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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Royale Investments, Inc.
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(Name of Issuer)
Common Stock (par value $.01 per share)
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(Title of Class of Securities)
780 74A104
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(CUSIP Number)
Gerald S. Tanenbaum
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
(212) 701-3224
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 14, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Check the following box if a fee is being paid with the statement |X|. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 170 Pages
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SCHEDULE 13D
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CUSIP No. 780 74A104 Page 1 of 170 Pages
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1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON (ENTITIES ONLY)
Clay W. Hamlin, III
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2 CHECK THE APPROXIMATE BOX IF A MEMBER OF A GROUP* (a) |_|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.A.
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7 SOLE VOTING POWER
NUMBER OF 300,000
SHARES ----------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH
REPORTING ----------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
300,000
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10 SHARED DISPOSITIVE POWER
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
300,000
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.1%
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14 TYPE OF REPORTING PERSON*
IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
Page 1 of 170 Pages
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Item 1. Security and Issuer
Title: Common Stock, par value $.01 per share.
Issuer: Royale Investments, Inc. ("Royale")
3430 List Place
Minneapolis, MN 55416-4547
Item 2. Identity and Background
(a) Clay W. Hamlin III
(b) Business address:
The Shidler Group - Philadelphia
One Logan Square, Suite 1105
Philadelphia, PA 19103
(c) Mr. Hamlin is a Managing Partner of The Shidler
Group, the principal business of which is the
acquisition and management of real estate properties
and, effective October 14, 1997, became President and
Chief Executive Officer of Royale, a real estate
investment trust. See Item 2(b) above for the address
of The Shidler Group-Philadelphia, and Item 1 above
for the address of Royale.
(d) None
(e) None
(f) U.S.A.
Item 3. Source and Amount of Fund or Other Consideration
The 300,000 shares of common stock of Royale ("Hamlin Shares") covered by
this Schedule 13D were acquired by Mr. Hamlin on October 14, 1997 pursuant to
and in connection with the Formation/Contribution Agreement dated as of
September 7, 1997 by and among Royale, H/SIC Corporation, Strategic Facility
Investors, Inc. ("SFI"), South Brunswick Investment Company, LLC ("SBIC"),
Comcourt Investment Corporation ("CIC"), Gateway Shannon Development Corporation
("Gateway"), Crown Advisors, Inc. ("Crown"), Vernon R. Beck and John Parsinen,
as amended by an amendment thereto dated as of October 13, 1997 (collectively,
the "Formation/Contribution Agreement").
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179,920 of the Hamlin Shares were acquired in consideration for the
assignment to Royale by Mr. Hamlin of a limited partnership interest in ComCourt
Investors, L.P. ("ComCourt"), a Delaware limited partnership which owns
commercial office buildings located in Harrisburg, Pennsylvania. At the same
time, CIC and SFI transferred to Royale limited partnership interests (which had
previously been general partnership interests) in ComCourt and Blue Bell
Investment Company, L.P. ("Blue Bell"), a Delaware limited partnership which
owns commercial office buildings located in Blue Bell, Pennsylvania. As a result
of such transfers by CIC and SFI, Mr. Hamlin as a 50% shareholder of CIC and SFI
became entitled to receive an aggregate of 43,195 shares of common stock of
Royale. In addition, Gateway transferred to Royale limited partnership interests
(which had previously been general partnership interests) in 6385 Flank Drive,
L.P. ("Flank"), a Pennsylvania limited partnership which owns a commercial
office building in Harrisburg, Pennsylvania, entitling Mr. Hamlin as 100%
shareholder of Gateway to receive an additional 2,976 shares of common stock of
Royale. The aggregate partnership interests transferred to Royale by Mr. Hamlin
and by CIC, SFI and Gateway on behalf of Mr. Hamlin were agreed to have an
aggregate value, for purposes of this transaction, of $1,243,500 (based on a
price of $5.50 per share of common stock of Royale).
In addition, Mr. Hamlin purchased for $406,500 the right of Westbrook Real
Estate Fund I, L.P. ("WR"), Westbrook Real Estate Co-Investment Partnership I,
L.P. ("WRCo") and Tiger South Brunswick, L.L.C. ("TSB") (collectively, "Seller")
to acquire 73,909 shares of common stock of Royale issuable to Seller in
consideration for the assignment to Royale by Seller of limited partnership
interests in South Brunswick Investors, L.P. ("South Brunswick"), a Delaware
limited partnership. Such funds came from Mr. Hamlin's personal funds.
The Hamlin Shares were issued by Royale at a price of $5.50 per share and
were taken by Mr. Hamlin for investment and without a view to the distribution
thereof. The certificates for the Hamlin Shares contain a legend reflecting the
fact that such shares have not been registered under the Securities Act of 1933,
as amended ("1933 Act"). Royale has, pursuant to a Registration Rights Agreement
dated as of October 1, 1997, given Mr. Hamlin certain rights to have the Hamlin
Shares and all other shares of common stock of Royale issued to Mr. Hamlin
pursuant to the FCO Partnership Agreement (as hereinafter defined) registered,
at Royale's expense, under the 1933 Act.
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Pursuant to the Formation/Contribution Agreement, Mr. Hamlin also
contributed, directly and indirectly, on October 14, 1997 certain limited
partnership interests beneficially owned by him in ComCourt, South Brunswick and
Flank to FCO, L.P. ("FCO"), a Delaware limited partnership of which Royale is
the sole general partner, in consideration for the issuance of an aggregate of
5,235 Limited Partner Interests (as defined in the FCO Partnership Agreement)
and 115,334 Preferred Units (as defined in the FCO Partnership Agreement) in
FCO.
In addition, pursuant to the Formation/Contribution Agreement, CHLB
Partnership (a Pennsylvania partnership owned by Mr. Hamlin and his wife Lynn B.
Hamlin, both of whom are general partners of this partnership) contributed all
of the limited partnership interests owned by it in Flank in consideration for
the issuance to it of 63,243 Limited Partner Interests and 41,741 Preferred
Units in FCO. Also, pursuant to the Formation/Contribution Agreement, LBCW
Limited Partnership (a Pennsylvania family limited partnership owned by Mr.
Hamlin, his wife and children and of which Mr. Hamlin is the sole general
partner) contributed on October 14, 1997 all of the limited partnership
interests owned by it in Blue Bell in consideration for the issuance to it of
875,284 Limited Partner Interests and 663,808 Preferred Units in FCO. In
addition, Mr. Hamlin has the obligation to contribute to FCO in November 2000
his remaining 11% limited partnership interests in ComCourt and Flank ("Retained
Interests") in consideration for 50,685 additional Limited Partner Interests and
33,452 additional Preferred Units of FCO to be issued at that time. Mrs. Hamlin
does not beneficially own any shares of common stock of Royale other than by
reason of her interests in CHLB Partnership and LBCW Limited Partnership.
Preferred 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 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 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 Royale 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 Royale (subject to anti-dilution adjustment) or a cash payment
equal to the then fair
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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). If all Preferred
Units presently owned by Mr. Hamlin, LBCW Limited Partnership and CHLB
Partnership were converted into Limited Partnership Interests and all then
outstanding Limited Partnership Interests owned by Mr. Hamlin, LBCW Limited
Partnership and CHLB Partnership were redeemed for common stock of Royale at the
date hereof, Mr. Hamlin, LBCW Limited Partnership and CHLB Partnership would be
entitled to receive an aggregate of 417,137, 3,246,008 and 212,317,
respectively, additional shares of common stock of Royale. 170,155 additional
shares of common stock of Royale would, at the conversion rate presently in
effect, be issuable to Mr. Hamlin in respect of the Limited Partner Interests
and Preferred Units issuable in November 2000 for the Retained Interests.
The right to receive common stock of Royale upon exercise of such right of
redemption is subject to compliance with a number of significant conditions
precedent including compliance with Royale'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 other law
then in effect and any applicable rule or policy of any stock exchange or
self-regulatory organization.
FCO was formed as a Delaware limited partnership by Royale on October 9,
1997. On October 14, 1997 Royale, as the sole general partner, and the limited
partners and preferred limited partners named therein entered into a Limited
Partnership Agreement dated that day (the "FCO Partnership Agreement"). Royale
has a 20.6946% Percentage Interest in FCO. Until December 31, 2000, a portion of
Profits (as defined in the FCO Partnership Agreement) for each fiscal year is to
be allocated 19.8% to Royale as the General Partner and 80.2% to all Partners
(including Royale as the General Partner but other than the Preferred Limited
Partners holding Preferred Units).
Item 4. Purpose of Transaction
The Hamlin Shares were acquired for the purpose of exercising substantial
influence with respect to the affairs of Royale and for the purpose of
exchanging general and limited partnership interests in special purpose
partnerships for the securities of an issuer listed on NASDAQ.
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Pursuant to the Formation/Contribution Agreement, effective upon such
acquisition ("Effective Time"), the Board of Directors of Royale elected Jay H.
Shidler as a director of Royale; Mr. Hamlin as a director, President and Chief
Executive Officer of Royale; and William H. Walton (a representative of Seller)
and Kenneth S. Sweet, Jr. as directors of Royale. See Item 5 below. Royale has
seven directors. David P. Hartsfield, James K. Davis and Denise J. Liszewski,
who were designated by Mr. Shidler and Mr. Hamlin, were also so elected as of
the Effective Time as Royale's Chief Operating Officer, Chief Financial Officer
and Assistant Secretary, respectively. John Parsinen, Orvin J. Hall and Kurt
Schoenrock resigned from the Board of Directors of Royale at the Effective Time.
John Parsinen has continued as Secretary of Royale and Vernon R. Beck has been
elected a Vice President of Royale. The other officers of Royale resigned as
such at the Effective Time. Messrs. Vernon R. Beck, Kenneth D. Wethe and Allen
C. Gerke, continued as directors of Royale. It is expected that Mr. Shidler will
be elected Chairman of the Board of Royale.
Mr. Hamlin is considering several possible changes with respect to Royale
intended to enhance and expedite Royale's ability to attract capital, including,
subject to receipt of all necessary stockholder and other approvals, changing
its name and reincorporating it in a different state (including, as a result,
changing its by-laws and charter in ways that may impede the acquisition of
control of Royale by third parties), expanding and changing its investment
policies, instituting changes to enhance Royale's ability to grow through
acquisitions including acquisitions of interests in entities owning real
properties (including changes to its by-laws and charter and the transfer of its
properties to FCO), appointing Coopers & Lybrand as Royale's auditors,
instituting a deferred compensation and/or stock plan for employees and
directors and selling additional shares of its common stock (publicly and/or
privately in one or a series of transactions).
Mr. Hamlin has entered into a continuous and self-renewing two year term
employment agreement with FCO, commencing as of the Effective Time, unless
terminated by either party, with or without cause, effective as of the first
business day after written notice to that effect is delivered to the other
party.
Item 5. Interest in Securities of the Issuer
(a) Mr. Hamlin owns beneficially (within the meaning of Section 13(d)(3) of
the Securities Exchange Act
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of 1934, as amended ("1934 Act")) 300,000 shares of common stock of Royale. Mr.
Hamlin disclaims beneficial ownership of 300,000 shares of common stock of
Royale issued by Royale to Mr. Shidler on October 14, 1997 pursuant to the
Formation/Contribution Agreement ("Shidler Shares"). After giving effect to the
issuance of the Hamlin Shares and the Shidler Shares and 273,729 shares of
common stock of Royale issued by Royale to Crown on October 14, 1997 pursuant to
the Formation/Contribution Agreement and the retirement of 27,646 shares of
common stock of Royale held by Crown, Royale had outstanding as of the close of
business on October 14, 1997, 2,266,083 shares of common stock, $.01 par value
per share. Accordingly, the Hamlin Shares represent 13.24% of such outstanding
shares. See Item 6 below. Mr. Hamlin and Mr. Shidler have been shareholders and
partners of a number of private companies and partnerships which they
beneficially owned and controlled (including H/SIC, SFI, SBIC, CIC, Blue Bell,
ComCourt and South Brunswick) and have been business associates and co-investors
for a number of years.
(b) Except as provided below, there is no written agreement between Mr.
Hamlin and any other person, firm or corporation with respect to the voting of
the Hamlin Shares. Mr. Hamlin agreed pursuant to a letter agreement dated
September 11, 1997 (the "Westbrook Agreement") with Westbrook Real Estate
Partners, L.L.C., on behalf of its entities affiliated with South Brunswick
Investors, L.P., to permit it to name one of its principals to serve as an
independent director of Royale. Mr. William H. Walton was so elected to the
Board of Directors of Royale, effective as of the Effective Time.
Mr. Hamlin presently anticipates that he and Mr. Shidler will vote the
Hamlin Shares and the Shidler Shares for at least the near term in the pursuit
of decisions mutually made by them in respect of matters voted on by the holders
of common stock of Royale but they are not obligated to do so. See Item 4 above.
(c) See Item 2 above.
(d) None.
(e) Not applicable.
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Item 6. Contracts, Arrangements, Understandings or Relationship with Respect to
Securities of the Issuer
See Items 2, 3 and 5 above.
None of the Shares have been pledged.
Messrs. Hamlin and Shidler have entered into an Agreement dated October 14,
1997 with TSB, WR and WRCo, whereby Shidler and Hamlin are, at such entities'
sole option, jointly and severally obligated to buy all, but not less than all,
of the Limited Partner Interests and Preferred Units held by them for an
aggregate exercise price of $3,481,579, subject to the terms and conditions of
such Agreement.
Item 7. Items to be Filed as Exhibits
(a) Formation/Contribution Agreement dated September 7, 1997 by and among
Royale Investments, Inc., 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.
(b) Amendment to Formation/Contribution Agreement dated as of October 13,
1997 by and among Royale Investments, Inc., 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.
(c) FCO, L.P. Limited Partnership Agreement dated October 14, 1997 by and
among Royale Investments, Inc., as sole General Partner and the Limited Partners
and Preferred Limited Partners signatory thereto.
(d) Registration Rights Agreement dated as of October 1, 1997 from Royale
Investments, Inc. in favor of the individuals and entities named therein.
(e) Letter Agreement dated September 11, 1997 between South Brunswick
Investment Company and Westbrook Real Estate Partners, L.L.C.
(f) Agreement dated October 14, 1997 among Jay H. Shidler, Clay W. Hamlin
III, Tiger South Brunswick, L.L.C.,
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Tiger/Westbrook Real Estate Fund, L.P. and Tiger/Westbrook Real Estate
Co-Investment Partnership.
(g) Employment Agreement dated October 14, 1997 by and among FCO, L.P. and
Clay W. Hamlin III.
(h) Assignment dated as of October 14, 1997 by Tiger South Brunswick
L.L.C., Westbrook Real Estate Fund I, L.P. and Westbrook Real Estate Co. -
Investment Partnership I, L.P. in favor of Jay H. Shidler and Clay W. Hamlin
III.
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Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 23, 1997 /s/ Clay W. Hamlin III
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Date Signature
Clay W. Hamlin III
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Name/Title
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
1 Formation/Contribution Agreement dated September 7, 1997 by and among
Royale Investments, Inc., 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.
2 Amendment to Formation/Contribution Agreement dated as of October 14,
1997 by and among Royale Investments, Inc., 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.
3 FCO, L.P. Limited Partnership Agreement dated October 14, 1997 by and
among Royale Investments, Inc., as sole General Partner and the
Limited Partners and Preferred Limited Partners signatory thereto.
4 Registration Rights Agreement dated as of October 1, 1997 from Royale
Investments, Inc. in favor of the individuals and entities named
therein.
5 Letter Agreement dated September 11, 1997 between South Brunswick
Investment Company and Westbrook Real Estate Partners, L.L.C.
6 Agreement dated October 14, 1997 among Jay H. Shidler, Clay W. Hamlin
III, Tiger South Brunswick, L.L.C., Tiger/Westbrook Real Estate Fund,
L.P. and Tiger/Westbrook Real Estate Co-Investment Partnership.
7 Employment Agreement dated October 14, 1997 by and among FCO, L.P.,
and Clay W. Hamlin III.
8 Assignment dated as of October 14, 1997 by Tiger South Brunswick
L.L.C., Westbrook Real Estate Fund I, L.P. and Westbrook Real Estate
Co-Investment Partnership I, L.P. in favor of Jay H. Shidler and Clay
W. Hamlin III.
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.
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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.
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"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".
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"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.
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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
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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".
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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>
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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>
-32-
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>
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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>
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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>
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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>
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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>
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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>
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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>
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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>
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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>
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(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>
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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>
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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>
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(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>
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(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>
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>
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.
<PAGE>
-6-
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.
<PAGE>
-7-
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;
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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.
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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.
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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
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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
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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
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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
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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.
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ARTICLE XI - AMENDMENTS AND MEETINGS
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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
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>
-3-
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>
-10-
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:
------------------------------
WESTBROOK PARTNERS
September 11, 1997
Mr. Clay W. Hamlin, III
President
South Brunswick Investment Company
One Logan Square
Suite 1105
Philadelphia, PA 19103
Re: South Brunswick Investors, L.P. (the "Partnership")
Dear Clay:
Following up on our discussions of the proposed Royale transaction,
Westbrook Real Estate Partners, L.L.C., on behalf of its entities affiliated
with South Brunswick Investors, L.P., (collectively "Westbrook"), hereby gives
its consent to the transaction described in the two booklets prepared by The
Shidler Group entitled "The Royale Merger" dated August, 1997 provided by you,
with the following modifications:
(1) The Partnership will merge into First Commercial after the
transfer by the Partnership of its undeveloped land to a newly formed
mirror image partnership at Shidler's sole cost and expense, (including
partnership formation costs, transfer taxes, deed preparation, recording
fees, title premiums, etc.). Westbrook will be paid $1,840,000 in cash and
will receive 366,633 common partnership units (value of $5.50 per unit) and
241,978 preferred partnership units (face value of $25.00 per unit). South
Brunswick Investment Company and Dayton Investors, L.L.C. (collectively
"Shidler") will receive 207,537 (value of $5.50 per unit) common
partnership units and 136,974 preferred partnership units (face value of
$25.00 per unit). These unit allocations are based on relative
distributions to Westbrook and Shidler assuming a hypothetical sale value
of $27,465,480. The merged entity will pay all costs and expenses and be
responsible for all liabilities.
(2) Westbrook will have an option to put its common and preferred
units to Jay Shidler and/or Clay Hamlin within 60 days after the second
anniversary of the closing of the merger for $3,481,579, payable in cash.
This amount plus Westbrook's original investment of $1,840,000 equates to a
current gross asset value of $25,000,000 using the Sale scenario
methodology (see attached). Subject to transfer restrictions, the option
also would be immediately exercisable by Westbrook for $3,481,579 if any
quar-
<PAGE>
-2-
terly dividend distributions were not made in accordance with the attached
table.
(3) Westbrook will be permitted to name one of its principals to serve
as an independent director of Royale.
Westbrook agrees to take such actions and execute such documentation as
reasonably necessary to complete the transaction.
Westbrook's consent is conditioned on its Investment Committee approval and
Shidler's compliance with all material terms of the transaction and the accuracy
of the information provided, to be reflected in the transaction documentation
which shall be acceptable to Westbrook.
Please execute a copy of this letter and return it to me to indicate your
agreement.
Yours truly,
/s/ William H. Walton
------------------------------
William H. Walton
Managing Member,
Westbrook Real Estate
Partners, L.L.C.
Sept. 12, 1997
- -----------------------------
(Date)
<PAGE>
Princeton Technology Center
Allocation of Proceeds by Partner
<TABLE>
<CAPTION>
Merger vs.
27,465,480 25,000,000 32,588,891 $25MM
Sale Sale Merger Difference
<S> <C> <C> <C> <C>
Partners
Jay H. Shidler 584,769 351,095 3,041,159 690,064
SELP 265,390 201,970 389,255 187,285
Clay W. Hamlin, III 850,152 553,059 1,430,398 877,339
Robert L. Denton 89,700 58,391 150,849 92,458
James K. Davis 32,679 20,156 57,137 36,981
LGR Investment Fund, Ltd. 1,284,669 975,945 1,887,632 911,687
Tiger South Brunswick, L.L.C. 49,246 37,411 72,359 34,948
Westbrook Real Estate Fund I, L.P. 6,089,201 4,807,860 8,591,767 3,783,907
Westbrook Real Estate Co-Inv. Partnership
I, L.P. 603,249 476,308 851,175 374,867
--------- --------- ---------- ---------
9,849,055 7,482,195 14,471,731 6,989,536
========= ========= ========== =========
Total Westbrook Consideration 6,471,696 5,321,579 9,515,301
Westbrook Percent of Total 68.5% 71.1% 65.8%
Total Shidler Consideration 3,107,359 2,160,616 4,956,430
Shidler Percent of Total 31.5% 28.9% 34.2%
Westbrook Adjustment for $27.5MM Value 9,905,926 68.5%
Shidler Adjustment for $27.5MM Value 4,565,805 31.5%
----------
14,471,731
</TABLE>
<TABLE>
<CAPTION>
Westbrook Merger Shidler Merger
<S> <C> <C> <C> <C>
Total Adj. Total Adj.
Consideration Consideration
9,905,926 Merger 4,565,805 Merger
------------- ------
(1,840,000) Minus Cash 0 Minus Cash
--------- ---------
8,065,926 Value Units 4,565,805 Value Units
6,049,445 75% Preferred 3,424,354 75% Preferred
--------- ---------
241,978 Preferred Units at $25 136,974 Preferred Units at $25
2,016,482 25% Common 1,141,451 25% Common
--------- ---------
366,633 Common Units at $5.50 207,537 Common Units at $5.50
9,905,926 4,565,805
Westbrook $25MM Sale Put Option
5,321,579 Total Consideration $25MM Sale
(1,840,000) Minus Cash
3,481,579 Put Option
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Royale Merger
Westbrook Internal Rate of Return
Dividend on
Dividend on 366,633
241,978 Shares of Conv. Shares of
Preferred @ Common Stock@
Capital $1.625 $0.50
Contribution/ Annual Rate Annual Rate Total Cash Flow
(Distribution) Stream
<S> <C> <C> <C> <C> <C>
1. 4/21/95 (1,840,000) (1,840,000)
2. 6/30/95 0 0
3. 9/30/95 0 0
4. 12/30/95 0 0
5. 3/30/96 0 0
6. 6/30/96 0 0
7. 9/30/96 0 0
8. 12/30/96 0 0
9. 3/30/97 0 0
10. 6/30/97 0 0
11. 9/30/97 1,840,000 1,840,000
12. 12/30/97 98,303 45,829 144,133
13. 3/30/98 98,303 45,829 144,133
14. 6/30/98 98,303 45,829 144,133
15. 9/30/98 98,303 45,829 144,133
16. 12/30/98 98,303 45,829 144,133
17. 3/30/99 98,303 45,829 144,133
18. 6/30/99 98,303 45,829 144,133
19. 9/30/99 3,481,579 98,303 45,829 3,625,712
Total Cash Flow 6,474,640
Net Cash Flow 4,634,640
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Princeton Technology Center
Comparison of Value Received
In a Sale Versus UPREIT Contribution
Sale Merger Difference
<S> <C> <C> <C>
Gross Property Value 25,000,000 32,588,891 7,588,891
Add:
Partnership Cash Balance 16,269 16,269 0
Less:
Existing Loan Payoff 12,893,244 12,893,244 0
Tenant Improvement Reserves 2,485,400 2,485,400 0
Leasing Commission Reserves 696,950 696,950 0
Capital Improvement Reserve 253,000 253,000 0
Rent Guaranty Reserves 205,480 205,480 0
1997/1998 Real Property Taxes 0 40,980 40,980
New Mortgage Loan Costs 0 296,481 296,481
Selling Costs (2%) 500,000 0 (500,000)
Transfer Tax (1% for Sale
Estimate for Merger) 250,000 7,511 (242,489)
Merger Costs 0 928,494 928,494
Accrued Acquisition Fee 0 0 0
Refinance Fee (1%) 0 0 0
Sales Coordination Fee (1%) 250,000 325,889 75,889
Accrued Asset Management Fee 0 0 0
Accrued Property Management Fee 0 0 0
------------- ------------ ------------
Net Property Value 7,482,195 14,471,731 6,989,536
============= ============ ============
</TABLE>
AGREEMENT
THIS AGREEMENT entered into this 14th day of October, 1997 by and between
TIGER SOUTH BRUNSWICK, L.L.C., a Delaware limited liability company ("TSB"),
TIGER/WESTBROOK REAL ESTATE FUND, L.P., a Delaware limited ("TWR"),
TIGER/WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP, L.P., a Delaware limited
("TWRCO") and Jay H. Shidler ("Shidler") and Clay W. Hamlin, III ("Hamlin").
TSR, TWR and TWRCO are hereinafter collectively referred to as "Westbrook," and
Shidler and Hamlin are hereinafter collectively referred to as "S&H."
Westbrook and S&H, or entities affiliated with one or more of them, have
this date conveyed their general and limited partnership interests in South
Brunswick Investors, L.P. ("SBILP") to FCO, L.P., a newly formed Delaware
limited partnership ("FCLP"). As consideration for the transfer of the SBILP
partnership interests conveyed by Westbrook, Westbrook has received an aggregate
of approximately 372,794 common units of partnership interest in FCLP ("Common
Units") and approximately 245,714 preferred units of partnership interest in
FCLP ("Preferred Units"). The Common Units and the Preferred Units are
collectively referred to herein as the "Units."
FCLP is expected, although there can be no assurance or guarantee, to pay
quarterly distributions in the nature of dividends to the holders of its Common
Units and Preferred Units ("Dividends"). The aggregate Dividends expected to be
paid to Westbrook with respect To the Units is in the amounts and on the dates
as set forth on Exhibit A hereto. Such Dividends are hereinafter referred to
collectively as the "Westbrook Dividends," and individually as a "Westbrook
Dividend."
S&H have agreed with Westbrook that S&H will, at Westbrook's sole option,
purchase the Units from Westbrook under certain circumstances.
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Option and Obligation. Westbrook shall have the Option to sell to S&H
all, but not less than all, the Units. in accordance with the terms and
conditions set forth in this Agreement (the "Option"). The obligation of S&H to
purchase the Units upon exercise of the Option shall be the joint and several
obligation of each of Shidler and Hamlin. The total purchase price payable for
the Units upon exercise of the Option is $3,481,579 (the "Purchase Price").
2. Exercise of Option. The Option may be exercised by Westbrook either: (i)
within ten (10) business days after the date on which FCLP fails to make a
Dividend payment to Westbrook as set forth on Exhibit A attached hereto, or (ii)
at any time between October 15 , 1999 and December 15, 1999. If not exercised,
the Option shall expire at the close of business on December 15, 1999, and this
Agreement shall be of no further force and effect from and after such date.
3. Method of Exercise. To exercise the Option, Westbrook shall give notice
to each of Shidler and Hamlin of its election to do so (the "Notice") within the
times described in Section 2 above. The Notice shall be in writing, shall be
signed by an authorized person from each of TSH, TWR and TWRCO, and either (i)
personally delivered (with receipt acknowledged), or (ii) sent by registered or
certified mail, return receipt requested, postage prepaid, addressed to Shidler
at The Shidler Group, 810 Richards Street, Suite
<PAGE>
-2-
1000, Honolulu, Hawaii, and to Hamlin at The Shidler Group, Suite 1105, One
Logan Square, Philadelphia, Pennsylvania, 19103. The Notice shall be deemed
given when received by each of Shidler and Hamlin.
4. Closing. Closing on the exercise of the Option (the "Closing") shall be
at such address, on such date no more than sixty (60) days after the date on
which Notice is given and at such time during normal business hours as shall be
designated by S&H pursuant to a written notification to be sent by S&H via
personal delivery (with receipt acknowledged), or by registered or certified
mail, return receipt requested, postage prepaid to Patrick Fox, Westbrook
Partners, LLC, 13155 Noel Road-LB 54, Suite 2300, Dallas, Texas 75240.
5. Deliveries and Payment at Closing. At Closing,
(a) S&H shall pay the Purchase Price (allocated among TSE, TWR and TWRCO as
they shall jointly direct in the Notice) in full in cash, by bank check or by
wire transfer;
(b) Westbrook shall deliver to S&H certificates evidencing the Units, duly
endorsed for transfer, or, if the Units are not certificated, an such
assignments, consents and other instruments or documents as may be necessary to
convey unencumbered title to the Units to S&H. The Units purchased by S&H shall
be allocated between them in such manner as they shall direct in the
notification of Closing delivered pursuant to Section 4 above.
(c) Each of TSB, TWR and TWRCO shall deliver to S&H such certificates or
other documents as S&H shall reasonably require, to evidence the due
authorization of TSB, TWR and TWRCO to transfer the Units; and
(d) Westbrook shall deliver or cause to be delivered to S&H an opinion of
counsel addressed to S&H to the effect that the transfer of the Units by
Westbrook (i) has been duly authorized by each of TSB, TWR and TWRCO and (ii) is
exempt from the registration requirements of the Securities Act of 1933, as
amended, and the securities laws of the states, or that appropriate
registration(s) under such laws has/have been effected.
6. Assignment and Binding Effect. This Agreement may not be assigned
Westbrook without the written consent of both Shidler and Hamlin, except that it
may be assigned to an affiliate of Westbrook to the same extent as such
affiliate is the assignee of Units. This Agreement may be not be assigned by
either Shidler or Hamlin without the written consent of each of TSB, TWR and
TWRCO. The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective personal representatives
heirs, successors and permitted assigns.
7. Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by, and shall be construed and enforced in
accordance with, the internal laws 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 substantial relationship to the underlying transactions
related to this agreement and to the parties involved.
<PAGE>
-3-
8. Consent to Jurisdiction and Service of Process.
All judicial proceedings brought against the parties arising out of or
relating to this Agreement 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 party 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 set forth in that certain Agreement
of Limited Partnership of South Brunswick Land , L.P. dated of even date;
and
(iv) agrees that service as provided in clause (iii) above is
sufficient to confer personal jurisdiction over such party in any such
proceeding in any such court, and otherwise constitutes effective and
binding service in every respect.
9. Counterparts. This Agreement may be executed by facsimile signatures and
in any number of counterparts, all of which, when taken together, shall
constitute one and the same instrument.
10. Further Assurance. It is understood that Westbrook is looking to its
counsel, Cadwalader, Wickersham & Taft ("CWT"), to opine to Westbrook that the
obligations of S&H hereunder are enforceable under the laws of New York State.
CWT shall complete its review of this Agreement promptly after the date hereof.
It is S&H's intention that their obligations hereunder be enforceable, and S&H
agree to make such amendments to this Agreement as may be reasonably necessary,
in the legal opinion of CWT, to render S&H's obligations hereunder enforceable
under the laws of New York State.
<PAGE>
-4-
IN WITNESS WHEREOF, intending to be legally bound, the undersigned have
executed this Agreement as of the day and date first above written.
------------------------------------
Jay H. Shidler
------------------------------------
Clay W. Hamlin, III
TIGER SOUTH BRUNSWICK, L. L.C., a Delaware
limited liability company, by its managing
members Westbrook Real Estate Fund I. L.P., a
Delaware limited partnership, and Westbrook Real
Estate Co-Investment Partnership I, L.P., a
Delaware limited partnership, by their general
partner Westbrook Real Estate Partners
Management, L.L.C., by its sole managing member
Westbrook Real Estate Partners, L.L.C.
By:
------------------------------------
TIGER/WESTBROOK REAL ESTATE FUND I, L.P., a
Delaware limited partnership, by its general
partner Westbrook Real Esstate Partners
Management I, L.L.C., by its sole managing member
Westbrook Real Estate Partners, L.L.C.
By:
------------------------------------
TIGER/WESTBROOK REAL ESTATE CO-INVESTMENT
PARTNERSHIP I, L.P., a Delaware limited
partnership. by its general partner Westbrook
Real Estate Partners Management I, L.L.C., by its
sole managing member Westbrook Real Estate
Partners, L.L.C.
By:
------------------------------------
<PAGE>
EXHIBIT A
SCHEDULED DIVIDENDS
Dividend on 245,714 Dividend an 372,294
Preferred Units Common Units
Quarter Ending @ 1.625 Annual Rate @ $.50 Annual Rate
-------------- ------------------- ------------------
12/31/971 $85,716 $46,536
3/31/98 99,821 46,536
6/30/98 99,821 46,536
9/20/98 99,821 46,536
12/31/98 99,821 46,536
3/31/99 99,821 46,536
6/30/99 99,821 46,536
9/30/99 99,821 46,536
- ----------
1 12/31/97 Dividend on Preferred Units assumes a closing of 10/14/97 and a
proration of the dividend for 79 days over a 92-day period.
<PAGE>
To: Tiger South Btunswick, L.L.C.
tiger/Westbrook Real Estate Fund, L.P.
Tiger/Westhrook Real Estate Co-Investment Partnership, L.P.
The above are collectively referred to as the "TW Parties".
The undersigned Royale Investments, Inc., a Minnesota corporation
("Royale") and FCO, L.P., a Delaware limited partnership ("FCO"), hereby confirm
that neither Royale nor FCO shall have any claim against any of the TW Parties
on account of a breach or misrepresentation by South Brunswick Investment
Company, LLC, a New Jersey limited partnership ("SBIC") of any representation or
warranty made by SBIC in Section 10 of that certain Formation/Contribution
Agreement dated as of September 7, 1997 by and among SBIC, Royale and others
(the "Formation Agreement").
Royale and FCO hereby release each of the TW Parties from and against any
claims either or both Royale and FCO may have on account of any breach or
misrepresentation of any representation or warranty made by SBIC in Section 10
of the Formation Agreement.
For good and valuable consideration, the receipt of which is hereby
acknowledged, Royale and FCO have executed this letter agreement this 14th day
of October, 1997.
ROYALE INVESTNMENTS, INC.
By:
------------------------------------
FCO, L.P.
By: Royale Investments, Inc., its
General Partner
By:
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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:
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(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-
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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-
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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
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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
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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
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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-
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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-
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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
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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-
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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-
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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
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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
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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-
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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.
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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
ASSIGNMENT
THIS ASSIGNMENT ("Assignment") dated as of the 14th day of October, 1997 by
TIGER SOUTH BRUNSWICK, L.L.C., WESTBROOK REAL ESTATE FUND I, L.P., AND WESTBROOK
REAL ESTATE CO-INVESTMENT PARTNERSHIP I, L.P. (collectively, the "Assignors")
for the benefit of Jay H. Shidler ("Shidler") and Clay W. Hamlin, III
("Hamlin").
Background
On the date hereof, the Assignors are assigning to Royale Investments, Inc.
("Royale") certain limited partnership interests in South Brunswick Investors,
L.P., a Delaware limited partnership. In consideration for such assignment of
limited partnership interests, Royale has agreed to issue and deliver to the
Assignors 147,818 shares of Royale common stock (the "Shares").
In connection with a separate transaction. the Assignors have agreed to
deliver the Shares to Shidler and Hamlin.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Assignors hereby assign:
(i) to Shidler, all interest in and to, and the right to receive, directly
from Royale, fifty percent (50%) of the Shares; and
(ii) to Hamlin, all interest in and to, and the right to receive, directly
from Royale, fifty percent (50%) of the Shares.
Assignors agree that they shall direct Royale to issue the Shares as set
forth above.
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IN WITNESS WHEREOF, the Assignors have executed this Assignment as of the
date first set forth above.
TIGER SOUTH BRUNSWICK, L.L.C., a Delaware limited
liability company, by its managing members
Westbrook Real Estate Fund I, L.P., a Delaware
limited partnership, and Westbrook Real Estate
Co-Investment Partnership I, L.P., a Delaware
limited partnership, by their general partner,
Westbrook Real Estate Partners Management I,
L.L.C., by its sole managing member Westbrook
Real Estate Partners, L.L.C.
By:
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Print Name:
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WESTBROOK REAL ESTATE FUND I, L.P., a Delaware
limited partnership, and WESTBROOK REAL ESTATE
CO-INVESTMENT PARTNERSHIP I, L.P., a Delaware
limited partnership, by their general partner
Westbrook Real Estate Partners Management I,
L.L.C., by its sole managing member Westbrook
Real Estate Partners, L.L.C.
By:
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Print Name:
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<PAGE>
October ___, 1997
Royale Investments Inc,
3430 List Place
Minneapolis, MN 55416
Ladies and Gentlemen:
On this date, the undersigned are transferring to Royale Investments Inc.
("Royale") certain limited Partnership interests in Blue Bell Investment
Company, L.P., South Brunswick, L.P., Comcourt. Investors, L.P., and 6385 Flank
Drive L.P. (collectively, "Assignors"), as more particularly set forth in those
certain Assignments of Partnership Interests dated the date hereof and being
delivered to Royale together with this letter. As consideration for the
assignment of the interests, Royale has agreed to issue to the Assignors 600,000
shares of Royale common stock (the "Stock"). This letter shall constitute
instructions to Royale from the undersigned that the stock should be issued in
the form of two certificates for 300,000 shares each, in the names of Jay H.
Shidler and Clay W. Hamlin, III respectively. This letter may be signed in one
or more counterparts and facsimile signatures shall be acceptable for purposes
of this letter.
Very truly yours.
STRATEGIC FACILITY INVESTORS, INC.
By:
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Clay W. Hamlin, III
COMCOURT INVESTMENT CORPORATION
By:
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Clay W. Hamlin, III
GATEWAY SHANNON
DEVELOPMENT CORPORATION
By:
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Clay W. Hamlin, III
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Clay W. Hamlin, III
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Jay H. Shidler, by his attorney-in-fact
By:
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Clay W. Hamlin, III
TIGER SOUTH BRUNSWICK, L.L.C., a Delaware
limited liability company, by its managing
members Westbrook Real Estate Fund I, L.P., a
Delaware limited partnership, and Westbrook
Real Estate Co-Investment Partnership I,
L.P., a Delaware limited partnership, by
their general partner Westbrook Real Estate
Partners Management I, L.L.C., by its sole
managing member Westbrook Real Estate
Partners, L.L.C.
By:
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Print Name:
Print Title:
WESTBROOK REAL ESTATE FUND I, L.P., a
Delaware limited partnership, and WESTBROOK
REAL ESTATE CO-INVESTMENT PARTNERSHIP, L.P.,
a Delaware limited partnership, by their
general partner Westbrook Real Estate
Partners Management I. L.L.C., by its sole
managing member Westbrook Real Estate
Partners, L.L.C.
By.
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Print Name:
Print Title:
