Collateral" means, collectively, all property (including, without
limitation, Capital Stock, Partnership Interests and promissory notes and other
evidences of Indebtedness), whether real, personal or mixed, tangible or
intangible, owned or to be owned or leased or to be leased or otherwise held or
to be held by Borrower or in which Borrower has or shall acquire an interest, to
the extent of Borrower's interest therein, now or hereafter granted, assigned,
transferred, mortgaged or pledged to Lender or in which a Lien is granted to
Lender to secure all or any part of the Obligations, whether pursuant to the
Security Documents or otherwise, including, without limitation, the Properties,
the Leases and Rents and any and all proceeds of the foregoing, and the
Partnership Interests pledged pursuant to the Pledges.
"Comcourt" has the meaning set forth for it in the first paragraph of this
Agreement.
"Compliance Certificate" means a certificate delivered to Lender by
Borrower pursuant to Section 5.1.5 substantially in the form attached as Exhibit
D hereto.
"Condemnation Proceeds" means all compensation, awards, damages, rights of
action and proceeds awarded to any Loan Party by reason of any Taking.
"Consolidated Adjusted Net Income" means, for any period, for Royale and
its Subsidiaries, the sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Interest Expense, (iii) provisions for taxes based on
income, (iv) total depreciation expense, (v) general and administrative expense,
(vi) total amortization expense, (vii) gains or losses on the sales of
Properties and other properties, debt restructurings or other extraordinary
items, and (viii) minority interest; less (a) a management fee equal to 3% of
total revenue, (b) a recurring capital expense reserve equal to $0.58 per net
rentable square foot for all Properties other than the Blue Bell Properties, (x)
unconsolidated partnerships, joint ventures and similar entities, and (y)
straight line rents, all of the foregoing as determined on a consolidated basis
for Royale and its Subsidiaries in conformity with GAAP.
<PAGE>
"Consolidated Current Assets" means, at any date of determination, total
assets of Royale and its Subsidiaries on a consolidated basis which may properly
be classified as current assets in conformity with GAAP.
"Consolidated Current Liabilities" means, as at any date of determination,
the total liabilities of Royale and its Subsidiaries on a consolidated basis
which may properly be classified as current liabilities in conformity with GAAP.
"Consolidated Funds from Operations" means net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization (specifically including
the amortization of deferred financial costs), and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect funds from
operations on the same basis. Consolidated Funds from Operations does not
represent cash generated from operating activities in accordance with GAAP and,
therefore, should not be considered as a substitute for net income as a measure
of results of operations or cash flow from operations calculated in accordance
with GAAP as a measure of liquidity.
"Consolidated Interest Expense" means, for any period, total interest
expense (including that portion attributable to capital leases in accordance
with GAAP and capitalized interest) of Royale and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of Royale and
its Subsidiaries, such interest to be calculated for purposes of this Agreement
against the outstanding principal amounts such Indebtedness as follows:
(a) for the Loan, during the Initial Term, using a constant based on the
then-current 10-year Treasury Rate as of the Closing Date, plus 2.50%,
instead of the interest rates actually applicable thereto;
(b) for the Loan, during any Extension Term, using a constant based on the
then-current 10-year Treasury Rate as of the commencement of such Extension
Term, plus 2.50%, instead of the interest rates actually applicable
thereto;
(c) for all other fixed rate Indebtedness, at the interest rates actually
applicable thereto; and
(d) for all other variable rate Indebtedness, using a constant based on the
then-current 10-year Treasury Rate as of the commencement of the
then-current Extension Term, plus 2.50%, instead of the interest rates
actually applicable thereto.
"Consolidated Net Income" means, for any period, the net income (or loss)
of Royale and its Subsidiaries on a consolidated basis for such period taken as
a single accounting period determined in conformity with GAAP; provided that
there shall be excluded (i) the income (or loss) of any Person (other than a
Subsidiary of Royale) in which any other Person (other than Royale or any of its
Subsidiaries) has a joint interest, except to the extent of the
<PAGE>
amount of dividends or other distributions actually paid to Royale or any of its
Subsidiaries by such Person during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Royale or is merged
into or consolidated with Royale or any of its Subsidiaries or that Person's
assets are acquired by Royale or any of its Subsidiaries, (iii) the income of
any Subsidiary of Royale to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that income is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary, (iv) any after-tax gains or losses attributable
to any disposition of any assets of Company or its Subsidiaries or returned
surplus assets of any Pension Plan, and (v) (to the extent not included in
clauses (i) through (iv) above) any net extraordinary gains or net non-cash
extraordinary losses.
"Consolidated Total Assets" means, at any date of determination, total
assets of Royale and its Subsidiaries on a consolidated basis which may properly
be classified as assets in conformity with GAAP. The value of Consolidated Total
Assets shall be determined (i) prior to the first Anniversary by reference to
Appraisals received by Lender prior to the Closing, with respect to the assets
appraised therein; (ii) otherwise by capitalizing the Adjusted Net Income using
a 9.5% capitalization rate; and (iii) for any asset owned less than one year, by
using the aggregate purchase price for such asset.
"Consolidated Total Indebtedness" means, as of any date of determination,
the sum of the following, without duplication: (i) all Indebtedness of Royale
and its Subsidiaries, determined on a consolidated basis; plus (ii) all
Contingent Obligations of Royale and its Subsidiaries; plus (iii) all Guaranties
of Royale or any of its Subsidiaries; plus (iv) all letter of credit
reimbursement agreement obligations.
"Consolidated Total Liabilities" means, as at any date of determination,
the sum of each of the following, without duplication, for Royale and its
Subsidiaries, on a consolidated basis, (i) all indebtedness for borrowed money,
(ii) any obligation owed for all or any part of the deferred purchase price of
assets or services which would be shown to be a liability (or on the liability
side of the balance sheet) in accordance with GAAP, (iii) all guaranteed
obligations including any guaranteed indebtedness of consolidated or
non-consolidated joint ventures, (iv) the maximum amount of all letters of
credit issued or acceptance facilities established for the account of Royale or
any of its Subsidiaries, and, without duplication, all drafts drawn thereunder
(other than letters of credit offset by a like amount of Cash or Government
Securities held in escrow to secure such letter of credit and draws thereunder),
(v) all capitalized lease obligations, (vi) all indebtedness (A) of another
Person secured by any Lien on any property or asset owned or held by Royale or
any of its Subsidiaries regardless of whether the indebtedness secured thereby
shall have been assumed by that Royale or such Subsidiary or is nonrecourse to
the credit of Royale or such Subsidiary, and (B) of any consolidated Affiliate
of Royale whether or not such indebtedness has been assumed by Royale, and (vii)
indebtedness created or arising under any conditional sale or title retention
agreement, and (viii) withdrawal liability or insufficiency under ERISA or under
any qualified plan or related trust; but including within the foregoing, trade
payables and accrued expenses arising or incurred in the ordinary course of
business.
<PAGE>
"Contingent Obligation" means, with respect to any Person, as of any date
of determination and without duplication, any direct or indirect liability,
contingent or otherwise, of that Person which has not been (or to the extent
that it has not been) paid or otherwise discharged with respect to the
following: (i) any Guaranty; (ii) any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings; or (iii) performance, surety and similar bonds in respect of any
Restoration, Renovation or other design, construction, restoration, renovation,
expansion or repair of any Improvements, in each case with respect to any
Property. The amount of any Contingent Obligation, as of any date of
determination, shall be equal to the least of (x) the amount of the obligation
so Guaranteed or that otherwise may be required to be paid, (y) the amount to
which such Contingent Obligation is expressly limited and (z) except with
respect to a Guaranty of Indebtedness, the maximum exposure under such
Contingent Obligation as reasonably calculated by Borrower and approved by
Lender in its sole discretion.
"Contractual Obligation" means, with respect to any Person, any provision
of any Security issued by that Person or of any material indenture, mortgage,
deed of trust, deed to secure debt, contract, lease, purchase order,
undertaking, agreement or other instrument to which that Person is a party or by
which it or any of its properties is bound or to which it or any of its
properties is subject.
"Controlling Principal" means Jay Shidler and/or Clay W. Hamlin III, or any
trusts established by such Persons for the benefit of their immediate family
members if such Person is the trustee of such trusts and able to effectively
control the property and business of the trusts.
"Credit Bid" means a bid in a foreclosure sale pursuant to a Mortgage made
by Lender consisting of all or a portion of the outstanding amount of the
Obligations.
"Deposit Account" means a demand, time, savings, passbook or like account
with a bank, savings and loan association, credit union or like organization,
other than an account evidenced, by a negotiable certificate of deposit.
"Distribution" means any payment, distribution, dividend or other transfer
of money or other assets to a Loan Party's constituent partners, shareholders or
beneficiaries, other than (i) a payment on account of bona fide intercompany
indebtedness permitted under this Agreement, (ii) an Investment, or (iii) any
other payment expressly permitted under this Agreement.
"Dollars" and the sign "$" mean the lawful money of the United States of
America.
"Eligible Assignee" means (i) (a) a commercial bank organized under the
laws of the United States of America or any state thereof; (b) a savings and
loan association or savings bank organized under the laws of the United States
of America or any state thereof; (c) a commercial bank organized under the laws
of any other country or a political subdivision
<PAGE>
thereof; provided, however, that (x) such bank is acting through a branch or
agency located in the United States of America or (y) such bank is organized
under the laws of a country that is a member of the Organization for Economic
Cooperation and Development or a political subdivision of such country; and (d)
any other entity which is an "accredited investor" (as defined in Regulation D
under the Securities Act) which extends credit or buys loans as one of its
principal businesses including, but not limited to, insurance companies,
investment banks, mutual funds and lease financing companies, in each case
(under clauses (a) through (d) above) that is reasonably acceptable to Lender;
and (ii) Lender and any Affiliate of Lender; and provided further, however, that
(A) each Eligible Assignee under clauses (i)(a) through (i)(c) above shall have
Tier 1 capital (as defined in the regulations of its primary Federal banking
regulator) of not less than $100,000,000, and (B) an entity shall not be an
Eligible Assignee if on the date of assignment of an interest in the Loan to
such entity Borrower would become liable for additional costs or withholdings by
virtue of such assignment under Sections 2.10.8 and 2.10.9.
"Employee Benefit Plan" means any "employee benefit plan" as defined in
Section 3(3) of ERISA which (i) is currently maintained or contributed to by
Royale or any of its Subsidiaries, or (ii) was at any time within the preceding
five years maintained or contributed to by Royale or any of its Subsidiaries, to
the extent any of them could reasonably be expected to incur liability with
respect to such employee benefit plan.
"Engineer" means each reputable engineer approved by Lender licensed as
such in the state in which the applicable Property in question is located.
"Engineering Report" means, with respect to any Property, a written report
prepared by an Engineer, describing and analyzing the physical condition of the
Improvements of such Property, describing any necessary or recommended repairs,
estimating the cost of such repairs and otherwise in form and substance
reasonably satisfactory to Lender.
"Environmental Claim" means any accusation, allegation, notice of
violation, claim, demand, abatement order or other order or direction
(conditional or otherwise) by any Governmental Authority or any other Person for
any damage, including personal injury (including sickness, disease or death),
tangible or intangible property damage, contribution, indemnity, indirect or
consequential damages, damage to the environment, damage to natural resources,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, in each case relating to, resulting
from or in connection with Hazardous Materials and relating to Royale, any of
its Subsidiaries (including any Person who was a Subsidiary prior to the Closing
Date) or any Property.
"Environmental Indemnity" means the Environmental Indemnity executed and
delivered by Borrower on or before the Closing Date, in favor of Lender,
substantially in the form delivered on or before the Closing Date pursuant to
this Agreement, as such agreement may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
<PAGE>
"Environmental Laws" means all statutes, laws, ordinances, orders, rules,
regulations, written guidelines, writs, judgments, decrees or injunctions and
the like relating to (i) environmental matters, including those relating to
fines, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the Hazardous Release or
threatened Hazardous Release of Hazardous Materials, (ii) the generation, use,
storage, transportation or disposal of Hazardous Materials, or (iii)
occupational safety and health, industrial hygiene, or the protection of human,
plant or animal health or welfare, in any manner applicable to any Loan Party or
any of its Subsidiaries or any of their properties, including the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. " 9601, et
seq.), the Hazardous Materials Transportation Act (49 U.S.C. " 1801, et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. " 6901, et seq.), the
Federal Water Pollution Control Act (33 U.S.C. " 1251, et seq.), the Clean Air
Act (42 U.S.C. " 7401, et seq.), the Toxic Substances Control Act (15 U.S.C. "
2601, et seq.), the Solid Waste Disposal Act (42 U.S.C. " 6901, et seq.), as
amended by the Resource Conservation and Recovery Act (42 U.S.C. " 6901, et
seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. " 136,
et seq.), the Occupational Safety and Health Act (29 U.S.C. " 651, et seq.) and
the Emergency Planning and Community Right-to-Know Act (42 U.S.C. " 11001, et
seq.), each as amended or supplemented, and rules and regulations, policies and
guidelines promulgated pursuant thereto and any analogous future or present
local, state and federal statutes and rules and regulations, policies and
guidelines promulgated pursuant thereto, each as in effect as of the date of
determination.
"Equity Proceeds" means the cash proceeds (net of underwriting discounts
and commissions and other reasonable costs associated therewith) from the
issuance of any equity Securities of Royale or any of its Subsidiaries,
including additional issuances of Common Stock or preferred stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
"Eurodollar Rate" means the sum of the Adjusted Eurodollar Rate plus the
Eurodollar Rate Margin.
"Eurodollar Rate Margin" means, as of any date of determination, a per
annum rate equal to 2.50%.
"Event of Default" means each of the events set forth in Article 7.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
"Excusable Delay" means a delay due to acts of God, governmental
restrictions, enemy actions, war, civil commotion, fire, casualty, strikes,
shortages of supplies or labor, work stoppages or other causes beyond the
reasonable control of Royale or any of its
<PAGE>
Affiliates, but lack of funds shall not be deemed a cause beyond the reasonable
control of Royale or any of its Affiliates.
"Extension Term" means the term of the Loan during the period from the
third Anniversary to (i) the fourth Anniversary if the extension option
contained in Section 2.4.1 is exercised, or (ii) the fifth Anniversary if the
extension option contained in Section 2.4.2 is exercised.
"Extraordinary Receipts" means the proceeds to Royale or any of its
Subsidiaries from such items as (i) sales, exchanges or other dispositions of
the assets of Royale or any of its Subsidiaries other than in the ordinary
course of business thereof, (ii) damage recoveries and casualty insurance
proceeds (including Condemnation Proceeds or Insurance Proceeds but other than
the proceeds of business interruption insurance or rental loss insurance), (iii)
income derived from Securities and other property acquired for investment except
to the extent such Securities represent Cash Equivalents, (iv) condemnation
awards or sales in lieu of and under the threat of condemnation (other than
awards or other payments for any Taking for temporary use), (v) debt or equity
financing or refinancing, and (vi) all other amounts of any nature paid to
Royale or any of its Subsidiaries not arising out of the ordinary course of
business thereof.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Lender from three Federal funds brokers of recognized
standing selected by Lender.
"Fee Letter" means, collectively, all letter agreements between all or some
of the Loan Parties and Lender or Lender's Affiliates regarding fees payable in
connection with the Loan.
"FCOLP" has the meaning set forth for it in the first paragraph of this
Agreement.
"Fixed Rate" means a fixed interest rate of seven and one-half percent per
annum.
"Flank Drive" has the meaning set forth for it in the first paragraph of
this Agreement.
"Formation" means, collectively, the transactions contemplated in the
Formation Agreement pursuant to which FCOLP and FCO are being formed and all or
substantially all Partnership Interests in each Borrower are being acquired by
FCOLP and FCO, as described in Recital C hereto, other than the contribution of
the "Retained Interests" (as defined in the Formation Agreement).
<PAGE>
"Formation Agreement" means the Formation/Contribution Agreement dated as
of September 7, 1997, among Royale, Borrower and certain other parties
identified on the signature pages thereof, as such agreement may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof and hereof.
"Formation Documents" means, collectively, the Formation Agreement and each
limited partnership agreement, articles of incorporation, bylaws, shareholders'
agreement and other agreement or document giving effect to the formation of a
Loan Party pursuant to the Formation Agreement.
"Funding Date" means the date of the funding of the Loan.
"Funds from Operations" means net income (loss) (computed in accordance
with GAAP) available for distribution to shareholders or partners, excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization (specifically including the amortization of
deferred financial costs) and minority interests, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect funds from
operations on the same basis.
"GAAP" means, subject to the limitations on the application thereof set
forth in Section 1.2, generally accepted accounting principles set forth in
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, in each case as the same are
applicable to the circumstances as of the date of determination.
"Governmental Authority" means any nation or government, any state, county,
municipality or other political subdivision or branch thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any agency, board, central
bank, commission, court, department or officer thereof.
"Guaranty" means, with respect to any Person, any obligation, contingent or
otherwise, of that Person which has not been (or to the extent that it has not
been) paid or otherwise discharged with respect to any Indebtedness, lease,
dividend or other obligation of any other Person if the primary purpose or
intent thereof by the Person incurring the Guaranty is to provide assurance to
the obligee of such obligation that such obligation of another will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof. Guaranties shall include, without limitation,
(i) the direct or indirect guaranty, endorsement (otherwise than for collection
or deposit in the ordinary course of business), co-making, discounting with
recourse or sale with recourse by such Person of the obligation of another, (ii)
the obligation to make take-or-pay or similar payments if required regardless of
non-performance by any other party or parties to an agreement, and (iii) any
liability of such
<PAGE>
Person for the obligation of another Person through any agreement (contingent or
otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or
any security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise) or (b) to maintain the solvency or any balance sheet
item, level of income or financial condition of another Person if, in the case
of any agreement described under subclauses (a) or (b) of this sentence, the
primary purpose or intent thereof is as described in the preceding sentence. The
amount of any Guaranty shall be equal to the least of (x) the amount of the
obligation so guaranteed or otherwise supported, (y) the amount to which such
Guaranty is specifically limited and (z) except with respect to a Guaranty of
Indebtedness, the maximum exposure under such Guaranty as reasonably calculated
by Borrower and approved by Lender in its sole discretion. Guaranties shall not
include (i) any of the foregoing obligations to the extent that the same
constitutes Indebtedness under the definition thereof or is a Guaranty with
respect thereto and (2) Guaranties of any liability or obligation of Borrower in
respect of which Borrower are permitted to become liable pursuant to this
Agreement. The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Materials" means (i) any chemical, material or substance at any
time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste",
"restricted hazardous waste", "infectious waste", "toxic substances",
"pollutant", "contaminant" or any other formulations intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP
toxicity" or "EP toxicity" or words of similar import under any applicable
Environmental Laws, (ii) any oil, petroleum, petroleum fraction or petroleum
derived substance, (iii) any drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil, natural
gas or geothermal resources, (iv) any flammable substances or explosives, (v)
any radioactive materials, (vi) asbestos in any form, (vii) radon, (viii) urea
formaldehyde foam insulation, (ix) electrical equipment which contains any oil
or dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million, (x) pesticides, and (xi) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
Governmental Authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any Persons in the vicinity of the
Properties; provided, however, that Hazardous Materials shall not include any
materials in a non-hazardous form such as asphalt contained in road-surfacing
materials or hazardous materials customarily used in the operation of office
properties and properly stored and maintained.
"Hazardous Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including the abandonment or disposal of any barrels, containers or
other receptacles containing any Hazardous Materials), or into or out of any
Property, including the movement of any Hazardous Material through the air,
soil, surface water, groundwater or property.
<PAGE>
"Impositions" means all real property taxes and assessments, of any kind or
nature whatsoever, including, without limitation, vault, water and sewer rents,
rates, charges and assessments, levies, permits, inspection and license fees and
other governmental, quasi-governmental or nongovernmental levies or assessments
such as maintenance charges, owner association dues or charges or fees resulting
from covenants, conditions and restrictions affecting the Properties,
assessments resulting from inclusion of any Property in any taxing district or
municipal or other special district, any of which are assessed or imposed upon
the Property, or become due and payable, and which create or may create a Lien
upon the Property, or any part thereof. In the event that any penalty, interest
or cost for nonpayment of any Imposition becomes due and payable, such penalty,
interest or cost shall be included within the term "Impositions".
"Improvements" means all buildings, structures, fixtures, tenant
improvements and other improvements of every kind and description now or
hereafter located in or on or attached to any Land, including all building
materials, water, sanitary and storm sewers, drainage, electricity, steam, gas,
telephone and other utility facilities, parking areas, roads, driveways, walks
and other site improvements; and all additions and betterments thereto and all
renewals, substitutions and replacements thereof.
"Indebtedness" means, with respect to any Person and without duplication,
to the extent required to be shown on a balance sheet prepared in conformity
with GAAP, (i) all indebtedness for money borrowed by that Person, (ii) that
portion of obligations with respect to Capital Leases that is classified as a
liability on a balance sheet in conformity with GAAP, (iii) notes payable and
drafts accepted representing extensions of credit whether or not representing
obligations for borrowed money, (iv) all obligations owed for all or any part of
the deferred purchase price of assets or services purchased by that Person (a)
due more than six months from the date of incurrence of the obligation in
respect thereof, (b) evidenced by a note or similar written instrument or (c)
owed in respect of real property purchased by such Person or any of its
Subsidiaries, (v) all indebtedness secured by any Lien on any property or asset
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the credit
of that Person, (vi) obligations under Interest Rate Agreements, (vii) that
portion of any other obligation of that Person (other than reservation and
similar deposits from customers and working capital deposits from owners
received and held in the ordinary course of business) that is classified as a
liability on a balance sheet in conformity with GAAP, which obligation is (a)
due more than six months from the date of incurrence thereof or (b) evidenced by
a note or similar written instrument, (viii) trade payables of such Person and
its Subsidiaries that by their terms are more than 90 days delinquent (unless
being contested diligently and in good faith) and (ix) all Guaranties by that
Person.
"Indemnified Person" has the meaning assigned to that term in Section
8.3.1.
"Initial Term" means the term of the Loan commencing on the Closing Date
and ending on the third Anniversary.
<PAGE>
"Insurance Proceeds" means all insurance proceeds, damages, claims and
rights of action and the right thereto under any insurance policies relating to
any portion of any Property.
"Insurance Requirements" means all terms of any insurance policy required
hereunder covering or applicable to any Property or any part thereof, all
requirements of the issuer of any such policy, and all orders, rules,
regulations and other requirements of the National Board of Fire Underwriters
(or any other body exercising similar functions) applicable to or affecting any
Property or any part thereof or any use of any Property or any portion thereof.
"Interest Period" has the meaning assigned to that term in Section
2.10.1.2.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement designed to protect Royale or any of its Subsidiaries against
fluctuations in interest rates.
"Interest Rate Determination Date" means each date for calculating the
Adjusted Eurodollar Rate for purposes of determining the interest rate in
respect of an Interest Period. The Interest Rate Determination Date shall be the
second Business Day prior to the first day of the related Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person or any of its Subsidiaries,
as of any date of determination and without duplication:
(i) any direct or indirect purchase or other acquisition (whether or
not for consideration) by such investing Person or Subsidiary of, or of a
beneficial interest in, any Securities of any other Person;
(ii) any direct or indirect redemption, retirement, purchase or other
acquisition for value by such investing Person or Subsidiary from any other
Person (other than (a) a Person with respect to which such investing Person
or Subsidiary is a Wholly Owned Subsidiary or (b) any other Wholly Owned
Subsidiary of the Person referred to in the preceding clause (a); provided
that, in the case of Royale and its Subsidiaries, such other Wholly Owned
Subsidiary is a Loan Party and has Guaranteed the Obligations), of any
equity Securities of such investing Person or Subsidiary;
(iii) any direct or indirect loan, advance (other than (a) advances to
officers, employees, consultants, accountants, attorneys and other advisors
and members of the Board of Directors of any Person for moving,
entertainment and travel expenses, drawing accounts and similar
expenditures in each case incurred in the ordinary course of business and
(b) advances to officers of any Person for other purposes in an amount
<PAGE>
not greater than $100,000 individually or $330,000 in the aggregate, in
each case at any time outstanding) or capital contribution to any other
Person, including all indebtedness and accounts receivable from that other
Person that are not current assets or did not arise from sales to that
other Person in the ordinary course of business; (iv) any payment to any
other Person for the purpose of or otherwise in connection with securing,
extending, renewing or modifying any Management Agreement;
(v) any commitment or obligation to make any investment described in
clauses (i) through (iv) above; and
(vi) any liability that is recourse to such investing Person or
Subsidiary or secured by any asset of such investing Person or Subsidiary
and that arises, by law, contract, ownership of Securities or otherwise,
directly or indirectly, as the result of or otherwise in connection with
the origination, continuation or termination of any investment described in
clauses (i) through (iv) above.
The amount of any Investment, as of any date of determination, shall be equal to
(y) with respect to an Investment referred to in clause (i) or (ii) of the
preceding sentence, the remainder of (1) the sum of original cost of such
Investment plus the cost of all additions thereto as of such date of
determination, minus (2) the aggregate amount paid to such Person or Subsidiary
as a return of such Investment; provided, that (A) the calculation of the amount
referred to in this clause (2) shall exclude all fees and other amounts (or the
portion thereof) that shall constitute interest, dividends or other amounts in
respect of the return on such Investment, as determined in accordance with GAAP,
and (B) the calculation of the amount referred to in this clause (i) shall
exclude, all adjustments for increases or decreases in value, and write-ups,
write-downs or write-offs with respect to such Investment, and (z) with respect
to an Investment referred to in clause (iv) or (v) of the preceding sentence,
the maximum aggregate liability for which such investing Person or Subsidiary
may become liable, by law, contract, ownership of Securities or otherwise, with
respect to such Investment as of such date of determination.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership, limited liability company or
other legal form, which joint venture, partnership or other similar arrangement
may be a Subsidiary of any Person, including of Borrower.
"Land" means, with respect to each Property, the land described on Exhibit
A to the Mortgage encumbering such Property, together with all strips and gores
within or adjoining such property, all estate, right, title, interest, claim or
demand whatsoever of any Loan Party or any of its Subsidiaries in the streets,
roads, sidewalks, alleys, and ways adjacent thereto (whether or not vacated and
whether public or private and whether open or proposed), all vaults or chutes
adjoining such land, all of the tenements, hereditaments, easements, reciprocal
easement agreements, rights pursuant to any trackage agreement, rights to the
use of common drive entries, rights-of-way and other rights, privileges and
appurtenances thereunto belonging
<PAGE>
or in any way pertaining thereto, all reversions, remainders, dower and right of
dower, curtesy and right of curtesy, all of the air space and right to use said
air space above such property, all transferable development rights arising
therefrom or transferred thereto, all water and water rights (whether riparian,
appropriative or otherwise, and whether or not appurtenant) and shares of stock
evidencing the same, all mineral, mining, gravel, geothermal, oil, gas,
hydrocarbon substances and other rights to produce or share in the production of
anything related to such property, all drainage, crop, timber, agricultural, and
horticultural rights with respect to such property, and all other appurtenances
appurtenant to such property, including without limitation, any now or hereafter
belonging or in any way appertaining thereto, and all claims or demands of
Borrower either at law or in equity, in possession or expectancy, now or
hereafter acquired, of, in or to the same.
"Lease" means each of the leases, licenses, concession agreements,
franchise agreements and other occupancy agreements and other agreements
demising, leasing or granting rights of possession or use or, to the extent of
the interest therein of any Loan Party or any of its Subsidiaries, any sublease,
subsublease, underletting or sublicense, which now or hereafter may affect any
Property or any part thereof or interest therein, including any agreement
relating to a loan or other advance of funds made in connection with any such
lease, license, concession agreement, franchise or other occupancy agreement and
such sublease, subsublease, underletting or sublicense, and every amendment,
restatement, supplement, consolidation or other modification of or other
agreement relating to or entered into in connection with such lease, license,
concession agreement, franchise or other occupancy agreement and such sublease,
subsublease, underletting or sublicense, and every security deposit, letter of
credit, trust agreement, guaranty or similar security for the performance and
observance of the covenants, conditions and agreements to be performed and
observed by the other party thereto, and any guaranties of leasing commissions.
"Lender" has the meaning set forth in the first paragraph of this
Agreement, together with its successors and permitted assigns.
"Lien" means any lien (including any lien or security title granted
pursuant to any mortgage, deed of trust or deed to secure debt), pledge,
hypothecation, assignment, security interest, charge, levy, attachment,
restraint or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing.
"Loan" means the loan made by Lender to Borrower pursuant to this
Agreement.
"Loan Amount" means One Hundred Million Dollars ($100,000,000).
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents, the Environmental Indemnity and the Fee Letter.
"Loan Parties" has the meaning set forth for it in the first paragraph of
this
<PAGE>
Agreement.
"Loan Parties' Accountants" means Coopers & Lybrand, LLP, or another "big
six" accounting firm.
"Major Lease" means each Lease demising 15% or more of the net rentable
square feet of any Property.
"Management Agreements" means, collectively, all management agreements with
respect to the Properties.
"Management Fees" means, collectively, all management fees and all other
fees or charges payable to a manager for the management and operation of a
Property, the related land and the improvements thereof.
"Margin Stock" has the meaning assigned to that term in Regulation U of the
Board of Governors of the Federal Reserve System as in effect from time to time.
"Material Adverse Effect" means a material adverse effect upon the
business, operations or condition (financial or otherwise) of the Loan Parties
or Controlling Principals, taken as a whole, which causes or is reasonably
likely to cause the material impairment of the ability of the Loan Parties to
perform, or of Lender to enforce, any Obligations of the Loan Parties.
"Material Lease" means each Lease demising fifteen percent or more of the
net rentable area of the Improvements with respect to any Property.
"Maturity Date" means the earlier of (i) the third Anniversary of the
Closing Date, as such date may be extended pursuant to Section 2.4 to a date not
later than the fifth Anniversary of the Closing Date, and (ii) the date as of
which the Obligations shall have become immediately due and payable pursuant to
Section 7.1.
"Maximum Amount" has the meaning set forth in Section 8.11.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
business thereof.
"Mortgage" means each Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing executed and acknowledged by the Loan Party thereto in favor of
Lender for the benefit of the Lender, substantially in the form delivered on or
before the Closing Date pursuant to this Agreement, as each such agreement may
be amended, restated, supplemented, consolidated, extended or otherwise modified
from time to time in accordance with the terms thereof and hereof.
<PAGE>
"Mortgaged Property" has the meaning assigned to that term in the
Mortgages.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, any gain (but not
loss), together with any related provision for Taxes on such gain (but not
loss), realized in connection with any Asset Sale, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss).
"Net Insurance/Condemnation Proceeds" means all Insurance Proceeds on
account of damage or destruction to any Property or all Condemnation Proceeds in
respect of any Property, minus the reasonable cost, if any, of such recovery and
of paying out such proceeds, including reasonable attorneys' fees and costs
allocable to inspecting the Work and the plans and specifications therefor.
"Net Sales Price" means, with respect to any sale or other permanent
disposition by a Loan Party or any of its Subsidiaries of a Property, or other
asset, the gross purchase price therefor less the sum of (i) the amounts applied
to the payment of Indebtedness or other obligations secured by a Lien on such
Property or other asset (other than the Obligations), (ii) the reasonable
out-of-pocket costs and expenses incurred by such Loan Party or Subsidiary
directly in connection with such sale or other permanent disposition, including
income taxes paid or estimated to be actually payable as a result thereof, after
taking into account any available tax credits or deductions and any tax sharing
arrangements (provided that the amount of income taxes so estimated to be
actually payable shall be approved by Lender, which approval shall not be
unreasonably withheld, conditioned or delayed), and (iii) closing adjustments
contemplated and reserved.
"Non-Recourse Parties" means Royale; FCO; South Brunswick Investment
Company, L.L.C., a New Jersey limited liability company, and Tiger South
Brunswick L.L.C., the current general partners of South Brunswick; Strategic
Facility Investors, Inc., a Delaware corporation, the current sole general
partner of Blue Bell; ComCourt Investment Corporation, a Pennsylvania
corporation, the current sole general partner of Comcourt; and Gateway Shannon
Development Corporation, a Pennsylvania corporation, the current sole general
partner of Flank Drive.
"Note" means the promissory note of FCOLP, FCO and Borrower issued on the
Closing Date, in the Loan Amount, substantially in the form of Exhibit B annexed
hereto, as it may be amended, restated, supplemented or otherwise modified from
time to time in accordance with the terms thereof and hereof.
"Notice of Interest Period Selection" means a notice pursuant to which
Borrower shall elect an Interest Period, which shall be in a form reasonably
acceptable to Lender.
<PAGE>
"NYSE" means the New York Stock Exchange.
"Obligations" means, collectively, all obligations of every nature of the
Loan Parties from time to time owed to Lender under or in respect of the Loan
and the Loan Documents, whether for principal, interest, fees, commissions,
expenses, indemnification or otherwise.
"Officers' Certificate" means, as applied to any corporation, a certificate
executed on behalf of such corporation by a person specified in this Agreement
for such purpose or, in the absence of such specification, by its chairman of
the board (if an officer) or its president or one of its vice presidents and by
its chief financial officer or its treasurer; provided, however, that every
Officers' Certificate with respect to the compliance with a condition precedent
to the making of the Loan hereunder shall include (i) a statement that each
officer making or giving such Officers' Certificate has read such condition and
any definitions or other provisions contained in this Agreement relating
thereto, (ii) a statement that, in the opinion of each signer, he has made or
has caused to be made such examination or investigation as is reasonably
necessary to enable him to express an informed opinion as to whether or not such
condition has been complied with, and (iii) a statement as to whether, in the
opinion of each signer, such condition has been complied with.
"Operating Lease" means, with respect to any Person, a lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is not accounted for as a capital lease on the balance
sheet of that Person.
"Outstanding Loan Amount" means at any time the portion of the Loan Amount
which is then outstanding.
"Participant" means Lender and any Person to whom Lender assigns any
interest in the Loan.
"Partnership Interests" means the general and/or limited partnership
interests (including all partnership units, all rights under partnership
agreements and all rights to distributions) in a Partnership Loan Party.
"Partnership Loan Party" means any Loan Party that is a general or limited
partnership.
"Payment Date" means the last day of each calendar month, beginning
November 30, 1997, or, if such day is not a Business Day, the next succeeding
Business Day.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor
thereto).
"Permitted Encumbrances" means the Liens shown in the Title Policy for each
Property and, with respect to any Property, the following types of Liens:
<PAGE>
(ii) Liens for real property Taxes, assessments, vault charges, water
and sewer rents, and other Impositions the payment of which is not, at the
time, required pursuant to this Agreement;
(iii) the Leases in existence on the Closing Date and any Leases
entered into thereafter in accordance with the requirements of the Loan
Documents;
(iv) covenants, easements, rights-of-way, restrictions, minor
encroachments or other similar encumbrances incurred in the ordinary course
of business of Borrower that do not make such Property unmarketable or
interfere in any material respect, and which could not reasonably be
expected to interfere in any material respect, with the use of the Property
for office building purposes or with the ordinary conduct of the business
of Borrower;
(v) Liens securing the Obligations;
(vi) Liens that are bonded and thereby released of record in a manner
reasonably satisfactory to Lender; and
(vii) until the sixtieth day following the Closing Date, and solely
with respect to the Blue Bell Properties, the existing mortgage liens in
favor of Blue Bell Funding, Inc., which was assigned to United States Trust
Company of New York.
"Person" means, collectively, natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, Joint Ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and Governmental Authorities.
"Pledges" means, collectively, the pledge by Royale of all of its interest
in FCOLP and FCO, the pledge by FCOLP of all of its interest in each Borrower,
and the pledge by FCO of all of its interest in each Borrower.
"Potential Event of Default" means a condition or event that, after notice
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within the applicable grace period.
"Prime Rate" means the rate that Lender announces from time to time as its
prime lending rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Lender may make commercial loans or other
loans at rates of interest at, above or below the Prime Rate.
"Principal Reduction Amount" means the difference between (i) the
Outstanding Loan Amount on the third Anniversary, and (ii) sixty percent of the
then-current Appraised Value of all of the Properties then securing the Loan.
<PAGE>
"Property" or "Properties" means each of the properties described on
Exhibit A hereto.
"Property Adjusted Net Income" means, for any period, for each Property,
the sum of the amounts for such period of (i) Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) provisions for taxes based on income, (iv)
total depreciation expense, (v) general and administrative expense, (vi) total
amortization expense, (vii) gains or losses on the sales of portions of the
Property, debt restructurings or other extraordinary items, and (vii) minority
interest; less (a) a management fee equal to 3% of total revenue, (b) a
recurring capital expense reserve equal to $0.58 per net rentable square foot
for all Properties other than the Blue Bell Properties, adjusted for (x)
unconsolidated partnerships, joint ventures and similar entities, and (y)
straight line rents, all in conformity with GAAP.
"Property Amount" means the amount set forth for a Property on Exhibit C
hereto.
"Property Expenses" means, for any period and as calculated on the accrual
basis of accounting, all expenses incurred by Borrower during such period in
connection with the ownership, management, operation, cleaning, maintenance,
repair, restoration or leasing of any Property, including:
(ii) costs and expenses in connection with the cleaning, ordinary
repair, maintenance, decoration and painting of such Property;
(iii) wages, benefits, payroll taxes, uniforms, insurance costs and
all other related expenses for employees of Borrower engaged in the
management, operation, cleaning, maintenance, repair, restoration and
leasing of such Property and service to Tenants of such Property;
(iv) a management fee equal to 5% of Minimum Rents with respect to
such Property and during such period (which amount shall be treated as a
Property Expense whether or not any such management fee was in fact paid);
(v) the cost of all services and utilities with respect to such
Property, including all electricity, oil, gas, water, steam, heating,
ventilation, air conditioning, elevator, escalator, landscaping, model
furniture, answering services, telephone maintenance, credit check, snow
removal, trash removal and pest extermination costs and expenses and any
other energy, utility or similar item and overtime services with respect to
such Property;
(vi) the cost of building and cleaning supplies with respect to such
Property;
(vii) insurance premiums required in order to maintain the insurance
policies required under this Agreement or any other Loan Documents with
<PAGE>
respect to such Property (which, in the case of any policies covering
multiple Properties, shall be allocated among the Properties pro rata in
proportion to the insured value of the Properties covered by such
policies);
(viii) legal, accounting, engineering, brokerage and other fees,
commissions, costs and expenses incurred by or on behalf of Borrower in
connection with the ownership, management, operation, maintenance, repair,
restoration, and leasing of such Property, including collection costs and
expenses;
(ix) costs and expenses of security and security systems provided to
and/or installed and maintained with respect to such Property;
(x) real property taxes and assessments with respect to such Property
and the costs incurred in seeking to reduce such taxes or the assessed
value of such Property;
(xi) advertising, marketing and promotional costs and expenses with
respect to such Property;
(xii) costs and expenses incurred in connection with lock changes,
storage, moving, appraisals, surveys, valuations, title insurance,
inspections, market surveys, permits (and the application or registration
therefor), and licenses (and the application or registration therefor) with
respect to such Property;
(xiii) maintenance and cleaning costs related to tenant amenities with
respect to such Property;
(xiv) Capital Expenditures with respect to such Property accrued
during such period or, if higher, a reserve for Capital Expenditures equal
to $0.15 per square foot of floor area contained in the Improvements
located at such Property during such period;
(xv) tenant improvements and leasing commissions with respect to such
Property accrued during such period;
(xvi) contributions by Borrower to any merchants' association, whether
as dues or advertising costs or otherwise with respect to such Property;
(xvii) costs incurred pursuant to any reciprocal easement agreement
affecting such Property;
(xviii) refunds Borrower must pay to Tenants and other occupants of
such Property;
<PAGE>
(xix) reserves for such expenses and in such amounts as Borrower and
Lender may reasonably agree upon; and
(xx) all other ongoing expenses which in accordance with the accrual
basis of accounting should be included in Borrower's annual financial
statements as operating expenses of such Property.
Notwithstanding the foregoing, Property Expenses shall not include
depreciation and amortization or interest, principal or Release Prices, if any,
due under the Loan or the Note or otherwise in connection with the Obligations.
"Property Gross Revenue" means, for any period, all Receipts resulting from
the operation of such Property, including, without limitation, Rents or other
payments from Tenants, licensees and concessionaires and business interruption
and rental loss insurance payments; provided that Property Gross Revenue shall
exclude (i) excise, sales, use, occupancy and similar taxes and charges
collected from Tenants and remitted to Governmental Authorities, (ii) gratuities
collected for employees of such Property, (iii) security deposits and other
advance deposits, until and unless same are forfeited to Borrower or applied for
the purpose for which collected, (iv) federal, state or municipal excise, sales,
use or similar taxes collected directly from Tenants or included as part of the
sales price of any goods or services, and (v) Extraordinary Receipts.
"Property Income" means, for any period and as calculated on the accrual
basis of accounting, all regular income received during such period from the
operation of and with respect to any Property, as follows:
(i) all Rents, other income, forfeited security deposits and other
benefits which Borrower now or hereafter receives from or in connection
with such Property, including all income received from Tenants, licensees,
concessionaires and other Persons for the occupancy of space at such
Property and/or for the rendering of services to such Property's Tenants
and other occupants, but excluding, however, any moneys refunded to
Borrower as a result of tax certiorari or similar proceedings if and only
to the extent such refund relates to Impositions assessed for a fiscal
period ending prior to the Closing Date;
(ii) rent and business interruption insurance proceeds with respect to
such Property; and
(iii) all other amounts with respect to such Property which are
included in Borrower's annual accrual basis financial statements as
operating income.
Notwithstanding the foregoing, Property Income with respect to such
Property shall not include (a) any Condemnation Proceeds or Insurance
Proceeds (other than
<PAGE>
Insurance Proceeds with respect to rental loss or business interruption
insurance or Condemnation Proceeds with respect to a temporary Taking with
respect to such Property and, in either such case, only to the extent
allocable to the applicable period), (b) any proceeds resulting from the
sale, exchange, transfer, financing or refinancing of all or any portion of
such Property, (c) any Rent attributable to a Lease affecting such Property
prior to the date on which the actual payment of Rent is required to
commence thereunder (provided that such prepaid Rent shall be included in
Property Income at such time as the obligation to pay such rent accrues),
(d) any item of income otherwise includable in Property Income with respect
to such Property but paid directly by any Tenant to a Person other than
Borrower, or (e) security deposits received from Tenants with respect to
such Property until forfeited.
"Property Hedged Interest Expense" means, for any period, total interest
expense (including that portion attributable to capital leases in accordance
with GAAP and capitalized interest) of Borrower on a consolidated basis with
respect to all outstanding Indebtedness of Borrower and its Subsidiaries that is
subject to Interest Rate Agreements, such interest to be calculated for purposes
of this Agreement against the outstanding principal amounts of such Indebtedness
using the highest possible interest rate (including credit spread) payable by
Borrower pursuant to such Interest Rate Agreements.
"Property Interest Expense" means, for any period, total interest expense
(including that portion attributable to capital leases in accordance with GAAP
and capitalized interest) of Borrower on a consolidated basis with respect to
all outstanding Indebtedness of Borrower and its Subsidiaries, such interest to
be calculated for purposes of this Agreement against the outstanding principal
amounts of such Indebtedness using a constant based on the then-current 10-year
Treasury Rate, plus 2.50%, instead of the actual interest rates applied thereto.
"Receipts" means, collectively, all cash, Cash Equivalents, checks, notes,
drafts and any items of payment or collection received, by or on behalf of
Royale or any of its Subsidiaries, or by any officers, employees or agents of
Royale or any of its Subsidiaries or other Persons acting for or in concert with
Royale or such Subsidiary to make collections on Royale's or such Subsidiary's
behalf in connection with or in any way relating to Royale or such Subsidiary or
the operation of Royale's or such Subsidiary's business, including, without
limitation, any proceeds received from or pursuant to (i) any sales of, or loans
against, accounts of Royale or any of its Subsidiaries (other than the Loan
pursuant to this Agreement), (ii) any disposition of assets (including, without
limitation, any disposition of assets permitted hereunder or consented to by
Lender, but excluding amounts applied to the repayment of indebtedness or other
obligations secured by a Lien on the assets subject to such disposition) or
issuance or sale of equity Securities by Royale or any of its Subsidiaries,
(iii) the incurrence of Indebtedness by Royale or any of its Subsidiaries and
the issuance and sale by Royale or any of its Subsidiaries of equity or debt
Securities, in each case other than the Obligations and other Indebtedness
permitted by this Agreement, (iv) insurance policies (other than liability
insurance payable directly or indirectly to a third party) maintained by Royale
or any of its Subsidiaries, whether or not Lender is an additional insured or
named as loss payee thereunder, (v) the successful prosecution (including any
settlement) of any claims, actions or
<PAGE>
other litigation or proceeding by or on behalf of or against Royale or any of
its Subsidiaries, (vi) Investments in, or equity and debt Securities issued by,
Joint Ventures or other Persons and (vii) the Management Agreements (other than
amounts received by Royale or any of its Subsidiaries in respect of the Managed
Properties on behalf of, or as agent for, the parties to the Management
Agreements other than Royale and its Subsidiaries); it being understood and
agreed that nothing contained in this definition shall in any respect be deemed
to permit any transactions by Royale or any of its Subsidiaries otherwise
restricted or prohibited by this Agreement.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"REIT" means a "real estate investment trust," as such term is defined in
Section 856 of the Internal Revenue Code.
"Release" means any satisfaction, release, assignment instrument, deed of
reconveyance or similar instrument or instruments (each in recordable form but
without any representation or warranty of Lender) necessary and sufficient to
release any Collateral from the Lien of all applicable Security Documents.
"Release Date" means the date of a release of the Lien of the Security
Documents from any Property pursuant to Section 2.8.
"Release Price" means the amount that is the greatest of the following,
calculated as of the Release Date:
(b) 125% of the Property Amount with respect to such Property;
(c) in the event of a sale or other permanent disposition of such
Property, 85% of the Net Sales Price for such Property;
(d) the amount necessary to ensure that the sale or other disposition
does not cause a violation of the covenants set forth in Section 6.7 of
this Agreement; and
(e) in the event of a casualty or Taking with respect to such
Property, the Insurance Proceeds or Condemnation Proceeds, as the case may
be, resulting therefrom.
"Renovation" means the expansion, rebuilding, repair, restoration,
refurbishment, fixturing and equipping of the Improvements at a Property or a
Managed Property. The term "Renovate" used as a verb has a corresponding
meaning.
"Rent Reserve Account" means, collectively, one or more interest-bearing
accounts
<PAGE>
to be established and maintained by Borrower at the offices of Lender located at
280 Park Avenue, New York, New York, each in the name of "Bankers Trust Company
- -- FCOLP Rent Reserve Account," with such additional identifying references in
such name as Borrower and Lender shall agree.
"Rents" means all rents, issues, profits, royalties, receipts, revenues,
accounts receivable, security deposits and other deposits (subject to the prior
right of Tenants making such deposits) and income, including fixed, additional
and percentage rents, occupancy charges, operating expense reimbursements,
reimbursements for increases in taxes, sums paid by Tenants to Borrower to
reimburse Borrower for amounts originally paid or to be paid by Borrower or
Borrower's agents or affiliates for which such Tenants were liable, as, for
example, tenant improvements costs in excess of any work letter, lease takeover
costs, moving expenses and tax and operating expense pass-throughs for which a
Tenant is solely liable, parking, maintenance, common area, tax, insurance,
utility and service charges and contributions, proceeds of sale of electricity,
gas, heating, air-conditioning and other utilities and services, deficiency
rents and liquidated damages, and other benefits.
"Rent Roll" means, for any Property, a rent roll in the form approved by
Lender indicating (i) the names of all Tenants of such Property and the space
occupied by such Tenants, (ii) the term of each Lease affecting such Property,
(iii) the monthly Rent, additional Rent, if any, and other fees and charges paid
by each such Tenant and whether such Tenant is in default, (iv) for any Rent
Roll delivered after the Closing Date, any extension, renewal, expansion, or
purchase options contained in any such Lease, (v) each vacant space in such
Property and Borrower's estimate of the fair rental value of each such space,
(vi) the occupancy rate of such Property, (vii) the security deposit and
escrows, if any, held by Borrower under any such Lease and (viii) the arrearages
for any such Tenant.
"Restoration" means the repair, restoration (including demolition),
replacement and rebuilding of all or any portion of a Property (or the
Improvements thereof) following the destruction, damage, loss or Taking thereof.
The term "Restore" used as a verb has the corresponding meaning.
"Royale" has the meaning set forth for it in the first paragraph of this
Agreement.
"Scheduled Principal Payment Date" means, if the Maturity Date is extended
beyond the third Anniversary pursuant to Section 2.4, the third Anniversary and
the next succeeding eleven Payment Dates.
"Securities" means any stock, shares, partnership interests, interests in
limited liability companies, voting trust certificates, certificates of interest
or participation in any profit-sharing agreement or arrangement, options,
warrants, bonds, debentures, notes or other evidences of indebtedness, secured
or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any successor statute.
"Security Agreement" means the Security and Pledge Agreement executed and
delivered by each Loan Party and Lender on or before the Closing Date pursuant
to this Agreement, substantially in the form delivered on or before the Closing
Date pursuant to this Agreement, pursuant to which such Loan Party will pledge
and grant a security interest in the Collateral described therein to Lender, as
such Security Agreement may be amended, restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof and hereof.
"Security Documents" means, collectively, the Mortgages, the Assignments of
Rents and Leases, the Security Agreement, the Tenant Subordination Agreements,
all mortgages, security agreements, pledge agreements, assignments and all other
instruments or documents (including UCC-1 financing statements, fixture filings,
amendments of financing statements or similar documents required or advisable in
order to perfect or maintain the Liens created by the Security Documents)
delivered by any Person pursuant to this Agreement or any of the other Loan
Documents, whether such delivery is prior to, contemporaneous with or after
delivery of this Agreement, in order to grant to Lender Liens in real, personal
or mixed property of that Person, and to maintain such Liens as each of the
foregoing may be amended, restated, consolidated, supplemented or otherwise
modified from time to time in accordance with the terms thereof and hereof.
Security Documents do not include this Agreement or the Note.
"South Brunswick" has the meaning set forth for it in the first paragraph
of this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association, trust, joint venture or
other business entity of which either (i) the Person is a general partner or
member of a limited liability company or other entity having the right to direct
or manage the business and affairs of such entity or (ii) more than 50% of the
total voting power of shares of stock or other ownership interests entitled
(without regard to the occurrence of any contingency) to vote in the election of
the Person or Persons (whether directors, managers, trustees or other Persons
performing similar functions) having the power to direct or cause the direction
of the management and policies thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof. The term "Subsidiary" shall include
Subsidiaries of a Subsidiary. Without limiting the generality of such term, all
of the Loan Parties other than Royale shall be deemed Subsidiaries of Royale for
purposes of this Agreement.
"Survey" means, with respect to any Property, a current survey map prepared
by a surveyor licensed in the state in which such Property is located,
reasonably acceptable to Lender, which shall (i) contain the legal description
of such Property, (ii) conform, and be certified by such surveyor to Lender and
the Title Company as conforming, to the Minimum
<PAGE>
Standard Detail Requirements for ALTA/ACSM Land Title Surveys for urban survey
class as adopted by ALTA and American Congress on Surveying & Mapping (1992
version), and (iii) show, to the extent practicable, all matters described in
"Table A/Optional Survey Responsibilities and Specifications" in such Minimum
Standard Detail Requirements; provided, however, that the survey need not
satisfy the requirements of the preceding clauses (ii) and (iii) if the Title
Company has eliminated the survey exception from the Title Policies and all
other exceptions to the Title Policies based upon such survey are acceptable to
Lender in its sole discretion. Any such survey shall contain a certification by
such surveyor to Lender stating whether the Property is located in an area
having special flood hazards as identified by the Federal Emergency Management
Agency.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., or any successor to the business thereof.
"Taking" means the taking or appropriation (including by deed in lieu of
condemnation or by voluntary sale or transfer under threat of condemnation or
while legal proceedings for condemnation are pending) of any Property, or any
part thereof or interest therein, for public or quasi-public use under the power
of eminent domain, by reason of any public improvement or condemnation
proceeding, or in any other manner or any damage or injury or diminution in
value through condemnation, inverse condemnation or other exercise of the power
of eminent domain. The term "Taken" used as a verb has a correlative meaning.
"Tax" or "Taxes" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, on
whomsoever and wherever imposed, levied, collected, withheld or assessed by a
Governmental Authority; provided, however, that "Tax on the overall net income"
of a Person shall be construed as a reference to a tax imposed by the
jurisdiction in which that Person's principal office (and/or, in the case of any
Lender, its lending office) is located or in which that Person is deemed to be
doing business on (or measured with reference to) all or part of the net income,
profits or gains of that Person (whether worldwide, or only insofar as such
income, profits or gains are considered to arise in or to relate to a particular
jurisdiction, or otherwise).
"Tenant" means any Person liable by contract or otherwise to pay rent or a
percentage of income, revenue or profits pursuant to a Lease, and includes a
tenant, subtenant, lessee and sublessee.
"Tenant Subordination Agreement" means any Subordination, Non-Disturbance
and Attornment Agreement executed and acknowledged by a Tenant, Borrower or any
other Loan Party and Lender, and reasonably satisfactory in form and substance
to Lender, as each such agreement may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"Tenanting Costs" means costs incurred by Borrower in connection with the
leasing of a Property, including brokerage commissions, free rent, tenant
improvements and related
<PAGE>
costs and expenses.
"Tenanting Costs Reserve Account" means, collectively, one or more
interest-bearing accounts to be established and maintained by Borrower at the
offices of Lender located at 280 Park Avenue, New York, New York, each in the
name of "Bankers Trust Company -- FCOLP Tenanting Costs Reserve Account," with
such additional identifying references in such name as Borrower and Lender shall
agree.
"Title Company" means (i) as of any date on or prior to the Closing Date,
Commonwealth Land Title Insurance Company and (ii) as of any date after the
Closing Date, such other title company as may be selected by Borrower and
approved by Lender in its reasonable discretion. "Title Policies" means, with
respect to the Properties, the paid mortgagee policies of title insurance in the
form of a 1970 ALTA loan policy (or other form of loan policy available in the
applicable state and acceptable to Lender) and issued by the Title Company.
"Total Property Adjusted Net Income" means, for any period and as of any
date of determination, the aggregate Property Adjusted Net Income for such
period with respect to all Properties.
"Transfer" means any conveyance, assignment, sale, sale and leaseback,
mortgaging, encumbrance, pledging, hypothecation, granting of a security
interest in, granting of options with respect to or other disposition of
(directly or indirectly, voluntarily or involuntarily, by operation of law or
otherwise, and whether or not for consideration or of record) all or any portion
of any legal or beneficial interest (i) in all or any portion of any Property or
(ii) in any other assets of any Loan Party or any of its Subsidiaries, or (iii)
following the Formation, of any Partnership Interest (A) held by Royale in
FCOLP, (B) held by FCO in any Borrower, or (C) held by FCOLP in any Borrower.
"United States of America" means the 50 states of the United States of
America and Washington, D.C., but excluding any territories or possessions
thereof other than the Commonwealth of Puerto Rico.
"Wholly Owned" means, with respect to any Subsidiary of any Person, a
Subsidiary all of the outstanding equity Securities of which are owned directly
or indirectly by such Person.
"Work" has the meaning assigned to that term in Section 5.13.6.
ROYALE BECOMES OFFICE REIT
PHILADELPHIA, October 14, 1997 --Royale Investments, Inc. (Nasdaq: RLIN), a real
estate investment trust, announced today that the company has acquired the
Mid-Atlantic suburban office operations of The Shidler Group, a national real
estate investment firm.
The $170 million transaction included the acquisition of a 1.5 million square
foot Mid-Atlantic suburban office portfolio and the entire management team of
The Shidler Group's Philadelphia-based organization.
OFFICE FOCUS
Since its IPO in December, 1991, Royale has specialized in triple-net leased
retail properties. The transaction is part of Royale's new strategic plan to
focus on the suburban office market which continues to strengthen.
The acquisition allows Royale to:
- Immediately transform itself into an internally-managed REIT.
- Become a meaningful player in the Mid-Atlantic suburban office
property market with a core office portfolio.
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- Add Jay H. Shidler as Chairman of the Board, a recognized leader in
successfully managing and growing public REITS.
- Add proven management team experienced in the acquisition, development
and management of office properties.
- Have greater access to the debt and equity capital markets.
TRANSACTION SUMMARY
The acquisition of the suburban office properties was accomplished through the
formation of an Operating Partnership with Royale acting as sole general
partner. In connection with the transaction, Royale issued .8 million new common
shares. Royale's Operating Partnership FCO, L.P. issued 2.6 million common
partnership units and 2.1 million convertible preferred partnership units and
assumed $100 million of fixed rate debt.
The common partnership units will receive a distribution yield equal to the
dividend yield of Royale's common stock and will be convertible into common
stock of Royale on a one-for-one basis beginning one year after the closing of
the transaction. The convertible preferred partnership units will have a
distribution yield of 6.5% and will be convertible into common partnership units
at a conversion price of $7.00 per share in two years. The Operating
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Partnership will also assume a $100 million, 7.5% fixed rate, pre-payable,
mortgage debt which is non-recourse to Royale.
The Company has also arranged for a $100 million acquisition facility from
Bankers Trust.
MANAGEMENT
Jay H. Shidler, founder and Managing Partner of The Shidler Group will serve as
the Company's Chairman of the Board. In addition to his ownership interest in
the Operating Partnership, Mr. Shidler will own approximately 13% of Royale's
outstanding common stock.
Mr. Shidler is the co-founder and director of TriNet Corporate Realty Trust,
Inc. (NYSE: TRI) and is also co-founder and Chairman of the Board of First
Industrial Realty Trust, Inc. (NYSE: FR).
TriNet, with a $1.3 billion total market capitalization, is one of the nation's
largest public owners of net leased corporate properties. First Industrial, with
a $2.0 billion total market capitalization, is now one of the nation's largest
owners of industrial properties.
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"This strategic transaction is the first step of a well-defined strategy to
increase shareholder value," said Mr. Shidler. "It's our goal to grow Royale to
a $1.0 billion REIT."
Clay W. Hamlin, III, formerly the Managing Director of The Shidler Group's
Mid-Atlantic region, is serving a Royale's President and Chief Executive
Officer. In addition to his ownership interest in the Operating Partnership, Mr.
Hamlin will own approximately 13% of Royale's outstanding common stock. Mr.
Hamlin, a 25-year veteran of the commercial real estate industry, will also
serve on the Company's Board of Directors.
Vernon R. Beck and John Parsinen, co-founders of Royale, will remain officers of
the Company and will continue to manage the retail portfolio of Royale. Mr. Beck
will also continue as a Director.
WESTBROOK PARTNERS INVESTMENT
As a result of Westbrook Partners prior investment in The Shidler Group's
Mid-Atlantic suburban office portfolio, Westbrook will own aproximately 10% of
Royale's consolidated equity capital including common partnership units and
convertible preferred partnership units. In addition,
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Bill Walton, Managing Partner of Westbrook has joined Royale's Board of
Directors.
Westbrook is a significant investor in real estate and real estate operating
companies including strategic investments in Essex Property Trust, Inc. and
Sunstone Hotel Investors, Inc., two publicly traded REITS. Established in 1944
by former senior real estate executives of Morgan Stanley Group, Inc., Westbrook
currently controls $2.5 billion in real estate assets and maintains offices in
New York, Los Angeles and Dallas.
In commenting on the transaction, Bill Walton said "We are excited about the
future prospects of Royale given its strategic acquisition of The Shidler
Group's Mid-Atlantic office operations. The Shidler Group's track record of
successfully growing public companies was a significant factor in our decision
to invest in Royale."
PORTFOLIO
The total portfolio has over 1.8 million square feet and will have an 81% office
and 19% freestanding retail by square footage.
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The office portfolio includes ten institutional quality, suburban office
buildings comprising 1.5 million square feet. The portfolio has high occupancy
stability and is currently 99.8% leased to major corporate tenants, including
Unisys Corporation, IBM Corporation, Teleport Communications Group and Merck.
The multi-tenant buildings are leased to such tenants as Hershey Foods, Pitney
Bowes, Ernst & Young and McGraw-Hill.
PRO FORMA FINANCIAL RESULTS
The transaxction is expected to be accretive and should increase Royale's funds
form operations (FFO) and funds available for distribution (FAD).
With the operating Partnership's results consolidated with those of Royale, the
pro forma quarterly results should be as projected below. FFO increases from the
pre-transaction target of $236,000 to $1,155,000 on a combined basis,
representing a 389% increase. Treating the common partnership units as having
been converted, FFO per share/common unit increases from $.166 to $.238,
representing a 43% increase, while the corresponding FFO payout ratio based on
its common stock dividend/common unit distribution decreases to 52%.
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Pro Forma Quarterly Financial Results (1)
(in thousands except per share/common unit data
Current Consolidated Change
------- ------------ ------
Operating Results
Total Revenues $627 $5,162 723%
Funds From Operations 236 1,155 389%
(FFO)(2)
Funds Available for
Distribution (FAD)(2)
149 840 464%
Per Share/Common Unit
FFO .166 .238 43%
FAD .104 .173 66%
Payout Ratio(3)
FFO 75% 52% (31)%
FAD 120% 72% (40)%
The above consolidated financial pro forma is based on current property income
and expense information and reflects the payment of debt service on all existing
and assumed indebtedness.
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1 Assumes combination of present operations for a full quarter.
2 Weighted average common shares and common units outstanding are 1,420 and
4,847 for current and consolidated, respectively. Assumes all common
partnership units are converted into common stock at the beginning of the
period. All figures are after the payment of the quarterly distributions to
the operating partnership's convertible preferred partnership units which
are not convertible for two years.
3 Based on current quarterly dividends/distributions of $.125 per
share/common unit.
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Statements in this press release are "forward-looking"
and are subject to many risks and uncertainties which affect Royale's business,
and could cause actual results to differ materially from these projections and
forecasts. The pro forma results do not account for any possible onetime charges
associated with the transaction and do not reflect any subsequent acquisitions
or capital activities. Additional uncertainties include competition within the
office industry, the balance between supply and demand for office space, the
effect of economic conditions, credit and the availability of capital to finance
planned growth.
